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Commissioner of Central Excise Belapur vs Jindal Drugs Ltd.

Not available · 2024 INSC 354Decided 30 Apr 2024
Not available
Justice Abhay S. Oka · Justice Ujjal Bhuyan

Background

A company manufactured cocoa butter and cocoa powder at its Jammu factory and also imported the same products from abroad; both were sent to its Taloja (Maharashtra) unit, where additional labels were affixed on the packaging before the goods were exported. The company claimed cenvat credit for excise duty already paid on the Jammu-made and imported goods, and claimed rebates on duty paid at the time of export. The excise department argued that simply affixing extra labels, on goods that were already labelled and marketable, did not amount to "manufacture," so the company was not entitled to the credit or rebate, and demanded recovery of over Rs. 23 crore in credit plus penalty, alleging the company had suppressed facts. The CESTAT (tax tribunal) was internally divided, but its majority (via a third member) ruled in the company's favour, and the excise department appealed to the Supreme Court.

Decision Breakdown

The Supreme Court examined Note 3 to Chapter 18 of the Central Excise Tariff Act, which deems certain processes, including "labelling or re-labelling of containers", to amount to "manufacture" for products like cocoa preparations, regardless of whether an actual physical transformation occurs. The Court noted that a 2008 amendment had changed the word "and" to "or" between the listed processes, splitting what was once one combined activity (labelling plus repacking) into three independent activities, any one of which alone now suffices to count as manufacture. Since the company had undisputedly relabelled the goods at its Taloja unit before sending them out, this satisfied the deeming provision on its own, regardless of whether it added any real value or marketability. The Court also agreed there was no suppression of facts by the company, since the dispute was a genuine question of statutory interpretation, not concealment. The CESTAT's decision in the company's favour was upheld and the revenue's appeal dismissed.

Lesson Learnt

Tax and excise statutes sometimes define an activity, like simply relabelling a package, as "manufacture" by legal fiction, even where no physical transformation of the product occurs; a small change in statutory wording (here, "and" to "or") can significantly expand which businesses qualify for tax credits and rebates.

Official source (sci.gov.in)View Judgment (PDF)

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