Manufacture by repacking and combining components in fixed proportions was treated as excisable aluminium paint

Repacking aluminium paste into smaller containers and combining it with aluminium medium in a common carton, in prescribed proportions for sale as aluminium paint, was treated as manufacture because the process was incidental or ancillary to completion of the final marketable product under Section 2(f) of the Central Excise Act, 1944. The Tribunal also stated that Note 2 to Section VI of the Central Excise Tariff Act, 1985 governed classification of goods put up in sets and did not by itself decide manufacture. On that basis, the activity was liable to central excise duty as aluminium paint, while Modvat credit was held available on eligible inputs.

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Issues: Whether repacking aluminium paste into smaller containers and placing it with aluminium medium in a common carton for sale as aluminium paint amounts to manufacture and attracts excise duty as aluminium paint.

Analysis: The relevant statutory test was whether the activity fell within the inclusive definition of manufacture under Section 2(f) of the Central Excise Act, 1944, particularly as a process incidental or ancillary to completion of the final product. The Tribunal held that Note 2 to Section VI of the Central Excise Tariff Act, 1985 was concerned with classification of goods put up in sets and did not by itself determine manufacture. On the facts, the aluminium paste was repacked in fixed quantity and packed with aluminium medium in the factory as a marketable unit described as aluminium paint. The process was found to be necessary for obtaining the final product in the form demanded by trade and consumers, and the two components had to be combined in prescribed proportions to yield aluminium paint.

Conclusion: The activity amounted to manufacture of aluminium paint and the goods were liable to central excise duty as aluminium paint.

Final Conclusion: The appeal failed on the principal liability issue, though the assessee was held entitled to Modvat credit on eligible inputs.

Ratio Decidendi: Where repacking and combining component goods in fixed proportions within the factory is necessary to obtain the commercially known final product, the process is incidental or ancillary to manufacture and is assessable as manufacture for excise purposes.

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