Holding

The process of containerising a Genset and adding integral components creates a new, marketable product and therefore amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.

Summary

M/s Quippo Energy Ltd. imported gas generating sets (Gensets) and, to facilitate leasing, placed each Genset inside a steel container and added components such as a radiator, ventilation fan, air filter, oil tank, pipes, pumps, valve and silencer, creating a product it called a "Power Pack". The Revenue argued that this process transformed the imported Genset into a new, marketable commodity and therefore amounted to "manufacture" under Section 2(f) of the Central Excise Act, 1944, attracting excise duty. The appellant contended that the Genset remained essentially the same, the added components were merely accessories for logistical convenience, and no transformation occurred. The Supreme Court applied the two‑pronged test from Servo‑Med (transformation and marketability) and held that the addition of integral parts created a distinct product with a new identity and that the Power Pack was marketable. Consequently, the Court concluded that the process constituted manufacture and upheld the demand for excise duty. The appeals were dismissed.

Issues considered

Whether placing a Genset within a steel container and fitting it with additional components constitutes "manufacture" under Section 2(f) of the Central Excise Act, 1944.

Legislation cited

Central Excise Act, 1944s. 2(f)
Central Excise Tariff Act, 1985s. Section XVI
Customs Tariff Act, 1975

Headnote

Issue for Consideration Whether the process of placing the Genset within a steel container and fitting the steel container with components such as radiator, ventilation fan, air filter unit, oil tank, pipes, pumps, valve and silencer would amount to Central Excise Act, 1944. Headnotes† Central Excise Act, 1944 – s.2(f) – Central Excise Tariff Act, 1985 – Appellant is engaged in the business of providing containerised gas generating sets known as the Power Packs on a lease basis – In order to carry out the said

Subjects

Containerised GensetsPower PacksManufactureTransformation TestMarketability TestDistinct character and identityCore functional utility of portability to the GensetPartAccessoryManufacture under Section 2(f) of the Central Excise Act, 1944

Judgment

[2025] 9 S.C.R. 1110 : 2025 INSC 1130

M/s Quippo Energy Ltd.
v.
Commissioner of Central Excise Ahmedabad – II
(Civil Appeal No(s). 9418-9420 of 2016)
19 September 2025
[J.B. Pardiwala* and K.V. Viswanathan, JJ.]

Issue for Consideration
Whether the process of placing the Genset within a steel container
and fitting the steel container with components such as radiator,
ventilation fan, air filter unit, oil tank, pipes, pumps, valve and
silencer would amount to “manufacture” u/s.2(f) of the Central
Excise Act, 1944.

Headnotes†
Central Excise Act, 1944 – s.2(f) – Central Excise Tariff Act,
1985 – Appellant is engaged in the business of providing
containerised gas generating sets known as the Power Packs
on a lease basis – In order to carry out the said business, the
appellant imported Gas Generating Sets (Gensets) consisting
of an engine coupled with an alternator on a common base
frame – For convenience, the appellant placed the Genset in
a steel container – Further, in order to ensure the functioning
of the Genset within the container, the appellant indigenously
procured components such as radiator, ventilation fan, air filter
unit, oil tank, pipes, pumps, valve, silencer and fitting items
and fixed them to the container – The Assistant Commissioner
of Central Excise vide its letter dated 19.08.2008 informed the
appellant that the activities undertaken by it would amount to
“manufacture” by virtue of Notes 4 and 6 of Section XVI of the
Schedule to the Central Excise Tariff Act, 1985 – The appeal
against the said letter before the Commissioner (Appeals),
came to be dismissed – Subsequently, several show cause
notices issued to the appellant proposing demand of duty
along with the interest and levy of penalty on the Power
Packs cleared during the period from November 2006 to
July 2008 – Ultimately, the said demand and penalty were

* Author
[2025] 9 S.C.R. 1111

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

confirmed – Appeal against the same came to be dismissed
by CESTAT – The CESTAT held that the process undertaken by
the appellant would amount to “manufacture” – Correctness:
Held: This court in Servo-Med has laid down a two pronged test
for the purpose of determining whether an activity amounts to
“manufacture” – The two-fold test is: (i) Transformation test (Whether
a distinct product with a new name, identity, character, or use
emerges?); and (ii) Marketability test (Whether the transformed
product is marketable as such?) – In the facts of the present
case, the change in the form/structure and the addition of new
components to the imported Genset has transformed it and brought
into existence a different product, i.e. the Power Pack, which has
its own distinct character and identity – The steel container and the
other additional components do transform the imported Genset and
bring into existence a distinct product which has its own character
and identity – On a preliminary analysis itself, it is amply evident
that the constituent components of the imported Genset are very
different from the constituent components of the Power Pack –
As far as the second limb of the test is concerned, held, that no
evidence has been adduced by the appellant to suggest that the
Power Packs are not marketable – On the contrary, it is an admitted
position, clear from the record, that it is these very Power Packs
that are the subject of the lease agreements and are delivered
to the ultimate customer – Thus, no serious question regarding
the marketability of the final product remains, it is an established
and undisputed fact – In the facts of the present case, both the
transformation test and the marketability test stand fulfilled – The
process of placing the Genset within the steel container and
fitting that container with additional, integral components brings
into existence a new, distinct, and marketable commodity – This
process would thus amount to “manufacture” under Section 2(f)
(i) of the Act, 1944 – Consequently, the appellant is liable to pay
excise duty on the goods manufactured. [Paras 33, 41, 43, 51, 52]

Words and Phrases – ‘parts’ and ‘accessories’ – Whether the
components attached to the steel container would constitute
as ‘parts’ or ‘accessories’ of the Power Pack:
Held: A part is an integral/ constituent component which renders
the article complete and functional i.e., the article would not be
able to fulfill its primary function without this component – An
accessory on the other hand is a component which while not
1112 [2025] 9 S.C.R.

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being essential to the primary functioning of the article, is used
in conjunction with the article and adds supplemental/secondary
value by providing for additional beauty, elegance, comfort or
convenience of use in relation to that article – Applying the above
enunciated judicial understanding of ‘parts’ and ‘accessories’
to the facts of this case, it becomes evident that the additional
components should be considered as ‘parts’ of the Power Pack –
The appellant itself has admitted to the fact that once the Genset
is placed in the steel container, these additional components,
such as the radiator, ventilator fan and air filter unit, are required
for its effective functioning – Further, the change in the form of
the imported Genset after undergoing the process is drastic and
substantial – The process undertaken by the appellant imparts the
core functional utility of portability to the Genset, a utility that was
non-existent in the product at the time of its import – This is not a
minor, value-added feature, it is the defining attribute from which
the final product derives its entire identity and character – Thus,
the test of transformation is satisfied in the facts of the present
case – The imported Genset and the Power Pack are two different
commodities with distinct constituent elements, structure and
functional utility. [Paras 45, 46, 47, 49, 50]

Case Law Cited
Servo-Med Industries Pvt. Ltd. v. Commissioner of Central Excise,
Mumbai [2015] 6 SCR 690 : (2015) 14 SCC 47; Union of India v.
Delhi Cloth & General Mills [1963] Supp. 1 SCR 586 : 1962 SCC
OnLine SC 148 – relied on.
Union of India & Ors. v. J.G Glass Industries Ltd & Ors. [1997]
Supp. 6 SCR 345 : (1998) 2 SCC 32; Commissioner of Central
Excise-I, New Delhi v. S.R Tissues Pvt. Ltd. & Anr. [2005] Supp.
2 SCR 355 : (2005) 6 SCC 310; Satnam Overseas Ltd. v.
Commercial of Central Excise, New Delhi [2015] 4 SCR 437 :
(2015) 13 SCC 166; Maruti Suzuki India Ltd. v. Commissioner of
Central Excise [2015] 5 SCR 180 : (2015) 13 SCC 186; Saraswati
Sugar Mills v. Commissioner of Central Excise, Delhi- III [2011]
13 SCR 579 : (2014) 15 SCC 625; M/s Steel Authority of India
Ltd. v. Commissioner of Central Excise [2022] 12 SCR 50 : 2022
SCC OnLine SC 1232; Commissioner of Central Excise, Delhi v.
Insulation Electrical Private Limited [2008] 5 SCR 625 : (2008)
12 SCC 45 – referred to.
[2025] 9 S.C.R. 1113

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

List of Acts
Central Excise Act, 1944; Central Excise Tariff Act, 1985; Customs
Tariff Act, 1975.

List of Keywords
Containerised Gensets; Power Packs; Manufacture; Transformation
Test; Marketability Test; Distinct character and identity; Core
functional utility of portability to the Genset; Part; Accessory;
Manufacture under Section 2(f) of the Central Excise Act,
1944.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 9418-
9420 of 2016
From the Judgment and Order dated 15.10.2015 of the Custom
Excise Service Tax Appellate Tribunal, West Zonal Bench at
Ahmedabad in APP Nos. 640 and 1284 of 2009, FO Nos. 11498
and 11499 of 2015, APP No. 11501 of 2015 and APP No. 557
of 2012

Appearances for Parties
Advs. for the Appellant:
Ms. Charanya Lakshmikumaran, Ms. N. Jain, Ayush Agarwal Av.,
Swastik Mishra, Ms. Neha choudhary, Ms. Umang Motiyani, Ms.
Medha Sinha, R. Parthasarathy.
Advs. for the Respondent:
Raghavendra P Shankar, A.S.G., Ms Nisha Bagchi, Sr. Adv., Ms.
Arunima Dwivedi, Gurmeet Singh Makker, Karan Lahiri, Bhuvan
Kapoor, Ishan Sharma.

Judgment / Order of the Supreme Court

Judgment

J.B. Pardiwala, J.

For the convenience of exposition, this judgment is divided into the
following parts:
1114 [2025] 9 S.C.R.

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INDEX*

A. FACTUAL MATRIX .......................................................... 2
B. SUBMISSIONS ON BEHALF OF THE PARTIES ........... 11
(i) Submissions on behalf of the Appellant .................... 11
(ii) Submissions on behalf of the Respondent ................ 13
C. ISSUE TO BE DETERMINED ......................................... 14
D. ANALYSIS ........................................................................ 15
(i) What amounts to “manufacture” under the Act, 1944? .. 15
(ii) Whether the activity undertaken by the Appellant
amounts to “manufacture”? ........................................ 24
E. CONCLUSION .................................................................. 39

1. These appeals under Section 35L(b) of the Central Excise Act,
1944 (for short, the “Act, 1944”) are at the instance of an assessee
and are directed against the Final Order dated 15.10.2015 (for
short, the “Impugned Order”) passed by the Customs, Excise and
Service Tax Appellate Tribunal West Zonal Bench (for short, the
“CESTAT”) at Ahmedabad in Appeal bearing Nos. E/640/2009-DB,
E/1284,1285/2009-DB & E/557/2012-DB respectively, by which
all the three appeals filed by the assessee came to be partly
allowed by setting aside: (i) the demand of duty with interest for the
extended period of limitation and (ii) the imposition of fine, penalty
and confiscation of goods. However, the CESTAT in the impugned
order held that the activities undertaken by the assessee-appellant to
set up the “Containerized Gensets” would amount to “manufacture”
and the same are liable to be classified under the sub-heading No.
8502.2090 of the Schedule to the Central Excise Tariff Act, 1985 (for
short, the “Act, 1985”). Accordingly, the demand of duty along with
interest for the period other than the extended period was upheld.

A. FACTUAL MATRIX
2. The appellant is engaged in the business of providing containerised
gas generating sets known as the Power Packs on a lease basis.
* Ed. Note: Pagination as per the original Judgment.
[2025] 9 S.C.R. 1115

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

3. To carry out the above business, the appellant imported Gas
Generating Sets (for short, “Gensets”) consisting of an engine (prime
mover) coupled with an alternator on a common base frame. The
Gensets are imported along with the standard accessories and total
electronic management system. At the time of import, the Customs
Authorities assessed the Gensets under the sub-heading 8502.2090
of the Schedule to the Customs Tariff Act, 1975, categorising them
as “Generating sets with spark-ignition combustion piston engines
of an output exceeding 3.5 kVA”.
4. Since the Gensets were to be provided on a lease basis, the appellant
considered it unfeasible to install them at customer premises. This
was because, in cases of non-renewal of the lease, the Genset would
have to be relocated to the premises of a new customer.
5. In such circumstances, to avoid inconvenience during shifting and to
provide for ease of transportation, the appellant placed the Genset
in a steel container. Further, in order to ensure the functioning of
the Genset within the container, the appellant indigenously procured
components such as radiator, ventilation fan, air filter unit, oil tank,
pipes, pumps, valve, silencer and fitting items and fixed them to
the container. The appellant has described the process as follows:
(i) Using jacks and rollers, the imported equipment is first rolled
into a steel transport container and properly positioned on anti-
vibrating mounting pad.
(ii) Remote radiator is lifted by crane and properly positioned onto
the roof of the container. Further, it is arrested on the roof with
suitable sized nuts, bolts and washers.
(iii) Lube Oil Tank is lifted by crane and moved onto the roof of
the container. It is properly placed on the mounting channels
and locked on the roof top by suitable nuts, bolts and washers.
(iv) For the purpose of HT, LT, Water and Lube Oil pipe lining on
the roof of the container, necessary fittings like pipes, reducers,
valves, tee, elbows, flanges, etc. are fitted.
(v) Similar process is done for HT, LT, Water, DM Water and Lube
Oil line inside the container. Pumps, 3-way valve etc. are located
inside the container.
(vi) Ventilation fans and cowls are thereafter mounted.
1116 [2025] 9 S.C.R.

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(vii) The silencer is lifted by crane and located on the rooftop at the
appropriate position.
(viii) Necessary Cable Trays are placed inside and outside the
container. Proper earthing is done.
(ix) Control panel and other electrical items are properly placed
inside the container. Cabling with all other accessories is done.
(x) All pipings are de-assembled. Pipings are then caustic cleaned,
hydraulic test is done thereon and painted.
(xi) Testing process involves hydraulic testing of piping for leakage
and electrical testing of all electrical connections.
6. As per the appellant, the role of each individual component is as
follows:

Component Purpose
Name
Ventilation Fan This supplies ambient air to the generating
set to cool down the heat which surrounds it
because of the internal working of the engine.
This has no role to play in generation of
electricity.
Air Filter Unit This prevents dust from entering internal parts
of engine. It is common knowledge that process
of combustion needs oxygen that is available
in air. This is called consumable and is being
replaced from time to time. Thus, Air Filter unit
has no role to play in generation of electricity.
That work is performed only by the imported
Gas Genset
Oil Tank Lubricant oil which kept in a pan beneath
engine of Gas Genset is circulated to various
moving parts for proper lubrication. Oil tank is
required to replenish the oil in the pan and thus
has no role to play in generation of electricity.
Electricity is generated only by the imported
Gas Genset.
[2025] 9 S.C.R. 1117

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

Pumps These pumps are used to move fluids from
one location to another. They are used to carry
water. Fitting of pump to Gas Genset does not
give rise to new product with distinct name,
character or use.
Valve It is a flow control device and have no
participation as such in generation of electricity
Silencer & Silencer helps in controlling the noise produced
Radiator by exhaust gases during operation. Therefore,
silencer has no role to play in Generation of
Electricity by Gas Genset.
While generating electricity the internal parts
of Gas Generator becomes very hot due to
process of combustion. Radiator merely helps
in radiating heat into the air and cooling the
engine. Coolant flows through the generator
block and then to the radiator. In many cases,
chiller is used instead of radiator to extract heat
that is otherwise thrown into the environment.
Thus, radiator has no role to play in generation
of electricity. That work is performed only by
the imported gas genset.
Pipes, Flanges, These are used for fitting of the above items.
Nut-bolts, Gasket

7. The appellant vide letter dated 22.11.2007 explained to the Deputy
Commissioner of Central Excise, Ahmedabad about the activities
carried out by it and sought an opinion as regards its liability under
the Act, 1944. Thereafter, on 17.07.2008 the officers of Central
Excise (Preventive), Ahmedabad-II visited the appellant’s factory
and examined the process undertaken by it.
8. The Assistant Commissioner of Central Excise, Ahmedabad-II,
vide its letter dated 19.08.2008 informed the appellant that the
activities undertaken by it would amount to “manufacture” by virtue
of Notes 4 and 6 of Section XVI of the Schedule to the Act, 1985,
respectively.
1118 [2025] 9 S.C.R.

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9. The appellant in the aforesaid context filed an appeal before the
Commissioner (Appeals), questioning the communication of the
Assistant Commissioner of Central Excise. The Commissioner
(Appeals) vide order dated 27.03.2009 dismissed the appeal.
10. A Show Cause Notice dated 19.11.2008 was issued proposing
demand of duty along with interest and levy of penalty on the Power
Packs cleared during the period from November 2006 to July 2008.
The said Show Cause Notice was adjudicated by the Commissioner
of Central Excise, Ahmedabad and vide the Order-in-Original No.10/
Commissioner/RKS/AHD-II/2009 dated 28.04.2009 the demand and
penalty were confirmed.
11. Thereafter, six Show Cause Notices were issued proposing demand
of duty along with interest and levy of penalty on the Power Packs
cleared during the period from August 2008 to March 2011. The
said Show Cause Notices were adjudicated and vide the Order-in-
Original No. 01 to 06/COMMR/RAJU/AHD-II/2012 dated 29.03.2012
the demand and penalty were confirmed.
12. In the aforementioned Orders-in-Original, the respective authorities
have held that the “Containerized Genset” i.e., the “Power Pack” has
a distinct name, character and use and is capable of being sold and
marketed. Thereby, the activity undertaken by the appellant satisfies
the conditions of “manufacture” as defined under Section 2(f) of the
Act, 1944. Consequently, the said goods are classifiable under the
sub-heading No.8502.2090 of the Schedule to the Act, 1985 and
are liable for Central Excise duty.
13. The appellant filed appeals before the CESTAT against the order
passed by the Commissioner (Appeals) dated 27.03.2009, the
Order-in-Original dated 28.04.2009 and the Order-in-Original dated
29.03.2012 respectively.
14. The CESTAT while disposing of the appeals filed by the appellant
held as under:
“13. .......It is submitted that the Gensets imported by the
Appellant remains essentially the same. We have already
observed that in the present case, the imported Gensets
after certain process sold as Power Pack, different and
distinct nature. As per statement of Shri Divyesh Shah,
the Gensets imported by the Appellant is incomplete
[2025] 9 S.C.R. 1119

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

machine, can be used into complete form after assembly
of various accessories/components. Note 6 of the Section
XVI of Customs Tariff Act provides that the conversion
of an incomplete or unfinished article into complete or
finished goods shall amount to manufacture. It is evident
from the record that the activities undertaken by the
Appellant are incidental to the completion of manufacture
of Power Pack, and without such activities Power Pack
cannot be used by the customers Section 2(f) of Central
Excise Act, 1944, the definition of manufacture includes
the process incidental to the completion of a manufactured
product. Heading 85.02 covers Electric Generating Sets
and Rotary Connectors”. Sub-heading 8502.2090 covers
“Generating sets with spark-ignition internal combustion
piston engines” other than Electric portable generators of
an output not exceeding 3.5 KVA. As per Notes of Chapter
85 of HSN, Generating Sets consisting of the generator
and its prime mover which are mounted (or designed to
be mounted) together as one unit or on a common base.
In the present case, the activities of fixing of anti-vibrating
mounting pad, radiator, Lube Oil Tank, Ventilation, fans,
silencers, Cable Trays, Control Panel and other electrical
items, hydraulic test processing etc, are mounted together
as one unit on a common base, known as Power Pack
and also Containerized Gensets.
14. According to the Appellant, the Gensets imported
by them were capable of generating electricity, and the
Gensets itself is marketed. But, it is seen from the record
that the process undertaken by the Appellant on the
imported Gensets for the industrial customers. Thus, the
industrial customer would buy Power Pack rather than
Gensets. The imported Gensets and Power Pack are
known separately in the trade and parlance. It is also noted
that the use of both the items are for different purposes.
In our considered view, the process undertaken by the
Appellant would constitute manufacture as it emerges a
new commodity in the market.

xxx xxx xxx
1120 [2025] 9 S.C.R.

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16. In case of Laminated Packing Pvt Ltd (supra) the
Hon’ble Supreme Court considered that manufacture is
bringing into the goods as known in the Excise law i.e.
known in the market having distinct and separate and
identifiable function. In the present case, we have also
noticed the photograph of the products of the Gensets and
the Power Pack are different and distinct items. The learned
Advocate contended that the imported Gensets is covered
under the sub-heading 8502.2090 of the First Schedule to
Customs Tariff Act “Generating sets with Spark - Ignition
Combustion System Engine” of an output not exceeding
3.5 KVA.” It is submitted that the Customs Department
had assessed the goods as complete electric generating
sets and classification under the same heading under the
Central Excise Tariff Act, 1985, cannot be sustained. We
find that the identical issue was raised before the Hon’ble
Supreme Court in the case of Laminated Packings Pvt.
Ltd (supra). It has been observed that the goods belongs
to the same entry is also not relevant because even if the
goods belong to the same entry, the goods are different
identifiable goods known as such in the market. If that is
so, the manufacture occurred and if manufacture takes
place, it is dutiable. The said decision would squarely
apply in the present case and the Power Pack is rightly
classified under sub-heading No.8502.2090 of Central
Excise Tariff Act, 1985.
17. However, we find force in the submissions of the learned
Advocate that the extended period of limitation cannot
be invoked. On perusal of the records, we find that the
Appellant by letter dt.22.11.2007, informed the Assistant
Commissioner of Central Excise for a clarification on any
possible liability of Central Excise duty. The Appellant also
pursued the matter before the Department. There is no
material on record of suppression of facts with intent to
evade payment of duty. The Hon’ble Gujarat High Court
in the case of Gujarat Glass Pvt. Ltd (supra) observed
that the Assessee on his own brought to the notice of the
Department the fact about the clearance of the goods to
its sister unit without duty before the date of visit of the
[2025] 9 S.C.R. 1121

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

officers. The Assessees conduct was candid and therefore,
bona fide. There is no evidence of intentional evasion.
18. In the case of Anand Nishikawa Company ltd Vs CCE
Meerut 2005 (185) EL T 149 (SC), the Hon’ble Supreme
Court observed that there was no deliberate attempt of
non-disclosure of excise duty. No claim as to “suppression
of facts” would be entertained for the purpose of invoking
extended period of limitation within the meaning of proviso
to Section 11A(1) of the Act. It is also noted that Hon’ble
Supreme Court in series of cases, has held that the
extended period of limitation, would not be invoked in
the case of revenue neutrality as the CENVAT Credit is
available against the demand of duty.
19. We find that the Appellant acted under a bona fide
belief that the activities undertaken by them would not
amount to manufacture. It is the case of interpretation
of the provisions of law and therefore, the imposition of
penalties on the Appellants are not warranted. It is noted
that the goods were available for confiscation. It is well
settled that if the goods are available, the same cannot
be confiscated. Accordingly, the confiscation of goods and
imposition of penalty cannot be sustained.
20. In view of the above discussions. we hold that the
activities undertaken by the Appellant would amount to
manufacture and Power Pack also known as “Containerized
Gensets” would be classifiable under sub-heading
No.8502.2090 of the Schedule to the Central Excise Tariff
Act, 1985 and the demand of duty alongwith interest for
the normal period is upheld. The adjudicating authority is
directed to extend CENVAT Credit benefit, while quantifying
duty, subject to verification of record. The demand of
duty with interest for the extended period of limitation
and confiscation and imposition of redemption fine and
penalties are set aside. The appeal filed by the Appellant
company is disposed of in the above terms. The appeal
filed by the Appellant No.2 Shri Montu Patwa, General
Manager (F&A) is allowed. The applications for extension
of stay order are dismissed as infructuous.”
1122 [2025] 9 S.C.R.

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15. Thus, the CESTAT held that the process undertaken by the appellant
would amount to “manufacture” on the following grounds:
a. The Power Packs are different and distinct in nature from the
imported Gensets, and the activities undertaken by the appellant
are incidental to the completion of manufacturing Power Packs.
Thus, these activities would amount to “manufacture” under
Section 2(f) of the Act, 1944, which brings under the ambit
of “manufacture” any process incidental or ancillary to the
completion of a manufactured product;
b. Imported Gensets and the Power Packs are known separately
in trade and parlance and both items are used for different
purposes. Thus, the process undertaken by the appellant would
constitute “manufacture” as it leads to the emergence of a new
product in the market; and
c. Imported Gensets are incomplete machines and can be used in
complete form after assembly of various components procured
by the appellant. Note 6 of Section XVI of the Act, 1985 provides
that conversion of an incomplete or finished goods falling under
that section shall amount to “manufacture”.
16. In such circumstances referred to above, the appellant is here before
this Court with the present appeals.

B. SUBMISSIONS ON BEHALF OF THE PARTIES

(i) Submissions on behalf of the Appellant
17. Ms. Charanya Lakshmikumaran, the learned counsel appearing for
the appellant, submitted the following:
a. A process would amount to “manufacture” if the following two-
fold test, as explained by this Court in a catena of judgments, is
satisfied: (i) Whether by the said process a different commercial
commodity comes into existence or whether the identity of the
original commodity ceases to exist (Transformation Test); and
(ii) Whether the commodity which was already in existence
would be of no commercial use but for the said process
(Marketability test).
b. The two limbs must be satisfied cumulatively. As held by this
Court in Servo-Med Industries Pvt Ltd v. Commissioner
[2025] 9 S.C.R. 1123

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

of Central Excise, Mumbai reported in (2015) 14 SCC 47,
fulfilment of any one of these limbs is not conclusive if the other
limb of the test is not satisfied. In the facts of the present case,
both the limbs of the above test are not satisfied.
c. The transformation test is not satisfied as the product remains
a Genset performing the function of generating electricity and
does not transform into another distinct commodity, whereby
its original identity as a Genset ceases to exist. The various
accessories attached to the container serve the sole purpose
of making the generating set fit to work within a container box
(for logistical purposes). Mere enhancement of the functionality
with the use of these accessories will not detract from the fact
that the product continues to remain a generating set and
can generate electricity without such accessories. Thus, the
process does not transform the imported Genset into a different
commercial commodity. The term ‘Power Pack’ is merely a trade
name given by the appellant, and the use and character of the
product imported remains the same.
d. The imported Gensets were complete and functional Gensets
in themselves and it would be incorrect to say that the addition
of accessories leads to completing an incomplete machine.
e. The marketability test is also not satisfied, as it cannot be said
that the product, in its imported form, served no purpose without
the activity undertaken by the appellant. It was capable of
generating electricity and was commercially available for such
purpose de hors the accessories.
f. Without prejudice to the aforesaid even if it were to be held that
the second test is satisfied in the present case, i.e., by way of
containerization and adding accessories the Genset becomes
marketable for a customer, this test has to be simultaneously
and cumulatively satisfied along with the first test. However,
the transformation test is not satisfied in the present case,
as there was no transformation of the imported Genset into a
different and distinct product. Thus, the activity undertaken by
the appellant would not amount to “manufacture”.
18. In such circumstances referred to above, the learned counsel prayed
that there being merit in her appeal, the impugned order be set aside.
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(ii) Submissions on behalf of the Respondent
19. Ms. Nisha Bagchi, the learned senior counsel appearing for the
Revenue, submitted the following:
a. The findings recorded in the impugned order have been arrived
at after considering all the relevant material and applying the
established test for determining “manufacture”. Thus, the
impugned order is unassailable in law as well as on the facts.
b. The Genset in its imported form is not functional. It is undisputed
that the appellant is not selling the imported Genset as such.
The Genset is containerized using various locally procured parts
to transform it into a functional Power Pack. The Power Pack
is a different product having a distinct character, name and
use and is marketable as such. The test of no commercial use
without further process is satisfied, and the fact of “manufacture”
stands established. The present dispute falls within the fourth
category enunciated in Servo-Med (supra), i.e., where the goods
are transformed into marketable, different/new goods after a
particular process. Thus, “manufacture” could be said to have
taken place as contemplated under Note 6 of Section XVI of
the Schedule to the Act, 1985 and Section 2(f) of the Act 1944,
respectively, thereby attracting the levy of Central Excise duty.
c. Further, emphasis was laid on the fact that “part” of an article
is something necessary for the completion of that article. It is
an integral, constituent or component part, without which the
article to which it is to be joined would not function as such an
article. On the other hand, an “accessory” is something that is
not necessary for the functioning of an article. In this context,
the characterisation of components such as radiator, ventilation
fan, etc., by the appellant as ‘accessories’ is wholly untenable.
The Genset, once placed in the container, would not function
without these components, and thus these components should
rightly be termed as ‘parts’ of the Power Pack.

C. ISSUE TO BE DETERMINED
20. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following question
falls for our consideration:
[2025] 9 S.C.R. 1125

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

• Whether the process of placing the Genset within a steel
container and fitting the steel container with components such
as radiator, ventilation fan, air filter unit, oil tank, pipes, pumps,
valve and silencer would amount to “manufacture” under Section
2(f) of the Act, 1944?

D. ANALYSIS

(i) What amounts to “manufacture” under the Act, 1944?
21. Before adverting to the rival submissions canvassed on either side,
we must look into a few provisions of the Act, 1944. Section 2(f)
defines the term “manufacture”. The same reads as follows:
“2. Definitions.— In this Act, unless there is anything
repugnant in the subject or context,—

xxx xxx xxx
(f) “manufacture” includes any process—
(i) incidental or ancillary to the completion of a
manufactured product;
(ii) which is specified in relation to any goods in the
Section or Chapter Notes of the Fourth Schedule as
amounting to manufacture; or,
(iii) which in relation to the goods specified in the
Third Schedule, involves packing or repacking of such
goods in a unit container or labelling or re-labelling
of containers including the declaration or alteration of
retail sale price on it or adoption of any other treatment
on the goods to render the product marketable to
the consumer and the word “manufacture” shall be
construed accordingly and shall include not only a
person who employs hired labour in the production or
manufacture of excisable goods, but also any person
who engages in their production or manufacture on
his own account;”
22. The term “manufacture” assumes vital importance as under the
Act, 1944, the event of taxation is at the point of manufacturing.
Section 3 of the Act, 1944, which is the charging section, lays down
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that the excise duty is to be levied on goods which are produced
or manufactured in India. This is because excise duty is primarily
a duty on the goods produced or manufactured within the country.
23. Sub-clause (i) of Section 2(f) is inclusive, and “manufacture” has
been defined to include any process incidental or ancillary to the
completion of the manufactured product. Sub-clause (ii) of Section
2(f) stipulates that “manufacture” would include any process which
has been specified in the Section/Chapter notes of the Schedule to
the Act, 1985, as amounting to “manufacture”. In other words, if a
process is declared as amounting to “manufacture” in the section
or chapter notes, it would come within the definition of Section 2(f)
and become liable to excise duty.
24. At first blush, Section 2(f)(i) may suggest that any process
undertaken on the goods in question would fall within the ambit of
“manufacture”. However, this Court has consistently held that such
a broad interpretation would be erroneous. The courts must try to
appreciate the nuanced yet critical distinction that the law draws
between mere ‘processing’ on the one hand, and ‘manufacturing’
on the other. The following paragraphs of the decision of this Court
in Union of India v. Delhi Cloth & General Mills reported in 1962
SCC OnLine SC 148, would help in elucidating this very important
distinction between processing and manufacturing:
“13. The other branch of Mr. Pathak’s argument is that
even if it be held that the respondents do not manufacture
“refined oil” as is known to the market they must be held
to manufacture some kind of “non-essential vegetable
oil” by applying to the raw material purchased by them,
he processes of neutralisation by alkali and bleaching by
activated earth and/or carbon. According to the learned
Counsel “manufacture” is complete as soon as by the
application of one or more processes, the raw material
undergoes some change. To say this is to equate
“processing” to “manufacture” and for this we can
find no warrant in law. The word “manufacture” used a
as verb is generally understood to mean as “bringing
into existence a new substance” and does not mean
merely “to produce some change in a substance”,
however minor in consequence the change may be.
[2025] 9 S.C.R. 1127

M/s Quippo Energy Ltd. v.
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This distinction is well brought about in a passage thus
quoted in Permanent Edition of Words and Phrases, Vol.
26, from an American Judgment. The passages runs thus :-
‘Manufacture’ implies a change, but every
change is not manufacture and yet every
change of an article is the result of treatment,
labour and manipulation. But something
more is necessary and there must be
transformation; a new and different article
must emerge having a distinctive name,
character or use.

xxx xxx xxx
15. These definitions make it clear that to become “goods”
an article must be something which can ordinarily come
to the market to be bought and sold.
16. This consideration of the meaning of the word “goods”
provides strong support for the view that ‘manufacture’
which is liable to excise duty under the Central Excises and
Salt Act, 1944, must be the “bringing into existence of a new
substance known to the market.” “But,” says the learned
Counsel, “look at the definition of ‘manufacture’ in
the definition clause of the Act and you will find that
‘manufacture’ is defined thus : ‘Manufacture’ includes
any process incidental or ancillary to the completion
of a manufactured product (s. 2(f))”. We are unable
to agree with the learned Counsel that by inserting
this definition of the word “manufacture” in s. 2(f)
the legislature intended to equate “processing” to
“manufacture” and intended to make mere “processing”
as distinct from “manufacture” in the same sense of
bringing into existence of a new substance known to
the market, liable to duty. The sole purpose of inserting
this definition is to make it clear that at certain places in
the Act the word ‘manufacture’ has been used to mean a
process incidental to the manufacture of the article. Thus
in the very item under which the excise duty is claimed in
these cases, we find the words : “in or in relation to the
manufacture of which any process is ordinarily carried
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on with the aid of power”. The definition of ‘manufacture’
as in s. 2(f) puts it beyond any possibility of controversy
that if power is used for any of the numerous process that
are required to turn the raw material into a finished article
known to the market the clause will be applicable; and an
argument that power is not used in the whole process of
manufacture using the word in its ordinary sense, will not
be available. It is only with this limited purpose that the
legislature, in our opinion, inserted this definition of the
word ‘manufacture’ in the definition section and not with
a view to make the mere “processing” of goods as liable
to excise duty.”
(Emphasis Supplied)

25. As per this Court’s decision in Delhi Cloth & General Mills (supra)
for an activity to amount to “manufacture” and not be considered
as merely ‘processing’ it has to produce a ‘transformation’ of the
subject article i.e, a new and different article must emerge having a
distinctive name, character or use. This test, as laid down by this
Court in Delhi Cloth & General Mills (supra), has been extensively
applied by this Court in its subsequent rulings.
26. In Union of India & Ors v. J.G Glass Industries Ltd & Ors reported
in (1998) 2 SCC 32, this Court was dealing with the question whether
printing on glass bottles amounts to “manufacture” within the meaning
of Section 2(f) of the Act, 1944. The Court accepted the contention
of the respondents that the activity of printing names or logos on the
bottles did not change the basic character of the commodity and that
the plain bottles in themselves were commercial commodities and
could be sold and used as such. Thus, the Court held that printing
on glass bottles did not amount to “manufacture” under Section 2(f)
of the Act, 1944. The relevant observations made by this Court are
reproduced as follows:
“16. On an analysis of the aforesaid rulings, a two-fold
test emerges for deciding whether the process is that of
“manufacture”. First, whether by the said process a
different commercial commodity comes into existence
or whether the identity of the original commodity ceases
to exist; secondly, whether, the commodity which was
[2025] 9 S.C.R. 1129

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

already in existence will serve no purpose but for the
said process. In other words, whether the commodity
already in existence will be of no commercial use but
for the said process. In the present case, the plain bottles
are themselves commercial commodities and can be sold
and used as such. By the process of printing names or
logos on the bottles, the basic character of the commodity
does not change. They continue to be bottles. It cannot
be said that but for the process of printing, the bottles will
serve no purpose or are of no commercial use.”
(Emphasis Supplied)

27. This Court in J.G. Glass (supra) established a two-fold test to
ascertain if an activity constitutes “manufacture”:
a. Fundamental Change Test: The first criterion is to determine if
the process results in a new commercial item being created, or
if the original item’s identity is fundamentally altered or ceases
to exist. This means assessing whether a transformation occurs
such that a distinct product with a new name, identity, character,
or use emerges;
b. But for the process Test: The second criterion evaluates
whether the product that existed before the process would be
commercially useless or serve no purpose without undergoing
that specific process. In other words, if the pre-existing
commodity would lack any commercial utility were it not for the
process, this condition is met.
28. This Court in Servo-Med (supra) undertook extensive analysis and
discussed its various previous judgments to clarify the issue as to
what constitutes a manufacturing activity. The Court classified the
existing case law into the following distinct categories for the purpose
of examining the different aspects of the term “manufacture” under
the Act, 1944:
a. When transformation occurs/does not occur: In this category,
the Court discussed instances where goods are transformed
into something different and/or new, which typically indicates
“manufacture”, as against instances where changes/processes
do not lead to transformation into a new product.
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b. Retaining of essential character: In this category, the Court
discussed instances where the activity did not amount to
“manufacture” as the goods remained essentially the same
after a particular process, with the original article continuing to
hold its core identity despite changes.
c. “But for the process” test / no commercial user without further
process: In this category, the Court evaluated instances where
a product in existence would serve no commercial purpose
without undergoing a specific process, and whether undertaking
such a process would amount to “manufacture”.
29. This Court in Servo-Med (supra) also discussed the ratio of the
judgment in J.G Glass (supra), more particularly as to how the
‘but for the process’ test ought to be understood and applied. The
relevant observation is reproduced as follows:
“24. It is important to understand the correct ratio of the
judgment in the J.G. Glass case. This judgment does
not hold that merely by application of the second test
without more manufacture comes into being. The Court
was at pains to point out that a twofold test had emerged
for deciding whether the process is that of manufacture.
The first test is extremely important-that by a process, a
different commercial commodity must come into existence
as a result of the identity of the original commodity ceasing
to exist. The second test, namely that the commodity
which was already in existence will serve no purpose
but for a certain process must be understood in its
true perspective. It is only when a different and/or
finished product comes into existence as a result of a
process which makes the said product commercially
usable that the second test laid down in the judgment
leads to manufacture. Thus understood, this judgment
does not lead to the result that merely because the
unsterilized syringe and needle is of no commercial
use without sterilization, the process of sterilization
which would make it commercially usable would
result in the sterilization process being a process
which would amount to manufacture. If the original
commodity i.e. syringes and needles continue as such
[2025] 9 S.C.R. 1131

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

post sterilization, the second test would not lead to
the conclusion that the process of sterilization is a
process which leads to manufacture. This is because,
in all cases, there has first to be a transformation in
the original article which transformation brings about a
distinctive or different use in the article.”
(Emphasis supplied)

Thus, this Court in Servo-Med (supra) has held that both the prongs
of the two-prong test must be fulfilled in order for an activity to
amount to “manufacture”. The ‘but for the process’ test cannot be
applied in isolation, without first establishing that the fundamental
test of transformation has been satisfied.
30. While we are in respectful agreement with the above extracted
observations of this Court in Servo-Med (supra), we believe a
further clarification is necessary as regards the application of the
two pronged test laid down in J.G. Glass (supra). If the second wing
of the J.G. Glass test—namely, that the original commodity would
serve no purpose but for the said process were to be applied as
a rigid and universal mandate, it would lead to manifest absurdity.
To illustrate this, we may give a simple example of a flour mill that
processes wheat grain into flour. The wheat grain, which is the input,
is a perfectly marketable commodity in its own right; it can be sold
as seed or used as animal feed. If one were to apply the second
test as propounded in J.G. Glass (supra) in a mechanical manner,
the inescapable conclusion would be that since the wheat grain was
in itself a marketable commodity, the process of milling it into flour
would not amount to “manufacture”, as the second prong of the test
is not being satisfied.
31. Even in the facts of the present case, it is the contention of the
appellant that the imported Genset had commercial utility even without
the activity being undertaken. This argument, when pedantically read
with this Court’s clarification in Servo-Med (supra) that both prongs
of the test have to be satisfied, would mean that just because the
subject article had commercial utility prior to it being subjected to the
process, the process undertaken would not lead to “manufacture”
even if it was transformative in nature. Such an interpretation would
be patently erroneous. In order to avoid such absurdity, it is important
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that the applicability of the second wing of the J.G. Glass (supra) test
must be judged on the facts and circumstances of each individual
case, and the same cannot be brandished as a universal rule.
32. This Court in Servo-Med (supra) categorised the entire case law into
four categories. In paragraph 27, the Court lists them out as follows:
“27. The case law discussed above falls into four neat
categories.
(1) Where the goods remain exactly the same even after
a particular process, there is obviously no manufacture
involved. Processes which remove foreign matter from
goods complete in themselves and/or processes which
clean goods that are complete in themselves fall within
this category.
(2) Where the goods remain essentially the same after the
particular process, again there can be no manufacture.
This is for the reason that the original article continues as
such despite the said process and the changes brought
about by the said process.
(3) Where the goods are transformed into something
different and/or new after a particular process, but the said
goods are not marketable. Examples within this group are
the Brakes India case and cases where the transformation
of goods having a shelf life which is of extremely small
duration. In these cases also no manufacture of goods
takes place.
(4) Where the goods are transformed into goods which
are different and/or new after a particular process, such
goods being marketable as such. It is in this category
that manufacture of goods can be said to take place.”
(Emphasis Supplied)

33. A close reading of the four categories referred to above would
indicate that this Court in Servo-Med (supra) has also laid down a
two pronged test for the purpose of determining whether an activity
amounts to “manufacture”. The two-fold test is: (i) Transformation test
(Whether a distinct product with a new name, identity, character, or
[2025] 9 S.C.R. 1133

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

use emerges?); and (ii) Marketability test (Whether the transformed
product is marketable as such?).

(ii) Whether the activity undertaken by the Appellant amounts
to “manufacture”?
34. We now proceed to apply the test laid down in Servo-Med (supra)
for the purpose of answering the following two questions:
a. Whether the Imported Gensets have undergone a transformation
into Power Packs, i.e. whether the imported Gensets and the
Power Packs are distinct/different products, each with their own
separate character, identity, or use?; and
b. Whether the Power Packs can be considered to be marketable?
35. The dispute between the parties before us primarily lies with respect
to the transformation test. It is the case of the appellant that no
transformation has occurred and there is no change in the character,
identity or name as: (i) the function and end use of both the imported
Gensets and Power Packs remains the same i.e., generating
electricity; and (ii) placing the Genset inside the steel container and
fitting it with various accessories is only for logistical purposes and
the same merely enhances functionality.
36. In Servo-Med (supra), the question before this Court was whether
the process of sterilizing syringes and needles would amount to
“manufacture” under the Act, 1944. Answering in the negative, the
Court held as follows:
“28. The instant case falls within the first category
aforementioned. This is a case of manufacture of
disposable syringes and needles which are used for
medical purposes. These syringes and needles, like in
the J.G. Glass case and unlike the Brakes India case,
are finished or complete in themselves. They can be
used or sold for medical purposes in the form in which
they are. The fact that medically speaking they are only
used after sterilization would not bring this case within the
ratio of the Brakes India case. All articles used medically
in, let us say, surgical operations, must of necessity first
be sterilized.

xxx xxx xxx
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30. The added process of sterilization does not mean that
such articles are not complete articles in themselves or
that the process of sterilization produces a transformation
in the original articles leading to new articles known to
the market as such. A surgical equipment such as a knife
continues to be a surgical knife even after sterilization. If
the Department were right, every time such instruments
are sterilized, the same surgical instrument is brought forth
again and again by way of manufacture and excisable duty
is chargeable on the same. This would lead to an absurd
result and fly in the face of common sense. If a surgical
instrument is being used five times a day, it cannot be said
that the same instrument has suffered a process which
amounts to manufacture in which case excise duty would
be liable to be paid on such instruments five times over on
any given day of use. Further, what is to be remembered
here is that the disposable syringe and needle in question
is a finished product in itself. Sterilization does not lead
to any value addition in the said product. All that the
process of sterilization does is to remove bacteria
which settles on the syringe’s and needle’s surface,
which process does not bring about a transformation
of the said articles into something new and different.
Such process of removal of foreign matters from
a product complete in itself would not amount to
manufacture but would only be a process which is for
the more convenient use of the said product. In fact,
no transformation of the original articles into different
articles at all takes place. Neither the character nor
the end use of the syringe and needle has changed
post-sterilization. The syringe and needle retains its
essential character as such even after sterilization.”
(Emphasis Supplied)

According to this Court in Servo-Med (supra), the syringes and
needles even before sterilization were complete and finished articles
and all that the process of sterilization did was to remove the
foreign particles which settled on the surfaces of such needles and
syringes. Neither the character nor the end use of the syringe and
[2025] 9 S.C.R. 1135

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

needle changed post sterilisation. Consequently, no transformation
had occurred.
37. In Commissioner of Central Excise-I, New Delhi v. S.R Tissues
Pvt Ltd & Anr., reported in (2005) 6 SCC 310, the question before
this Court was whether the cutting/slitting of jumbo rolls of tissue
paper into various sizes suitable for use as toilet papers, table napkins
or facial tissues would amount to “manufacture” in terms of Section
2(f) of the Act, 1944. The Court held as follows:
“12. At the outset, we may point out that the assessee is
one of the downstream producers. The assessee buys
duty-paid jumbo rolls from M/s Ellora Paper Mills and M/s
Padamjee Paper Mills. There are different types of papers
namely, tissue paper, craft paper, thermal paper, writing
paper, newsprints, filter paper etc. The tissue paper is
the base paper which is not subjected to any treatment.
The jumbo rolls of such tissue papers are bought by the
assessee, which undergoes the process of unwinding,
cutting/slitting and packing. It is important to note that
the characteristics of the tissue paper are its texture,
moisture absorption, feel etc. In other words, the
characteristics of table napkins, facial tissues and toilet
rolls in terms of texture, moisture absorption capacity,
feel etc. are the same as the tissue paper in the jumbo
rolls. The said jumbo rolls cannot be conveniently used
for household or for sanitary purposes. Therefore,
for the sake of convenience, the said jumbo rolls are
required to be cut into various shapes and sizes so
that it can be conveniently used as table napkins,
facial tissues, toilet rolls etc. However, the end-use of
the tissue paper in the jumbo rolls and the end-use of
the toilet rolls, the table napkins and the facial tissues
remains the same, namely, for household or sanitary
use. The predominant test in such a case is whether
the characteristics of the tissue paper in the jumbo roll
enumerated above is different from the characteristics
of the tissue paper in the form of table napkin, toilet
roll and facial tissue. In the present case, the tribunal was
right in holding that the characteristics of the tissue paper
in the jumbo roll are not different from the characteristics
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of the tissue paper, after slitting and cutting, in the table
napkins, in the toilet rolls and in the facial tissues.
13 . In the case of Brakes India Ltd. v. Supdt. of Central
Excise & Others this Court has very aptly brought out
the test of character or end-use by observing as follows:
“ If by a process, a change is effected in a
product, which was not there previously, and
which change facilitates the utility of the product
for which it is meant, then the process is not
a simple process, but a process incidental or
ancillary to the completion of a manufactured
product. It will not be safe solely to go by a
test as to whether the commodity after the
change takes in a new name, though in stated
circumstances, it may be useful to resort to it.
This may prove to be deceptive sometimes, for
it will suit the manufacturer to retain the same
name to the end product also. The ‘character
or use’ test has been given due importance by
pronouncements of the Supreme Court. When
adopting a particular process, if a transformation
takes place, which makes the product have a
character and use of its own, which it did not
bear earlier, then the process would amount to
manufacture under section 2 irrespective of the
fact whether there has been a single process
or have been several processes.”
14. Applying the above tests, we hold that no new
product had emerged on winding, cutting/slitting
and packing. The character and the end-use did not
undergo any change on account of the abovementioned
activities and, therefore, there was no manufacture on
first principles.”
(Emphasis Supplied)

In S.R. Tissues (supra), this Court dealt with a fact situation wherein
the form and shape of the subject article were being changed to
facilitate the convenience of use. However, such a change in form
[2025] 9 S.C.R. 1137

M/s Quippo Energy Ltd. v.
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did not lead to a change in either its character or use i.e., both the
character and use of the product remained the same before and
after undergoing the process.
38. In Satnam Overseas Ltd v. Commercial of Central Excise, New
Delhi, reported in (2015) 13 SCC 166, the assessee was engaged in
packing combination of mixture of raw rice, dehydrated vegetables and
spices in the name of ‘Rice and Spice’. The department contended
that this process of mixing raw rice, dehydrated vegetables and
spices amounted to “manufacture” as per Section 2(f) of the Act,
1944. The Court held that there was no transformation into a new
commodity and thus the process did not amount to “manufacture”.
The relevant observation reads thus:
“11. The first judgment which we want to mention, which was
cited by Ms. Charanya, is Crane Betel Nut Powder Works v.
Commissioner of Customs, Central Excise, Tirupathi. In the
said case the Assessee was engaged in the business of
marketing betel nuts in different sizes after processing them
by adding essential/non-essential oils, menthol, sweetening
agent etc. Initially, the Assessee cleared the goods under
Chapter Sub-heading 2107 of the Central Excise Tariff and
was paying duty accordingly. However, the Assessee filed
a revised classification declaration Under Rule 173B of
the Central Excise Rules, 1944, with effect from 17th July,
1997, claiming classification of its product under Chapter
Sub-heading 0801.00 of the Central Excise Tariff. It was
contended by the Assessee that the crushing of betel nuts
into smaller pieces with the help of machines and passing
them through different sizes of sieves to obtain goods of
different sizes/grades and sweetening the cut pieces did
not amount to manufacture in view of the fact that mere
crushing of betel nuts into smaller pieces did not bring
into existence a different commodity which had a distinct
character of its own.
12. Though the authorities below had decided against
the Assessee, this Court reversed the said view holding
that the said process would not amount to ‘manufacture’
as the process involving manufacture does not always
result in the creation of a new product. In the instant case
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notwithstanding the manufacturing process, it could not
be said that a transformation had taken place resulting in
the formation of a new product. The relevant portion of
the judgment is reproduced below:
31. In our view, the process of manufacture
employed by the Appellant company did not
change the nature of the end product, which
in the words of the Tribunal, was that in the
end product the ‘betel nut remains a betel nut’.
The said observation of the Tribunal depicts the
status of the product prior to manufacture and
thereafter. In those circumstances, the views
expressed in the D.C.M. General Mills Ltd.
(supra) and the passage from the American
Judgment (supra) become meaningful. The
observation that manufacture implies a change,
but every change of not manufacture and
yet every change of an article is the result of
treatment, labour and manipulation is apposite
to the situation at hand. The process involved in
the manufacture of sweetened betel nut pieces
does not result in the manufacture of a new
product as the end product continues to retain
its original character though in a modified form.
What is to be highlighted is that even after the betel
nut which had been cut to different sizes and had
undergone the process, the Court did not treat it as
‘manufacture’ within the meaning of Section 2(f) of
the Act on the ground that the end product was still
a betel nut and there was no change in the essential
character to that article even when it was the result
of treatment, labour and manipulation, inasmuch as
even after employing the same it had not resulted in
the manufacture of a new product as the end product
continued to retain its original character.
13. Another judgment which was referred to by learned
Counsel for the Appellant is Commissioner of Central
Excise v. Laljee Godhoo and Co. Vide this judgment the
[2025] 9 S.C.R. 1139

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

Court affirmed the view taken by the CEGAT, holding that
the process of subjecting raw asafoetida (hing) resulting
in formation of compounded asafoetida does not amount
to manufacture, even when this process has undergone
chemical change, because of the reason that the said
chemical change had not brought even after it underwent
a process, any new product as the product remained the
same at starting and terminal points of the process....
14.....Again the test which was applied was that
essential character of the product did not change and,
therefore, it would not amount to manufacture. It was
so held even when gum arabic as well as wheat flour
were mixed in the process. A pertinent aspect which
was noted was that mixing of these articles did not
result in chemical reaction with asafoetida.
15. Last judgment to which we would like to refer to is
Deputy Commissioner Sales Tax (Law), Board of Revenue
(Taxes), Ernakulam v. PIO Food Packers. In that case,
the process undertaken by the Assessee was to wash
the pineapple, after purchase, and then remove inedible
portion, the end crown as well as skin and inner core.
After removing those inedible portions the pineapple fruit
used to be sliced and the slices were filled in canes after
adding sugar as preservative. Thereafter, canes would be
sealed under temperature and then put in a boiled water
for sterilisation. Identical question was posed viz. whether
this process amounted to ‘manufacture’. Giving the
answer in the negative, the Court held that even when
with each process suffered, the original commodity
experienced a change, such a change would not
amount to ‘manufacture’ unless it seized to be the
original commodity and a new and distinct article was
produced therefrom....

xxx xxx xxx
17. It follows from the above that mere addition in the
value, after the original product has undergone certain
process, would not bring it within the definition of
1140 [2025] 9 S.C.R.

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‘manufacture’ unless its original identity also under
goes transformation and it becomes a distinctive and
new product.
18. When we apply the aforesaid principle to the facts of
this case, it is clear that mere addition of dehydrated
vegetables and certain spices to the raw rice, would
not make it a different product. Its primary and
essential character still remains the same as it is
continued to be known in the market as rice and is
sold as rice only. Further, this rice, again, remains in
raw form and in order to make it edible, it has to be
cooked like any other cereal. The process of cooking is
even mentioned on the pouch which contains cooking
instructions. Reading thereof amply demonstrates
that it is to be cooked in the same form as any other
rice is to be cooked. Therefore, we do not agree with
the CEGAT that there is a transformation into a new
commodity, commercially known as distinct and separate
commodity.”
(Emphasis Supplied)

Thus, Satnam Overseas (supra) clarified that the addition of elements
to a subject article would in itself not lead to “manufacture”, as long
as the essential character of the subject article is being retained.
39. In Maruti Suzuki India Ltd v. Commissioner of Central Excise,
reported in (2015) 13 SCC 186, the appellant’s primary contention
was that the process of Electro Deposition Coating of various spare
parts such as bumpers, grills, etc, did not amount to “manufacture”
as the same was in the nature of anti-rust and was merely done
to increase the shelf life of the said spare parts. Agreeing with the
appellant, the Court held as follows:
“17. On the facts of the present case, we have first,
therefore, to arrive at whether there is “manufacture” at all
and only subsequently does the question arise as to if this
is so, what is the valuation of the processed goods and
whether duty is payable upon them. We have found on
facts that for the purposes of the proviso to Rule 57F(ii),
the inputs that were not ultimately used in the final
[2025] 9 S.C.R. 1141

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

product but were removed from the factory for home
consumption remain the same despite ED coating
and consequent value addition. We follow the law laid
down in S.R Tissues Pvt. Ltd.’s case and state that on
account of mere value addition without more it would
be hazardous to say that manufacture has taken place,
when in fact, it has not. It is clear, therefore, that the inputs
procured by the Appellants in the present case, continue
to be the same inputs even after ED coating and that Rule
57F(ii) proviso would therefore apply when such inputs
are removed from the factory for home consumption, the
duty of excise payable being the amount of credit that has
been availed in respect of such inputs under Rule 57A.”
(Emphasis supplied)

40. At first glance, it may seem that the observations in various decisions
discussed above fortify the appellant’s stance that no transformation
could have occurred from placing imported Genset into a steel
container and fitting the steel container with multiple additional
components. The appellant may legitimately argue, in the facts of
the present case, like in the aforementioned cases: (i) no change
in end use of the subject article is occurring [Servo-Med (supra)];
(ii) merely form is being changed for the sake of convenience [S.R
Tissues (supra)] and utility [Maruti Suzuki (supra)]; and (iii) the
additional elements do not change the character of the good [Satnam
Overseas (supra)]. Consequently, undertaking the necessary
process would not amount to “manufacture” under Section 2(f) of
the Act, 1944.
41. However, such contention should fail. In all the aforementioned
cases, the character or use of the subject article did not change,
and hence, there was no transformation. In S.R Tissues (supra),
the change in form of the tissue roll did not lead to a change in the
characteristics of the tissue. Similarly, in Satnam Overseas (supra),
the additional elements did not change the essential characteristics
of the subject article. However, in the facts of the present case, the
change in the form/structure and the addition of new components to
the imported Genset has transformed it and brought into existence
a different product, i.e. the Power Pack, which has its own distinct
character and identity.
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42. Determining the ‘character’ and ‘identity’ of goods is an inherently
fact-specific inquiry, necessitating assessment on a case-to-case
basis. Given the vast diversity of products and manufacturing
processes, it is impossible to lay down one universal definition for
these terms.
43. In the facts of the present case, we are convinced that the steel
container and the other additional components do transform the
imported Genset and bring into existence a distinct product which
has its own character and identity. On a preliminary analysis itself,
it is amply evident that the constituent components of the imported
Genset are very different from the constituent components of the
Power Pack. The appellant argued that mere addition of extra
components would not transform the imported Genset as all the
additional components are in the nature of mere accessories being
attached for the sake of convenience and utility. Consequently, the
addition of these components would not transform the imported
Genset into a different and distinct product.
44. At this juncture, it is necessary to determine whether these
components attached to the steel container would constitute as
‘parts’ or ‘accessories’ of the Power Pack. This is crucial because if
these additional components are ‘parts’ of the Power Pack, it would
establish beyond doubt that the imported Genset has undergone
transformation as its constituent elements are very different from
that of the Power Pack.
45. The judicial understanding of the terms ‘part’ and ‘accessory’
respectively is as presented below:
a. A part is an integral/ constituent component which renders the
article complete and functional i.e., the article would not be
able to fulfill its primary function without this component. [See
Saraswati Sugar Mills v. Commissioner of Central Excise,
Delhi- III, reported in (2014) 15 SCC 625, and M/s Steel
Authority of India Ltd. v. Commissioner of Central Excise,
reported in 2022 SCC OnLine SC 1232];
b. An accessory on the other hand is a component which while
not being essential to the primary functioning of the article, is
used in conjunction with the article and adds supplemental/
secondary value by providing for additional beauty, elegance,
[2025] 9 S.C.R. 1143

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

comfort or convenience of use in relation to that article.
[See Commissioner of Central Excise, Delhi v. Insulation
Electrical Private Limited reported in (2008) 12 SCC 45].
To illustrate, an air conditioner installed in a car would not be
considered a ‘part’ of that car. This is because the car can effectively
perform its primary function of transportation even without an air
conditioner. Conversely, the air conditioner would be classified as
an ‘accessory’ because it enhances comfort and convenience when
utilised with the car. It provides supplemental/secondary value by
enabling the ability to control the temperature within the car. On the
other hand, a steering wheel would be considered as a ‘part’ of the
car because without a steering wheel the car would not be able to
perform its primary function, i.e., transportation.
46. Applying the above enunciated judicial understanding of ‘parts’ and
‘accessories’ to the facts of this case, it becomes evident that the
additional components should be considered as ‘parts’ of the Power
Pack. The appellant itself has admitted to the fact that once the
Genset is placed in the steel container, these additional components,
such as the radiator, ventilator fan and air filter unit, are required for
its effective functioning. However, according to the appellant, these
components do not have a direct role in generating the electricity.
Even if that be the case, it cannot be denied that these components
play an equally vital role in facilitating such generation of electricity. It
would be safe to assume that without these additional components,
the Power Pack would not produce electricity within the steel
container and thereby be able to fulfil its primary function. Thus,
these additional components are not mere ‘accessories’ attached
for the sake of convenience.
47. Further, the change in the form of the imported Genset after
undergoing the process is drastic and substantial. Unlike in S.R
Tissues (supra) wherein the tissue roll was itself cut/slit into
different forms, what is happening in the present case is not mere
restructuring of the imported Genset. Rather, the Genset is being
reengineered so that it can function within a container. In order to
facilitate the same a number of additional components are being
added, and they are all recognisable as ‘parts’ of the Power Pack. In
fact, the pictorial representations of the imported Genset and Power
Pack itself indicates that structurally there is a profound distinction
1144 [2025] 9 S.C.R.

Supreme Court Reports

between both the products. In such circumstances, the fact that the
process was undertaken merely for the sake of logistical purposes
would not change the undeniable fact that the imported Genset has
been transformed into a different product.
48. The appellant’s submission that the Genset was complete and
functional at the time of import and the end-use of both the
imported Genset and the Power Pack is the same i.e., generation
of electricity, is also devoid of any merit. There is a serious dispute
between the parties as to whether or not the Genset at the time
of import was complete and functional. Even if we assume it was
complete and functional, that still would not help in driving home
the appellant’s contention. This is because the core end-use of a
subject article might remain the same pre and post application of
the process and yet it might have undergone a transformation into
a different product.
49. The contention of the appellant that the end-use of both products
is merely the ‘generation of electricity’ is an oversimplification that
conflates the core function of a product with its functional utility. The
Genset at the time of the import was in a form that was suitable/
intended for permanent installation. The process undertaken by
the appellant imparts the core functional utility of portability to the
Genset, a utility that was non-existent in the product at the time of
its import. This is not a minor, value-added feature, it is the defining
attribute from which the final product derives its entire identity and
character.
50. We have no doubt in our mind that the test of transformation is
satisfied in the facts of the present case. The imported Genset and
the Power Pack are two different commodities with distinct constituent
elements, structure and functional utility.
51. We now turn to the final test of marketability. No evidence has been
adduced by the appellant to suggest that the Power Packs are not
marketable. On the contrary, it is an admitted position, clear from the
record, that it is these very Power Packs that are the subject of the
lease agreements and are delivered to the ultimate customer. Thus,
no serious question regarding the marketability of the final product
remains, it is an established and undisputed fact.
[2025] 9 S.C.R. 1145

M/s Quippo Energy Ltd. v.
Commissioner of Central Excise Ahmedabad – II

E. CONCLUSION
52. In the facts of the present case, both the transformation test and
the marketability test stand fulfilled. The process of placing the
Genset within the steel container and fitting that container with
additional, integral components brings into existence a new, distinct,
and marketable commodity. This process would thus amount to
“manufacture” under Section 2(f)(i) of the Act, 1944. Consequently,
the appellant is liable to pay excise duty on the goods manufactured.
53. For all the foregoing reasons, the appeals fail and are hereby
dismissed.

Result of the case: Appeals dismissed.

†
Headnotes prepared by: Ankit Gyan