2010 (1) TMI 437 - HC - Central Excise

Tribunal decision upheld on 'manufacture' activities, granting exemption from duty and penalties

The court upheld the Tribunal's decision that the respondent's activities constituted 'manufacture' under relevant notifications, entitling them to ... Manufacture - The respondent was regularly importing the cosmetics and cosmetics raw materials, for manufacturing the cosmetics and exporting them. A significant quantity of cosmetics is being cleared by them in DTA availing the benefit of Notification No. 2/95-CX dated 04.01.1995 under which the respondent was paying the duty equal to 50% of the customs duty leviable. The respondent had filed few invoices for DTA clearance for various types of cosmetics and toiletries declaring as manufactured by it and sought the benefit of the Notification No.2/95-CE. A show-cause notice was issued on 07.03.2000, inter alia, proposing that the goods are not eligible for duty benefit under Notification No.2/95-CE dated 04.01.1995. Held that – for claiming exemption under Notification No. 2/95-C.E., it is not necessary that the activities undertaken by assessee would strictly fall within the ambit of section 2(f) of the Act. Issues Involved:1. Definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944.2. Entitlement to exemption under Notification No. 02/95-CE dated 04.01.1995.3. Demand of duty and imposition of penalty under various provisions of the Central Excise Act, 1944 and Central Excise Rules, 1944.4. Liability to pay Customs and Central Excise Duty.5. Justification of the Tribunal's decision.Issue-wise Detailed Analysis:1. Definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944:The primary issue revolves around whether the activity of cellophaning products of foreign origin constitutes 'manufacture' as per Section 2(f) of the Central Excise Act, 1944. The court observed that the respondent's activities, which included reassembling, testing, and repacking imported cosmetics, were argued by the revenue not to amount to manufacture since they did not change the physical aspect of the product or make it marketable. However, the Tribunal held that these processes did amount to 'manufacture' under Notification No. 133/1994 and were thus eligible for exemption. The court agreed with the Tribunal's broader interpretation of 'manufacture' beyond the strict confines of Section 2(f).2. Entitlement to exemption under Notification No. 02/95-CE dated 04.01.1995:The court examined whether the respondent was entitled to exemption under Notification No. 02/95-CE. The revenue contended that the exemption was conditional on the goods being used in the manufacture or processing within the Free Trade Zone. The Tribunal, however, found that the respondent's processes met the exemption criteria, and the broader interpretation of the notification was justified. Consequently, the court upheld the Tribunal's decision that the respondent was entitled to the exemption.3. Demand of duty and imposition of penalty under various provisions of the Central Excise Act, 1944 and Central Excise Rules, 1944:The Commissioner had demanded duty and imposed penalties under Section 11A and Rule 173Q of the Central Excise Act, 1944, arguing that the respondent's activities did not constitute manufacture. The Tribunal reversed this, stating that if no manufacture occurred, the demand and penalties were invalid. The court agreed, noting that the Commissioner could not demand duty or impose penalties without establishing that manufacturing took place under the Act.4. Liability to pay Customs and Central Excise Duty:The court considered whether the respondent was liable for Customs and Central Excise Duty despite not being eligible for certain notifications. The Tribunal had found that since the respondent was in a Free Trade Zone and covered by Chapter VA of the Central Excise Rules, they were not liable under Chapter VIIA, thus invalidating the penalties under Rule 173Q. The court upheld this view, agreeing that the Tribunal's interpretation was consistent with the statutory provisions.5. Justification of the Tribunal's decision:The court reviewed the Tribunal's decision, which had set aside the Commissioner's order and ruled in favor of the respondent. The Tribunal had based its decision on a detailed analysis of the processes undertaken by the respondent and the relevant notifications and statutory provisions. The court found the Tribunal's reasoning sound and supported by the relevant laws and precedents. Consequently, the court dismissed the appeals, affirming the Tribunal's decision.Conclusion:The court dismissed both Tax Appeals No. 722 and 723 of 2006, upholding the Tribunal's decision that the respondent's activities constituted 'manufacture' under the relevant notifications and that the demand for duty and imposition of penalties were invalid. The Tribunal's broader interpretation of 'manufacture' and the exemptions under the notifications were deemed appropriate, and the respondent was not liable for the duties and penalties as argued by the revenue.