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TaxTMI 
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2025 (9) TMI 1157
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....What amounts to "manufacture" under the Act, 1944? 15 (ii) Whether the activity undertaken by the Appellant amounts to "manufacture"? 24 E. CONCLUSION 39 1. These appeals under Section 35L(b) of the Central Excise Act, 1944 (for short, the "Act, 1944") are at the instance of an assessee and are directed against the Final Order dated 15.10.2015 (for short, the "Impugned Order") passed by the Customs, Excise and Service Tax Appellate Tribunal West Zonal Bench (for short, the "CESTAT") at Ahmedabad in Appeal bearing Nos. E/640/2009-DB, E/1284,1285/2009-DB & E/557/2012-DB respectively, by which all the three appeals filed by the assessee came to be partly allowed by setting aside: (i) the demand of duty with interest for the extended period of limitation and (ii) the imposition of fine, penalty and confiscation of goods. However, the CESTAT in the impugned order held that the activities undertaken by the assessee-appellant to set up the "Containerized Gensets" would amount to "manufacture" and the same are liable to be classified under the sub-heading No. 8502.2090 of the Schedule to the Central Excise Tariff Act, 1985 (for short, the "Ac....
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....er and Lube Oil line inside the container. Pumps, 3-way valve etc. are located inside the container. (vi) Ventilation fans and cowls are thereafter mounted. (vii) The silencer is lifted by crane and located on the rooftop at the appropriate position. (viii) Necessary Cable Trays are placed inside and outside the container. Proper earthing is done. (ix) Control panel and other electrical items are properly placed inside the container. Cabling with all other accessories is done. (x) All pipings are de-assembled. Pipings are then caustic cleaned, hydraulic test is done thereon and painted. (xi) Testing process involves hydraulic testing of piping for leakage and electrical testing of all electrical connections. 6. As per the appellant, the role of each individual component is as follows: Component Name Purpose Ventilation Fan This supplies ambient air to the generating set to cool down the heat which surrounds it because of the internal working of the engine. This has no role to play in generation of electricity. Air Filter Unit This prevents dust from entering internal parts of engine. It is common knowledge t....
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....er (Appeals), questioning the communication of the Assistant Commissioner of Central Excise. The Commissioner (Appeals) vide order dated 27.03.2009 dismissed the appeal. 10. A Show Cause Notice dated 19.11.2008 was issued proposing demand of duty along with interest and levy of penalty on the Power Packs cleared during the period from November 2006 to July 2008. The said Show Cause Notice was adjudicated by the Commissioner of Central Excise, Ahmedabad and vide the Order-in-Original No. 10/Commissioner/RKS/AHD-II/2009 dated 28.04.2009 the demand and penalty were confirmed. 11. Thereafter, six Show Cause Notices were issued proposing demand of duty along with interest and levy of penalty on the Power Packs cleared during the period from August 2008 to March 2011. The said Show Cause Notices were adjudicated and vide the Order-in-Original No. 01 to 06/COMMR/RAJU/AHD-II/2012 dated 29.03.2012 the demand and penalty were confirmed. 12. In the aforementioned Orders-in-Original, the respective authorities have held that the "Containerized Genset" i.e., the "Power Pack" has a distinct name, character and use and is capable of being sold and marketed. Thereby, the activity undertak....
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....ng electricity, and the Gensets itself is marketed. But, it is seen from the record that the process undertaken by the Appellant on the imported Gensets for the industrial customers. Thus, the industrial customer would buy Power Pack rather than Gensets. The imported Gensets and Power Pack are known separately in the trade and parlance. It is also noted that the use of both the items are for different purposes. In our considered view, the process undertaken by the Appellant would constitute manufacture as it emerges a new commodity in the market. xxx xxx xxx 16. In case of Laminated Packing Pvt Ltd (supra) the Hon'ble Supreme Court considered that manufacture is bringing into the goods as known in the Excise law i.e. known in the market having distinct and separate and identifiable function. In the present case, we have also noticed the photograph of the products of the Gensets and the Power Pack are different and distinct items. The learned Advocate contended that the imported Gensets is covered under the sub-heading 8502.2090 of the First Schedule to Customs Tariff Act "Generating sets with Spark-Ignition Combustion System Engine" of an output not exceeding 3.5 ....
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.... not amount to manufacture. It is the case of interpretation of the provisions of law and therefore, the imposition of penalties on the Appellants are not warranted. It is noted that the goods were available for confiscation. It is well settled that if the goods are available, the same cannot be confiscated. Accordingly, the confiscation of goods and imposition of penalty cannot be sustained. 20. In view of the above discussions. we hold that the activities undertaken by the Appellant would amount to manufacture and Power Pack also known as "Containerized Gensets" would be classifiable under sub-heading No.8502.2090 of the Schedule to the Central Excise Tariff Act, 1985 and the demand of duty alongwith interest for the normal period is upheld. The adjudicating authority is directed to extend CENVAT Credit benefit, while quantifying duty, subject to verification of record. The demand of duty with interest for the extended period of limitation and confiscation and imposition of redemption fine and penalties are set aside. The appeal filed by the Appellant company is disposed of in the above terms. The appeal filed by the Appellant No.2 Shri Montu Patwa, General Manager (F&A)....
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.... c. The transformation test is not satisfied as the product remains a Genset performing the function of generating electricity and does not transform into another distinct commodity, whereby its original identity as a Genset ceases to exist. The various accessories attached to the container serve the sole purpose of making the generating set fit to work within a container box (for logistical purposes). Mere enhancement of the functionality with the use of these accessories will not detract from the fact that the product continues to remain a generating set and can generate electricity without such accessories. Thus, the process does not transform the imported Genset into a different commercial commodity. The term 'Power Pack' is merely a trade name given by the appellant, and the use and character of the product imported remains the same. d. The imported Gensets were complete and functional Gensets in themselves and it would be incorrect to say that the addition of accessories leads to completing an incomplete machine. e. The marketability test is also not satisfied, as it cannot be said that the product, in its imported form, served no purpose without the act....
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.... be joined would not function as such an article. On the other hand, an "accessory" is something that is not necessary for the functioning of an article. In this context, the characterisation of components such as radiator, ventilation fan, etc., by the appellant as 'accessories' is wholly untenable. The Genset, once placed in the container, would not function without these components, and thus these components should rightly be termed as 'parts' of the Power Pack. C. ISSUE TO BE DETERMINED 20. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following question falls for our consideration: • Whether the process of placing the Genset within a steel container and fitting the steel container with components such as radiator, ventilation fan, air filter unit, oil tank, pipes, pumps, valve and silencer would amount to "manufacture" under Section 2(f) of the Act, 1944? D. ANALYSIS (i) What amounts to "manufacture" under the Act, 1944? 21. Before adverting to the rival submissions canvassed on either side, we must look into a few provisions of the Act, 1944. Section 2(f) defines the term "manufactur....
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....nd 'manufacturing' on the other. The following paragraphs of the decision of this Court in Union of India v. Delhi Cloth & General Mills reported in 1962 SCC OnLine SC 148, would help in elucidating this very important distinction between processing and manufacturing: "13. The other branch of Mr. Pathak's argument is that even if it be held that the respondents do not manufacture "refined oil" as is known to the market they must be held to manufacture some kind of "non-essential vegetable oil" by applying to the raw material purchased by them, he processes of neutralisation by alkali and bleaching by activated earth and/or carbon. According to the learned Counsel "manufacture" is complete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate "processing" to "manufacture" and for this we can find no warrant in law. The word "manufacture" used a as verb is generally understood to mean as "bringing into existence a new substance" and does not mean merely "to produce some change in a substance", however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Pe....
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....this definition of the word 'manufacture' in the definition section and not with a view to make the mere "processing" of goods as liable to excise duty." (Emphasis Supplied) 25. As per this Court's decision in Delhi Cloth & General Mills (supra) for an activity to amount to "manufacture" and not be considered as merely 'processing' it has to produce a 'transformation' of the subject article i.e, a new and different article must emerge having a distinctive name, character or use. This test, as laid down by this Court in Delhi Cloth & General Mills (supra), has been extensively applied by this Court in its subsequent rulings. 26. In Union of India & Ors v. J.G Glass Industries Ltd & Ors reported in (1998) 2 SCC 32, this Court was dealing with the question whether printing on glass bottles amounts to "manufacture" within the meaning of Section 2(f) of the Act, 1944. The Court accepted the contention of the respondents that the activity of printing names or logos on the bottles did not change the basic character of the commodity and that the plain bottles in themselves were commercial commodities and could be sold and used as such. Thus, the Court held that printing on g....
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....ing different and/or new, which typically indicates "manufacture", as against instances where changes/processes do not lead to transformation into a new product. b. Retaining of essential character: In this category, the Court discussed instances where the activity did not amount to "manufacture" as the goods remained essentially the same after a particular process, with the original article continuing to hold its core identity despite changes. c. "But for the process" test / no commercial user without further process: In this category, the Court evaluated instances where a product in existence would serve no commercial purpose without undergoing a specific process, and whether undertaking such a process would amount to "manufacture". 29. This Court in Servo-Med (supra) also discussed the ratio of the judgment in J.G Glass (supra), more particularly as to how the 'but for the process' test ought to be understood and applied. The relevant observation is reproduced as follows: "24. It is important to understand the correct ratio of the judgment in the J.G. Glass case. This judgment does not hold that merely by application of the second test without more ....
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....ectly marketable commodity in its own right; it can be sold as seed or used as animal feed. If one were to apply the second test as propounded in J.G. Glass (supra) in a mechanical manner, the inescapable conclusion would be that since the wheat grain was in itself a marketable commodity, the process of milling it into flour would not amount to "manufacture", as the second prong of the test is not being satisfied. 31. Even in the facts of the present case, it is the contention of the appellant that the imported Genset had commercial utility even without the activity being undertaken. This argument, when pedantically read with this Court's clarification in Servo-Med (supra) that both prongs of the test have to be satisfied, would mean that just because the subject article had commercial utility prior to it being subjected to the process, the process undertaken would not lead to "manufacture" even if it was transformative in nature. Such an interpretation would be patently erroneous. In order to avoid such absurdity, it is important that the applicability of the second wing of the J.G. Glass (supra) test must be judged on the facts and circumstances of each individual case, and th....
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....ower Packs can be considered to be marketable? 35. The dispute between the parties before us primarily lies with respect to the transformation test. It is the case of the appellant that no transformation has occurred and there is no change in the character, identity or name as: (i) the function and end use of both the imported Gensets and Power Packs remains the same i.e., generating electricity; and (ii) placing the Genset inside the steel container and fitting it with various accessories is only for logistical purposes and the same merely enhances functionality. 36. In Servo-Med (supra), the question before this Court was whether the process of sterilizing syringes and needles would amount to "manufacture" under the Act, 1944. Answering in the negative, the Court held as follows: "28. The instant case falls within the first category aforementioned. This is a case of manufacture of disposable syringes and needles which are used for medical purposes. These syringes and needles, like in the J.G. Glass case and unlike the Brakes India case, are finished or complete in themselves. They can be used or sold for medical purposes in the form in which they ....
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....e end use of the syringe and needle changed post sterilisation. Consequently, no transformation had occurred. 37. In Commissioner of Central Excise-I, New Delhi v. S.R Tissues Pvt Ltd & Anr., reported in (2005) 6 SCC 310, the question before this Court was whether the cutting/slitting of jumbo rolls of tissue paper into various sizes suitable for use as toilet papers, table napkins or facial tissues would amount to "manufacture" in terms of Section 2(f) of the Act, 1944. The Court held as follows: "12. At the outset, we may point out that the assessee is one of the downstream producers. The assessee buys duty-paid jumbo rolls from M/s Ellora Paper Mills and M/s Padamjee Paper Mills. There are different types of papers namely, tissue paper, craft paper, thermal paper, writing paper, newsprints, filter paper etc. The tissue paper is the base paper which is not subjected to any treatment. The jumbo rolls of such tissue papers are bought by the assessee, which undergoes the process of unwinding, cutting/slitting and packing. It is important to note that the characteristics of the tissue paper are its texture, moisture absorption, feel etc. In other words, the characteristic....
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....sts, we hold that no new product had emerged on winding, cutting/slitting and packing. The character and the end-use did not undergo any change on account of the abovementioned activities and, therefore, there was no manufacture on first principles." (Emphasis Supplied) In S.R. Tissues (supra), this Court dealt with a fact situation wherein the form and shape of the subject article were being changed to facilitate the convenience of use. However, such a change in form did not lead to a change in either its character or use i.e., both the character and use of the product remained the same before and after undergoing the process. 38. In Satnam Overseas Ltd v. Commercial of Central Excise, New Delhi, reported in (2015) 13 SCC 166, the assessee was engaged in packing combination of mixture of raw rice, dehydrated vegetables and spices in the name of 'Rice and Spice'. The department contended that this process of mixing raw rice, dehydrated vegetables and spices amounted to "manufacture" as per Section 2(f) of the Act, 1944. The Court held that there was no transformation into a new commodity and thus the process did not amount to "manufacture". The relevant observation r....
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....and. The process involved in the manufacture of sweetened betel nut pieces does not result in the manufacture of a new product as the end product continues to retain its original character though in a modified form. What is to be highlighted is that even after the betel nut which had been cut to different sizes and had undergone the process, the Court did not treat it as 'manufacture' within the meaning of Section 2(f) of the Act on the ground that the end product was still a betel nut and there was no change in the essential character to that article even when it was the result of treatment, labour and manipulation, inasmuch as even after employing the same it had not resulted in the manufacture of a new product as the end product continued to retain its original character. 13. Another judgment which was referred to by learned Counsel for the Appellant is Commissioner of Central Excise v. Laljee Godhoo and Co. Vide this judgment the Court affirmed the view taken by the CEGAT, holding that the process of subjecting raw asafoetida (hing) resulting in formation of compounded asafoetida does not amount to manufacture, even when this process has undergone chemical cha....
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....ructions. Reading thereof amply demonstrates that it is to be cooked in the same form as any other rice is to be cooked. Therefore, we do not agree with the CEGAT that there is a transformation into a new commodity, commercially known as distinct and separate commodity." (Emphasis Supplied) Thus, Satnam Overseas (supra) clarified that the addition of elements to a subject article would in itself not lead to "manufacture", as long as the essential character of the subject article is being retained. 39. In Maruti Suzuki India Ltd v. Commissioner of Central Excise, reported in (2015) 13 SCC 186, the appellant's primary contention was that the process of Electro Deposition Coating of various spare parts such as bumpers, grills, etc, did not amount to "manufacture" as the same was in the nature of anti-rust and was merely done to increase the shelf life of the said spare parts. Agreeing with the appellant, the Court held as follows: "17. On the facts of the present case, we have first, therefore, to arrive at whether there is "manufacture" at all and only subsequently does the question arise as to if this is so, what is the valuation of the processed goods and whether ....
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.... distinct character and identity. 42. Determining the 'character' and 'identity' of goods is an inherently fact-specific inquiry, necessitating assessment on a case-to-case basis. Given the vast diversity of products and manufacturing processes, it is impossible to lay down one universal definition for these terms. 43. In the facts of the present case, we are convinced that the steel container and the other additional components do transform the imported Genset and bring into existence a distinct product which has its own character and identity. On a preliminary analysis itself, it is amply evident that the constituent components of the imported Genset are very different from the constituent components of the Power Pack. The appellant argued that mere addition of extra components would not transform the imported Genset as all the additional components are in the nature of mere accessories being attached for the sake of convenience and utility. Consequently, the addition of these components would not transform the imported Genset into a different and distinct product. 44. At this juncture, it is necessary to determine whether these components attached to the steel container....
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....the appellant, these components do not have a direct role in generating the electricity. Even if that be the case, it cannot be denied that these components play an equally vital role in facilitating such generation of electricity. It would be safe to assume that without these additional components, the Power Pack would not produce electricity within the steel container and thereby be able to fulfil its primary function. Thus, these additional components are not mere 'accessories' attached for the sake of convenience. 47. Further, the change in the form of the imported Genset after undergoing the process is drastic and substantial. Unlike in S.R Tissues (supra) wherein the tissue roll was itself cut/slit into different forms, what is happening in the present case is not mere restructuring of the imported Genset. Rather, the Genset is being reengineered so that it can function within a container. In order to facilitate the same a number of additional components are being added, and they are all recognisable as 'parts' of the Power Pack. In fact, the pictorial representations of the imported Genset and Power Pack itself indicates that structurally there is a profound distinction b....