In a significant ruling on the scope of "manufacture" under the Central Excise Act, the Supreme Court has dismissed appeals filed by the Revenue against Xerox India Ltd., holding that the company's activity of grouping and configuring imported photocopier modules according to customer requirements did not amount to manufacture. The Court concluded that the Revenue failed to establish that a new commercial product emerged from the process carried out at Xerox India's warehouses.
Background of the Case
The dispute arose from proceedings initiated by the Commissioner of Central Excise against Xerox India Ltd. Revenue alleged that the company imported photocopier parts and modules in completely knocked down (CKD) or semi-knocked down (SKD) condition, assembled them at its Hyderabad and Rampur warehouses, and cleared finished photocopier machines without paying central excise duty.
Based on this allegation, show cause notices were issued demanding excise duty exceeding ₹17.86 crore along with interest and penalties. The Commissioner confirmed the demand, holding that the warehouse activities constituted "manufacture" under Section 2(f) of the Central Excise Act.
However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the demand, finding that no physical assembly or manufacturing process had taken place at the warehouses. Revenue challenged that decision before the Supreme Court.
Supreme Court's Observations
A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria examined the meaning of "manufacture" under Section 2(f) of the Central Excise Act and reviewed earlier decisions explaining when an activity results in a new excisable product.
The Court observed that not every process performed on goods amounts to manufacture. For excise duty to arise, the activity must result in a commercially distinct product having a different name, character or use.
Referring to the facts of the case, the Bench found that Xerox India merely grouped imported modules, plugged or pinned them together according to customer specifications and dispatched them. The imported goods had already been assessed by Customs as complete machines under the applicable tariff heading.
The Court observed:
“The activity in the case on hand does not fall within the definition of Section 2(f) of the C E Act.”
The Bench also rejected the Revenue's reliance on Note 6 of Section XVI of the Central Excise Tariff Act. It held that the provision applies only where an incomplete or unfinished article is converted into a complete article. In the present case, the goods had already been imported and classified as complete machines, making the deeming provision inapplicable.
Revenue Failed to Prove Manufacturing Activity
The Supreme Court noted that the Revenue had relied primarily on statements and documents but had not properly verified what actually occurred at the warehouses.
The Bench remarked:
“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.”
It further observed that no evidence demonstrated that the modules were physically assembled into new machines at the warehouses. The Tribunal had correctly found that important components such as the High Capacity Feeder (HCF) and Duplex Automatic Document Feeder (DADF) had already been fitted abroad before import.
The Court also pointed out that in modern times such allegations could have been established through direct evidence, including photographs or technological documentation of the alleged manufacturing process, instead of depending on assumptions.
Court's Decision
Finding no error in the Tribunal's factual conclusions, the Supreme Court refused to interfere with the CESTAT order.
The Bench held that Xerox India's warehouse operations amounted only to "kitting" and configuration of imported modules and did not result in the manufacture of a new excisable product under Section 2(f) of the Central Excise Act.
Accordingly, the Court dismissed Civil Appeal Nos. 5939–5941 of 2010 and Civil Appeal Nos. 11870–11872 of 2018, while also disposing of all pending applications.
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