Assembling bought-out items into finished products under brand name constitutes manufacture under Section 2(f) of Central Excise Act

CESTAT Ahmedabad held that assembling bought-out items into complete finished products under brand name constituted manufacture under Section 2(f) of Central Excise Act, 1944, as customers received products with different identity, end use, and nomenclature from individual parts. Regarding PVD coating process on drain items, tribunal found this constituted manufacture as process was essential to prevent corrosion and make products functional, not merely cosmetic enhancement. Following JG Glass Industries precedent, PVD coating was deemed incidental and ancillary to manufacture of finished goods. Appeal was partly dismissed and partly allowed.

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Issues Involved:

1. Whether the processes undertaken by the appellant amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
2. Whether the appellant is liable to pay excise duty on the activities performed on bought-out items.
3. Applicability of case laws cited by the appellant in support of their contention.
4. Appropriateness of the demands confirmed by the adjudicating authority.

Issue-wise Detailed Analysis:

1. Whether the processes undertaken by the appellant amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944:

The appellant argued that the activities performed on the bought-out items, such as laser marking, packing, PVD coating, and assembling, do not constitute "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. The appellant relied on various judgments, including Union of India v. Delhi Cloth and General Mills Co. Ltd., to assert that not every process resulting in a change in the product amounts to manufacture. The Tribunal, however, found that for items like "EOLIA SHOWER ONLY TRIM," "HEALTH FAUCET W/WHITE SDSPRAY, M HOSE," and "INLINE STOP VALVE TRIM," the processes undertaken were incidental and ancillary to the manufacture of final products. The Tribunal held that these processes resulted in a new product with a distinct identity, end use, and nomenclature, thereby falling within the scope of "manufacture."

2. Whether the appellant is liable to pay excise duty on the activities performed on bought-out items:

The appellant contested the excise duty demands on the grounds that no new product emerged from the processes performed on the bought-out items. The Tribunal upheld the demands for categories such as "EOLIA SHOWER ONLY TRIM," "HEALTH FAUCET W/WHITE SDSPRAY, M HOSE," "INLINE STOP VALVE TRIM," "BOTTLE TRAP," and "FLOOR DRAIN," stating that the processes added substantiality to the visual appeal, feel, value, and marketability of the items, thus constituting manufacture. However, for the category "LOURE DOUBLE ROBE HOOK," the Tribunal found that mere branding and packaging did not amount to manufacture and ordered the demand to be dropped.

3. Applicability of case laws cited by the appellant in support of their contention:

The appellant cited several case laws to support their argument that the processes did not amount to manufacture. The Tribunal noted that the appellant mis-applied the case law in the matter of Union of India v. J.G. Glass Industries Ltd. The Supreme Court had laid down a two-fold test to determine whether a process amounts to manufacture: whether a different commercial commodity comes into existence or whether the original commodity ceases to exist, and whether the commodity serves no purpose but for the process. The Tribunal found that the processes undertaken by the appellant, especially PVD coating, were necessary to make the products usable and rust-free, thus falling within the definition of manufacture.

4. Appropriateness of the demands confirmed by the adjudicating authority:

The Tribunal confirmed the demands for excise duty for the categories where the processes amounted to manufacture. The amounts of Rs. 1,61,46,303/- and Rs. 3,50,53,785/- already deposited by the appellant were appropriated against these demands. The Tribunal partially allowed the appeal by dropping the demand for the "LOURE DOUBLE ROBE HOOK" category, where the processes did not constitute manufacture.

Conclusion:

The Tribunal concluded that the appeal is partly dismissed and partly allowed. The demand for excise duty is upheld for certain categories of products where the processes amounted to manufacture, while it is dropped for others where the activities did not constitute manufacture under the Central Excise Act, 1944.

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