# M/s Quippo Energy Ltd v. Commissioner of Central Excise Ahmedabad - II

- **Citation:** 2025 INSC 1130
- **Court:** Supreme Court of India
- **Decided:** 2025-09-19
- **Bench:** J.B. Pardiwala, K.V. Viswanathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-quippo-energy-ltd-v-commissioner-of-central-excise-ahmedabad-ii-38636
- **Pages:** 36

## Headnote

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" u/s.2(f) of the Central
Excise Act, 1944.
Headnotes†
Central Excise Act, 1944 - s.2(f) - Central Excise Tariff Act,
1985 - Appellant is engaged in the business of providing
containerised gas generating sets known as the Power Packs
on a lease basis - In order to carry out the said business, the
appellant imported Gas Generating Sets (Gensets) consisting
of an engine coupled with an alternator on a common base
frame - For convenience, the appellant placed the Genset in
a steel container - Further, in order to ensure the functioning
of the Genset within the container, the appellant indigenously
procured components such as radiator, ventilation fan, air filter
unit, oil tank, pipes, pumps, valve, silencer and fitting items
and fixed them to the container - The Assistant Commissioner
of Central Excise vide its letter dated 19.08.2008 informed the
appellant that the activities undertaken by it would amount to
"manufacture" by virtue of Notes 4 and 6 of Section XVI of the
Schedule to the Central Excise Tariff Act, 1985 - The appeal
against the said letter before the Commissioner (Appeals),
came to be dismissed - Subsequently, several show cause
notices issued to the appellant proposing demand of duty
along with the interest and levy of penalty on the Power
Packs cleared during the period from November 2006 to
July 2008 - Ultimately, the said demand and penalty were
* Author
[2025] 9 S.C.R.
1111
M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
confirmed - Appeal against the same came to be dismissed
by CESTAT - The CESTAT held that the process undertaken by
the appellant would amount to "manufacture" - Correctness:
Held: This court in Servo-Med has laid down a two pronged test
for the purpose of determining whether an activity amounts to
"manufacture" - The two-fold test is: (i) Transformation test (Whether
a distinct product with a new name, identity, character, or use
emerges?); and (ii) Marketability test (Whether the transformed
product is marketable as such?) - In the facts of the present
case, the change in the form/structure and the addition of new
components to the imported Genset has transformed it and brought
into existence a different product, i.e. the Power Pack, which has
its own distinct character and identity - 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 -
As far as the second limb of the test is concerned, held, that no
evidence has been adduced by the appellant to suggest that the
Power Packs are not marketable - On the contrary, it is an admitted
position, clear from the record, that it is these very Power Packs
that are the subject of the lease agreements and are delivered
to the ultimate customer - Thus, no serious question regarding
the marketability of the final product remains, it is an established
and undisputed fact - In the facts of the present case, both the
transformation test and the marketability test stand fulfilled - The
process of placing the Genset within the steel container and
fitting that container with additional, integral components brings
into existence a new, distinct, and marketable commodity - This
process would thus amount to "manufacture" under Section 2(f)
(i) of the Act, 1944 - Consequently, the appellant is liable to pay
excise duty on the goods manufactured. [Paras 33, 41, 43, 51, 52]
Words and Phrases - 'parts' and 'accessories' - Whether the
components attached to the steel container would constitute
as 'parts' or 'acces

## Text

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[2025] 9 S.C.R. 1110 : 2025 INSC 1130
M/s Quippo Energy Ltd.
v.
Commissioner of Central Excise Ahmedabad - II
(Civil Appeal No(s). 9418-9420 of 2016)
19 September 2025
[J.B. Pardiwala* and K.V. Viswanathan, JJ.]
Issue for 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" u/s.2(f) of the Central
Excise Act, 1944.
Headnotes†
Central Excise Act, 1944 - s.2(f) - Central Excise Tariff Act,
1985 - Appellant is engaged in the business of providing
containerised gas generating sets known as the Power Packs
on a lease basis - In order to carry out the said business, the
appellant imported Gas Generating Sets (Gensets) consisting
of an engine coupled with an alternator on a common base
frame - For convenience, the appellant placed the Genset in
a steel container - Further, in order to ensure the functioning
of the Genset within the container, the appellant indigenously
procured components such as radiator, ventilation fan, air filter
unit, oil tank, pipes, pumps, valve, silencer and fitting items
and fixed them to the container - The Assistant Commissioner
of Central Excise vide its letter dated 19.08.2008 informed the
appellant that the activities undertaken by it would amount to
"manufacture" by virtue of Notes 4 and 6 of Section XVI of the
Schedule to the Central Excise Tariff Act, 1985 - The appeal
against the said letter before the Commissioner (Appeals),
came to be dismissed - Subsequently, several show cause
notices issued to the appellant proposing demand of duty
along with the interest and levy of penalty on the Power
Packs cleared during the period from November 2006 to
July 2008 - Ultimately, the said demand and penalty were
* Author
[2025] 9 S.C.R.
1111
M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
confirmed - Appeal against the same came to be dismissed
by CESTAT - The CESTAT held that the process undertaken by
the appellant would amount to "manufacture" - Correctness:
Held: This court in Servo-Med has laid down a two pronged test
for the purpose of determining whether an activity amounts to
"manufacture" - The two-fold test is: (i) Transformation test (Whether
a distinct product with a new name, identity, character, or use
emerges?); and (ii) Marketability test (Whether the transformed
product is marketable as such?) - In the facts of the present
case, the change in the form/structure and the addition of new
components to the imported Genset has transformed it and brought
into existence a different product, i.e. the Power Pack, which has
its own distinct character and identity - 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 -
As far as the second limb of the test is concerned, held, that no
evidence has been adduced by the appellant to suggest that the
Power Packs are not marketable - On the contrary, it is an admitted
position, clear from the record, that it is these very Power Packs
that are the subject of the lease agreements and are delivered
to the ultimate customer - Thus, no serious question regarding
the marketability of the final product remains, it is an established
and undisputed fact - In the facts of the present case, both the
transformation test and the marketability test stand fulfilled - The
process of placing the Genset within the steel container and
fitting that container with additional, integral components brings
into existence a new, distinct, and marketable commodity - This
process would thus amount to "manufacture" under Section 2(f)
(i) of the Act, 1944 - Consequently, the appellant is liable to pay
excise duty on the goods manufactured. [Paras 33, 41, 43, 51, 52]
Words and Phrases - 'parts' and 'accessories' - Whether the
components attached to the steel container would constitute
as 'parts' or 'accessories' of the Power Pack:
Held: 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 - An
accessory on the other hand is a component which while not
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being essential to the primary functioning of the article, is used
in conjunction with the article and adds supplemental/secondary
value by providing for additional beauty, elegance, comfort or
convenience of use in relation to that article - Applying the above
enunciated judicial understanding of 'parts' and 'accessories'
to the facts of this case, it becomes evident that the additional
components should be considered as 'parts' of the Power Pack -
The appellant itself has admitted to the fact that once the Genset
is placed in the steel container, these additional components,
such as the radiator, ventilator fan and air filter unit, are required
for its effective functioning - Further, the change in the form of
the imported Genset after undergoing the process is drastic and
substantial - The process undertaken by the appellant imparts the
core functional utility of portability to the Genset, a utility that was
non-existent in the product at the time of its import - This is not a
minor, value-added feature, it is the defining attribute from which
the final product derives its entire identity and character - Thus,
the test of transformation is satisfied in the facts of the present
case - The imported Genset and the Power Pack are two different
commodities with distinct constituent elements, structure and
functional utility. [Paras 45, 46, 47, 49, 50]
Case Law Cited
Servo-Med Industries Pvt. Ltd. v. Commissioner of Central Excise,
Mumbai [2015] 6 SCR 690 : (2015) 14 SCC 47; Union of India v.
Delhi Cloth & General Mills [1963] Supp. 1 SCR 586 : 1962 SCC
OnLine SC 148 - relied on.
Union of India & Ors. v. J.G Glass Industries Ltd & Ors. [1997]
Supp. 6 SCR 345 : (1998) 2 SCC 32; Commissioner of Central
Excise-I, New Delhi v. S.R Tissues Pvt. Ltd. & Anr. [2005] Supp.
2 SCR 355 : (2005) 6 SCC 310; Satnam Overseas Ltd. v.
Commercial of Central Excise, New Delhi [2015] 4 SCR 437 :
(2015) 13 SCC 166; Maruti Suzuki India Ltd. v. Commissioner of
Central Excise [2015] 5 SCR 180 : (2015) 13 SCC 186; Saraswati
Sugar Mills v. Commissioner of Central Excise, Delhi- III [2011]
13 SCR 579 : (2014) 15 SCC 625; M/s Steel Authority of India
Ltd. v. Commissioner of Central Excise [2022] 12 SCR 50 : 2022
SCC OnLine SC 1232; Commissioner of Central Excise, Delhi v.
Insulation Electrical Private Limited [2008] 5 SCR 625 : (2008)
12 SCC 45 - referred to.
[2025] 9 S.C.R.
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M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
List of Acts
Central Excise Act, 1944; Central Excise Tariff Act, 1985; Customs
Tariff Act, 1975.
List of Keywords
Containerised Gensets; Power Packs; Manufacture; Transformation
Test; Marketability Test; Distinct character and identity; Core
functional utility of portability to the Genset; Part; Accessory;
Manufacture under Section 2(f) of the Central Excise Act,
1944.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 9418-
9420 of 2016
From the Judgment and Order dated 15.10.2015 of the Custom
Excise Service Tax Appellate Tribunal, West Zonal Bench at
Ahmedabad in APP Nos. 640 and 1284 of 2009, FO Nos. 11498
and 11499 of 2015, APP No. 11501 of 2015 and APP No. 557
of 2012
Appearances for Parties
Advs. for the Appellant:
Ms. Charanya Lakshmikumaran, Ms. N. Jain, Ayush Agarwal Av.,
Swastik Mishra, Ms. Neha choudhary, Ms. Umang Motiyani, Ms.
Medha Sinha, R. Parthasarathy.
Advs. for the Respondent:
Raghavendra P Shankar, A.S.G., Ms Nisha Bagchi, Sr. Adv., Ms.
Arunima Dwivedi, Gurmeet Singh Makker, Karan Lahiri, Bhuvan
Kapoor, Ishan Sharma.
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgment is divided into the
following parts:
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INDEX*
A.
FACTUAL MATRIX ..........................................................
2
B.
SUBMISSIONS ON BEHALF OF THE PARTIES ...........
11
(i) Submissions on behalf of the Appellant ....................
11
(ii) Submissions on behalf of the Respondent ................ 13
C.
ISSUE TO BE DETERMINED .........................................
14
D.
ANALYSIS ........................................................................ 15
(i) 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 "Act, 1985"). Accordingly, the demand of duty along with
interest for the period other than the extended period was upheld.
A.
FACTUAL MATRIX
2.
The appellant is engaged in the business of providing containerised
gas generating sets known as the Power Packs on a lease basis.
* Ed. Note: Pagination as per the original Judgment.
[2025] 9 S.C.R.
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M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
3.
To carry out the above business, the appellant imported Gas
Generating Sets (for short, "Gensets") consisting of an engine (prime
mover) coupled with an alternator on a common base frame. The
Gensets are imported along with the standard accessories and total
electronic management system. At the time of import, the Customs
Authorities assessed the Gensets under the sub-heading 8502.2090
of the Schedule to the Customs Tariff Act, 1975, categorising them
as "Generating sets with spark-ignition combustion piston engines
of an output exceeding 3.5 kVA".
4.
Since the Gensets were to be provided on a lease basis, the appellant
considered it unfeasible to install them at customer premises. This
was because, in cases of non-renewal of the lease, the Genset would
have to be relocated to the premises of a new customer.
5.
In such circumstances, to avoid inconvenience during shifting and to
provide for ease of transportation, the appellant placed the Genset
in a steel container. Further, in order to ensure the functioning of
the Genset within the container, the appellant indigenously procured
components such as radiator, ventilation fan, air filter unit, oil tank,
pipes, pumps, valve, silencer and fitting items and fixed them to
the container. The appellant has described the process as follows:
(i)
Using jacks and rollers, the imported equipment is first rolled
into a steel transport container and properly positioned on anti-
vibrating mounting pad.
(ii)
Remote radiator is lifted by crane and properly positioned onto
the roof of the container. Further, it is arrested on the roof with
suitable sized nuts, bolts and washers.
(iii) Lube Oil Tank is lifted by crane and moved onto the roof of
the container. It is properly placed on the mounting channels
and locked on the roof top by suitable nuts, bolts and washers.
(iv) For the purpose of HT, LT, Water and Lube Oil pipe lining on
the roof of the container, necessary fittings like pipes, reducers,
valves, tee, elbows, flanges, etc. are fitted.
(v)
Similar process is done for HT, LT, Water, DM Water 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.
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(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 to play in generation of electricity.
That work is performed only by the imported
Gas Genset
Oil Tank
Lubricant oil which kept in a pan beneath
engine of Gas Genset is circulated to various
moving parts for proper lubrication. Oil tank is
required to replenish the oil in the pan and thus
has no role to play in generation of electricity.
Electricity is generated only by the imported
Gas Genset.
[2025] 9 S.C.R.
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M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
Pumps
These pumps are used to move fluids from
one location to another. They are used to carry
water. Fitting of pump to Gas Genset does not
give rise to new product with distinct name,
character or use.
Valve
It is a flow control device and have no
participation as such in generation of electricity
Silencer &
Radiator
Silencer helps in controlling the noise produced
by exhaust gases during operation. Therefore,
silencer has no role to play in Generation of
Electricity by Gas Genset.
While generating electricity the internal parts
of Gas Generator becomes very hot due to
process of combustion. Radiator merely helps
in radiating heat into the air and cooling the
engine. Coolant flows through the generator
block and then to the radiator. In many cases,
chiller is used instead of radiator to extract heat
that is otherwise thrown into the environment.
Thus, radiator has no role to play in generation
of electricity. That work is performed only by
the imported gas genset.
Pipes, Flanges,
Nut-bolts, Gasket
These are used for fitting of the above items.
7.
The appellant vide letter dated 22.11.2007 explained to the Deputy
Commissioner of Central Excise, Ahmedabad about the activities
carried out by it and sought an opinion as regards its liability under
the Act, 1944. Thereafter, on 17.07.2008 the officers of Central
Excise (Preventive), Ahmedabad-II visited the appellant's factory
and examined the process undertaken by it.
8.
The Assistant Commissioner of Central Excise, Ahmedabad-II,
vide its letter dated 19.08.2008 informed the appellant that the
activities undertaken by it would amount to "manufacture" by virtue
of Notes 4 and 6 of Section XVI of the Schedule to the Act, 1985,
respectively.
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9.
The appellant in the aforesaid context filed an appeal before the
Commissioner (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-inOriginal 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 Schedule to the Act, 1985 and
are liable for Central Excise duty.
13. The appellant filed appeals before the CESTAT against the order
passed by the Commissioner (Appeals) dated 27.03.2009, the
Order-in-Original dated 28.04.2009 and the Order-in-Original dated
29.03.2012 respectively.
14. The CESTAT while disposing of the appeals filed by the appellant
held as under:
"13. .......It is submitted that the Gensets imported by the
Appellant remains essentially the same. We have already
observed that in the present case, the imported Gensets
after certain process sold as Power Pack, different and
distinct nature. As per statement of Shri Divyesh Shah,
the Gensets imported by the Appellant is incomplete
[2025] 9 S.C.R.
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M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
machine, can be used into complete form after assembly
of various accessories/components. Note 6 of the Section
XVI of Customs Tariff Act provides that the conversion
of an incomplete or unfinished article into complete or
finished goods shall amount to manufacture. It is evident
from the record that the activities undertaken by the
Appellant are incidental to the completion of manufacture
of Power Pack, and without such activities Power Pack
cannot be used by the customers Section 2(f) of Central
Excise Act, 1944, the definition of manufacture includes
the process incidental to the completion of a manufactured
product. Heading 85.02 covers Electric Generating Sets
and Rotary Connectors". Sub-heading 8502.2090 covers
"Generating sets with spark-ignition internal combustion
piston engines" other than Electric portable generators of
an output not exceeding 3.5 KVA. As per Notes of Chapter
85 of HSN, Generating Sets consisting of the generator
and its prime mover which are mounted (or designed to
be mounted) together as one unit or on a common base.
In the present case, the activities of fixing of anti-vibrating
mounting pad, radiator, Lube Oil Tank, Ventilation, fans,
silencers, Cable Trays, Control Panel and other electrical
items, hydraulic test processing etc, are mounted together
as one unit on a common base, known as Power Pack
and also Containerized Gensets.
14. According to the Appellant, the Gensets imported
by them were capable of generating 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
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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 identical issue was raised before the Hon'ble
Supreme Court in the case of Laminated Packings Pvt.
Ltd (supra). It has been observed that the goods belongs
to the same entry is also not relevant because even if the
goods belong to the same entry, the goods are different
identifiable goods known as such in the market. If that is
so, the manufacture occurred and if manufacture takes
place, it is dutiable. The said decision would squarely
apply in the present case and the Power Pack is rightly
classified under sub-heading No.8502.2090 of Central
Excise Tariff Act, 1985.
17. However, we find force in the submissions of the learned
Advocate that the extended period of limitation cannot
be invoked. On perusal of the records, we find that the
Appellant by letter dt.22.11.2007, informed the Assistant
Commissioner of Central Excise for a clarification on any
possible liability of Central Excise duty. The Appellant also
pursued the matter before the Department. There is no
material on record of suppression of facts with intent to
evade payment of duty. The Hon'ble Gujarat High Court
in the case of Gujarat Glass Pvt. Ltd (supra) observed
that the Assessee on his own brought to the notice of the
Department the fact about the clearance of the goods to
its sister unit without duty before the date of visit of the
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M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
officers. The Assessees conduct was candid and therefore,
bona fide. There is no evidence of intentional evasion.
18. In the case of Anand Nishikawa Company ltd Vs CCE
Meerut 2005 (185) EL T 149 (SC), the Hon'ble Supreme
Court observed that there was no deliberate attempt of
non-disclosure of excise duty. No claim as to "suppression
of facts" would be entertained for the purpose of invoking
extended period of limitation within the meaning of proviso
to Section 11A(1) of the Act. It is also noted that Hon'ble
Supreme Court in series of cases, has held that the
extended period of limitation, would not be invoked in
the case of revenue neutrality as the CENVAT Credit is
available against the demand of duty.
19. We find that the Appellant acted under a bona fide
belief that the activities undertaken by them would 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) is allowed. The applications for extension
of stay order are dismissed as infructuous."
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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 in nature from the
imported Gensets, and the activities undertaken by the appellant
are incidental to the completion of manufacturing Power Packs.
Thus, these activities would amount to "manufacture" under
Section 2(f) of the Act, 1944, which brings under the ambit
of "manufacture" any process incidental or ancillary to the
completion of a manufactured product;
b.
Imported Gensets and the Power Packs are known separately
in trade and parlance and both items are used for different
purposes. Thus, the process undertaken by the appellant would
constitute "manufacture" as it leads to the emergence of a new
product in the market; and
c.
Imported Gensets are incomplete machines and can be used in
complete form after assembly of various components procured
by the appellant. Note 6 of Section XVI of the Act, 1985 provides
that conversion of an incomplete or finished goods falling under
that section shall amount to "manufacture".
16. In such circumstances referred to above, the appellant is here before
this Court with the present appeals.
B.
SUBMISSIONS ON BEHALF OF THE PARTIES
(i)
Submissions on behalf of the Appellant
17. Ms. Charanya Lakshmikumaran, the learned counsel appearing for
the appellant, submitted the following:
a.
A process would amount to "manufacture" if the following twofold test, as explained by this Court in a catena of judgments, is
satisfied: (i) Whether by the said process a different commercial
commodity comes into existence or whether the identity of the
original commodity ceases to exist (Transformation Test); and
(ii) Whether the commodity which was already in existence
would be of no commercial use but for the said process
(Marketability test).
b.
The two limbs must be satisfied cumulatively. As held by this
Court in Servo-Med Industries Pvt Ltd v. Commissioner
[2025] 9 S.C.R.
1123
M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
of Central Excise, Mumbai reported in (2015) 14 SCC 47,
fulfilment of any one of these limbs is not conclusive if the other
limb of the test is not satisfied. In the facts of the present case,
both the limbs of the above test are not satisfied.
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 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 becomes
marketable for a customer, this test has to be simultaneously
and cumulatively satisfied along with the first test. However,
the transformation test is not satisfied in the present case,
as there was no transformation of the imported Genset into a
different and distinct product. Thus, the activity undertaken by
the appellant would not amount to "manufacture".
18. In such circumstances referred to above, the learned counsel prayed
that there being merit in her appeal, the impugned order be set aside.
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(ii) Submissions on behalf of the Respondent
19. Ms. Nisha Bagchi, the learned senior counsel appearing for the
Revenue, submitted the following:
a.
The findings recorded in the impugned order have been arrived
at after considering all the relevant material and applying the
established test for determining "manufacture". Thus, the
impugned order is unassailable in law as well as on the facts.
b.
The Genset in its imported form is not functional. It is undisputed
that the appellant is not selling the imported Genset as such.
The Genset is containerized using various locally procured parts
to transform it into a functional Power Pack. The Power Pack
is a different product having a distinct character, name and
use and is marketable as such. The test of no commercial use
without further process is satisfied, and the fact of "manufacture"
stands established. The present dispute falls within the fourth
category enunciated in Servo-Med (supra), i.e., where the goods
are transformed into marketable, different/new goods after a
particular process. Thus, "manufacture" could be said to have
taken place as contemplated under Note 6 of Section XVI of
the Schedule to the Act, 1985 and Section 2(f) of the Act 1944,
respectively, thereby attracting the levy of Central Excise duty.
c.
Further, emphasis was laid on the fact that "part" of an article
is something necessary for the completion of that article. It is
an integral, constituent or component part, without which the
article to which it is to 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:
[2025] 9 S.C.R.
1125
M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
 •
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,
(iii) which in relation to the goods specified in the
Third Schedule, involves packing or repacking of such
goods in a unit container or labelling or re-labelling
of containers including the declaration or alteration of
retail sale price on it or adoption of any other treatment
on the goods to render the product marketable to
the consumer and the word "manufacture" shall be
construed accordingly and shall include not only a
person who employs hired labour in the production or
manufacture of excisable goods, but also any person
who engages in their production or manufacture on
his own account;"
22. The term "manufacture" assumes vital importance as under the
Act, 1944, the event of taxation is at the point of manufacturing.
Section 3 of the Act, 1944, which is the charging section, lays down
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that the excise duty is to be levied on goods which are produced
or manufactured in India. This is because excise duty is primarily
a duty on the goods produced or manufactured within the country.
23. Sub-clause (i) of Section 2(f) is inclusive, and "manufacture" has
been defined to include any process incidental or ancillary to the
completion of the manufactured product. Sub-clause (ii) of Section
2(f) stipulates that "manufacture" would include any process which
has been specified in the Section/Chapter notes of the Schedule to
the Act, 1985, as amounting to "manufacture". In other words, if a
process is declared as amounting to "manufacture" in the section
or chapter notes, it would come within the definition of Section 2(f)
and become liable to excise duty.
24. At first blush, Section 2(f)(i) may suggest that any process
undertaken on the goods in question would fall within the ambit of
"manufacture". However, this Court has consistently held that such
a broad interpretation would be erroneous. The courts must try to
appreciate the nuanced yet critical distinction that the law draws
between mere 'processing' on the one hand, and '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.
[2025] 9 S.C.R.
1127
M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
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 clear that to become "goods"
an article must be something which can ordinarily come
to the market to be bought and sold.
16. This consideration of the meaning of the word "goods"
provides strong support for the view that 'manufacture'
which is liable to excise duty under the Central Excises and
Salt Act, 1944, must be the "bringing into existence of a new
substance known to the market." "But," says the learned
Counsel, "look at the definition of 'manufacture' in
the definition clause of the Act and you will find that
'manufacture' is defined thus : 'Manufacture' includes
any process incidental or ancillary to the completion
of a manufactured product (s. 2(f))". We are unable
to agree with the learned Counsel that by inserting
this definition of the word "manufacture" in s. 2(f)
the legislature intended to equate "processing" to
"manufacture" and intended to make mere "processing"
as distinct from "manufacture" in the same sense of
bringing into existence of a new substance known to
the market, liable to duty. The sole purpose of inserting
this definition is to make it clear that at certain places in
the Act the word 'manufacture' has been used to mean a
process incidental to the manufacture of the article. Thus
in the very item under which the excise duty is claimed in
these cases, we find the words : "in or in relation to the
manufacture of which any process is ordinarily carried
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Supreme Court Reports
on with the aid of power". The definition of 'manufacture'
as in s. 2(f) puts it beyond any possibility of controversy
that if power is used for any of the numerous process that
are required to turn the raw material into a finished article
known to the market the clause will be applicable; and an
argument that power is not used in the whole process of
manufacture using the word in its ordinary sense, will not
be available. It is only with this limited purpose that the
legislature, in our opinion, inserted 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 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
[2025] 9 S.C.R.
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M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad - II
already in existence will serve no purpose but for the
said process.