Containerising Imported Gensets Amounts to “Manufacture”, Supreme Court Holds
A bench of Justices J.B. Pardiwala and K.V. Viswanathan heard appeals by M/s Quippo Energy Ltd. challenging the Customs, Excise and Service Tax Appellate Tribunal’s finding that the respondent revenue was entitled to classify and levy excise duty on containerised generating sets. The appeals arose from a dispute over whether the appellant’s activity of placing imported generating sets (“Gensets”) into steel containers and fitting them with radiators, fans, oil tanks, piping, silencers, control panels and related items constituted “manufacture” under Section 2(f) of the Central Excise Act, 1944 and whether duty was leviable for the normal period.
The Court summarised and affirmed the tribunal’s legal conclusion that the processes undertaken by the appellant satisfied the established tests for manufacture. The Court held that the conversion produced a different and marketable commodity — a containerised “Power Pack” or “Containerized Genset” — distinct in constituent elements, structure and functional utility from the imported Genset and thus fell within Section 2(f)(i). The Court observed the governing principle that “a new and different article must emerge having a distinctive name, character or use,” and applied the two-fold transformation and marketability tests developed in the Court’s precedents. The Court, in its reasoning, observed: The Court dismissed the appeals, leaving the tribunal’s classification under sub-heading 8502.2090 intact and confirming liability to pay excise duty for the normal period while the tribunal’s orders setting aside demands for the extended period and penalties remained operative.
Background
The appellant was in the business of leasing containerised power solutions and imported complete Gensets assessed by customs under sub-heading 8502.2090. To facilitate mobility and leasing, the appellant installed the Gensets in steel transport containers and affixed numerous locally procured components and services — mounting pads, remote radiators, lube oil tanks, piping and pumps, ventilation fans, silencers, cable trays, control panels and testing — to enable operation inside the container. Revenue initiated adjudication, and the Commissioner held the conversions amounted to manufacture and confirmed demands and penalties. On appeal the CESTAT found that the conversion produced a distinct marketable product, upheld classification under 8502.2090 and sustained duty for the normal period while setting aside demands for the extended period, confiscation and penalties and directing that CENVAT credit benefits be considered while quantifying duty. Before the Supreme Court the appellant relied on the line of authority stressing that mere addition, cleaning or facilitation for convenience did not change the essential character of goods; the revenue relied on authorities and Section XVI Note 6 treating conversion of incomplete/unfinished articles as manufacture. The Court analysed earlier precedents including Delhi Cloth & General Mills, J.G. Glass, Servo‑Med and related decisions, applied the transformation and marketability tests to the facts and concluded that the containerisation and fitting of integral components produced a new commodity with its own identity and marketability. The appeals were dismissed and the appellant remained liable for excise duty on the manufactured Power Packs.
Case Details: Case No.: 2025 INSC 1130 (Civil Appeal Nos. 9418-9420 of 2016) Case Title: M/s Quippo Energy Ltd. v. Commissioner of Central Excise Ahmedabad – II Appearances: For the Petitioner(s): Ms. Charanya Lakshmikumaran (Advocate) For the Respondent(s): Ms. Nisha Bagchi (Senior Advocate)