By TIOL News Service

MUMBAI, MAY 19, 2017: THE appellant is engaged in telemarketing of products by TV advertising. The Appellant purchases goods from importers and carries out the process of packing in secondary boxes as well as putting stickers which bears the name of the product, the importer's name, name of the company marketing it, item code, date of import and the MRP.

The CE officers visited the Appellant's business premises and seized the goods.

In respect of some goods like Food processor, Power Juicer etc. the revenue opined that the goods being classifiable under CSH 8509 and 8516 are liable to duty in terms of Section 4A of the CEA, 1944 as the appellant had affixed MRP on packing of goods which amounts to manufacture in view of section 2(f)(iii) of CEA, 1944 read with the third Schedule to the CEA.

SCN came to be issued proposing confiscation of the seized goods and imposition of penalty u/s 11AC r/w rule 25/27 of CER and penalty u/r 26 on the Managing Director. Another notice was also issued demanding CE duty of Rs.77.44 lakhs with interest and penalty.

The proposals in the SCNs were confirmed by the adjudicating authority and, therefore, the appellant is before the CESTAT.

The appellant submitted that the said bought out goods are brought to their godown and packing is not changed but for additional safety in transport and to prevent damage during transit and also as per requirement of postal authorities an additional package on the outer side of the packaged goods are provided; also as per the requirement of Standards of Weights & Measures Act the MRP is affixed and their name is affixed;that the chapter note under chapter 85 does not stipulate that the process of packing and relabeling is manufacture; that the process of packing for safety of goods does not amount to manufacture; that even otherwise they are entitled for benefit of SSI exemption; that they would be entitled to CENVAT credit and resultantly the demand would get reduced to only Rs.12,58,446/-; that issue involves legal interpretation and, therefore, no cause for invoking extended period of limitation; that no penalty u/r 26 can be imposed on the Managing Director as there is no evidence of contumacious conduct on his part. Case laws relied upon are Johnson & Johnson Ltd. - 2005-TIOL-132-SC-CX, Mega PRO (India) - 2007-TIOL-2241-CESTAT-DEL, Panchsheel Soap Factory - 2002-TIOL-22-CESTAT-DEL etc.

While reiterating the findings of the adjudicating authority the AR submitted that the appellants are not eligible for SSI Exemption. Reliance is placed on the decision in Ace Auto Comp. Ltd. - 2010-TIOL-112-SC-CX.

The Bench, after considering the submissions, observed thus -

+ In this case, the Appellants were importing goods and after packing of same in corrugated boxes, were affixing the importers name as well as MRP in addition to other details. Such activity is covered under manufacture under Third Schedule …as stipulated under Section 2(f) of the Central Excise Act.

+ The Appellant has contended that they are the owner of Trade Mark as the brand name was registered in their name in India. We find that once the brand name “Magic Bullet” though belonging to overseas company but permitted to be used by the Appellant in India and registered in their name will make the Appellants the owner of such brand name. In such a case the Appellant shall be entitled to SSI exemption on their clearances and after crossing of the exemption limit they are entitled for credit of duty paid on Inputs and Input services.

+ Further, we also find that the duty demand has been made from the Appellant by holding the goods excisable on ground of their activity being amounting to manufacture. In such case when the appellant's activity are amounting to manufacture they are entitled for the credit of duty paid inputs and input services received by them.

+ We find that as apparent from the investigation there is no instance showing that the Appellant had intention to evade payment of duty. We find that the Appellants were in ignorance of schedule Third …. It was only during investigation that the Appellant realized that their activity of packing of goods and affixing labels would fall into the category of manufacture as per Section 2(f)(iii) and third schedule. Further the sales record and all business transactions were recorded by them in transparent manner. Moreover, the advertisement and marketing of products in question were very much in public domain through television. As per this undisputed fact, we find that there is no suppression of fact on part of the appellant. Therefore, entire demand being under extended period could not have been confirmed under the proviso to Section 11A.

+ Similarly, the confiscation of goods and imposition of penalty cannot be justified. As far as charges against the Appellant Shri Hitesh Israni is concerned, since the intention to evade payment of duty is not present in this case, there is no reason to impose penalty upon him.

The impugned order was set aside and the appeals were allowed with consequential relief.

(See 2017-TIOL-1674-CESTAT-MUM)