The Supreme Court of India delivered a landmark judgment in the case of Commissioner of Central Excise Belapur v. Jindal Drugs Ltd. (2024 INSC 354), which has significant implications for the interpretation of what constitutes 'manufacture' under the Central Excise Tariff Act, 1985. The case revolves around whether the mere activity of affixing labels on goods qualifies as manufacturing, thereby entitling the respondent, Jindal Drugs Ltd., to availing cenvat credit and export rebates.

The appellant, Commissioner of Central Excise, Belapur, challenged the CESTAT's decision that recognized labelling activities at Jindal Drugs Ltd.'s Taloja unit as manufacturing. The CESTAT had allowed the respondent's appeal, stating that labelling or relabelling of containers falls within the ambit of 'manufacture' as per Note 3 to Chapter 18 of the Central Excise Tariff Act. The Supreme Court upheld the CESTAT's decision, affirming that the act of labelling indeed constitutes manufacturing, thereby allowing Jindal Drugs Ltd. to retain the cenvat credit and export rebates. Consequently, the appellant's demand for recovery of the credits and penalties was dismissed.

Precedents Cited

The judgment predominantly hinged on the interpretation of statutory provisions rather than on previous case law precedents. However, the court deliberated on the amendments made to Note 3 of Chapter 18 of the Central Excise Tariff Act and how these amendments influenced the current interpretation. The analysis reflected a deeper understanding of legislative intent and statutory language rather than relying on earlier judicial decisions.

Legal Reasoning

The crux of the court's reasoning was rooted in statutory interpretation. The Supreme Court examined the amendments made to Note 3 both prior to and post-01.03.2008. Originally, the use of "and" implied that labelling/re-labelling was closely tied with repacking, forming a composite manufacturing activity. The amendment substituting "or" for "and" widened the scope, allowing any of the specified activities—labelling/re-labelling, repacking, or any treatment rendering the product marketable—to independently constitute manufacturing.

The court assessed the activities undertaken by Jindal Drugs Ltd. and concluded that affixing labels on both sides of the cartons without enhancing marketability still fell within the definition of 'manufacture' per the amended Note 3. The court further dismissed the appellant's contention of suppression of facts by the respondent, finding no evidence of misrepresentation intended to defraud the excise department.

Impact

This judgment establishes a clear precedent that labelling activities, even when not directly enhancing the product's marketability, qualify as manufacturing processes under the Central Excise Tariff Act. This broad interpretation empowers manufacturing units to leverage cenvat credits and export rebates for ancillary activities, potentially reducing their tax liabilities. Future cases involving similar ancillary processes will likely reference this judgment, solidifying the understanding that such activities are integral to manufacturing.

Manufacture under the Central Excise Tariff Act

The term 'manufacture' is expansively defined in the Central Excise Act to include not just the primary production processes but also activities that are incidental or ancillary to the completion of a product. This includes:

• Labelling or re-labelling of containers.
• Repacking from bulk packs to retail packs.
• Any other treatment that renders the product marketable to consumers.

Importantly, the recent amendment clarified that each of these activities individually qualifies as 'manufacture', thanks to the use of the word "or" instead of "and".

Cenvat Credit

Cenvat Credit stands for 'Central Value Added Tax Credit'. It allows manufacturers to take credit for the excise duty paid on inputs and capital goods, thereby avoiding the cascading effect of taxes. Accurately determining manufacturing activities is crucial for the rightful claim of such credits.

The Supreme Court's decision in Commissioner of Central Excise Belapur v. Jindal Drugs Ltd. has affirmed that ancillary activities like labelling are integral to manufacturing under the Central Excise Tariff Act. This interpretation not only broadens the scope of what qualifies for cenvat credit but also reinforces the legislative intent to encompass various activities that contribute to the completion and marketability of goods. Manufacturers can now be more confident in claiming credits for such activities, ensuring fair taxation and fostering a conducive manufacturing environment.