Repacking and relabelling as manufacture defeats Rule 3(5) reversal and blocks extended limitation where suppression is absent.

Repacking imported chemicals from bulk packs into smaller packs and relabelling them was treated as manufacture under Chapter Note 10 to Chapter 29 and section 2(f)(iii), so the goods were not removed as such and Rule 3(5) of the Cenvat Credit Rules, 2004 could not be invoked. The extended period of limitation was also unsustainable because the assessee had filed returns, the issue had arisen earlier, and the record showed no suppression or mala fide intent; the dispute was revenue neutral. The demand and confirmation order were set aside, and relief was granted to the assessee on merits and limitation.

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Issues: (i) Whether repacking of imported chemicals from bulk packs into smaller packs and relabelling thereof amounted to manufacture or was merely a trading activity so as to attract Rule 3(5) of the Cenvat Credit Rules, 2004; (ii) Whether the extended period of limitation was rightly invoked.

Issue (i): Whether repacking of imported chemicals from bulk packs into smaller packs and relabelling thereof amounted to manufacture or was merely a trading activity so as to attract Rule 3(5) of the Cenvat Credit Rules, 2004.

Analysis: Chapter Note 10 to Chapter 29 of the Central Excise Tariff Act, 1985 treats labelling or relabelling of containers and repacking from bulk packs to retail packs as manufacture. Section 2(f)(iii) of the Central Excise Act, 1944 also brings packing, reconditioning, and relabelling within the ambit of manufacture. On the facts, the imported chemicals were repacked into smaller packs and relabelled before clearance on payment of duty, so the goods were not removed as such. Rule 3(5) of the Cenvat Credit Rules, 2004 applies only when inputs on which credit has been taken are removed as such.

Conclusion: The activity amounted to manufacture and Rule 3(5) was inapplicable, in favour of the assessee.

Issue (ii): Whether the extended period of limitation was rightly invoked.

Analysis: The assessee had been filing returns and the dispute had also arisen for earlier periods. The record did not disclose suppression or mala fide intent to evade duty. The dispute was also revenue neutral, as substantial credit had been used for payment of duty on final products and part of the amount had already been reversed. In these circumstances, the extended period could not be sustained.

Conclusion: The extended period was wrongly invoked, in favour of the assessee.

Final Conclusion: The demand and confirmation order were set aside and the appeal succeeded on merits as well as on limitation.

Ratio Decidendi: Where repacking and relabelling of imported goods is statutorily treated as manufacture, the goods are not removed as such and Rule 3(5) of the Cenvat Credit Rules, 2004 cannot be invoked; in the absence of suppression and in a revenue-neutral situation, the extended period of limitation is not available.

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