Facts
The respondent imported photocopier parts/modules in CKD/SKD condition after paying customs duty and CVD, classifying them as complete machines under Tariff Heading 8471. At its Hyderabad and Rampur warehouses, the imported modules were grouped ("kitted") according to customer specifications before dispatch. Revenue alleged that this activity amounted to manufacture and raised excise duty demands under S.2(f) Central Excise Act, 1944, contending that complete photocopiers emerged after assembly. The CESTAT set aside the demand, holding that no manufacturing activity took place. Revenue appealed before the Supreme Court.
Issues Framed
Whether the activity of grouping and fitting together imported photocopier modules at the respondent's warehouse amounts to "manufacture" within the meaning of S.2(f) Central Excise Act, 1944 read with Note 6 to Section XVI of the Central Excise Tariff Act, 1985.
Court’s Reasoning
(a) The Court reaffirmed that manufacture requires the emergence of a new article having a distinctive name, character, and use. Mere labour, assembly, or increase in value is insufficient unless the original commodity loses its identity. It reviewed precedents including Delhi Cloth Mills, Tulaman, BPL India, Servo-Med, Quippo, and Alupro to reiterate this settled test.
(b) The Tribunal's finding that the respondent merely unpacked, pinned, plugged, and grouped imported modules without physically assembling them into a new product was based on evidence and was not perverse. Revenue failed to prove that any manufacturing process occurred at the warehouse.
(c) Note 6 to Section XVI was held inapplicable because Revenue failed to establish that the imported goods were incomplete or unfinished articles subsequently converted into complete machines. Having assessed the imports as complete machines for customs purposes, Revenue could not simultaneously treat them as incomplete for excise purposes.
Held
The activity undertaken by the respondent amounted only to "kitting" and not manufacture. The appeals filed by Revenue were dismissed, and the Tribunal's order setting aside the excise demand was affirmed.
Ratio
The activity in the case on hand does not fall within the definition of Section 2(f) of the C E Act. The argument of the Revenue that Note 6 of Section XVI of the C E Tariff Act is attracted is, at best, an additional ground to justify the impugned demand, as the essential requirements of the said provision are not established.
Relevant Para
Para 17
"To sustain the impugned demand, the Revenue must bring the Assessee's activity strictly within the definition of Section 2(f) of the C E Act. The Tribunal, in the Impugned Order, has pointed out the fallacies in the Commissioner's approach in making the O-I-O dated 28.03.2008, and also how the Revenue has failed to discharge the burden placed on it to decide whether the activity is a manufacturing activity. The Assessee claims the subject activity as 'kitting' of modules to make a photocopier. The Assessee's line of activity is subjected to the tests referred to in the decisions supra. Admittedly, the Assessee has imported the goods under Tariff Heading 8471 and paid Customs Duty against that Heading, which deals with automatic data processing machines and units thereof. The Assessee claims to have paid CVD for photocopiers alone. In the circumstances accepted by the Tribunal, the activity is one of pinning and plugging different parts together, which is called kitting to make a complete set as per the customer's specification. Before concluding, we would like to refer to the finding recorded by the Tribunal, and are of the view that the activity in the case on hand does not fall within the definition of Section 2(f) of the C E Act. The argument of the Revenue that Note 6 of Section XVI of the C E Tariff Act is attracted is, at best, an additional ground to justify the impugned demand, as the essential requirements of the said provision are not established."
Case Details
Citation: 2026 INSC 805
Decided on: 5 August 2026
Case Title: Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors.
Court: Supreme Court of India
Bench: S.V.N. Bhatti, J.; N.V. Anjaria, J.