'Upgradation does not amount to manufacture'

Q: We had imported certain equipments which we found defective. We sent them back to the supplier for repairs. At the time of re-import, we sought to pay duty on the cost of repairs plus to and fro freight and insurance, under customs notification no 94/96 dated 16.12.1996. But the Customs are refusing exemption on the grounds that the equipment has been up-graded. Does up-gradation mean that the identity of the goods has changed?
A: The notification 94/96 allows the exemption if the re-imported goods are the same which were exported. Whether upgradation changes the essential identity is a question of fact. The Supreme Court in the case of JG Glass Industries [1998 (97) ELT 5 (SC)] laid down a two-fold test for deciding whether any process is that of ‘manufacture’. “First, whether by the said process a different commercial commodity comes into an existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was 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.”

Applying these tests to the matter on hand, the Tribunal, in the case Usha India Ltd [2000 (122) ELT 870 (T)] came to the conclusion that the process of up-gradation undertaken by the Respondents did not amount to manufacture in as much as a new and different article having a distinctive name, character or use did not emerge. A transformer remains a transformer and it performs the same functions, even when upgraded. Similar views have been expressed by the Board in a circular dated 12-4-1999, wherein the question considered was whether up-gradation of a computer system by increasing the storage/processing capacity of the computer system would amount to manufacture.

The Board has clarified in the negative as the up-gradation does not bring into existence goods with a distinct new name, character or use. In the cases of Enfield India Ltd [1996 (88) ELT 773], Rajasthan Tools Pvt Ltd [1998 (108) ELT 467], Maschinefabrik Polygraph (India) [1999 (110) ELT 883] etc, the Tribunal has taken the view that upgradation does not result in emergence of a new commodity, as there is no change in identity. 

Q: Our excise authorities have been sealing the export containers but now they are demanding merchant overtime. I mean, they want official money to be paid. Can you please tell me the provision under which they can demand this?
A: Customs (Fees for Rendering Services by Customs Officers) Regulations, 1998 mandate collection of fees for performance of Customs work by Customs officers beyond the Customs area at any time and beyond the working hours but within the Customs area. The work includes examination of goods and related functions. The excise officers carry out the function of examination of export cargo as per instructions of the Customs at the ports. The fees are referred to as merchant overtime. Please see CBEC notification no 69/98-Cus. (NT), dated 4-9-1998, for details.