CONYBIO HEALTHCARE (INDIA) PVT. Vs. CCE

JUDGEMENT

(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) and 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 and 62 of the Schedule to the Central Excise Tariff Act. This Chapter Note reads as follows:

(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 and 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 and 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 and 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.