Transporting compressed natural gas for sale as natural gas, not CNG, not manufacturing under Chapter Note 5

The Tribunal upheld the decision that compressing natural gas for transportation purposes, where the gas is ultimately sold as Natural Gas and not as Compressed Natural Gas (CNG), does not constitute manufacturing under Chapter Note 5 to Chapter No. 27. The appeal against the demand for Central Excise Duty was dismissed, emphasizing the contractual terms specifying sales at normal pressure. The judgment on 31.08.2017 favored the assessee-Respondents based on the nature of gas sales and the absence of marketing as CNG.

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Issues:
Interpretation of Chapter Note 5 to Chapter No. 27 regarding compression of natural gas as manufacture for Central Excise Duty liability.

Analysis:
The appeal before the Appellate Tribunal CESTAT Kolkata involved a dispute regarding the liability of Central Excise Duty on the compression of natural gas by the assessee-Respondents for transportation to customers' premises. The Department contended that as per Note 5 to Chapter No. 27, compression of natural gas for use as Compressed Natural Gas (CNG) amounts to manufacture, thus attracting duty payment. On the other hand, the assessee-Respondents argued that the compression was solely for transportation purposes, and the gas was decompressed and sold as Natural Gas to customers, exempting them from duty payment.

The Tribunal analyzed Note 5 to Chapter No. 27, which states that compression of natural gas for marketing as CNG constitutes manufacture. However, the crucial aspect highlighted was that compression must be for marketing as CNG, and in this case, the gas was sold as Natural Gas at normal pressure to customers after decompression at their premises. The Commissioner (Appeals) emphasized that since the gas was not marketed as CNG but as Natural Gas, the compression process did not amount to manufacture, as per the contracts with customers specifying sales at normal pressure.

The Tribunal concurred with the Commissioner's interpretation, stating that the compression of gas for transportation purposes does not qualify as manufacturing when the goods are ultimately sold as Natural Gas, not as CNG. Therefore, the Tribunal upheld the impugned order, dismissing the Department's appeal against the demand for Central Excise Duty. The judgment was pronounced on 31.08.2017, sustaining the decision based on the specific contractual terms and the nature of gas sales by the assessee-Respondents.

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