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21 March 2017

‘Manufacture’ under Central Excise law

Customs, Excise and Service Tax Appellate Tribunal (CESTAT) recently delivered few decisions on one of the oldest questions in Central Excise law – whether a process amounts to ‘manufacture’. According to the decisions while conversion of paddy to rice and affixing of pre-cut glasses to frames do not amount to manufacture, process of repacking of goods after marking for easy identification amounts to ‘manufacture’.

 

Conversion of paddy to rice

Chandigarh Bench of CESTAT has held that the definition of manufacture under the Central Excise Act, 1944 is pari materia to definition of manufacture as per Section 2(29BA) of the Income Tax Act, 1961. Further, placing reliance on a Supreme Court decision in the case of Cynamid India Ltd. (Civil Appeal Nos. 4403-4404 of 1996, decided on 13-4-1999), it was held that conversion of paddy to rice is not a distinct operation and does not amount to manufacture, because after dehusking, rice and husk remain in their natural form. Further observing that rice was not an excisable commodity, the Tribunal in its decision in the case of Dunar Foods held that clearance of rice from EOU to DTA shall not be subject to Central Excise duty.

 

Repacking of goods after marking identification

Delhi Bench of CESTAT has held that repacking of goods after marking with supply order number, number of objects inside the package and other necessary details for easy identification at consignee’s end is covered under definition of ‘manufacture’ under Section 2(f)(iii) of the Central Excise Act,1944. The Tribunal in this regard, in the case of Channel Auto Electric Pvt. Ltd., observed that without such markings the product could not been sold to the customer (ordnance factory) as the agreement between the two parties required the respondent to do so.

 

Affixing pre-cut glasses to frames

Affixing duty paid processed and pre-cut glasses supplied by client to duty paid aluminium frames and panels with the help of sealant does not amount to manufacture. CESTAT Delhi, in its decision in the case of Crystal Corporation, was of the view that aluminium frames cut to specific dimension and the glass cut to specific dimension are components and parts of glazed panels, and their assembly and erection in the civil structure does not create a new commercially marketable product. Further, fact that the work order was an indivisible work contract for installation of curtain wall on the existing structure, there being no order for purchase of glazed panels, and that upon fabrication the curtain wall of glass became part of civil construction, was also noted by the Tribunal while it held that that no marketable new product was emerging in between.