Back
2026 Supreme(SC) 879
SUPREME COURT OF INDIA
S.V.N. Bhatti, N.V. Anjaria, JJ.
Commissioner of Central Excise, Hyderabad-IV – Appellant
Versus
M/S Xerox India Ltd. & Ors. – Respondents
Civil Appeal Nos. 5939-5941 of 2010 With Civil Appeal Nos. 11870-11872 of 2018
Decided On : 05-08-2026
For the Appellant(s) : Mr. B. Krishna Prasad, AOR Mr. Gurmeet Singh Makker, AOR
For the Respondent(s): Mr. V Lakshmikumaran, Adv. Mr. L Badri Narayanan, Adv. Ms. Charanya Lakshmikumaran, AOR Ms. Neha Choudhary, Adv. Ms. Nitum Jain, Adv. Ms. Medha Sinha, Adv. Mr. Yashovardhan Singh, Adv. Mr. Swastik Mishra, Adv. Mr. Adithya Nair, Adv. Ms. Ananya Gupta, Adv.
An activity qualifies as 'manufacture' only when a distinct commercial commodity with a new name, character, and use emerges. Mere assembly or kitting of imported components, which leaves the product's essential character unchanged and marketable as the original goods, does not constitute an excisable manufacturing process.
Headnote:(A) Central Excise Act, 1944 - Section 2(f) - Central Excise Tariff Act, 1985 - Section XVI - Note 6 - Manufacture - Definition and criteria - Held, for an activity to qualify as “manufacture,” it must result in the emergence of a new and distinct commercial commodity having a name, character, and use different from the original inputs - Mere assembly, kitting, or packaging that does not transform the essential identity of the goods does not constitute manufacture. (Paras 13-15)
(B) Burden of Proof - Revenue, in a demand for excise duty, bears the burden of establishing that the activity in question satisfies the definition of “manufacture” and that a conversion of an incomplete article into a complete product has actually occurred. (Paras 17, 19)
(C) Classification and Deeming Provisions - The application of deeming provisions regarding the conversion of incomplete or unfinished articles into finished ones requires evidence that the articles were indeed incomplete upon arrival and underwent a process of conversion. Where goods are cleared and assessed as complete machines upon import, the process of handling them in a warehouse does not trigger manufacturing liability. (Para 18)
Facts of the case:
The disputes involved the classification of activity undertaken at regional distribution facilities where modular parts were grouped and configured to meet specific customer requirements. Revenue contended that this configuration and assembly process amounted to the manufacture of machines under the prevailing excise legislation. The opposing party argued that the activity was merely a logistical arrangement for shipping and packaging, often referred to as kitting, and did not result in the creation of a new, distinct product.
Findings of Court:
The court observed that the revenue authorities failed to provide evidence of physical assembly or transformation. The goods had already been imported and assessed as complete units. Since no new commercial commodity with a distinct name, character, or use emerged from the simple acts of unpacking and plugging components together, the activity did not satisfy the essential tests for manufacturing.
Issues: The main issues were whether the grouping of components for market readiness constitutes “manufacture” under the applicable legal framework, whether the deeming provisions for unfinished goods apply to modular imports, and whether the revenue met the burden of proof to characterize the logistical processing as industrial assembly.
Ratio Decidendi: “Manufacture” requires a substantive change where the original identity of the commodity ceases to exist, replaced by a new, marketable product. Because the goods retained their essential character and no transformation occurred that rendered the components commercially unrecognizable from the finished product, the process was purely functional/logistical and not manufacturing.
Result: Appeals dismissed.
| Table of Content |
|---|
| 1. determination of whether importing and grouping modules constitutes manufacture under section 2(f). (Para 1 , 2 , 3 , 4 , 5 , 6) |
| 2. disputed classification of warehouse activities as either kitting or manufacturing. (Para 7 , 8 , 9) |
| 3. conflicting arguments regarding the interpretation of technical assembly and transformation. (Para 10 , 11) |
| 4. application of the essential character and transformation tests from judicial precedents. (Para 13 , 14 , 15 , 16) |
| 5. requirement of physical evidence to prove conversion of incomplete goods into new marketable products. (Para 17 , 18 , 19 , 20) |
| 6. dismissal of revenue's appeal due to failure to establish mandatory elements of manufacture. (Para 21 , 22) |
JUDGMENT :
S.V.N. BHATTI, J.
1. Revenue is the Appellant. Civil Appeal Nos. 5939-5941 of 2010 arise from the Order dated 09.11.2009 in Central Excise Appeal Nos. E/591, 592 & 596 of 2009 in the CESTAT, South Zonal Bench at Bangalore, and in turn the said appeals were filed questioning the Order-in-Original No. 04/2008-C Ex. Dated 28.03.2008 of the Commissioner of Central Excise, Hyderabad-IV (“O-I-O”).
2. Civil Appeal Nos. 11870-11872 of 2018 are also at the instance of Revenue and are directed against the Order dated 31.07.2017 in Appeal Nos. E/975, 976, and 977 of 2009, which, in turn, is directed against the Order in Original No. 57/COMMR./Meerut-II/2008 dated 28.11.2008, passed by the Commissioner of Central Excise, Meerut-II.
3. M/s Xerox India Ltd. Is the first Respondent in both sets of Appeals. Respondent Nos. 2 and 3 held executive positions with the first Respondent. The circumstances and the point for determination in both sets of Appeals are similar, and hence are considered and disposed of by this common Judgment. The circumstances in Civil Appeal Nos. 5939-5941 of 2010 are referred to for the purpose of factual narration and are sufficient for disposing of Civil Appeal Nos. 11870-11872 of 2018. The parties are referred to as Revenue and Assessee.
4. The point for determination in both sets of Appeals is whether the activity undertaken by the Assessee at its warehouse, the grouping and, to whatever extent, the fitting together of imported modules into Xerox Photocopier machines to meet a customer’s need, amounts to “manufacture” within the meaning of Section 2(f) of the Central Excise Act, 1944 (“C E Act”), read with Note 6 to Section XVI of the First Schedule to the Central Excise Tariff Act, 1985 (“C E Tariff Act”).
CIVIL APPEAL NOS. 5939-5941 OF 2010
5. The Assessee is engaged in the business of photocopiers, toners and photoreceptors. It also trades digital multi-functional printers, copiers and photocopiers-cum-printers, which fall under Tariff sub-head 8471.00. The Assessee has a warehouse at Hyderabad, State of Telangana, within the territorial jurisdiction of the Appellant, and another hub/warehouse in Rampur, State of Uttar Pradesh.
6. The Assessee, by paying Customs and Countervailing Duty (“CVD”), imports parts, modules, and accessories of the said machines in complete knocked down (“CKD”) or semi-knocked down (“SKD”) condition from the warehouses of the Assessee’s sister concern. In the Appeals, the dispute between the Revenue and the Assessee relates to the period between April, 2002 and November, 2006. On 04.05.2007, the Appellant/Revenue issued a Show Cause Notice (“SCN”) to the Assessee. The SCN was issued on the ground that the Assessee’s activity at the subject warehouse amounts to manufacturing within the meaning of Section 2(f) of the C E Act. The SCN is premised on the following circumstances:
6.1 Xerox India Limited manufactures digital multi-function printers (tariff heading 8471.00), photocopiers (9009.00), toners (3707.00) and photoreceptors. The SCN rests on documents seized during the search of the Assessee’s warehouse and on statements of its employees recorded under Section 14 of the C E Act.
6.2 The First Respondent imports parts and modules in CKD or SKD condition from Xerox Group wareh
