Commissioner Of Central Excise ... vs M/S Xerox India Ltd. And Ors

2026 INSC 805

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5939-5941 OF 2010

COMMISSIONER OF CENTRAL EXCISE, HYDERABAD-IV … APPELLANT (S)

VERSUS

M/S XEROX INDIA LTD. & ORS. … RESPONDENT(S)

WITH

CIVIL APPEAL NOS. 11870-11872 OF 2018

JUDGMENT

S.V.N. BHATTI, J.

1. Revenue is the Appellant. Civil Appeal Nos. 5939-5941 of 2010 arise

from the Order dated 09.11.2009 in Central Excise Appeal Nos. E/591, 592

& 596 of 2009 in the CESTAT, South Zonal Bench at Bangalore, and in turn

the said appeals were filed questioning the Order-in-Original No. 04/2008-C

Ex. dated 28.03.2008 of the Commissioner of Central Excise, Hyderabad-IV

(“O-I-O”).

2. Signature Not Verified Civil Appeal Nos. 11870-11872 of 2018 are also at the instance of Digitally signed by LOKESH ARORA

Revenue and are directed against the Order dated 31.07.2017 in Appeal Nos. Date: 2026.08.05 16:49:18 IST Reason:

E/975, 976, and 977 of 2009, which, in turn, is directed against the Order

1 in Original No. 57/COMMR./Meerut-II/2008 dated 28.11.2008, passed by

the Commissioner of Central Excise, Meerut-II.

3. M/s Xerox India Ltd. is the first Respondent in both sets of Appeals.

Respondent Nos. 2 and 3 held executive positions with the first Respondent.

The circumstances and the point for determination in both sets of Appeals

are similar, and hence are considered and disposed of by this common

Judgment. The circumstances in Civil Appeal Nos. 5939-5941 of 2010 are

referred to for the purpose of factual narration and are sufficient for disposing

of Civil Appeal Nos. 11870-11872 of 2018. The parties are referred to as

Revenue and Assessee.

4. The point for determination in both sets of Appeals is whether the

activity undertaken by the Assessee at its warehouse, the grouping and, to

whatever extent, the fitting together of imported modules into Xerox

Photocopier machines to meet a customer’s need, amounts to “manufacture”

within the meaning of Section 2(f) of the Central Excise Act, 1944 (“C E Act”),

read with Note 6 to Section XVI of the First Schedule to the Central Excise

Tariff Act, 1985 (“C E Tariff Act”).

CIVIL APPEAL NOS. 5939-5941 OF 2010

5. The Assessee is engaged in the business of photocopiers, toners and

photoreceptors. It also trades digital multi-functional printers, copiers and

photocopiers-cum-printers, which fall under Tariff sub-head 8471.00. The

Assessee has a warehouse at Hyderabad, State of Telangana, within the

2 territorial jurisdiction of the Appellant, and another hub/warehouse in

Rampur, State of Uttar Pradesh.

6. The Assessee, by paying Customs and Countervailing Duty (“CVD”),

imports parts, modules, and accessories of the said machines in complete

knocked down (“CKD”) or semi-knocked down (“SKD”) condition from the

warehouses of the Assessee’s sister concern. In the Appeals, the dispute

between the Revenue and the Assessee relates to the period between April,

2002 and November, 2006. On 04.05.2007, the Appellant/Revenue issued a

Show Cause Notice (“SCN”) to the Assessee. The SCN was issued on the

ground that the Assessee’s activity at the subject warehouse amounts to

manufacturing within the meaning of Section 2(f) of the C E Act. The SCN is

premised on the following circumstances:

6.1 Xerox India Limited manufactures digital multi-function printers (tariff

heading 8471.00), photocopiers (9009.00), toners (3707.00) and

photoreceptors. The SCN rests on documents seized during the search of the

Assessee’s warehouse and on statements of its employees recorded under

Section 14 of the C E Act.

6.2 The First Respondent imports parts and modules in CKD or SKD

condition from Xerox Group warehouses located abroad and buys some

components in India, assembling and configuring them to each customer’s

specification. This line of functioning, according to the Revenue, amounts to

manufacture within Section 2(f) of the C E Act. The purchase orders show

every machine built up from different modules in different configurations.

The statement of the General Manager (Planning and Technical Support) is

3 referred to and relied upon. Further, the Deputy General Manager (Import)

and the Head (Technical Support) admitted that the modules are not

functional, and most cannot work independently until assembled. The

customers’ needs establish that what is imported is not a complete machine,

but distinguishable parts and modules, different from accessories. The work

of assembling the imported parts appears substantial from the change of

tariff heading, i.e., parts under 8471.00 yield a copier-cum-printer under

9009.00. Exceptionally, a complete machine was imported, and accessories

were added.

6.3 The First Respondent, though, calls the assembly ‘kitting’; none was

done on the subject consignments. It was more than arranging parts; the

First Respondent’s own internal communications treat it as irreversible, and

it added weight to the imported modules. The Duplex Automatic Document

Feeder (“DADF”) and the High Capacity Feeder (“HCF”) could be fitted only at

the First Respondent’s factory, not by an engineer at the customer’s site. The

work could be done only at Rampur or Hyderabad. Installation at the

customer’s premises was confined to cases where transporting a machine

wholly or partly assembled risked damage, and a single consolidated price

was charged with no separate element for installation. These processes, at

the factory and in some cases at the site, are incidental or ancillary to the

completion of a manufactured product and fall within Section 2(f) of the C E

Act read with Note 6 to Section XVI of the C E Tariff Act.

6.4 Thus, Revenue demanded why Excise duty and ED Cess of Rs.

17,86,47,382/- should not be imposed on clearances effected from the

4 warehouse at Hyderabad during the period April, 2002 to November, 2006.

SCN further demanded sums under the proviso to Section 11A, Sections

11AB and 11AC of the C E Act, and why penalty should not be imposed on

Respondent Nos. 2 and 3 under Rule 26 of the Central Excise Rules, 2002

(“C E Rules 2002”).

7. The Assessee replied to the SCN, and contested the core activity of the

Assessee undertaken at the warehouse in Hyderabad as manufacturing, and

falling within the definition of Section 2(f) of the C E Act and Note 6 of Section

XVI of the C E Tariff Act. The Assessee’s consistent reply was to the following

effect:

7.1 What is imported and what is ultimately installed at the customer’s

premises are one and the same. The goods are shipped in modular form only

for ease and safety of transportation, so that no new machine comes into

existence.

7.2 The goods are imported, classified and assessed to customs duty and

CVD as complete machines falling under the Tariff Heading 8471, and are

cleared from the warehouse as such.

7.3 Note 6 to Section XVI of the C E Tariff Act is not attracted, since it

operates only upon an article which is incomplete or unfinished, which the

imported goods are not.

7.4 What has been undertaken as an activity at Rampur or Hyderabad

does not amount to manufacture, but amounts to mere ‘kitting’ of imported

modules for packing advantage and to conform to the specifications of the

customer.

5 7.5 In any event, the Commissioner having jurisdiction over the factory at

Rampur or Hyderabad could not issue SCN in respect of activity carried out

at customers’ premises located across the country.

8. On 28.03.2008, the Appellant confirmed the demands raised in the

SCN dated 04.05.2007. The discussion and findings of the Commissioner

run into 112 pages, and for our purpose, it would be sufficient to refer to the

kernel of the detailed Order, as follows:

8.1 The Commissioner, while confirming the demand, noted that Section

2(f) of the C E Act includes any process specified in relation to any goods in

the Section or Chapter Notes of the First Schedule as amounting to

manufacture. Note 6 to Section XVI of the C E Tariff Act provides that the

conversion of an article which is incomplete, but has the essential character

of the complete article, into the complete article shall amount to

manufacture. The material set out in the SCN, resting on the depositions of

the Assessee’s officers and on the documents of import and distribution,

shows that what was imported was not a complete machine or photocopier,

but components and modules for specified models. Hence, manufacture was

complete only upon the assembly of those components and parts at the

Assessee’s warehouse. The Assessee had failed to show that it had imported

a complete machine presented in unassembled form merely for convenience

of handling or transportation. A complete machine thus came into existence

by the assembly of various components in the warehouse, and duty was

accordingly payable on the sale price of the assembled goods as photocopiers

in view of Section 2(f) of the C E Act.

6 8.2 The objection to territorial jurisdiction was rejected. Further,

Respondent Nos. 2 and 3 were held liable for penalty under Rule 26 of the

C E Rules 2002 as persons directly associated for the import and the

subsequent distribution of the goods after assembly, without payment of

duty. The Commissioner further held that CENVAT credit of the CVD paid on

the imported components would be available to the Assessee, subject to proof

of payment.

9. The Assessee, aggrieved by the confirmation of the demand in the SCN,

filed Appeal Nos. E/591, 592 and 596 of 2009 before the CESTAT, South

Zonal Bench, Bangalore. Through the Impugned Order, the Tribunal has

interfered with the Appellant’s Order dated 28.03.2008. It is relevant to

excerpt the Tribunal's findings, inasmuch as a few grounds, both in fact and

in law, are canvassed before us by the Revenue:

“5. … We observe that XIL imported Xerox brand photocopiers of different models in CKD form including printers. These consignments on import were received in the warehouse of the appellants at Hyderabad and Rampur. The major component called ‘work centre’ and other parts (modules) were received in separate packing. … The appellants undertook the process of kitting in the warehouse as follows. The imported components are grouped in sets of complete machines, with or without printers, depending on the orders received. Each machine is assigned an unique identification number. The complete machines so configured and grouped are sold, or dispatched to various depots for sale to customers. Even though the Ld Special Counsel for the Revenue submitted that certain components like HCF and DADF were fitted on work center, he admitted that there was no evidence in support of this claim. … We find from the records that HCF and DADF were factory fitted; no fitting or assembly of any part took place in the warehouse of the appellants. The transactions involved were receipt of photocopiers in CKD condition; imported, classified, assessed and charged to customs duty and CVD as complete machines of CH 8471. These were cleared from the warehouse in sets of components of complete photocopier machines without undertaking any process whatsoever involving them. … We

7 find that elaborate arguments advanced to establish that a process of manufacture had been undertaken by the appellants before photocopier machines were cleared from the warehouse are entirely without any basis in facts. The Commissioner found that the appellants undertook assembly without making any verification whatsoever. We do not find any deposition by the executives stating that the modules were assembled in the warehouse. …

6. We find that the appellants did not carry out any activity as envisaged in this note. The components received in sets were cleared as such; no conversion of an incomplete machine into complete machine took place in the warehouse of the appellants. Assembly of components into photocopiers took place at the premises of the respective buyers. In view of this factual position the arguments advanced by the Revenue are totally irrelevant.

7. The Ld. Spl Counsel argued that the components imported were assembled in the warehouse by kitting and this operation using the computer system was assembly, though not in a physical sense. … However, we find that in a case involving parts of copier machines process of manufacture can only be a physical process. A computer cannot produce any tangible goods such as photocopiers.” “8. … In the case on hand the parts found to have been fitted to the main module were not dealt with except for removing them in sets in their original packing. By grouping the parts of a complete copier with printer or without printer, assigning the parts in each set a unique number using a computer, we hold, does not amount to manufacture. There is no conversion of an incomplete machine into a complete machine in the warehouse to attract the Section Note 6 of Section XVI. The Ld Special Counsel could not show to us assembling of any two parts taking place before the impugned clearances from the warehouse as found by the Commissioner. If the plug pin is changed to suit the electrical fittings in vogue in the country, it is idle to argue that it is a material process of manufacture. Nothing new emerges from this process and every process is not manufacture as held by the Apex Court in its judgment in the Union of India Vs Delhi Cloth Mills case [1977(1)E.L.T.199 (SC)] case. Already complete photocopiers are in existence in CKD condition. There is no manufacture and demand of duty on such a finding is liable to be vacated.”

10. Mr. Raghavendra P. Shankar, Learned Additional Solicitor General of

India, argues that the Assessee’s process of combining imported

parts/modules in CKD or SKD form with domestically procured components

to create bespoke printers/copiers constitutes “manufacture” and is an

irreversible assembly carried out by trained engineers at the First

8 Respondent’s factory, thereby transforming individually ineffectual

components into a functional, marketable machine. This activity falls

squarely within the scope of Section 2(f) of the C E Act as a process incidental

or ancillary to manufacture, or alternatively under Note 6 of Section XVI of

the C E Tariff Act.

10.1 The Assessee misconstrues the legal fiction in Rule 2(a) of the General

Rules of Interpretation of the C E Tariff Act. The fiction exists strictly to

prevent duty evasion by disassembling dutiable machines. It does not imply

that parts lacking independent functional utility are legally equivalent to the

completed machine for all intents and purposes. Furthermore, due to the

high degree of customisation of these machines, the final assembled product

often falls under an entirely different Tariff heading, i.e., 9009.00.

10.2 Further, the Respondent's refurbishment process constitutes

“manufacture”. The “cannibalisation”, i.e., retrieving usable parts from

defunct machines and assembling them with other new or refurbished parts

to build a complete machine, was then labelled and sold as a refurbished

unit. Because these individual retrieved parts had no standalone utility,

assembling them into a functional whole meets the threshold for

manufacture.

10.3 Respondent deliberately mischaracterised their manufacturing

assembly as “kitting” or “trading” and made misstatements about merely

moving parts between packages. This constitutes a wilful contravention of

Section 3 of the C E Act and Rules 4, 6, 8, 10, 11 and 12 of the C E Rules,

9 2002. Accordingly, the Appellant can invoke the extended period of limitation

under Section 11A of the C E Act.

10.4 He places strong reliance on Section 2(f)(i) read with the Note 6 of

Section XVI of the First Schedule to the C E Tariff Act, and the decisions in

M/s Narne Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central

Excise, Hyderabad,1 BPL India Ltd. v. Commissioner of Central Excise,

Cochin,2 and Quippo Energy Ltd. v. Commissioner of Central Excise,

Ahmedabad-II.3

11. Mr. V Lakshmikumaran, appearing for the Assessee, contends that the

O-I-O contains no findings to justify applying Section 2(f)(i) of the C E Act,

which covers processes incidental or ancillary to manufacturing. Further,

“manufacture” strictly requires the transformation of goods into a new,

distinct substance. A process that produces no or only a minor change does

not fall within the definition of “manufacture” under Section 2(f) of the C E

Act. The SCN and the O-I-O have misinterpreted a free and undisputed

activity of the Assessee, namely, putting the imported modules/parts

together for packaging advantage as per the customer specifications, as a

manufacturing activity. In commercial parlance, this is kitting. None of the

ingredients under Section 2(f) of the C E Act is attracted.

11.1 Note 6 to Section XVI of the C E Tariff Act applies only when an

incomplete or unfinished article undergoes a transformation to become a

1 (1989) 1 SCC 172.

2 (2002) 5 SCC 167.

3 (2025) 152 GST R 264 (SC).

10 finished article, not when imported modules are kitted together. Simple

activities such as assembly, installation, or fitting do not constitute

transformation. Since the CKD photocopiers were already classified and

assessed as complete machines upon import, no conversion from an

incomplete to a complete machine occurred at the warehouse.

11.2 The machines were installed at the customers’ premises and fell

outside the Commissioner’s jurisdiction, rendering the respective demands

unsustainable. Activities at the warehouse were limited to inspection,

testing, refurbishment, and replacement of defective parts. No physical

assembly took place at the warehouse. Furthermore, specific components

such as the HCF and DADF were factory-fitted abroad. This simply restored

the machines to their original condition without creating a new product. The

photocopiers are not uniform for sale at all places and to all customers. The

specifications and utilities vary from customer to customer and place to

place. Hence, the imported modules are kitted together as per

customer/distributor specifications. To meet customer requirements, they

are pinned, plugged, packed, and dispatched. The said activity is neither

manufacturing nor does it involve any transformation of an unfinished article

into a distinct finished product. Therefore, Section 2(f) of the C E Act is not

attracted.

11.3 He relies upon Union of India and another v. Delhi Cloth and General

Mills Co. Ltd.,4 Satnam Overseas Limited v. Commissioner of Central Excise,

4 (1962) SCC OnLine SC 148.

11 New Delhi,5 Servo-Med Industries Private Limited v. Commissioner of Central

Excise, Mumbai,6 Alupro Building Systems,7 and Dalmia Industries Ltd. v.

Commissioner of Central Excise, Jaipur.8

11.4 He supports the Tribunal’s view that, in the circumstances of the case

and having regard to the nature of the activity undertaken by the Assessee,

Section 2(f) of the C E Act and the General Rules of Interpretation of the First

Schedule are not attracted. It is further contended that Note 6, Section XVI

of the C E Tariff Act is attracted in cases where an article that is incomplete

or unfinished undergoes a process or conversion resulting in a complete or

finished article, and such activity can be construed as manufacturing. The

fixing of different components through minimal electric circuiting and

wrapping them up for dispatch to the end user is a convenient packaging of

assorted articles or equipment into a bundle, and despatched under one

invoice. The movement of articles from import till employment for use by the

Assessee, as per the admitted case of the Revenue, falls under Heading 8471

of the Customs Tariff Manual, and the goods were subjected to import duty

at 16% of the value. They are imported as automatic data processing

machines and have paid duty as printer or line printer or even under

ancillary heading as 8471 60 29 as “others”. The imported goods have been

subjected to CVD and have come in either CKD or SKD.

5 (2015) 13 SCC 166.

6 (2015) 14 SCC 47.

7 (2026) SCC OnLine SC 986.

8 1999 112 E.L.T 305 (Tribunal) confirmed by this Court in 2005 (184) E.L.T A37 (S.C).

12 11.5 The findings of fact recorded by the Tribunal are normally binding on

this Court, as the Tribunal, being the final fact-finding authority, has found

that the Revenue has failed to discharge its burden and, without inspecting

the facility, treated the activity undertaken by the Assessee as manufacturing

activity. The Assessee has not levied Central Excise Duty on the disputed

turnover from the end-customers. He prays for dismissal of the Appeals.

12. We have taken note of the contentions on both sides and have perused

the record. The Learned Counsel appearing for the parties, having regard to

the limited controversy in the Appeals and the material on record, suggested

to this Court that the activity undertaken by the Assessee be finally

adjudicated as falling within the definition of Section 2(f) of the C E Act,

instead of remitting the matter to the Tribunal for a decision afresh. It has

been a ground of the Appellant that the finding of fact recorded by the

Tribunal is too brief and terse. Per contra, the Assessee contends that the

SCN and the O-I-O are odysseys, and that there is no reason to judge the

Order of the Tribunal as terse in a comparable situation.

ANALYSIS & CONCLUSION

13. Section 2(f) of the C E Act has been the subject matter of decisions of

Tribunals and this Court. The relevant decisions of this Court are

chronologically tabulated hereunder:

13

Process Involved in the Legal Interpretation Findings of this Court Industry

Delhi Cloth and General Mills Co. Ltd. (supra)

Manufacturers of Vanaspati, The Transformation and Marketability Excise duty is leviable on the a vegetable product Test: manufacture of "goods,"

purchased raw groundnut meaning the process must Manufacture v. Processing: The Court and til oil from the open bring into existence a new applied the principle that market. To prepare the oil substance that is recognized “manufacture” implies a for hydrogenation, they and known to the market.

transformation where a new and subjected the raw oil to different article must emerge having a processes of neutralization distinctive name, character, or use. The definition of by alkali and bleaching with Mere "processing" that causes minor "manufacture" under activated earth/carbon to changes in a substance does not Section 2(f) of the C E Act, remove major impurities.

amount to “manufacture”. which includes incidental or The revenue authorities ancillary processes, is sought to levy excise duty at intended to ensure the Act this intermediate stage, Definition of “Goods”: This Court applies if power is used at claiming the manufacturers looked at the commercial definition of any stage of production. It brought a new, taxable "goods" as items that are ordinarily does not turn mere commodity called "refined brought to the market and sold by processing into an excisable oil" into existence before merchants.

activity unless a distinct completing the final commercial commodity Vanaspati product. emerges. However, the manufacturers did not apply the process of Because the raw oil deodorization at this subjected to neutralization intermediate stage, which and bleaching without standard specifications and deodorization was not market practice required for recognized as "refined oil" by the oil to be known as consumers or the "refined oil" in the commercial trade, no new commercial community. commodity known to the market was brought into existence at that intermediate stage. Consequently, the intermediate oil was not liable to excise duty.

Tulaman (supra)

A weighbridge comprises Section 2(f) of the C E Act carries an This Court rejected the three parts: the platform, inclusive definition. The word Appellant’s argument that the load cells and the “manufacture” includes any process since it manufactured only indicating system. The incidental or ancillary to the one part, the indicator appellant got the platform completion of a manufactured system, which was itself made by others, imported product. This Court read to mean that dutiable as a part, it could the load cells, and itself any process by which an object not be treated as the made only the indicating becomes new commercial goods, manufacturer of the whole system. It then brought the including any incidental or ancillary machine. three components together process, is manufacture. Put shortly, Applying the “distinctive

at site, fitted and assembled “manufacture means bringing into name, character or use” test them so that they would existence new goods.” to the assembling activity, it work as one machine.

This Court applied the classic test has been held that what stated in Union of India v. Delhi Cloth emerged from the assembly & General Mills (supra) that was a complete weighbridge,

14 manufacture implies a change, but a new product known to the every change is not manufacture; market and separately every change in an article is the result known to the excise tariff of treatment, labour and under the item manipulation, and “something more is “weighbridges”. Its identity necessary, there must be was not that of any of the transformation; a new and different three components. The article must emerge having a appellant therefore became distinctive name, character or use.” the manufacturer of the weighbridge and was liable Two propositions of wider importance to duty on it.

follow.

The idea that because a part First, mere assembly of separately of the machine is dutiable, procured components can constitute the end product cannot also manufacture, provided the assembled be dutiable as separate whole answers to a distinctive name, excisable goods, was held to character or use. Manufacture does be wrong.

not require that the assessee itself fabricate every component; the endeavour and activity that brings the end product into being is enough.

Second, dutiability of parts and dutiability of the end product are independent questions. “When parts and the end product are separately dutiable, both are taxable.” Duty already paid on a part goes only to abatement under the rules, not to the anterior question whether the end product was manufactured.

BPL India (supra)

The appellant imported kits Determining when manufacture The expert assembly created of components for Video occurs under Section 2(f) of the Act is a distinct commercial Tape Recorders (VTRs) and a mixed question of law and fact. A product, thereby qualifying colour monitors in a process constitutes "manufacture" as a valid manufacturing disassembled or semi- when a new and distinct article process. The assembly knocked-down (SKD) emerges with a distinctive name, resulted in a new product condition. character, or use. with a distinct character and use, shifting its The imported components classification from Tariff were put together at the Under the Central Excise framework, Item 68 (imported parts) to factory using imported if both the component parts and the Item 37-BB (finished fasteners. As per the final assembled product are products). Revenue, the assembly was recognised as distinct taxable goods in not done by laymen. It Hence, the act of assembling required technical experts or the tariff, paying duty on the parts the imported SKD kits into skilled persons to transform does not automatically exempt the fully functional VTRs and the parts into a functional final product from excise duty. colour monitors using state. fasteners constituted “manufacture” under Section 2(f) of the C E Act.

Paying countervailing duty on the imported components did not exempt the final assembled product from excise duty, as both are separately taxable entities.

15 Satnam Overseas (supra)

The Assessee packed a This Court records that there is no This court dealt with a combination of raw rice, dispute about the legal proposition. A finding that Additional dehydrated vegetables and process is treated as “manufacture” Commissioner, the spices under the name “Rice only if a new product known to the Commissioner (Appeals) and and Spice”. The components market comes into existence with the CEGAT all held the process were mixed in original product losing its original to be manufacture, CEGAT predetermined proportion, character. The determinative enquiry finding that “rice did not blended in a mixer for is therefore into the essential remain rice at all” and that a uniformity, heated if character or primary identity of the new commodity with its own required to sterilise, and product, not into the degree of character, use and name packed in pouches with processing it undergoes. had emerged. nitrogen flushing for longer The judgment summarises the leading This Court reversed the shelf life.

of authorities on this point. Para 17 above findings. Applying the The Department proposed states the governing rule i.e., “mere essential character test, it classification under Heading addition in the value, after the original held that the mere addition 2108 as a miscellaneous product has undergone certain of dehydrated vegetables edible preparation which process, would not bring it within the and certain spices to raw was specified elsewhere. The definition of ‘manufacture’ unless its rice does not make it a Assessee contended there original identity also undergoes different product. Its was no “manufacture” under transformation and it becomes a primary and essential Section 2(f) of the C E Act, distinctive and a new product.” character remains the same, and in any event the product as it continues to be known Three decisions are followed. In Crane fell under Heading 11.01 in the market as rice and is Betel Nut Powder Works v. Commr. of i.e., products of the milling sold as rice only.

Customs & Central Excise,9, crushing industry, at nil rate.

and sweetening betel nuts was held This Court gave weight to not to be manufacture because “the the fact that the rice betel nut remains a betel nut” the end remained in raw form and product retained its original character still had to be cooked to though in a modified form. become edible and the cooking instructions printed In CCE v. Laljee Godhoo & Co., (2015) on the pouch demonstrated 13 SCC 430, compounding raw that it was to be cooked in asafoetida with gum arabic and wheat the same way as any other flour was held not to be manufacture, rice. The finding of the essential character being transformation into a new unchanged and there being no and distinct commercial chemical reaction between the commodity was accordingly additives and the asafoetida.

disapproved.

In CST v. Pio Food Packers, 1980 Supp Two consequences followed.

SCC 174, this Court held that with First, in the absence of each process suffered the original manufacture there was no commodity experiences a change, but question of paying any manufacture occurs only when the excise duty, and the appeal change, or a series of changes, takes succeeded on that ground the commodity to the point where alone.

commercially it can no longer be regarded as the original commodity Second, and as a natural and is instead recognised as a new corollary, since the essential and distinct article. characteristic of the product remained rice, it continued The American authorities relied on to be a product of the milling reinforce the same limit: Anheuser-

industry classifiable under Busch Brewing Assn. v. United States Sub-Heading 11.01, on

9 (2007) 4 SCC 155.

16 (“There must be transformation; a new which the rate of duty is nil. and different article must emerge, So the Revenue's having a distinctive name, character, classification under Sub- or use”) and East Texas Motor Freight Heading 21.08, which rested Lines v. Frozen Food Express it was entirely on the premise that held that where dressed and frozen manufacture had occurred, chicken was held not commercially could not stand. The order of distinct from the original chicken. CEGAT and the demand of (“where the commodity retains a excise duty were set aside. continuing substantial identity through the processing stage we cannot say that it has been manufactured.”) On the price point, this Court reiterates that a higher market price occasioned by labour that makes the product more readily consumable, or by packaging, does not convert the product into a commercially different commodity.

Servo-med (supra)

The Appellant purchased Twofold Test of Manufacture: A process does not amount syringes and needles in bulk to "manufacture" unless Essential Character Test (First Limb): from the open market. there is a physical Whether a process brings about a transformation resulting in They sterilized the items and transformation such that a different a new and distinct article packed one syringe and one commercial commodity comes into with a different name, needle in an unassembled existence, meaning the identity of the character, or use. form into a printed plastic original commodity ceases to exist. pouch to be sold under a Commercial User Test (Second Limb): specific brand name to an The removal of foreign Whether the commodity already in industrial customer. matter (such as bacteria) or existence would serve absolutely no The Revenue issued a show- purpose or be of no commercial use the cleaning of a product cause notice contending but for the said process. complete in itself does not that the sterilization process amount to manufacture, as transformed the goods into the essential character, "disposable" syringes, basic identity, and end-use thereby bringing a new remain unchanged post- commercial commodity into sterilization. existence that must pay excise duty. Merely because an unsterilized medical item cannot be used safely without sterilization does not satisfy the commercial user test to establish manufacture if the fundamental identity of the goods remains exactly the same.

Goods are categorized into four groups regarding manufacture: (1) exactly the same post- process (no manufacture);

17 (2) essentially the same (no manufacture); (3) transformed but not marketable (no manufacture); and (4) transformed into a new, marketable commodity (amounts to manufacture).

Quippo (supra)

The appellant imported Gas That "manufacture" includes any Agreed with the Revenue Generating Sets (Gensets) process incidental or ancillary to the that the additional comprising an engine (prime completion of a manufactured components (radiators, mover) and an alternator on product. However, distinguishing fans, etc.) were essential a common base frame, between mere 'processing' and actual "parts", not "accessories", which were initially 'manufacturing' is critical. because the Power Pack assessed under Customs could not fulfill its primary Relying on Servo-Med Industries Pvt. Tariff. The Gensets were function inside the meant to be leased to Ltd., this Court reiterated the two-fold container without them. customers. To avoid test to determine if an activity Placing the Genset into a relocation hassles upon amounts to "manufacture": container and fitting it with lease non-renewal and to locally procured parts provide ease of Twofold Test of Manufacture: transformed it into a transportation, the functional "Power Pack". It appellant containerized Essential Character Test (First Limb): was an undisputed fact that them.

Whether a process brings about a the finalized Power Packs transformation such that a different Using jacks and rollers, the were the actual products commercial commodity comes into imported Genset is being leased and delivered to existence, meaning the identity of the positioned on anti-vibrating ultimate customers, original commodity ceases to exist. mounting pads inside a steel completely satisfying the transport container. Commercial User Test (Second Limb): marketability requirement. Whether the commodity already in The case of the Revenue is The Power Pack is a different existence would serve absolutely no that appellant indigenously product that has a distinct purpose or be of no commercial use procure and installs character, name, and use, but for the said process. additional components and is marketable as such, necessary for the Genset to thereby satisfying the function inside the closed definition of "manufacture" container. These under Section 2(f) of the C E components include a Act and Note 6 of Section remote radiator and lube oil XVI of the C E Tariff Act. tank (mounted on the roof), The appellant is liable to pay ventilation fans, air filter excise duty on the units, pumps, 3-way valves, manufactured goods, and and a silencer.

The process the appeals were dismissed. involves complex piping (HT, LT, water, lube oil), installing cable trays, proper earthing, placing control panels, and conducting hydraulic and electrical testing. Hence, the final resulting unit is marketed and leased as a containerized "Power Pack".

Alupro (supra)

18 The appellant was a The levy of excise duty requires an The Revenue argues that the construction contractor who activity to satisfy a two-fold test: (1) process of cutting, grooving, imported pre-coated distinct commercial goods with a new and assembling the ACPs for Aluminum Composite use in structures amounts identity, character, or use must Panels (ACPs) consisting of a to “manufacture” under polyethylene core emerge (transformation), and (2) the Section 2(f) of the C E Act. sandwiched between two transformed goods must be aluminum sheets. The marketable. process involves cutting the This Court, however, found imported ACPs into that the process of cutting, rectangular or square grooving, and bending does panels of required sizes not alter the fundamental according to the specific nature or identity of the building's design ACPs. What enters the requirements. process is an ACP, and what emerges is still an ACP. It Grooves are then made on merely adapts the the back side of the panels (a dimensions and shape for a process known as specific use as a cladding or routing/grooving) to enable facade material, which them to be affixed to amounts to preparation and structures. Finally, the cut installation, not the creation and grooved panels are of distinct goods. Therefore, taken to the construction the process does not amount site where they are fixed to “manufacture” under onto an erected frame using Section 2(f). angles, clamps, and fasteners, and the gaps are sealed using a weather- sealed junction sealant.

As per the Revenue, Because the process causes an integral change, a new product emerges which is commercially identifiable and different from the originally purchased ACPs, thereby attracting excise duty liability. By cutting and routing the panels, an irreversible change is brought out. The generic end use of the aluminum panel is changed to make it compliant for a specific consumer.

14. From these decisions, the inner and outer limits of what amounts to

“manufacture” under Section 2(f) of the C E Act emerge. At the inner limit, a

process that leaves the commodity commercially the same article is not

manufacture however much labour, skill, or expense may have been

19 bestowed upon it, and an addition to value will not, by itself, convert such a

process into manufacture. At the outer limit, a process need not be elaborate,

nor need any chemical alteration in the constituent material, to be

manufacture, if what emerges is an article which the market recognises as

different in name, character, and use from that which went in.

15. The definition of “manufacture” under Section 2(f) of the C E Act is an

inclusive definition. Thus, it encompasses a wide range and incorporates

deeming provisions or legal fictions inasmuch as, in the definition clause, the

word “includes” is employed by the Parliament. The definition and the activity

brought under this provision have to synchronise with one another. In

determining whether a particular process or activity does or does not amount

to manufacture, it is correct and reliable to assess each case on its own

merits. In the said process, the Tribunal/Court has to be very careful while

drawing an analogy, and utilising orders and judgments passed with

reference to either acts or activities, or commodities. What is essential in this

exercise is to keep in perspective the ratio of the precedents of this Court,

including the ratio that any or every process does not necessarily amount to

manufacture. It is also essential to see that a new article having a distinct

character, name and use emerges and is normally bought and sold as a

distinct commodity in the market. The said ratio has been further codified

for categorizing situations where goods amount to “manufacture” or not, in

particular by this Court in Servo-Med (supra): (1) exactly the same post-

process (no manufacture); (2) essentially the same (no manufacture); (3)

20 transformed but not marketable (no manufacture); and (4) transformed into

a new, marketable commodity (amounts to manufacture).

16. Therefore, we look at the decisions relied on by the Learned Counsel

for the parties and take note of the ratio of the decisions but do not compare

the case on hand strictly with any of the circumstances considered in the

decisions referred to above. We hasten to add that the nomenclature

employed by the Assessee on the floor of the factory/warehouse, by itself, is

not a conclusive and determinative circumstance. The consideration would

rather be whether the activity undertaken by the Assessee would amount to

“manufacture” or not. Before we advert to the fact-in-issue between the

parties, we would like to observe that for the very reason we are now

considering, the three decisions on which much emphasis has been laid by

the Revenue are distinguishable. To wit, BPL India (supra) cannot in

circumstances be treated as identical to the case the present Appeals are

dealing with. The stark distinction is the classification under which the kits

have been imported by the Assessee. The case Tulaman (supra) deals with

assembly of distinct parts, so is the case in Quippo (supra).

17. To sustain the impugned demand, the Revenue must bring the

Assessee’s activity strictly within the definition of Section 2(f) of the C E Act.

The Tribunal, in the Impugned Order, has pointed out the fallacies in the

Commissioner’s approach in making the O-I-O dated 28.03.2008, and also

how the Revenue has failed to discharge the burden placed on it to decide

whether the activity is a manufacturing activity. The Assessee claims the

subject activity as “kitting” of modules to make a photocopier. The Assessee’s

21 line of activity is subjected to the tests referred to in the decisions supra.

Admittedly, the Assessee has imported the goods under Tariff Heading 8471

and paid Customs Duty against that Heading, which deals with automatic

data processing machines and units thereof. The Assessee claims to have

paid CVD for photocopiers alone. In the circumstances accepted by the

Tribunal, the activity is one of pinning and plugging different parts together,

which is called kitting to make a complete set as per the customer’s

specification. Before concluding, we would like to refer to the finding recorded

by the Tribunal, and are of the view that the activity in the case on hand does

not fall within the definition of Section 2(f) of the C E Act. The argument of

the Revenue that Note 6 of Section XVI of the C E Tariff Act is attracted is, at

best, an additional ground to justify the impugned demand, as the essential

requirements of the said provision are not established.

18. Note 6 of Section XVI of the C E Tariff Act operates upon “an article

which is incomplete or unfinished but having the essential character of the

complete or finished article”, and deems the conversion of such an article

into the complete or finished article to be manufactured. Two prongs must

be established before the deeming provision can be invoked. First, that what

was presented was incomplete or unfinished, and secondly, that a conversion

of it into the complete article was carried out by the person sought to be

charged. On the Tribunal’s findings, neither is made out. The goods were

imported, classified and assessed as complete machines under Heading

8471, and were cleared from the warehouse in the sets and in the original

packing in which they had been received, with no process having been

22 performed upon them there. The Revenue cannot, upon one and the same

set of facts, treat the goods as complete machines for the purpose of levying

customs duty including CVD, and as incomplete articles for the purpose of

attracting Note 6. Nor does Rule 2(a) of the General Rules for the

Interpretation of the Schedule carry the matter further. That rule is a rule of

classification which requires an incomplete or unassembled article having

the essential character of the finished article to be classified under the

heading of the finished article. It answers the question where an article is to

be classified; but it does not answer the question whether a process

performed upon the article amounts to manufacture.

19. We observe that conclusions have been drawn by the Revenue without

inspecting the Assessee’s premises. In a matter such as the present, the

Revenue need not traverse on a winding journey to explain what it wants to

establish. It is required to merely justify that there is excisable activity

resulting in the excisable duty demanded through the SCN and confirmed

via the O-I-O dated 28.03.2008. Therefore, in an era of technological

advancement and available wherewithal through information technology, the

Revenue could have proved, through best evidence, that the photocopier is a

product of change, not a result of “kitting”. The process ought to have been

captured in the photos as a manufacturing activity to bring a photocopier

into existence. This Court is not finding fault with the Revenue but is

compelled to observe that, in the present era, what can be proved in a straight

and simple way need not be induced from the convenient versions of both

sides.

23 20. The roadmap from import of Modules into the country, moving out of

the Customs’ bonded warehouse, and finally landing in the Assessee’s

warehouse is that the modules are unpacked, plugged and pinned to a

customer’s specific requirement of the photocopier and are invoiced. The

Revenue failed to establish that in the simple process of unpacking, plugging

or pinning, the imported modules are changing the head under which they

are imported. Further, the imported modules/parts are not shown to be

unfinished or semi-finished. Consideration now turns to whether the findings

of fact recorded by the Tribunal are available. In our considered view, the

Tribunal’s findings are both brief and correct, and adhere to brevity. The

Tribunal considered the record in its entirety, including the depositions of

the Assessee’s officers, the purchase orders, the bills of entry and the storage

tickets, together with the presentation made before it on behalf of the

Assessee. It found that the components alleged to have been fitted to the

main module were cleared in their original packing. Further, the HCF and

the DADF had been fitted at the factory of the Assessee’s sister concerns

abroad. The Revenue was unable to point to any evidence to the contrary,

and no deposition of any Executive of the Assessee states that the modules

were assembled in the warehouse. It further found that the Commissioner

had concluded that the assembly was undertaken without making any

verification whatsoever. These findings are not perverse, rest upon evidence,

and have been arrived at by careful consideration of the material on record.

24 21. In the facts and circumstances of this case, we see no reason to disturb

the findings. Consequently, the Civil Appeal Nos. 5939-5941 of 2010

and Civil Appeal Nos. 11870-11872 of 2018 are dismissed.

22. Pending Application(s), if any, shall stand disposed of accordingly.

...……….…………………J. [S.V.N. BHATTI]

....…………………………J. [N.V. ANJARIA]

New Delhi;

August 5, 2026.

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