2012 (12) TMI 341 - AT - Central Excise

Activity amounts to Manufacture or not - appellants are engaged in the manufacture of HT/LT Coils for transformers and also are engaged in repairing of transformers received from the electricity boards - transformer oil is subjected to the process of filtration under vacuum and heating and, thereafter, the same is used for filing in the cavities in the transformers as liquid insulator Held that - Appellant had subjected the transformer oil purchased by them to the process of filtration and heating to make it suitable for their own industrial use i.e. for repair of the transformers. The process undertaken by the appellant thus, does not amount to manufacture in favor of assessee

Summary

Issues:
Whether subjecting transformer oil to filtration and heating for use in transformers amounts to manufacture under the Central Excise Act.

Analysis:
The case involved the appellants engaged in manufacturing HT/LT Coils for transformers and repairing transformers received from electricity boards. The issue centered around the process of subjecting transformer oil to filtration and heating for use in transformers, leading to a dispute with the department over whether this constituted "manufacture" under the Central Excise Act.

The department contended that the process of filtration and heating of transformer oil for making it suitable for use in transformers amounted to manufacture under Section 2(f)(ii) of the Central Excise Act, read with Chapter Note 4 of Chapter 27 of the Central Excise Tariff. This interpretation led to the issuance of show cause notices demanding duty on the transformer oil used by the appellants in repairing transformers, which were confirmed by the original Adjudicating Authorities and the Commissioner (Appeals.

The appellants argued that the processes of filtration and heating did not amount to manufacture as per Chapter Note 4 of Chapter 27. They cited a previous Tribunal judgment to support their claim that such processes were not considered manufacturing activities for the purpose of excise duty. The appellants emphasized that the processes were meant to make the transformer oil suitable for industrial use in transformers, not for retail sale.

Upon considering the submissions from both sides and examining the relevant provisions, the Tribunal concluded that the processes undertaken by the appellants did not amount to manufacture under Section 2(f)(ii) of the Central Excise Act. The Tribunal interpreted Chapter Note 4 of Chapter 27 to exclude processes meant for industrial use from the definition of manufacturing for retail consumers. Therefore, the Tribunal set aside the impugned orders, allowing the appeals in favor of the appellants.

In summary, the Tribunal ruled that subjecting transformer oil to filtration and heating for use in transformers by the appellants did not constitute manufacturing under the Central Excise Act. The decision was based on the interpretation of relevant provisions and the distinction between processes for industrial use and those for retail consumers, ultimately leading to the dismissal of duty demands and penalties imposed on the appellants.