Site-based upgradation of ring frame parts was not manufacture, so bought-out parts could not count toward the exemption limit.

Site-based replacement and upgrading of drafting mechanism parts in an installed ring frame was treated as conversion, modernisation or upgradation of existing machinery, not manufacture of a new marketable machine. The drafting mechanism was regarded only as a part of the ring frame, coming into existence on assembly at site, while the assessee cleared from the factory only duty-paid parts, some manufactured in-house and some bought out. On that basis, the value of bought-out parts could not be added to the assessee's clearances for the purpose of the exemption limit under Notification No. 176/77-C.E., and the inclusion was held unjustified.

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Issues: Whether the site-based replacement and upgrading of drafting mechanism parts in an already installed ring frame amounted to manufacture of a new machine so as to justify inclusion of the value of bought-out parts in the assessee's clearances for determining eligibility under Notification No. 176/77-C.E. dated 18-6-1977.

Analysis: The work undertaken was confined to replacing certain existing parts of a ring frame fixed to the ground in the customer's mill. The drafting mechanism was not treated as a separate machine but only as a part of the ring frame, coming into existence only when assembled on site. From the factory, the assessee cleared only duty-paid parts, some manufactured by it and some bought from another supplier, and the activity was characterised as conversion, modernisation, or upgradation of an existing installed machinery rather than manufacture of a new marketable machine. On that footing, the value of bought-out parts could not be added to the value of the assessee's clearances for the exemption limit.

Conclusion: The inclusion of the value of bought-out parts was not justified and the appeal succeeded in favour of the assessee.

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