Manufacture and classification limits: relabelling ink containers did not create a new product, and unalleged duty classification could not be added later.
Refilling ink into containers and relabelling them did not amount to manufacture because the ink retained its identity, character and end use, and no statutory deeming provision applied. A classification not alleged in the show cause notice could not be introduced at adjudication to sustain duty. Where goods were cleared on payment of duty, CVD credit could not be denied merely because the activity was held not to be manufacture. The extended limitation period was unavailable because the assessee disclosed the activity in returns and suppression was not shown. Penalty failed with the underlying demand.
Issues: (i) Whether refilling ink into containers and relabelling the containers amounted to manufacture; (ii) whether the adjudicating authority could alter the classification of the goods without such classification being alleged in the show cause notice; (iii) whether CVD credit could be denied where the goods were cleared on payment of duty even though the activity was held not to be manufacture; (iv) whether the extended period of limitation was invokable; and (v) whether penalty was sustainable.
Issue (i): Whether refilling ink into containers and relabelling the containers amounted to manufacture
Analysis: Manufacture under Section 2(f) of the Central Excise Act, 1944 requires emergence of a new and different commercial commodity or a process deemed to be manufacture by the statute or chapter notes. The ink retained its identity, character and end use after being transferred from bulk drums into containers. The containers were only filled and labelled, and no new product came into existence. Chapter Note 7 to Chapter 32 of the Central Excise Tariff Act, 1985 did not cover the goods in question, and therefore no deeming manufacture applied.
Conclusion: The activity did not amount to manufacture and the finding was in favour of the assessee.
Issue (ii): Whether the adjudicating authority could alter the classification of the goods without such classification being alleged in the show cause notice
Analysis: The show cause notice did not propose the classification later adopted in adjudication. Classification was introduced for the first time during adjudication, beyond the scope of the notice. The notice is the foundation of the case, and an adjudicating authority cannot travel beyond its allegations to sustain demand on a new classification.
Conclusion: The revised classification was unsustainable and the issue was decided in favour of the assessee.
Issue (iii): Whether CVD credit could be denied where the goods were cleared on payment of duty even though the activity was held not to be manufacture
Analysis: Although the activity was held not to be manufacture, the goods were cleared on payment of duty. In such a situation, the duty paid is treated as reversal of credit and the assessee is not required to reverse the CVD credit already availed on import.
Conclusion: Denial of CVD credit was not justified and the issue was decided in favour of the assessee.
Issue (iv): Whether the extended period of limitation was invokable
Analysis: The assessee had disclosed the nature of its activity in the excise returns, including its stand that relabelling or packing did not amount to manufacture. The department was therefore aware of the material facts, and suppression or wilful misstatement was not established.
Conclusion: The extended period of limitation was not invokable and the issue was decided in favour of the assessee.
Issue (v): Whether penalty was sustainable
Analysis: Once the demand itself was unsustainable and the assessee succeeded on the core issues, the foundation for penalty ceased to exist.
Conclusion: Penalty was not sustainable and the issue was decided in favour of the assessee.
Final Conclusion: The duty demand, denial of credit, limitation objection and penalty all failed, and the appeals were allowed with consequential relief.
Ratio Decidendi: Refilling and relabelling that do not bring about a new and distinct product with a different identity, character or use do not constitute manufacture unless a specific statutory deeming provision applies; a classification not alleged in the show cause notice cannot be introduced in adjudication to sustain duty.