2007 (12) TMI 66 - AT - Central Excise

Tribunal rules in favor of appellants regarding Cenvat credit for combined products

The Tribunal ruled in favor of the appellants, holding that the packing of butter scotch with coffee bite constituted a manufacturing process under ... Manufacture including packing or labelling under Section 2(f)(iii) of the Central Excise Act - eligibility for Cenvat credit on boughtout component in a combination pack - combination pack treated as a manufactured product - valuation on MRP of the combination pack - penalty for wrongful availment of Cenvat creditManufacture including packing or labelling under Section 2(f)(iii) of the Central Excise Act - eligibility for Cenvat credit on boughtout component in a combination pack - combination pack treated as a manufactured product - Packing a boughtout item (butter scotch) together with a manufactured product (coffee bite) and selling both as a combination pack with MRP marked on the pack amounts to manufacture under Section 2(f)(iii), and the assessee is entitled to Cenvat credit of duty paid on the boughtout item. - HELD THAT: - The Tribunal found that the coffee bite (manufactured) and the boughtout butter scotch were packed together and cleared on payment of duty assessed on the MRP declared on the combination pack. Goods falling under the Third Schedule attract the extended definition of 'manufacture' in clause (iii) of Section 2(f), which expressly includes packing or labelling in a unit container and declaration of retail sale price as activities that amount to manufacture. Applying this legal principle, the process of packing the two items into a marketed combipack was held to be manufacture of the combination product. Since the assessee paid duty on the combination pack and the valuation adopted was not disputed, the credit of duty paid on the boughtout butter scotch was properly availed. The Tribunal noted consistency of this view with the ratio in Gupta Soaps relied upon by the assessee and concluded that the recovery of the credit and imposition of penalty in the impugned order were unsustainable. [Paras 5]Impugned order set aside; assessee entitled to Cenvat credit on butter scotch when cleared as part of the combination pack, appeal allowed.Final Conclusion: The impugned demand and penalty were quashed; the appeal is allowed and the stay petition disposed of. Issues:Interpretation of the term 'manufacture' under Section 2(f) of the Central Excise Act, 1944 in relation to goods packed together for sale.Analysis:The case involved the appellants purchasing sugar confectionary, specifically 'butter scotch,' and availing Cenvat credit on the goods. The butter scotch was packed inside another product, 'coffee bite,' and given away free with it. The authorities contended that no manufacturing process was involved in selling the products together, leading to the denial of Cenvat credit on the butter scotch and imposition of a demand, interest, and penalty.The appellants argued that the packing of butter scotch with coffee bite constituted a manufacturing process under Section 2(f) of the Central Excise Act, 1944. They relied on the provision that includes packing or repacking of goods in a unit container as part of the manufacturing process. The goods were classified under different headings in the Central Excise Tariff Act, falling under the Third Schedule.The Tribunal analyzed the situation and determined that the combination pack of coffee bite and butter scotch constituted a manufactured product. Referring to the notes in Section 2(f)(iii) of the Central Excise Act, it was established that the appellants were eligible for the Cenvat credit on the butter scotch. The Tribunal's decision was supported by a previous case law, Gupta Soaps, which upheld the availability of credit on goods sold in combination packs.Consequently, the Tribunal set aside the impugned order that sought to recover the credit availed on the butter scotch and penalize the assessee. The appeal was allowed in favor of the appellants, affirming their right to the Cenvat credit on the butter scotch packed with the coffee bite. The stay petition filed by the appellants was also disposed of in light of the decision.