2021 (10) TMI 933 - AT - Central Excise

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

GODFREY PHILLIPS INDIA LTD. Versus COMMISSIONER OF C. EX., MUMBAI-I

The Tribunal held that the process of masking, repacking, and testing competitor's cigarettes by the appellant did not amount to 'manufacture' under the ... Process amounting to manufacture or not - duty paid cigarettes - affixing brand name, repacked in new pack - non-payment of duty on removal of competitor’s cigarettes - period from 2004-05 to 2008-09 - HELD THAT:- The term “manufacture” has been defined under Section 2(f) inter alia, to include any process, incidental or ancillary to the completion of a manufactured product. In this case, the competitor’s cigarettes procured by the appellant were masked, covering the manufacturer’s brand name, repacked in new pack by putting only a code number for testing purpose to select panel of the smokers. The product emerged after carrying out the activity of masking, putting code number etc. for identification, remained cigarettes only, which were procured by the appellant on payment of appropriate Central Excise duty. Since, there was no change in the name, character and use of the originally bought-out cigarettes, in our view, the process undertaken by the appellant in its factory will not be considered as a manufacturing activity, in order to fall under the scope and ambit of the definition of “manufacture”, defined under Section 2(f) ibid. In the case in hand, it is an admitted fact on record that excepting the process of masking and putting code number, the appellant had not undertaken any other activity to render the resultant product marketable. Thus, it cannot be said that there was involvement of labeling or relabeling of containers. The appellant in this case, had repacked the bought-out cigarettes from one retail pack to another retail pack before it was coded. Such activity also will not be covered under the purview of Chapter Note 3 (supra) inasmuch as there was no repacking from bulk pack to retail pack. The basic test of marketability envisaged in Note 3 (supra) has not been satisfied - the requirements of deemed manufacture as per Note 3 to Chapter 24 are not satisfied in this case, for levy of Central Excise duty on the disputed goods. There are no merits in the impugned order in support of confirmation of the adjudged demands on the appellant - appeal allowed - decided in favor of appellant. 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.