TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1157
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.... 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 "Act, 1985"). Accordingly, the demand of duty along with interest fo....
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....ntilation 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 that process of combustion needs oxygen that is available in air. This is called consumable and is being replaced from time to time. Thus, Air Filter unit has no role ....
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....e 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 undertaken by the appellant satisfies the conditions of "manufacture" as defined under Section 2(f) of the Act, 1944. Consequently, the said goods are classifiable under the sub-heading No.8502.2090 of the S....
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....ower 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 KVA." It is submitted that the Customs Department had assessed the goods as complete electric generating sets and classification under the same heading under the Central Excise Tariff Act, 1985, cannot be sustained. We find that the ident....
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....ods 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) is allowed. The applications for extension of stay order are dismissed as infructuous." 15. Thus, the CESTAT held that the process undertaken by the appellant would amount to "manufacture" on the following grounds: a. The Power Packs are different and distinct i....
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....he 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 activity undertaken by the appellant. It was capable of generating electricity and was commercially available for such purpose de hors the accessories. f. Without prejudice to the aforesaid even if it were to be held that the second test is satisfied in the present case, i.e., by way of containerization and adding accessories the Genset become....
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....omponents, 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 "manufacture". The same reads as follows: "2. Definitions.- In this Act, unless there is anything repugnant in the subject or context,- xxx xxx xxx (f) "manufacture" includes any process- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the Section or Chapter Notes of the Fourth Schedule as amounting to manufacture; or, ....
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....anufacture 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 Permanent Edition of Words and Phrases, Vol. 26, from an American Judgment. The passages runs thus :- 'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use. xxx xxx xxx 15. These definitions make it....
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....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 glass bottles did not amount to "manufacture" under Section 2(f) of the Act, 1944. The relevant observations made by this Court are reproduced as follows: "16. On an analysis of the aforesaid rulings, a two-fold test emerges for deciding whether the process is that of "manufacture". First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether, the commodity which was already i....
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....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 manufacture comes into being. The Court was at pains to point out that a twofold test had emerged for deciding whether the process is that of manufacture. The first test is extremely important-that by a process, a different commercial commodity must come into existence as a result of the identity of the original commodity ceasing to exist. The second test, namely that the commodity which was already in existence will serve no purpose but for a certain process must be understood in its true perspective. It is only when a different and/or finished pro....
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....ctivity 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 the same cannot be brandished as a universal rule. 32. This Court in Servo-Med (supra) categorised the entire case law into four categories. In paragraph 27, the Court lists them out as follows: "27. The case law discussed above falls into four neat categories. (1) Where the goods remain exactly the same even after a particular process, there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category. (2) Where the ....
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.... 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 are. The fact that medically speaking they are only used after sterilization would not bring this case within the ratio of the Brakes India case. All articles used medically in, let us say, surgical operations, must of necessity first be sterilized. xxx xxx xxx 30. The added process of sterilization does not mean that such articles are not complete articles in themselves or that the process of sterilization produces a transformation in the original articles leading to new articles known to the market as such. A surgical equipment such as a knife continues to be a surgical knife even after sterilization. If the Department were right, every time such instruments a....
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....s. 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 characteristics of table napkins, facial tissues and toilet rolls in terms of texture, moisture absorption capacity, feel etc. are the same as the tissue paper in the jumbo rolls. The said jumbo rolls cannot be conveniently used for household or for sanitary purposes. Therefore, for the sake of convenience, the said jumbo rolls are required to be cut into various shapes and sizes so that it can be conveniently used as table napkins, facial tissues, toilet rolls etc. However, the end-use of the tissue paper in the jumbo rolls and the end-use of the toilet rolls, the table napkins and the facial tissues remains the same, namely, for household or sanitary use. The predominant test in such a case is whether th....
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.... (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 reads thus: "11. The first judgment which we want to mention, which was cited by Ms. Charanya, is Crane Betel Nut Powder Works v. Commissioner of Customs, Central Excise, Tirupathi. In the said case the Assessee was engaged in the business of marketing betel nuts in different sizes after processing them by adding essential/non-essential oils, menthol, sweetening agent etc. Initially, the Assessee cleared the goods under Chapter Sub-heading 2107 of the Central Excise Tariff and was paying duty accordingly. However, the Assessee filed a revised classification declaration Under Rule 173B of the Central Excise Rules, 1944, with effect from 17th July, 1997, claiming classification of its product under Chapter Sub-heading 0801.0....
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....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 change, because of the reason that the said chemical change had not brought even after it underwent a process, any new product as the product remained the same at starting and terminal points of the process.... 14. ....Again the test which was applied was that essential character of the product did not change and, therefore, it would not amount to manufacture. It was so held even when gum arabic as well as wheat flour were mixed in the process. A pertinent aspect which was noted was that mixing of these articles did not result in chemical reaction with asafoetida. 15. Last judgment to which we would like to refer to is Deputy Commissioner Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. PIO Food Packers. In that case, the process undertaken by the As....
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.... 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 duty is payable upon them. We have found on facts that for the purposes of the proviso to Rule 57F(ii), the inputs that were not ultimately used in the final product but were removed from the factory for home consumption remain the same despite ED coating and consequent value addition. We follow the law laid down in S.R Tissues Pvt. Ltd.'s case and state that on account of mere value addition without more it would be hazardous to say that manufacture has taken place, when in fact, it has not. It is clear, therefore, that the inputs procured by the Appellants in the present case, continue to be the same inputs even after ED coating and that Rule 57F(ii) proviso would therefore apply when such inputs are removed from the factory for home consumption, the duty of excise payable being the amount of credit tha....
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....enset 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 would constitute as 'parts' or 'accessories' of the Power Pack. This is crucial because if these additional components are 'parts' of the Power Pack, it would establish beyond doubt that the imported Genset has undergone transformation as its constituent elements are very different from that of the Power Pack. 45. The judicial understanding of the terms 'part' and 'accessory' respectively is as presented below: a. A part is an integral/ constituent component which renders the article complete and functional i.e., the article would not be able to fulfill its primary function without this component. [See Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III, reported in (2014) 15 SCC 625, and M/s Steel Authority of India Ltd. v. Commissioner of Central Excise, reported in 2022 SCC OnLine SC 1232]; b. An a....
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....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 between both the products. In such circumstances, the fact that the process was undertaken merely for the sake of logistical purposes would not change the undeniable fact that the imported Genset has been transformed into a different product. 48. The appellant's submission that the Genset was complete and functional at the time of import and the end-use of both the imported Genset and the Power Pack is the same i.e., generation of electricity, is also devoid of any merit. There is a serious dispute between the parties as to whether or not the Genset at the time of import was complete and functional. Even if we assume it was complete and functional, that still would not help in driving home the appellant's contention. This is because the core end-use of a subject article might remain the same pre and post application of the process and yet it m....