CKD machine assembly is not manufacture where no new product emerges and suppression is not proved.

Assembly of complete machining centres imported in CKD condition was held not to amount to manufacture, because the factory operations only involved assembly, scraping, machining of mating surfaces, fitting of taper wedges, alignment and interfacing of controls and did not create a new product with a distinct name, character or use. The duty demand was also held time-barred, as the importer had disclosed the goods and sought departmental permission, which negatived suppression and the extended limitation period. Penalties on the company and its officers were set aside because the duty demand failed and no definite individual role in the alleged evasion was established.

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Issues: (i) Whether the imported machining centres in CKD condition were complete machines and whether the assembly and reassembly operations at the factory amounted to manufacture exigible to central excise duty. (ii) Whether the duty demand was barred by limitation for want of suppression. (iii) Whether the penalties imposed on the company and its officers were sustainable.

Issue (i): Whether the imported machining centres in CKD condition were complete machines and whether the assembly and reassembly operations at the factory amounted to manufacture exigible to central excise duty.

Analysis: The documentary record, including the collaboration agreement, DGTD attestations, customs proceedings and sale documents, showed that the disputed consignments were complete machining centres imported in CKD condition and not merely loose components. The operations carried out in the factory were limited to assembly, scraping, machining of mating surfaces, fitting of taper wedges, alignment and interfacing of controls. Applying the settled test of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944, the process was held not to bring into existence a new product with a distinct name, character or use. The reasoning followed the principle that assembly of a complete article imported in knocked-down condition does not by itself amount to manufacture.

Conclusion: The issue was decided in favour of the assessee. No excise duty was payable on the assembled machining centres.

Issue (ii): Whether the duty demand was barred by limitation for want of suppression.

Analysis: The assessee had disclosed the import and intended handling of the machinery to the department, sought permission for entry and storage, and received a departmental response stating that such permission was not necessary. In that backdrop, the record did not support a finding of concealment or suppression so as to justify invocation of the extended period of limitation.

Conclusion: The demand was held to be time-barred; the finding was in favour of the assessee.

Issue (iii): Whether the penalties imposed on the company and its officers were sustainable.

Analysis: In the absence of a definite and established role attributable to the Managing Director and General Manager in the alleged evasion, the penal liability could not be sustained. Once the duty demand itself failed, the penalty imposed on the company also ceased to survive.

Conclusion: The penalties were set aside in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief, as the disputed imports were treated as complete machines in CKD condition and the ensuing assembly operations were held not to constitute manufacture.

Ratio Decidendi: Assembly of a complete machine imported in CKD condition does not amount to manufacture under central excise law unless a new product with a distinct name, character or use emerges.

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