2000 (9) TMI 388 - AT - Central Excise

Summary

Issues involved:
Whether the process of converting a transformer from one model to another constitutes manufacture.

Analysis:
The appeal before the Appellate Tribunal involved the question of whether the conversion of a transformer from one model to another by a company amounted to manufacture. The Revenue contended that the transformation of Model BOT 3460 to Model HETT 3900 by M/s. Usha (India) Ltd. constituted manufacture as it changed the capacity of the transformer. The Assistant Commissioner had demanded duty and imposed penalties, arguing that the process resulted in a new transformer with a different capacity, thus constituting manufacture. The Commissioner (Appeals) set aside the Adjudication Order, stating that the upgradation of a machine does not amount to manufacture unless it brings into existence goods with a new name, character, and use. The Revenue relied on previous decisions where modifications to machines were considered manufacturing processes. They argued that the change in the core of the transformer and the alteration of capacity amounted to manufacture under the Central Excise Act.

On the other hand, the Respondent argued that they had only repaired the transformer and that even after the model change, the product remained a transformer without a new identity. They cited precedents where replacing defective parts did not constitute manufacture and emphasized that the identity of the product was not lost through the repair process. The Respondent also referred to Supreme Court decisions emphasizing that for a process to be considered manufacture, a new and distinct article with a different name, character, or use must emerge. They highlighted a circular stating that upgrading a computer system did not amount to manufacture as it did not create goods with a new identity. The Respondent's position was supported by various legal precedents and established principles regarding the definition of manufacture.

The Tribunal analyzed the submissions of both parties and referred to Supreme Court judgments that defined manufacture as the creation of a new substance with a distinct name, character, or use. They applied a two-fold test to determine whether the process undertaken by the Respondents constituted manufacture. The Tribunal concluded that the transformation of the transformer did not result in a new and distinct product with a different name, character, or use. They distinguished the case from precedents where new commodities emerged from the manufacturing process. The Tribunal found that the repaired or upgraded transformer remained fundamentally the same product and did not create a new commodity in the market. Therefore, they rejected the appeal filed by the Revenue, upholding the decision that the process did not amount to manufacture under the Central Excise Act.