Repair of transformers is not manufacture; excise applies only to separately manufactured spare parts used in repairs.

Repair of old and damaged transformers did not amount to manufacture because the work merely involved replacement of transformer oil, H.T. leg coils and minor parts, without creating a new article with a distinct identity or reconstituting the essential machinery. Duty could, however, apply to the value of spare parts manufactured in the factory and used in the repairs, but not to bought-out parts or labour charges. The exemption for goods manufactured for captive use was also overlooked in the assessment. Excise duty was therefore not leviable on the repaired transformers as such.

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Issues: Whether the repair of old and damaged transformers amounted to manufacture attracting central excise duty, and whether duty was payable on the value of spare parts manufactured and used in the repaired transformers and on labour charges.

Analysis: The repair activity consisted mainly of replacement of transformer oil, H.T. leg coils and certain minor parts. Repair, in commercial and excise parlance, is distinct from manufacture unless the process results in a new and different article with a separate identity. On the facts, there was no material to show that the transformers lost their identity or that the entire essential machinery was re-created. The value of parts manufactured in the factory and used in repairs could be brought to duty only to that extent, while bought-out parts and labour charges did not attract duty. The authorities also overlooked the effect of the exemption for goods manufactured for captive use.

Conclusion: The repair of transformers did not amount to manufacture. The assessee was liable to duty only on the value of spare parts manufactured and used in the old transformers, and no duty was chargeable on labour charges.

Final Conclusion: The impugned order was set aside and the appeal succeeded to the extent that excise duty could not be levied on the repaired transformers as such.

Ratio Decidendi: Repair of an excisable article does not amount to manufacture unless the process brings into existence a new commodity with a distinct identity, though duty may still arise on separately manufactured parts used in the repair.

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