Assembly into a distinct product constitutes manufacture; excise duty sustains, but penalties fall without intent to evade.

Assembling purchased components into cooling towers was held to amount to manufacture because the process produced a new product with a distinct identity, and the absence of machinery or electricity at the premises did not by itself negate manufacture; the central excise duty demand was therefore sustainable. Penalties were set aside because the non-payment arose from a bona fide belief that mere assembly was not manufacture, and the record did not establish intent to evade duty; the penalty deletion was upheld.

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Issues: (i) Whether assembling purchased components into cooling towers amounted to manufacture and attracted central excise duty. (ii) Whether the penalties imposed on the respondent were sustainable.

Issue (i): Whether assembling purchased components into cooling towers amounted to manufacture and attracted central excise duty.

Analysis: The respondent procured various parts and assembled them into cooling towers, resulting in emergence of a new product with a distinct identity. The absence of machinery or electricity in the premises did not by itself negate manufacture, as the character of the activity had to be judged on the facts. The finding that the respondent was merely trading was unsupported by evidence.

Conclusion: The activity amounted to manufacture and the demand of central excise duty was sustainable.

Issue (ii): Whether the penalties imposed on the respondent were sustainable.

Analysis: The record indicated that the non-payment of duty was due to a bona fide belief that mere assembly did not amount to manufacture. Once the position was realised, the duty on past clearances was paid. In these circumstances, the element of intention to evade duty was not established.

Conclusion: The penalties on the respondent were not sustainable and were set aside.

Final Conclusion: The duty demand was restored, but the penalty on the respondent was deleted, and the Revenue's appeal succeeded to that extent.

Ratio Decidendi: Assembly of inputs into a commercially distinct product constitutes manufacture for excise purposes, but penalty is not justified where duty non-payment is shown to be bona fide and without intent to evade.

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