Does Placing a Genset in a Container Amount to ‘Manufacture’? Supreme Court Says Yes

The Supreme Court, on September 19, 2025, said that determining the ‘character’ and ‘identity’ of goods is an inherently fact-specific inquiry, necessitating assessment on a case-by-case basis. Given the vast diversity of products and manufacturing processes, it is impossible to lay down one universal definition for these terms, the court added.

A bench of Justices J B Pardiwala and K V Vishwanathan pointed out, a two pronged test for the purpose of determining whether an activity amounts to “manufacture” has earlier been laid down: (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).

Court dismissed an appeal filed by M/s Quippo Energy Ltd against the final order of October 15, 2015, passed by the Customs, Excise and Service Tax Appellate Tribunal West Zonal Bench at Ahmedabad. The tribunal had then set aside the demand of duty with interest for the extended period of limitation and the imposition of fine, penalty, and confiscation of goods. However, it had held that the activities undertaken by the assessee appellant to set up the “Containerized Gensets” would amount to “manufacture”, which was liable to be classified under the sub-heading No. 8502.2090 of the Schedule to the Central Excise Tariff Act, 1985. Accordingly, the demand of duty along with interest for the period other than the extended period was upheld.

On appeal, the apex court examined 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 Central Excise Act, 1944.

Referring to Servo-Med Industries Pvt Ltd v. Commissioner of Central Excise, Mumbai reported in (2015), court considered whether the imported Gensets undergo 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 whether the Power Packs can be considered to be marketable.

The appellant contended that no transformation occurrs and there happens no change in the character, identity or name as, the function and end use of both the imported Gensets and Power Packs remain the same i.e., generating electricity; and further placing the Genset inside the steel container and fitting it with various accessories is only for logistical purposes and the same merely enhances functionality.

Rejecting the contention, the bench said, the change in the form/structure and the addition of new components to the imported Genset transforms it and bring into existence a different product, i.e. the Power Pack, which has its own distinct character and identity.

"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,'' the bench said.

Court pointed out that the appellant itself had admitted to the fact that once the Genset is placed in the steel container, the additional components, such as the radiator, ventilator fan and air filter unit, are required for its effective functioning.

However, the appellant claimed, 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,'' the court held.

Holding that the change in the form of the imported Genset after undergoing the process is drastic and substantial, the court found what was happening in the present case was not mere restructuring of the imported Genset. Rather, the Genset was being reengineered so that it can function within a container.

"In fact, the pictorial representations of the imported Genset and Power Pack itself indicates that structurally there is a profound distinction 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,'' the bench said.

The court held the imported Genset and the Power Pack are two different commodities with distinct constituent elements, structure and functional utility. It also found that no evidence was adduced to suggest that the Power Packs are not marketable.

Therefore, having examined the matter, the apex court rejected the 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, as devoid of any merit.

The bench found that both the transformation test and the marketability test stood fulfilled in the case.

"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 Central Excise Act, 1944,'' the bench said.

Consequently, court held the appellant as liable to pay excise duty on the goods manufactured.

Case Title: M/s Quippo Energy Ltd Vs Commissioner of Central Excise, Ahmedabad

Judgment Date: September 19, 2025

Bench: Justices J B Pardiwala and K V Vishwanathan