Messrs Rohan Automotive Equipment Pvt Ltd vs Ahmedabad-ii

Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad

REGIONAL BENCH-COURT NO. 1

Excise Appeal No. 10532 of 2013 - DB
(Arising out of OIO-04/AKG/COMMR/AHD-II/2013 dated 08/02/2013 passed by
Commissioner of Central Excise-AHMEDABAD-II)
M/s. Rohan Automotive Equipment Pvt Ltd ……..Appellant
5, Ashwamegh Industrial Estate,
Changodar, Taluka : Sanand,
Ahmedabad, Gujarat
VERSUS
Commissioner of C.E.-Ahmedabad-II ……Respondent
Custom House... First Floor,
Old High Court Road, Navrangpura,
Ahmedabad, Gujarat- 380009
WITH

Excise Appeal No. 10533 of 2013 - DB
(Arising out of OIO-04/AKG/COMMR/AHD-II/2013 dated 08/02/2013 passed Commissioner of
Central Excise-AHMEDABAD-II)
Upendrabhai C Shah ……..Appellant
Manager, (Accounts) & Authorised Signatory,
M/s. Rohan Automotive Equipment Pvt Ltd,
5, Ashwamegh Industrial Estate, Changodar,
Taluka : Sanand, Ahmedabad, Gujarat

VERSUS

Commissioner of C.E.-Ahmedabad-II ……Respondent
Custom House... First Floor,
Old High Court Road, Navrangpura,
Ahmedabad, Gujarat- 380009

APPEARANCE:
Shri Paresh M. Dave and Shri Parth Rachchh, Advocates for the Appellant
Shri Rajesh K Agarwal, Superintendent (AR) for the Respondent

HON'BLE MEMBER (JUDICIAL), MR. SOMESH ARORA
HON'BLE MEMBER (TECHNICAL), MR. SATENDRA VIKRAM SINGH

Final Order No. 10790-10791/2026

DATE OF HEARING: 08.09.2026
DATE OF DECISION:
28.10.2026
SATENDRA VIKRAM SINGH
1. M/s. Rohan Automotive Equipment Pvt. Ltd., Changodar, Ahmedabad
(Appellant) are procuring imported as well as indigenous parts of LPG/ CNG
kit and selling the same under their brand name duly packed in a box in the
form of LPG/ CNG kit assembly. During audit of the unit, the officers found

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that the appellant was paying central excise duty when these LPG/ CNG kits
were cleared to various car manufacturers like Hindustan Motors, General
Motors, Maruti Suzuki and Tata Motors etc. but no excise duty was paid when
these kits were cleared to various buyers/ dealers. According to Audit Officers,
appellant has not paid central excise duty is payable by appellant on clearance
of LPG/ CNG kits to various dealers. The statement of Shri Upendra C Shah,
Manager (Accounts) of the appellant firm was recorded by the officers on
18.01.2011, wherein, he explained that the company procures various duty
paid parts such as Reducer, Solenoid Valve, Tank, Switch, High / Low Pressure
Pipe, Filling Pipe, Filling Valve etc. and non duty paid parts such as Nuts, bolts,
Pipes, Tank Stands etc. After conducting investigation, a show cause notice
dated 26.04.2012 was issued to appellant proposing- (i) classification of LPG/
CNG kits under CTH 8409 of the Central Excise Tariff Act, 1985, (ii)
confiscation of LPG/CNG kits valued at Rs.16.56 Crs. cleared during the period
2007-08 to 2009-10 under Rule 25 of the Central Excise Rules, 2002, (iii)
demanding central excise duty of Rs.2,37,06,413/- on above clearances made
during above period under proviso to Section 11A(1)/ Section 11A(4) of the
Central Excise Act, 1944 along with interest under Section 11AA and (iv)
penalty under Section 11AC of the Act read with Rule 25 of the Central Excise
Rules, 2002.
1.1 Learned Commissioner decided the show cause notice vide impugned
order dated 11.02.2013, wherein, he confirmed classification of subject goods
under CTH 84.09, confirmed central excise duty demand of Rs.2,37,06,413/-
along with interest under Section 11AA and imposed equal penalty on them
under Section 11AC read with Rule 25 of the Central Excise Rules, 2002
besides penalty of Rs.2,00,000/- on Shri Upendrabhai Shah, Authorised
signatory of the appellant company under Rule 26 of the said Rules. Aggrieved
with this order, appellant filed the appeal before this Tribunal.

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2. In their appeal, the appellant mainly contended that the activity of
assembly of various duty paid items in a box and selling as LPG/ CNG kit does
not amount to manufacture in view of various decisions, specially the decision
of Hon’ble Andhra Pradesh High Court in the case of XI Telecom Ltd. Vs.
Superintendent of Central Excise, Hyderabad reported at 1999 (105) ELT 263
(A.P.) and of CESTAT Delhi in the case of M/s. CEV Engineering Pvt. Ltd. Vs.
Commissioner of Central Excise, Delhi-II reported at 2015 (38) STR 93 (Tri-
Del), which was also upheld by Hon’ble Apex Court as reported at 2015 (39)
STR J 85 (SC).
2.1 Even if, it is assumed that LPG/ CNG conversion kits sold to OEMs were
similar in nature to those sold to various buyers/ dealers, then also, excise
duty could only be demanded if a person had undertaken activity of
manufacture. They rely on the decision of Hon’ble Supreme Court in the case
of Union Carbide India Ltd. Vs. UOI reported at 1986 (24) ELT 169 (SC)
wherein, it was held that duty liability cannot be fastened only because of the
conduct of assessee who had paid excise duty on similar transactions in past.
2.2 In the case of sale to OEMs, CNG/ LPG kits cleared by them bore a brand
name. Besides, OEMs desired to purchase these goods against issue of
cenvatable invoices. Therefore, such transactions were not similar to or
comparable with the sales made to dealers. It is admitted position that LPG/
CNG conversions kits were sold and supplied in loose condition because all the
parts except tank and tank stand were put in a box and tank and tank stand
were separately supplied. There was no process that the appellant had
undertaken in these business transactions.
2.3 Learned Commissioner has upheld invocation of extended period against
them whereas, they had informed the proper Central Excise Officer in October,
2006 by submitting a letter that the company was selling LPG and CNG
Automobile Conversion Kits, which activity does not amount to manufacture.
As they had explained all the details to Revenue Authorities in the aforesaid

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letters, there was nothing on their part which was suppressed. On the other
hand, Central Excise Officers never informed/ clarified to the appellant that
the activity was amounting to manufacture under Section 2(f) of the Act and
they were liable to pay the appropriate excise duty. They had also brought the
contents of the letter dated 26.08.2006 to the notice of Audit Officers which
supports their contention that extended period is not invokable.
2.4 Hon’ble Apex Court in the case of Padmini Products reported at 1989
(43) ELT 195 (SC) and in case of Chemphar Drugs & Liniments reported at
1989 (40) ELT 276 (SC) has held that if assessee was under a bonafide
impression that it was not duty bound to disclose such information, it would
not be a case of suppression of fact. They also rely on the decision of Hon’ble
Supreme Court in the case of Continental Foundation Jt. Venture Vs. CCE,
Chandigarh reported at 2007 (216) ELT 177 (SC), and the decision in M/s.
Jaiprakash Industries Ltd. reported at 2002 (146) ELT 481 (SC).
2.5 Hon’ble Apex Court in the case of Hindalco Industries reported at 2003
(161) ELT 346 and in case of Kirloskar Oil Engines Ltd. Vs. CCE, Nasik reported
in 2004 (178) ELT 998 held that the balance sheet being a public document,
any demand under extended period of limitation was illegal as suppression of
fact etc was not invokable.
2.6 Their alternate argument of treating the sales price of LPG/ CNG
conversion kits to the dealers as cum-duty price has been wrongly rejected by
the learned Commissioner. To support this contention, they rely on the
decision of Hon’ble Apex Court in Amrit Agro Industries Ltd reported at 2007
(210) ELT 183 (SC). Also, their argument that if duty is held payable by them,
they are entitled to the Cenvat Credit of Rs.1,70,17,890/- on inputs/ various
parts purchased for making CNG/ LPG conversion kits. If this credit is allowed
to them, only a small amount of central excise duty of Rs.66,89,881/- will be
payable. Consequently, penalty under Section 11AC would also reduce to that
extent.

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2.7 There is no justification to impose penalty of Rs.2,00,000/- on Shri
Upendrabhai C Shah who was just an employee of company. As he would have
drawn no personal gains, imposition of penalty on him under Rule 26 is not
correct. They rely on the decision in the case of Vinodkumar reported at 2006
(199) ELT 705 and in R. K. Ispat Udyog reported at 2007 (211) ELT 460. They
prayed for allowing their appeals and setting aside the impugned order.
3. The appeal of the party was decided by this Tribunal vide Final Order
No. A/11396-11397/2023 dated 28.06.2023, wherein the matter was
remanded to learned Commissioner for fresh computation of demand by giving
benefit of cum duty price and Cenvat Credit. The operative part of the said
order is reproduce below-
“4. On going through the impugned order, we find that the Learned
Commissioner while confirming agreed with the submission of appellant about
admissibility of CENVAT credit, but he left the work of quantum of CENVAT
credit to Jurisdictional Assistant/Deputy Commissioner and Pursuant to the
Commissioner’s directions, the Deputy Commissioner vide letter dated
14.03.2013 had worked out admissible CENVAT credit at Rs. 1,64,68,644/-.
However on 25.03.2013 the Deputy Commissioner issued another letter
rectifying the error of mentioning the incorrect amount of admissible CENVAT
credit in previous letter dated 14.03.2013 and confirmed that the admissible
CENVAT Credit was Rs. 1,70,17,818/- for the period. We further observed that
in the present matter appellant also claimed the benefit of cum-duty price
which was denied by the learned Commissioner on the ground that no evidence
of inclusion of excise duty in the price charged from the buyer has been
produced by the Appellant before him. However we find that the benefit of the
same is liable to be extended to the appellant. In the case of National Plywood
Industries Ltd.-[2000 (125) E.L.T. 986 (Tribunal) Supra the benefit of cum
duty was extended to them and the price was considered to be cum-duty
prices. The relevant observations made in para 8 of the said order are being
reproduced below:-

“8. The appellants had pleaded that in the facts and circumstances of the case
the benefit of Modvat credit should be extended in their favour if the demand of
duty is to be enforced and that the procedural requirements could not be followed
at the appropriate time as the appellants were contesting their duty liability. In the
case of Apex Steels Pvt. Ltd. v. CCE, Chandigarh - 1995 (80) E.L.T. 368 (T), the
Tribunal had observed that the Modvat credit where otherwise due ought to be
allowed even if prescribed procedure could not be followed. In the case of Dalmis
Indus. Ltd. v. CCE, New Delhi - 1996 (84) E.L.T. 60 (T), the Modvat credit was not
initially availed as finished products were considered to be exempted from duty.
Subsequently, they were held to be liable to duty. The Tribunal observed that the
Modvat credit should be available in spite of failure to make declaration.
It has also been pleaded that their prices should be considered to be cum-
dutyprices and the benefit as flowing from the Tribunal’s decision in the case of Sri
Chakra Tyres Ltd. v. CCE, Madras, 1999(108) E.L.T. 361 (Tribunal) = 1999 (32) RLT 1
(CEGAT-Larger Bench), be allowed. The Larger Bench of the Tribunal had held that
the excise duty held payable subsequently was to be abated from total sale price
realisation by treating it as cum-duty price for purpose of determination of the
assessable value, and quantum of duty demand payable. The Tribunal had relied
upon the Supreme Court’s decision in the case of Pravara Pulp & Paper Mills v. CCE

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- 1997 (96) E.L.T. 497 (S.C.) = 1997 (23) RLT 890 (S.C.), and had referred to the
Tribunal’s decision in the case of Express Rubber Products v. CCE - 1998 (101) E.L.T.
495 (Tribunal) = 1998 (24) RLT 482 (T).”

4.1 Thus in view of the foregoing, we hold that the appellants are entitled
to the benefit of cum-duty price. The demand of duty is accordingly to be re-
quantified.

4.2 With this observation, we find that the quantification of the demand
needs to be re-worked out by the Ld. Commissioner. The penalties imposed
on the appellants are also needs to be re-determined based upon the duty that
has to be worked by the adjudicating authority. Since in the impugned matter
quantification of demand itself was not properly done, we do not comment on
the merit of the case and the same is kept open. We set aside the impugned
order and remand the matter to Ld. Commissioner that first re-quantify the
duty demand after considering the benefit of CENVAT credit and cum-duty
price claimed by the appellant and pass afresh order.

4.5 Since the matter is of very old period, the de novo adjudication process
may be completed within a period of three months from the date of this order
after allowing opportunity of hearing to the appellant.

5. The impugned order is set aside and appeals are allowed by way of
remand to the adjudicating authority.”

4. The appellant filed an appeal against the above order before Hon’ble
Gujarat High Court which vide order dated 16.07.2026 in Special Civil
Application No.17604/2023 set aside the Tribunal’s order dated 28.06.2023
and remanded the matter to CESTAT for deciding the party’s appeal a fresh,
on merits after hearing both sides. Relevant para 5, 6 and 7 of the above
decision are reproduced below:-
“5. The petitioners filed the Excise Appeals Nos.10532 and 10533 of 2013
challenging the actions of the respondents in levying the excise duty by
construing the process undertaken by the petitioners as manufacture within
the meaning of Section 2(f) of the Act. The petitioners were subjected to the
proceedings by issuance of show cause notice dated 26.04.2012 seeking
recovery of duty for the period from 2007-2008 to 2009-2010 along with
interest under Section 11AB of the Act and also for imposing the penalty under
Section11AC of the Act. The show-cause notice culminated into the Order-in-
Original dated 08.02.2013 holding the appellants’ activity as manufacture of
the goods attracting the duty under the Act. Accordingly, the penalty was
imposed upon the petitioners, which was subject matter of challenge before
the CESTAT by filing an appeal. The tenor of the order of the CESTAT reflects
that the appeal was contested on merits and the petitioner had questioned the
levy of the excise duty looking to its activity of putting together the
components of LPG/CNG kit and packing such parts in a box and selling such
box with a tank and a tank stand in loose condition under the description of
"CNG automobile conversion kit" or "LPG automobile conversion kit".
6. The petitioners also had placed reliance on the three judgments, including
the judgment of the Supreme Court, which are mentioned in paragraph 2.1 of
the impugned order passed by the CESTAT. Various other judgments which
are referred in para 2.2 of the order of the CESTAT were also relied upon by
the petitioners. After hearing the respective parties, the CESTAT held that the
appellants are entitled to the benefit of cum duty price and the matter was
remanded to the adjudicating authority for re-quantifying the demand. The

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case of the petitioners was specific before the CESTAT that the respondent
authorities cannot demand the duty and there is no liability of the petitioners
to pay such excise duty looking to the nature of their activity, which would not
fall within the definition of Section 2(f) of the Act, which defines “manufacture”.
This is the vital aspect, which the CESTAT has completely ignored in deciding
the same, and hence, we find the order of remand directing the adjudicating
authority to quantify the demand without examining the quintessential issue
about the levying the duty as arbitrary or not was uncalled for. The CESTAT
ought to have restrained itself in remanding the matter for quantification when
the levy of duty itself was contested on merits by citing legal precedent.
7. In light of the foregoing reasons, the writ petition succeeds. The impugned
judgment and order passed by the CESTAT is hereby quashed and set aside.
The matter is remanded to the CESTAT to decide the Excise Appeals Nos.10532
and 10533 of 2013 afresh on merits, after hearing the respective parties. We
clarify that we have not examined the matter on merits with regard to the
claim of the petitioner. All the rights and contentions of the respective parties
are left open.”
5. During arguments, learned Advocate mentioned that the very same
issue has been decided by CESTAT Delhi in the case of M/s. CEV Engineering
Pvt. Ltd. (cited supra), wherein, it has been held that procuring different
components (both imported as well as indigenously purchased) and packing
them and selling them as CNG kit was not ‘manufacture’ under Section 2(f) of
the Central Excise Act, 1944 and no excise duty was chargeable on such
activities. Upon challenge by Revenue, Tribunal’s above decision was upheld
by Hon’ble Supreme Court by observing that the appeals are devoid of any
merit and liable to be dismissed. In CEV Engineering case, unit was selling
CNG kits to individual customers and also installing in the customer’s vehicles.
They were also selling CNG kits to independent traders. Learned Advocate
argued that while deciding CEV Engineering Pvt. Ltd. case, the Tribunal relied
on the decision of Hon’ble Andhra Pradesh High Court in XI Telecom Ltd.,
decisions of Tribunal in Dalmia Industries case and in TI Diamond Chain
Limited case, wherein, it was held that procuring various parts and
components from the market and packing them after testing and branding in
a kit, does not amount to manufacture, even if various items of the kits after
being procured from different sources had been subjected to testing and
branding. Learned Advocate further argues that the revenue has not produced
any evidence that processes like testing or assembling were undertaken by
the appellant.

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5.1 He also states that a similar dispute regarding demand of excise duty in
the case of M/s. Rohan BRC Equipment Private Limited, a group company, was
decided in favour by the learned Commissioner (Appeals) vide order dated
05.10.2018 who dropped the demand by relying on the decision in M/s. CEV
Engineering Pvt. Ltd. case. This order has also been accepted by the
department, thus bringing finality to the issue.
5.2 Learned Advocate also relied on the decision of Hon’ble Supreme Court
in the case of Alupro Building Systems Pvt. Ltd. reported at 2026 (397) ELT 3
(SC) wherein, it was held that any process for preparation, sizing, and
installation of aluminum composite panels was not "manufacture", and
therefore, question of marketability pales into insignificance. In this case,
Hon'ble Supreme Court has held that inspite of processes such as cutting,
grooving, and bending of aluminum composite panels, there was no
"manufacture" and no Excise Duty is chargeable. He admits that the appellant
had committed mistake in paying excise duty on sale of CNG/LPG conversion
kits to various Automobiles companies, which cannot mean that business
activities actually constituted “manufacture”. The conduct of an assessee can
never be an evidence of manufacture of a distinct commodity with new name,
new use and new character. To support his argument, he relied on the decision
of Hon’ble Apex Court in Union Carbide India Ltd. (cited supra).
5.3 Learned Advocate further pleads that extended period is not invokable
in this case as appellant had duly informed the department providing details
of activities undertaken by them, which do not amount to manufacture. As an
alternate submission, he pleads that if duty is held payable by them, they
should be extended the benefit of cum-duty value and Cenvat Credit on bought
out items be allowed which as per their revised calculations, comes to
Rs.1,70,17,818/-. He produced copies of the letter issued by the Deputy
Commissioner dated 14.03.2013 and 25.03.2013 regarding admissibility of
the Cenvat Credit amount.

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6. Opposing the pleadings of the learned Advocate, learned AR Shri Rajesh
Kumar Agarwal submitted that the appellant was purchasing duty paid goods
such as Reducer, Solenoid Valve, Tank, Switch, High / Low Pressure Pipe,
Filling Pipe, Filling Valve, Nut, Bolt, Tank Stands etc. and cleared LPG/ CNG
conversion kits which are distinctly known in the trade and have a distinct
name, character and use. The appellant selects components suitable for a
particular car model and puts them in a box, affixes MRP and their brand name
and then marketing it as CNG/ LPG kit. The tank and it’s stand is not put in
the box and supplied separately. He submits that under Section 2(f) of the
Central Excise Act, “Manufacture” includes processes incidental or ancillary to
completion of manufactured product and therefore, assembly of components
in a box also amounts to manufacture which have acquired a separate
commercial identity. The second test for manufacture is that the inputs should
be transformed in to a new and different article having distinct name,
character or use. He relies on the decision of Hon’ble Supreme Court in the
case of Narne Tulaman Manufacturers Pvt. Ltd. Vs. Collector of Central Excise
reported at 1988 (38) ELT 566 (SC) where it was held that assemby of
platforms, load cell and indicating system to make weighbridge amounts to
manufacture. Some parts were bought from outside, did not prevent the
assembler from being manufacturer of the completed product. Similarly,
Hon’ble Supreme Court in Xerox India Limited case reported at 2026 IN SC
805 explained that mere assembly is not automatically manufacture, but
assembly of separately procured components can constitute manufacture
when the assembled whole answers to a distinctive name, character or use.
Manufacture does not require the assessee to fabricate every component; the
activity of bringing the end product into existence is material. The duty on
parts and duty on the end product are independent questions.
6.1 He further pleads that the product cleared by the appellant was not mere
a collection of unrelated goods, but was presented as a complete kit for a

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specific car model. CNG/LPG kit is a highly technical assembly of components
in sync to function as a singular fuel conversion system and is known to
commercial world as a brand-new marketable product completely distinct from
it’s various components. Not only this, appellant also affixes brand name, MRP
and also indicates the car model like Alto, Santro etc. for which kit is meant.
He therefore pleads that the product CNG/ LPG kit cleared by appellant has
different name, character and use and is marketable. He therefore pleads that
the activity amounts to manufacture and is leviable to excise duty. The fact
that tank and tank stand supplied separately, does not defeat the test of
marketability.
6.2 Learned AR also relied on the decision of Hon’ble Supreme Court in the
case of BPL India Ltd. Vs. Commissioner of Central Excise, Cochin, (2002) 5
SCC 167 - Supreme Court wherein, it was held that assembly of imported SKD
components into functional VTRs/colour monitors was treated as manufacture
where a distinct commercial product emerged. The components imported in
disassembled form did not, by itself, prevent the assembled product from
being dutiable. He also relies on the decision of Hon’ble Supreme Court in
Union of India Vs. Delhi Cloth & General Mills Co. Ltd., 1963 Supp (1) SCR 586
to support his case that CNG/ LPG kits cleared by the appellant amount to
manufacture and are leviable to excise duty. He mentions that in this case,
appellant did not sell bought out components on random basis but carefully
selected the components, grouped them as per specific vehicle requirement
in a box with description as CNG/ LPG conversion kit, affixed the brand name
and MRP before their clearance. This establishes a distinct commercial identity
of the cleared goods beyond individual components. He also pleads that “Parts,
Components and assemblies of automobiles" falling under any chapter
attracted MRP based valuation as per Sr. No. 107 of the Notification No
14/2008-CE (N.T.) dated 01.03.2008 as amended by Notification No 49/2008-
CE (N.T) dated 24.12.2008.

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7. We have heard both sides. The issue to be decided in this case is whether
various bought out items such as Reducer, Solenoid Valve, Switches, High /
Low Pressure Pipe, Filling Pipe, Filling Valve, Nuts, bolts, Pipes etc., kept in a
box and marketed by the appellant as LPG/ CNG kit, duly affixed with brand
name, printed MRP and car model to which these were meant would amount
to manufacture?
7.1 Learned Advocate has heavily relied on the decision of CESTAT New
Delhi in the case of M/s. CEV Engineering Pvt. Ltd. (cited supra), where
appellant was engaged in preparing CNG kits for cars, for which he used to
import Electric Control Units (ECUs), regulators, injectors, filters etc. on
payment of appropriate customs duty and CNG cylinders, high pressure pipes
and gauge and hoses, etc. from domestic manufacturers. The appellant was
putting various imported and indigenously procured items in a box called CNG
Kit alongwith a diagram/blue print manual for fitting the CNG kit in a particular
vehicle. The CNG kits were sold to customers on payment of VAT. The appellant
was registered as service tax assessee with the department and paid Service
Tax on the amount charged from customers for installation of CNG kits in their
vehicles. The revenue demanded excise duty of Rs.4.94 Crs. on clearance/
sale of CNG kits which was confirmed by the learned Commissioner. In these
facts, the matter came up before the Tribunal which held that the activity
undertaken by the party does not amount to manufacture and hence, no
excise duty is payable. We therefore, find that the issue is no more res-integra.
The relevant para-6 of the Tribunal’s order is reproduced below-
“6. The appellant prepare the kit consisting of the items required for
converting a motor vehicle into CNG run vehicle. For this purpose, some items
like Electric Central Units (ECUs), Regulators, injectors, filters, etc. are
imported on payment of appropriate customs duty and the other items - CNG
cylinder, high pressure pipes, gauge and hoses are procured from the domestic
manufacturers on which central excise duty has been paid and all these items
are packed as CNG kits along with a diagram and instruction manual explaining
how the kit is to be installed in a particular vehicle. It is the various components
and installation manual which are sold as CNG kit. The appellant do not
manufacture any of the above items. There is also no dispute that on the sale
of the CNG kit, sales tax is paid on the value of the CNG kit and wherever the
appellant installed the kit in a customer’s vehicle, service tax is paid on the
installation charges. The point of dispute is as to whether the very act of

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collecting various components and fitting them into a box for installation in the
CNG would amount to manufacture. We find that in respect of similar activity
the act of making cable jointing kit, Hon’ble High Court of Andhra Pradesh in
case of XI Telecom Ltd. (supra) has held that making cable jointing kit does
not amount to manufacture. Similarly the Tribunal in the case of Dalmia
Industries v. CCE (supra) held that collecting bottles, feeder nipples and bottle
lids from diverse sources in the market, packing them in a combine pack after
sterilization and selling the product under name of “Milk Care Designer Feeder”
would not amount to manufacture and this judgment of the Tribunal has been
affirmed by the Apex Court. Similarly, the Tribunal in the case of TI Diamond
Chain Ltd. (supra) has held that procuring sprockets, and packing them after
testing and branding along with automotive chains and connecting links in a
kit does not amount to manufacture, even if various items of the kit after being
procured from different sources had been subjected to testing and branding
and this judgment of the Tribunal has also been affirmed by the Apex Court.
The ratio of the above judgments of the Tribunal, Hon’ble Andhra Pradesh High
Court and of the Apex Court is squarely applicable to the facts of this case. The
judgment of the Tribunal in the case of Transenergy Ltd. (supra) is not
applicable to the facts of this case as in this case, the Tribunal has not gone
into the question as to whether mere packing of different items required for
CNG conversion kit into a box would amount to manufacture. From the facts
stated in the order in case of Transenergy Ltd., it is not clear as to whether
the various items required for conversion kits were being procured by M/s.
Transenergy Ltd. from outside and thereafter were being packed into a kit or
were being manufactured by them before being packed into CNG conversion
kit. We, therefore, hold that the impugned order is not sustainable. The same
is set aside. The appeal as well as stay application is allowed.”

7.2 We also find that the issue of manufacture came up for consideration
before Hon’ble Supreme Court in Alupro Building Systems Pvt. Ltd. case (cited
supra). In para-58, Hon’ble Apex Court held that taxable event for levy of
excise duty is manufacture. To ascertain excisability of goods, two-fold test
has to be passed:-
(i) Whether by the said process ,distinct commercial goods with a new
identity, or character, or use emerge indicating transformation;
(ii) Whether the transformed goods are marketable or capable of being
marketed. Through the first test, the question that requires an answer
is whether distinct goods with new name, identity, character or use have
emerged, whereas, through the second test, the question that requires
answer is whether the resultant goods are marketable after undergoing
the particular process.
The above decision in para-61 also considered the decision in the case of J.G.
Glass reported at 1998 (97) ELT 5 (SC) which decipher “manufacture” of

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goods. In furtherance of ‘fundamental change’ test and ‘but for the process’
test, Hon’ble Apex Court in Servo-Med case tied the application of the tests to
marketability of the manufactured goods because it is the marketability which
reflects whether the goods are excisable goods as defined under the Act, 1944.
Hon’ble Apex Court further discussed the decision in the case of Delhi Cloth &
General Mills Co. Ltd. which held that manufacturing means bringing into
existence a new substance and not merely to produce some change in a
substance. In other words, the threshold to be met for goods that have
undergone some change is that they must have a distinct name or character
or use at the end of the process. The decision in Servo-Med (supra) clarified
that both the essentials i.e. , the transformation test and the marketability test
must be fulfilled for an activity to amount to “manufacture”. That means, they
must be read cumulatively. In Alupro case, Hon’ble Apex Court in para-76
noted that, “From the reading of the aforesaid exposition, there is no doubt
that by cutting the Aluminium Composite Panels (ACPs) into various sizes and
routing them, the ACPs are undergoing a process which brings a change.
However, it is only when a change or series of changes result in a new and
distinct goods that manufacturing is said to take place. Even after undergoing
processing, if goods retain their substantial identity, they would be processed
and not manufactured in terms of Section 2(f) of the Act, 1944.” Second Limb

is that the transformed goods are marketable as distinct goods. At para-97,
Hon’ble Apex Court in the said case concluded that-
“(iv) The process of making superficial changes in order to facilitate the use of
goods, which do not alter the fundamental properties of the goods, does not
create a distinct product so as to pass the transformation test. To levy excise
duty, marketability of the manufactured goods has to be proved. Manufactured
goods are said to be marketable when they is capable of being bought or sold,
or known as a commercial product in the market.
(v) The burden of establishing marketability of the manufactured goods lies on
the Revenue, and it must be discharged by demonstrating “marketability” as
defined in the foregoing paragraphs of this judgment. In this regard, the
standard of proof while discharging the burden must be met keeping in mind
the goods in question.”

14 E/10532-10533/2013-DB

7.3 In the present case, we find that bought out items such as Reducer,
Solenoid Valve, High / Low Pressure Pipe, Nuts, bolts, etc. did not undergo
any processing and retained their individual character. No doubt, use of all
these parts in sync, in an Automobile, provides an alternate fuel system to the
engine but they do not undergo any transformation or processing. They are
put in the box and sold as CNG/ LPG conversion kit which undoubtedly known
as distinct commodity in the trade parlance. In absence of any processing
done on them, the goods fail the transformative test as they remain a mere
assembly of various bought out items suitable for making an alternate fuel
system. The decision relied upon by the department are not applicable in
present case as there was some transformation of bought out items before
final goods emerged. The facts in present case are entirely different than the
relied upon cases. Moreover, this issue has already attained finality in the case
of M/s. CEV Engineering Pvt. Ltd (cited supra) which order has also been
upheld by Hon’ble Apex Court. Therefore, relying on the decision cited supra,
we allow the appeal filed by the appellant company and set aside the
impugned order.
8. Regarding penal action against Shri Upendrabhai C. Shah, we find that
the learned Commissioner has imposed a penalty of Rs. 2,00,000/- on him
under Rule 26 of the Central Excise Rules, 2002. In this case, when excise
duty itself is held not leviable on the appellant company, Shri Shah, who is an
employee of the company, cannot be faulted with. Thus, charges against him,
of violation of Central Excise Rules, 2002 are not sustainable. Accordingly, we
set aside the penalty of Rs. 2,00,000/- imposed on him by the learned
Commissioner and allow his appeal.
9. Both the appeals are allowed.
(Pronounced in the open court on 28.10.2026)


(SOMESH ARORA)
MEMBER ( JUDICIAL )


(SATENDRA VIKRAM SINGH)
MEMBER ( TECHNICAL )
Bharvi