Converting Imported Goods Into Distinct, Marketable Products Qualifies As 'Manufacture'; Attracts Excise Duty: Supreme Court

The Supreme Court on Friday (Sep.19) held that converting imported gas-generating sets (Gensets) into containerized “Power Packs” by placing them in steel containers and fitting them with essential components amounts to “manufacture” under the Central Excise Act, 1944, making the final product liable to excise duty.

“The process of placing the Genset within the steel container and fitting that container with additional, integral components brings into existence a new, distinct, and marketable commodity. This process would thus amount to “manufacture” under Section 2(f)(i) of the Act, 1944. Consequently, the appellant is liable to pay excise duty on the goods manufactured.”, the court held.

A bench of Justices JB Pardiwala and KV Viswanathan held that once the Gensets were containerized into Power Packs, involving modifications and the addition of essential components for their operation, their form and structure underwent a transformation into a distinct product with a separate identity, thereby attracting excise duty

“in the facts of the present case, the change in the form/structure and the addition of new components to the imported Genset has transformed it and brought into existence a different product, i.e. the Power Pack, which has its own distinct character and identity.”, the court said

The Court referred its own case of Servo-Med Industries Pvt Ltd v. Commissioner of Central Excise, Mumbai, (2015) 14 SCC 47, which laid down a two-pronged test for the purpose of determining whether an activity amounts to “manufacture”. The two-fold test is:

(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 Court noted that the transformation test and marketability test were fulfilled as the imported product was transformed into a new product with a distinct identity, name, and character and is capable of being brought and sold in the market.

Rejecting the appellant's argument that the imported Genset was already a complete product, the judgment authored by Justice Pardiwala distinguished parts and accessories. It held that the radiator, fan, and oil tank were not optional add-ons but integral parts and not accessories, without which the Genset could not function inside the steel container.

With the help of an example, the Court distinguished between parts and accessories:

“To illustrate, an air conditioner installed in a car would not be considered a 'part' of that car. This is because the car can effectively perform its primary function of transportation even without an air conditioner. Conversely, the air conditioner would be classified as an 'accessory' because it enhances comfort and convenience when utilised with the car. It provides supplemental/secondary value by enabling the ability to control the temperature within the car. On the other hand, a steering wheel would be considered as a 'part' of the car because without a steering wheel the car would not be able to perform its primary function, i.e., transportation.”

Further, the Court emphasized that the process gave the product a new character and functional utility. While the imported Genset was meant for permanent installation, the Power Pack became a portable, self-contained unit fit for commercial leasing. This transformation satisfied the test of manufacture.

Accordingly, the appeal was dismissed.

Cause Title: M/S QUIPPO ENERGY LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AHMEDABAD – II

Citation : 2025 LiveLaw (SC) 926

Click here to read/download the judgment

Appearance:

For Appellant(s) : Ms. Charanya Lakshmikumaran, Adv. Ms. N. Jain, Adv. Mr. Ayush Agarwal, Av. Mr. Swastik Mishra, Adv. Ms. Neha choudhary, Adv. Ms. Umang Motiyani, Adv. Ms. Medha Sinha, Adv. Mr. R. Parthasarathy, AOR

For Respondent(s) : Ms. Nisha Bagchi, Sr. Adv. Ms. Arunima Dwivedi, Adv. Mr. Raghavendra P Shankar, A.S.G. Mr. Gurmeet Singh Makker, AOR Mr. Karan Lahiri, Adv. Mr. Bhuvan Kapoor, Adv. Mr. Ishan Sharma, Adv.