Manufacture under excise law requires marketability to the consumer, not mere processing for an industrial user's own use.

Treatment of duty-paid transformer oil by filtration and heating for use as a liquid insulator in transformer repair was analysed under Section 2(f)(ii) of the Central Excise Act and Chapter Note 4 of Chapter 27. The note was read as deeming manufacture only where the process renders the product marketable to the consumer, not where an industrial user processes the oil for its own use. On that reasoning, the process was not manufacture and the duty demand could not be sustained.

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Issues: Whether filtration and heating of duty-paid transformer oil purchased in bulk, for use as a liquid insulator in repairing transformers, amounts to manufacture under Section 2(f)(ii) of the Central Excise Act, 1944 read with Chapter Note 4 of Chapter 27 of the Central Excise Tariff Act, 1985.

Analysis: Section 2(f)(ii) treats as manufacture any process specified in the Section Notes or Chapter Notes of the tariff. Chapter Note 4 of Chapter 27 deems certain treatments of lubricating oils and preparations to be manufacture when they render the product marketable to the consumer. The expression used in the note was held not to extend to an industrial user who processes the oil for its own industrial use. Since the transformer oil was only filtered and heated to make it suitable for use in repairing transformers, the process did not answer the description of manufacture.

Conclusion: The process did not amount to manufacture and the duty demand could not be sustained. The appeals were allowed in favour of the assessee.

Ratio Decidendi: A process applied to duty-paid goods for an industrial user's own use does not amount to manufacture under a tariff note deeming manufacture only where the treatment renders the product marketable to the consumer.

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