A) ABSTRACT / HEADNOTE

This case revolves around the interpretation of Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985, specifically whether the activity of affixing labels on cocoa butter and cocoa powder constitutes “manufacture” under Section 2(f) of the Central Excise Act, 1944. The dispute emerged after the Revenue contested the rebate of duty paid during export and CENVAT credit availed by the Respondent, asserting that the labeling did not qualify as “manufacture.” The Supreme Court, upholding the decision of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), ruled that labeling amounts to manufacture under the amended Note 3, which broadens the scope of the term. The Court clarified that relabeling or labeling alone suffices to render the activity as “manufacture,” even without additional marketability enhancement.

Keywords: Central Excise Tariff Act, Manufacture, Re-labeling, CENVAT Credit, Indirect Tax

B) CASE DETAILS

i) Judgement Cause Title: Commissioner of Central Excise Belapur v. Jindal Drugs Ltd.

ii) Case Number: Civil Appeal No. 1121 of 2016

iii) Judgement Date: April 30, 2024

iv) Court: Supreme Court of India

v) Quorum: Justice Abhay S. Oka and Justice Ujjal Bhuyan

vi) Author: Justice Ujjal Bhuyan

vii) Citation: [2024] 5 S.C.R. 271, 2024 INSC 354

viii) Legal Provisions Involved:

• Section 2(f) of the Central Excise Act, 1944
• Note 3 to Chapter 18, Central Excise Tariff Act, 1985
• Rule 14 of the CENVAT Credit Rules, 2004
• Section 11A of the Central Excise Act, 1944

ix) Judgments Overruled by the Case: None

x) Case is Related to: Taxation Law, Indirect Taxes, Excise Duty, Customs, and Export Benefits

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The appeal arose after the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) adjudicated in favor of the Respondent, Jindal Drugs Ltd. The dispute originated when the Commissioner of Central Excise challenged the classification of labeling activities performed at the Respondent’s Taloja unit as “manufacture.” The case’s crux was interpreting Note 3 to Chapter 18 of the Central Excise Tariff Act, amended in 2008. Earlier, labeling had to be coupled with repacking for qualifying as “manufacture.” Post-amendment, labeling was independently classified as a manufacturing activity. The Revenue argued against extending CENVAT credit and export rebate for duties paid on goods labeled but not repacked.

D) FACTS OF THE CASE

1. Respondent’s Operations: Jindal Drugs Ltd. exports cocoa butter and cocoa powder manufactured at its Jammu unit to its facility in Taloja, Maharashtra. At Taloja, the goods undergo additional labeling before export or domestic marketing.

2. Imported Goods: The Respondent also imports cocoa products from China and Malaysia, labels them at Taloja, and then exports them.

3. Show Cause Notice: The Revenue alleged that the additional labeling at Taloja did not amount to “manufacture,” disqualifying the Respondent from claiming CENVAT credit (₹23 crores) and rebates (₹13.22 crores) on duties paid.

4. CESTAT Ruling: CESTAT, by majority, held that labeling amounts to manufacture under Note 3 and exonerated the Respondent from accusations of suppression and misrepresentation.

E) LEGAL ISSUES RAISED

1. Does labeling, without repacking or enhancing marketability, qualify as “manufacture” under Note 3 to Chapter 18?
2. Is the Respondent entitled to CENVAT credit and rebates on duties paid for exported goods?
3. Can extended limitation periods apply for alleged suppression or misrepresentation under Section 11A?

F) PETITIONER’S ARGUMENTS

1. The additional labels affixed at Taloja did not increase the goods’ marketability, thus not meeting the criteria for “manufacture.”
2. The Respondent manipulated provisions to gain undue benefits, constituting suppression.
3. CESTAT misinterpreted Note 3, ignoring the legislative intent requiring labeling to enhance consumer readiness.

G) RESPONDENT’S ARGUMENTS

1. The 2008 amendment to Note 3 explicitly classified labeling as an independent manufacturing process.
2. Duties were duly paid, and labeling, by law, entitled the Respondent to CENVAT credit and rebates.
3. There was no intent to suppress facts; all information regarding labeling and imports was disclosed.

H) JUDGMENT

a. Ratio Decidendi

The Supreme Court ruled that:

1. Post-2008 Note 3 Clarification: The amendment split labeling, repacking, and other treatments into three independent manufacturing processes.
2. Sufficiency of Labeling: The Respondent’s activity of relabeling qualifies as “manufacture,” satisfying the conditions of Note 3 to Chapter 18.
3. No Suppression Found: The Court rejected the Revenue’s claim of suppression, finding no evidence to invoke extended limitation periods.

b. Obiter Dicta

The Court emphasized the legislative shift in Note 3’s language to broaden the scope of what constitutes manufacture, reflecting Parliament’s intent.

c. Guidelines (if any)

1. Tax authorities must adhere to the literal interpretation of statutory provisions unless there is ambiguity.
2. Activities explicitly covered by deeming provisions (e.g., Note 3) should not require additional scrutiny for intent.

I) CONCLUSION & COMMENTS

The Supreme Court’s judgment affirms the liberalized definition of “manufacture” under the Central Excise regime. The ruling protects manufacturers against unwarranted demands by ensuring that statutory benefits tied to clear legal provisions, like Note 3, are enforceable. It also highlights the legislative intent to simplify and broaden manufacturing definitions, reducing interpretative disputes.

J) REFERENCES

Important Cases Referred:

• CCE v. Rajasthan Spinning and Weaving Mills, (2009) 13 SCC 448
• CCE v. MDS Switchgear Ltd., (2008) 229 ELT 485

Important Statutes Referred:

• Central Excise Act, 1944
• Central Excise Tariff Act, 1985