2017 (9) TMI 413 - AT - Central Excise

Manufacture - clearances made in cascades - case of Revenue is that the goods are cleared from the factory of the assessee-Respondents in the form of Compressed Natural Gas (CNG) in cascades. In terms of Note 5 to Chapter No. 27, the Natural Gas which is compressed for use as a fuel or for any other purpose shall amount to manufacture and, therefore, the assessee-Respondents are required to pay duty on such CNG - Held that - even though the Natural Gas is transported to the customers premises in compressed form, such process of compression has been done for the purposes of transportation only. Such process cannot be considered as a process of manufacture, since the goods are sold not as CNG but as Natural Gas - demand set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
Interpretation of Chapter Note 5 to Chapter No. 27 regarding compression of natural gas as manufacture for Central Excise Duty liability.

Analysis:
The appeal before the Appellate Tribunal CESTAT Kolkata involved a dispute regarding the liability of Central Excise Duty on the compression of natural gas by the assessee-Respondents for transportation to customers' premises. The Department contended that as per Note 5 to Chapter No. 27, compression of natural gas for use as Compressed Natural Gas (CNG) amounts to manufacture, thus attracting duty payment. On the other hand, the assessee-Respondents argued that the compression was solely for transportation purposes, and the gas was decompressed and sold as Natural Gas to customers, exempting them from duty payment.

The Tribunal analyzed Note 5 to Chapter No. 27, which states that compression of natural gas for marketing as CNG constitutes manufacture. However, the crucial aspect highlighted was that compression must be for marketing as CNG, and in this case, the gas was sold as Natural Gas at normal pressure to customers after decompression at their premises. The Commissioner (Appeals) emphasized that since the gas was not marketed as CNG but as Natural Gas, the compression process did not amount to manufacture, as per the contracts with customers specifying sales at normal pressure.

The Tribunal concurred with the Commissioner's interpretation, stating that the compression of gas for transportation purposes does not qualify as manufacturing when the goods are ultimately sold as Natural Gas, not as CNG. Therefore, the Tribunal upheld the impugned order, dismissing the Department's appeal against the demand for Central Excise Duty. The judgment was pronounced on 31.08.2017, sustaining the decision based on the specific contractual terms and the nature of gas sales by the assessee-Respondents.