Quippo Energy Ltd. v. Commissioner of Central Excise Ahmedabad–II, 2025 INSC 1130- Central Excise Act - Manufacture

Case Details

Case Name:M/S Quippo Energy Ltd. v. Commissioner of Central Excise Ahmedabad–II

Neutral Citation:2025 INSC 1130

Coram (Judges):

• Justice J.B. Pardiwala
• Justice K.V. Viswanathan

Judgment Date:September 19, 2025

Caselaws and Citations Referred

1. Union of India v. Delhi Cloth & General Mills1962 SCC OnLine SC 148
2. Servo-Med Industries Pvt Ltd v. Commissioner of Central Excise, Mumbai(2015) 14 SCC 47
3. J.G Glass Industries Ltd & Ors v. Union of India & Ors(1998) 2 SCC 32
4. Commissioner of Central Excise-I, New Delhi v. S.R Tissues Pvt Ltd & Anr.(2005) 6 SCC 310
5. Satnam Overseas Ltd v. Commercial of Central Excise, New Delhi(2015) 13 SCC 166
6. Maruti Suzuki India Ltd v. Commissioner of Central Excise(2015) 13 SCC 186
7. Laminated Packing Pvt Ltd(Supreme Court, citation not specified in extract)
8. Gujarat Glass Pvt. Ltd(Gujarat High Court, citation not specified in extract)
9. Anand Nishikawa Company Ltd Vs CCE Meerut2005 (185) ELT 149 (SC)
10. Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III(2014) 15 SCC 625
11. M/s Steel Authority of India Ltd. v. Commissioner of Central Excise2022 SCC OnLine SC 1232
12. Commissioner of Central Excise, Delhi v. Insulation Electrical Private Limited(2008) 12 SCC 45

Statutes / Laws Referred

• Central Excise Act, 1944
• • Section 2(f): Definition of “manufacture”
  • Section 3: Charging section for excise duty
  • Section 35L(b): Appeals to Supreme Court
  • Section 11A(1): Extended period of limitation
• Central Excise Tariff Act, 1985
• • Sub-heading 8502.2090: Classification of generating sets
• Customs Tariff Act, 1975
• • Sub-heading 8502.2090: Classification at import
• Section XVI Notes (Customs/Excise Tariff)
• • Note 4 and Note 6: Definition and scope of “manufacture” for incomplete/finished goods

What is the case about?

It concerns whether converting imported gas generating sets (Gensets) into “containerized gensets” (Power Packs) by placing them in steel containers and integrating various components amounts to “manufacture” under Section 2(f) of the Central Excise Act, 1944, thus attracting excise duty.

1. Who are the parties and what was decided procedurally?

• Appellant: M/s Quippo Energy Ltd.
• Respondent: Commissioner of Central Excise, Ahmedabad–II
• The Supreme Court dismissed Quippo’s appeals and affirmed CESTAT’s conclusion that the activity amounts to “manufacture,” sustaining duty for the normal period while the CESTAT’s relief on extended limitation, confiscation, and penalties remained undisturbed.

What facts about the business model mattered?

Quippo leased Power Packs to customers. To make redeployment easy, it placed imported Gensets into steel containers and fitted those containers with radiators, ventilation fans, air filter units, lube oil tanks, pumps, valves, silencers, cable trays, control panels, earthing, and carried out hydraulic/electrical testing.

Statutory Framework and Legal Tests

Which statutory provisions were central to the decision?

• Central Excise Act, 1944: Section 2(f) (definition of “manufacture”); Section 3 (charging provision); Section 35L(b) (appeal to Supreme Court).
• Central Excise Tariff/Customs Tariff: Section XVI Notes (especially Note 6) and Heading 85.02 (sub-heading 8502.2090).

How does the Court define “manufacture” for excise purposes?

The Court reiterates that “manufacture” requires transformation—bringing into existence a new and different article with a distinct name, character, identity or use—beyond mere “processing.” This follows Union of India v. Delhi Cloth & General Mills and the two-pronged approach framed in J.G. Glass and clarified in Servo-Med.

What is the two-pronged test applied?

• Transformation test: Does the process yield a distinct product with new name/identity/character/use?
• Marketability test: Is the resulting product marketable as such?

Does the “but-for-the-process” notion apply by itself?

No. The Court clarifies (following Servo-Med) that “no commercial use but for the process” cannot stand alone; transformation must first be established. It adds a cautionary example (wheat to flour) to avoid absurd, rigid applications of this secondary prong.

Facts Applied to Law

What exactly did Quippo do to the imported Gensets?

It rolled them into steel containers on anti-vibration mounts; mounted remote radiators and lube oil tanks on the roof; installed ventilation fans/cowls; fitted silencers; laid HT/LT/water/DM water/lube oil piping and fittings; installed pumps, valves, cable trays, control panels, and earthing; and performed hydraulic/electrical testing.

How did the Court characterize the end product?

A distinct, containerized “Power Pack,” structurally different from the imported Genset, having different constituent components and functional utility (portability and containerized operation), supplied/leased to customers as such.

Why did the Court say it is “manufacture” under Section 2(f)(i)?

Because integrating the Genset into a container with additional essential components transforms it into a new, distinct, marketable commodity—Power Pack—fitting the definition of a process “incidental or ancillary to the completion of a manufactured product.”

“Parts” vs “Accessories” and Its Significance

Why did the Court focus on whether the added items were “parts” or “accessories”?

If the added items are integral “parts” without which the containerized unit cannot function as intended, that supports a finding of transformation and hence manufacture. Mere “accessories” would be non-essential add-ons.

1. How did the Court define “part” and “accessory”?

• Part: An integral/constituent component necessary for the article to perform its primary function (without it, the article would not function).
• Accessory: Non-essential; adds convenience, comfort, or secondary value when used with the article.

Which items did the Court treat as “parts” in the containerized setup?

Radiators, ventilation fans, air filter units, pumps, valves, silencers, control panels, piping, etc., when used in the containerized configuration, were treated as “parts” because the containerized unit would not function as intended without them.

Addressing Appellant’s Key Arguments

Appellant’s claim: The Genset remains a Genset; there is no transformation. How did the Court respond?

The Court found that the containerized unit is structurally reengineered, with different constituent elements and a definitive new functional utility—portability/containerized operation—making it a distinct product (“Power Pack”), notwithstanding that both generate electricity.

Appellant’s claim: Added items are mere accessories. How did the Court view this?

Rejected. In the containerized operation, these items are essential “parts” without which the unit cannot function inside the container to fulfil its primary function; hence they are not mere accessories.

Appellant’s claim: Gensets were complete and marketable before; therefore marketability test fails. What did the Court say?

Marketability of the input does not defeat manufacture of the output. The output Power Pack is established as marketable (indeed leased to customers). The second prong is satisfied on facts; and transformation is independently satisfied.

Appellant’s reliance on precedents like Servo-Med, S.R. Tissues, Satnam Overseas, and Maruti Suzuki: how were they distinguished?

Those cases involved no change in character/identity/use (sterilization, slitting, mixing, coating). Here, there is reengineering, new constituent parts, structural change, and new functional utility—hence a distinct product.

Key Legal Reasoning and Precedents

Which leading precedents does the Court rely on for the manufacture test?

• Union of India v. Delhi Cloth & General Mills (processing vs manufacture; transformation required).
• J.G. Glass (two-fold test).
• Servo-Med (both prongs cumulatively; four categories; sterilization not manufacture).
• S.R. Tissues (slitting not manufacture).
• Satnam Overseas (mixing not manufacture).
• Maruti Suzuki (ED coating—mere value addition—not manufacture).
• Saraswati Sugar Mills; SAIL; Insulation Electrical (clarifying “parts” vs “accessories”).
• Laminated Packings (same tariff entry does not preclude manufacture if identity differs).

What is the significance of the four categories listed in Servo-Med?

They organize case law on when processes do/do not amount to manufacture. The present case falls in category (4): goods transformed into different/new goods, marketable as such—thus manufacture occurs.

Does being in the same tariff heading (8502.2090) at input and output stages defeat a finding of manufacture?

No. The Court affirms (relying on Laminated Packings) that even if both fall under the same heading, a distinct identity/product can still emerge; classification parity does not preclude manufacture.

How did Section XVI Note 6 feature in the analysis?

Authorities/CESTAT referenced Note 6 (conversion of incomplete/unfinished to complete/finished goods amounts to manufacture). The Supreme Court ultimately grounds its holding in Section 2(f)(i) transformation and marketability; Note 6 supports the general approach to processes completing articles.

Issue Framing, Holding, and Relief

What precise issue did the Court determine?

Whether placing a Genset within a steel container and fitting that container with components such as radiators, ventilation fans, air filter units, lube oil tanks, pipes, pumps, valves, and silencers amounts to “manufacture” under Section 2(f) of the 1944 Act.

What is the final holding?

Yes. The process satisfies both the transformation and marketability tests and constitutes “manufacture” under Section 2(f)(i). Excise duty is payable on the Power Packs.

What happened to limitation, penalties, and confiscation?

The CESTAT had set aside the extended period, confiscation, and penalties (noting bona fides and lack of suppression), while upholding duty for the normal period with CENVAT credit directions. The Supreme Court did not disturb those aspects.

Marketability, Trade Parlance, and Functional Utility

How did marketability get established?

The record shows Power Packs are the very units leased to customers; the appellant provided them to customers under lease agreements. Therefore, marketability as such is undisputed.

Did trade parlance matter?

Yes. CESTAT found—and the Supreme Court accepted—that imported Gensets and containerized Power Packs are known differently in trade and serve different needs; industrial customers seek Power Packs.

Why did the Court emphasize “functional utility” beyond core “end-use”?

Because both items generate electricity, but the Power Pack’s defining functional utility is portability/containerized operation—a new operational identity differentiating it from a permanently installed Genset.

Implications and Takeaways (Legal-Focused)

What is the primary legal takeaway?

Processes that reengineer an article into a new structural configuration with essential parts so it can function in a materially different way (here: portable/containerized operation), creating a distinct, marketable product, amount to “manufacture” under Section 2(f), even if the core end-use remains.

Does prior marketability of the input preclude manufacture of the output?

No. The marketability of input does not negate transformation and marketability of the output. Both prongs focus on the output product.

What should businesses consider to assess “manufacture”?

• Whether structural reconfiguration and integration of essential parts produce a distinct product with different identity/functional utility.
• Whether the resulting product is recognized distinctly in trade and is marketable as such.
• That common headings or the same tariff sub-heading at input and output stages do not, by themselves, defeat a finding of manufacture.