Refilling gas into customer-owned cylinders not "manufacture" for excise; demand for additional duty set aside

Whether filling/refilling gas from bulk cylinders into customer-supplied smaller cylinders constitutes "manufacture" (deemed manufacture) for excise: the court applied the broadened chapter note and definition of manufacture but held that refilling into customer-owned containers, which does not alter product characteristics and is akin to providing transport/container for removal after production, falls outside the factory activity contemplated for excisability; the deeming provision targets autonomous post-production activities only if undertaken independently. Outcome: demand for additional duty was without authority of law and was set aside; appeal allowed.

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Issues: (i) Whether filling gas into containers supplied by customers amounts to "deemed manufacture" attracting liability to central excise duty and penalty under the Central Excise Act, 1944.

Analysis: The activity under consideration involves storage of excisable gas in the manufacturer's factory and subsequent filling into smaller customer-supplied containers on customer-specific instruction; statutory notes to the relevant chapter of the tariff and section 2(f) expand the scope of "manufacture" to include certain packing/re-packing. Relevant authorities addressing conversion from bulk to retail packs and the twin tests of manufacturing and marketability were examined. The facts show that bottling was not a continuous, autonomous activity of the appellant but was undertaken at customers' instance using customers' containers which bore no mark of the appellant, and the filling was functionally akin to facilitating transport or delivery after production rather than an independent manufacturing process that renders the product marketable anew.

Conclusion: The filling of gas into customer-supplied containers does not constitute "deemed manufacture" for excise liability; therefore the demand and penalty under the Central Excise Act, 1944 are not sustainable and the appeal is allowed in favour of the assessee.

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