Packing, labelling and branding activities :
Packing of dutiable goods is a process of manufacture. The definition of manufacture as contained in section 2(f) of the Act, covering incidental and ancillary activities there under, would incorporate within its ambit the activity of packing, which is a necessary adjunct to manufacture. Further, goods are normally treated as fully manufactured for the purpose of accounting in the statutory excise records at the stage where they are packed in their normal packing, without which they cannot be delivered in wholesale at the factory gate. In other words the activity of packing of otherwise fully manufactured goods is the process which renders such goods marketable and consequently the activity of packing is part and parcel of manufacture.
Reference is also made in this connection to section 4 of the Central Excise Act governing the determination of value of excisable goods. The aforesaid provisions of section 4 would also indicate that packing is always contemplated under excise law as a part of the entire process of manufacture by which input materials are transformed into commercially distinct, identifiable and marketable finished products.
It is to be noted that for the goods specified in Third Schedule of Central Excise Act, 1944, the process of packing or repacking of such goods in a unit container or labelling or re -Iabelling of containers amounts to manufacture. Further, the declaration or alteration of retail sale price or adoption of any other treatment on the goods to render the product marketable to the consumer also results in manufacture. The goods specified in Third Schedule of the Central Excise Act, 1944 are valued on MRP basis as per the provisions of section 4A.
Further, several Chapters of the Central Excise Tariff also incorporate the duty rates on excisable goods packed in packages. In other words, the Tariff itself determines the duty rates of excisable goods in a fully packed and saleable condition. For example, milk powder is chargeable to duty only if it is put up in unit containers. In case it is produced and consumed within the factory of production without packing in such unit containers, there is no liability to duty. Unit containers are also defined in the Tariff as containers, large or small, desi gned to hold a predetermined quantity or number. Several examples of unit containers are also described therein.
The position in law however changes when excisable goods which are packed in bulk are charged to duty and are thereafter dispatched to outside godowns wherein they are repacked into small containers. In such a situation, the principle in law is that since the bulk product has already been fully manufactured and has been marketed or dispatched in the factory, the repacking activity would not constitute manufacture in law. There are numerous decisions to this effect both of the Tribunal and of the High Courts.
Another aspect of the issue is that of packing together of a manufactured item together with a bought out or purchased item. It was held by the tribunal that packing together of a fully manufactured product and the bought out item would not bring into existence any new commodity. Consequently, the duty liability would be restricted to the manufactured product only. The mere activity of packing together of two distinct goods in a single container would not bring into existence any new commodity; here it is important to distinguish the activity of packing together of two different products from that of assembly of the products together to form a distinct third product. In other words, while such packing would not constitute manufacture, assembly would certainly constitute manufacture. Reference is made in this connection to the Supreme Court‘s decision in the Narne Tulaman case.
Coming now to the aspect of whether labelling and branding activities constitute manufacture or not, the settled position in law is that an unlabelled and a labelled product is normally treated in commercial parlance as the same and consequently the mere labelling of fully manufactured products would not constitute manufacture in law. The Bombay High Court, in Pioneer Tools and Appliances (P) Ltd. Vs. Union of India (1989) (42) ELT-384 has held that mere affixation of labels would not render the person who undertakes the sai d activity as a manufacturer since the activity would not constitute manufacture in law.
As far as question of branding of goods is concerned there are numerous decisions, which hold that such branding would not amount to manufacture. In most of these cas es, the manufacturer was affixing the brand name of the customers on the specified goods and the Department sought to establish that the brand name owner was the manufacturer in law. This was negated by the Supreme Court in a series of three decisions in Union of India Vs. Cibatul Ltd. (1985) (22) ELT- 302, Joint Secretary to Govt. of India Vs. Food Specialties Ltd. (1985) (22) ELT-324, and in Sidhosons Vs. UOI (1986) (26) ELT-881. The question whether branding of already manufactured goods was a process of manufacture was not per se considered in these decisions and Court rendered its decision only on whether or not the brand name owner was the manufacturer under excise law.
However, in Banner & Co. Vs Union of India (1994) (70) ELT-181, the Calcutta High Court held that affixation of a brand name on specified goods did not amount to manufacture. Similarly, in the Pioneer Tools case (supra), the Bombay High Court impliedly held that the activity of branding carried out by a wholesale buyer on fully manufactured goods could not constitute manufacture under excise law so as to require excise duty liability discharged on such an activity. The Apex Court agreed in this regard in Metal Box (I) Ltd.(1996).
In view of the aforesaid position of law, wherever there are serious revenue implications, the Legislature has introduced the concept of artificial definition of manufacture to include the activity of repacking, relabelling or branding as amounting to manufacture. For example, you would find these activities as amounting to manufacture under Chapter 21 or Chapter 30 of the Tariff. Therefore, wherever the Tariff would state so, such activities would amount to manufacture.
Activity of transferring the goods from tankers into smaller drums is not manufacture: As per note 10 to Chapter 29, the activity of repacking products mentioned in the said Chapter from bulk packs to retail packs shall amount to manufacture under section 2(f)(iii) of the Central Excise Act, 1944.
In this regard, it has been clarified that the activity of transferring the goods from tankers into smaller drums cannot be said to be covered by the said chapter note 10 because the tankers cannot be termed as bulk packs [Circular No. 910/30/2009-CX dated 16-12-2009].