2026 INSC 582

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISIDICTION

CIVIL APPEAL NO. 8030 OF 2010

M/S ALUPRO BUILDING SYSTEMS PVT. LTD …APPELLANT

VERSUS

COMMISSIONER OF CENTRAL EXCISE

BANGALORE -II …RESPONDENT

J U D G M E N T

Civil Appeal No. 8030 of 2010 Page 1 of 63

J.B. PARDIWALA, J.

For the convenience of exposition, this judgment is divided into the

following parts:-

INDEX

I. FACTUAL MATRIX ......................................................................... 2

II. IMPUGNED JUDGMENT ................................................................ 5

III. SUBMISSIONS ON BEHALF OF APPELLANT ................................ 8

IV. SUBMISSIONS ON BEHALF OF THE RESPONDENT ..................... 9

V. ISSUES FOR CONSIDERATION ..................................................... 9

VI. ANALYSIS .................................................................................. 10

A. Scope and ambit of expression “the determination of any question

having a relation to the rate of duty of excise or to the value of goods”

in sub-section (1) of Section 35G of the Act, 1944 .......................... 10

i. Nature of amendment in sub-section (2) of Section 35L of the Act, 1944

............................................................................................................... 24

B. Meaning, scope and application of “manufacture” under Section 2(f)

of the Act, 1944............................................................................. 34

i. First Limb – No goods with distinct characteristics came into existence 38

ii. Second Limb – Transformed goods are marketable as distinct goods ... 48

a. Meaning and understanding of the term “marketable” ................................ 51

b. Standard of proof to be met while discharging burden of proof ................... 54

VII. CONCLUSION ........................................................................... 61

Civil Appeal No. 8030 of 2010 Page 2 of 63

1. This appeal is at the instance of an assessee and is directed against

the judgment and order dated 01.04.2010 passed by the High

Court of Karnataka in Central Excise Appeal No. 17/2007

(hereinafter, “the impugned judgment”), by which the appeal filed

by the respondent-Revenue under Section 35G of the Central

Excise Act, 1944 (for short, “the Act, 1944”) came to be allowed

thereby setting aside the order dated 27.06.2006 passed by the

Customs, Excise and Service Tax Appellate Tribunal, South Zonal

Bench at Bangalore (for short, “CESTAT”) in Final Order No.

1112/2006 arising in Appeal No. E/1199/2005, and the order

dated 28.10.2005 passed by the Commissioner (Appeals) in Appeal

No. 196/22005 came be restored by answering the substantial

question of law in favour of the Revenue and against the assessee.

I. FACTUAL MATRIX

2. The appellant is a construction contractor and amongst the

various activities it undertakes in the course of its business, the

appellant also affixes Aluminum Composite Panels (for short,

“ACPs”) on the exterior façade of buildings or structures as per the

design requirements of the customer. In short, the appellant

undertakes the job of fixing ACPs on buildings.

3. The ACPs, as the very name suggests, is a composite product made

up of aluminum and polyethylene sheets. The core material is the

rigid polyethylene sheet. An aluminum sheet is bonded to both

sides of this sheet. The ACPs can be pre-coated with a heat-

resistant fluorocarbon coating to withstand solar radiation and

Civil Appeal No. 8030 of 2010 Page 3 of 63

industrial pollution, making them durable on exposed facades.

The ACPs are primarily used in buildings as a covering or cladding.

4. The appellant imported such pre-coated ACPs manufactured by

the foreign manufacturer in various standard sizes

(1270x5500x4mm, 1575x2150x4mm, etc.), by classifying them

under Customs Tariff Heads 7606/7610 and paying the applicable

customs duties. After importing the pre-coated ACPs, the following

activity is undertaken:

i. The imported ACPs are cut into rectangular or square panels

of required size according to the design requirement of the

building/structure. Thereafter, grooves are made on the back

side of the ACPs to enable th em to be affixed to

buildings/structures. This process is known as

routing/grooving. The process of cutting, routing or grooving

process is undertaken at the premise of the appellant.

ii. The appellant then erects a frame at the building/structure.

The cut and grooved ACPs are taken to the site and are fixed

on the frames using angles, clamps, and fasteners leaving a

gap of not more than 16 mm between adjacent panels and

matching adjacent panels, suitable for a weather -sealed

junction using appropriate sealant.

5. It appears from the materials on record that before April 2002, the

appellant was paying excise duty on the cutting and grooving of

ACPs. Thereafter, the appellant discontinued the payment excise

duty under the bona fide belief that the aforementioned process of

cutting and grooving does not amount to “manufacture” under

Civil Appeal No. 8030 of 2010 Page 4 of 63

Section 2(f) of the Act, 1944, and consequently, it was under no

obligation to pay excise duty for the same.

6. On 14.09.2004, the appellant was issued a Show Cause Notice

(SCN) on the ground that the process of cutting, grooving, and

assembling of the ACPs for use in structures would amount to

“manufacture”. Thus, the assessee was required to show cause as

to why under the provisions of the Act, 1944: (i) duty of Rs.

21,46,437/- on the ACPs cleared from April 2002 to December

2003 should not be demanded and recovered; (ii) interest should

not be charged on the aforementioned amount of payable excise

duty; and (iii) penalties should not be imposed.

7. The appellant responded to the SCN stating that the aforestated

process was being undertaken solely to provide functional utility

to the ACPs and no new product with a distinct name, character,

or use was emerging, and therefore, the process carried out does

not amount to manufacture thus, it was not liable to pay excise

duty. It appears that the appellant had already paid the duty

amount demanded in the SCN alongwith the interest payable.

8. Thereafter, the Additional Commissioner of Central Excise vide

Order-in-Original No. 3/2005 dated 21.06.2005 confirmed the

demand of duty of the amount stated in the SCN, interest payable

thereon and penalty. The amount of demand and interest was

appropriated out of the amount already paid by the appellant.

Civil Appeal No. 8030 of 2010 Page 5 of 63

9. Aggrieved by the order of the Additional Commissioner, the

appellant preferred an appeal before the Commissioner of Central

Excise (Appeals). The Commissioner (Appeals) vide Order-in-

Appeal No. 196/2005 CE dated 28.10.2005, partly allowed the

appeal by setting aside the imposition of penalty and interest. The

order of the Additional Commissioner was upheld to the extent

that activities undertaken by the appellant were held to be

manufacture.

10. Aggrieved by the aforesaid part of the Commissioner (Appeals)

order, the appellant filed an appeal before the CESTAT. The

CESTAT vide Final Order No. 1112/2006 dated 27.06.2006,

allowed the appeal of the appellant holding that, first, the Revenue

failed in discharging its burden of marketability of the item as

separate goods. Secondly, the process undertaken by the appellant

does not amount to “manufacture” as it does not bring into

existence a new product.

11. Aggrieved by the aforesaid order of the CESTAT, the respondent

preferred an appeal CEA No. 17/2007 under Section 35G of the

Act, 1944, before the High Court.

II. IMPUGNED JUDGMENT

12. The question of law framed by the High Court in its impugned

judgment reads thus:-

“Whether the Appellate Tribunal is right in holding

that mere cutting of aluminium angles, plates to size,

drilling holes, etc., would not bring into existence new

product and the Revenue has not discharged its

burden that those goods are marketable items

Civil Appeal No. 8030 of 2010 Page 6 of 63

subject to payment of excise duty under the

provisions of the Central Excise Act, 1944?”

13. The High Court answered the aforesaid question in favour of

revenue holding as under:-

“5. Having heard the learned counsel for both the

parties and after perusal of the material on record, it

is not in dispute that the respondent-assessee has

been purchasing aluminium composite panels and on

the said panels it has been cutting the same into

required size and also grooving the said panels which

is called routing. The scope of the work that is done

on the said goods is that of fixing the aluminium

composite panel comprising polyethylene core

sandwiched between two skins of 0.50 mm. thick

special alloyed sheet and pre-fabricated panels and

these are used for various purposes by cutting them

into requisite sizes and also by grooving the said

sheets. The said aluminium composite panels are

then fixed to the main frame, therefore the question

that has to be considered is as to whether the

respondent is carrying on manufacturing activity on

the aluminium composite panel. The panels thus pre-

fabricated are to be fixed to suit the conditions. The

aluminium panel has to be pre-coated with weather

resistant coating of fluoro carbon (PVDF) which can

withstand solar radiation and industrial pollution.

The main frame work has to be fixed to masonary to

form a suitable grid and aligned to perfect level and

form. The aluminium composite panels have then to

be fixed to the main frame leaving uniform gap of not

more than 16 mm. between adjacent panels and to

match adjacent glazing gaps. This gap is to be made

suitable as a weather- sealed junction using sealant

789 or equivalent. Considering the fact that the

respondent is not selling the said panel as it is, on

the other hand, after purchasing the said aluminium

composite panels is carrying on operation of cutting

and grooving and routing the same, the product that

emerges is a new product which is commercially

Civil Appeal No. 8030 of 2010 Page 7 of 63

identifiable and different from the product which the

assessee had purchased. The refore, the product

which is termed after the said operations are carried

out is different from what had been purchased as

such by the assessee.

xxx

8. In the instant case, since the process of cutting,

grooving and routing of aluminium sheets to make

composite panels amounts to manufacture as a new

product emerges, the product is dutiable. The

Tribunal has not taken into consideration the actual

process involved and the nature of the operations

that have been carried out by the respondent -

assessee in changing the nature of the product which

it has been using to suit the particular requirements.

That mere cutting of sheets to size, drilling, grooving,

welding, fastening, etc., is not manufacture when the

original identity of the product is not lost. In several

other cases it was held that cutting to size, welding

of steel plate to make "steel band" which is a product

with distinct name and character is "manufacture".

The goods in the instant case cannot be equated with

the aluminium sheets in running length used for

manufacturing the aluminium composite panels. In

view of the foregoing, we are of the view that cutting,

grooving of the aluminium sheet to make aluminium

composite panels amounts to manufacture of a

distinct product commercially known as different.

Therefore, we find that the view expressed by the

Tribunal that no manufacturing activity is carried out

by the respondent-assessee is contrary to the

material on record and also the judgments of the apex

court. Hence the order of the Tribunal is set aside and

the orders of the Additional Commissioner of Central

Excise (Appeals) is restored by answering the

substantial question of law in favour of the Revenue

and against the assessee.”

14. In such circumstances referred to above, the appellant are here

before this Court with the present appeal.

Civil Appeal No. 8030 of 2010 Page 8 of 63

III. SUBMISSIONS ON BEHALF OF APPELLANT

15. Ms. Charanya Lakshmikumaran, the learned counsel appearing

for the appellant would submit the following:-

i. The jurisdiction to decide whether the activity undertaken by

the appellant amounts to manufacture lies solely with this

Court in view of Section 35L(1)(b) of the Act, 1944. In the same

breath, it was submitted that Section 35G precludes the High

Court from deciding any issue relating to “determination of any

question having a relation to the rate of duty of excise or to the

value of goods for purposes of assessment”. In this regard,

reliance was placed on decision of this Court in Navin

Chemicals Manufacturing & Trading Co. Ltd. v. Collector

of Customs, reported in (1993) 4 SCC 320.

ii. The process of cutting and grooving or routing of the ACPs

undertaken by the appellant does not amount to manufacture

as there is no emergence of a product of a distinct name,

character and use. To fortify the submission, the two-fold test

developed in the decisions of this Court in Union of India v.

J.G. Glass Industries Ltd., reported in (1998) 2 SCC 32, and

Servo-Med Industries (P) Ltd. v. CCE, reported in (2015) 14

SCC 47, respectively were highlighted.

iii. In such circumstances referred to above, the learned counsel

appearing for the appellant-assessee would submit that there

being merit in his appeals, the same may be allowed and the

impugned judgment passed by the High Co urt may be set

aside.

Civil Appeal No. 8030 of 2010 Page 9 of 63

IV. SUBMISSIONS ON BEHALF OF THE RESPONDENT

16. Mr. N. Venkataraman, the learned Additional Solicitor General

alongwith Mr. G.S. Makker, the learned counsel appearing for the

respondent-Revenue assisted by V. Chandrashekara Bharathi

would argue the following:-

i. When a product complete by itself is cut into various shapes

and sizes it amounts to manufacture. By cutting the ACPs into

various sizes, more particularly, by routing them, an

irreversible change is brought out by the appellant. It was

further submitted that by the process being undertaken, the

end use of the aluminium panel changes and are made

compliant for the specific consumer. Thus, the process

causing an integral change in the product satisfies the test of

manufacture. In this regard, reliance was placed on decision

of this Court in Servo Med (supra) and Quippo Energy Ltd.

v. CCE, reported in 2025 SCC OnLine SC 2021 .

ii. In such circumstances referred to above, the learned counsel

prayed that there being no merit in the appeal, the same may

be dismissed.

V. ISSUES FOR CONSIDERATION

17. Having heard the learned counsel appearing for the parties and

having gone through the materials on record, the following

questions fall for our consideration:-

a. Whether the High Court had the jurisdiction to decide the issue

on excisability of the aluminum composite panels?

Civil Appeal No. 8030 of 2010 Page 10 of 63

b. Whether the process of cutting and grooving or routing of the

aluminum panels as per desired measurements would amount

to “manufacture” under Section 2(f) of the Act, 1944?

VI. ANALYSIS

A. Scope and ambit of expression “the determination of any

question having a relation to the rate of duty of excise or

to the value of goods” in sub-section (1) of Section 35G of

the Act, 1944

18. Before adverting to rival submissions canvassed on either side, we

must look into the issue of maintainability of the appeal. Sections

35G and 35L of the Act, 1944, respectively, reads thus:-

“35G.—Appeal to High Court.—(1) An appeal shall lie

to the High Court from every order passed in appeal

by the Appellate Tribunal on or after the 1st day of

July, 2003 (not being an order relating, among other

things, to the determination of any question having a

relation to the rate of duty of excise or to the value of

goods for purposes of assessment), if the High Court

is satisfied that the case involves a substantial

question of law. […]”

xxx

“35L. Appeal to the Supreme Court—(1) An appeal

shall lie to the Supreme Court from—

(a) any judgment of the High Court delivered—

(i) in an appeal made under section 35G; or

(ii) on a reference made under section 35G by the

Appellate Tribunal before the 1st day of July,

2003;

(iii) on a reference made under section 35H,

in any case which, on its own motion or on an oral

application made by or on behalf of the party

aggrieved, immediately after the passing of the

judgment, the High Court certifies to be a fit one for

appeal to the Supreme Court; or

Civil Appeal No. 8030 of 2010 Page 11 of 63

(b) any order passed before the establishment of the

National Tax Tribunal by the Appellate Tribunal

relating, among other things, to the determination of

any question having a relation to the rate of duty of

excise or to the value of goods for purposes of

assessment.

(2) For the purposes of this Chapter, the

determination of any question having a relation to the

rate of duty shall include the determination of

taxability or excisability of goods for the purpose of

assessment.”

(Emphasis is ours)

19. A plain reading of sub-section (1) of Section 35G of the Act, 1944,

would reveal that an appeal lies to the High Court from an order

passed by the Appellate Tribunal where it does not relate to the

determination of any question having a relation to the rate of excise

duty or to the value of goods. In other words, the provision

envisages a clear bar on appeals from an order not being an order

relating to the determination of any question having a relation to

the rate of excise duty or the value of goods.

20. At the same time, sub-section (1)(b) of Section 35L of the Act, 1944,

provides that an appeal from an order passed by the Appellate

Tribunal relating to the determination of any question having a

relation to the rate of excise duty or to the value of goods for the

purpose of assessment lie to this Court. Further, sub-section (2) of

the provision states that questions having relation to the “rate of

duty” includes the questions on determination of taxability or

excisability of goods for the purpose of assessment. We shall

discuss the application of sub-section (2) along with the object and

Civil Appeal No. 8030 of 2010 Page 12 of 63

purpose behind its introduction in more detail in the latter part of

this judgment.

21. The essentials of Section 35G can be better understood in the

following manner:-

i. The order in appeal came to be passed by the Appellate

Tribunal on or after the 1

st day of July, 2003;

ii. The order is not an order relating, among other things, to -

a. The determination of “any” question;

b. Having a relation to –

i) the rate of duty of excise, or

ii) the value of goods

c. For the purpose of assessment

iii. The High Court is satisfied that the case involves a

substantial question of law.

22. The conditions (i) and (iii) respectively are positive conditions. In

other words, they must be satisfied for the appeal to be

maintainable before the High Court. Whereas, condition (ii) is a

negative condition. If the order passed by the Appellate Tribunal

falls within this condition, the appeal does not lie, regardless of

whether (i) and (iii) are met.

23. The expression that we are concerned in the case at hand is the

bracketed portion in Section 35G, which reads, “(not being an order

relating, among other things, to the determination of any question

having a relation to the rate of duty of excise or to the value of goods

for purposes of assessment)”.

Civil Appeal No. 8030 of 2010 Page 13 of 63

24. A plain yet careful reading of Section 35G leaves very little to

imagine. The word “any” in the aforesaid expression gives the

exclusion as regards the jurisdiction a wide sweep, indicating that

the question referred to therein is not limited to a specific question

of rate of excise duty or value of goods. In other words, even

peripheral questions touching a question pertaining to rate or

valuation can attract such exclusion. Further, the conscious use

of the prefatory phrase “among other things” also serves to

communicate that these are not the only exclusions and are merely

illustrative of a broader category of rate of duty and valuation.

These words or phrases in the provision cannot be assumed to be

surplusage.

25. The expression “for purposes of assessment” also deserves some

attention. It qualifies and governs both the preceding limbs of the

exclusion i.e., the rate of excise duty and the value of goods. In

other words, the exclusion is not triggered by every question

touching rate of duty or value of goods in the abstract. The

question must have a relation to rate or value specifically in the

context of assessment. It is not the mere mention of rate or value

in an order that triggers the exclusion but the fact that the

question goes to the root of the assessment itself.

26. The argument that the question of excisability is distinct from the

question of “rate of duty” deserves to be rejected at the threshold.

The two questions are not merely related, they are sequentially and

logically interdependent. An issue on excisability of goods would

Civil Appeal No. 8030 of 2010 Page 14 of 63

be intrinsically connected with the “rate of the duty” for the

“purpose of assessment”. The decision on excisability of goods is a

precursor to the determination of any question having a relation

to the rate of excise duty or to the value of goods for the purpose

of assessment. Afterall, the levy of excise duty presupposes that

the goods upon which such assessment is to be made , are

downstream consequences of determination of excisability. To hold

otherwise would be to sever what is inherently a continuous chain

of fiscal adjudication into fragments, which the legislature could

never have intended.

27. One another good reason to hold the aforesaid is that decision on

such an issue would not only have ramifications in personam but

also in rem. The consequences thereof would be applicable on all

the assessees dealing in the particular goods. The provision

intends uniformity in the determination of fiscal questions having

wide ramifications.

28. It is pertinent to note that the jurisdiction of the High Court under

Section 35G is not a matter of absolute right but is a creature of

statute, and therefore, the conditions precedent to the exercise of

such jurisdiction must be strictly construed. The legislature has

expressed its intention by employing clear and deliberate language

in the bracketed portion of sub-section (1) of Section 35G to

exclude a category of orders from appellate jurisdiction of the High

Court.

Civil Appeal No. 8030 of 2010 Page 15 of 63

29. Although the respondent has not a ddressed the submission

canvassed by the appellant on maintainability of the appeal as

regards the issue of jurisdiction, yet it could be argued that the

question of excisability is a pure question of law and therefore falls

within the High Court’s jurisdiction to decide a “substantial

question of law” under Section 35G. This argument although, at

first glance, appears persuasive, yet does not withstand scrutiny.

30. Jurisdiction cannot be assumed merely because the question is

framed as question of law, if the underlying subject matter of the

order is that the legislature has explicitly placed beyond the reach

of the High Court. In other words, the nature of the question,

whether it is one of fact, law, or mixed question of fact and law, is

a separate inquiry from whether the subject matter of the order

falls within the exclusionary bracket. The satisfaction of the High

Court as to the existence of a substantial question of law is a

condition precedent to the exercise of jurisdiction but it has to be

within the four corners of bar imposed by the exclusion.

31. In this regard, we would like to refer to the decision in CST v.

Ernst and Young (P) Ltd., reported in (2014) 27 GSTR 22 ,

wherein the issue before the Delhi High Court was whether the

assesses therein could be said to be commission agents and were

liable to pay service tax on the act of brokerage. The Court held

that the dispute would fall in the category of “rate of duty of excise”

under Section 35G of the Act, 1944. It was held that determination

of any question relating to rate of tax would directly and

Civil Appeal No. 8030 of 2010 Page 16 of 63

proximately involve the question as to whether service tax is

leviable. The relevant observations read thus:-

“3. Section 83 of the Finance Act, 1994 stipulates that

sections 35G and 35L of the Central Excise Act, 1944

shall mutatis mutandis apply and accordingly,

appeals would be made to the High Court and the

Supreme Court against the decisions of the Appellate

Tribunal. An appeal in clause (a) to section 35L of the

Central Excise Act, 1944 would also lie to the

Supreme Court against the decision of the High Court

rendered under section 35G, reference made by the

Appellate Tribunal before the first day of July, 2003

or on a reference under section 35H of the Central

Excise Act, 1944. Clause (b) stipulates that an appeal

before the Supreme Court would lie against the order

passed by the Appellate Tribunal which includes

amongst others, question or issue in “relation” to rate

of duty of service tax or value of services for the

purpose of assessment. Section 35G stipulates that

any order passed by the Appellate Tribunal made on

or after the first day of July, 2003, is appealable

before the High Court on a substantial question of

law, except an order which among other things,

determines any question relating to duty of service

tax or value of a service for the purpose of

assessment.

xxx

9. Before we examine other judgments, it is important

to examine the language of section 35G in the

bracketed portion which relates to matters in which

appeal is to be filed before the Supreme Court. Section

35L of the Finance Act, 1994 is specific. The

words/expression used is “determination of any

question in relation to rate of duty or value for the

purpose of assessment”. The word “any” and

expression “in relation to” gives appropriately wide

and broad expanse to the appellate jurisdiction of the

Supreme Court in respect of question relating to rate

of tax or value for the purpose of assessment.

Further, if the order relates to several issues or

Civil Appeal No. 8030 of 2010 Page 17 of 63

questions but when one of the questions raised

relates to “rate of tax” or valuation in the order in the

original, the appeal is maintainable before the

Supreme Court and no appeal lies before the High

Court under section 35G of the Central Excise Act,

1944. […]

xxx

32. The question raised is whether the assessee was

liable to pay service tax under section 65(105)(zzb) of

the Finance Act, 1994. Case of the assessee is that

they were not liable as the activities undertaken were

non-taxable.

33. In view of the interpretation given above, the

dispute would fall in the category of “rate of tax”.

Hence, the present app eals would not be

maintainable before the High Court under section 83

of the Finance Act, 1994 read with section 35G of the

Central Excise Act, 1944.”

(Emphasis supplied)

32. We may also refer to the decision of the Full Bench of the Bombay

High Court in CCE v. Reliance Media Works Ltd., reported in

2019 SCC OnLine Bom 5162 , where the Court was called upon

to decide the issue whether the question of excisability of goods is

an issue of rate of duty appealable to this Court in terms of Section

35L(2). The Court held that it is only when goods are held to be

excisable that the rate of duty can be decided. It was underscored

that the term “assessment” is a comprehensive term as it

comprehends the whole procedure for ascertaining and imposing

duty liability. The relevant observations read thus:-

“(III)(a) We have considered the rival submissions.

The appeals from the orders of the Tribunal under the

Finance Act, 1994 and the Act prior to the

introduction of sub-section (2) to section 35L of the Act

were governed by section 35G(1) and 35L(1) of the

Civil Appeal No. 8030 of 2010 Page 18 of 63

Act. In terms of section 35G(1) of the Act, every appeal

from order of the Tribunal passed after July 1, 2003

giving rise to a substantial question of law would be

to the High Court except orders of the Tribunal

relating to the rate of duty of excise or value of goods

for the purpose of assessment. The above orders

were excluded from the jurisdiction of the High Court

and were appealable only to the hon'ble Supreme

Court in terms of section 35L(1)(b) of the Act. In the

context of the above, we have to consider that when

the order of the Tribunal decides a dispute that the

service is not covered by the Finance Act or goods not

being covered by the Act for the purposes of

determining the rate of duty for the purpose of

assessment, would be appealable to this court or not.

(b)[…] It is only on deciding the taxability of services

or excisability of goods that a rate of duty can be

decided. The words “determination of any question

having a relation to rate of duty of excise for the

purpose of assessment” as found in the context of

section 35G and 35L of the Act was a subject of

consideration by this court in Sterlite Optical

Technologies Ltd. v. CCE (2007) 213 ELT 658 (Bom).

This court held that the word “assessment” has a

very comprehensive meaning, i. e., it can comprehend

the whole procedure for ascertaining and imposing

duty liability. Thus, the words “for the purpose of

assessment” would cover even the issue of the

Tribunal deciding excisability and/or taxability as it

is a part of the process of assessment. Besides, the

answer to the question whether a product/service is

excisable/taxable will not only have an impact on a

dispute between parties inter se but would have an

all India impact and, therefore, the statute

contemplates an appeal to the hon'ble Supreme Court

for uniformity of decisions. Otherwise, we would

have a situation where different High Courts take

different views on the issue of excisability/taxability,

Civil Appeal No. 8030 of 2010 Page 19 of 63

leading to a situation where in some States the

service/goods are not taxable/excisable and taxable

in other States.[...]

(c) The appellant Revenue also relies upon the

decision of this court in Greatship (India) Ltd. (supra)

and of the Supreme Court in Navin Chemicals (supra)

to contend that an appeal arising from an order

dealing with taxability/excisability would only be

before this High Court and not the hon'ble Supreme

Court. We find that the decision in Greatship (India)

Ltd. (supra) of this court is not applicable to the

present facts as it itself records in paragraphs 24 and

28 thereof that there was no dispute before it that the

services are taxable. Thus, the objection of the

Revenue (respondent before it) that this court does

not have jurisdiction, was negatived. So far as

reliance upon the decision of the apex court in Navin

Chemicals (supra) is concerned, we note that in

paragraph 11 thereof, the Supreme Court has

observed as under :

“11. It will be seen that sub-section (5) uses the

said expression ‘determination of any question

having a relation to the rate of duty or to the value

of goods for the purposes of assessment’ and the

Explanation thereto provides a definition of it ‘for

the purpose of this sub- section’. The Explanation

says that the expression includes the

determination of a question relating to the rate of

duty; to the valuation of goods for purposes of

assessment; to the classification of goods under

the Tariff and whether or not they are covered by

an exemption notification; and whether the value

of goods for purposes of assessment should be

enhanced or reduced having regard to certain

matters that the said Act provides for. Although

this Explanation expressly confines the definition

of the said expression to sub- section (5) of section

129D, it is proper that the said expression used

in the other parts of the said Act should be

interpreted similarly. The statutory definition

Civil Appeal No. 8030 of 2010 Page 20 of 63

accords with the meaning we have given to the

said expression above. Questions relating to the

rate of duty and to the value of goods for the

purposes of assessment are questions that

squarely fall within the meaning of the said

expression. A dispute as to the classification of

goods and as to whether or not they are covered

by an exemption notification relates directly and

proximately to the rate of duty applicable thereto

for purposes of assessment. Whether the value of

goods for purposes of assessment is required to

be increased or decreased is a question that

relates directly and proximately to the value of

goods for purposes of assessment. The statutory

definition of the said expression indicates that it

has to be read to limit its application to cases

where, for the purposes of assessment, questions

arise directly and proximately as to the rate of

duty or the value of the goods.” (emphasis

supplied)

From the above, it is clear that the apex court noted

that the classification of goods under the tariff for the

purpose of determining the rate of duty would be a

question having relation to the rate of duty. Thus, the

above observations by the apex court would support

the view that taxability/excisability is not appealable

before this court, as decision on the above is in the

context of it being classifiable under the Finance Act,

1994 or the Act read with the tariff.”

(Emphasis supplied)

33. The jurisdictional exclusion of the High Court on the issue of

determination of rate of duty may be looked at from one another

angle. In Commr. of Customs v. Motorola (India) Ltd., reported

in (2019) 9 SCC 563, the issue before this Court was whether an

appeal from the order of the CESTAT, on violation of conditions

Civil Appeal No. 8030 of 2010 Page 21 of 63

contained in customs exemption, would lie before the High Court

under Section 130 of the Customs Act, 1962 (“the Customs Act”)

or this Court under Section 130E of the Customs Act. It is

pertinent to note that Sections 130 and 130E of the Customs Act,

respectively are pari materia to Sections 35G and 35L of the Act,

1944. The Court referred to the decision in Navin Chemicals

(supra) wherein the expression “relation to” in the bracketed

portion of Section 130 of the Customs Act was stated to indicate

that the direct and proximate relationship of the question before

the court to the “rate of duty of excise or to the value of goods” for

the purpose of the assessment. The relevant observations read

thus:-

“11. Upon a conjoint reading of the aforesaid

provisions, it could thus be seen that an appeal shall

lie to the High Court against every order passed in

appeal by the Appellate Tribunal, if the High Court is

satisfied that the case involves a substantial question

of law. The only exception carved out is that an

appeal shall lie before this Court and shall not lie

before the High Court against the order relating,

amongst other things, to the determination of any

question having relation to the rate of duty of customs

or to the value of goods for the purposes of

assessment.

12. It could thus clearly be seen that, only if any

question having relation to the rate of duty is involved

in an appeal or if it relates to value of goods for the

purpose of assessment, the appeal would lie to this

Court and in all other cases it would lie before the

High Court.

xxx

14. It could thus clearly be seen that, this Court,

while considering the provisions of Section 130 and

Section 130-E of the Customs Act, has held that

Civil Appeal No. 8030 of 2010 Page 22 of 63

where an appeal involves determination of any

question that has relation to customs duty for the

purpose of assessment or where an appeal involves

determination of any question that has relation to the

value of goods for the purposes of assessment, such

cases will have to be treated separately and have to

be given special treatment.”

(Emphasis supplied)

34. We would lay emphasis on the fact that Section 35G must be read

in the context of the other provisions of the Act, 1944, as well. The

exclusion carved out by the bracketed portion of Section 35G is

not a self-contained bar that leaves the excluded category of orders

in a vacuum. On the contrary, it is a deliberate and precise

legislative act of channelling. What Section 35G excludes, Section

35L picks up. The exclusion in Section 35G is, therefore,

meaningful only when read alongwith Section 35L. The two

provisions are not independent of each other. They are

interdependent, and together they constitute a complete,

exhaustive, and mutually exclusive appellate scheme under the

Act, 1944.

35. At this juncture, it would be apposite to refer to the observations

of this Court in Munshi Ram v. Municipal Committee,

Chheharta, reported in (1979) 3 SCC 83, on the understanding

of provisions dealing with jurisdiction. It reads thus:-

“23.[…] when a revenue statute provides for a person

aggrieved by an assessment thereunder, a particular

remedy to be sought in a particular forum, in a

particular way, it must be sought in that forum and

in that manner, and all the other forums and modes

of seeking [remedy] are excluded.”

Civil Appeal No. 8030 of 2010 Page 23 of 63

(Emphasis supplied)

36. The issue before the High Court i.e., whether the activity of cutting

and routing or grooving of aluminium composite panels would

bring into existence new product subjecting it to payment of excise

duty would be an issue clearly covered by Section 35(1)(b). This

dispute as to whether the aforesaid activity undertaken would be

excisable or not relates directly to the rate of duty applicable

thereto for the purpose of assessment. The assessee had raised an

objection with regards to maintainability of the appeal before the

High Court. However, the same was left unaddressed.

37. We have gone through the order passed by the Appellate Tribunal.

The only determination made by the Tribunal is with regards to

the excisability of the goods in question. Since what was done by

the Tribunal is the determination of the levy of duty under the Act,

1944. In our considered opinion, the Revenue ought to have

preferred an appeal before this Court under Section 35L of the Act,

1944.

38. For all the aforesaid reasons, we are of the considered view that

the issue in the present appeal is in regard to excisability of the

goods. In view of Section 35G(1) read with Section 35L(1)(b) the

appropriate remedy for the respondent-Revenue would have been

to approach this Court.

Civil Appeal No. 8030 of 2010 Page 24 of 63

i. Nature of amendment in sub-section (2) of Section 35L of

the Act, 1944

39. We may answer this issue in one another manner i.e., by

answering the question, whether sub-section (2) of Section 35L

could be said to be clarificatory and hence, retrospective in its

application? At the cost of repetition, we deem it necessary to once

again quote the provision of Section 35L for a better exposition:-

The same reads thus:-

“35L. Appeal to the Supreme Court—(1) An appeal

shall lie to the Supreme Court from—

(a) any judgment of the High Court delivered—

(i) in an appeal made under section 35G; or

(ii) on a reference made under section 35G by the

Appellate Tribunal before the 1st day of July,

2003;

(iii) on a reference made under section 35H,

in any case which, on its own motion or on an oral

application made by or on behalf of the party

aggrieved, immediately after the passing of the

judgment, the High Court certifies to be a fit one for

appeal to the Supreme Court; or

(b) any order passed before the establishment of the

National Tax Tribunal by the Appellate Tribunal

relating, among other things, to the determination of

any question having a relation to the rate of duty of

excise or to the value of goods for purposes of

assessment.

(2) For the purposes of this Chapter, the

determination of any question having a relation to the

rate of duty shall include the determination of

taxability or excisability of goods for the purpose of

assessment.”

(Emphasis is ours)

Civil Appeal No. 8030 of 2010 Page 25 of 63

40. The true test of whether an amendment is clarificatory is not

dependent on the label that the legislature attaches to it, but

whether the amendment, on a purposive and contextual reading,

does no more than make explicit what was already implicit in the

original provision. The legislature’s declaration that an

amendment is clarificatory, although not conclusive, is a

significant and weighty indicator of legislative intent that the

courts must take into account and not lightly discard.

41. Sub-section (2) of Section 35L was inserted in the Act, 1944, by

the Finance (No. 2) Act, 2014. Clause 99 of the Bill which sought

to insert the sub-section stated that:-

“Clause 99 of the Bill seeks to insert a new sub-

section (2) in section 35L of the Central Excise Act so

as to clarify that determination of disputes relating

to taxability or excisability is covered under the

expression “determination of any question having a

relation to rate of duty.”

(Emphasis is ours)

42. In the aforesaid context, the Memorandum on the Finance (No. 2)

Bill, 2014, by the Central Board of Direct Taxes Memorandum also

clarified the position as regards appellate jurisdiction of this Court.

It reads thus:-

“Section 35L is being amended so as to clarify that

determination of disputes relating to taxability or

excisability of goods is covered under the term

'determination of any question having a relation to

rate of duty' and hence, appeal against Tribunal

orders in such matters would lie before the Supreme

Court.”

(Emphasis is ours)

Civil Appeal No. 8030 of 2010 Page 26 of 63

43. The reading of the text of the provision stipulates that it does not

create any new legal position. It merely gives statutory expression

to what was already the natural and necessary consequence of

collective reading of Sections 35G and 35L, respectively. As a

result, such a clarificatory amendment would have retrospective

effect.

44. It is trite law that an amendment could be characterized as

clarificatory of existing law when the provision it seeks to amend

was subject to more than one interpretation. In other words, the

provision prior to the amendment was not being interpreted in

harmony with the statutory intent without the amendment being

read into it.

45. The phrase “shall include” denotes inclusive and expansive

definition that clarifies the scope of an existing expression, rather

than one that adds a new category to it. The use of the phrase

signifies that the legislature was not introducing excisability as a

new category of questions falling within the rate of duty, it was

clarifying that excisability always fell within that expression, and

any doubt to the contrary was unwarranted.

46. It appears that the amendment was introduced to clarify the

position of law, with the aim of removing existing doubts and

correcting judicial error, thereby rendering it declaratory in

nature. By inserting sub-section (2), the legislature put an end to

uncertainty, and reaffirmed the position that was always inherent

in the scheme of Sections 35G and 35L, respectively.

Civil Appeal No. 8030 of 2010 Page 27 of 63

47. We may also examine what the amendment does not do. Sub -

section (2) does not create a new right of appeal. It does not vest a

new jurisdiction in any court. It does not impose any new

obligation upon assessees. It also does not alter the mechanism or

procedure of assessment. All it does is clarify that when the

legislature referred to questions having a relation to the rate of

duty, it includes within that expression the question of excisability

of goods for the purpose of assessment. The absence of any new

right, obligation, or liability created by the amendment is a

significance of the fact that the amendment it is clarificatory in

nature.

48. In this context, we may refer to the decision of this Court in CIT v.

Podar Cement (P) Ltd., reported in (1997) 5 SCC 482, wherein it

was observed that the circumstances in which the amendment

were introduced and the effect of the amendment or rather the

consequences would have to be taken into consideration to state

whether an amendment was clarificatory or substantive and

retrospective or prospective in nature.

49. In M. Rajendran v. KPK Oils & Protiens India (P) Ltd., reported

in (2026) 3 SCC 505, wherein one of us, J.B. Pardiwala, J., was a

part of the Bench, held that procedural amendments are presumed

to be retrospective in nature unless the express intention of the

legislature to the contrary. It was categorically held that

presumptions against retrospectivity is not applicable to

Civil Appeal No. 8030 of 2010 Page 28 of 63

enactments which affect procedure, or forum, or are declaratory in

nature. The relevant observations read thus:-

“191. It is no more res integra that the presumption

against retrospective operation does not apply to the

legislation merely concerned with matters of

procedure or of evidence; on the contrary, the

provisions of that nature are to be construed as

retrospective unless there is a clear indication that

such was not the intention of Parliament.

192. We may summarize the principles on

retrospective application of legislations as under:

(i) Presumption against retrospectivity is not

applicable to enactments which merely affect

procedure or change the forum or are declaratory;

(ii) Retroactive/retrospective operation can be implicit

in a provision construed in the context where it

occurs;

(iii) Given the context, a provision can be held to apply

to cause of action after such provision comes into

force, even though the claim on which the action may

be based may be of an anterior date;

(iv) A remedial statute applies to pending proceedings

and such application may not be taken to be

retrospective if application is to be in future with

reference to a pending cause of action; and

(v) The Sarfaesi Act is a remedial statute intended to

deal with problem of pre-existing loan transactions

which need speedy recovery.

193. A legislation, be it a statutory Act or a statutory

rule or a statutory notification, may physically consist

of words printed on papers but conceptually, it would

be a great deal more than ordinary prose. Of the

various rules guiding how a legislation has to be

interpreted, the one established rule is that unless a

contrary intention appears, a legislation is presumed

not to be intended to have retrospective operation and

the idea behind the rule is that a current law should

govern current activities.

Civil Appeal No. 8030 of 2010 Page 29 of 63

194. If legislation confers a benefit on some persons

without inflicting a corresponding detriment on some

other person or on the public generally, and such

conferment appears to have been the legislator's

object, then the presumption would be that such

legislation, giving it a purposive construction, would

warrant a retrospective effect.”

(Emphasis supplied)

50. In the aforesaid context, the observations of a Three-judge Bench

in University of Kerala v. Merlin J.N., reported in (2022) 9 SCC

389, are also noteworthy. It was noted that when an amendment

intends to clarify something which was implicit in the operation of

the provision such an amendment is meant to operate

retrospectively. Such an amendment is ordinarily made to clarify

the position in order for the courts to avoid taking conflicting

decisions. The relevant observations read thus:-

“23. When an enactment or an amendment is

declaratory, curative or clarificatory, impelled by a

felt need to make clear what was always intended,

such amendment is usually meant to operate from an

antecedent date, or to cover antecedent events. This

position was clarified in CIT v. Shelly

Products [CIT v. Shelly Products, (2003) 5 SCC 461,

para 38] where this Court, while interpreting an

amendment, held that : (SCC p. 478, para 38)

“38. … It seeks to clarify the law so as to remove

doubts leading to the courts giving conflicting

decisions, and in several cases directing the

Revenue to refund the entire amount of income

tax paid by the assessee where the Revenue was

not in a position to frame a fresh assessment.

Being clarificatory in nature it must be held to be

retrospective, in the facts and circumstances of

the case. It is well-settled that the legislature may

Civil Appeal No. 8030 of 2010 Page 30 of 63

pass a declaratory Act to set aside what the

legislature deems to have been a judicial error in

the interpretation of statute. It only seeks to clear

a meaning of a provision of the principal Act and

make explicit that which was already implicit.”

(Emphasis supplied)

51. In Reliance Media Works (supra), the Full Bench of the Bombay

High Court also dealt with this issue. It held that the amendment

by insertion of sub-section (2) is clarificatory and retrospective in

nature as its intention was to make explicit what was implicit in

Sections 35G(1) and 35(1)(b) respectively. The Court also

highlights the Notes on Clauses to the Finance (No. 2) Bill, 2014,

mentioned hereinabove. The relevant observations read thus:-

“(e) It was also contended by the appellant-Revenue

that insertion of sub-section (2) to section 35L of the

Act that taxability/excisability would be a rate of

duty issue with effect from August 6, 2014 would

itself imply that prior to August 6, 2014, the issue of

taxability/excisability was appealable to the High

Court. This submission on behalf of the Revenue

cannot be accepted in view of the various decisions

referred to hereinabove wherein the courts have held

that issue of excisability of goods and taxability of

services are appealable to the hon'ble Supreme Court

even prior to the insertion of sub-section (2) to section

35L of the Act. The introduction/insertion of sub-

section (2) to section 35L of the Act was done as a

matter of abundant caution so as to clarify and make

explicit what was implicit in sections 35G(1) and

35L(1)(b) of the Act. This was done only to ensure that

the courts do not waste time examining the issue

again and again, when the issue has already been

decided by various courts upon which the respondent

assessee has placed reliance. This in support of its

case that an appeal with respect to

taxability/excisability is maintainable only before the

Civil Appeal No. 8030 of 2010 Page 31 of 63

hon'ble Supreme Court of India even before the

insertion of sub-section (2) of section 35L of the Act.

In fact, this view is also supported by clause 99 of

Notes on Clauses to the Finance (No. 2) Bill, 2014

which introduced sub-section (2) to section 35L of the

Act. It specifically states that section 35L is being

amended so as to clarify that issue of

taxability/excisability is covered by the term rate of

duty. Thus, what was implicit has been made

explicit. We find support for this view in the decision

of the Supreme Court in W. P. I. L. Ltd. v. CCE (2005)

4 RC 405; (2005) 181 ELT 359 (S.C.). We also note

that Punjab and Haryana High Court Commissioner,

Service Tax v. DLF Golf Resort Ltd. [2018] 56 GSTR

247 (P & H) has held that insertion of sub-section (2)

to section 35L of the Act was clarificatory. Therefore,

insertion of sub-section (2) to section 35L of the Act

with effect from August 6, 2014 would not justify the

contention of the Revenue that prior to August 6,

2014, the appeals were maintainable before the High

Court.

(III)(a) […] It appears that this insertion of sub-section

(2) to section 35L of the Act became necessary as this

issue, viz., where such an appeal would lie, was

being urged time and again before various High

Courts. To settle the issue being urged and set the

matter at rest, it appears that the amendment has

been introduced. The amendment, therefore, is in the

nature of a clarification and not for bringing about

any change in the law, i. e., excluding a set of orders

of the Tribunal, which were earlier appealable to the

High Court, now made appealable to the hon'ble

Supreme Court for the first time. This is also

supported by the plain reading of sub-section (2) of

section 35L of the Act which merely clarifies/states

“having relation to the rate of duty shall include the

determination of taxability or excisability of goods for

the purpose of assessment”. In case, it was a new

category, then, all that Parliament had to do was to

state that the question of excisability and taxability

Civil Appeal No. 8030 of 2010 Page 32 of 63

arising in of an order of the Tribunal would be

appealable to the Supreme Court. Further, our

interpretation that the amendment of section 35L of

the Act by insertion of sub-section (2) thereof was

clarificatory in nature, is supported by Notes on

Clauses to the Finance (No. 2) Bill, 2014. […]

(b) Next submission on behalf of the appellant was

that even if there has been an intent on the part of the

Government while introducing the amendment to

section 35L of the Act by insertion of sub-section (2)

thereof, yet the same does not find mention in the

amended Act as passed by Parliament. This

submission in the present facts would not be correct.

This for the reason that the Act was passed in the

same form as it was introduced along with Notes on

Clauses to the Bill in Parliament. Thus, the

Parliamentarians were aware while passing the bill

and making it into an Act that this provision was

intended to be clarificatory in nature. Therefore,

insertion of sub-section (2) to section 35L of the Act is

retrospective in nature and not prospective.”

(Emphasis supplied)

52. It would be worthwhile to also refer to the observations made by

the Punjab & Haryana High Court in Commr., S. T. v. DLF Golf

Resorts Ltd., reported in 2017 SCC OnLine P&H 1529 . The

Court highlighted that the amendment being clarificatory was

acknowledged by the Department of Revenue in a circular. The

relevant observations read thus:-

“7. Sub-section (2) was inserted with effect from

August 6, 2014 by section 107 of the Finance (No. 2)

Act, 2014. The amendment is, however, clarificatory

and, therefore, operates retrospectively. That it is

clarificatory, is accepted by the Department. The

Ministry of Finance, Department of Revenue, Tax

Research Unit issued a circular dated July 10, 2014,

Civil Appeal No. 8030 of 2010 Page 33 of 63

which refers to the Finance Minister having

introduced the Finance (No. 2) Bill, 2014 in the Lok

Sabha on July 10, 2014. Paragraph 14 of annexure

IV referred to in this circular, reads as under :

“14. Section 35L is being amended so as to clarify

that determination of disputes relating to

taxability or excisability of goods is covered under

the term 'determination of any question having a

relation to rate of duty' and hence, appeal against

Tribunal orders in such matters would lie before

the Supreme Court.” (Emphasis supplied)

xxx

9. It is, therefore, evident that the Department has

considered the amendment to be clarificatory and

has proceeded on that basis, inter alia, by

withdrawing various proceedings before the Supreme

Court. The controversy as to whether the issues such

as the one raised in the present appeal relates to

taxability or not, is now set at rest including by the

Department. We are informed that similar questions

are, in fact, pending before the Supreme Court.”

(Emphasis supplied)

53. The net effect of the aforesaid is that sub-section (2) being merely

clarificatory in nature does not create new liabilities or obligations

or to impose new duties in respect of transactions already

accomplished. The provisions of Sections 35G and Section 35L,

read together, always pointed to one and only one conclusion that

the question of excisability fell within the exclusive appellate

jurisdiction of the Supreme Court. Even prior to the amendment,

a question of excisability of goods was never a question that could

be answered in isolation. It is a question that would arise in the

context of, and as a precursor to, the assessment of excise duty.

The amendment does not alter this relationship, it merely

Civil Appeal No. 8030 of 2010 Page 34 of 63

articulates it. In other words, the amendment states in express

terms were always implicit in the structure and language of the

provision.

B. Meaning, scope and application of “manufacture” under

Section 2(f) of the Act, 1944

54. Ms. Charanya Lakshmikumaran, the learned counsel appearing

for the appellant herein vociferously contended that the process

undertaken by them involves cutting of the ACPs in required

smaller sizes, in rectangular and square shape, and these smaller

sheets are further grooved on all the four edges, bent, made into

frames and sent to sites. Thereafter, “C” angles are fixed to the

walls depending on the sizes and shapes and the ACPs are fixed

on the substructures by screws and the gaps are filled with

sealants.

55. It was submitted that merely because the activity of cutting and

grooving makes the ACPs usable as per the requirements, it would

not amount to manufacture as there is n o change in the

characteristics and end use of the product.

56. On the other hand, Mr. G.S. Makker, the learned counsel

appearing for the respondents contended that the process

undertaken by the appellant causes an irreversible change in the

ACPs, and the end use of the ACPs have also changed from what

it was prior to cutting and routing the panels. It was submitted

that when generic end use is tampered with and made suitable for

a specific end use, such process amounts to manufacturing.

Civil Appeal No. 8030 of 2010 Page 35 of 63

57. We shall now look into the relevant provision that defines

“manufacture” in the Act, 1944. Section 2(f) of the said Act reads

thus:-

“2. Definitions.— In this Act, unless there is anything

repugnant in the subject or context,—

[(f) “manufacture” includes any process—

(i) incidental or ancillary to the completion of a

manufactured product;

(ii) which is specified in relation to any goods

in the Section or Chapter Notes of the Fourth

Schedule] as amounting to manufacture; or,

(iii) which, in relation to the goods specified in

the Third Schedule, involves packing or

repacking of such goods in a unit container or

labelling or re-labelling of containers including

the declaration or alteration of retail sale price

on it or adoption of any other treatment on the

goods to render the product marketable to the

consumer;] and the word “manufacture” shall

be construed accordingly and shall include

not only a person who employs hired labour

in the production or manufacture of excisable

goods, but also any person who engages in

their production or manufacture on his own

account;”

58. At the outset, we must mention that the taxable event for levy of

excise duty is manufacture. To ascertain excisability of goods, the

two-fold test has to be passed:-

i. Whether by the said process distinct commercial goods with a

new identity, or character, or use emerge indicating

transformation;

Civil Appeal No. 8030 of 2010 Page 36 of 63

ii. Whether the transformed goods is marketable or capable of

being marketed.

59. By reading the aforementioned test, one could argue that if the

taxable event is the manufacture of goods, then assessing

marketability of the manufactured goods ought not to be made

necessary. When the taxable event is said to be of manufacture, it

means that even though the taxable event is “manufacture”, the

collection of duty on excisable goods is shifted to stage of removal

of goods for administrative convenience.

60. Through the first test, the question that requires an answer is

whether distinct goods with the new name, identity, character or

use have emerged. Whereas, through the second test, the question

that requires an answer is whether the resultant goods are

marketable after undergoing the particular process.

61. The test laid down in J.G. Glass (supra) was laid down to decipher

“manufacture” of goods. In furtherance of the ‘fundamental

change’ test and ‘but for the process’ test, this Court in Servo-Med

(supra) tied the application of the tests to marketability of the

manufactured goods. This is done so because it is marketability

Civil Appeal No. 8030 of 2010 Page 37 of 63

which reflects whether the goods are excisable goods as defined

under the Act, 1944.

62. This Court’s understanding of the two-fold test in Servo-Med

(supra) and Quippo (supra) respectively, may be summarized as

follows. In Servo-Med (supra), the Court cautioned against reading

of the ‘but for’ test in isolation. The Court envisaged a scenario

where, without any transformation, goods could transition from

being commercially useless to commercially useful (unsterilized

syringes to sterilized syringes) solely by virtue of the process it

underwent. The emphasis of the Court in Servo-Med (supra) was

therefore to affirm that transformation is a necessary and

indispensable component of manufacture. It is a must. On the

other hand, in Quippo (supra), the Court clarified that the two-fold

test cannot be read as a strict conjunctive test. To say that

transformation will constitute manufacture only in those scenarios

where the goods transition from being commercially useless to

commercially useful (wheat grain to flour). In other words, Quippo

(supra) holds that in order to establish manufacture, it is not

necessary to invoke the ‘but for’ test. Both the decisions convey

that the ‘but for’ test is not a sufficient assessment to establish

manufacture.

63. The Constitution Bench of this Court in Union of India v. Delhi

Cloth & General Mills Co. Ltd., reported in 1962 SCC OnLine

SC 148, held that manufacturing means bringing into existence a

new substance and not merely to produce some change in a

substance. In other words, the threshold to be met for goods that

Civil Appeal No. 8030 of 2010 Page 38 of 63

have undergone some change is that they must have a distinct

name, character or use at the end of the process. Further, the

decision in Servo-Med (supra) clarified that that both the

essentials i.e., the transformation test and the marketability test

must be fulfilled in order for an activity to amount to

“manufacture”. In other words, they must be read cumulatively.

64. The dispute between the parties before us primarily lies with

respect to the transformation test. It is the case of the appellant

that no transformation has occurred and there is no change in the

name, character, identity or use as, first, the function and end use

of both the ACPs before and after cutting and grooving remains the

same. Secondly, cutting and grooving of the ACPs is only for

functional purposes.

i. First Limb – No goods with distinct characteristics came into

existence

65. We may now put the activity undertaken by the appellant through

the first limb of the test. The first question to be asked is, could it

be said that the process undertaken by the appellant results in

emergence of distinct goods having their own character, identity,

or use. The answer is an emphatic ‘No’. We say so because what

enters the process is an ACP consisting of two aluminium sheets

bonded to a polyethylene core, and what emerges from the process

is still an ACP cut to a particular size, grooved at the edges, and

bent into a frame. Here, the essential character of the goods

remain entirely unchanged.

Civil Appeal No. 8030 of 2010 Page 39 of 63

66. The process of cutting, grooving, and bending does not alter the

fundamental nature of identity of the ACP, it merely adapts its

dimensions and shape for a specific use . In other words, it

amounts to no more than preparation, sizing, and installation of

the ACPs for use as a cladding or façade material. The process of

grooving or routing does not alter the material properties or the

commercial character of the ACPs in any manner whatsoever. The

form and shape of the ACPs are being changed to facilitate its use.

67. The final steps of the process i.e., erecting a frame at the site, fixing

the cut and grooved ACPs onto the frame using angles, clamps,

and sealing the gaps between adjacent panels with an appropriate

sealant are unambiguously installation activities. It is as clear as

a noon day that none of these activities, individually or collectively,

result in the creation of new distinct goods. After undergoing the

aforesaid process, the ACPs continues to retain its original

character but in a modified form.

68. In this regard, we may refer to and rely upon the decision of this

Court in Bharat Forge and Press Industries (P) Ltd. v. CCE,

reported in (1990) 1 SCC 532, wherein the appellant purchased

steel pipes on payment of excise duty. Later, cut the pipes into

different sizes giving them shape and turned them into pipe fittings

in the factories by hammering and pressing. The question before

this Court was whether the pipe fittings so produced by the

appellant were liable to excise duty. The Court held that to make

pipes and tubes workable, it is necessary to turn them into

required shape and size. When pipes and tubes undergo process

Civil Appeal No. 8030 of 2010 Page 40 of 63

of forging, welding, hammering, their essential character and use

remain the same. The relevant observations read thus:-

“5. […]The position is somewhat similar in the present

case. As explained above, the goods described in the

tariff, namely, pipes and tubes are designed to meet

various types of requirements. Normally pipes and

tubes are produced as long and straight pieces. But

by themselves they cannot fulfil all the needs or the

end use for which they are intended. To get the

maximum use out of the pipes and tubes, it is

necessary not only to produce long and straight pipes

and tubes but also to turn out pipes and tubes of

smaller dimensions and of different shapes and

curves such a bends, elbows, ‘T’ pieces, ‘Y’ pieces,

plugs, caps, flanges, joints, unions, collars and so on.

This is done by a process of forging, welding,

hammering and so on applied to the longer tubes but

basically the items remain the same and the use also

remains the same. The tariff entry calls for no

distinction between pipes and tubes manufactured

out of sheets, rods, bars, plates or billets and those

turned out from larger pipes and tubes. In these

circumstances it is difficult to say that pipe fittings,

though they may have a distinctive name or badge or

identification in the market, are not pipes and tubes.

It is true that all pipes and tubes cannot be described

as pipe fittings. But it would not be correct to say that

pipe fittings are not pipes and tubes. They are only a

species of pipes and tubes. The use of the words “all

sorts” and the reference to the various processes by

which the excisable item could be manufactured set

out in the tariff entry are comprehensive enough to

sweep within their fold the goods presently under

consideration.”

(Emphasis supplied)

69. We may also look into the decision of this Court in CCE v. S.R.

Tissues (P) Ltd., reported in (2005) 6 SCC 310, wherein the

question before this Court was whether the activity of unwinding,

Civil Appeal No. 8030 of 2010 Page 41 of 63

cutting, slitting, and packing it as boxes of tissue paper amounts

to manufacture. This Court held that through the predominant

test of the characteristics of the tissue in jumbo roll and tissue

paper in the form of table napkins, facial tissues and toilet rolls

the texture, moisture absorption capacity, feel, etc., they come out

to be the same. It was observed that the jumbo rolls were cut into

various shapes and sizes for nothing but convenience. Accordingly,

the Court held that the aforesaid activity would not amount to

manufacture as no distinct product had emerged. T he relevant

observations read thus:-

“12. At the outset, we may point out that the assessee

is one of the downstream producers. The assessee

buys duty-paid jumbo rolls from M/s Ellora Paper

Mills and M/s Padamjee Paper Mills. There are

different types of papers namely tissue paper, craft

paper, thermal paper, writing paper, newsprints,

filter paper, etc. The tissue paper is the base paper

which is not subjected to any treatment. The jumbo

rolls of such tissue papers are bought by the

assessee, which undergo the process of unwinding,

cutting/slitting and packing. It is important to note

that the characteristics of the tissue paper are its

texture, moisture absorption, feel, etc. In other words,

the characteristics of table napkins, facial tissues

and toilet rolls in terms of texture, moisture

absorption capacity, feel, etc. are the same as the

tissue paper in the jumbo rolls. The said jumbo rolls

cannot be conveniently used for household or for

sanitary purposes. Therefore, for the sake of

convenience, the said jumbo rolls are required to be

cut into various shapes and sizes so that they can be

conveniently used as table napkins, facial tissues,

toilet rolls, etc. However, the end-use of the tissue

paper in the jumbo rolls and the end-use of the toilet

rolls, the table napkins and the facial tissues remains

the same, namely, for household or sanitary use. The

Civil Appeal No. 8030 of 2010 Page 42 of 63

predominant test in such a case is whether the

characteristics of the tissue paper in the jumbo roll

enumerated above is different from the

characteristics of the tissue paper in the form of table

napkin, toilet roll and facial tissue. In the present

case, the Tribunal was right in holding that the

characteristics of the tissue paper in the jumbo roll

are not different from the characteristics of the tissue

paper, after slitting and cutting, in the table napkins,

in the toilet rolls and in the facial tissues.”

70. In yet another decision of this Court in Aman Marble Industries

(P) Ltd. v. CCE, reported in (2005) 1 SCC 279, the question before

the Court was whether the cutting of marble blocks into marble

slabs would amount to manufacture for the purpose of levying

excise duty. The Court held that the activity undertaken i.e.,

cutting and polishing of granite block into slabs and tiles by the

appellant would not amount to manufacture. The relevant

observations read thus:-

“2. The contention put forth on behalf of the appellant

is that the activity carried on by the appellant does

not amount to manufacture at all. The case put forth

by the learned counsel appearing on behalf of the

appellant is that the cutting of blocks into marble

slabs involves only sawing of the marble blocks and

thereby does not bring into existence a distinct

commodity so as to state that when such activity is

completed a new substance has come into existence.

The submission is that even after such activity is

completed the marble will remain marble and,

therefore, this activity does not attract tax.

xxx

4. In Rajasthan SEB v. Associated Stone

Industries [(2000) 6 SCC 141 : JT (2000) 6 SC 522]

such a question fell for consideration before this Court

although in a different context, and this Court held as

follows: (SCC p. 146, para 12)

Civil Appeal No. 8030 of 2010 Page 43 of 63

“This apart, excavation of stones from a mine and

thereafter cutting them and polishing them into

slabs did not amount to manufacture of goods.

The word ‘manufacture’ generally and in the

ordinary parlance in the absence of its definition

in the Act should be understood to mean bringing

to existence a new and different article having a

distinctive name, character or use after

undergoing some transformation. When no new

product as such comes into existence, there is no

process of manufacture. Cutting and polishing

stones into slabs is not a process of manufacture

for the obvious and simple reason that no new

and distinct commercial product came into

existence as the end product still remained stone

and thus its original identity continued.”

and this position was further reiterated as follows:

(SCC pp. 147-48, para 16)

“It is also not possible to accept that excavation of

stones and thereafter cutting and polishing them

into slabs resulted in any manufacture of goods.”

(Emphasis supplied)

71. In Bheraghat Mineral Industries v. Divisional Deputy

Commissioner of Sales Tax, reported in 1987 SCC OnLine MP

270, the Madhya Pradesh High Court had the occasion to consider

whether the assessee who was in the business of selling dolomite

chips and powder after crushing the dolomite lumps purchased

from registered dealers produced a different commodity. If no

different commodity was said to be produced from the process of

crushing, then, the assessee was entitled to deduct the sales from

taxable turnover under the relevant State Act. As a result, the

Revenue would have been in error in levying into chips and powder

could be said to be producing a new commodity. In such

circumstances, the Court expressed the following observations:-

Civil Appeal No. 8030 of 2010 Page 44 of 63

“16. Here, the petitioner, after purchasing lumps of

dolomite from registered dealers, crushed them and

sold chips and powder to glass manufacturers. What

was purchased was dolomite and sale was also of

dolomite. Chips and powder of dolomite are not

different commercial commodities than dolomite

lumps. It is not the respondents' case in their return

that anything more is required to be done, except

crushing the lumps to get chips and powder from the

lumps and that the composition of the end-product is

different from lumps. The lumps are broken into chips

and powder for convenience in use but they retain the

same characteristics and qualities of dolomite lumps.

Except for change in shape, there is absolutely no

transformation into composition to bring about a new

commercial commodity. It appears from the vouchers

produced by the respondents that the petitioner had

supplied dolomite lumps, chips and powder to

different glass manufacturers as required by them.

Some manufacturers may not be having crushing

facilities or of sufficient capacity. So they purchased

in powder form also. However, the respondents by

their additional return stressed that while dolomite

lumps were sold for Rs. 38 per metric ton, dolomite

powder was sold at the rates between Rs. 150 per

metric ton, thereby suggesting that some lengthy

process is required for getting the powder. The

learned counsel for the petitioner has given us the

break-up of the price of dolomite powder. As extra

cost of Rs. 88 per metric ton is incurred in getting

powder from the lumps by way of extra lead for

taking the lumps to the crushing machine, loading,

unloading charges, breaking charges and packing

them in bags and stitching them. About 20 gunny

bags are required for packing 1 metric ton powder in

bags of 50 kg. each. Lumps are transported in bulk

and not required to be packed in gunny bags. For

breaking 1 ton lumps into powder, the breaking and

labour charges are about Rs. 35 and another Rs. 35

are the costs of 20 gunny bags and stitching charges.

This explains the difference in price of lumps and

Civil Appeal No. 8030 of 2010 Page 45 of 63

powder of dolomite by about Rs. 90 or so per ton. As

the dolomite lumps, chips and powder are the same

commodities, there is no manufacture by crushing

lumps into chips and powder. So the respondents

erred in holding that there is manufacture by

breaking lumps into chips and powder and by levying

tax over again in respect of the same tax-paid goods.

So the petitioner is justified in deducting from his

taxable turnover, the sale price of dolomite lumps

purchased from registered dealers on payment of full

sales tax under section 2(r)(ii) of the State Act and

under the notification dated October 17, 1977, under

the Central Act.”

(Emphasis supplied)

72. The net effect of the aforesaid is that the test of whether a distinct

product has come into existence is not a test of physical

transformation alone, it is a collective test - of transformation into

a new product. The question is also not as to whether the goods

look different after the process, but whether they could be regarded

as different goods commercially. For instance, a piece of cloth cut

into a various shape would still be a cloth.

73. The cutting merely adapts the dimensions of the ACPs to the

specific requirements of a particular building or structure.

Whereas, routing merely prepares the reverse face of the panel for

a specific mode of mechanical fixing, and grooving facilitates the

bending and joining of the ACPs at its edges. All that we are trying

to convey is that goods are merely being adapted for particular use.

74. It is undisputed that the cutting and grooving are undertaken at

the premise of the appellant. However, the location at which a such

Civil Appeal No. 8030 of 2010 Page 46 of 63

a process is carried out is not much of significance to the question

of whether it is manufacturing. The fact that these steps are

carried at the appellant’s premises does not elevate them to the

level of manufacture. We would also emphasize that merely

because an assessee gave the specifications he could not be

considered engaged in manufacturing.

75. In Quippo (supra), wherein one of us, J.B. Pardiwala, J., was a

part of the Bench, succinctly explained the distinction between

“processing” and “manufacturing” in the dictum of the

Constitution Bench in Delhi Cloth & General Mills (supra). The

relevant observations read thus:-

“26. As per this court's decision in Union of

India v. Delhi Cloth and General Mills Co. Ltd. [1962

SCC OnLine SC 148.] for an activity to amount to

“manufacture” and not be considered as merely

“processing” it has to produce a “transformation” of

the subject article, i.e., a new and different article

must emerge having a distinctive name, character or

use. This test, as laid down by this court in Union of

India v. Delhi Cloth and General Mills Co. Ltd. [1962

SCC OnLine SC 148.] , has been extensively applied

by this court in its subsequent rulings.

xxx

28. This court in Union of India v. J.G. Glass

Industries Ltd. [(1999) 114 STC 387 (SC); (1998) 2

SCC 32; 1997 SCC OnLine SC 22.] established a two-

fold test to ascertain if an activity constitutes

“manufacture”:

(a) Fundamental change test : The first criterion is

to determine if the process results in a new

commercial item being created, or if the original

item's identity is fundamentally altered or ceases

to exist. This means assessing whether a

transformation occurs such that a distinct product

Civil Appeal No. 8030 of 2010 Page 47 of 63

with a new name, identity, character, or use

emerges;

(b) But for the process test : The second criterion

evaluates whether the product that existed before

the process would be commercially useless or

serve no purpose without undergoing that specific

process. In other words, if the preexisting

commodity would lack any commercial util ity

were it not for the process, this condition is met.

xxx

33. This court in Servo-Med Industries P.

Ltd. v. Commissioner of Central Excise [(2015) 32

GSTR 404 (SC); (2015) 14 SCC 47; 2015 SCC OnLine

SC 431.] categorised the entire case law into four

categories. In paragraph 27, the court lists them out

as follows (page 419 in 32 GSTR):

“27. The case law discussed above falls into four

neat categories:

(1) Where the goods remain exactly the same even

after a particular process, there is obviously no

manufacture involved. Processes which remove

foreign matter from goods complete in themselves

and/or processes which clean goods that are

complete in themselves fall within this category.

(2) Where the goods remain essentially the same

after the particular process, again there can be no

manufacture. This is for the reason that the

original article continues as such despite the said

process and the changes brought about by the

said process.

(3) Where the goods are transformed into

something different and/or new after a particular

process, but the said goods are not marketable.

Examples within this group are Brakes India

Ltd. v. Supdt. of Central Excise [(1997) 10 SCC

717.] and cases where the transformation of

goods having a shelf life which is of extremely

small duration. In these cases also no

manufacture of goods takes place.

(4) Where the goods are transformed into goods

which are different and/or new after a particular

Civil Appeal No. 8030 of 2010 Page 48 of 63

process, such goods being marketable as such. It

is in this category that manufacture of goods can

be said to take place.” (emphasis supplied)”

(Emphasis supplied)

76. From the reading of the aforesaid exposition, there is no doubt that

by cutting the ACPs into various sizes and routing them, the ACPs

are undergoing a process which brings a change. However, it is

only when a change or series of changes result in new and distinct

goods that manufacturing is said to take place. At the same time,

even if undergoing processing, if goods retain their substantial

identity, they would be processed and not manufactured in terms

of Section 2(f) of the Act, 1944.

ii. Second Limb – Transformed goods are marketable as

distinct goods

77. Although it may not be necessary to delve into the second limb of

the test, yet we may discuss, in brief, the importance of the test of

marketability of manufactured goods and the burden of proof

required to be discharged by the Revenue. The CESTAT in this

regard observed thus:-

“On a careful consideration, it is seen that the

Revenue has not produced any evidence of trade

parlance and understanding in the market that this

activity of cutting and routing i.e., cutting the

aluminium of ACP would bring into existence the new

product as known in the market. The Apex Court in

the case of UOI Vs. Delhi Cloth and General Mills Co

Ltd as reported in 1977 (1) ELT J199 (SC) has clearly

laid down that manufacture means bringing into

existence known the market and not merely

producing some change in a substance. The same

Civil Appeal No. 8030 of 2010 Page 49 of 63

ratio was reiterated by, the Apex Court in Hindustan

Zinc Ltd. (supra). In the light of both these rulings and

the ruling relied on by the Counsel rendered in the

case of M/s. Hubli Electricity Supply Company Ltd.

and KEB (supra), it is clear that mere process of

cutting and routing (i.e. cutting the grooves) does not

bring into existence new products. The Tribunal in the

case of AGV Alfab Limited (supra) have also held that

mere cutting of aluminium angles, plates to size,

drilling holes, etc., would not bring into existence new

product. The above cited ratios clearly apply to the

facts of the present case. As the Revenue has not

discharged their burden of marketability of the item

as a separate goods, therefore, in the light of the cited

judgment, it has to held that the impugned cider is

not legal and proper. The same is set aside by

allowing the appeal with consequential relief, if any.”

78. The second test requires an examination as to whether the ACPs

after undergoing the manufacturing process are marketable as

distinct goods having its separate identity. In other words, where

once it is determined that the product emerging from the process

are distinct goods, the inquiry then turns as to whether the goods

having undergone the process are marketable, more particularly,

with its transformed features. Even when the courts directly

assess marketability with the presumption that transformation

has occurred, it is testing the distinctiveness of the goods. Thus,

the second limb of the test completes the assessment on

manufacturing as that is what fastens excise duty.

79. It is pertinent to state that the first and second limbs of the two-

fold test operate independently of each other, and neither limb,

standing alone, is sufficient to establish manufacture. The mere

fact that goods have undergone transformation does not, by itself,

Civil Appeal No. 8030 of 2010 Page 50 of 63

lead to the conclusion that manufacture has occurred. Equally,

the mere fact that goods are marketable after having undergone a

process does not, without more, warrant the conclusion that

manufacture has taken place. Each limb must be independently

examined and satisfied on the basis of the facts and circumstances

of the case, and it is only upon the conjunctive satisfaction of both

limbs that an activity can be properly characterized as

manufacture within the meaning of the Act, 1944. We envisage

following situations for a better exposition:-

Scenario One: The goods entering the process were commercially

useful and the resultant good s are marketable but no

transformation has taken place. It cannot be said to be

manufacturing.

Scenario Two: The goods entering the process were commercially

useless and the resultant good s are not marketable but

transformation has taken place. It also canno t be said to

manufacturing.

Scenario Three: The goods entering the process w ere

commercially useless but the resultant goods are marketable

because transformation has taken place. At the same time, where

the goods entering the process was commercially useful and the

resultant goods are also marketable because of transformation. In

both these cases, manufacturing takes place.

Scenario Four: Where the goods entering the process were

commercially useful but the resultant goods are not marketable

even when transformation has taken place. It could not be said

that manufacturing has taken place.

Civil Appeal No. 8030 of 2010 Page 51 of 63

a. Meaning and understanding of the term “marketable”

80. It is apposite to understand that marketability, as contemplated in

the second limb of the two-fold test, is an absolute and standalone

inquiry. The second limb asks whether the good s that have

emerged possessing a distinct character, identity, or use, are

marketable as such. In other words, the emerging goods must be

capable of standing alone in the market, recognized or traded on

the basis of what it is, not on the basis of what it was.

81. To illustrate, consider a steel ingot that is melted and cast into a

steel pipe. The steel ingot is sold and bought in the market. The

steel pipe is also sold and bought. However, once it is produced, it

is bought and sold as a pipe in with its own characteristics. In

other words, it has completely shed that identity and stands on its

own as new and distinct goods with its own name, its own uses,

and its own place in the market. This is the kind of marketability

that the second limb contemplates. It is needless to state that the

name with which the goods are commonly identified ought not to

be the sole consideration to arrive at a conclusion of marketability.

82. It is not necessary for us to multiply the rulings on this point as

this question now stands concluded by several decisions of this

Court. We need not discuss all the decisions but rather intend to

refer and rely upon a few of them. A Three-judge Bench of this

Court in Moti Laminates (P) Ltd. v. CCE, reported in (1995) 3

SCC 23, had the occasion to consider whether goods mentioned in

the Schedule of Excise Tariff are dutiable as such or they would be

“excisable goods” only when they are marketable. The Court

Civil Appeal No. 8030 of 2010 Page 52 of 63

rejected the submission on behalf of the Revenue that once it is

found that a new substance has been brought and it was known

as such, the burden to prove marketability would stand

discharged. The Court held that the test of marketability is sine

qua non for levying duty even for those goods which are mentioned

in the tariff item. The relevant observations read thus:-

“9. The duty of excise being on production and

manufacture which means bringing out a new

commodity, it is implicit that such goods must be

usable, moveable, saleable and marketable. The

duty is on manufacture or production but the

production or manufacture is carried on for taking

such goods to the market for sale. The obvious

rationale for levying excise duty linking it with

production or manufacture is that the goods so

produced must be a distinct commodity known as

such in common parlance or to the commercial

community for purposes of buying and selling. Since

the solution that was produced could not be used as

such without any further processing or application of

heat or pressure, it could not be considered as goods

on which any excise duty could be levied.

xxx

14. It cannot thus be disputed that even if the resin

produced by the appellants are resols as mentioned

in Item 15-A it could not be subjected to duty. The

purpose of specifying the goods in the Schedule is

twofold, one, the rate on which the duty would be

charged and other that if the goods satisfy the

description and are covered in the entry then they are

liable to pay excise duty. But even in respect of

specified goods it could be established that it was not

marketable or capable of being marketed, therefore,

no duty was leviable on it.[…] Since the test of

marketability or capable of being marketable applies

even to those goods which are mentioned in the tariff

item the intermediate resin produced by the

appellants which are mentioned as resols under

Civil Appeal No. 8030 of 2010 Page 53 of 63

Tariff Item 15-A were not exigible to duty. The finding

of the Tribunal that once the product manufactured

by the appellants answered the chemical description

of the product under Tariff Item 15-A it was

assessable to duty whether it was marketable or not

was thus not well founded.”

(Emphasis supplied)

83. We may look into the decision of this Court in Union of India v.

Sonic Electrochem (P) Ltd., reported in (2002) 7 SCC 435 ,

wherein this Court dealt with an issue as to whether plastic body

of electro mosquito repellent (EMR) are liable to excise duty. The

Court observed that the plastic body was being manufactured to

suit the requirements of EMR of the respondents particularly and

were not available in the market generally. It was observed that

they were not standardized items or goods known or generally

dealt with in the market with any commercial name. The relevant

observations read thus:-

“9. It may be noticed that in the cases referred to in

the passage, quoted above, the reasons for holding

the articles “not marketable” are different, however,

they are not exhaustive. It is difficult to lay down a

precise test to determine marketability of articles.

Marketability of goods has certain attributes. The

essence of marketability is neither in the form nor in

the shape or condition in which the manufactured

articles are to be found, it is the commercial identity

of the articles known to the market for being bought

and sold. The fact that the product in question is

generally not being bought and sold or has no

demand in the market would be irrelevant. The

plastic body of EMR does not satisfy the

aforementioned criteria. There are some competing

manufacturers of EMR. Each is having a different

plastic body to suit its design and requirement. If one

goes to the market to purchase the plastic body of

Civil Appeal No. 8030 of 2010 Page 54 of 63

EMR of the respondents either for replacement or

otherwise one cannot get it in the market because at

present it is not a commercially known product. For

these reasons, the plastic body, which is a part of

EMR of the respondents, is not “goods” so as to be

liable to duty as parts of EMR under para 5(f) of the

said exemption notification.”

(Emphasis supplied)

84. What emerges from the foregoing exposition of law is that

marketability is a decisive test for dutiability. It means that goods

are capable of being bought or sold in the market or are

understood to be available in the market. In other words, it means

“saleable” or “suitable for sale” and it need not be marketed. The

manufactured goods be capable of being sold to consumers in the

market as it is. For this, the distinct goods must be known as such

in commercial parlance or to the commercial commun ity for the

purposes of buying and selling. To establish marketability, it could

be shown that the goods were known in the market as commercial

products. It is this capacity to be identified, bought and sold as a

distinct article that constitutes marketability.

b. Standard of proof to be met while discharging burden of

proof

85. Where the Revenue seeks to levy excise duty, it is not sufficient for

the Revenue to merely point to the process that has been

undertaken. It must establish the commercial consequence i.e.,

the marketability of the goods. In other words, the Revenue must

demonstrate not only that something has been done to the goods,

but that what has been done has resulted in the emergence of

Civil Appeal No. 8030 of 2010 Page 55 of 63

goods that the market recognizes, treats, and deals with as

something new and different.

86. It is well settled that the burden of establishing marketability lies

on the Revenue. Marketability, being a question of fact, must be

determined on the basis of the specific facts and circumstances of

each case, and cannot be presumed or inferred in the absence of

sufficient material. It is for the Revenue to affirmatively

demonstrate by placing adequate material on record. The question

of marketability must be answered on the basis of objective

evidence. A mere assertion cannot discharge this burden.

87. We may now look into some instances of how this Court has

weighed the evidence produced by the Revenue to prove

marketability of manufactured goods. The conduct of the assessee

paying excise duty in the past could not be served as evidence of

marketability. This was held by a Three-judge Bench in Union

Carbide India Ltd. v. Union of India, reported in (1986) 2 SCC

547, wherein it had the occasion to consider whether manufacture

of aluminium cans or torch bodies were exigible to excise duty. The

Court answered the issue in negative by assessing the nature of

the goods at the stage of manufacture, and absence of any

evidence on behalf of the respondents to indicate a market for the

goods. The relevant observations read thus:-

“7. The question here is whether the aluminium cans

manufactured by the appellant are capable of sale to

a consumer. It appears on the facts before us that

there are only two manufacturers of flashlights in

India, the appellant being one of them. It appears also

Civil Appeal No. 8030 of 2010 Page 56 of 63

that the aluminium cans prepared by the appellant

are employed entirely by it in the manufacture of

flashlights, and are not sold as aluminium cans in the

market. The record discloses that the aluminium

cans, at the point at which excise duty has been

levied, exist in a crude and elementary form

incapable of being employed at that stage as a

component in a fleshlight. The cans have sharp

uneven edges and in order to use them as a

component in making flashlight cases the cans have

to undergo various processes such as trimming,

threading and redrawing. After the cans are trimmed,

threaded and redrawn they are reeded, beaded and

anodised or painted. It is at that point only that they

become a distinct and complete component, capable

of being used as a flashlight case for housing battery

cells and having a bulb fitted to the case. We find it

difficult to believe that the elementary and unfinished

form in which they exist immediately after extrusion

suffices to attract a market. The appellant has

averred on affidavit that aluminium cans in that form

are unknown in the market. No satisfactory material

to the contrary has been placed by the respondents

before us. Reference has been made by the

respondents to the instance when aluminium cans

were ordered by the appellant from Messrs Krupp

Group of Industries. This took place, however, in

1966 as a solitary instance, and what happened was

that aluminium slugs were provided by the appellant

to Messrs Krupp Group of industries for extrusion into

aluminium cans. The facts show that the transaction

was a works contract and nothing more. Apparently,

the appellant made use of the requisite machinery

owned by that firm for extruding aluminium cans. Not

a single instance has been provided by the

respondents demonstrating that such aluminium

cans have a market, the record discloses that

whatever aluminium cans are produced by the

appellant are subsequently developed by it into a

completed and prefected component for being

employed as flashlight cases.

Civil Appeal No. 8030 of 2010 Page 57 of 63

8. Much emphasis has been laid by the respondents

on the circumstance that the appellant had in the

past treated the aluminium cans produced by it as

excisable goods and had submitted price lists to the

excise authorise which included a margin of profit in

the specified price. It is clear that the appellant did so

under the mistaken belief that the aluminium cans

attracted excise duty. The margin of profit included in

the price was arrived at notionally, in order merely to

comply with the demand of the excise authorities for

the submission of price lists. The conduct of the

appellant in the past, having regard to the

circumstances of the case, cannot serve as evidence

of the marketability of the aluminium cans. Indeed,

subsequent price lists were submitted under

“protest” by the appellant, who maintained that the

article did not attract excise duty.”

(Emphasis supplied)

88. The question before this Court in CCE v. Ambalal Sarabhai

Enterprises (P) Ltd., reported in (1989) 4 SCC 112, was whether

starch hydrolsate is “goods” which could attract excise duty. The

Court referred to an affidavit by one Food Technologist indicating

propensity of it being non-marketable. Further, the evidence noted

by the Tribunal also indicated that hydrolysed starch is not being

marketed by anyone. Nonetheless, no enquiry was conducted or

evidence was adduced by the Revenue to this effect. The Court held

that the Revenue failed to discharge its onus to prove that the

product was dutiable. Similarly, in CCE v. United Phosphorus

Ltd., reported in (2000) 4 SCC 18, the Court held that mere

mention of an article in dictionary as “goods” would also not satisfy

the test of marketability.

Civil Appeal No. 8030 of 2010 Page 58 of 63

89. We may also look into the decision of this Court in Hindustan

Zinc Ltd. v. CCE, reported in (2005) 2 SCC 662, wherein the

question before the Court was whether an intermediate product

produced in the manufacture of zinc is marketable. Notably, both

the product of the assessee and the product in the market was

silver chloride. Although, the show cause notice to the assessee

recorded that as per market enquiry, silver chloride having 50%

silver was a marketable commodity, yet, the Revenue failed to

show the contents of the market enquiry. Further, no efforts were

made to ascertain whether silver chloride consisting 50% silver

had a market. As a result, the Court held that the Revenue failed

to prove the test of marketability. In Gujarat Narmada Valley

Fertilizer Co. Ltd. v. Collector of Excise & Customs, reported

in (2005) 7 SCC 94 , the dictum of the Court was that

marketability cannot be established by hypothetical possibility of

sale and purchase of the goods but when there is sufficient proof

that the goods are commercially known.

90. In yet another decision of this Court in Cipla Ltd. v. CCE, reported

in (2010) 5 SCC 534, the Court dealt with an issue as to whether

benzyl methyl salicylate (BMS) is marketable and exigible to excise

duty. The Revenue did not adduce any evidence to show that the

product was marketable or capable of being marketed. It merely

relied on Chemical Weekly Drug Directory to show BMS as an

intermediate product. While rejecting such reliance, the Court

observed that since there was no evidence of buying or selling in

the market, it could not be said that the product was marketable.

Civil Appeal No. 8030 of 2010 Page 59 of 63

91. In circumstances referred to above, there is no doubt that the

standard of proof to be met is that of preponderance of

probabilities. In this regard, it would be apposite to refer to

observations of Lord Denning in Bater v. Bater, [1951] P. 35,

wherein he succinctly expressed the degrees of probabilities within

preponderance of probabilities. The relevant observations read

thus:-

“I do not think that the matter can be better put than

it was by Lord Stowell in Loveden v. Loveden (1810)

2 Hagg. Con. 1, 3. “The only general rule that can be

laid down upon the subject is, that the circumstances

must be such as would lead the guarded discretion

of a reasonable and just man to the conclusion”. The

degree of probability which a reasonable and just

man would require to come to a conclusion — and

likewise the degree of doubt which would prevent

him coming to it — depends on the conclusion to

which he is required to come. It would depend on

whether it was a criminal case or a civil case, what

the charge was, and what the consequences might

be; and if he were left in real and substantial doubt

on the particular matter, he would hold the charge not

to be established: he would not be satisfied about it.

But what is a real and substantial doubt? It is only

another way of saying a reasonable doubt; and a

reasonable doubt is simply that degree of doubt

which would prevent a reasonable and just man from

coming to the conclusion. So the phrase “reasonable

doubt” takes the matter no further. It does not say

that the degree of probability must be as high as 99

per cent. or as low as 51 per cent. The degree

required must depend on the mind of the reasonable

and just man who is consid ering the particular

subject-matter. In some cases 51 per cent. would be

enough, but not in others. When this is realized, the

Civil Appeal No. 8030 of 2010 Page 60 of 63

phrase “reasonable doubt” can he used just as aptly

in a civil case or a divorce case ns in a criminal case;

and indeed it was so used by my Lord in Davis v.

Davis [1950] P. 125 and Gower v. Gower 66 T. L. R.

(Pt. I) 717 to which we have been referred. The only

difference is that, because of our high regard for the

liberty of the individual, a doubt may be regarded as

reasonable in the criminal courts, which would not be

so in the civil courts. I agree therefore with my

brothers that the use of the phrase “reasonable

doubt” by the commissioner in this case was not a

misdirection any more than it was in Briginshaw v.

Briginshaw (1938) 60 C. L. R. 336.”

(Emphasis supplied)

92. In terms of varying degree of probability that would be required to

establish marketability of respective goods, to lay down a general

rule or rather attempt to define what circumstances would be

sufficient or insufficient to infer the fact of marketability would be

impossible.

93. In the aforesaid context, when we say “degree of probability”, we

mean it vis-à-vis the goods in consideration. That a commodity

may be so rare that even one instance of it being marketable would

be sufficient. On the other hand, where the commodit ies are

common goods, the degree of probability would be correspondingly

higher. Thus, the degree of probability is a flexible and calibrated

to the nature, rarity, or character of the goods in question.

94. All that we are trying to convey is that the degree of probability

should be proportionate to the subject matter. In other words, on

an objective perusal of the evidence so produced, the courts must

Civil Appeal No. 8030 of 2010 Page 61 of 63

either believe it to exist or consider its existence so probable that

a reasonable man ought, under the given circumstances, acts

upon the supposition that it exists.

95. The standard of proof to be met by the Revenue ought to be one

where on a careful analysis of the evidence before the courts, it

aids in eliminating subjectivity and reaching a justifiable

conclusion. In other words, the courts must come at a considered

conclusion as to whether the Revenue has discharged its burden

of establishing that the goods in question were marketable as a

distinct and independent product. The conclusion must flow from

the evidence and not from assertion, assumption, or the mere fact

of a process having been undertaken.

96. In the present case, as mentioned above, since the ACPs have not

undergone any transformation being goods having distinct

characteristics, or identity, or use, the question of marketability

pales into insignificance.

VII. CONCLUSION

97. A conspectus of the aforesaid detailed discussion on the position

of law as regards Sections 35G and 35L, respectively, and the

meaning and application of “manufacture”, is as follows:-

i. An appeal from an order passed by the Appellate Tribunal

relating to the determination of any question having a relation

to the rate of excise duty or to the value of goods for the purpose

of assessment lies before this Court and not before the High

Court. However, such exclusion is not attracted by every

question touching the rate of duty or the value of goods. The

Civil Appeal No. 8030 of 2010 Page 62 of 63

question must have a direct and proximate relationship with

assessment.

ii. The question of excisability of goods is connected with the rate

of duty for the purpose of assessment. A decision on excisability

of goods would be a precursor to the determination of any

question having a relation to the rate of duty or to the value of

goods.

iii. Sub-section (2) of Section 35L of the Act, 1944, merely gives

statutory expression to the collective reading of Sections 35G

and 35L respectively. It clarified that excisability always fell

within the expression “rate of duty”. Thus, when an amendment

intends to clarify something which is implicit in the operation

of a provision, such an amendment operates retrospectively.

iv. The process of making superficial changes in order to facilitate

the use of goods, which do not alter the fundamental properties

of the goods, does not create a distinct product so as to pass

the transformation test. To levy excise duty, marketability of the

manufactured goods has to be proved. A manufactured good s

are said to be marketable when they is capable of being bought

or sold, or known as a commercial product in the market.

v. The burden of establishing marketability of the manufactured

goods lies on the Revenue, and it must be discharged by

demonstrating “marketability” as defined in the foregoing

paragraphs of this judgment. In this regard, the standard of

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proof while discharging the burden must be met keeping in

mind the goods in question.

98. Thus, from an exhaustive analysis of the position of law on the

issue, we are of the view that the process undertaken by the

appellant does not result in a distinct product.

99. In the result, the appeal succeeds and is hereby allowed. The

impugned judgment is set aside. Pending applications, if any, shall

stand disposed of.

………………………….. J.

(J.B. PARDIWALA)

.………………………….. J.

(R. MAHADEVAN)

27

th May, 2026;

New Delhi