Summary and Analysis of MS Quippo Energy Ltd vs Commissioner of Central Excise Ahmedabad 2025 INSC 1130
1. Heading of the Judgment
M/S Quippo Energy Ltd. vs Commissioner of Central Excise Ahmedabad – II
Citation: 2025 INSC 1130
Civil Appeal Nos.: 9418-9420 of 2016
Date of Judgment: September 19, 2025
Coram: Justice J.B. Pardiwala and Justice K.V. Viswanathan
2. Related Laws and Sections
The judgment primarily interprets and applies the following statutory provisions:
The Central Excise Act, 1944:
Section 2(f): The definition of "manufacture". The court's analysis heavily relied on sub-clause (i), which includes "any process incidental or ancillary to the completion of a manufactured product."
Section 3: The charging section that levies excise duty on goods "produced or manufactured" in India.The Central Excise Tariff Act, 1985:
Note 6 to Section XVI: This note states that for goods falling under this Section, the conversion of an incomplete article into a complete one shall be deemed to amount to "manufacture".
Heading 8502.2090: The classification heading for "Generating sets with spark-ignition internal combustion piston engines".
3. Basic Details of the Case
Appellant: M/s Quippo Energy Ltd., a company engaged in leasing out containerized gas generating sets (Power Packs).
Respondent: The Commissioner of Central Excise, Ahmedabad – II (The Revenue Department).
Core Activity in Dispute: The appellant imported complete Gas Generating Sets (Gensets). To make them portable and easily relocatable for their leasing business, they placed these Gensets inside a steel container and fitted the container with indigenously procured components like a radiator, ventilation fan, air filter, oil tank, pipes, pumps, valves, and a silencer.
Revenue's Contention: This process of "containerization" amounted to "manufacture" under the Central Excise Act, as it created a new and distinct marketable product called a "Power Pack" or "Containerized Genset", classifiable under Heading 8502.2090 and hence liable to excise duty.
Appellant's Contention: The process was merely for logistical convenience and did not amount to "manufacture". The imported Genset was already a complete, functional product capable of generating electricity. The added components were merely "accessories" that did not change the fundamental character, name, or use of the product.
Tribunal's Decision (CESTAT): Upheld the Revenue's view that the activity amounted to manufacture and confirmed the duty demand for the normal period (not the extended period).
Final Appeal: The appellant challenged the CESTAT's order before the Supreme Court.
4. Explanation of the Judgment
The Core Legal Issue
The Supreme Court framed the sole question for its determination:
Whether the process of placing an imported Genset within a steel container and fitting the container with components (radiator, fan, filter, etc.) amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944?
The Legal Test for "Manufacture"
Before applying the law to the facts, the Court conducted an in-depth analysis of the legal definition of "manufacture". It relied on a long line of precedents, starting with the landmark case of Union of India v. Delhi Cloth & General Mills (1962), which established that not every "process" is "manufacture". Manufacture implies a transformation where a new and different article emerges, having a distinctive name, character, or use.
The Court then synthesized the jurisprudence, particularly from J.G. Glass Industries Ltd. & Ors. (1998) 2 SCC 32 and Servo-Med Industries Pvt. Ltd. v. Commissioner of Central Excise, Mumbai (2015) 14 SCC 47, into a two-pronged test:
The Transformation Test: Does the process bring into existence a new commercial commodity? Does the identity of the original commodity cease to exist, resulting in a product with a distinct character, name, or use?
The Marketability Test: Is the new product, emerging after the process, marketable as such?
The Court, citing Servo-Med (supra), emphatically clarified that both prongs of this test must be satisfied cumulatively for an activity to qualify as manufacture. Fulfilling only one is not sufficient.
Application of the Test to the Facts
a) The Transformation Test:
The Court rejected the appellant's argument that the process was merely additive and for convenience. It drew a crucial distinction between a "part" and an "accessory":
A "part" is an integral component without which the article cannot perform its primary function. (Cited: Saraswati Sugar Mills v. CCE (2014) 15 SCC 625).
An "accessory" adds supplemental value like comfort or convenience but is not essential to the primary function. (Cited: CCE v. Insulation Electrical Pvt. Ltd. (2008) 12 SCC 45).
The Court held that components like the radiator, ventilation fan, and air filter were not mere accessories but essential "parts" of the final product, the Power Pack. Without these components, the Genset could not function effectively inside the sealed container; it would overheat and fail. Therefore, the process involved adding integral parts that were necessary for the completion of the final product.
The Court also found a "drastic and substantial" change in the form and structure of the product. The final Power Pack was a single, integrated, portable unit, structurally profoundly different from the imported Genset. The Court concluded that this process re-engineered the Genset to function in a new environment (a container), giving it a new functional utility: portability. This portability was the defining attribute and character of the new product, which did not exist in the imported Genset.
b) The Marketability Test:
The Court found this test easily satisfied. It was an admitted fact that the appellant was commercially leasing out these very Power Packs to customers. The product was evidently marketable and was being marketed.
Distinguishing Precedents Cited by the Appellant
The Court explained why cases relied upon by the appellant were not applicable:
Servo-Med (Sterilizing Syringes): Sterilization did not change the character of the syringe; it remained a syringe. Here, the character changed from a fixed-installation Genset to a portable Power Pack.
S.R. Tissues (Slitting Jumbo Rolls): The character of the tissue paper remained the same; only its form was changed for convenience. Here, the form, structure, and functional utility were transformed.
Satnam Overseas (Mixing Rice with Spices): The essential character of the product remained "rice". Here, the essential character evolved into a "portable generating system".
Conclusion and Supreme Court's Direction
The Supreme Court held that the process undertaken by Quippo Energy Ltd. satisfied both the transformation and marketability tests. By placing the Genset in a container and fitting it with essential parts, a new and distinct commodity, known as a "Power Pack" or "Containerized Genset," was manufactured.
Consequently, the Court dismissed the appeals and upheld the CESTAT's decision that the activity amounted to "manufacture" under Section 2(f) of the Central Excise Act, 1944, and the final product was correctly classifiable under Heading 8502.2090, making it liable for central excise duty.
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