Testing, repairing, repacking and labelling imported modems with brand name constitutes manufacture under Section 2(f)(iii)

CESTAT Bangalore held that activities of testing, repairing, repacking, and labelling imported modems with appellant's brand name at trading premises constituted manufacture under Section 2(f)(iii) of Central Excise Act, 1944, as modems are specified in Third Schedule. The appellant was required to discharge duty on these activities. CENVAT credit on imported modems was permissible for discharging duty liability, but excess credit utilization for other manufactured goods was inadmissible as it resulted in double credit availment. Rule 8(3A) violation findings were set aside as the rule was held ultra vires by Gujarat HC. Penalty was waived as the issue involved legal interpretation and appellant acted with due intimation to department.

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Issues Involved:
1. Whether the activities carried out by the appellant on the imported Modem at their Registered trading premises resulted into 'manufacture' as per Section 2(f)(iii) of Central Excise Act, 1944.
2. Whether duty paid after availing CENVAT credit of the CVD paid on imported modems from the manufacturing unit is permissible.
3. Whether the Appellant contravened Rule 8(3A) of the Central Excise Rules, 2002 in discharging the duty by utilizing the credit from their manufacturing unit.

Summary:

Issue 1: Manufacture of Imported Modems
The Tribunal examined whether the activities at the appellant's trading premises constituted 'manufacture' u/s 2(f)(iii) of the Central Excise Act, 1944. The appellant argued that their activities, such as testing and labeling, did not amount to 'manufacture' as the modems were already marketable. The Revenue contended that these activities made the modems marketable to the consumer, thus falling under 'manufacture'. The Tribunal agreed with the Revenue, citing that the activities performed, including affixing labels and packing with accessories, rendered the modems marketable to the end consumer. Consequently, the activities were deemed 'manufacture' within the meaning of Section 2(f)(iii).

Issue 2: Duty Payment via CENVAT Credit
The Tribunal addressed whether the appellant could discharge duty liability on imported modems by debiting the CENVAT credit account from their manufacturing unit. The appellant had availed credit and paid duty after due intimation to the Department. The Tribunal found that merging the dealer's registration with the manufacturing unit's registration was a procedural issue. Since the activities were deemed 'manufacture', the appellant was entitled to avail CENVAT credit for the duty paid on imported modems. However, any excess credit utilized for clearing manufactured goods was inadmissible, as it would result in double utilization of the same credit. The Tribunal upheld the Commissioner's decision to appropriate the excess credit.

Issue 3: Violation of Rule 8(3A)
The Tribunal considered the applicability of Rule 8(3A) of the Central Excise Rules, 2002, which was held ultra vires by the Gujarat High Court in Indsur Global Ltd. The Tribunal concluded that since the rule was deemed ultra vires, the findings of the Commissioner on this count could not be sustained.

Penalty
The Tribunal noted that the issue involved interpretation of law and the appellant had acted with due intimation to the Department. Therefore, the imposition of penalty was deemed unwarranted and was set aside.

Conclusion
The impugned orders were modified as per the Tribunal's findings, and the appeals were disposed of accordingly.

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