COMMISSIONER OF CENTAL EXCISE, BELAPUR VS JINDAL DRUGS LTD.

CITATION	[2024] 5 S.C.R. 271
YEAR OF JUDGEMENT	30th April 2024
STATUES REFERRED IN THIS CASE	Taxation law, Central Excise act 1985
PETITIONER	Commissioner of central excise Belapur
RESPONDENT	Jindal drugs ltd.
BENCH	Justice Abhay s. Oka and Justice Ujjal Bhuyan

INTRODUCTION

This case centers on the interpretation of Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985, The petitioner filed an appeal against the order of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), which ruled in favour of the respondent, Jindal Drugs Ltd. The primary issue in this case was whether the process of labelling or relabelling a product, namely cocoa butter and cocoa powder, constitutes “manufacturing” as defined under Section 2(f) of the Central Excise Act, 1944.

The respondent, at its Taloja unit in Maharashtra, affixed additional labels to the products before exporting them. The petitioner argued that labelling does not amount to manufacturing and alleged that the respondent was concealing facts to unlawfully claim the benefits of CENVAT credit and rebates on the duties paid.

FACTS OF THE CASE 

The respondent, Jindal Drugs Limited, manufactures cocoa butter and cocoa powder at its Jammu unit. These products are then sent to its Taloja unit in Maharashtra, where additional labels are affixed before they are exported or sold domestically. The respondent also imports cocoa products from China and Malaysia, labels them at the Taloja unit, and subsequently exports them or sells them domestically. The petitioner served a show-cause notice upon the respondent, arguing that labelling does not constitute “manufacture” under the Central Excise Act, 1944. They claimed that the respondent was not entitled to claim CENVAT credit of ₹23 crores or rebates on duties paid amounting to ₹13.22 crores. It had alleged that the respondent was trying to mislead or even suppress factual matrix for unwarranted purposes. The CESTAT, by majority decision, held that the labelling process falls within the ambit of the word ‘manufacturing’ under the purview of Note 3 of Chapter 18 of the Central Excise Tariff Act, 1985. It had further ruled that the respondent was eligible for the benefit of both CENVAT credit and rebates on duties paid. The tribunal also dismissed the allegations of fact concealment, stating that the extended limitation period was not applicable.

ISSUE RAISED 

• Whether labelling or re-labelling qualifies as “manufacture” under note 3 of chapter 18 of the central excise act, 1985.
• Whether the respondent is entitled to avail the benefit of CENVAT credit and rebates on duties paid for exported goods.

ARGUMENTS OF THE PLAINTIFF

• The petitioner submits that the additional labels applied at the Taloja unit did not enhance the marketability of the goods, and hence, the process cannot be regarded as “manufacture” under the Central Excise Act, 1985. According to the petitioner, mere addition of labels to the products does not change the basic nature of the products and does not enhance their marketability to the consumer. Therefore, the process of labeling does not fulfill the fundamental requirements of “manufacture” as stipulated in the statute. Moreover, the petitioner claims that the respondent had manipulated the provisions of the law for the purposes of gaining undue financial benefits. The said actions included the unlawful availing of CENVAT credit and rebates on duties paid, based on an activity that does not qualify as manufacturing. The petitioner avers that such actions amount to suppression of material facts, wherein the respondent knew the nature of their operations that were misrepresented to gain benefits that did not belong to them. The petitioner further submits that the CESTAT misinterpreted the provisions of Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985. The tribunal failed to consider the legislative intent behind the provision, which is to ensure that activities such as labeling enhance the product’s marketability to the consumer. According to the petitioner, relabeling or re-labelling is the process of getting the product ready for sale; it is something that is intended to be eaten and sold with an identity. Since the purpose of the relabeling labels put at Taloja is not fulfilled by the same, the petitioner says that the judgment of the CESTAT has been passed based on wrong understanding of law and legislative intention.

ARGUMENTS OF THE RESPONDENT

The respondent, Jindal Drugs Ltd., contends that the 2008 amendment to Note 3 of Chapter 18 of the Central Excise Tariff Act, 1985, clearly classifies labelling as an independent manufacturing process. This amendment clearly identifies labelling and relabelling as processes that are within the scope of the term “manufacture.” The respondent submits that, according to the amended provisions, the act of affixing labels to the products at its Taloja unit constitutes a manufacturing process, and it is entitled to claim CENVAT credit and duty exemptions on the products that it exports or sells in the domestic market. The respondent asserts further that there were payments in full of the duties as commanded by law. All relevant taxes and duties to be paid complied with the given provisions. They contend that the payment of these duties, along with the labelling process, gives them the legal rights available under the Central Excise Act, including the claim for CENVAT credit and rebates on duties paid during the export of the goods. The respondent submits that these claims were made in full compliance with the statutory requirements and in good faith. In addition, the respondent has denied all allegations of suppression of facts. According to the respondent, there was no attempt to hide any information, and all the details regarding the labelling processes, including the imports and labelling activities at the Taloja unit, were brought to the notice of the authorities. The respondent asserts that they had furnished all the relevant documents and information to the Revenue, and no misrepresentation or intentional suppression of facts took place. They assert that the extended limitation period for recovery of duties should not be applied, as they acted in complete transparency and in accordance with the law.

JUDGEMENT

The Supreme Court affirmed the decision of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) and upheld the interpretation of the 2008 amendment to Note 3 of Chapter 18 of the Central Excise Tariff Act, 1985. The amendment explicitly classified labelling, repacking, and similar activities as independent processes that constitute “manufacture” under the law. The Court agreed with CESTAT’s reasoning that the respondent’s activity of relabelling cocoa butter and cocoa powder at its Taloja unit qualifies as a manufacturing process, as per the amended provisions of Note 3. Consequently, the respondent was entitled to avail of CENVAT credit and rebates on duties paid for both exported and domestically marketed goods, in line with the provisions of the Central Excise Act.

The Court further rejected the petitioner’s allegations of suppression of facts, finding no substantiated evidence to support the claim. The Revenue’s attempt to extend the limitation period for duty recovery was thus deemed unjustified. In its judgment, the Court underscored the legislative intention behind the amendment to Note 3, which sought to expand the definition of “manufacture” to include processes such as labelling, which enhance the marketability of the goods. The broadening of the scope reflects the legislature’s purpose of providing more inclusive tax benefits to businesses involved in such activities. The judgment reaffirmed the importance of a literal interpretation of legislative changes, recognizing the intent to ensure fair application of tax provisions and encourage transparency in business practices.

ANALYSIS OF THE CASE

This case underscores the critical role that legislative amendments play in shaping tax laws and defining the scope of “manufacture” under the Central Excise Act, 1944. The 2008 amendment to Note 3 of Chapter 18 of the Central Excise Tariff Act, 1985 significantly expanded the definition of manufacturing by explicitly including activities such as labelling, repacking, and similar treatments. This expansion directly influenced the outcome of the case, as the Supreme Court ruled that the respondent, Jindal Drugs Ltd., was entitled to claim CENVAT credit and duty rebates on both exports and domestic sales, as the act of relabelling cocoa butter and cocoa powder at its Taloja unit qualified as a “manufacturing process” under the amended provisions of Note 3 to Chapter 18.

The Court’s decision to uphold the ruling of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) highlights the importance of a fair and balanced interpretation of legislative amendments. It affirms that businesses complying with the law should be entitled to tax benefits without the risk of exploitation. This decision also emphasizes the importance of transparency, integrity, and adherence to legal provisions in business practices, aligning with the intent of the Central Excise Act, 1944 and the CENVAT Credit Rules, 2004.

The case serves as a reminder for businesses to stay informed of any changes in tax laws, especially those involving definitions and criteria for tax incentives. The legislative intent to broaden the scope of “manufacture” to include activities like labelling and repacking aligns with Section 2(f) of the Central Excise Act, 1944, which defines “manufacture” and provides a clear basis for businesses engaged in such processes to avail themselves of the tax benefits provided. Ultimately, the case demonstrates how legal clarity can ensure businesses are supported in their lawful operations while fostering a fair and competitive economic environment.

PRINCIPLE APPLIED IN THE CASE

The legal principle applied in this case pertains to the literal interpretation of statutory provisions, specifically the 2008 amendment to Note 3 of Chapter 18 of the Central Excise Tariff Act, 1985. The Supreme Court emphasized that where no ambiguity exists, legislative amendments must be construed in accordance with their plain and unambiguous meaning.

In the present matter, the Court interpreted the amended provisions of Note 3 to encompass labelling, repacking, and similar processes as activities falling within the definition of “manufacture.” Consequently, the Court held that Jindal Drugs Ltd.’s practice of relabelling products at its Taloja unit met the statutory criteria for manufacturing, thereby entitling the respondent to claim CENVAT credit and rebates on duties paid for both exported and domestically sold goods.

Moreover, the Court underscored the legislative intent to broaden the definition of manufacture to include processes that enhance marketability, thus recognizing a wider array of activities as eligible for tax benefits. The ruling also reflected the application of the principle that there was no suppression of facts on the part of the respondent, as all pertinent information had been duly disclosed to the authorities, thereby reinforcing the principles of transparency and fairness in business operations.

CONCLUSION

To conclude, the Supreme Court’s ruling in this case underscores the critical role of legislative amendments in broadening the definition of “manufacture” under the Central Excise Act. The 2008 amendment to Note 3 of Chapter 18 expanded the scope of manufacturing activities to encompass processes such as labelling, repacking, and other similar treatments, which directly influenced the Court’s decision. By affirming the CESTAT’s order, the Court determined that the relabelling activity performed by Jindal Drugs Ltd. qualifies as “manufacture” under the amended provisions, thereby entitling the respondent to CENVAT credit and duty rebates on its exports and domestic sales.

The case emphasizes the need for a fair and transparent interpretation of statutory provisions, ensuring that businesses in compliance with the law are entitled to the tax incentives provided by the legislation. The Court’s reliance on a literal interpretation of Note 3 reflects the intention of the legislature to expand the definition of “manufacture” to include additional activities such as labelling, which was expressly intended to encourage marketability and promote fair business practices. Furthermore, the ruling highlights the importance of staying abreast of legal developments to ensure full compliance with evolving tax laws. Ultimately, the judgment serves to reinforce the principles of legal clarity, equitable interpretation, and the promotion of a level playing field, thereby supporting businesses that act in accordance with the law.

REFRENCES

• Central Excise Act, 1944
• Central Excise Tariff Act, 1985
• https://digiscr.sci.gov.in/pdf_viewer?dir=YWRtaW4vanVkZ2VtZW50X2ZpbGUvanVkZ2VtZW50X3BkZi8yMDI0L3ZvbHVtZSA1L1BhcnQgSUkvMjAyNF81XzI3MS0yODRfMTcxNjU0MDg2NC5wZGY=
• https://lawfoyer.in/commissioner-of-central-excise-belapur-vs-jindal-drugs-ltd/
• https://updates.manupatra.com/roundup/contentsummary.aspx?iid=45802

This article is written by Aastha Srivastava student of United University, Prayagraj; Intern at Legal Vidihya. 

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