TaxTMI 
TaxTMI 
2026 (8) TMI 328
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..... 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 Secti....
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....istinguishable parts and modules, different from accessories. The work of assembling the imported parts appears substantial from the change of tariff heading, i.e., parts under 8471.00 yield a copier-cum-printer under 9009.00. Exceptionally, a complete machine was imported, and accessories were added. 6.3 The First Respondent, though, calls the assembly 'kitting'; none was done on the subject consignments. It was more than arranging parts; the First Respondent's own internal communications treat it as irreversible, and it added weight to the imported modules. The Duplex Automatic Document Feeder ("DADF") and the High Capacity Feeder ("HCF") could be fitted only at the First Respondent's factory, not by an engineer at the customer's site. The work could be done only at Rampur or Hyderabad. Installation at the customer's premises was confined to cases where transporting a machine wholly or partly assembled risked damage, and a single consolidated price was charged with no separate element for installation. These processes, at the factory and in some cases at the site, are incidental or ancillary to the completion of a manufactured product and fall within Section 2(f) of the CE Act....
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....of an article which is incomplete, but has the essential character of the complete article, into the complete article shall amount to manufacture. The material set out in the SCN, resting on the depositions of the Assessee's officers and on the documents of import and distribution, shows that what was imported was not a complete machine or photocopier, but components and modules for specified models. Hence, manufacture was complete only upon the assembly of those components and parts at the Assessee's warehouse. The Assessee had failed to show that it had imported a complete machine presented in unassembled form merely for convenience of handling or transportation. A complete machine thus came into existence by the assembly of various components in the warehouse, and duty was accordingly payable on the sale price of the assembled goods as photocopiers in view of Section 2(f) of the CE Act. 8.2 The objection to territorial jurisdiction was rejected. Further, Respondent Nos. 2 and 3 were held liable for penalty under Rule 26 of the CE Rules 2002 as persons directly associated for the import and the subsequent distribution of the goods after assembly, without payment of duty. The C....
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....6. We find that the appellants did not carry out any activity as envisaged in this note. The components received in sets were cleared as such; no conversion of an incomplete machine into complete machine took place in the warehouse of the appellants. Assembly of components into photocopiers took place at the premises of the respective buyers. In view of this factual position the arguments advanced by the Revenue are totally irrelevant. 7. The Ld. Spl Counsel argued that the components imported were assembled in the warehouse by kitting and this operation using the computer system was assembly, though not in a physical sense. ... However, we find that in a case involving parts of copier machines process of manufacture can only be a physical process. A computer cannot produce any tangible goods such as photocopiers." "8. ... In the case on hand the parts found to have been fitted to the main module were not dealt with except for removing them in sets in their original packing. 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 ....
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....threshold for manufacture. 10.3 Respondent deliberately mischaracterised their manufacturing assembly as "kitting" or "trading" and made misstatements about merely moving parts between packages. This constitutes a wilful contravention of Section 3 of the CE Act and Rules 4, 6, 8, 10, 11 and 12 of the CE Rules, 2002. Accordingly, the Appellant can invoke the extended period of limitation under Section 11A of the CE Act. 10.4 He places strong reliance on Section 2(f)(i) read with the Note 6 of Section XVI of the First Schedule to the CE Tariff Act, and the decisions in M/s Narne Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central Excise, Hyderabad (1989) 1 SCC 172., BPL India Ltd. v. Commissioner of Central Excise, Cochin (2002) 5 SCC 167., and Quippo Energy Ltd. v. Commissioner of Central Excise, Ahmedabad-II. (2025) 152 GST R 264 (SC). 11. Mr. V Lakshmikumaran, appearing for the Assessee, contends that the O-I-O contains no findings to justify applying Section 2(f)(i) of the CE Act, which covers processes incidental or ancillary to manufacturing. Further, "manufacture" strictly requires the transformation of goods into a new, distinct substance. A process th....
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....l Excise, Jaipur. 1999 112 E.L.T 305 (Tribunal) confirmed by this Court in 2005 (184) E.L.T A37 (S.C). 11.4 He supports the Tribunal's view that, in the circumstances of the case and having regard to the nature of the activity undertaken by the Assessee, Section 2(f) of the CE Act and the General Rules of Interpretation of the First Schedule are not attracted. It is further contended that Note 6, Section XVI of the CE Tariff Act is attracted in cases where an article that is incomplete or unfinished undergoes a process or conversion resulting in a complete or finished article, and such activity can be construed as manufacturing. The fixing of different components through minimal electric circuiting and wrapping them up for dispatch to the end user is a convenient packaging of assorted articles or equipment into a bundle, and despatched under one invoice. The movement of articles from import till employment for use by the Assessee, as per the admitted case of the Revenue, falls under Heading 8471 of the Customs Tariff Manual, and the goods were subjected to import duty at 16% of the value. They are imported as automatic data processing machines and have paid duty as printer or li....
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....he commercial community. The Transformation and Marketability Test: Manufacture v. Processing: The Court applied the principle that "manufacture" implies a transformation where a new and different article must emerge having a distinctive name, character, or use. Mere "processing" that causes minor changes in a substance does not amount to "manufacture". Definition of "Goods": This Court looked at the commercial definition of "goods" as items that are ordinarily brought to the market and sold by merchants. Excise duty is leviable on the manufacture of "goods," meaning the process must bring into existence a new substance that is recognized and known to the market. The definition of "manufacture" under Section 2(f) of the CE Act, which includes incidental or ancillary processes, is intended to ensure the Act applies if power is used at any stage of production. It does not turn mere processing into an excisable activity unless a distinct commercial commodity emerges. Because the raw oil subjected to neutralization and bleaching without deodorization was not recognized as "refined oil" by consumers or the commercial trade, no new commodity known to the market was brou....
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....iff under the item "weighbridges". Its identity was not that of any of the three components. The appellant therefore became the manufacturer of the weighbridge and was liable to duty on it. The idea that because a part of the machine is dutiable, the end product cannot also be dutiable as separate excisable goods, was held to be wrong. BPL India (supra) The appellant imported kits of components for Video Tape Recorders (VTRs) and colour monitors in a disassembled or semi-knocked-down (SKD) condition. The imported components were put together at the factory using imported fasteners. As per the Revenue, the assembly was not done by laymen. It required technical experts or skilled persons to transform the parts into a functional state. Determining when manufacture occurs under Section 2(f) of the Act is a mixed question of law and fact. A process constitutes "manufacture" when a new and distinct article emerges with a distinctive name, character, or use. Under the Central Excise framework, if both the component parts and the final assembled product are recognised as distinct taxable goods in the tariff, paying duty on the parts does not automatically exempt the final....
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....15) 13 SCC 430, compounding raw asafoetida with gum arabic and wheat flour was held not to be manufacture, the essential character being unchanged and there being no chemical reaction between the additives and the asafoetida. In CST v. Pio Food Packers, 1980 Supp SCC 174, this Court held that with each process suffered the original commodity experiences a change, but manufacture occurs only when the change, or a series of changes, takes the commodity to the point where commercially it can no longer be regarded as the original commodity and is instead recognised as a new and distinct article. The American authorities relied on reinforce the same limit: Anheuser-Busch Brewing Assn. v. United States ("There must be transformation; a new and different article must emerge, having a distinctive name, character, or use") and East Texas Motor Freight Lines v. Frozen Food Express it was held that where dressed and frozen chicken was held not commercially distinct from the original chicken. ("where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been manufactured.") On the price point, this Court reiterates that a hig....
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....omes into existence, meaning the identity of the original commodity ceases to exist. Commercial User Test (Second Limb): Whether the commodity already in existence would serve absolutely no purpose or be of no commercial use but for the said process. A process does not amount to "manufacture" unless there is a physical transformation resulting in a new and distinct article with a different name, character, or use. The removal of foreign matter (such as bacteria) or the cleaning of a product complete in itself does not amount to manufacture, as the essential character, basic identity, and end-use remain unchanged post-sterilization. Merely because an unsterilized medical item cannot be used safely without sterilization does not satisfy the commercial user test to establish manufacture if the fundamental identity of the goods remains exactly the same. Goods are categorized into four groups regarding manufacture: • exactly the same post-process (no manufacture); • essentially the same (no manufacture); transformed but not marketable (no manufacture); and • transformed into a new, marketable commodity (amounts to manufacture). Qu....
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....rement. The Power Pack is a different product that has a distinct character, name, and use, and is marketable as such, thereby satisfying the definition of "manufacture" under Section 2(f) of the CE Act and Note 6 of Section XVI of the CE Tariff Act. The appellant is liable to pay excise duty on the manufactured goods, and the appeals were dismissed. Alupro (supra) The appellant was a construction contractor who imported pre-coated Aluminum Composite Panels (ACPs) consisting of a polyethylene core sandwiched between two aluminum sheets. The process involves cutting the imported ACPs into rectangular or square panels of required sizes according to the specific building's design requirements. Grooves are then made on the back side of the panels (a process known as routing/grooving) to enable them to be affixed to structures. Finally, the cut and grooved panels are taken to the construction site where they are fixed onto an erected frame using angles, clamps, and fasteners, and the gaps are sealed using a weather-sealed junction sealant. As per the Revenue, Because the process causes an integral change, a new product emerges which is commercially identifiable ....
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....drawing an analogy, and utilising orders and judgments passed with reference to either acts or activities, or commodities. What is essential in this exercise is to keep in perspective the ratio of the precedents of this Court, including the ratio that any or every process does not necessarily amount to manufacture. It is also essential to see that a new article having a distinct character, name and use emerges and is normally bought and sold as a distinct commodity in the market. The said ratio has been further codified for categorizing situations where goods amount to "manufacture" or not, in particular by this Court in Servo-Med (supra): (1) exactly the same post-process (no manufacture); (2) essentially the same (no manufacture); (3) transformed but not marketable (no manufacture); and (4) transformed into a new, marketable commodity (amounts to manufacture). 16. Therefore, we look at the decisions relied on by the Learned Counsel for the parties and take note of the ratio of the decisions but do not compare the case on hand strictly with any of the circumstances considered in the decisions referred to above. We hasten to add that the nomen....
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....but having the essential character of the complete or finished article", and deems the conversion of such an article into the complete or finished article to be manufactured. 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, and as incomplete articles for the purpose of attracting Note 6. Nor does Rule 2(a) of the General Rules for the Interpretation of the Schedule carry the matter further. That rule is a rule of classification which requires an incomplete or unassembled article having the essential character of the finished article to be ....