Judgment:
1. Adi Enterprises (Appeal 3226/01) is a job worker for Johnson & Johnson (Appeal 3227). Johnson & Johnson is a manufacturer of various cosmetics and similar products such as baby soap, baby oil, baby powder, baby shampoo etc. In terms of a contract entered into between Johnson & Johnson and Adi Enterprises, the latter packed into boxes or sets various products that Johnson & Johnson manufactured. This, for example, the carton gift box contained 100 gm baby powder, 25 gm of baby cream, one cake of baby soap, one bib and booklet; a shrink gift box contained a jar of baby powder, a cake of soap, baby brush and a baby comb. All these sets were packed securely with the base of tray made of high impact polystyrene. Duty had been discharged on each of these items that comprised these boxes. The primary question for consideration in this appeal is whether by being packed in the manner which we have described, and sold there has emerged a new and distinct excisable duty, which is liable to pay duty. In the order impugned in the appeal, the Commissioner has found this to be the case demanded the duty so possible and imposed penalty Adi Enterprises, Johnson & Johnson & Prasanna Desai.
2. In his order, the Commissioner finds that the process that we have described amounts to manufacture both in terms of the definition of manufacture contained in Clause (f) of Section 2 of the Act and in terms of note 4 to Chapter 33 and note 6 to Chapter 34 of the Tariff.
The Commissioner finds that the "individual commodities packed in the gift box/pack had lost their identity and a new product with distinct name and character i.e. "Baby Care Collection"/ "Deluxe Gift Box"/ "Carton Gift Box"/ "Shrink Gift Box"/ "Combi Pack" came into existence.
Thus, the only conclusion that can be drawn in the instant case is that the process adopted by the assessee to make the goods marketable amounts to manufacture and is clearly covered under the provisions of Section 2(f) of the Central Excise Act, 1944 and also falls within the ambit of chapter note 4 to Chapter 33 and chapter note 6 to Chapter 34 of the Central Excise Tariff Act, 1985." In coming to his conclusion, the Commissioner has placed considerable emphasis on the fact that the goods emerged as a result of "meticulous execution of preconceived and elaborate planned activity in organized way." We do not see what turns upon this last quoted phrase. Obviously anyone planning to do any activity, particularly commercial activity would necessarily have to conceive of and plan his activity. One cannot expect human endeavor of any significance to be under-taken haphazardously on the spur of the moment. We do not find anything sinister or significant on the fact that the appellant planned its activity and carried it out systematically.
3. When the Commissioner says that the process undertaken by the appellant amounted to manufacture both under Section 2(f) of the Act and also in terms of the notes to Chapters 33 and 34 containing the deeming provisions of manufacture, there is considerable tautology. If the activity that the appellant undertook amounted to manufacture under Section 2(f) of the Act, there was no need for him to rely upon the notes to Chapters 33 and 34. It is only because certain activities would not be manufactured within the meaning of 2(f) of the Act that it would be necessary to deem them to be manufacture by the notes to the chapters of the tariff. We do not in any case see how the appellant's activity amounted to manufacture under Section 2(f) or "manufacture" as the Supreme Court held in its landmark judgement in UOI v. Delhi Cloth and Generals Mills - 1997 (1) E.L.T. (J 199) "a new and different article must emerge having a distinctive name, character or use." We do not see how by the act of putting such items as soap, shampoo, hair oil and cream in one package, a new article has emerged that is distinct from any of these. The purchaser of a pack containing these articles would not use or would not intend anyone else to use them except insofar as the use is dictated by each individual constituent of the pack. The baby oil would be removed from the pack and used as any other baby oil, and the powder vised as a powder that is purchased separately. By the act of combining these disparate items in one pack therefore all that has happened is that they have been packed for sale as a set. Such a set does not take on an identity greater than the sum total of the identity of each of its constituents. In short, a new and different article having a distinctive name, character and use has not emerged.
4. All the products that form pant of the sets which the appellant manufactured are classifiable under Chapter 33.00, 33.04, 33.05 of the Tariff or 34.01 of the Tariff. Note 4 to Chapter 33 reads thus: "In relation to products of heading Nos. 33.03. 33.04 and 33.05, conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, shall be construed as 'manufacture'." Note 6 to Chapter 34 reads thus, "In relation to products of this Chapter, labelling or relabelling of containers and repacking from bulk packs to retail packs on the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'." 5. These notes, as can be seen, are almost identically worded. The only difference between the two is that note 4 to Chapter 34 includes in the deeming of manufacture conversion of powder into tablets which is not present in note 6 to Chapter 34. Except for this they are identically worded. In its decision in Lakme Lever Ltd. v. CCE - 2001 (127) E.L.T.790, the Tribunal had occasion to consider the scope and meaning of note 4 to Chapter 33. The question before it was whether repacking lipstick and other such cosmetics manufactured by Lakme Lever Ltd. into a separate kind of packing for the major customer, canteen stores department, amounted to manufacture within the meaning of this note.
The Tribunal had this to say.
"One of the meanings of the word 'rendering', the one that would obviously apply, to the phrase of the note under consideration, is "cause to be or become; make of a certain nature, quality, condition etc." (New Shorter Oxford English Dictionary). From this meaning and indeed by common usage of this word, it is only the treatment which makes a product marketable to the consumer which was so rendered.
That is to say, the process to fall within the scope of the "any other treatment" it must be one which confers upon a product the attributes of marketability which it did not possess earlier. We must note here the significance of the word 'consumer' in the note.
Thus, the product must be referred to must be rendered marketable to the consumer. Although this word is not defined, it evidently refers to one who purchases the product for any treatment to fall within the scope of the note to the chapter, it must be one that confers upon a product a quality as a result of which the product, which was otherwise not marketable is now rendered marketable. If the product was already marketable, any amount of treatment to enhance its marketability would not amount to manufacture within the meaning of this note. That object of the note is also clear from the tact that the process which is specified in it as manufacture conversion of powder into tablets, labelling, or re-labelling of containers intended for consumers, repacking bulk drugs to retail packs are all activities which result in the products being made marketable to the individual consumers." 6. It will therefore be clear that for either of these notes to apply, the product in question must be subjected to one of the processes specified in that note and that process must render it marketable to the consumer. When we say that the process has a result of rendering the product marketable to the consumer, it is clear, that but for the process the product would not be marketability to the consumer. One cannot think of goods having attribute of marketability in varying degrees. Marketability as is well known is the capability of the goods to be taken to the market for being bought and sold. If they are so capable of being bought and sold they are marketable. If not, they are not. There cannot be degrees of marketability. A commodity becomes more marketable if there is one buyer and one seller. It does not become more marketable if it has greater number of buyers and sellers. Each of the products was marketable and marketed in its individual capacity.
Therefore, by being put in a pack, it cannot be said that they acquired the attribute of being marketable which it did not earlier possess.
7. The departmental representative raises an interesting point. He says that by the act of putting these items in a box, the goods become marketable to a class of consumer to whom each of the individual components would not be so marketable. It cannot be denied, he says, that the object of creating this various sets was to provide a handy and convenient gift for persons. Three out of seven items are described as gift packs. These sets are marketable to a class of consumer who would buy them as a gift box. Such a consumer would not buy any of these individual items. There is therefore an addition to their capability for marketability as a result of this pack and therefore the requirement of the notes is satisfied.
8. This argument seems attractive but will not stand scrutiny. We agree that it is possible that the gift packs would be purchased by people who would not purchase any or all of the individual items comprising the gift pack. This however does not mean that the items which were earlier not marketable have now become marketable as a result of this packing. In their individual capacity they were earlier marketed and continue to be marketable. By their being put in a pack the marketability of the individual items does not increase. The fact that a new class of customers buy these product does not confer on the product as attribute of marketability that they did not possess earlier. As we have seen the use to which the products are to be put does not change, we are, therefore, not satisfied that the requirement of either of the notes to this is satisfied.
9. On limitation too, the appellant has a very strong case. It had declared by its declaration on various dates from 13-1-95 to 23-9-97, its intention to make and clear these various packs with the sole exception of "kids', Soap with pencil box." The Commissioner finds that the extended period contained in the proviso under Sub-section (1) of Section 11A had been invoked because the manufacturer had not intimated to the department the exact details of the processes undertaken. We find this totally incorrect. We will take as an example, this appellant's letter dated 1-3-95, the appellant had specified the six products which would be part of the Deluxe Gift Pack-baby powder 300 gms, baby oil 60 ml, baby cream 50 gms, baby soap 75 gms, baby shampoo (no more tears) 60 ml, baby feeding bottle 250 ml. It had indicated that these were duty paid and had given the location from which these goods would be received. It said that the goods would be packed in a gift box named Deluxe Gift Box promising to keep complete account of the duty paid components, undertaken not to "repack or relabel any of the products but to pack them together and put in a deluxe gift box. It had referred to an earlier letter in which it indicated that the goods would be shrink wrapped. We do not see what significant details that the appellant has left out. Short of enclosing a sample of the product, it had furnished as complete information as we can conceive of. The appellant failed to intimate the department of its putting together the "Kids' Soap with Pencil Box." Having regard to the fact that the appellant had intimated its intention to pack into a set all the goods except one, we think that its failure to intimate one item would thus have to be reconsidered not a deliberate omission and was inadvertent omission and there was no intention to evade duty having regard to the fact that all other products were declared. The appeal would therefore also succeed on limitation.
10. In addition, if the process amounted to manufacture, the, appellant was entitled to utilize as Modvat credit towards the payment of duty on the finished product duty paid on the individual components. The Commissioner has declined to accept this plea on his view that the formalities relating to Modvat has not been followed. There is series of the decisions of the Tribunal holding that where an assessee does not comply with the procedure on its understanding that the final product is exempted from duty and it is subsequently held that the final product is required to pay duty, the fact that it did not comply with the procedure will not debar it as Modvat credit the duty that it paid on the inputs on the manufacture. The judgment of the Supreme Court in Formica India Division v. CCE - 1995 (77) E.L.T. 511 making available the proforma credit under Rule 56A in similar circumstances, proceeds on the reasoning that a manufacturer who did not pay duty on the final product could not ordinarily have complied with the procedure contained in that rule. Failure to comply with the Modvat procedure would not debar the appellant from taking Modvat credit of the duty paid on the inputs if it is otherwise available.
11. It will follow on this reasoning, the penalty was not imposable either on Adi Enterprises and the other two appellants.
12. The appeals are allowed. Impugned order set aside. Consequential relief.