2025 (11) TMI 1877 - AT - Central Excise

Repacking Fully Manufactured Goods Not Dutiable; No Suppression, Extended Limitation Under Section 11A Demand Set Aside

M/s ITC Ltd. Versus Commr. of Central Excise, Kolkata-IV

The Tribunal held that the re-packing of goods already at the RG-1/DSA stage did not give rise to additional excise duty liability. Goods were fully ... Levy of Excise duty - re-packing of the goods which were already in the RG-1/DSA stage - it is alleged that the appellant has removed the goods from RG 1 without payment of Excise Duty - Time limitation - HELD THAT:- From the Show Cause Notice and impugned order, there are nothing contrary to the effect that the appellant has not properly accounted for these goods or cleared the same after re-packing without payment of Excise Duty. As a matter of fact, it is found that whatever logic has been adopted by the adjudicating authority for dropping re-pulping of the paper, the same reasoning would equally be applicable even in the case of re-packing. In both the cases, the goods were in the RG-1 stage, which shows that they were fully manufactured product. They were removed out of RG 1, re-processes / re-packed, taken back in the RG 1 and were finally cleared on payment of Excise Duty. We do not find any case of revenue loss has been made out by the Department, so as to demand the Excise Duty. Time limitation - HELD THAT:- There are also considerable force in the argument of the appellant that they have intimated the Department about the transactions and hence they have not indulged in any suppression so as to invoke the extended period payment. From the factual records produced by the appellant, it is found that all the transactions were recorded by them in the Monthly Returns. They were also intimating the transaction details to the Range officials - there are no case of suppression, with an intent to evade duty payment, has been made out against the appellant. Hence, the confirmed demand for the extended period set aside on account of time bar also. The appeal is allowed both on account of merit as well as on account of limitation. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether excise duty is payable on finished paper already entered in RG-1/DSA, when such goods are taken out of RG-1 within the factory for re-packing as per customers' requirements, re-entered in RG-1 and subsequently cleared on payment of duty. 1.2 Whether the demand of duty on such re-packed goods can be sustained for the extended period on the ground of suppression or wilful misstatement, in view of the appellant's intimation and accounting practices. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Excise duty liability on goods taken out of RG-1 for re-packing within the factory and subsequently cleared on payment of duty Legal framework (as discussed) 2.1 The Court referred to Board Circular No. 22/71-CX.6 dated 30.10.1971, which clarifies that manufacturers are free to transfer defective or damaged excisable goods from the store-room of the factory for re-processing/re-conditioning within the factory without payment of duty, after making necessary entries in the accounts. 2.2 The Court relied on earlier Tribunal decisions holding that where goods accounted for in RG-1 are removed within the factory premises for modification/reprocessing and properly accounted for, no duty is chargeable at that intermediate stage, provided final clearances are on payment of duty. Interpretation and reasoning 2.3 The factual position was not in dispute: finished paper had been entered in RG-1/DSA; certain quantities were taken out of RG-1 for re-packing according to specific customer requirements; after re-packing the goods were re-entered in RG-1/DSA and thereafter cleared on payment of excise duty. 2.4 The Court noted that the Show Cause Notice and the impugned order did not allege that the goods, after re-packing, were cleared without payment of duty or that they were not properly accounted for in the statutory records. 2.5 The Adjudicating Authority had already accepted that no duty was payable in respect of goods taken out of RG-1 for re-pulping and dropped that part of the demand. The Court held that the same logic applied equally to re-packing, as in both situations the goods were fully manufactured, removed from RG-1 only for further processing within the factory, again entered in RG-1 and finally cleared on payment of duty. 2.6 Applying the reasoning in the cited Tribunal decision concerning removal of goods from bonded storeroom for modification/conversion into goods of the same class, the Court held that no duty is chargeable merely on the internal movement of goods within the factory for re-packing, when proper entries in RG-1 and returns are maintained. 2.7 The Court further relied on the precedent where defective goods entered in RG-1 were reused within the factory for manufacture of finished goods that were cleared on payment of duty, and no intermediate duty liability was fastened on the internal reuse/reprocessing of such goods. 2.8 The procedure followed by the appellant-removing goods from RG-1 for re-processing/re-packing within the factory, recording such removals and re-entries in RG-1/DSA, and clearing the final re-packed goods on payment of duty-was found to be in conformity with the Board Circular No. 22/71-CX.6. 2.9 The Court found that no case of revenue loss had been established by the Department in respect of the re-packed goods, as duty had been paid on final clearances. Conclusions 2.10 Removal of finished paper from RG-1/DSA for re-packing within the factory, followed by re-entry in RG-1 and clearance on payment of duty, does not attract any additional or separate excise duty liability at the stage of removal from RG-1 for re-packing. 2.11 The confirmation of demand on the ground that goods, once in a 'marketable condition' and entered in RG-1, must bear duty on any subsequent removal from RG-1, was held to be unsustainable in law in the circumstances of the case. 2.12 The impugned order confirming the duty demand on account of re-packing was set aside on merits. Issue 2: Validity of invoking the extended period of limitation and allegation of suppression Interpretation and reasoning 2.13 The appellant had been regularly intimating the Range officials on a monthly basis regarding the quantities taken out of RG-1/DSA for re-processing/re-packing and their subsequent re-entry, through letters duly acknowledged by the Department. 2.14 From 2010 onwards, the appellant showed the entire quantity as cleared in statutory returns, while separately filing letters giving details of re-processing, demonstrating consistent disclosure of the transactions. 2.15 The Court examined the factual records and found that all transactions were duly recorded in Monthly Returns and that specific intimation letters about the internal re-processing/re-packing were submitted to the Range officials. 2.16 On these facts, the Court held that there was no suppression of facts with intent to evade payment of duty, and no wilful misstatement could be inferred, since the Department was fully aware of the modus operandi and the accounting of such movements. Conclusions 2.17 The conditions for invoking the extended period of limitation were not satisfied, as no suppression or intent to evade duty was established. 2.18 The demand to the extent pertaining to the extended period was barred by limitation and was set aside on that ground as well. 2.19 The appeal was allowed both on merits and on limitation, with consequential relief as per law.