2017 (8) TMI 1048 - HC - Central Excise

Court rules labeling imported retail biscuit packets not 'manufacture' under Central Excise Act. Extended limitation not justified.

M/s. K & I Distribution Services Pvt. Ltd. Versus Additional Commissioner (R&T), Joint Commissioner of Central Excise

The court ruled in favor of the petitioner, holding that the process of labeling imported retail biscuit packets did not amount to 'manufacture' under the ... Deemed manufacture - Valuation - whether the petitioner, who had labelled the retail packs of biscuits for the purpose of complying the statutory obligation under the Standards of Weights and Measures Act, 1976, and under the Prevention of Food Adulteration Act, is said to have undertaken the process of manufacture and if so, whether the petitioner should have registered themselves with the respondent department and whether they are liable to pay the Central Excise Duty? - Held that: - similar issue decided in the case of GERMAN REMEDIES LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV [2003 (5) TMI 180 - CEGAT, NEW DELHI], where it was held that affixing the sticker indicating the name of the importer and MRP as per the requirement under the Standard of Weights and Measures Act does not amount to labeling/re-labeling and does not amount manufacture in terms of Note 4 of Chapter 33 of the Tariff. Further, it was held that pasting of sticker on the imported product to indicate the name of the importer and MRP which is the requirement under the Standards of Weights and Measures Act would not attract the Chapter Note - decided in favor of petitioner. Whether the respondent is justified in invoking the extended period of limitation? - Section 11A of the Act - Held that: - there is no specific allegation of fraud made out by the second respondent at the time of issuance of the show cause notice. The allegation is that non-intimation of activities to the department, which according to the respondent, amounts to suppression. However, to invoke the extended period of limitation, something more is required to be on record and the statute mandates the same which has been explained in the aforementioned decisions. Thus, it is a clear case where the extended period of limitation could not have been invoked under the facts and circumstances of the case - decided in favor of petitioner. Petition allowed - decided in favor of petitioner. Issues Involved:1. Whether the process of labeling imported retail biscuit packets amounts to manufacture.2. Whether the respondent is justified in invoking the extended period of limitation.Issue-wise Detailed Analysis:1. Whether the process of labeling imported retail biscuit packets amounts to manufacture:The petitioner, engaged in importing and marketing biscuits, challenged the demand for central excise duty, interest, and penalties imposed by the second respondent. The core issue was whether labeling the retail packs of biscuits to comply with statutory obligations under the Standards of Weights and Measures Act, 1976, and the Prevention of Food Adulteration Act constituted 'manufacture' under the Central Excise Act, 1944.The respondent argued that labeling or relabeling of containers and repacking from bulk to retail packs, as per Note 3, Chapter 19 of the Central Excise Tariff Act, 1985, amounted to manufacture. The petitioner countered that their labeling did not constitute manufacture and that they did not engage in repacking or relabeling, thus the demand was unsustainable.The court referred to the Supreme Court's decision in CCE, Mumbai Vs. Johnson and Johnson Limited, which held that affixing stickers with information such as names and addresses of importers, maximum retail price, and net weight does not amount to manufacture. Additionally, the court cited the Supreme Court's principles in Servo-Med Industries Private Limited v. Commissioner of Central Excise, Mumbai, which categorized processes that do not constitute manufacture, including those where goods remain essentially the same after a process.The CESTAT's decision in German Remedies Limited v. Commissioner of Central Excise, affirmed by the Supreme Court, also supported the petitioner's stance, holding that affixing stickers as required under the Standards of Weights and Measures Act did not amount to manufacture. Consequently, the court concluded that the labeling process did not constitute manufacture, ruling in favor of the petitioner.2. Whether the respondent is justified in invoking the extended period of limitation:Despite the ruling on the first issue, the court addressed the second issue due to the extensive arguments presented. Section 11A of the Central Excise Act deals with the recovery of duties not levied or paid, with the standard period of limitation being one year, extendable to five years in cases involving fraud, collusion, willful misstatement, suppression of facts, or contravention of the Act with intent to evade duty.The court cited the Supreme Court's decisions in Commissioner of Central Excise, Chandigarh Vs. Punjab Laminates (P) Ltd. and Larsen & Toubro Ltd. Vs. Commissioner of Central Excise, Pune II, which emphasized that allegations of suppression must be clear and explicit, enabling the noticee to respond effectively. The court also referenced the Supreme Court's ruling in Commissioner of Central Excise Vs. Supreme Industries Limited, which held that specific allegations of intent to evade duty are necessary for invoking Section 11AC penalties.In this case, the respondent's show cause notice lacked specific allegations of fraud or willful misstatement. The allegation was limited to non-intimation of activities, which the respondent deemed suppression. However, the court found that invoking the extended period of limitation required more substantial evidence, as mandated by the statute and explained in the cited decisions.Thus, the court concluded that the extended period of limitation could not be invoked under the given facts and circumstances, ruling in favor of the petitioner on the second issue as well.Conclusion:The writ petition was allowed, and the impugned order was quashed, with no costs. The connected miscellaneous petition was also closed.