2025 (8) TMI 1652 - AT - Central Excise

Packing rechargeable batteries with chargers and branding is job work, not manufacture under Section 2(f) CEA, 1944

M/s. The New Engineering Company Versus Commissioner of Central Excise, Kolkata-II

CESTAT KOLKATA - AT held that packing rechargeable batteries with chargers and branding by the appellant constitutes job work and does not amount to ... Activity amounting to manufacture or not - packing of rechargable batteries with the charger and branding them - HELD THAT:- It is found that in the appellant’s own case on an identical issue for the previous and subsequent periods, this Tribunal has already examined the issue in [2023 (11) TMI 520 - CESTAT KOLKATA], and it was observed that 'the issue has been discussed and held that the activity undertaken by the Appellant would not amount to manufacture as defined under Section 2(f) of Central Excise Act, 1944.The same discussion holds good for the Appellant also, since they are the job workers who have undertaken the activity of packing and labelling. Thus, we hold that the demand of central excise duty from the Appellant M/s New Engineering Company is not sustainable, as the activity undertaken by them does not amount to 'manufacture' as defined under Section 2(f) of CEA, 1944. Since, the demand itself is not sustainable, the question of demanding interest and imposing penalty on the Appellant does not arise.' The impugned demand is not sustainable against the appellant - Demand alongwith penalties also set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the activity of packing rechargeable batteries together with chargers and affixing brand labels amounts to 'manufacture' within the meaning of Section 2(f) of the Central Excise Act, 1944. 2. Whether any Section or Chapter Note (including Note 6 of Section XVI or Chapter notes) or Section 2(f)(ii)/(iii) or Third Schedule provisions deem the described packing/labeling activity to be manufacture for goods under headings relating to chargers (8504) and batteries (8507). 3. Consequentially, whether demand of excise duty, interest and penalties can be sustained where the primary activity is packing/labeling of already finished, marketable goods supplied by a principal. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether packing and labeling of rechargeable batteries with chargers constitutes 'manufacture' under Section 2(f) Legal framework: Section 2(f) defines 'manufacture' to include (i) any process incidental or ancillary to completion of a manufactured product, (ii) processes specified by Section/Chapter notes as amounting to manufacture, and (iii) for goods in the Third Schedule, packing/repacking/labeling where specified. The definition also requires consideration of whether a new/commercially distinct product comes into existence. Precedent Treatment: The Tribunal relied on Supreme Court criteria (as summarized from Servo-Med and similar authorities) distinguishing four categories: (i) processes that leave goods exactly the same, (ii) processes that leave goods essentially the same, (iii) processes that transform goods into different but non-marketable products, and (iv) processes that transform goods into different and marketable products (manufacture). The Tribunal also relied on multiple decisions and tribunal/high-court precedents holding mere packing/branding/quality checks of finished goods do not amount to manufacture. Interpretation and reasoning: The Court examined whether packing and labeling created a different commercial commodity with distinct name, character and use. It found that chargers and batteries remained exactly the same after being packed and labelled; no transformation or assembly creating a new marketable commodity occurred. Quality-checks and branding were held to be ancillary commercial processes that do not render the underlying goods newly manufactured. The absence of any mechanical or transformative process converting unfinished articles into finished ones was emphasized. Ratio vs. Obiter: Ratio - Where already manufactured, marketable goods are merely packed, labeled or quality-checked without any transformation, such activities do not constitute 'manufacture' under Section 2(f). Obiter - Illustrative discussion of categories from precedent and examples of other fact patterns distinguishing when packing may amount to manufacture. Conclusion: The activity of packing rechargeable batteries with chargers and applying brand labels does not amount to 'manufacture' under Section 2(f) because no new or transformed marketable commodity emerged; the goods remained essentially and commercially the same. Issue 2: Applicability of Section/Chapter Notes (including Note 6 to Section XVI), Section 2(f)(ii)/(iii) and Third Schedule Legal framework: Section 2(f)(ii) deems certain processes as manufacture where Section or Chapter notes so specify; Section 2(f)(iii) deems packing/labeling to be manufacture only for goods listed in the Third Schedule. Note 6 of Section XVI may have relevance where it deems certain processes amounting to manufacture for chapters 84/85. Precedent Treatment: The Tribunal referred to authorities where courts/tribunals held that conversion from unfinished to finished articles (or specific statutory notes) is necessary to invoke deemed manufacture; mere packing/branding of fully manufactured goods lacked such statutory deeming. Prior tribunal findings rejected application of Note 6 to situations where goods were already complete and no assembly or mechanical process converted them. Interpretation and reasoning: The Court inspected whether any Section/Chapter note or the Third Schedule applied to goods under headings 8504/8507. It concluded neither Section XVI nor Chapter 85 contained notes deeming packing/repacking/labeling of these goods to be manufacture. Further, goods under 8504/8507 are not included in the Third Schedule; hence Section 2(f)(iii) is inapplicable. Therefore, no deeming provision transforms the packing activity into a manufacturing process. Ratio vs. Obiter: Ratio - Deeming provisions in Section/Chapter notes or the Third Schedule are preconditions for Section 2(f)(ii)/(iii) to apply; absent such notes or inclusion in the Third Schedule, packing/labeling of finished goods cannot be deemed manufacture. Obiter - Discussion of how Note 6 functions in other fact patterns. Conclusion: No Section or Chapter note or Third Schedule entry applicable to the goods in question exists that would deem the packing/labeling activity to be manufacture; therefore Section 2(f)(ii)/(iii) does not apply. Issue 3: Sustainment of demands for duty, interest and penalties where activity is job work (packing/labeling) of finished goods supplied by principal Legal framework: Excise demands presuppose existence of excisable manufacture; interest and penalties follow only if duty liability is established. Job-worker arrangements where principal supplies finished goods raise the question whether duty can be fastened on the job worker or principal as 'manufacturer'. Precedent Treatment: The Tribunal's earlier orders (on identical facts for other periods) found that where the activity is merely packing/labeling of already finished goods supplied by another, it does not amount to manufacture; thus demands and consequential interest/penalties were set aside in those proceedings. The Tribunal noted prior interim observations rejecting the principal as manufacturer in related proceedings. Interpretation and reasoning: Applying the conclusions under Issues 1 and 2, the Court held that the foundational premise for the duty demand (i.e., that packing/labeling constituted manufacture) was absent. Consequently, there was no sustainable duty liability; where duty is unsustainable, claims for interest and imposition of penalties do not arise. Ratio vs. Obiter: Ratio - If the impugned activity does not constitute manufacture, demands for excise duty, interest and penalties based on that premise are unsustainable. Obiter - Observations on job-worker/principal arrangements as bearing on fact-sensitive allocation of liability. Conclusion: The excise duty demand, and consequential interest and penalties founded on the premise that packing/labeling amounted to manufacture, are not sustainable and must be set aside. Cross-references and Concluding Operative Findings 1. The Tribunal applied its prior findings on identical issues (earlier final orders for adjacent periods) and relevant higher-court criteria to conclude uniformly that packing, labeling and quality checks of finished batteries and chargers supplied by a principal do not create a new excisable product. 2. The lack of any deeming note in the First Schedule/Section XVI/Chapter notes and absence of the goods in the Third Schedule were determinative statutory factors supporting the non-manufacture conclusion (see Issues 1-2). 3. Consequent to the non-manufacture finding, demands for duty, interest and penalties were held unsustainable and set aside; no penalties were imposed.