Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-009418-009420 – 2016 |
| Diary Number | 1847/2016 |
| Judge Name | HON’BLE MR. JUSTICE J.B. PARDIWALA |
| Bench | HON’BLE MR. JUSTICE J.B. PARDIWALA; HON’BLE MR. JUSTICE K.V. VISWANATHAN |
| Precedent Value | Binding authority |
| Overrules / Affirms | Affirms CESTAT’s conclusion and existing Supreme Court precedents |
| Type of Law | Central Excise Law |
| Questions of Law | Whether placing an imported genset in a steel container and fitting it with parts like radiator, fan, piping, pumps and silencer amounts to “manufacture” under Section 2(f) of the Central Excise Act, 1944. |
| Ratio Decidendi |
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| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities |
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| Facts as Summarised by the Court | Appellant imported ready-made gas generating sets (gensets); to facilitate leasing and relocation, it mounted them in steel containers and affixed indigenous components (radiator, ventilation fan, air filter, oil tank, pumps, valves, silencer, piping, control panels); tested and cleared them as “containerized gensets” or “Power Packs.” |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts, CESTAT benches |
| Persuasive For | High Courts and tribunals in excise duty classification disputes |
| Distinguishes | Processing cases where core character and use remain unchanged (e.g., sterilization of syringes; cutting tissue rolls) |
| Follows | Union of India v. Delhi Cloth & General Mills; J.G. Glass; Servo-Med Industries |
What’s New / What Lawyers Should Note
- Reaffirms that accessories become “parts” if they are integral to the operation of a product in its altered form.
- Clarifies that containerization plus integral fittings transforms a finished import into a new marketable commodity.
- Confirms both transformation and marketability tests must be cumulatively satisfied to constitute “manufacture.”
- Logistics-driven modifications can attract excise duty when they yield a distinct product with its own identity.
- End-use similarity does not preclude manufacture if structure, components and utility are fundamentally altered.
Summary of Legal Reasoning
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Definition & Charge
- Section 2(f) of the CE Act, 1944 defines “manufacture” to include processes incidental to completion of a product.
- Section 3 levies duty on goods “produced or manufactured” in India.
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Processing vs Manufacturing
- Delhi Cloth & General Mills: “manufacture” implies transformation into a new article with distinct name, character or use; mere processing is excluded.
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Two-Prong Test
- J.G. Glass & Servo-Med establish (i) transformation test; (ii) marketability test must both be met.
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Categories of Processes (Servo-Med)
- Only when goods are transformed into different/new and marketable articles is there “manufacture.”
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Application to Facts
- Containerization + integral components (radiator, pumps, silencer, piping, control panels) produce a distinct product (“Power Pack”) with new structure and utility.
- These components are “parts,” not mere “accessories,” as they are essential for operation within the container.
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Marketability
- Power Packs are leased/sold as stand-alone products, satisfying the marketability requirement.
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Conclusion
- Both prongs satisfied → process amounts to “manufacture” → central excise duty applies.
Arguments by the Parties
Petitioner (Appellant):
- Imported gensets were complete and functional; container-mounted accessories are mere conveniences, not transformative parts.
- No identity change; “Power Pack” is merely a trade name.
- Both transformation and marketability tests fail; process does not create a new commodity.
Respondent (Revenue):
- Imported gensets cannot be sold as such; containerization with parts yields a distinct, marketable product.
- Components (radiator, fan, pipes, silencer) are essential “parts,” not accessories.
- Satisfies transformation and “no commercial use without process” tests under Note 6, Section XVI, CE Tariff Act, 1985.
Factual Background
Appellant imported ready-made gas generating sets (gensets) assessed by Customs under sub-heading 8502.2090. To enable leasing and easy relocation, these gensets were mounted in steel containers and fitted with locally procured components—radiator, ventilation fan, air filter, oil tank, piping, pumps, valves, silencer and control panels. After hydraulic and electrical testing, the finished “Power Packs” were cleared and leased to industrial customers. The department treated this process as “manufacture,” demanded excise duty, and CESTAT partly allowed appeals, upholding duty on the normal period.
Statutory Analysis
- Section 2(f), CE Act 1944: “manufacture” includes processes incidental or ancillary to completion of a product, processes specified in Fourth Schedule notes, and certain packing/labeling.
- Section 3, CE Act 1944: Charge duty on goods produced or manufactured in India.
- Notes 4 & 6, Section XVI, CE Tariff Act 1985: Conversion of incomplete articles and processes incidental to completion may amount to “manufacture.”
- Supreme Court interprets these in light of judicial precedents, limiting “manufacture” to transformative, marketable processes.
Alert Indicators
- ✔ Precedent Followed