2026 (1) TMI 566 - AT - Central Excise

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 ... Process amounting to manufacture or not - filling/refilling of gas from bulk cylinders into customer-supplied smaller cylinders (bottling in smaller packs) - deemed manufacture - HELD THAT:- The appellant manufactures ‘gas’ of different kinds and discharges applicable duty liability on the same. It also appears that these ‘gas’ are stored in appropriate containers in the factory of manufacture and that the products are sold to customers by measure which, while being taken delivery of, are filled in containers supplied by the customers. It is that activity which has been deemed to be manufacture in terms of the impugned chapter note and, on facts, contested by the appellant - The definition of manufacture, and consequent excisability was broadened, in relation to specific chapters of Schedule to Central Excise Tariff Act, 1985 and in conformity with the deeming portion to include certain activities rendered in the product that, without changing the characteristics of the product, altered it to such extent as to enable levy of tax yet again. It should be noted that, in the scheme of credit coupled with the scheme of non-taxability of the product emanating at the previous stage subject to liability of the final product, there is essential neutrality insofar as all these activities are undertaken in the same factory. It would appear that the intent of ‘deemed manufacture’ sought to levy duty on the specified activity being undertaken independently and autonomously. The bottling of the product in containers provided by the customers is akin to providing transport for removal of goods; that ‘gas’ could not be carried on the normal modes of transport without being contained in appropriate container renders the refilling to be beyond the activities undertaken by the appellant even if the means by which ‘gas’ are filled in the containers so provided belong to the appellant. In a broader sense, it would appear that this activity occurs after production of excisable goods. The conclusions render the demand confirmed by the original authority, and upheld by the first appellate authority, to be without authority of law and, therefore, to set aside - Appeal allowed. 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.