Customs, Excise and Gold Tribunal - Tamil Nadu
Conybio Healthcare (India) Pvt. Ltd vs Cce on 10 August, 2007
ORDER P.G. Chacko, Member (J)
1. The appellants had imported garments both in bulk packs and in retail packs from Malaysia. The goods imported in retail packs were cleared on payment of Customs duty on M.R.P. basis and these goods were sold in India without any further operations like repacking, labeling/relabeling etc. These goods are outside the purview of the present dispute. The dispute relates to the goods imported in bulk. These bulk packs contained assorted garments each bearing the brand name "CONYBIO". The appellants, after clearing the goods on payment of applicable duties of Customs, repacked them in old-and-used cartons. In each carton, such number of printed packing material (flattened cartons/boxes) as equal to the number of garments were also packed along with such garments. Each printed packing material (procured indigenously) would carry the appellants' name and address, brand name (CONYBIO) & logo, M.R.P of the product to be packed, specifications of the product etc., printed thereon. The garments so packed with equal number of printed packing materials (flattened cartons/boxes) in the old-and-used cartons were sold to buyers, whom the appellants call 'distributors'. The quantity and variety of garments consigned to the so-called 'distributors' would depend on the terms of the purchase orders placed by them on the appellants. The appellants did not pay any duty of excise on the goods which they cleared in the above manner during the period from 1.3.2001 to 8.7.2004. In adjudication of a show-cause notice dated 11.5.2005, the jurisdictional Commissioner of Central Excise demanded duty of over Rs. 4.5 crores (along with education cess) from the appellants on the garments so cleared to the buyers during the period March'01 - October'02, by invoking the extended period of limitation. He also imposed equal amount of penalty on them under Section 11AC of the Central Excise Act. A separate penalty of Rs. 1.25 crores was also imposed on them under the Central Excise Rules. Appeal No. E/470/06 is against this decision of the Commissioner. In adjudication of another SCN dated 11.5.2005 covering the subsequent period upto 8.7.2004, the Commissioner demanded duty of over Rs. 6.3 crores (along with education cess) from the appellants by invoking the extended period of limitation under the proviso to Section 11A (1) of the Act and imposed on them equal amount of penalty under Section 11AC of the Act. In this case also, the Commissioner imposed a separate penalty (Rs. 1.6 crores) on the party under the Central Excise Rules. This decision of the Commissioner is under challenge in appeal No. E/471/2006.
2. After examining the records and hearing both sides, we note that the basic issue is whether the activity undertaken by the appellants subsequent to customs-clearance of the bulb imports amounted to "manufacture" in terms of Note 4 to chapters 61 & 62 of the Schedule to the Central Excise Tariff Act. This Chapter Note reads as follows:
In relation to a product of this Chapter, affixing a brand name on the product, labeling or relabeling of its containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to "manufacture"
In the impugned orders, ld.Commissioner classified the imported items under Chapter 61 or 62 and applied Chapter Note 4 to the activity undertaken by the appellants. In this connection, the appellants have a grievance that even certain items which were classifiable under Chapter 63 have been classified by the Commissioner under Chapter 62 with intent to apply Chapter Note 4 to the said activity. Ld.Commissioner held that the appellants repacked the garments from bulk packs to retail packs for the purpose of sale of the goods to their buyers. He held that, by putting the pre-printed flattened cartons/boxes along with garments, the appellants were "arranging for repacking" of the goods. According to ld.Commissioner, the appellants had complied with the requirements of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 by getting their name, address, brand name and other particulars printed on the packing material. It was also held that the above activities rendered the product marketable to the consumer. On this basis, ld.Commissioner held the activity to be amounting to "manufacture" in terms of Chapter Note 4. He also found against the party suppression of facts with intent to evade payment of duty and, on this basis, he invoked the larger period of limitation for demanding duty. It further appears from the impugned orders that the alternate claim of the appellants for the benefit of certain exemption Notifications was rejected by the Commissioner. The claim of CENVAT credit of CVD was also rejected.
3. After considering the submissions of both sides, we have not found enough reason to support the finding recorded by ld.Commissioner that the activity undertaken by the appellants amounted to "manufacture" in terms of Chapter Note 4. The language used in the Chapter Note clearly indicates that repacking from bulk pack to retail packs would not, by itself, amount to "manufacture". Besides repacking from bulk pack to retail packs, there must be labeling/re-labeling or the affixing of a brand name also. In the impugned orders, it appears, ld.Commissioner has not found both the ingredients to be cumulatively present in this case. He has not spelt out "any other treatment" rendering the goods marketable, either. The challenge offered to the Commissioner's decision by the appellants on the strength of the Supreme Court's judgment in CCE Mumbai v. Johnson & Johnson Ltd., 2005 (188) ELT 467 (SC) and the decision of this Bench in Ruchi Health Foods Ltd. v. CCE Chennai, is formidable. In the case of Johnson & Johnson Ltd. (supra), it was held by the apex court, with reference to Note 5 to Chapter 30 of the CETA Schedule, that repacking would have to be from bulk pack to retail pack so as to render the product marketable directly to the consumer. Note 5 to Chapter 30 is pari material with Note 4 to Chapter 61/62 and, therefore, the apex court's ruling is squarely applicable to the present case. There can be no denial of the fact that the form in which the garments were sold by the appellants to their so-called 'distributors' was not directly marketable to the consumer. The distributor had to pack the garments in the respective printed cartons before retail sale to consumers. In other words, it was the activity of the 'distributor' which rendered the product marketable directly to the consumer so as to attract Chapter Note 4 ibid. It is the definite case of the appellants that duty if leviable on the subject goods should have been demanded from their buyers and not from them. We have found substance in this argument. Applying the ruling of the Supreme Court [vide Johnson & Johnson] we hold that, in the activity in question, there was no repacking from bulk pack to retail pack rendering the product marketable directly to the consumer and, therefore, applicability of Chapter Note 4 is ruled out. We have also found a valid point in the contention of the appellants' counsel that the adjudicating authority erred in applying the Chapter Note without examining the question whether there was any labeling or relabeling on the cartons in which the goods were cleared by the appellants. Ld.counsel has rightly found support from the decision of this Bench in Ruchi Health Foods Ltd. case also.
4. Ld.SDR has referred to two decisions of the Tribunal viz. Mercantile Co. v. CCE Kolkata, and CCE Jaipur v. Air Liquide North India (P) Ltd., . After a perusal of the orders cited by ld.SDR, we have not found that any of these can support the Revenue's case. In Mercantile Co. case, repacking and relabeling were held to have amounted to "manufacture" in terms of Note 6 to Chapter 34. This decision, which is in keeping with the language of the said Chapter Note, would not support the impugned orders inasmuch as, as rightly pointed out by ld.counsel, ld. Commissioner chose to find "manufacture" in terms of Note 4 to Chapter 61/62 on the sole basis of "repacking" without examining whether there was labeling or relabeling. In the case of Air Liquide North India (supra), it was held, with reference to Note 10 to Chapter 28, that it was not essential, for the purpose of re-labeling in terms of the Chapter Note, that label should be re-fixed on the goods and it was held that it would be enough if the same was issued along with the goods to the consumer. Apparently, in the cited case, the excisable goods (liquefied gases) were cleared in cylinders by the assessee to their customers and labels were attached to such cylinders. But the cylinders with labels were not supplied in cartons. We have not found any parallel between the present case and the case of Air-Liquide North India (supra).
5. Ld.SDR also referred to the Board's Circular No. 342/58/97-CX dated 8.10.1997, wherein it was observed by the Board, with reference to the fiction of "manufacture" introduced in Chapters 28, 29 etc., that the question whether or not duty was liable to be paid depends upon the facts of individual case and a decision thereon had to be taken after considering all relevant facts. There can be no quarrel with the view expressed by the Board. But it cannot in any manner go to support the Revenue's case.
6. For the reasons already recorded, we have to reject the finding that the appellants had undertaken "manufacture" in terms of Chapter Note 4 ibid in marketing the goods imported in bulk. In the result, the impugned orders are set aside and these appeals are allowed.
(Operative part of the order was pronounced in open court on 10.8.2007)