Mere assembly of disassembled machinery does not amount to manufacture for excise duty purposes

Assembling, testing and labelling machinery received in disassembled form did not constitute manufacture on the facts recorded, because the materials showed only transport in parts followed by assembly for clearance and no manufacturing infrastructure. The evidentiary basis for the duty demand was weakened by cross-examination issues and by the absence of reliable proof that a new and distinct product emerged. Note 6 of Section XVI of the Central Excise Tariff Act, 1985 was treated as inapplicable, as mere assembly of disassembled machinery did not convert incomplete goods into finished articles for excise purposes. The demand of central excise duty and the related penalty were therefore set aside.

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Issues: Whether assembling, testing and labelling of machinery received in disassembled form amounted to manufacture so as to justify the demand of central excise duty and the related penalty.

Analysis: The evidence on record did not support the finding that the assessee had manufactured the goods. The materials indicated that the goods were received in disassembled condition for convenience of transport and were only assembled, tested, labelled and cleared. The assessee had no infrastructure for manufacture, and the reliance placed on certain statements was weakened by cross-examination and lack of cross-examination of another deponent. Note 6 of Section XVI of the Central Excise Tariff Act, 1985, was held inapplicable on these facts because mere assembly of disassembled machinery did not amount to conversion of incomplete goods into finished articles for the purpose of manufacture.

Conclusion: The finding of manufacture was unsustainable, and the demand of duty as well as the revised penalty were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded because the impugned goods were not shown to have been manufactured by the assessee within the meaning of the tariff provision.

Ratio Decidendi: Mere assembly, testing and labelling of goods received in disassembled form does not constitute manufacture unless the process results in a new and distinct product having a commercially different identity.

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