Relief for BMW India: CESTAT Rules Post-Clearance Fuel Adaptor Fitment Not Manufacturing, Quashes Excise Duty Demand [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that post-clearance fitting of fuel adaptors in diesel vehicles by BMW India Pvt. Ltd. does not amount to "manufacture" under the Central Excise Act, 1944 and set aside the demand for differential duty and interest raised by the department.

BMW India Pvt. Ltd., the appellant, is engaged in the manufacture and clearance of cars from its Chennai plant. After clearance, the cars were moved to the Vehicle Distribution Centre (VDC), where fuel adaptors were fitted exclusively to diesel variants, as these were not included in the factory-supplied CKD kits.

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On 24 February 2011, the appellant voluntarily paid Rs. 14,97,536 as central excise duty along with interest. The department issued a show cause notice two years later on 22 April 2013 proposing a demand of duty, interest, and penalty, which was confirmed by the adjudicating authority. On appeal, the Commissioner (Appeals) upheld the demand of duty and interest but waived the penalty.

Challenging the order, the appellant approached the CESTAT. The appellant’s counsel argued that the show cause notice never alleged that the act of fitting fuel adaptors amounted to manufacture. It was only in the Order-in-Original that the authority treated the activity as incidental to manufacturing, so expanding the scope beyond what was stated in the notice.

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They also submitted that fuel adaptors were fitted only to diesel cars, not all vehicles, and therefore could not be considered an essential component of the manufacturing process. Further, the VDC was a separate entity, and the activity performed there was in the nature of a post-manufacturing customisation or service.

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The revenue counsel argued that the fitting of fuel adaptors was part of the manufacturing activity and hence liable to excise duty. The department supported the adjudicating authority’s findings and justified the issuance of the show cause notice.

The two-member bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) observed that the show cause notice did not allege that the activity was incidental to manufacture and that the adjudicating authority had travelled beyond its scope in confirming the demand.

It also observed that the fuel adaptors were not universally used in all car variants, and there was no evidence presented to prove that they were essential to the manufacturing process. The bench pointed out that the appellant had already discharged duty and interest well before the issuance of the show cause notice and that the penalty had not been pursued by the revenue.

The tribunal ruled that fitting fuel adaptors post-clearance did not amount to manufacture and that the demand for differential duty and interest was unsustainable. The impugned order was set aside, and the appeal was allowed with consequential relief as per law.

To Read the full text of the Order CLICK HERE

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