CESTAT Rules Hydrogen Gas Compression not 'Manufacture', Sets Aside Excise Duty Demand [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chandigarh has ruled that compressing hydrogen gas into cylinders does not amount to 'manufacture' under central excise laws, quashing a Rs. 50.59 lakh duty demand on Royal Tarush Gases. The bench held that the activity merely involved repackaging an already marketable product for industrial consumers, which falls outside the definition of manufacturing under Chapter 28 of the Central Excise Tariff Act.

Royal Tarush Gases had appealed against a 2012 order by the Commissioner of Central Excise, Chandigarh-II, which confirmed excise duty demands for April 2006 to March 2011. The department had alleged that compressing hydrogen gas received via pipeline from Punjab Alkailes and Chemicals Pvt. Ltd. into cylinders constituted manufacture, making the gas marketable to consumers.

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The tribunal rejected this argument, relying on Supreme Court and CESTAT precedents including Surya Air Products and Goyal M G Gases Pvt. Ltd. It noted that Chapter Note 9 of Chapter 28 (covering hydrogen gas) lacks the specific provision found in Chapter 27 (for natural gas) that explicitly treats compression as manufacture. The bench observed that industrial buyers like vanaspati manufacturers don't qualify as 'consumers' under tariff rules, and the gas remained marketable in its original form.

The tribunal emphasized that activities like oil filtration and moisture removal were merely preparatory steps for industrial supply, not manufacturing processes.

The order distinguished the case from natural gas compression, which is expressly deemed manufacture under Chapter 27's Note 5. It noted the department's contradictory stance - initially alleging manufacture but later arguing repacking - and found neither claim sustainable. The bench concurred with Shivam Industries, where filtration of transformer oil for industrial use was held non-taxable as it didn't target retail consumers.

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Allowing the appeal, CESTAT Bench comprised of S S Garg (Judicial Member) and P Anjani Kumar(Technical Member) set aside the Rs. 50.59 lakh duty demand along with interest and penalties. It held the appellants' activity didn't alter hydrogen gas's essential character or create a distinct commercial product for general consumers.

To Read the full text of the Order CLICK HERE

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