2011 (9) TMI 92 - AAR - Central Excise

Classification of battery bank - Refund of SAD u/s 3(5) of Customs Tariff Act 1975 - It is the contention of the applicant that the manner of clearance of battery cells as aforesaid does not bring into existence any new manufactured product and hence it is not liable to pay any excise duty in respect of the processing undertaken by it - whether the battery bank that is supplied by the applicant has a name character and use which is distinct from the batteries that comprise it - Held that - the function and use of the batteries whether in single units or in a bank of multiple batteries remains the same and that is to supply power as per requirement - cycle of operation charging and discharging can be repeated for the life of the accumulator. This process of charging cannot be said to result in the manufacture of an accumulator Regarding HSN note - It is true as contended by the DR that it is not necessary that tariff classification must change for a process to qualify as manufacture - in the present case there is no transformation that brings about a fundamental change in the character and use of the goods. The name remains the same (i.e. accumulator although an assembly of batteries is called a battery bank) the character and usage remain the same (i.e. provide direct current to an appliance though of differing magnitude etc.) - activities performed at the Chennai facility of the applicant in respect of imported battery cells as described in para 4 cannot be said to amount to manufacture under Section 3 of the Central Excise Act 1944

Summary

Issues Involved:
1. Whether the nature of activity is trading or manufacturing.
2. Excise classification for 'battery bank' assembled in a rack with connectors and whether an excise invoice can be raised for the clearance of 'battery bank'.
3. Charging of imported VRLA batteries in the bonded warehouse before being cleared.
4. Claiming refund of SAD under Section 3(5) of the Customs Tariff Act, 1975.

Issue-wise Detailed Analysis:

1. Nature of Activity: Trading or Manufacturing
- The applicant, M/s Delta Power Solutions India Pvt. Ltd., imports battery cells of two volts each and assembles them into battery banks comprising 24 cells inserted into battery cabinets with connectors and other accessories. The central question is whether this assembly process constitutes "manufacture" under Section 3 of the Central Excise Act, 1944.
- The applicant contends that the assembly process does not result in a new manufactured product and hence should be considered as trading, not manufacturing. They argue that the process does not fundamentally change the character, name, or use of the battery cells.
- The Commissioner of Central Excise supports this view, stating that the activity is merely a specific arrangement of battery cells and does not result in a new product.
- The Departmental Representative (DR), however, argues that the assembly results in a new, distinct product called a "battery bank," which has a different character, name, and use compared to the individual battery cells. He cites several Supreme Court judgments to support the contention that the process amounts to manufacture.

2. Excise Classification and Invoice for 'Battery Bank'
- The DR suggests that the battery bank should be classified under heading 85.04 of the Central Excise Schedule, as it is used as an integral part of a power supply system.
- The applicant argues that the classification remains under heading 8507, which covers electric accumulators, as the assembly does not change the fundamental nature of the product.

3. Charging of Imported VRLA Batteries
- The DR contends that the process of charging the batteries itself amounts to manufacture, as it changes the state of the product.
- The applicant clarifies that the batteries are already charged and only require partial recharging if the charge dips below a certain level. They argue that this recharging process does not constitute manufacture.

4. Refund of SAD under Section 3(5) of the Customs Tariff Act, 1975
- This issue was not pressed by the applicant and thus was not addressed in detail in the judgment.

Judgment Analysis:
- The Authority examined whether the assembly of battery cells into a battery bank results in a new product with a different character, name, and use. They referred to several Supreme Court judgments to determine the definition of "manufacture."
- The Authority concluded that the assembly process does not result in a new product. The battery bank is essentially a collection of battery cells arranged in a specific manner, and its function and use remain the same as the individual cells.
- The classification of the battery bank remains under heading 8507, and no new product emerges from the assembly process.
- The process of charging the batteries does not constitute manufacture, as it does not fundamentally alter the nature of the product.
- Based on these findings, the Authority ruled that the activities performed at the Chennai facility of the applicant do not amount to "manufacture" under Section 3 of the Central Excise Act, 1944. Consequently, the other questions become redundant and were not addressed.

Conclusion:
The Authority for Advance Rulings concluded that the activities performed by the applicant do not amount to manufacture, and therefore, the applicant is not liable to pay excise duty on the assembled battery banks. The classification remains under heading 8507, and the process of charging the batteries does not constitute manufacture.