Electro deposition coating on cleared inputs is not manufacture where no new marketable commodity emerges; credit reversal suffices.

Electro deposition coating of motor vehicle parts cleared as such was held not to constitute manufacture under section 2(f) of the Central Excise Act, 1944, because the process did not bring into existence a new marketable commodity and the goods retained their commercial identity. The coating merely improved shelf life and provided anti-rust protection. In light of the binding Supreme Court ruling referred to in the text, reversal of credit on removal of the inputs as such was treated as sufficient compliance, so no further duty could be sustained and the associated penalty was not maintainable.

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Issues: Whether electro deposition coating of inputs cleared as such amounted to manufacture under section 2(f) of the Central Excise Act, 1944, and whether reversal of credit was sufficient in lieu of duty.

Analysis: The dispute concerned motor vehicle parts removed from the factory after electro deposition coating. The controlling principle applied was that the process did not bring into existence a new commodity known to the market as such. The coating only increased shelf life and provided anti-rust treatment, while the goods retained their commercial identity. In view of the earlier binding ruling affirmed by the Supreme Court, reversal of credit on clearance of the inputs as such satisfied the statutory requirement and no further duty could be sustained.

Conclusion: Electro deposition coating did not amount to manufacture, and the reversal of credit was sufficient. The duty demand and penalty were not sustainable.

Ratio Decidendi: A process that merely improves or preserves inputs without bringing into existence a new marketable commodity does not amount to manufacture, and reversal of credit on removal of such inputs as such is sufficient.

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