Tribunal: Masking & testing cigarettes not "manufacture" under Central Excise Act.

The Tribunal held that the process of masking, repacking, and testing competitor's cigarettes by the appellant did not amount to "manufacture" under the Central Excise Act, 1944. The activities undertaken were for testing purposes and did not change the essential nature of the product. The Tribunal also determined that the actions did not meet the criteria for deemed manufacture under Chapter 24 of the Central Excise Tariff Act, 1985, as they were not for marketability. As a result, the duty demands on the appellant were dismissed, and the appeal was allowed in favor of the appellant.

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Issues:
Interpretation of the term "manufacture" under Section 2(f) of the Central Excise Act, 1944 in relation to competitor's cigarettes procured for testing purposes. Application of deeming fiction under Chapter 24 of the Central Excise Tariff Act, 1985 to determine if the process undertaken constitutes "manufacture" for levy of Central Excise duty.

Analysis:
The appellant, engaged in manufacturing and selling cigarettes, purchased competitor's duty paid cigarettes from the market for testing. The purchased cigarettes were masked, repacked with only a code number, and then tested by a panel of smokers without paying duty. The department alleged that this activity amounted to manufacture under Section 2(f) of the Central Excise Act, 1944 and Note 3 to Chapter 24 of the CETA, 1985. A show cause notice was issued demanding duty payment for the period 2004-05 to 2008-09. The original order confirmed the duty demand and imposed a penalty, upheld by the Commissioner (Appeals) in the impugned order.

The appellant argued that the process on competitor's cigarettes did not constitute manufacture, as there was no change in name, character, or use of the cigarettes. The Tribunal analyzed the definition of "manufacture" under Section 2(f) and observed that the process undertaken did not alter the product's essential nature. The activity of masking and repacking did not amount to manufacturing as defined under the statute.

Regarding the deeming fiction under Chapter 24, the Tribunal noted that activities like labeling, relabeling, or repacking for marketability constitute manufacture. However, in this case, the appellant's actions were solely for testing purposes and not for marketing new cigarettes. The process of repacking from one retail pack to another before coding did not meet the criteria of marketability as per Note 3 to Chapter 24. Therefore, the Tribunal concluded that the requirements for deemed manufacture were not fulfilled, and Central Excise duty could not be levied on the disputed goods.

Consequently, the Tribunal found no merit in the impugned order confirming the duty demands on the appellant. The appeal was allowed in favor of the appellant, setting aside the impugned order.

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