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Issues: (i) whether the High Court had jurisdiction under Section 35G of the Central Excise Act, 1944 to decide the excisability of the aluminium composite panels; and (ii) whether cutting, grooving and routing of the aluminium composite panels amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.
Issue (i): whether the High Court had jurisdiction under Section 35G of the Central Excise Act, 1944 to decide the excisability of the aluminium composite panels.
Analysis: An appeal under Section 35G is excluded where the order of the Tribunal concerns a question having a relation to the rate of duty or the value of goods for assessment. The determination whether goods are excisable is a necessary precursor to assessment and is directly and proximately connected with the rate of duty. Section 35L, read with its clarificatory sub-section (2), channels such disputes to the Supreme Court and confirms that excisability falls within the excluded class of questions.
Conclusion: The High Court lacked jurisdiction to decide the question of excisability; the proper forum was the Supreme Court.
Issue (ii): whether cutting, grooving and routing of the aluminium composite panels amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.
Analysis: Manufacture requires emergence of a new and distinct commercial product with a different name, character or use, and marketability of the resultant goods must also be shown. The process undertaken only cut the panels to size, grooved them and adapted them for installation. It did not alter the essential identity or commercial character of the goods, and the Revenue did not establish that the processed panels emerged as distinct marketable goods.
Conclusion: The process did not amount to manufacture and the resultant goods were not shown to be dutiable excisable goods.
Final Conclusion: The appeal was allowed, the High Court's judgment was set aside, and the assessee succeeded on both jurisdiction and merits.
Ratio Decidendi: A dispute on excisability is a question having a direct and proximate relation to assessment and therefore lies within the Supreme Court's exclusive appellate domain under Section 35L, and superficial processing that does not create a distinct marketable commercial product is not manufacture.
Excisability and manufacture under central excise law: High Court lacked jurisdiction, and panel processing was not manufacture.
A dispute on excisability has a direct and proximate relation to assessment and therefore falls within the Supreme Court's exclusive appellate domain under Section 35L; the High Court lacked jurisdiction under Section 35G to decide that issue. Cutting, grooving and routing aluminium composite panels merely adapted them for installation and did not bring into existence a new, distinct and marketable commercial product with a different name, character or use; the process was therefore not manufacture under Section 2(f). The assessee succeeded on both jurisdiction and merits, and the High Court's judgment was set aside.
Jurisdiction of the High Court under Section 35G of the Central Excise Act, 1944 to decide the appeal - Excisability as a question relating to rate of duty - Clarificatory and retrospective amendment - cutting, grooving, routing and fixing of aluminium composite panels - Meaning, scope and application of “manufacture” under Section 2(f) - Marketability of transformed goods. Excisability and appellate forum - Relation to rate of duty for assessment - Clarificatory amendment to appellate jurisdiction - HELD THAT: - The Court held that the exclusion in Section 35G covers questions having a direct and proximate relation to the rate of duty or value of goods for purposes of assessment, and that excisability is intrinsically part of that exercise. 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. A determination whether goods are excisable is a necessary precursor to assessment and therefore falls within the expression relating to rate of duty. Reading Sections 35G and 35L together, the statutory scheme is complete and mutually exclusive: what is excluded from the High Court's jurisdiction is channelled to the Supreme Court. The later insertion of Section 35L(2) was held to be merely clarificatory, as it did not create a new right or forum but only made explicit that taxability or excisability was always included within questions relating to rate of duty; consequently, it operates retrospectively. [Paras 43, 45, 46, 47, 53] The Revenue's remedy against the Tribunal's order lay before the Supreme Court under Section 35L and not before the High Court. Manufacture of aluminium composite panels - Transformation test - Marketability as distinct goods - Burden to prove marketability - HELD THAT: - The test laid down in J.G. Glass [1997 (12) TMI 110 - SUPREME COURT] 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 [2015 (5) TMI 292 - SUPREME COURT] tied the application of the tests to marketability of the manufactured goods. This is done so because it is marketability which reflects whether the goods are excisable goods as defined under the Act, 1944. 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. It is undisputed that the cutting and grooving are undertaken at the premise of the appellant. However, the location at which a such 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. 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. The Court applied the settled two-fold requirement for excisability: emergence of distinct goods with a new identity, character or use, and marketability of the transformed goods as such. On the facts, what entered the process was an aluminium composite panel and what emerged remained the same panel, only cut, grooved and bent for site-specific fixing. These operations merely adapted the goods for installation and did not alter their fundamental identity, character or end-use as cladding or facade material. The subsequent fixing on frames with clamps and sealant was also treated as installation activity, not creation of new goods. The Court further reiterated that marketability is an independent requirement and must be affirmatively proved by the Revenue through objective material showing that the goods are recognized and dealt with in the market as a distinct product. Since no transformation into distinct goods was shown, the question of marketability lost significance in the present case. [Paras 84, 85, 86, 95, 96] The process undertaken by the assessee did not yield a distinct excisable product, and excise duty was therefore not attracted. Final Conclusion: The Supreme Court allowed the appeal, held that the High Court had no jurisdiction to decide the Revenue's appeal on excisability, and further held on merits that cutting and grooving aluminium composite panels for site-specific installation did not amount to manufacture. The impugned judgment was accordingly set aside.
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