Refilling imported gas from bulk containers to smaller cylinders not manufacture under Central Excise Tariff Act note 9 to chapter 38

CESTAT Mumbai held that refilling imported Hepta Propane/FM-200 gas from bulk containers to smaller cylinders does not constitute manufacture under note 9 to chapter 38 of Central Excise Tariff Act, 1985. The process involved filling gas into seamless cylinders under pressure using nitrogen gas, but this did not create any perceptible change in the imported product. The tribunal distinguished this from manufacturing processes, noting that simple transfer of material between containers without treatment to render products marketable does not amount to manufacture. Relying on SC precedent in Vadilal Gases Ltd. and coordinate bench decision in 3M India Ltd., CESTAT set aside the Commissioner's order imposing central excise duty and penalty, allowing the appeal.

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Issues Involved:

1. Whether the activity of filling imported Hepta Propane / FM-200 gas into empty cylinders amounts to 'manufacture' under Note 9 to Chapter 38 of the Central Excise Tariff Act, 1985.
2. Whether the clearance of the impugned goods is liable for Central Excise duty and consequential penal action under the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Manufacture under Note 9 to Chapter 38 of CETA:

The primary issue was whether the appellants' activity of filling imported FM-200 gas into cylinders constitutes 'manufacture' as per Chapter Note 9 to Chapter 38 of the Central Excise Tariff Act, 1985. The Tribunal examined the definition of 'manufacture' under Section 2(f) of the Central Excise Act, 1944, which includes processes incidental to the completion of a manufactured product or specified in chapter notes. The chapter note in question deems activities such as labeling, relabeling, repacking from bulk to retail packs, or any other treatment rendering the product marketable as 'manufacture.'

The Tribunal found that the appellants' activity did not involve labeling or repacking in the sense intended by the chapter note. The process was identified as filling gas into cylinders of varying sizes, which did not equate to repacking from bulk to retail packs. Furthermore, the Tribunal noted that the imported gas remained unchanged after being filled into the cylinders, and the addition of nitrogen gas was merely to maintain pressure, not to alter the product's marketability or characteristics. Thus, the Tribunal concluded that the activity did not constitute 'manufacture' under the relevant chapter note.

2. Liability for Central Excise Duty and Penal Action:

Given the conclusion that the activity did not amount to 'manufacture,' the Tribunal addressed the issue of excise duty liability. Since the activity was not considered manufacturing, the goods were not subject to Central Excise duty under the provisions of the Central Excise Act, 1944. Consequently, the appellants were not liable for any penal action related to duty evasion.

The Tribunal referred to previous judicial pronouncements and CBEC circulars, which clarified that mere transferring of materials from one container to another does not constitute repacking or manufacturing. The Tribunal also cited similar cases where the mixing or filling of gases did not result in a new marketable product, reinforcing the decision that no manufacturing took place.

Conclusion:

The Tribunal set aside the impugned order, ruling in favor of the appellants. It determined that the activity of filling FM-200 gas into cylinders did not constitute 'manufacture' under Chapter Note 9 to Chapter 38 of CETA, and therefore, the goods were not liable for Central Excise duty or penalties. The appeal was allowed, and the order dated 28.10.2013 was annulled.

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