Customisation of fully built vehicles not treated as manufacture; related duty demands and SSI exemption issues required fresh adjudication.

Cosmetic and interior customisation of duty-paid, fully built motor vehicles was held not to amount to manufacture under section 2(f) and Chapter Note 3 of Chapter 87 because the original identity of the vehicle remained intact and no new body was fabricated on a chassis. By contrast, demands concerning alleged removal of add-on kits and parts, together with the SSI exemption claim, required fresh adjudication because the record showed conflicting factual findings and the turnover of buses and tempo travellers had to be included in the aggregate value. The personal penalty was enhanced to the statutory minimum of Rs. 10,000.

---

---

Issues: (i) whether customisation of fully built motor vehicles by cosmetic and interior alterations amounted to manufacture under section 2(f) of the Central Excise Act, 1944 and Chapter Note 3 of Chapter 87 of the Central Excise Tariff Act, 1985; (ii) whether the demands relating to alleged removal of add-on kits and parts and the SSI exemption issue required reconsideration; (iii) whether the personal penalty on Shri B.D. Bajaj required enhancement.

Issue (i): whether customisation of fully built motor vehicles by cosmetic and interior alterations amounted to manufacture under section 2(f) of the Central Excise Act, 1944 and Chapter Note 3 of Chapter 87 of the Central Excise Tariff Act, 1985.

Analysis: The activity was confined to cosmetic changes and restyling of duty-paid, fully built vehicles. The original identity of the motor vehicle remained intact and there was no fabrication of a new body on a chassis or mounting of structures or equipment on a chassis in the sense contemplated by the Chapter Note. The cited precedents were distinguished because they dealt with fabrication of complete bodies and mounting on chassis.

Conclusion: The activity did not amount to manufacture and the demand on this count was not sustainable.

Issue (ii): whether the demands relating to alleged removal of add-on kits and parts and the SSI exemption issue required reconsideration.

Analysis: The record disclosed conflicting factual findings regarding stock, clearances, accounting of kits and the effect of the SSI claim. On SSI exemption, the value of clearances of buses and tempo travellers was required to be included in the aggregate turnover for the relevant year, which displaced the earlier conclusion that the threshold of Rs. 3 crores was not crossed. At the same time, the limitation plea and the exact quantification of duty required fresh examination. The matter was therefore directed to be reworked by the adjudicating authority, with cum-duty benefit to be given if duty was found payable.

Conclusion: The matter on these demands was remanded for fresh adjudication, and the respondent was held not eligible for SSI exemption on merits, subject to reconsideration on limitation.

Issue (iii): whether the personal penalty on Shri B.D. Bajaj required enhancement.

Analysis: The statutory minimum penalty applicable under the relevant rules was Rs. 10,000, whereas the adjudicating authority had imposed only Rs. 5,000 in each order.

Conclusion: The penalty was required to be enhanced to Rs. 10,000 in each order.

Final Conclusion: The appeal succeeded only in part. The demand based on customisation was rejected, the remaining disputed demands were sent back for fresh decision, and the personal penalty was enhanced to the statutory minimum.

Ratio Decidendi: Mere customisation or cosmetic alteration of a duty-paid, fully built motor vehicle does not amount to manufacture unless the activity results in fabrication or mounting of a body or structure on a chassis so as to bring the case within the statutory deeming provision.

---