The Supreme Court on Wednesday (August 5) held that a mere grouping and fitting together of imported photocopier modules for dispatch to customers does not amount to “manufacture” under the Central Excise Act, 1944, to attract an excise duty.

A bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria dismissed the revenue's appeal, upholding the Customs Excise & Service Tax Tribunal (CESTAT) order to set aside the central excise demand of ₹17.86 crore raised against Xerox India Ltd. for grouping imported modules and accessories according to customer specifications before dispatch.

“By grouping the parts of a complete copier with printer or without printer, assigning the parts in each set a unique number using a computer, we hold, does not amount to manufacture. There is no conversion of an incomplete machine into a complete machine in the warehouse to attract the Section Note 6 of Section XVI.”, the Court approved the CESTAT reasoning, while rejecting the revenue's contention that the activity amounted to a manufacture to attract the excise duty.

The Court noted that a process amounts to manufacture only when it results in a commercially distinct product with a different name, character and use. A mere “kitting” or grouping of imported modules does not constitute manufacture unless a new commercially distinct product emerges, the Court added.

“Two prongs must be established before the deeming provision can be invoked. First, that what was presented was incomplete or unfinished, and secondly, that a conversion of it into the complete article was carried out by the person sought to be charged. On the Tribunal's findings, neither is made out. The goods were imported, classified and assessed as complete machines under Heading 8471, and were cleared from the warehouse in the sets and in the original packing in which they had been received, with no process having been performed upon them there. The Revenue cannot, upon one and the same set of facts, treat the goods as complete machines for the purpose of levying customs duty including CVD…”, the Court observed.

Revenue Failed To Produce Evidence Of Manufacture

The Court stressed that in modern times, authorities can readily produce photographic or technological evidence to demonstrate manufacturing activity. According to the Court, if the Revenue's allegation was that complete photocopiers emerged from the warehouse process, it could have substantiated the claim through direct evidence rather than relying on assumptions.

“The Revenue failed to establish that in the simple process of unpacking, plugging or pinning, the imported modules are changing the head under which they are imported. Further, the imported modules/parts are not shown to be unfinished or semi-finished. Consideration now turns to whether the findings of fact recorded by the Tribunal are available. In our considered view, the Tribunal's findings are both brief and correct, and adhere to brevity. The Tribunal considered the record in its entirety, including the depositions of the Assessee's officers, the purchase orders, the bills of entry and the storage tickets, together with the presentation made before it on behalf of the Assessee. It found that the components alleged to have been fitted to the main module were cleared in their original packing. Further, the HCF and the DADF had been fitted at the factory of the Assessee's sister concerns abroad. The Revenue was unable to point to any evidence to the contrary, and no deposition of any Executive of the Assessee states that the modules were assembled in the warehouse. It further found that the Commissioner had concluded that the assembly was undertaken without making any verification whatsoever. These findings are not perverse, rest upon evidence, and have been arrived at by careful consideration of the material on record.”, the Court observed.

In terms of the aforesaid, the appeal was dismissed.

Headnote

Central Excise Act, 1944 — Section 2(f) — Central Excise Tariff Act, 1985 — First Schedule, Section XVI, Note 6 — Manufacture — Kitting and Assembly of Imported Modules – Held - Grouping and kitting imported photostatic parts, modules, and accessories in sets according to customer specifications, followed by minimal pinning, plugging, or packing in a warehouse for dispatch, does not constitute "manufacture" under Section 2(f) of the Central Excise Act, 1944 - The Revenue failed to prove physical assembly or transformation resulting in a new, commercially distinct article. Additionally, Note 6 to Section XVI of the First Schedule to the Central Excise Tariff Act, 1985 is not attracted when goods are imported, classified, and assessed as complete machines in complete/semi knocked-down (CKD/SKD) condition and cleared from the warehouse in their original packaging without undergoing any process of conversion from an incomplete to a complete machine - Key Rulings & Observations – i. Definition and Tests of "Manufacture" - Manufacture under Section 2(f) requires a transformation where a new and distinct article emerges with a separate commercial identity, name, character, or end-use - Mere processing, kitting, or simple assembly that leaves the commodity commercially the same article does not amount to manufacture, regardless of the labor, skill, or value added – ii. Applicability of Note 6 to Section XVI - Note 6 operates specifically on incomplete or unfinished articles - Where the Revenue assesses and levies customs duty/CVD on imported items as complete machines under Tariff Heading 8471, it cannot simultaneously treat the same items as incomplete/unfinished articles to invoke Note 6 for levying excise duty – iii. Burden of Proof on Revenue - The Revenue cannot rely on generic inferences or unsubstantiated assumptions without proper physical inspection or best evidence showing actual manufacturing operations taking place inside the warehouse. [Relied on Union of India v. Delhi Cloth and General Mills Co. Ltd., (1962) SCC OnLine SC 148; Servo-Med Industries Private Limited v. Commissioner of Central Excise, Mumbai, (2015) 14 SCC 47; Distinguished from M/s Narne Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central Excise, Hyderabad, (1989) 1 SCC 172; Quippo Energy Ltd. v. Commissioner of Central Excise, Ahmedabad-II, (2025) 152 GST R 264 (SC); Paras 13-19]

Cause Title: COMMISSIONER OF CENTRAL EXCISE, HYDERABAD-IV VERSUS M/S XEROX INDIA LTD. & ORS. (with connected case)

Citation : 2026 LiveLaw (SC) 767

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Appearance:

For Appellant(s) : Mr. Raghvendra P Shankar, A.S.G. (Argued by) Mr. B. Krishna Prasad, AOR Mr. Gurmeet Singh Makker, AOR Mrs. Pallavi Mishra, Adv. Mr. Anmol Chandan, Adv. Mr. Nikhil Aradhe, Adv.

For Respondent(s) :Mr. V Lakshmikumaran, Adv. (Argued by) 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.

Related : Converting Imported Goods Into Distinct, Marketable Products Qualifies As 'Manufacture'; Attracts Excise Duty: Supreme Court