2026-VIL-1385-CESTAT-KOL-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Manufacture of Compressed Natural Gas - Compression for Transportation - Appellant is engaged in extraction of natural gas from coal bed methane wells. The natural gas is compressed and transported to customer premises in cascades where Pressure Reducing Skids are installed to decompress the gas. Decompressed natural gas is then delivered to customers at normal pressure. No excise duty was paid on clearances made in cascades – Demand of duty alleging that the activity amounts to manufacture of Compressed Natural Gas under Section 2(f) of the Central Excise Act, 1944 - Appellant contended that compression was only for ease of transportation and that the gas is sold as natural gas at normal pressure, not as CNG - Whether compression of natural gas for transportation purpose amounts to manufacture of CNG under Section 2(f) of the CEA, 1944 and Chapter Note 5 to Chapter 27 - HELD - Chapter Note 5 to Chapter 27 states that compression of natural gas for purpose of marketing as CNG amounts to manufacture. However, the provision must be read to mean that only compression undertaken for purpose of marketing gas as CNG amounts to manufacture - In the present case, the gas is decompressed at customer premises and sold as natural gas at normal pressure, not as CNG. The compression undertaken is only for purpose of transportation through pipelines. The contracts with industrial consumers clearly show that purchase of gas is to be at normal pressure and sales take place at buyer's premises. Marketing of goods is done not as CNG but as natural gas at normal pressure - The process of compression and carriage to premises of industrial consumers is only for ease of transportation and does not amount to manufacture. The Tribunal earlier decision in appellant's own case decided same issue in favor of appellant - The confirmed demand for excise duty, interest and penalty is set aside. The penalties imposed on the Chairman and Chief Executive Director are also set aside as the main demand has been set aside on merits – The appeals are allowed
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