Whether putting electrolytes and charging batteries of two- wheelers before delivery to customers amounts to manufacture?

PJ/Case Law/2013-14/1714

Case:-M/s SUDARSHAN MOTORS, M/s MASCOT MOTORS, M/s TAJSHREEAUTOWHEELS PVT LTD, M/s SAI POINT AUTOMOBILES PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, NAGPUR

Citation:-2013-TIOL-1193-CESTAT-MUM

Brief Facts:-Common issue is involved in these appeals therefore are being taken up together.
The appellants are dealers of motorcycles and scooters (two-wheelers). The appellants are receiving duty paid two-wheelers from the manufacturers and selling the same in the market. The two-wheelers cleared by the manufacturers on payment of duty are having dry batteries. The appellants being dealers are putting electrolyte in the dry batteries and thereafter charging the same. The revenue is of the opinion that putting electrolytes and charging of the battery of two wheelers is incidental or ancillary to the completion of two wheelers, hence, it amounts to manufacture as per the provisions of section 2(f) of the Central Excise Act, 1944. The revenue also relied upon the provisions of Section Note 6 of Section XVII of the First Schedule to the Central Excise Tariff Act, which provides in respect of the goods covered by these Section, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article into complete or finished article, shall amount to manufacture. In view of the above provisions, the demands were confirmed on treating the appellant as manufacturer of two wheelers. The contention of the appellant is that the complete two wheelers is manufactured and cleared on payment of appropriate duty by the manufacturer. The manufacturer clears two wheelers with the batteries without electrolyte.

Appellant Contention:-Appellant submitted that on receipt of the two wheelers, he only fill the batteries with electrolytes and charging the same, therefore, the activity undertaken by the applicant cannot be considered as completion or conversion into complete or finished goods and hence, the demands are not sustainable.
In reply the contention of the ld. Counsel appearing on behalf of the appellant submitted that similar show cause notice's were issued on the same grounds and the Commissioner of Central Excise, Delhi III vide order no. 36/SA/CCE dt. 30.07.2012 dropped the demand. Similarly, the Commissioner of Central Excise, Vadodara vide Order-in-Original no. 18/MP/12 dt. 29.01.2003 also dropped the proceedings which were initiated on the same grounds.

Respondent Contention:-Revenue relied upon the finding of the lower authority. The contention of the revenue is that Section Note 6 of Section XVII of the First Schedule to the Central Excise Tariff Act that the Articles of definition is to be construed strictly as the appellants by putting the electrolyte and charging the battery render the two wheelers complete or finished articles and therefore the demand is rightly made.

Reasoning of Judgment:-We find that as the appellants are receiving duty paid two-wheelers in complete and finished condition from the date manufacturers. The manufacturer of two wheelers paid the duty on complete two wheelers. We find that the Revenue is not disputing the fact that even the two wheelers cleared by manufacturer contained battery and also that the appellants are only putting electrolyte. The electrolyte is nothing but a liquid which contains ions and can be decomposed by electrolysis. After putting the electrolyte appellants are charging the batteries before delivery to the customer. It cannot be said that this process undertaken by the appellant is conversion of incomplete or unfinished article i.e Two wheelers into complete or finished two wheelers. Further we find that the show cause notices were issued to dealers on the same grounds and are dropped by the Commissioner of Central Excise, the appellant are entitled to take credit of duty paid by the manufacturer. As we allowing the appeal on merits, we are not dealing with other contentions of appellants. The impugned orders are set aside and appeals are allowed.

Decision:-The impugned orders are set aside and appeals are allowed.

Comment:-The essence of this case is that appellant has received duty paid two-wheelers in complete and finished condition from manufacturers. Appellant is only putting electrolyte and charging the batteries before delivery to customer. Hence, it cannot be said that this process undertaken by the appellant is conversion of incomplete or unfinished article. i.e. Two wheelers into complete or finished two wheelers. Therefore, the said activity does not amounts to manufacture.

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PJ/Case Law/2013-14/1714

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