Holding

The assembly of the components creates a commercially new article and therefore constitutes manufacture liable to excise duty under Tariff Heading 84.15.

Summary

Fedders Lloyd Corporation Ltd manufactured condensing units at its Delhi plant and procured cooling units from local manufacturers. It assembled these components with pipe kits, cords, remote controls and performed quality checks at its Mumbai workshop, thereby creating a complete split air‑conditioner that was sold under its brand. The Central Excise Department issued a show‑cause notice alleging evasion of excise duty on 412 split air‑conditioners and the Tribunal held that the assembly constituted "manufacture" liable to duty under Tariff Heading 84.15. The appellant challenged this finding, arguing that no new article was created and that Rule 2(a) of the Rules of Interpretation was inapplicable. The Supreme Court affirmed the Tribunal’s view, stating that the assembled unit is a commercially new article and the process falls within the inclusive definition of manufacture in Section 2(t) of the Central Excise Act. Consequently, the appeals under Section 35L(b) were dismissed.

Issues considered

Whether the assembly of a condensing unit and a cooling unit to form a split air‑conditioner amounts to "manufacture" under the Central Excise Act.
Whether the assembled split air‑conditioner is liable to excise duty under Tariff Heading 84.15 of the Central Excise Tariff Act, 1985.

Legislation cited

Central Excise Act, 1944s. 2(j), s. 2(t), s. 35L(b)
Central Excise Tariff Act, 1985s. Tariff Heading 84.15

Subjects

manufacturecentral excise dutysplit air conditionertariff classificationexcise evasionCentral Excise ActTariff Heading 84.15assemblycommercially new article

Judgment

A FEDDERS LLOYD CORPORATION LTD.
v.
COMMISSIONER OF CENTRAL EXCISE, MUMBAI

DECEMBER 3, 2007
B
(ASHOK BHAN AND V.S. SIRPURKAR, JJ.] •

Central Excise Act, 1944; S. 2(j)/Central Excise TariffAct, 1985;
Tariff Heading 84.14:
c Evasion ofexcise duty-Manufacturing process-Manufacturing
ofsplit air conditionerfrom condensing units manufactured by assessee
and cooling units procuredfrom market-Levy ofexcise duty-Held:
Cooling units and condensing units after joining with pipe kits etc.
D fanction as air-conditioner unit-Which is commercially a new article,
split air-conditioner and is different from its constituent units, thus,
classifiable under Tariff Heading 84.15 of the Central Excise Tariff
Act-R. 2(a) not attracted-Rules ofInterpretation-r. 2(a).
Words and Phrases:
E
'Manufacture '-Meaning of
The question arose for determination in these appeals was as
to whether fabrication of split air-conditioner from the condensing
unit manufactured by the assessees at its factory and cooling unit
F procured from the local factory amounts to manufacturing of the air-
conditioner, a new article, classifiable under Tariff Heading 84.15
of the Central Excise Tariff Act, 1985 for the purpose oflevying of
excise duty.
Dismissing the appeals, the Court
G
HELD:l.1. There is no substance in the submissions advanced
on behalf of the assessee that no change in the name, character and
use of the product or transformation of the raw material into fmished
product came into existence; the cooling units or condensing units
H 7M .
f

-I
FEDDERSLLOYDCORPORATIONLTD. v. COMMNROF 785
CENTRAL EXCISE, MUMBAI
i
'
by themselves cannot function as air-conditioners. They have to be A
joined together with pipe kits, electrical cord and remote control, etc.
to function as a complete air conditioner unit. This process was
carried at the factory-cum-god own of the assessee.
[Para 9] [788-D, E]
B
1.2. Clause (f) Section 2 of the Central Excise Act gives an
inclusive definition of the term "manufacture". According to the
dictionary, the term "manufacture" means a process which results
in an alteration or change in the goods which are subjected to the
process of manufacturing leading to the production of a commercially
new article. As to what constitutes manufacture would depend upon
c
the facts of each case. In the instant case, condensing units were
manufactured by the appellant at its factory and the cooling units
were procured from the local market for which the electrical motors
~
were supplied by the assessee. Neither the condensing unit nor the
D
cooling unit by itself is a complete air conditioner. It is only when
these two units are put together the complete unit of air conditioner
fit for use came into existence. Air conditioner is a commercially new
article than either the condensing unit or the cooling unit. Thus, the
contention of the assessee that there is no manufacture at their
Bombay Unit stands belied and cannot be accepted. E
(Paras 11and12] [789-A, B, C, D]
1.3. Reference to the applicability of the rule 2(a) of the Rules
of Interpretation is not necessary and the matter can be decided
t without reference to that rule. The issue of clearing complete units F
of air-conditioners from Bombay Branch of the assessee was evident
from the depositions of the assessee's own employees and the
partners ofNew Gold Air-conditioners who had supplied the cooling
units and the invoice raised by the assessee. Hence, the authorities
below rightly held that the assessee was indeed manufacturing the G
split air-conditioners. [Paras 13 and 14] [789-D, E, F]
,,
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8066-
8068 of 2001.
From the Final Order No, 242-244/2001-B dated 1.5.2001 passed H
786 SUPREME COURT REPORTS (2007] 12 S.C.R.

A by the Customs Excise Gold Control Appellate Tribunal, New Delhi in
Appeals No. E/761-763/98-B.
Alok Yadav and Monish Panda (for M.P. Devanath) for the
Appellant.
B T.V. Ratnam (for B. Krishna Prasad) for the Respondent.
The Judgment of the Court was delivered by
BHAN, J. 1. The present appeals under Section 35L(b) of the
Central Excise Act, 1944 (for short "the Act") have been filed by the
C assessee against the impugned final Order nos. 242-244/2001-B dated
1st May, 2001 in appeal Nos. E/761-763/98-B passed by the Customs,
Excise & Gold (Control) Appellate Tribunal, New Delhi (for short ''the
Tribunal"), rejecting the appeals filed by the appellant on merits and
limitation
D
2. The issue before the Tribunal was, whether the appellant was
manufacturing split air-conditioners classifiable under TariffHeading 84.15
of the Central Excise Tariff Act.
3. The appellant, Fedders Lloyd Corporation Ltd., cleared
E condensing units from their unit at Kalkaji, New Delhi to Mumbai, where
the appellant purchased cooling units from local manufacturers fabricated
on order with motors, etc., supplied by the appellant. After carrying out
certain tests for quality by filling gas, affixing the brand name 'Fedders
Lloyd', the complete unit was cleared along with pipe kits, electrical cord,
F remote control, etc., to various customers from their warehouse/godown
at Mumbai. The invoices were raised by the appellant's Mumbai office
for supply of split air-conditioners.
4. A show cause notice dated 3rd April, 1996 was issued to the
appellant, alleging that 412 nos. split air-conditioners were clandestinely
G removed by the appellant without payment of duty, involving evasion of
central excise duty to the tune of Rs.56,14,293/- during the period
October 1991 to April 1996. It was also stated that the department was
unaware of the fact that the appellant was manufacturing split air-
conditioners.
H
FEDDERSLLOYDCORPORATIONLTD. v. COMMNROF 787
7 CENTRALEXCISE,MUMBAI[BHAN,J.]
5. The demand raised in the show cause notice was confirmed in A
the order-in-original. Appeals filed by the appellant before the Tribunal
were dismissed. Aggrieved against the same, the present appeals have
been filed.
6. Counsels for the parties have been heard at length.
B
7. Records reveal that during the course of investigation, statements
of Shri Shivshankar Upadhyay, partner of New Gold Air Conditioners,
who had supplied the cooling units to the Mumbai Branch of the appellant,
was recorded wherein he confirmed that they had filed a declaration with
the excise authorities that they were manufacturing sheet metal bodies of C
air-conditioners. He also confirmed that the electric motors to be fitted
with cooling units were supplied by the appellant. Statement ofShri R.P.
Gupta, Commercial Manager of the appellant, was also recorded wherein
he had stated t.'1at the appellant had supplied electrical motors to be fitted
with the cooling units to the local manufacturers so that check on the quality D
can be kept. These cooling units were received by them at their godown
at Kunjunnarg from where complete units of split air-conditioners were
supplied to various customers. That the complete units of split air-
conditioners were delivered after putting together condensing units
received from New Delhi and cooling units procured locally along with E
other associates and that their invoice was raised from Mumbai
administrative office. Shri K.A. Bhatia, Project Manager of Air Serco Pvt.
Ltd., whose statement was also recorded, stated that after receiving the
air-conditioners complete in all respect along with necessary accessories,
were supplied by the appellant to Air Serco Pvt. Ltd., which is a sister F
concern of the appellant and undertakes the job of installation and servicing
of air-conditioners at Mumbai. Statement ofShri K. Vijayan, Commercial
Executive of the appellant, was also recorded wherein he stated, inter
alia, that he was looking after the finished stores of the appellant at
Devidayal Compound, Kanjumarg, situated in the premises of Mis. Air G
Serco Pvt. Ltd. and that his job was to look after the stock of the finished
goods received in the godown from New Delhi and from local
manufacturers such as New Gold Air-conditioners, and to maintain relevant
records. He further stated that at Kanjumarg godown, before delivery of
the split air-conditioners, gas is filled in the condenser for carrying out
H
788 SUPREME COURT REPORTS [2007] 12 S.C.R.

A certain checks for leakage of gas.
8. From the statements of S/Shri Shivshankar Upadhyay, RP. Gupta,
K.A. Bhatia and K. Vijayan, it is evident that the appellant's Mumbai
Branch received condensing units cleared from their manufacturing unit at
B New Delhi on payment of appropriate central excise duty as parts of air-
conditioners and procured cooling units manufactured locally at Mumbai.
At their workshop-cum-godown, certain checks for quality were
conducted by filling the gas and the brand name "Fedders Lloyd" was
affixed on the cooling units and, thereafter, these units were cleared along
with pipe kits, electrical cord, remote control etc. to various customers
C and the same was installed by the appellant's sister concern, Mis. Air
Serco Pvt. Ltd., on behalf of the appellant. The invoice was raised by the
appellant's Mumbai office for supply of split air-conditioners. No excise
duty was paid on such split air-conditioners as they were supplied from
'y
Mumbai to their various customers in Gujarat and Goa. The statements
D of these persons clearly show that a complete split air-conditioner came
into existence at Kanjumarg Workshop of the appellant.
9. We do not find any substance in the submissions advanced on
behalf of the appellant that no change in the name, character and use of
E the product or transformation of the raw material into finished product
came into existence; the cooling units or condensing units by themselves
cannot function as air-conditioners. They have to be joined together with
pipe kits, electrical cord and remote control, etc. to function as a complete
air conditioner unit. This process was carried at the factory-cum-godown
F of the appellant at Kunjurmarg.
l 0. Section 2(t) of the Central Excise Act defines "manufacutre" as:
"(t) "manufacture" includes any process, --
(i) incidental or ancillary to the completion of a manufactured
G product; and
(ii) which is specified in relation to any goods in the Section
or Chapter notes of the Schedule to the Central Excise
Tariff Act, 1985 (5of1986) as amounting to manufacture"
H
-.f

FEDDERSLLOYDCORPORATIONLTD. v. COMMNROF 789
'I CENTRAL EXCISE, MUMBAI [BHAN, J.]
11. Clause (t) gives an inclusive definition of the term "manufacture". A
According to the dictionary, the tenn "manufacture" means a process
which results in an alteration or change in the goods which are subjected
to the process of manufacturing leading to the production of a
commercially new article. As to what constitutes manufacture would
depend upon the facts of each case. As noticed earlier, condensing units B
were manufactured by the appellant at its factory at New Delhi and the
cooling units were procured from the local market for which the electrical
motors were supplied by the appellant. Neither the condensing unit nor
the cooling unit by itself is a complete air conditioner. It is only when these
two, i.e. condensing unit and cooling units are put together the complete c
unit of air conditioner fit for use came into existence at the Kanjumarg
workshop. Air conditioner is a commercially new article than either the
condensing unit or the cooling unit.

1 12. For the reasons state above, the contention of the appellant that
there is no manufacture at their Bombay Unit stands belied and cannot D
be accepted.
13. The Tribunal in its order has relied upon Rule 2(a) of the Rules
oflnterpretation. Counsel for the appellant has contended that the said
rule is not applicable. In our view, reference to the applicability of the E
rule 2(a) is not necessary and the matter can be decided without reference
to that rule. The issue of clearing complete units of air-conditioners from
Bombay Branch of the appellant was evident from the depositions of the
appellant's own employees and the partners ofNew Gold Air-conditioners
who had supplied the cooling units and the invoice raised by the appellant.
F
14. For the foregoing reasons, we have no reason to differ with the
concurrent findings on facts recorded by the authorities below that the
appellant was indeed manufacturing the split air-conditioners, as stated in
the show cause notice.
G
/o
15. The appeals are dismissed, accordingly, with no order as to costs.
S.K.S. Appeals dismissed.