2026 INSC 805

1

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

J U D G M E N T

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. Civil Appeal Nos. 11870-11872 of 2018 are also at the instance of

Revenue and are directed against the Order dated 31.07.2017 in Appeal Nos.

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

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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

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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

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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

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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.

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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.

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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

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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

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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,

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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).

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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 compon ents

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.

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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.

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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 aut omatic 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).

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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:

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Process Involved in the

Industry

Legal Interpretation Findings of this Court

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

Manufacturers of Vanaspati,

a vegetable product

purchased raw groundnut

and til oil from the open

market. To prepare the oil

for hydrogenation, they

subjected the raw oil to

processes of neutralization

by alkali and bleaching with

activated earth/carbon to

remove major impurities.

The revenue authorities

sought to levy excise duty at

this intermediate stage,

claiming the manufacturers

brought a new, taxable

commodity called "refined

oil" into existence before

completing the final

Vanaspati product.

However, the manufacturers

did not apply the process of

deodorization at this

intermediate stage, which

standard specifications and

market practice required for

the oil to be known as

"refined oil" in the

commercial community.

The Transformation and Marketability

Test:

Manufacture v. Processing: The Court

applied the principle that

“manufacture” implies a

transformation where a new and

different article must emerge having a

distinctive name, character, or use.

Mere "processing" that causes minor

changes in a substance does not

amount to “manufacture”.

Definition of “Goods”: This Court

looked at the commercial definition of

"goods" as items that are ordinarily

brought to the market and sold by

merchants.

Excise duty is leviable on the

manufacture of "goods,"

meaning the process must

bring into existence a new

substance that is recognized

and known to the market.

The definition of

"manufacture" under

Section 2(f) of the C E Act,

which includes incidental or

ancillary processes, is

intended to ensure the Act

applies if power is used at

any stage of production. It

does not turn mere

processing into an excisable

activity unless a distinct

commercial commodity

emerges.

Because the raw oil

subjected to neutralization

and bleaching without

deodorization was not

recognized as "refined oil" by

consumers or the

commercial trade, no new

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

three parts: the platform,

the load cells and the

indicating system. The

appellant got the platform

made by others, imported

the load cells, and itself

made only the indicating

system. It then brought the

three components together

at site, fitted and assembled

them so that they would

work as one machine.

Section 2(f) of the C E Act carries an

inclusive definition. The word

“manufacture” includes any process

incidental or ancillary to the

completion of a manufactured

product. This Court read to mean that

any process by which an object

becomes new commercial goods,

including any incidental or ancillary

process, is manufacture. Put shortly,

“manufacture means bringing into

existence new goods.”

This Court applied the classic test

stated in Union of India v. Delhi Cloth

& General Mills (supra) that

This Court rejected the

Appellant’s argument that

since it manufactured only

one part, the indicator

system, which was itself

dutiable as a part, it could

not be treated as the

manufacturer of the whole

machine.

Applying the “distinctive

name, character or use” test

to the assembling activity, it

has been held that what

emerged from the assembly

was a complete weighbridge,

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manufacture implies a change, but

every change is not manufacture;

every change in an article is the result

of treatment, labour and

manipulation, and “something more is

necessary, there must be

transformation; a new and different

article must emerge havin g a

distinctive name, character or use.”

Two propositions of wider importance

follow.

First, mere assembly of separately

procured components can constitute

manufacture, provided the assembled

whole answers to a distinctive name,

character or use. Manufacture does

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.

a new product known to the

market and separately

known to the excise tariff

under the item

“weighbridges”. Its identity

was not that of any of the

three components. The

appellant therefore became

the manufacturer of the

weighbridge and was liable

to duty on it.

The idea that because a part

of the machine is dutiable,

the end product cannot also

be dutiable as separate

excisable goods, was held to

be wrong.

BPL India (supra)

The appellant imported kits

of components for Video

Tape Recorders (VTRs) and

colour monitors in a

disassembled or semi -

knocked-down (SKD)

condition.

The imported components

were put together at the

factory using imported

fasteners. As per the

Revenue, the assembly was

not done by laymen. It

required technical experts or

skilled persons to transform

the parts into a functional

state.

Determining when manufacture

occurs under Section 2(f) of the Act is

a mixed question of law and fact. A

process constitutes "manufacture"

when a new and distinct article

emerges with a distinctive name,

character, or use.

Under the Central Excise framework,

if both the component parts and the

final assembled product are

recognised as distinct taxable goods in

the tariff, paying duty on the parts

does not automatically exempt the

final product from excise duty.

The expert assembly created

a distinct commercial

product, thereby qualifying

as a valid manufacturing

process. The assembly

resulted in a new product

with a distinct character and

use, shifting its

classification from Tariff

Item 68 (imported parts) to

Item 37 -BB (finished

products).

Hence, the act of assembling

the imported SKD kits into

fully functional VTRs and

colour monitors using

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.

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Satnam Overseas (supra)

The Assessee packed a

combination of raw rice,

dehydrated vegetables and

spices under the name “Rice

and Spice”. The components

were mixed in

predetermined proportion,

blended in a mixer for

uniformity, heated if

required to sterilise, and

packed in pouches wit h

nitrogen flushing for longer

shelf life.

The Department proposed

classification under Heading

2108 as a miscellaneous

edible preparation which

was specified elsewhere. The

Assessee contended there

was no “manufacture” under

Section 2(f) of the C E Act,

and in any event the product

fell under Heading 11.01

i.e., products of the milling

industry, at nil rate.

This Court records that there is no

dispute about the legal proposition. A

process is treated as “manufacture”

only if a new product known to the

market comes into existence with the

original product losing its original

character. The determinative enquiry

is therefore into the essential

character or primary identity of the

product, not into the degree of

processing it undergoes.

The judgment summarises the leading

of authorities on this point. Para 17

states the governing rule i.e., “mere

addition in the value, after the original

product has undergone certain

process, would not bring it within the

definition of ‘manufacture’ unless its

original identity also undergoes

transformation and it becomes a

distinctive and a new product.”

Three decisions are followed. In Crane

Betel Nut Powder Works v. Commr. of

Customs & Central Excise,

9, crushing

and sweetening betel nuts was held

not to be manufacture because “the

betel nut remains a betel nut” the end

product retained its original character

though in a modified form.

In CCE v. Laljee Godhoo & Co., (2015)

13 SCC 430, compounding raw

asafoetida with gum arabic and wheat

flour was held not to be manufacture,

the essential character being

unchanged and there being no

chemical reaction between the

additives and the asafoetida.

In CST v. Pio Food Packers, 1980 Supp

SCC 174, this Court held that with

each process suffered the original

commodity experiences a change, but

manufacture occurs only when the

change, or a series of changes, takes

the commodity to the point where

commercially it can no longer be

regarded as the original commodity

and is instead recognised as a new

and distinct article.

The American authorities relied on

reinforce the same limit: Anheuser-

Busch Brewing Assn. v. United States

This court dealt with a

finding that Additional

Commissioner, the

Commissioner (Appeals) and

CEGAT all held the process

to be manufacture, CEGAT

finding that “rice did not

remain rice at all” and that a

new commodity with its own

character, use and name

had emerged.

This Court reversed the

above findings. Applying the

essential character test, it

held that the mere addition

of dehydrated vegetables

and certain spices to raw

rice does not make it a

different product. Its

primary and essential

character remains the same,

as it continues to be known

in the market as rice and is

sold as rice only.

This Court gave weight to

the fact that the rice

remained in raw form and

still had to be cooked to

become edible and the

cooking instructions printed

on the pouch demonstrated

that it was to be cooked in

the same way as any other

rice. The finding of

transformation into a new

and distinct commercial

commodity was accordingly

disapproved.

Two consequences followed.

First, in the absence of

manufacture there was no

question of paying any

excise duty, and the appeal

succeeded on that ground

alone.

Second, and as a natural

corollary, since the essential

characteristic of the product

remained rice, it continued

to be a product of the milling

industry classifiable under

Sub-Heading 11.01, on

9 (2007) 4 SCC 155.

17

(“There must be transformation; a new

and different article must emerge,

having a distinctive name, character,

or use”) and East Texas Motor Freight

Lines v. Frozen Food Express it was

held that where dressed and frozen

chicken was held not commercially

distinct from the original chicken.

(“where the commodity retains a

continuing substantial identity

through the processing stage we

cannot say that it has been

manufactured.”)

On the price point, th is 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.

which the rate of duty is nil.

So the Revenue's

classification under Sub-

Heading 21.08, which rested

entirely on the premise that

manufacture had occurred,

could not stand. The order of

CEGAT and the demand of

excise duty were set aside.

Servo-med (supra)

The Appellant purchased

syringes and needles in bulk

from the open market.

They sterilized the items and

packed one syringe and one

needle in an unassembled

form into a printed plastic

pouch to be sold under a

specific brand name to an

industrial customer.

The Revenue issued a show-

cause notice contending

that the sterilization process

transformed the goods into

"disposable" syringes,

thereby bringing a new

commercial commodity into

existence that must pay

excise duty.

Twofold Test of Manufacture:

Essential Character Test (First Limb):

Whether a process brings about a

transformation such that a different

commercial commodity comes into

existence, meaning the identity of the

original commodity ceases to exist.

Commercial User Test (Second Limb):

Whether the commodity already in

existence would serve absolutely no

purpose or be of no commercial use

but for the said process.

A process does not amount

to "manufacture" unless

there is a physical

transformation resulting in

a new and distinct article

with a different name,

character, or use.

The removal of foreign

matter (such as bacteria) or

the cleaning of a product

complete in itself does not

amount to manufacture, as

the essential character,

basic identity, and end-use

remain unchanged post -

sterilization.

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);

18

(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

Generating Sets (Gensets)

comprising an engine (prime

mover) and an alternator on

a common base frame,

which were initially

assessed under Customs

Tariff. The Gensets were

meant to be leased to

customers. To avoid

relocation hassles upon

lease non-renewal and to

provide ease of

transportation, the

appellant containerized

them.

Using jacks and rollers, the

imported Genset is

positioned on anti-vibrating

mounting pads inside a steel

transport container.

The case of the Revenue is

that appellant indigenously

procure and installs

additional components

necessary for the Genset to

function inside the closed

container. These

components include a

remote radiator and lube oil

tank (mounted on the roof),

ventilation fans, air filter

units, pumps, 3-way valves,

and a silencer. The process

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".

That "manufacture" includes any

process incidental or ancillary to the

completion of a manufactured

product. However, distinguishing

between mere 'processing' and actual

'manufacturing' is critical.

Relying on Servo-Med Industries Pvt.

Ltd., this Court reiterated the two-fold

test to determine if an activity

amounts to "manufacture":

Twofold Test of Manufacture:

Essential Character Test (First Limb):

Whether a process brings about a

transformation such that a different

commercial commodity comes into

existence, meaning the identity of the

original commodity ceases to exist.

Commercial User Test (Second Limb):

Whether the commodity already in

existence would serve absolutely no

purpose or be of no commercial use

but for the said process.

Agreed with the Revenue

that the additional

components (radiators,

fans, etc.) were essential

"parts", not "accessories",

because the Power Pack

could not fulfill its primary

function inside the

container without them.

Placing the Genset into a

container and fitting it with

locally procured parts

transformed it into a

functional "Power Pack". It

was an undisputed fact that

the finalized Power Packs

were the actual products

being leased and delivered to

ultimate customers,

completely satisfying the

marketability requirement.

The Power Pack is a different

product that has a distinct

character, name, and use,

and is marketable as such,

thereby satisfying the

definition of "manufacture"

under Section 2(f) of the C E

Act and Note 6 of Section

XVI of the C E Tariff Act.

The appellant is liable to pay

excise duty on the

manufactured goods, and

the appeals were dismissed.

Alupro (supra)

19

The appellant was a

construction contractor who

imported pre-coated

Aluminum Composite

Panels (ACPs) consisting of a

polyethylene core

sandwiched between two

aluminum sheets. The

process involves cutting the

imported ACPs into

rectangular or square

panels of required sizes

according to the specific

building's d esign

requirements.

Grooves are then made on

the back side of the panels (a

process known as

routing/grooving) to enable

them to be affixed to

structures. Finally, the cut

and grooved panels are

taken to the construction

site where they are fixed

onto an erected frame using

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.

The levy of excise duty requires an

activity to satisfy a two-fold test: (1)

distinct commercial goods with a new

identity, character, or use must

emerge (transformation), and (2) the

transformed goods must be

marketable.

The Revenue argues that the

process of cutting, grooving,

and assembling the ACPs for

use in structures amounts

to “manufacture” under

Section 2(f) of the C E Act.

This Court, however, found

that the process of cutting,

grooving, and bending does

not alter the fundamental

nature or identity of the

ACPs. What enters the

process is an ACP, and what

emerges is still an ACP. It

merely adapts the

dimensions and shape for a

specific use as a cladding or

facade material, which

amounts to preparation and

installation, not the creation

of distinct goods. Therefore,

the process does not amount

to “manufacture” under

Section 2(f).

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

20

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)

21

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

22

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

23

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.

24

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.

25

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.