2025 (6) TMI 1506 - AT - Central Excise

Revenue fails to prove imported parts processing doesn't constitute manufacture, cenvat credit upheld

CESTAT Bangalore dismissed Revenue's appeal challenging appellant's entitlement to cenvat credit on imported parts processed at National Part Centre and ... Entitlement to avail cenvat credit on the imported parts received in National Part Centre and Regional Part Depots subjected to various processes and cleared on payment of duty - activity amounting to manufacture or not - HELD THAT:- In the grounds of the appeal, the Revenue has simply assailed verification report of the Assistant Commissioner that it has not undertaken study of the entire imports but on sample basis; however, not adduced a single independent evidence showing that the activities undertaken by the appellant do not result into manufacture. There are no reason to interfere with the findings of the adjudicating authority in the impugned order - the impugned order is upheld and the appeal filed by the Revenue is dismissed. The core legal question considered by the Tribunal is whether the respondent is entitled to avail cenvat credit on imported automobile parts that are received in National Part Centre (NPC) and Regional Part Depots, subjected to various processes, and cleared on payment of duty. Specifically, the issue revolves around whether the activities undertaken on these imported goods amount to 'manufacture' under Section 2(f)(iii) of the Central Excise Act, 1944, thereby justifying the availment of cenvat credit.The Tribunal examined the relevant provisions of the Central Excise Act, 1944, particularly Section 2(f)(iii), which defines 'manufacture' to include any process involving packing, repacking, labelling, relabelling, or any treatment that renders the product marketable to the consumer. The Tribunal also considered Notification No.49/2008-CE (NT) dated 24.12.2008, which relates to the valuation of goods for the purpose of additional duty of customs (CVD), and the Board's Circular dated 08.12.2011, which provides guidance on the treatment of goods that are imported in a packed condition and ready to enter the market stream.The Revenue contended that the goods were already packed in unit containers at the time of import and ready for sale, and thus, the respondent had wrongly availed cenvat credit by treating these goods as inputs. The Revenue challenged the adjudicating authority's reliance on the verification report of the Assistant Commissioner, arguing that the report was based on random sample inspection and did not conclusively establish that the processes undertaken amounted to manufacture. The Revenue also submitted that the adjudicating authority erred in holding that the National Part Centre and Regional Part Centres catered exclusively to after-sales and warranty obligations, which was a relevant consideration for determining the nature of the activities.In response, the respondent argued that the activities performed on the imported goods-such as unpacking, inspection, quality checks, repacking, labelling, and affixing MRP labels-amounted to deemed manufacture under Section 2(f)(iii). The respondent relied on the detailed verification report of the Assistant Commissioner, which described the processes in detail and supported the conclusion that these activities rendered the goods marketable. The respondent emphasized that the imported goods, although packed, underwent significant processes before clearance to dealers or depots, and that these processes were consistent with the statutory definition of manufacture.The Tribunal carefully analyzed the facts and evidence, including the verification report dated 27.02.2015 by the jurisdictional Assistant Commissioner, which provided a comprehensive description of the processes undertaken at the NPC and Regional Part Depots. The report noted that imported, locally procured, and in-house manufactured parts were received in packed condition, subjected to bar code scanning and sample inspection, consolidated and repacked into master cartons with appropriate labels indicating part numbers, quantities, country of origin, and other details. The report further explained that MRP labels were affixed at the depot level before final sale to dealers, and that all clearances were made on payment of applicable excise duties on the prevailing MRP value.The Tribunal found that these activities fell squarely within the scope of Section 2(f)(iii) as they involved packing, repacking, labelling, and other treatments that rendered the goods marketable to the consumer. The Tribunal also referred to judicial precedents which interpreted the term 'container' to mean packing containers such as boxes and cartons used for storage and transportation, reinforcing the applicability of the manufacture definition to the facts at hand. The Tribunal noted that the imported goods were not simply cleared as-is but underwent processes that altered their marketability and presentation, thereby constituting deemed manufacture.Regarding the Revenue's contention on the sample nature of the inspection, the Tribunal observed that the Revenue failed to produce any independent evidence contradicting the findings of the Assistant Commissioner or the adjudicating authority. The absence of contrary evidence weakened the Revenue's challenge to the verification report and the consequent findings. The Tribunal emphasized that the burden to disprove the activities amounting to manufacture was on the Revenue, which was not discharged.In applying the law to the facts, the Tribunal concluded that the respondent was entitled to avail cenvat credit on the imported parts after undergoing the described processes. The activities carried out at NPC and Regional Part Depots constituted deemed manufacture under Section 2(f)(iii), and the clearance on payment of duty on the prevailing MRP was in accordance with the statutory provisions and notifications. The Tribunal upheld the order of the Principal Commissioner, which had dropped the proceedings initiated by the Revenue, and dismissed the Revenue's appeal.The Tribunal's significant holding includes the following verbatim reasoning:'The provisions of Section 2(f)(iii) of the Central Excise Act, 1944 specify that 'any process which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.' Further, the term 'label' has been defined in Rule 2(f) of the Legal Metrology (Packaged Commodities) Rules, 2011 to mean 'any written, marked, stamped, printed or graphic matter affixed to, or appearing upon any pre-packaged commodity.' On perusal of the documents available on record, I find that the labels affixed by M/s TKML on the packages which are then put into a Unit Container, viz., Master Carton in this case, contain these details.''In the instant case, with regard to the clearance of imported goods to their Depots located at Pune, Neemrana (Rajasthan) and Kolkata, the parts, components and assemblies of automobiles imported/locally procured/manufactured in-house, are listed in the Third Schedule of the Central Excise Act, 1944, are packed by M/s TKML, affixed with labels indicating part number, product name, bar code, quantity, country of origin, etc., and then repacked into a Master Carton, and hence I hold that these activities clearly fall within the ambit of the definition of 'manufacture' under the provisions of Section 2(f)(iii) of the Central Excise Act, 1944, and therefore amounts to deemed manufacture.'Core principles established by the Tribunal include:- The processes of unpacking, inspection, repacking, labelling, and affixing MRP labels on imported goods can amount to 'manufacture' under Section 2(f)(iii) of the Central Excise Act, 1944, even if the goods were imported in packed condition.- Deemed manufacture includes any treatment that renders the product marketable to the consumer, including packing and labelling in unit containers.- Cenvat credit is admissible on such imported goods subjected to deemed manufacture processes before clearance on payment of duty.- Verification reports based on sample inspections, when unchallenged by independent evidence, can be relied upon to determine the nature of processes and their classification under excise law.- The burden of disproving the activities amounting to manufacture lies on the Revenue when the assessee produces credible evidence and verification reports.In conclusion, the Tribunal upheld the impugned order allowing the respondent to avail cenvat credit on the imported automobile parts processed at NPC and Regional Part Depots, and dismissed the Revenue's appeal. The decision clarifies the scope of 'manufacture' under the Central Excise Act in relation to packing and labelling activities on imported goods and confirms the admissibility of cenvat credit in such circumstances.