Manufacture test for hydrogen gas cylinders excludes mere compression and filling of an already marketable product

Compressing and filling hydrogen gas already received through a pipeline into returnable cylinders was treated as not amounting to manufacture under Chapter Note 9 of Chapter 28. The stated reason was that the process did not transform a non-marketable product into a marketable one for a consumer; mere filling was not regarded as repacking or other treatment that satisfied the statutory deeming provision. On that basis, central excise duty was said to be unsustainable, and the demand was set aside with consequential relief.

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Issues: Whether compressing, filling and marketing hydrogen gas cylinders amounts to manufacture under Chapter Note 9 of Chapter 28 of the Central Excise Tariff Act, 1985 and attracts central excise duty.

Analysis: The activity was limited to receiving hydrogen gas through a pipeline, compressing it and filling it into returnable cylinders. The Court followed the settled view that where the gas is already marketable and the process does not bring about a transformation so as to make a non-marketable product marketable to a consumer, the activity does not fall within manufacture. The expression "consumer" in the deeming provision was treated as not covering industrial users or processors, and mere filling of gas into cylinders was held not to amount to repacking or any other treatment rendering the product marketable within the statutory note.

Conclusion: The activity did not amount to manufacture and the demand of duty could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Mere compression and filling of an already marketable product into cylinders does not constitute manufacture unless the statutory process actually renders the goods marketable to a consumer within the meaning of the deeming provision.

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