dear experts,
what is the difference between manufacturing vs assembling
The term manufacture refers to a process involving the conversion of an input into a completely different output.
As per section 2(f) of Central Excise Act, 1944 (CEA), manufacture includes any process
i) Incidental or ancillary to the completion of a manufactured product AND
ii) Which is specified in relation to any goods in the section or chapter notes of the 1st Schedule to the Central Excise Tariff Act, 1985 (CETA), as amounting to manufacture (deemed manufacture) OR
iii) Which in relation to goods specified in 3rd Schedule of CETA involves packing or repacking of such goods in a unit container or labeling or re-labeling of containers including 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 (deemed manufacture).
For instance, taking a piece of wood and converting it into smaller pieces of wood does not amount to manufacture as the wood has not undergone any change. But when pieces of wood are converted into a table, it amounts to manufacture as the wood has now become another product viz. table.
In order to avoid transportation cost and transit damage, the goods are dispatched by manufacturers in Completely Knocked Down (CKD) and Semi Knocked Down (SKD) condition. In such cases, assembly of such CKD or SKD packs at site would not amount to manufacture – TI Cycles of India Vs UOI (1983) (12) ELT 681 (Mad HC).
For example, X Ltd purchased CPU, Monitor, Keyboard, Mouse & Printer by paying excise duty. These components are assembled in the premises of buyer and such assembly does not amount to manufacture – Universal Micro Systems Vs CCE 1999 (107) ELT 505 (CEGAT).
Pickling and oiling is not manufacture
CBEC has clarified that the process of pickling & oiling does not amount to manufacture – Circular No.927/17/2010-CE dated June 24, 2010.
Pickling is the process of removing surface oxides (scale) from metals by chemical or electro chemical reaction. Further, such process is only a chemical cleaning process to remove scales and dirt from the metal by immersion in chemical solution and does not result in emergence of any new commercially different commodity.
Tarpaulin made-ups does not amount to manufacture
Making tarpaulin made-ups from tarpaulin cloth by cutting and stitching the cloth into various sizes and fitting the eye-lets would not amount to manufacture as there is no change in the basic characteristic of the raw material and end product – CCE Vs Tarpaulin International 2010 (256) ELT 481 (SC)
The Hon’ble Supreme Court in the case of Poonam Spark Limited held that the process of assembling various parts bringing into existence Water Purification & Filtration System amounts to manufacture as the assembled component is different commercially known product with distinctive use.
Decision of the Hon’ble Supreme Court:
- The appellants undertake the job of assembling items received from M/s. Perfect Drug Ltd. on a base plate and resulting into a new and commercially different product known as Water Purification & Filtration System (WIFS).
- The plea of the assessee that the components in isolation can also serve the desired purpose but not that conveniently is not acceptable because the more convenience provided by WIFS (assembled product) is in itself a different use.
- Thus, the process of assembling bringing new product into existence with some different use is manufacture and liable to duty.
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