TMI Blog2012 (8) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... il packages with all required labeling and marking has not been disputed. As that the applicant's facility is only one of the channels for distribution available to the merchants who use it. The products that they list on the applicant‟s website would also, in the vast majority of cases, get distributed and sold through other conventional channels of retail trade and in the very form in which they are received in the applicant‟s warehouse. Hence the conclusion that inexorably follows is that they are already marketable. Thus, as the applicant is providing an online retail distribution channel and the associated logistical services His role therefore does come across clearly as one of service provider as the activities described in the application do not amount to manufacture within the meaning of S. 2(f) of the Central Excise Act, 1944. - AAR/ CE/04/2012 - - - Dated:- 24-8-2012 - Present for the : Sh. Sujit Ghosh, Advocate Applicant Present for the Commissioner : Sh. Sumit Kumar (AR) Ruling (By Y.G.Parande) This is an application filed under Section 23C of the Central Excise Act, 1944 by M/s Amazon Seller Services Private Limited, Bengalur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the warehouse from wholesale packages into individual retail packages. Step3: Sorting: This involves re-arrangement of similar/identical products from wholesale packs and is undertaken where wholesale packs contain dissimilar articles and where two or more articles are to be sold as a set. Step 4: Sold as set stickering: This is undertaken where a group of articles is to be sold as a set. They may also undertake bubble wrapping and sensitive material covering in the cases where such requirements exist, e.g. fragile goods, goods requiring special care etc. Step5: Bagging: This protects the products from dust and facilitates ASIN/ FNSKU stickering. Step 6: Bundling: The applicant may also resort to bundling where two or more individual products are to be sold as combined pack. Step7: Blank Stickering: Where the articles sold by the merchant bear multiple barcodes leading to possible confusion, a blank sticker is affixed on the goods or the original packages to avoid confusion as to which barcode is the actual identifier. Besides the above, ASIN stickering (a proprietary system of the applicant) is resorted to where the goods of a merchant either do not have a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes manufacture thus: Sec. 2(f) manufacture includes any process,- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labeling or relabeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer. 9. There is a large body of case law on what constitutes manufacture for the purposes of the Act. The principle that has emerged is that for a process to be regarded as manufacture it must result in the emergence of a new product having its own distinct identity, character and use. That cannot be said to be the case here. On the whole we can say that it is common ground between the parties that in its ordinary sense, the expression manufacture cannot encompass the activities of the applicant and therefore c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling or relabeling of containers intended for consumers; or c. Adoption of any other treatment to render the product marketable to consumer. Examples of the latter that the applicant deals with would be Beauty or makeup preparations (HS Code 3304), Water filters and purifiers (HS Code 8421), Cellular or mobile phones and telephones (HS Code 8517), Watches (HS Code 9101) etc. These are all goods mentioned in the Third Schedule to the Tariff and, in relation to them, the following processes would be deemed to be amounting to manufacture: a. Packing or repacking them in a unit container; b. Labeling or relabeling of the goods including the declaration or alteration of retail sale price on it; or c. Adoption of any other treatment on such goods to render the product marketable to consumer. While in terms of the chapter notes in different chapters of the Tariff a large number of processes, such as printing, decorating etc. are deemed to amount to manufacture in relation to goods of different chapters, having regard to the activities of the applicant, we are only concerned with the processes mentioned above and therefore the discussion is limited to their scope. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is clearly expressed by the Legislature. He further argued that the applicant‟s propositions would amount to reading words in the statute that do not exist therein, thereby limiting the scope of the deeming fiction. This is impermissible. As held by the Supreme Court in State of Bombay vs Pandurang Vinayak (AIR 1953 SC 244), in interpreting a provision creating a legal fiction the Court is to ascertain the purpose of the fiction and assume all the facts and consequences which are incidental or inevitable corollaries for giving effect to the fiction. Therefore, the fiction must be carried to its logical end. 15. He submits that the expression marketing has a very wide connotation and includes all activities, including supply chain management that are conducted with a view to reaching the goods to the customer. He relies on the book Marketing Management by Philip Kotler et al to substantiate this argument. In dealing with marketing management, the authors touch upon a wide canvas of activities that cover the entire supply chain management from inbound movement of inputs to outbound movement of final goods through diverse distribution channels. Market logistics thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... version from wholesale to retail packing would not involve repacking as all that is required is to take the retail pack out of the wholesale pack in which it has been put. Conversion from bulk would on the other hand require such repacking. The goods they receive are in wholesale packs as distinct from bulk packing. Hence, theirs is not a case of repacking amounting to manufacture. Further, Unit Container is defined in Note 5 to Chapter 4 as a container, whether large or small (for example tin, can, box, jar, bottle, bag or carton, drum, barrel or canister) designed to hold predetermined quantity or number. The secondary packing done by them for logistical reasons is not a unit container as it is not designed to hold any predetermined quantity or number of the goods dispatched from their warehouse. This packing is in the nature of transit packing and the same cartons can be used for a large variety of diverse goods. In fact, the goods as received from the merchants would mostly be in unit containers and in no case do they tamper with the original retail packing of merchants. They rely on Dodsal Corporation Vs CCE [2011 (263) ELT 719 (Tri)] and CCE vs Shalimar Super Foods [2007 (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be regarded as labels contemplated in S. 2(f) (ii) or (iii). As far as they are concerned, the fixing of stickers (referred to as stickering) is entirely from an inventory management and logistical perspective and does not convey any information to the customer or consumer. In terms of their agreement with the merchants, the compliance with the applicable marking, labeling and other statutory requirements is the responsibility of the merchants, which they are required to ensure before the goods are received in the applicant‟s warehouse. They make no alteration in the labels already affixed on the packages of goods by the merchant. Their logo affixed on the outward transit cartons, bubble wraps etc. cannot be equated with the process of labeling or relabeling contemplated in the Act. Therefore, the different types of stickering done by them cannot come within the meaning of the expression labeling or relabeling for the purposes of the Act and would not amount to manufacture. 3. According to them the reliance placed by the Commissioner on the decisions in Nitin Patki and Cipla cases is wholly misplaced as the facts of those two cases are completely different from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketability that they did not possess earlier. 5. They rely on the Ministry of Finance Circular F.N. 354/285/2011 TRU dated Dec. 8, 2011 in which TRU has explained that the purpose of the provisions of S. 2(f) (ii) and (iii) is to capture value addition and clarified that the activity of repacking pre-packed duty paid goods in retail packs into boxes for transit bearing the name (of the firm in that case) and details of call centre and website etc. cannot attract excise duty. 6. With regard to the argument based on Kotler‟s Marketing Management, they submit that it would be incorrect to equate marketability as contemplated in the Act with the definition of marketing. The term marketability has acquired a specific connotation through various judicial rulings and it is this meaning that is relevant for adjudging excisability. According to the case law cited by them marketable refers to a product with is fit and ready for marketing. Kotler‟s textbook on the other hand talks of marketing embracing all aspects of customer experience meaning that marketing must properly manage all touch points store layout, package design, product functions, employee training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MRP/RSP etc. have to be complied with by the merchants and they have no role in this nor do they make any changes in respect. The only stipulation they require from their merchants is to maintain price parity with vis a vis other channels. The sales happen at or below the MRP/RSP depending upon the sales promotion and marketing strategies of the merchants who use their website. This has not been controverted. Against that background, it needs to be considered whether the activities of affixation of different stickers, barcodes, assortment, debundling and bundling of different goods etc. can be regarded as manufacture within the meaning of S. 2(f) (ii) and (iii) of the Act. 19. It is evident that the intention of the legislature in creating the deeming fiction of manufacture is to capture the value addition that occurs in course of making goods marketable, through processes that would not fall within the ordinary definition of manufacture. An example would be the one mentioned in the Tribunal‟s order in Taxchem (supra), which was also upheld by the Supreme Court, of a cosmetic preparation being presented in an attractive jar the cost of which could exceed that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e declaration of MRP/RSP is not being altered by the applicant. It is also clear that label within the meaning of these provisions has to be one that conveys information relating to the product and its producer or supplier to the consumer. Stickers that are affixed to goods for the purposes of inventory management, and which convey no information about the product to the consumer cannot come within its scope. 20. As regards packing or repacking, it is clear from the facts that this is neither a case of repacking from bulk to retail packs nor one of packing into unit containers. The outer packing adopted for safety during transit cannot be equated with the processes of packing and repacking contemplated in S. 2(f)(ii) and (iii) of the Act. 21. Turning now to the other proposition of the Ld. AR, that the expression adoption of any other treatment to render the product marketable to consumer encompasses all activities that lead to the goods reaching the consumer, we are unable to accept this proposition based on the definition of marketing. We are not persuaded that marketing and marketability can be treated synonymously, as he would wish us to do. The expressions marke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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