Duty-paid complete goods: assembly at customer premises does not amount to manufacture absent unfinished goods or changed character.

Complete, duty-paid goods supplied after testing were held not to become manufactured goods merely because battery assembly was carried out at the customer's premises. The note states that the deeming fiction in Section Note 6 of Section XVI did not apply because the record did not show the goods were incomplete or unfinished, and the Revenue did not establish a basis under Rule 2(a) of the General Rules for Interpretation. A Board circular was also noted for the principle that placing manufactured goods together in a kit, without any change in character or use, does not amount to manufacture. On the same footing, confiscation and penalty-related reliefs were treated as unsustainable once the manufacture allegation failed.

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Issues: (i) Whether the online UPSS supplied by the assessee, after testing and before battery assembly at the customer's premises, amounted to manufacture under Section Note 6 of Section XVI of the Central Excise Tariff Act, 1985 and attracted duty demand under Section 11A(1) of the Central Excise Act, 1944. (ii) Whether confiscation of the seized goods and the penalty-related reliefs could be sustained, including the Revenue's plea for penalty under Rule 25 of the Central Excise Rules, 2002.

Issue (i): Whether the activity amounted to manufacture and justified the duty demand.

Analysis: The goods procured and supplied were found to be complete and finished goods on which duty had already been paid. The record did not establish that they were incomplete or unfinished goods so as to attract the deeming fiction under Section Note 6 of Section XVI. The Tribunal also noted that the Revenue did not show that the goods had been assessed on the basis of Rule 2(a) of the General Rules for the Interpretation of the Central Excise Tariff Act, 1985, which could have supported the Revenue's case only if the goods had essential character of complete or finished articles. The goods were also covered by the Board's circular clarifying that mere placing together of manufactured goods in a kit, without change in character or use, does not amount to manufacture.

Conclusion: The demand of duty was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the confiscation and the Revenue's request for penalty under Rule 25 of the Central Excise Rules, 2002 were sustainable.

Analysis: Once the goods were held to be complete finished goods already subjected to duty and the manufacture allegation failed, the consequential confiscation of the seized goods also could not be sustained. In the same manner, the Revenue's contention that penalty under Rule 25 ought to have been imposed did not survive.

Conclusion: The confiscation, redemption fine, and the Revenue's penalty plea were not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside, the assessee's appeal was allowed, the Revenue's appeal was rejected, and consequential relief was granted according to law.

Ratio Decidendi: Where goods supplied are already complete and duty-paid, and no material shows that they are incomplete or unfinished so as to attract the tariff deeming provision, a further assembly or joining at the customer's premises does not amount to manufacture.

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