Placing Genset in steel container & fitting it with additional integral parts amounted to manufacture
In a recent judgment, Hon’ble Supreme Court has held that process of placing Genset within steel container and fitting container with additional, integral components brings into existence a new, distinct, and marketable commodity.
ABCAUS Case Law Citation:
4750 (2025) (09) abcaus.in SC
In the instant case the appellant had filed appeals under Section 35L(b) of the Central Excise Act, 1944 (Act 1944) against the Order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
The Tribunal though partly allowed the appellant’s appeal. However, it held that the activities undertaken by the appellant to set up the “Containerized Gensets” would amount to “manufacture”.
The appellant is engaged in the business of providing containerised gas generating sets known as the Power Packs on a lease basis. The appellant imported Gas Generating Sets (Gensets) consisting of an engine (prime mover) coupled with an alternator on a common base frame. Since the Gensets were to be provided on a lease basis, to avoid inconvenience during shifting and to provide for ease of transportation, the appellant placed the Genset in a steel container. Further, in order to ensure the functioning of the Genset within the container, the appellant indigenously procured components such as radiator, ventilation fan, air filter unit, oil tank, pipes, pumps, valve, silencer and fitting items and fixed them to the container.
The Excise Department held the activities undertaken by the appellant amounted to “manufacture” by virtue of Notes 4 and 6 of Section XVI of the Schedule to the Central Excise Tariff Act 1985 (Act 1985), respectively.
Before the Hon’ble Supreme Court, the assessee contended that the process does not transform the imported Genset into a different commercial commodity. The term ‘Power Pack’ was merely a trade name given by the appellant, and the use and character of the product imported remains the same.
The Hon’ble Supreme Court observed that Section 2(f) of Act 1944 defines the term “manufacture” and as held by it an activity to amount to “manufacture” and not be considered as merely ‘processing’ it has to produce a ‘transformation’ of the subject article i.e, a new and different article must emerge having a distinctive name, character or use.
The Hon’ble Supreme Court further observed that the Court had laid down a two pronged test for the purpose of determining whether an activity amounts to “manufacture” i.e. (i) Transformation test (Whether a distinct product with a new name, identity, character, or use emerges?); and (ii) Marketability test (Whether the transformed product is marketable as such?).
The Hon’ble Supreme Court observed that in the facts of the present case, the change in the form/structure and the addition of new components to the imported Genset had transformed it and brought into existence a different product, i.e. the Power Pack, which had its own distinct character and identity. The steel container and the other additional components did transform the imported Genset and bring into existence a distinct product which has its own character and identity. Also, the constituent components of the imported Genset were very different from the constituent components of the Power Pack.
The Hon’ble Supreme Court further observed that a part is an integral/ constituent component which renders the article complete and functional whereas, an accessory on the other hand is a component which while not being essential to the primary functioning of the article, is used in conjunction with the article and adds supplemental/secondary value by providing for additional beauty, elegance, comfort or convenience of use in relation to that article. Applying the above enunciated judicial understanding of ‘parts’ and ‘accessories’ to the facts of this case, the additional components should be considered as ‘parts’ of the Power Pack.
The Hon’ble Supreme Court further noted that the Genset at the time of the import were in a form that was suitable/intended for permanent installation. The process undertaken by the appellant imparted the core functional utility of portability to the Genset, a utility that was non-existent in the product at the time of its import. This was not a minor, value-added feature, but was the defining attribute from which the final product derived its entire identity and character.
Further, there was no evidence to suggest that the Power Packs were not marketable. On the contrary, it was admitted position, that it was these very Power Packs that are the subject of the lease agreements and are delivered to the ultimate customer. Therefore, both the transformation test and the marketability test stood fulfilled.
Accordingly, the Hon’ble Supreme Court held that the process of placing the Genset within the steel container and fitting that container with additional, integral components brought into existence a new, distinct, and marketable commodity which amounted to “manufacture” under Section 2(f)(i) of the Act, 1944.
As a result, the appeals were dismissed.
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