2025 (4) TMI 360 - AT - Central Excise

Process amounting to manufacture - activity in compressing the hydrogen gas received through a pipeline from M/s Punjab Alkalies and Chemicals Pvt. Ltd. into cylinders - HELD THAT - The Delhi Bench of the Tribunal in the case of Goyal M G Gases 2016 (9) TMI 573 - CESTAT CHANDIGARH has gone into the issue at length and held In fact they are the processors of the goods. In the case in hand as the buyer are not consumer as per Chapter Note 9 of Chapter 28 of CETA 1985. Further we also hold that the gas is already marketable in its original form and the activity undertaken by the appellant does not render the gas marketable which is already marketable. Therefore we hold that the activity undertaken by the appellant does not amount to manufacture. Consequently the appellants are not liable to pay duty. Conclusion - The activity undertaken by the appellant does not amount to manufacture on the ground that mere compression of gas into cylinders does not meet the statutory definition of manufacture if it does not create a new product or significantly alter marketability. There are no merits in the impugned order and consequentially the appeal is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the appellant's activity of compressing hydrogen gas received through a pipeline into cylinders constitutes "manufacture" under the Central Excise Tariff Act, 1985, thereby making the appellant liable to pay central excise duty. Specifically, the Tribunal examined whether such activity rendered the gas marketable to consumers and whether it fell under the definition of manufacture as per Chapter Note 9 of Chapter 28 of the Central Excise Tariff Act, 1985.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The analysis revolves around Chapter Note 9 of Chapter 28 and Chapter Note 5 of Chapter 27 of the Central Excise Tariff Act, 1985. Chapter Note 5 of Chapter 27 specifies that the process of compression of natural gas for marketing as Compressed Natural Gas amounts to manufacture. However, Chapter Note 9 of Chapter 28 does not include the appellant's activity as manufacture. The Tribunal also referenced previous judgments, including the Apex Court's decision in Surya Air Products and Tribunal decisions in Goyal M G Gases Pvt. Ltd. and Shivam Industries, which provided guidance on similar issues.

Court's Interpretation and Reasoning

The Tribunal interpreted that the activity of compressing hydrogen gas into cylinders did not transform the gas into a new product nor did it enhance its marketability to the extent required to constitute manufacture. The Tribunal emphasized that the gas was already marketable in its original form and that the activity undertaken by the appellant did not change its essential character or utility.

Key Evidence and Findings

The Tribunal noted the process undertaken by the appellant: receiving hydrogen gas through a pipeline, compressing it, and filling it into cylinders. The compressors used were equipped with systems for oil filtration and moisture removal. The Tribunal found that these processes did not fundamentally alter the gas, nor did they create a new marketable commodity.

Application of Law to Facts

The Tribunal applied Chapter Note 9 of Chapter 28 of the Central Excise Tariff Act, 1985, and concluded that the appellant's activity did not amount to manufacture. The Tribunal reasoned that the gas was already marketable as received and the activity did not render it more marketable to consumers. The Tribunal also distinguished the appellant's case from situations involving repackaging or relabeling, which might constitute manufacture under different circumstances.

Treatment of Competing Arguments

The Tribunal addressed the Department's argument that the activity constituted packing/repacking from bulk to smaller packs, which could be considered manufacture. However, the Tribunal found this argument irrelevant, as the show cause notice did not allege repacking. The Tribunal further noted that the consumers of the compressed gas were industrial users, not end consumers, which influenced the determination of marketability.

Conclusions

The Tribunal concluded that the appellant's activity did not amount to manufacture under the Central Excise Tariff Act, 1985. Consequently, the appellant was not liable to pay the central excise duty demanded by the Revenue.

SIGNIFICANT HOLDINGS

The Tribunal held that "the activity undertaken by the appellant does not amount to manufacture," thereby establishing that mere compression of gas into cylinders does not meet the statutory definition of manufacture if it does not create a new product or significantly alter marketability. The Tribunal emphasized that the gas was already marketable in its original form, and the activity did not render it more marketable.

The Tribunal's final determination was to allow the appeal, setting aside the impugned order and relieving the appellant from the liability to pay the demanded duty, interest, and penalty.