Commissioner Of Central Excise Belapur vs Jindal Drugs Ltd

2024 INSC 354 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1121 OF 2016

COMMISSIONER OF CENTRAL EXCISE BELAPUR APPELLANT(S)

VERSUS

JINDAL DRUGS LTD. RESPONDENT(S)

WITH

CIVIL APPEAL NOS. 788-790 OF 2022

JUDGMENT

UJJAL BHUYAN, J.

Heard learned counsel for the parties.

2. Issue raised in the present batch of appeals is identical.

Therefore, the civil appeals were heard together and are being

disposed by this common judgment and order.

Signature Not Verified Digitally signed by ASHISH KONDLE Date: 2024.04.30 16:11:41 IST Reason: 2

3. However, Civil Appeal No. 1121 of 2016 was argued as

the lead appeal. Therefore, for the sake of convenience, we would

refer to the facts of this appeal.

4. This is an appeal by the revenue under Section 35L

(1)(b) of the Central Excise Act, 1944 (referred to hereinafter as

‘the Central Excise Act’) against the order dated 16.04.2015

passed by the Customs, Excise and Service Tax Appellate

Tribunal, West Zonal Bench at Mumbai (briefly ‘CESTAT’

hereinafter) in Appeal No. E/86389/13-Mum. (Jindal Drugs

Limited Vs. Commissioner of Central Excise, Belapur).

4.1. By the impugned order dated 16.04.2015, 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 (referred to

hereinafter as ‘the Central Excise Tariff Act’), the activity of

labelling amounted to manufacture and hence the activity of the

respondent fell within the ambit of the definition of manufacture

as per the said Note. Therefore, 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. CESTAT further held that there was no suppression by 3

the respondent and, therefore, the extended period of limitation

was not available to the department (revenue).

5. Though facts lie within a narrow compass, nonetheless

it is necessary to make a brief reference to the relevant facts for a

proper perspective.

5.1. Respondent is engaged in the business of exporting

cocoa butter and cocoa powder. Its factory at Jammu

manufactures cocoa butter and cocoa powder. Respondent has

another unit located at Taloja in the State of Maharashtra. Cocoa

butter and cocoa powder manufactured at Jammu are received by

the respondent’s unit at Taloja. In the 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. Respondent also imported cocoa butter and cocoa

powder from China and Malaysia, receiving the same in its factory

at Taloja.

5.2. The factory of the respondent at Taloja was visited by

officials of the appellant and it was found that the respondent was 4

only putting labels on the goods brought from Jammu as well as

on the imported goods. As the labels were already fixed on the

boxes containing the two goods, additional labels affixed by the

respondent did not amount to manufacture since affixing of

additional label did not enhance the marketability of the goods

which were already marketable.

5.3. In such circumstances, appellant issued show cause

cum demand notice dated 09.10.2012 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. It was alleged that

respondent had wrongly availed cenvat credit amounting to Rs.

23,02,53,752.00 for the period from June, 2008 to July, 2012

which should not be demanded and recovered under Rule 14 of

the Cenvat Credit Rules read with Section 11A(1) of the Central

Excise Act (since renumbered as Section 11A (4) of the Central

Excise Act with effect from 08.04.2011). It was further alleged that

rebate claims amounting to Rs. 13,22,30,368.00 for the period

from June, 2008 to July, 2011, were erroneously sanctioned and 5

utilised by the respondent which should not be demanded and

recovered under Section 11A(1) of the Central Excise Act (since

renumbered as Section 11A(4) of the Central Excise Act with effect

from 08.04.2011). Respondent was also called upon to show

cause as to why interest at the appropriate rate on the cenvat

credit wrongly availed of and utilised as determined and

demanded should not be recovered from it under the provisions

of Rule 14 of the Cenvat Credit Rules, 2004 read with Section

11AB of the Central Excise Act (now Section 11AA of the said Act

with effect from 08.04.2011).

5.4. Respondent submitted written reply dated 08.02.2013

denying all the allegations made in the show cause notice.

5.5. Following adjudication, the appellant vide the order in

original dated 25.02.2013 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. Hence 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. 6

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. Therefore, such labelling

at Taloja did not amount to manufacture. After holding that Rule

3 of the Cenvat Credit Rules, 2004 (hereinafter referred to as ‘the

Cenvat Credit Rules’) allows cenvat credit only in a case where the

process undertaken amounts to manufacture, respondent held

that the process of labelling undertaken by the respondent in its

unit at Taloja did not amount to manufacture. Therefore, the

cenvat credit availed of by the respondent was contrary to Rule 3

of the Cenvat Credit Rules. Hence, the credit of Rs.

23,02,53,752.00 availed of by it was irregular which was liable to

be recovered under Rule 14 of the Cenvat Credit Rules read with

Section 11A(1) of the Central Excise Act. Further, appellant held

that the respondent had already utilised part of the irregular

credit availed of and claimed rebate of Rs. 13,22,30,368.00 during

the period from June, 2008 to July, 2012. As the credit availed of

was irregular, the rebate sanctioned was erroneous since the

respondent was not entitled to take the credit and to utilize the

same. Therefore, it was held that the erroneous refund of Rs.

13,22,60,368.00 was liable to be recovered on which the 7

respondent was also liable to pay interest under Section

11AB/Section 11AA of the Central Excise Act. Proceeding further,

appellant held that respondent had suppressed the information

from the department that it was only undertaking labelling

activity at its Taloja unit which did not amount to manufacture.

Thus, with the intention to avail irregular credit, respondent had

suppressed the information and claimed that the process

undertaken by its unit at Taloja amounted to manufacture.

Therefore, there was suppression of material fact with the intent

to avail irregular credit. Hence, the respondent was held liable to

pay penalty equivalent to the irregular credit availed of under Rule

15(2) of the Cenvat Credit Rules read with Section 11AC of the

Central Excise Act. Thereafter, appellant passed the following

order:

1. credit of Rs. 23,02,53,752.00 (Rupees twenty three crores two lakhs fifty three thousand seven hundred fifty two only) was wrongly availed and therefore demanded under provisions of Rule 14 of Cenvat Credit Rules read with Section 11A(4) (erstwhile Section 11A(1) of the Central Excise Act.

2. rebate of Rs. 13,22,30,368.00 (Rupees thirteen crores twenty two lakhs thirty thousand three 8

hundred sixty eight only) sanctioned during the period from June 2008 to July 2012 was erroneous as the duty on the exported goods were paid by utilizing the regularly availed credit which was not eligible to the assessee. Hence, the same was demanded under Section 11A(1)/Section 11A(4) of Central Excise Act.

3. interest at the appropriate rate under Rule 14 of the Cenvat Credit Rules read with Section 11AA (erstwhile Section 11AB) of the Central Excise Act, was demanded on the irregular credit availed/erroneous rebate sanctioned.

4. penalty of Rs. 23,02,53,752.00 (Rupees twenty three crores two lakhs fifty three thousand seven hundred fifty two only) under the provisions of Rule 15(2) of Cenvat Credit Rules read with Section 11AC(1)(a) of the Central Excise Act was imposed. However, the penalty would be reduced to 25% of the above amount if the assessee paid the duty determined along with interest within 30 days of receipt of the order. The reduced penalty of 25% of the amount of duty so determined would be available to the assessee only if the 25% of the penalty was also paid within the period of thirty days of receipt of the order. Otherwise, the penalty imposed under Section 11AC(1)(a) equal to the duty amount would remain.

9 5.6. Aggrieved by the aforesaid order in original passed by

the appellant, respondent preferred appeal before the CESTAT.

After hearing the matter, both Judicial Member and Technical

Member passed separate orders on 05.01.2015.

5.7. In his order, the Judicial Member recorded that the

respondent after clearing the goods in its Jammu unit, received

the same in its factory at Taloja and claimed the benefit of

notification No. 56/2002-CE(NT) dated 14.11.2002. As per the

said notification, the Jammu unit was entitled to refund of the

duty paid whereas the Taloja unit was also entitled to avail cenvat

credit of the duty paid by the Jammu unit. Judicial Member noted

that after receiving the goods at Taloja, respondent affixed two

labels on the packages on two different sides and thereafter

exported the goods. After referring to the show cause cum demand

notice, the Judicial Member opined that the only issue for

consideration was whether the labelling/re-labelling or putting

additional labels on the containers in the Taloja unit amounted to

manufacture in terms of Note 3 to Chapter 18 of the Central

Excise Tariff Act. As per Note 3, in relation to products of Chapter

18, labelling or re-labelling of containers or repacking from bulk

packs to retail packs or the adoption of any other treatment to 10

render a product marketable to the consumer shall amount to

manufacture. Judicial Member opined that all the three activities

are independent and separate. Note 3 to Chapter 18 is a deeming

provision whereby the processes mentioned therein, if carried out,

would amount to manufacture though there may not be any

actual manufacture. In the above context, the Judicial Member

held that activities of labelling or re-labelling of containers without

enhancing marketability amounted to manufacture. A reading of

Note 3 would clearly indicate that the activity of labelling or re-

labelling of the containers amounted to manufacture. Thereafter,

it was held that both the Jammu unit and the Taloja unit of the

respondent are separate units. Therefore, it could not be said that

respondent was availing double benefit. The Taloja unit had

rightly availed the cenvat credit of the duty paid at Jammu as well

as the countervailing duty paid for the imported goods.

Consequently, the rebate claim was correctly sanctioned to the

respondent. Therefore, the respondent had rightly availed of the

cenvat credit. Since the issue, whether the activity of labelling or

re-labelling amounted to manufacture as per Note 3 to Chapter

18 of the Central Excise Tariff Act was related to interpretation of

a statutory provision, question of any suppression or 11

misrepresentation of fact by the respondent did not arise. Hence,

question of getting the benefit of any extended period of limitation

by the appellant for issuing show cause cum demand notice and

thereafter passing adjudication order did not arise. In the above

background, the Judicial Member set aside the order in original

dated 25.02.2013.

5.8. However, the Technical Member did not agree with the

view taken by the Judicial Member. He held that no manufacture

had taken place in the Taloja unit of the respondent both in

respect of the goods manufactured at Jammu as well as the

imported goods. He further held that the activity of the respondent

in bringing the goods from Jammu to Taloja and thereafter to affix

labels so as to avail the benefit of Note 3 to Chapter 18 was not

known to the department. Therefore, it was a case of

misrepresentation of facts with the intent to avail rebate

fraudulently. Consequently, the extended period of limitation was

available to the department. That being the position, the Technical

Member was of the view that the order in original was justified on

all counts and dismissed the appeal.

5.9. In view of the difference of opinion between the Judicial

Member and the Technical Member, the matter was placed before 12

the President of CESTAT to nominate a third member to resolve

the same.

5.10. Thereafter, pursuant to the order passed by the

President, the matter was placed before the third member to

resolve the difference of opinion between the Judicial Member and

the Technical Member.

5.11. After hearing the matter, the third member passed the

order dated 16.04.2015. Referring to Note 3 to Chapter 18, both

prior to 01.03.2008 and post 01.03.2008, the third member noted

that Parliament has consciously substituted the word ‘or’ in place

of ‘and’ appearing between the words ‘labelling or re-labelling of

containers’ and ‘repacking from bulk packs to retail packs’ to

widen the scope of Note 3. According to the third member, any one

of the three activities referred to in Note 3 i.e. (i) labelling or re-

labelling, (ii) packing or repacking from bulk and retail packing

and (iii) adoption of any other treatment to render a product

marketable would be deemed to be manufacture. He held that the

activity undertaken by the respondent at its Taloja unit i.e.

labelling amounted to manufacture. He negated the stand of the

revenue that labelling or re-labelling should enhance

marketability of the goods as contrary to the plain reading of Note 13

3. He, therefore, agreed with the Judicial Member that the activity

of labelling undertaken by the respondent is covered by Note 3 to

Chapter 18 of the Central Excise Tariff Act which amounts to

manufacture. Further, he also recorded a finding of fact based on

the evidence on record that respondent had repacked the

imported cocoa butter in new cartons and exported them after

labelling. He thus fully concurred with the view expressed by the

Judicial Member that the activity of labelling undertaken by the

respondent amounted to manufacture in terms of Note 3 to

Chapter 18 of the Central Excise Tariff Act. He also concurred with

the view expressed by the Judicial Member that there was no

suppression or misrepresentation of material fact by the

respondent. Therefore, the extended period was not available to

the revenue. He further held that the respondent is entitled to the

credit of the duty paid on the goods received from the Jammu unit

as well as credit of the countervailing duty paid on the imported

goods. That being the position, he held that the credit and the

rebate were rightly availed of by the respondent. Question of

refund of the same did not arise. Further, no penalty can be

imposed on the respondent.

14

5.12. Following the opinion rendered by the third member,

the matter was placed before the two-member Bench of CESTAT.

In view of the majority decision, the appeal filed by the respondent

was allowed vide the order dated 16.04.2015.

6. This Court by the order dated 08.02.2016 had issued

notice. Thereafter, the appeal was admitted on 18.11.2019.

7. Respondent has filed counter affidavit supporting the

order of CESTAT and has sought for dismissal of the appeal. In

response thereto, appellant has filed rejoinder affidavit reiterating

the grounds urged in the appeal.

8. Learned counsel for the appellant has laid great

emphasis on the fact that the activity undertaken by the

respondent at its Taloja unit i.e. putting labels on the two sides of

the cartons which were already labelled at Jammu, cannot be said

to be a manufacturing activity. Note 3 to Chapter 18 of the Central

Excise and Tariff Act cannot be read in a manner to hold that the

activity of labelling amounted to manufacture. Learned counsel,

therefore, contended that appellant was fully justified in passing

the order in original. CESTAT was divided in its opinion as to

whether such an activity could be termed as manufacture. The

Technical Member had given good reasons as to why such an 15

activity cannot be called manufacture while differing from the view

taken by the Judicial Member. The third member has erred in

concurring with the view taken by the Judicial Member. He,

therefore, submits that the order passed by the CESTAT by way

of majority should be interfered with and order in original should

be restored.

9. Mr. V. Sridharan, learned senior counsel in his brief

submission referred to Note 3 to Chapter 18 of the Central Excise

Tariff Act, both prior to its amendment with effect from

01.03.2008 and post amendment. According to him, Parliament

has consciously replaced the word ‘and’ by the word ‘or’ and post

amendment, it is clear that the activity of labelling or re-labelling

amounted to manufacture. He, therefore, supports the decision of

the CESTAT and seeks dismissal of the appeal.

10. Submissions made by learned counsel for the parties

have received the due consideration of the Court.

11. The core issue to be considered is whether the activity

of labelling carried out by the respondent amounts to

manufacture? While contention of the appellant is that the same

does not amount to manufacture, on the other hand according to 16

the respondent, as per Note 3 to Chapter 18 of the Central Excise

Tariff Act, the above activity amounts to manufacture.

12. The Central Excise Act which has since got subsumed

in the Central Goods and Services Tax Act, 2017 was enacted to

provide for levy of central duties of excise on goods manufactured

or produced in India and for matters connected therewith or

incidental thereto.

12.1. Section 2 is the definition clause. ‘Manufacture’ is

defined in Section 2(f) which reads as follows:

“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 (5 of 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 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, 17

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 own account;

12.2. Therefore, 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.

13. Chapter 18 of the Central Excise Tariff Act deals with

cocoa and cocoa preparations. Note 3 to Chapter 18 has

undergone amendment with effect from 01.03.2008. Prior to the

amendment, Note 3 to Chapter 18 read as under:

In relation to products of this Chapter, labelling or re-labelling of containers and repacking from 18

bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.

13.1. Post 01.03.2008, Note 3 now reads as follows:

In relation to products of this Chapter, labelling or re-labelling of containers or 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’.

13.2. Thus by way of the amendment, the word ‘and’ has

been replaced by the word ‘or’ between the expressions ‘labelling

or re-labelling of containers’ and ‘repacking from bulk packs to

retail packs’. Prior to 01.03.2008, the legislative intent was quite

clear. The process to constitute manufacture should either be

labelling or re-labelling of containers and repacking from bulk

packs to retail packs. This process was construed to be one whole.

In other words, the activity should not only include labelling or re-

labelling of containers but the same should relate to repacking

from bulk packs to retail packs. This was one activity. The other

activity was adoption of any other treatment to render the product

marketable to the consumer. Therefore, the legislature was quite 19

clear that if either of the two processes were followed, the same

would amount to manufacture.

13.3. However, after the amendment i.e. post 01.03.2008,

Note 3 has undergone a change as indicated above. 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. As pointed out above,

the composite activity of labelling or re-labelling of containers and

repacking from bulk packs to retail packs has been split up into

two activities i.e. labelling or re-labelling of containers is one and

the other is repacking from bulk packs to retail packs. The other

activity of adopting any other treatment to render the product

marketable to the consumers remains the same. Therefore, Note

3, post amendment, as it exists today contemplates three different 20

processes; if either of the three processes are satisfied, the same

would amount to manufacture. The three processes are:

(i) labelling or re-labelling of containers; or

(ii) repacking from bulk packs to retail packs; or

(iii) the adoption of any other treatment to render the product marketable to the consumer.

13.4. As already observed above, if any one of the above three

processes is satisfied then the same would amount to

manufacture.

14. We have already noticed the definition of ‘manufacture’

in the Central Excise Act. 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.

15. There is no factual dispute as to the activity carried out

by the respondent at its Taloja unit. 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’. 21

16. That being the position, we are of the considered

opinion that the view taken by CESTAT is the correct one and no

case for interference is made out. This is because all the other

aspects are related and hinges upon the core issue. Resultantly,

the impugned order of CESTAT dated 16.04.2015 is affirmed and

the appeal by the revenue is dismissed.

17. In view of the above decision, Civil Appeal Nos. 788-790

of 2022 would also stand dismissed.

18. However, there shall be no order as to costs.

………………………………J [ABHAY S. OKA]

.……………………………J. [UJJAL BHUYAN]

NEW DELHI;

APRIL 30, 2024.