Repair and reconditioning of returned goods is not manufacture, and new demand grounds cannot be added on appeal.

Repair and reconditioning of returned rollers by dismantling, cleaning, replacing parts, reassembling and painting did not amount to manufacture because the goods emerged in substantially the same form and were not shown to be commercially different from the goods received. The article also notes that the department could not sustain the demand on grounds not included in the show cause notice, including absence of duty-paying documents and prior permission, because such new grounds could not be introduced at the appellate stage under Section 35E of the Central Excise Act, 1944. The impugned orders were set aside and the appeals were allowed.

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Issues: (i) Whether the processes of dismantling, cleaning, reassembling, replacing parts and painting of returned rollers amounted to manufacture so as to attract duty; (ii) Whether the department could sustain the demand on grounds not forming part of the show cause notice, including non-accompaniment of duty-paying documents and absence of prior permission.

Issue (i): Whether the processes of dismantling, cleaning, reassembling, replacing parts and painting of returned rollers amounted to manufacture so as to attract duty.

Analysis: The processes were essentially repair and reconditioning, involving dismantling, replacement of certain parts, reassembly and painting. The material before the Tribunal did not show that the rollers emerging from the factory were commercially a different product from what had been received. Reconditioning of goods after rectification of defects, where they are cleared in substantially the same form, does not amount to manufacture.

Conclusion: The processes did not amount to manufacture and duty was not payable on that basis.

Issue (ii): Whether the department could sustain the demand on grounds not forming part of the show cause notice, including non-accompaniment of duty-paying documents and absence of prior permission.

Analysis: The additional grounds were not part of the notices and could not be introduced at the appellate stage under Section 35E of the Central Excise Act, 1944. The department could not rely on points not arising from the Assistant Collector's order. On that footing also, the demand could not be sustained.

Conclusion: The demand could not be upheld on these additional grounds.

Final Conclusion: The impugned orders were set aside and the appeals were allowed.

Ratio Decidendi: Repair or reconditioning of goods, where the articles are returned in substantially the same form after rectification of defects, does not amount to manufacture, and new grounds not forming part of the notice cannot be raised to sustain the demand.

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