2002 (9) TMI 200 - AT - Central Excise

Painting names on chemical drums is identification, not labelling under tariff manufacturing provisions

The Tribunal held that painting consignor and consignee names on drums containing textile chemicals does not constitute 'labelling' under tariff notes ... Labelling - Manufacture The core legal questions considered by the Tribunal pertain to the interpretation of specific notes appended to Chapters 34, 35, and 38 of the Tariff, which define certain activities-labelling, relabelling, repacking from bulk packs to retail packs, or any other treatment to render the product marketable to the consumer-as amounting to 'manufacture' for the purposes of levy of duty. The principal issues are:(a) Whether the appellant's activity of painting or printing the consignor's and consignee's names on drums containing textile chemicals amounts to labelling as contemplated in the notes.(b) Whether such labelling or related activities render the product marketable to the consumer, thereby attracting the deeming provisions of manufacture.(c) The applicability and scope of the term 'manufacture' under the notes, including whether the activity falls within 'any other treatment' mentioned therein.(d) The adequacy and correctness of the show cause notice and the impugned order in specifying the nature of the alleged manufacture, particularly with reference to repacking.Issue-wise Detailed Analysis:1. Whether painting consignor and consignee names on drums amounts to labelling:The Tribunal examined the textual content of the notes, which uniformly state that labelling or relabelling of containers, repacking from bulk to retail packs, or any other treatment to render the product marketable shall amount to manufacture. The appellant's activity involved affixing their trade name and consignor/consignee details on drums containing textile chemicals.The appellant contended that merely printing or painting names and addresses on the drums does not constitute labelling in the sense of imparting information about the nature, technical characteristics, or contents of the product. They argued that such inscriptions are not labelling as generally understood and do not amount to manufacture under the notes.The departmental representative argued that placing the consignor's name on the goods identifies the product in the market and thus amounts to labelling, citing precedents from various High Courts.The Tribunal referred to authoritative definitions from Black's Law Dictionary, which define a label as a slip or marking attached to goods that provides a short description of their character, directions for use, or other facts relevant to the purchaser. It emphasized that a label is intended to indicate the nature, ownership, character, quality, or extent of the article, not merely to identify consignor or consignee.The Tribunal reasoned that mere inscription of consignor and consignee names does not amount to labelling as commonly understood. It analogized that if such inscriptions were labelling, then addressing a letter with sender and recipient names would also be labelling, which is contrary to normal usage. Labelling requires furnishing information about the product's nature, contents, or price, which was absent here.Applying principles of strict interpretation to deeming provisions, the Tribunal concluded that the appellant had not engaged in labelling within the meaning of the notes.2. Whether the activity must render the product marketable to attract the deeming provision of manufacture:The appellant argued that the activity must render the product marketable to constitute manufacture under the notes. They contended that the product was marketable even before the names were painted on the drums, and that subsequent to departmental objections, they ceased the practice but continued sales.The Tribunal rejected this contention, holding that the plain reading of the notes does not require the activity to confer marketability on the product. It noted that labelling, relabelling, or repacking may not necessarily enhance marketability but are nonetheless specified as manufacturing processes. The Tribunal distinguished between products like cosmetics or pharmaceuticals, where packaging and labelling may add market value, and industrial chemicals, where such packaging changes do not alter the consumer class or marketability.The Tribunal concluded that the notes do not condition the deeming of manufacture on the activity rendering the product marketable.3. Applicability of 'any other treatment' in the notes and scope of manufacture:The Commissioner had found the appellant's processes to amount to manufacture because they constituted labelling. The Tribunal declined to consider whether the activity could be covered under 'any other treatment' since it had already held that labelling was not involved.4. Treatment of relevant precedents:The Tribunal examined the judgments cited by the departmental representative:The Calcutta High Court's decision in the case of labelling vaccines as manufacture was found inapplicable, as it related to labelling incidental to manufacture of medicines, which was not the case here.The Madras High Court's decision in BHEL Ancillary Association, where stencilling on components was held to amount to taxing brand name, was noted. However, this decision was reversed on appeal, weakening the departmental reliance on it.The S.N. Mohideen case, which held that affixing labels on wrappers of biris attracted manufacture provisions, was found irrelevant since the Tribunal had held no labelling occurred here.5. Adequacy of show cause notice and impugned order regarding repacking:In a concurring opinion, it was noted that the show cause notice was silent about repacking, which is a distinct activity mentioned in the notes. Since the impugned order relied on repacking as part of manufacture, the absence of such allegation in the notice rendered the order unsustainable. The requirement that all ingredients of manufacture must be clearly set out in the show cause notice was emphasized, and failure to do so vitiated the demand of duty.Significant Holdings:'Mere putting of the name and address on the container of the goods of the consignee and consignor does not in our opinion, amount to labelling as it is generally understood and therefore as to be denoted by the notes in question.''It would be appropriate to say that labelling requires furnishing information as to the nature of the product, its contents, its price etc.''By doing so, we are unable to find that the appellant had labelled the products in question.''There is no warrant in this proposition on a plain reading of the note [that labelling must render the product marketable].''Among the activities specified in the note, labelling, relabelling, repacking from bulk pack etc. may not confer on the products under consideration any attribute of marketability that it did not possess.''If the activity of the manufacture as reflected in the show cause notice is silent about packing or repacking, the impugned order is wrong in law.'The Tribunal established the principle that the deeming provisions in tariff notes must be strictly construed according to the ordinary meaning of the terms used. Mere inscription of consignor or consignee names without imparting information about the product's nature or contents does not constitute labelling. Furthermore, the activity need not render the product marketable to be considered manufacture under the notes. However, the procedural requirement that the show cause notice must specify the precise nature of the alleged manufacture, including repacking if relied upon, is mandatory.Accordingly, the Tribunal allowed the appeal, set aside the impugned order demanding duty and penalty, and held that the appellant's activities did not amount to manufacture within the meaning of the tariff notes.