2025 (5) TMI 1223 - AT - Central Excise

Packing and labelling spare parts without changing original packaging doesn't constitute manufacture under Section 2(f)(iii)

Commissioner of Central Excise, Kolkata-V Versus M/s. Mine Line Private Limited

Commissioner of Central Excise, Kolkata-V Versus M/s. Mine Line Private Limited - TMI Issues Presented and ConsideredThe core legal questions considered by the Tribunal were:1. Whether the activities of packing, repacking, labelling, relabelling, or alteration of retail sale price carried out by the respondent on spare parts traded by it amount to 'manufacture' under Section 2(f)(iii) of the Central Excise Act, 1944, thereby attracting liability to pay excise duty.2. Whether the respondent's trading of spare parts, which are procured in original packing and labelling from reputed manufacturers, constitutes deemed manufacture due to any alteration or treatment that enhances marketability.3. Whether the respondent's practice of placing stickers indicating 'Supplied by Mine Lines' on outer cartons or crates amounts to labelling or relabelling under the Act.4. Whether the respondent's claim as a 'manufacturer' in tender documents and its warranty obligations on spare parts can be construed as manufacturing activity for excise purposes.5. Whether the evidence presented by the Revenue suffices to establish that the respondent undertook any process amounting to manufacture, including alteration of Maximum Retail Price (MRP) or repacking from bulk to retail packs.Issue-wise Detailed AnalysisIssue 1: Whether packing, repacking, labelling, relabelling, or alteration of retail sale price amounts to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944The relevant legal framework is Section 2(f)(iii) of the Central Excise Act, which defines 'manufacture' to include any process involving packing or repacking of goods in unit containers, labelling or relabelling, or alteration of retail sale price on the container, particularly for goods specified in the Third Schedule.Precedents cited include the decision in Johnson and Johnson vs CCE where the Tribunal held that mere repacking is not sufficient unless it involves repacking from bulk to retail packs. The Supreme Court upheld this view, emphasizing the need for substantial transformation.The Tribunal examined the evidence and found that the respondent did not engage in repacking from bulk to retail packs. The wooden crates and cartons used were for logistical safety during transit; spare parts were either in original packing or bare form placed together for transport. No evidence was found that these crates constituted unit containers as contemplated under the Act.Regarding labelling, the Tribunal referred to the Taxchem vs CCE case, which clarified that affixing a sticker with the consignor's or consignee's name and address does not amount to labelling in the legal sense. Labelling requires furnishing information about the product's nature, contents, or price. The respondent's stickers stating 'Supplied by Mine Lines' were held to be mere identification and not labelling or relabelling.The Tribunal concluded that the respondent's activities did not amount to manufacture under Section 2(f)(iii) as the processes alleged were not substantiated by concrete evidence and were consistent with normal trade practices.Issue 2: Whether the respondent's trading of spare parts procured in original packing and labelling amounts to deemed manufacture due to alteration or treatment enhancing marketabilityThe respondent procured spare parts such as fuses, bolts, relays, contactors, cables, vacuum bottles, and isolators from reputed manufacturers like Siemens, L&T, Crompton Greaves, and others, mostly duty-paid and in original packaging with MRP affixed.The Revenue alleged that the respondent sold these parts at prices significantly higher than the MRP or Retail Sale Price (RSP), implying alteration of retail sale price and thus deemed manufacture.The Tribunal analyzed purchase and sale invoices and statements from vendors and the respondent's officials. It was found that although the respondent sold at prices higher than MRP, there was no evidence of physical alteration or declaration of a new retail sale price on the product containers. The MRP stickers remained intact and unaltered.Photographs reproduced in the show cause notice showed original MRP labels without tampering. Statements from the respondent's Chief Accountant and Managing Director confirmed no alteration or tampering with MRP stickers.Hence, the Tribunal held that mere selling at a price higher than MRP, without alteration of the MRP on the packaging, does not amount to deemed manufacture under Section 2(f)(iii).Issue 3: Whether placing stickers stating 'Supplied by Mine Lines' on outer packaging amounts to labelling or relabellingThe Tribunal distinguished between labelling as legally understood and mere identification. It held that affixing stickers with the supplier's name and address on outer cartons or wooden crates is not labelling or relabelling since it does not provide information about the product's nature, contents, or price.This interpretation was supported by the Taxchem vs CCE ruling, which emphasized strict construction of deeming provisions and the ordinary meaning of labelling.Issue 4: Whether the respondent's claim as 'manufacturer' in tender documents and warranty obligations amount to manufacture under the ActThe Revenue relied on the respondent's declarations in tenders where it identified itself as a manufacturer and its warranty responsibilities on spare parts to infer deemed manufacture.The Tribunal observed that the respondent manufactures mining electrical equipment but trades in spare parts manufactured by others. The declaration as manufacturer in tenders pertained to the finished equipment, not the traded spares.The Tribunal noted that in complex manufacturing ecosystems, original equipment manufacturers (OEMs) often procure components from other manufacturers. The respondent's warranty obligations do not convert its trading of spare parts into manufacture for excise purposes.Reference was made to the CESTAT decision in ASKA Equipment Pvt. Ltd. vs CCE, upheld by the Supreme Court, which held that claiming to be a manufacturer or giving warranty does not, by itself, constitute manufacture under Section 2(f).Issue 5: Whether the evidence suffices to establish manufacture, including alteration of MRP or repacking from bulk to retail packsThe Tribunal found that the Revenue's allegations were largely speculative, lacking concrete evidence. Statements from vendors confirmed no testing or alteration of goods. The respondent did not avail CENVAT Credit on these traded goods, indicating no claim of manufacture.The Tribunal emphasized the settled principle that in cases of doubt regarding culpability, the benefit of doubt must go to the accused. The absence of evidence showing alteration of MRP, repacking from bulk to retail packs, or labelling as defined by law led to the conclusion that the respondent's activities did not amount to manufacture.Significant Holdings'The allegation of alteration of MRP/RSP which renders the goods supplied by M/s. Mine Line as spares of the mining electrical equipments manufactured by them as 'deemed manufactured as per Section 2f(iii) of Central Excise Act, 1944, is not sustainable for the lack of concrete evidence.''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.''The wooden packing done by the notice is for logistical reasons only. Mere repacking was not enough and it had to be repacking from bulk to retail packs.''The allegation of 'Deemed manufacture' has been made in the show cause notice mainly on assumption... The allegations, as put forth needs to be substantiated beyond doubt and not on the basis or premonitions and presumptions.''Fact that appellant/trader had claimed before Government companies, who are buyers of lower that they manufacture the same or that they give warranty, cannot be a reason to hold them manufacturer under section 2(f) of the Central Excise Act, 1944.'The Tribunal upheld the impugned order dropping the charges against the respondent, dismissing the Revenue's appeal. It established the principle that packing, repacking, labelling, or selling at prices higher than MRP without alteration of the retail sale price on the packaging does not amount to manufacture under Section 2(f)(iii). It reinforced the requirement of concrete evidence to prove deemed manufacture and the strict interpretation of deeming provisions.