Labelling and Re-Labelling of Containers Qualifies as 'Manufacture' for CENVAT Credit Under Excise Act: Supreme Court

The Supreme Court has held that labelling or re-labelling of containers amounts to 'manufacture' under the Central Excise Act for availing cenvat credit

The bench of Justices A. S. Oka and Ujjal Bhuyan was pronouncing its judgment on an appeal by the revenue under Section 35L(1)(b) of the Central Excise Act, 1944 against a 2015 order passed by the CESTAT, Mumbai.

By the impugned order, CESTAT has allowed the appeal filed by the respondent holding that as per Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985 , the activity of labelling amounted to manufacture and hence, the respondent was eligible for availing the cenvat credit of the duty paid by its Jammu unit and was also eligible for rebate on the duty paid by it while exporting its goods.

Factual Background

As recorded by the bench of Justices Oka and Bhuyan, the Respondent is engaged in the business of exporting cocoa butter and cocoa powder. Its factory at Jammu manufactures cocoa butter and cocoa powder. In its Taloja unit, respondent affixed two labels on two sides of the packages of the said goods received from its Jammu factory and cleared the same for export on payment of duty and claimed rebate of the duty paid on the exported goods. Further, respondent availed cenvat credit of the duty paid on those two goods at the time of clearance from Jammu.

The factory of the respondent at Taloja was visited by officials of the appellant-Commissioner of Central Excise and it was found that the respondent was only putting labels on the goods brought from Jammu as well as on the imported goods. In such circumstances, the appellant-Commissioner issued show cause cum demand to the respondent to show cause as to why the activity of labelling undertaken by the respondent on the product cocoa butter received from the Jammu unit and also on the imported goods should not be held as activities not amounting to manufacture in terms of Note 3 to Chapter 18 of the Central Excise Tariff Act.

Following adjudication, the appellant by its 2013 order held that cocoa butter received by the respondent at its Taloja unit from its unit at Jammu as well as the imported cocoa butter were already packed in corrugated boxes of 25Kg each, the exported cocoa butter was also in corrugated boxes of 25Kg each, and that no repackaging activity was undertaken either on the goods received from the Jammu unit or on the imported cocoa butter. Appellant further held that the goods received from the Jammu unit already contained a label and on receipt of the goods at Taloja, two more labels on two sides of the carton were affixed. Appellant concluded that it was a case of additional labelling and not relabelling, and that such labelling at Taloja did not amount to manufacture.

After holding that Rule 3 of the Cenvat Credit Rules, 2004 allows cenvat credit only in a case where the process undertaken amounts to manufacture, the appellant-commissioner held that the process of labelling undertaken by the respondent in its unit at Taloja did not amount to manufacture, and that the cenvat credit availed of by the respondent was contrary to Rule 3 of the Cenvat Credit Rules.

This order was challenged by the respondent before the CESTAT which allowed the respondent's appeal by its majority decision of 2015 (which is impugned in the present matter by the appellant-Commissioner)

Consideration by the Supreme Court

Analysing the definition of 'manufacture' in section 2(f) of the Central Excise Act, the bench observes that the word 'manufacture' includes any process which is incidental or ancillary to the completion of a manufacture product; any process which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act as amounting to manufacture; or 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 re-labelling 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.

The bench notes that Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985 has undergone a change after the amendment of 01.03.2008. [Chapter 18 of the Central Excise Tariff Act deals with cocoa and cocoa preparations]

“Now because of substitution of the word 'or' in place of the word 'and' between the two expressions 'labelling or re-labelling of containers' and 'repacking from bulk packs to retail packs', the earlier composite process of labelling or re-labelling of containers and repacking from bulk packs to retail packs has been split up into two independent processes. Labelling or re-labelling of containers is one process and repacking from bulk packs to retail packs has now become another process. Therefore, instead of two activities, Note 3 now contemplates three activities…The (third) activity of adopting any other treatment to render the product marketable to the consumers remains the same”, explains the bench

Continuing, the bench opines that therefore, Note 3, post amendment, as it exists today contemplates three different processes; if either of the three processes are satisfied, the same would amount to manufacture. “Any one of the processes indicated in Note 3 to Chapter 18 of the Central Excise Tariff Act would come within the ambit of the definition of 'manufacture' under Section 2(f)(ii) of the Central Excise Act”, says the bench

The bench further remarks that there is no factual dispute as to the activity carried out by the respondent at its Taloja unit, that whether the goods are brought from the Jammu unit or are imported, those are relabelled on both sides of the packs containing the goods at the Taloja unit of the respondent and thereafter, introduced in the market or sent for export. “In terms of Note 3 to Chapter 18, this process of re-labelling amounts to 'manufacture'”, concludes the bench

In dismissing the Revenue's appeals, the bench of Justices Oka and Bhuyan was of the considered opinion that the view taken by CESTAT is the correct one and no case for interference is made out.

Case Details: Commissioner Of Central Excise Belapur Vs Jindal Drugs Ltd. | Civil Appeal No. 1121 Of 2016

Citation : 2024 LiveLaw (SC) 374

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