D.G. Sets Assembly Constitutes 'Manufacture' under Central Excise Act

The Tribunal held that assembling Diesel Generating Sets (D.G. Sets) at the customer's site constituted "manufacture" under the Central Excise Act. Despite the appellants' claims of being traders, evidence showed their involvement in manufacturing. Due to conflicting clarifications on dutiability, the Tribunal found the appellants had a genuine belief of no duty liability, barring the extended limitation period. A separate opinion by Justice K. Sreedharan disagreed, stating D.G. Sets assembly did not create a new marketable product. Ultimately, the majority set aside duty demands, ruling in favor of the appellants.

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Issues Involved:
1. Exigibility of Diesel Generating Sets (D.G. Sets) to central excise duty.
2. Whether the appellants are considered manufacturers of the D.G. Sets.
3. Applicability of the extended period of limitation u/s 11A of the Central Excise Act, 1944.

Summary:

1. Exigibility of Diesel Generating Sets to Central Excise Duty:
The Tribunal examined whether the assembly and installation of D.G. Sets at the customer's site constituted "manufacture" under Section 2(f) of the Central Excise Act, 1944. The adjudicating authority had confirmed the duty demands based on the Supreme Court judgments in M/s. Narne Tulaman Manufacturers (P) Ltd. and M/s. Sirpur Paper Mills Ltd., which held that assembling components into a new product constitutes manufacture. The Tribunal upheld this view, stating that assembling D.G. Sets at the site amounts to the manufacture of excisable goods.

2. Whether the Appellants are Considered Manufacturers:
The appellants contended that they were merely traders of components and that the actual assembly was done by the customers. However, the Tribunal found sufficient evidence to substantiate the allegation that the appellants were involved in the manufacture of D.G. Sets at the site. Therefore, the appellants were considered manufacturers for the purpose of central excise duty.

3. Applicability of the Extended Period of Limitation u/s 11A:
The Tribunal noted that the Central Board of Excise and Customs had issued contradictory clarifications in 1986 and 1993 regarding the dutiability of D.G. Sets. Given this confusion, the Tribunal concluded that the appellants were under a bona fide belief that no duty was payable. Consequently, the larger period of limitation u/s 11A could not be invoked, making the demands time-barred. The majority order set aside the impugned order on the ground of limitation.

Separate Judgment by Justice K. Sreedharan:
Justice K. Sreedharan, as the third member, highlighted the Supreme Court's decision in Triveni Engineering Works, which clarified that assembling D.G. Sets does not constitute manufacturing a new marketable commodity. Thus, the appellants were not engaged in any manufacturing process, rendering the duty demands unsustainable. Consequently, the issue of limitation became irrelevant, and the appeals were allowed.

Majority Order:
The impugned order was set aside, and the appeals were allowed.

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