Process of mounting two items on plastic board not manufacture as per excise law: CESTAT

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Fact: The assessee-appellant are engaged in supply of various bought-out electrical items and accessories to various nodal agencies to provide electricity connection to below poverty line (BPL) households. They procured these items from various parties and supplied them to these nodal agencies in various combinations (BPL Kit). The combination of BPL Kits contained all or some of the items like Wooden or Polycarbonate board, DP switches, Kit- Kat Fuse, Piano switch, Bulb holders, CFL bulbs, MCB, Nuts, Bolts, Screws & GI wire, PVC/GI pipes, etc. The Adjudicating Authority held that the process of mounting two components/items on the wooden or plastic board would amount to manufacture and accordingly upheld duty demand partly. He concluded that the ‘BPL Kits’ supplied by the assessee to the nodal agencies were classifiable under Heading No. 8537 10 00.

Held: The Hon’ble CESTAT of Delhi Branch Vide Appeal No. E/50872-50873/2017 dated August 9, 2018 stated that the assessee had not manufactured any dutiable item attracting central excise levy.In Union of India v. J.G. Glass Industries Ltd. the Apex Court held that a two-fold test emerges for deciding whether the process is “manufacture”. First, whether by the said process, a different commercial commodity comes into existence or whether identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process. Referring to their decision in Empire Industries Ltd. v. Union of India the Apex Court emphasized that in case of transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes, “manufacture” takes place and liability to duty is attracted.

The Hon’ble Supreme Court in M/s. Servo-med Industries (P.) Ltd. v. CCE referring to their decision in Collector of CEx. v. Rajasthan State Chemical Works held where the goods remained exactly the same even after a particular process, there is obviously no “manufacture” involved. Even where the goods remained essentially the same after the particular process, there again, “manufacture” is not involved. When the goods were transformed into something different and new, after a particular process but the same are not marketable, there is no case of manufacture. Where the goods are transformed into a new and different goods after a particular process and such goods are marketable, as such, the process of manufacture and duty liability will arise.

 In view of the above detailed analysis, we find that the appellants have not manufactured any dutiable item attracting central excise levy during the material time. We find the impugned order is not sustainable in so far as it confirms certain duty liability on part of the clearances, on the appellant-assessee. We upheld the original authority order with reference to the finding for dropping the demand raised against the appellant-assessee.

Citation: [2018] 97 taxmann.com 83 (New Delhi – CESTAT)