Repacking without labeling or retail-pack conversion is not manufacture under Chapter 28, defeating excise duty and penalty.

R acking mercury from bulk packs into smaller containers, without labeling or relabeling, did not satisfy the statutory test of manufacture under Note 10 of Chapter 28. The applicable principle required repacking from bulk packs to retail packs, or another treatment that made the product directly marketable to the consumer; mere packing for marketing was insufficient. On the facts, there was no evidence of labeling, relabeling, or conversion into retail packs, so the activity was not manufacture and no excise duty could be levied. The demand and penalty were therefore unsustainable, and the assessee's appeal succeeded.

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Issues: Whether repacking of mercury from bulk packs to smaller containers, without any labeling or relabeling, amounted to manufacture under Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985, and whether the resulting demand and penalty could survive.

Analysis: Note 10 of Chapter 28 treats labeling or relabeling of containers and repacking from bulk packs to retail packs, or any other treatment rendering the product marketable to the consumer, as manufacture. The Court applied the settled interpretation that mere packing for marketing is insufficient unless the repacking is from bulk packs to retail packs so as to render the product directly marketable to the consumer. On the facts, the goods were received in bulk packs and cleared in smaller packs, but there was no charge or evidence of labeling or relabeling. The activity, therefore, did not satisfy the statutory test of manufacture. The reliance on the earlier decisions confirming that mere repacking without the requisite labeling or retail-pack conversion does not constitute manufacture supported the assessee's case.

Conclusion: Repacking, without labeling or relabeling and without satisfying the statutory conditions of manufacture, did not attract duty. The demand and penalty were unsustainable and the appeal succeeded in favour of the assessee.

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