Custom, Excise & Service Tax Tribunal
M/S. Vasantham Enterprises vs C.C.E., Chandigarh on 12 November, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066. COURT NO.II Appeal No. E/3130/2009-EX[DB] [Arising out of Order-in-Original No.50/CE/CHD-1/2009, dated 31.08.2009 passed by the Commissioner of Central Excise, Chandigarh]. M/s. Vasantham Enterprises : Appellants Vs. C.C.E., Chandigarh : Respondents
Present for the Appellants :
Shri M.H. Patil, Advocate Shri R. Chandran Nair, Advocate Present for the Respondents :
Shri Pramod Kumar, JCDR With Sri Govind Dixit, SDR.
Coram: Honble Mr.D.N.Panda, Judicial Member
Honble Mr.Manmohan Singh, Technical Member
Reserved on: 16.07.2014
Pronounced on: 12.11.2014
FINAL ORDER NO.54420, DATED:12.11.2014
PER: D.N.PANDA
This appeal arose out of order of adjudication dated 01/08/2009 for the period 01.01.2006 to 24.11.2007 denying the claim of area based exemption and plea of no manufacturing activity carried out by the appellant. Appellants plea that it was registered under Finance Act, 1994 and paid service tax on the activity of banding unit packed soaps as provider of taxable service of manpower recruitment agency carried out did not find favour by Revenue. Ld. Adjudicating Authority held that the activity carried out by the appellant was manufacture and benefit of notification No.214/86-CE was deniable to it not being a job worker. Consequently, central excise duty of Rs.73,28,419/- was levied on the appellant followed by penalty of equal amount under section 11AC of the Central Excise Act, 1944 (hereinafter referred to as the Act) and interest on the duty imposed.
1.2 According to the ld. Authority when the appellant failed to file the required declaration to claim area based exemption, department was deprived of examining whether the appellant was entitled to the exemption before its first clearance was made. That resulted in denial of benefits of notification No. 50/2003-CE dated 10/06/2003 to it. Ld. Adjudicating Authority detailed in Para 53 of the adjudication order as to the requirement of the declaration which ought to have been filed to avail exemption and that was to remain in tact during the relevant Financial Year. In the absence of declaration it was the inference of the authority that there was no fulfilment of substantial condition of the notification and such failure to furnish relevant particulars for consideration of the claim before first clearance should deny area based exemption to the appellant.
1.3 Appellants plea that they being job workers in the campus of Hindustan Unilever Ltd. (hereinafter referred to as the HUL) and eligible to area based exemption following the circular No. 908/2009 dated 23/12/2009 also did not get appreciation by the Authority below. Appellants further plea that it did not bring out any change to the goods banding unit packed soap by a strip thereon to be called as manufacture also did not get appreciation by ld. adjudicating authority.
2.1 As a result of aforesaid denial, Central Excise duty of Rs.37,46,69,391/- was levied on the appellant under Central Excise Act, 1944 (wherein after referred to as the Act) followed by equal amount of penalty under section 11AC thereof and interest on the duty demanded also followed.
3 Against above consequence the appellant came in appeal.
4.1 Ld. Counsel appearing on behalf of the appellant assailed the demand on five counts. The first contention is that the activity of banding of the goods manufactured by HUL by a strip, using manpower of the appellant does not amount to manufacture in spite of deeming fiction appearing in Chapter Notes of Chapter 33 and 34 and section 2(f) (iii) of the Act at relevant point of time. The activity of binding was to convert the unit packed soap case into multi-piece pack and such unit packed soap were marketable without any treatment made by the appellant. There was no enhancement of marketability made by appellant making any value addition thereto. Therefore, the relevant Chapter Note of Chapter 33 and 34 during different periods is of no consequence. The appellant being entitled to the area based exemption having been situated in the notified area, it was entitled to the benefit of Notification No.50/2003-CE, dated 10.06.2003 read with Circular No.908/2009 dated 23.12.2009 since HUL situated at same place was entitled to area based exemption.
4.2 The second contention of the appellant was that when the benefit of exemption Notification No.50/2003-CE, dated 10.06.2003 was allowed to the principal manufacturer HUL, activity of the appellant carried out for the said principal manufacturer in the same campus should not deprive the appellant to the Notification benefit. By letters dated 17.11.2006 and also 11.06.2007, HUL declared to the Department about banding activity undertaken by the appellant on its behalf (copy of the said letters at page 13 and 15 of Compilation E). Appellant applied for central service tax registration with effect from 06.07.2005 (page 89 of appeal folder) and was granted the same. Thereafter, separate registration for Barotiwala (where the appellant carried out the activity of banding) was obtained with effect from 06.09.2007. Service tax returns in STR-3 Forms (Ref: at pages 125 158 of appeal folder) were filed and service tax paid. This amounts to exercise of option as the activity undertaken was reflected in those documents.
4.3 HUL was sending goods under Notification No.214/86-CE, dated 25.03.1986 to the appellant to provide service of banding the goods by a strip. Appellant bona fide believed that the activity carried out by appellant was labour oriented and no manufacturing process carried out. Such labour work was supply of manpower and was governed by the taxing entry of Finance Act, 1994 manpower recruitment agency service and not a manufacturing activity. With such belief no declaration as required by Notification No.50/2003-CE, dated 10.06.2003 was filed. There was no deliberate default made by the appellant to file the declaration as required by Notification No.50/2003, dated 10.06.2003. Having obtained service tax registration, the appellant also paid service tax on the labour charges received from HUL. The Department never disputed about the liability of the appellants under service tax law and they were collecting such tax without any objection from the appellant. Therefore, denial of exemption to the appellant under Notification No.50/2003-CE, dated 10.06.2003 on the ground of no filing of declaration is unwarranted and shall be contrary to law.
4.4 It would be appreciated from page 58 of the appeal folder (page 27 of the adjudication order) that ld. adjudicating authority says that declaration was filed by the appellant although details of inputs were not mentioned. This finding grants area based exemption to the appellant undisputedly. Therefore, the adjudication does not sustain. Appellants existence in notified area, registration as service tax assessee and its bona fide belief that it did not carry out manufacture are sufficient proof of its bona fide and denial of benefit of Notification No.50/2003-CE, dated 10.06.2003 is unwarranted and unjustified. Since the appellant was well known to law by aforesaid conduct as service tax payer, benefit of Notification should be granted construing provisions therein liberally keeping in mind the purpose and object of the same without causing hardship to it.
4.5 The third count of argument of the appellant was when the activity was carried out by it in the premises of HUL, HUL was reimbursing appellants rent, electricity charges, security charges, supervision charges, etc. The correspondences dated 07.11.2006 and 11.06.2007 of HUL brought out clearly about the job work carried out by the appellant for HUL. Therefore, there cannot be denial of benefit of Notification No.50/2003-CE, dated 10.06.2003. The appellant was not a manufacturer but was a job worker for the principal HUL. HUL having been granted area based exemption and the appellant being situated in the campus of HUL was not out of exempted area to deny the exemption.
4.6 Fourthly, appellant contended that demand for the period 01.01.2006 to 24.11.2006 was time barred in absence of suppression or mis-declaration, etc. It was a service tax assessee registered under Finance Act, 1994 and paying service tax carrying out the activity known to the Department from the letters dated 07.11.2006 and 11.06.2007 of HUL. Appellants ST-3 returns were available with the Department and taxes paid by it were taken into treasury which is well within the knowledge of the Department. Therefore, the appellant has never caused any suppression or made mis-declaration of any fact to the Department. Nor there was any intention to evade. Accordingly, the adjudication was time barred. Appellant not having any intention to cause evasion of Revenue, absence of exercise of option without input particulars does not debar it from the benefit of Notification No.50/2003-CE, dated 10.06.2003.
4.7 It was lastly argued by the appellant that the service tax paid by the appellant having been taken into treasury by the Department that became input tax and duty paid on the input used by HUL in manufacturing of soap case is admissible as CENVAT credit to the appellant.
4.8 On such submissions, it was submitted that there cannot be penal provisions applicable to the facts and circumstances of the case of the appellant.
5.1 To support the contentions above, appellant relied on the following decisions:-
(i) Gillete India Ltd. Vs. Commissioner of Central Excise, Charigarh [2011 (272) ELT 154 (Tri. Del.)].
(ii) CCE, Pune Vs. Sinar Mas Pulp & Paper (I) Ltd. [2005 (191) ELT 619 (Tri. Mumbai)].
(iii) Lakme Lever Ltd. Vs. CCE, Mumbai-III [2001 (127) ELT 790 (Tri. Mum.)].
(iv) CCE, New Delhi Vs. Panchsheel Soap Factory [2002 (145) ELT 527 (Tri. Del.)].
(v) Osnar Chemical Pvt. Ltd. Vs. CCE, Bangalore-II [2009 (240) ELT 115 (Tri. Bang.)].
(vi) Packaging India Pvt. Ltd. Vs. CCE, Meerut [2012-TIOL-884-CESTAT-DEL].
(vii) Tribunal Final Order No.A/55341/2013-EX[DB], dated 23.01.2013 in the case of Herbal Concepts Healthcare Pvt. Ltd. Vs. CCE, Meerut-I.
(viii) Formica India Division Vs. Collector of Central excise [1995 (77) ELT 511 (SC).
Eagle Flask Industries Ltv. Vs. CCE, Pune [2004 (171) ELT) 296 (SC)].
(ix) Share Medical Care Vs. Union of India [2007 (209) ELT 321 (SC)].
(x) Anchor Pressings (P) Ltd. Vs. CIT, UP & Others [1987 (27) ELT 590 (SC)].
(xi) Mangalore Chemicals & Fertilizers Vs. Dy Commissioner [1991 (55) ELT 437 (SC)].
(xii) Union of India Vs. Wood Papers Ltd. [1990 (47) ELT 500 (SC)].
(xiii) CC (Preventive), Gujarat Vs. Reliance Petroleum Ltd. [2008 (227) ELT 3 (SC)].
(xiv) CC, Kolkata Vs. Rupa & Co. Ltd. [2004 (170) ELT 129 (SC)].
(xv) Coll. Of CE, Calcutta Vs. Alnoori Tobacco Products [2004 (170) ELT 135 (SC)].
(xvi) British Airways PLC. Vs. Union of India [2002 (139) ELT 6 (SC)].
(xvii) CCE, Mumbai Vs. Johnson & Johnson [2005 (188) ELT 467 (SC)].
(xviii) CCE, Mumbai Vs. BOC (I) Ltd. [ 2008 (226) ELT 323 (SC)].
(xix) (xviii) CCE, Bombay Vs. Bombay Dyeing & Mfg. Co. Ltd. [2007 (212) ELT 453 (SC)].
(xx) Pawan Biscuits Co. (Pvt.) Ltd. Vs. Coll. Of CE, Patna [2000 (120) ELT 24 (SC)].
(xxi) Coll. Of Customs, Bombay Vs. MJ Exports Ltd. [2001 (132) ELT 514 (SC)].
(xxii) Novapan India Ltd. Vs. Coll. of CE, Hyderabad [1994 (73) ELT 769 (SC)].
(xxiii) CCE, Bangalore-II Vs. Osnar Chemical Pvt. Ltd. [2012 (276) ELT 162 (SC)].
(xxiv) Shriram Vinyl & Chemical Industries Vs. CC, Mumbai [2001 (129) ELT 278 (SC)].
5.2 Appellant relied on Para 3 of the Board Circular No.908/28/2009-CX, dated 28.12.2009, to submit that the benefit of exemption is to be given to the activity of manufacture of the main product as well as the peripheral activity undertaken in the specified area of Uttarakhand or Himachal Pradesh. Peripheral activity alone undertaken by job worker in the specified area is also entitled to exemption. It was also precisely submitted that neither banding gives rise to a new product nor such activity makes the goods marketable without any value addition thereto. The place where peripheral activity of banding was carried out by the appellant was situated in Barotiwala of Solan district in Himachal Pradesh. The principal manufacturer, HUL as well as the appellant having been situated in the same campus, the circular brings the appellant to the similar footing with HUL for exemption since HUL was granted area based exemption in respect of manufacturing activity.
6.1 Revenue, on the other hand, submits that registration under Central Excise Act was necessity of law to grant area based exemption as per Notification. The appellant failed to take registration under the Act being a manufacturer. MRP was fixed upon banding of the goods and such activity brings the appellant to the fold of Chapter Note of Chapter 34 since the goods belonged to tariff entry 34.11.09. The activity carried out by the appellant as has been explained at paras 44 & 45 of Order-in-Original at page 20 thereof was manufacture. This is also recorded in para 62 at page 59 of the said order.
6.2 Revenues further contention was that failure of the appellant to comply with the requirement of the Notification No.50/2003-CE, dated 10.06.2003 crippled it to get the benefit thereof, which is area based exemption. The senior level officers having been empowered to scrutinise such cases were deprived of doing so in absence of compliance to law by the appellant. Accordingly, it was bound to lose the benefit of the Notification. The word shall used at three places of the Notification obliged the appellant to file the required documents thereunder and exercise of option to avail the exemption was necessity of law. The option so exercised was not to be withdrawn during the remaining part of the financial year. Whether before its first clearance the appellant was eligible to the benefit of Notification not being known to record in absence of scrutiny and appellant having kept Revenue in dark in that regard, he lost exemption benefit. Therefore, appeal is devoid of merit and should be dismissed.
6.3 Revenue relied on the decision of apex court in the case of Eagle Flask Industries Ltd. Vs. CCE, Pune [2004 (171) ELT) 296 (SC)] and other judgements appearing on the adjudication order in Para 5 at page 34 and Para 61 of page 59 thereof and contended that payment of service tax is a different liability under Finance Act, 1994 for taxable service provided and exemption under Notification No.50/2003-CE, dated 10.06.2003 arises under the Central Excise Act, 1944, which is deniable when no registration was sought by appellant and no compliance to the mandate of the Notification was made. Appellant suppressed fact of carrying out of manufacture. Therefore adjudication was not barred by limitation for which duty, penalty and interest was rightly imposed.
6.4 Revenue further submitted that the appellant did not provide page 2 of the agreement entered into by it with HUL. Therefore, it cannot claim that ld. adjudicating authority failed to consider the nature of activity carried out by it. The banding activity carried out by the appellant also followed fixation of MRP. Chapter Note 6 of Chapter 34 brought out such activity to the ambit of manufacture since the goods were MRP based and ld. authority dealt the issue in paras 44, 45 and 46 of the adjudication order. So also, ld. authority examined in Para 36 of the adjudication order as to application of provisions of section 2(f) of the Act to the case of the appellant to hold it as manufacturer. The Authority, accordingly, held that the appellant carried out manufacturing activity which is clear from Para 47 of the adjudication order.
6.5 Revenue further submitted that huge Revenue was lost due to mis-declaration by appellant as has been recorded in Para 77 of the adjudication order. When it failed to satisfy learned authority filing appropriate declaration, it was disentitled to the benefit of exemption Notification and duty evaded was rightly ordered to be paid with interest and penalty. That does not call for interference. When certain procedure was prescribed by law to claim exemption benefit, failure to follow the same disentitles a claimant thereto. Appellant having given go-by to the set of procedure prescribed by the Notification, it should be debarred from getting area based exemption.
7. Heard both sides and perused the records.
8. Undisputedly, the appellant was located in a specified area of Himachal Pradesh where HUL existed. It is also not in dispute that HUL was granted area based exemption under Notification No.50/2003-CE, dated 10.06.2003. There is also no dispute that CBE&C has clarified that when activity of manufacture of main product is undertaken in the specified area of the states of Himachal Pradesh and Uttarakhand and the peripheral activities are also carried out by a job worker thereat in respect of such goods, benefit of exemption Notification No.50/2003-CE, dated 10.06.2003 is permissible to the peripheral activities.
9.1 To examine the contention of the appellant that it was mere provider of service but was not a manufacturer, the activity carried out by it was examined from the fact recorded in Para 44 of adjudication order. The agreement dated 01.09.1977, entered into by the appellant with HUL, appearing in the paper book exhibits scope of the work intended to be carried out by the appellant as a co-packer of HUL as follows:
3. The Co-packer shall be responsible for the safe custody and quality in storage of all material supplied by HUL as per this Agreement and they shall be responsible without prejudice to the generality for the foregoing to carry out the following operations in execution of this agreement.
i) Maintain in-house infrastructure and personnel to carry out quality tests on packaging operations in the manner advised by HUL.
ii) Unloading of all the materials delivered by HUL proper accounting of the quantities received and storage thereof in conformity with guidelines given by HUL.
iii) Removal of the materials to the manufacturing / packing area for the purpose of manufacture and packing of finished Products to HULs specification and requirements.
iv) Testing/checking of in process-stocks as well as packed Finished products in the manner prescribed by HUL for the purpose of ensuring that the manufactured product meets quality specifications laid down by HUL. 9.2 In the course of investigation, statement recorded from Shri Ravichandran, Manager of the appellant on 20.12.2007 exhibited that the appellant was engaged in loading and unloading of materials and packing materials of HUL during the period from April, 2006 to October, 2007. They had done soap banding job for HUL and to do such banding, they were receiving soap cakes of different brands from HUL and repacked the same after banding the cakes as per scheme of HUL e.g. buy 4 pcs get Rs. 5 off. Appellant was to unpack the soap cakes from cardboard cartons and band 4 pieces with plastic/paper stickers on which the scheme is printed. After banding the soap cakes, they were repacked in the same cardboard cartons and retuned back to HUL. To do all such work they were getting service charges from HUL and paid service tax.
9.3 When Shri SK Jain, Senior Commercial Manager of HUL was examined, in a statement dated 27.08.2008, he revealed that packed soaps in cartons along with banding tape were sent to appellant and they were required to pack the same as per requirement of HUL taking out single pack soap from the cartons. The combo packs were again packed in the same cartons and were sent to HUL. The banding tapes were pre-printed with brand name and MRP of the combo pack. MRP on the single unit of soap was not mentioned as the individual packs were not allowed to be sold separately. The banding work was done by appellant for the period from October, 2007 to August, 2008 and no such banding was done by them for the period October, 2007 to December, 2007.
9.4 By letter dated 06.10.2008, HUL informed to the Superintendent of Central Excise (Preventive) that auxiliary packing of its goods were done by labour contractors. Appellant issued bills to HUL showing that banding operation was carried out by it. This is verifiable from the copy of the challan at page 77 and 80 of the appeal folder. Similarly, page 81 discloses that packing activity was carried out by the appellant. Respective invoice at page 86 of appeal folder discloses the consideration claimed by appellant for packing charges of the soaps.
9.5 Appellant was registered with service tax authorities in terms of registration No.AABPT8736DST005. The communication dated 06.09.2007, issued by office of Asst. Commissioner, Central Excise Division, Shimla, discloses that appellant was registered as manpower recruitment agency. But ld. adjudicating authority in Para 77 held that there were no supply of manpower by the appellant. Labour remained with the appellant and appellant was carrying out packing activity on piece basis by its own labour for which the HUL was making payment. In Para 70, ld. authority recorded that during 01.01.2006 to 09.09.2008, appellant paid service tax of Rs. 7,10,750/-. He denied adjustment of such tax paid against excise duty liability. He further recorded that refund of service tax wrongly paid is to be claimed under the provisions of Finance Act, 1994 and that cannot be done indirectly. For this purpose, appellant has to undergo the procedure and has to meet the test of unjust and enrichment.
10.1 Learned adjudicating authority relying on chapter Note 6 of Chapter 34 of Central Excise Tariff Act, 1985 conceived that appellant was manufacturer and held so to levy excise duty of Rs.37,46,69,391/- with equal amount of penalty of Rs.37,46,69,391/- followed by interest. It was also held by him that the appellant having failed to file the required declaration by the Notification No.50/2003-CE, dated 10.06.2003, which was mandatory, was barred from availing benefit thereof. The appellant claimed that it was entitled to the benefit of exemption as a job worker under Notification No.214/86-CE, dated 25.03.1986. But ld. adjudicating authority held that the appellant was not a job worker and in Para 74 of adjudication order disallowed benefit of this Notification on the ground that only if the goods are cleared by the principal manufacturer on payment of duty from factory, the job worker is entitled to benefit thereof. It may be stated that the goods cleared by HUL were duty free availing exemption by virtue of Notification No.50/2003-CE, dated 10.06.2003.
10.2 The order of adjudication at page 8 shows that single packed unit of soaps were sent to the appellant by HUL in cartons and the appellant was required to make combo packs as per requirement of HUL after taking out the single pack soaps from the cartons. 4, 3, 2 or single soap cake were banded together with tape on which brand name and MRP of the combo pack was mentioned. The combo packs were again packed in the same cartons and were sent to HUL for further despatches. The MRP and single unit of soap was not mentioned on the individual packs as the individual packs were not allowed to be sold separately. Such fact is crucial to decide whether the appellant was a manufacturer in the light of provisions contained in section 2(f) (ii) and (iii) of Central Excise Act, 1944 read with Chapter Note 6 of Chapter 34 of Central Excise Tariff Act, 1985. Therefore, it would be proper to reproduce section 2(f) of Central Excise Act, 1944 as under:-
2(f) manufacture includes any process, -
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or Chapter Notes of the first Schedule to the Central Excise Tariff Act, 1985 (5of 1986) as amounting to manufacture; or
(iii) Which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labeling 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, and the word manufacturer shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his account ; 10.3 Section 2(f) (iii) states that the goods mentioned in Schedule III to the Central Excise Act, 1944 involving packing or re-packing thereof in a unit container or labelling or re-labelling of containers including the declaration or alterations of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer is manufacture. The III Schedule to the Act in terms of serial 40 covers the Heading 3041 to include soap within its ambit. Clause (ii) of section 2(f) of the Act says that the process which is specified in relation to any goods in Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 amounts to manufacture. This calls for reading of Note 6 of Chapter 34 dealing with soap. This Note before 01.03.2008 reads as under:-
6. In relation to products of this Chapter, labelling or re-labelling of containers and repacking from bulk pack to retail packs or adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture. [Emphasis supplied] With effect from 01.03.2008, the said Note reads as under:-
6. In relation to products of this Chapter, labelling or re-labelling of containers or repacking from bulk pack to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture. [Emphasis supplied] 10.4 Reading of Chapter Note 6 as appearing in statute book before 01.03.2008 has following ingredients:-
(a) labelling or re-labelling of containers and re-packing from bulk pack to retail packs to render the product marketable amounted to manufacture; or
(b) Adoption of any other treatment to render the product marketable to the consumer amounted to manufacture.
Above definition says that the activity of labelling or re-labelling of containers followed by re-packing from bulk packs to retail packs rendering the product marketable amounted to manufacture. Added to that, the other activity i.e., the activity of adoption of any other treatment to render the product marketable also amounted to manufacture. As labelling or re-labelling was necessarily to follow re-packing from bulk pack to retail pack, legislature disjointed both the activities using the preposition or by an amendment to Chapter Note 6 of Chapter 34 with effect from 01.03.2008. Accordingly after 01.03.2008, it has no more become necessity that labelling or re-labelling of containers should necessarily follow re-packing from bulk pack to retail pack. Thus, independent activity of labelling or re-labelling of containers amounts to manufacture provided such act renders the goods marketable and re-packing from bulk pack to retail pack renders the product marketable to became manufacture. The case of the appellant partly falls in the pre-amendment and partly in the post-amendment period.
11. In view of the above factual and legal position as well as controversy, the question that arises for decision is whether the appellant was a mere service provider to HUL or a manufacturer under section 2(f) (ii) of the Act read with in terms of chapter Note 6 of Chapter 34 of Central Excise Tariff Act 1985. If it is manufacturer whether it is entitled to benefit of Exemption Notification No. 50/2003-CE, dated 10.06.2003 without filing necessary declaration before the appropriate authority. Further, whether the appellant was entitled to the benefit of Notification No.214/86-CE, dated 15.03.1986.
12.1 Reading of agreement between the parties and the scope of activity carried out clearly demonstrates that the appellant carried out the activity of Works Contract. It had engaged its labour to carry out the activity of storing of goods of HUL and banding of soaps supplied by HUL. But the activity of labelling and repacking being peripheral as has been covered by Chapter Note 6 to Chapter 34 (as has been depicted hereinbefore) recognised by Notification No.50/203-CE, dated 10.06.2003 as such, that brings the appellant to the fold of manufacture having carried out such activity. However, the said Notification by para 4 thereof inserted by Notification No.1/2008-CE, dated 18.01.2008 provided that peripheral activity to be out of scope of exemption. The said Para coming into force from 18.01.2008 reads as under:-
4. The exemption contained in this Notification shall not apply to such goods which have been subjected to only one or more of the following process, namely, preservation during storage, clearing operations, packing or repacking of such goods in a unit container, sorting, declaration or alteration of retail sale price and have not been subject to any other process or processes amounting to manufacture in the State of Uttaranchal or Himachal Pradesh. [Emphasis supplied] However, CB&EC vide its Circular No.908/28/2009-CX, dated 23.12.2009 (F. No.101/2/2009-CX-3) clarified that the benefit of Notification No.49/2003-CE and No.50/2003-CE, both dated 10.06.2003 as amended by Notification No.1/2008-CE, dated 18.01.2008 should be available, to such goods where both the activities of manufacture of the main product and the principal activities are undertaken in the specified areas in the States of Uttarakhand or Himachal Pradesh even if peripheral activity alone is undertaken by job workers in the specified areas.
12.2 The appellant banding more than one soap by a pre-printed band affixed with MRP rendered the goods marketable at the price mentioned on the band. There was no unit price mentioned on each unit of the soap. The combo pack only specified the price at which the pack of soaps shall be sold. The appellant repacked the unit pack in a combo pack and joining both the ends of the band brought such pack to the stage of marketability at a price stated on the band. Of course, the unit soap even without banding was marketable because of its attribution and capability of commanding value in the market. However, no MRP mentioned on the single unit pack handicapped it to be marketable. The soap being covered by section 2(f) (iii) of the Act made the activity carried out by appellant to be manufacture with the scope and ambit of section 2(f) (ii) of the Act read with Chapter Note 6 to Chapter 34 of Central Excise Tariff Act, 1985. It has thus become a manufacture.
12.3 Once the activity carried out by the appellant brought it to the scope of manufacture as above, it cannot claim to be a mere service provider since service connected to the principal activity of banding became secondary. It was a job worker of HUL. But for the reason that the main product was exempted from duty under Notification No.50/2003-CE, dated 10.06.2003 it was not entitled to the benefit of Notification No.214/86-CE, dated 25.03.1986.
12.4 Para 4 of Notification No.50/2003-CE, dated 10.06.2003 having been inserted w. e. f. 18.08.2008, that is not applicable to the case of the appellant prior to that date.
12.5 Primary object of the Notification No. 50/2003-CE, dated 10.06.2003 is to grant duty exemption to manufacturing units situated in the area specified therein subject to fulfilment of conditions prescribed therein read with the Board Circular No.908-CX, dated 23.12.2009 as well as Circular No.757/73/2003-CX, dated 22.10.2003 [F.No.201/54/2003-CX-6]. It is not in dispute that the appellant was situated in the specified area of Himachal Pradesh and entitled to the exemption benefit granted by the notification read with the Board circulars. However relying on the copy of agreement dated 01.09.1977 and Board Circulars, the appellant bona fide believed that it was a mere service provider and not a manufacturer for the reasons mentioned hereinbefore as urged by it and failed to file necessary declaration for consideration of its exemption status by the Authority.
13. Honble supreme Court in Associated Cement Companies Ltd. v. State of Bihar & Ors., (2004) 7 SCC 642, while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held:
12. Literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v. Wood Papers Ltd. and Mangalore Chemicals and Fertilisers Ltd. v. Dy. Commr. of Commercial Taxes to which reference has been made earlier.)[Emphasis supplied]
14. In G.P. Ceramics Private Limited v. Commissioner, Trade Tax, Uttar Pradesh, (2009) 2 SCC 90, Apex Court has held:
29. It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally. [See CTT v. DSM Group of Industries (S.C.C. para 26); TISCO v. State of Jharkhand (SCC paras 42 to 45); State Level Committee v. Morgardshammar India Ltd.; Novopan India Ltd. v. C.C.E. & Customs; A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala and Reiz Electrocontrols (P) Ltd. v. C.C.E.] [Emphasis supplied]
15. Apex Court in Commissioner of Customs (Preventive) Mumbai v. M. Ambalal and Company, (2011) 2 SCC 74 = 2010 (260) E.L.T. 487 (S.C.), (in which one of us was the party) has observed that the beneficial notification providing the levy of duty at a concessional rate should be given a liberal interpretation:
16.?It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact, majority of judgments emphasise that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal statutes are to be liberally interpreted giving an apparent impression that they are contradictory to each other. But this is only apparent. A close scrutiny will reveal that there is no real contradiction amongst the judgments at all. The synthesis of the views is quite clearly that the general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to two different sets of circumstances.[Emphasis supplied]
16. Filing of declaration before first clearance being necessity of notification, that cannot be given goby following the ratio laid down in Paras 24 and 27 of the judgment in the case of State of Jharkhand Vs. Ambay Cements [2004 (178) ELT 55 (SC)] as under:-
24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the Court to ignore the conditions prescribed in the Industrial Policy and the exemption Notifications. [Emphasis supplied]
26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance of the same must result in cancelling the concession made in favour of the grantee-the respondent herein. [Emphasis supplied]
17. In view of settled position of law relating to compliance, it is considered that dealing with various citations made by both sides shall be only burdening this order and academic.
18. Learned Adjudicating Authority in Para 60 of his adjudication order (Ref: page 58 of the appeal folder) recorded that In the present case, the noticee had claimed the benefit of Notification N0. 50/2003-CE date10.6.2003. They have filed a declaration also. It was for them to see to it that all the conditions are fulfilled. The declaration has to be filed by giving all particulars as required in the notification which they failed to do so. It was incumbent on their part to ensure that they have fulfilled all conditions before availing benefit under the notification. The declaration was incomplete in as much as details were not given. This information is relevant for knowing and verifying whether the finished good can be made out of such inputs. It thus appears that the noticee is not entitled to the benefit of notification no. 50/2003-CE dated 10.6.2003. Such recording leads to the conclusion that the appellant was entitled to cure the defect providing necessary particulars for consideration of its claim of exemption under the notification above since it was primarily entitled to the area based exemption being situated in the specified area of the State of Himachal Pradesh.
19. Registration of the appellant under Finance Act, 1994 and its existence in the specified area of Himachal Pradesh, as well as its activity carried out as job worker of HUL was well known to Record. Appellant bona fide believed that it was not manufacturer and not liable to excise duty and if held to be manufacturer, it is entitled to the exemption by Notification No. 50/2003 read with the Board circulars aforesaid. There is nothing on record to show that either appellant or HUL suppressed any fact to the authority. Record also reveals that appellant has not acted mala fide. It is primarily entitled to the benefit of exemption notification aforesaid. It only failed to file necessary declaration under bonafide belief as stated above. Non filing declaration is not suppression of fact. So also there is nothing on record to appreciate that appellant had any intention to evade duty. Therefore, appellant acting bona fide is not debarred it to file the same before the authority to re-examine its eligibility to the exemption, otherwise that would defeat object of the area based exemption as observed by Apex Court in Commissioner of Sales Tax v. Industrial Coal Enterprises, (1999) 2 SCC 607:
11. ?In CIT v. Straw Board Mfg. Co. Ltd. this Court held that in taxing statutes, provision for concessional rate of tax should be liberally construed. So also in Bajaj Tempo Ltd. v. CIT it was held that provision granting incentive for promoting economic growth and development in taxing statutes should be liberally construed and restriction placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the objective of the provision.[Emphasis supplied]
20. On the aforesaid factual back ground and law, remanding the matter for filling of necessary declaration by the appellant for scrutiny of the adjudicating authority to grant area based exemption shall serve interest of justice. The Authority granting reasonable opportunity of hearing to the appellant shall pass appropriate order. It is, ordered accordingly.
21. Learned adjudicating authority recorded that the appellant did not provided manpower supply service. In such case, realisation of service tax from the appellant is unwarranted under law. Therefore, that should be refunded to the appellant against appropriate application filed.
(Pronounced in the open Court on 12.11.2014) (MANMOHAN SINGH) (D.N.PANDA) TECHNICAL MEMBER JUDICIAL MEMBER SSK
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Appeal No. E/3130/2009