Commissioner of Central Excise Vs Xerox India Ltd. & Ors. (Supreme Court of India)
Supreme Court: ‘Kitting’ of Imported Modules Does Not Amount to Manufacture; Excise Duty Not Leviable Without Emergence of a New Product
The Supreme Court dismissed the Revenue’s appeals and held that grouping, pinning and plugging imported photocopier modules (“kitting”) according to customer specifications does not amount to “manufacture” under Section 2(f) of the Central Excise Act, as no new product having a distinct name, character or use comes into existence.
The Revenue contended that Xerox India Ltd. imported photocopier parts and modules in CKD/SKD condition and assembled them into customised photocopiers at its warehouses, thereby carrying out a manufacturing activity liable to excise duty. The assessee, however, maintained that the imported goods were already assessed as complete machines for customs purposes and that only kitting—grouping modules and packing them according to customer specifications—was undertaken without any physical assembly resulting in a new product.
The Court undertook an exhaustive review of its jurisprudence on the meaning of “manufacture”, including Delhi Cloth Mills, Narne Tulaman, BPL India, Satnam Overseas, Servo-Med, Quippo Energy and Alupro, and reiterated that every process is not manufacture. The decisive test is whether the process results in the emergence of a commercially distinct and marketable product with a different name, character or use. Mere value addition, packaging, grouping or minor processing is insufficient.
Applying these principles, the Court held that the Revenue failed to establish that any manufacturing activity had actually taken place at the assessee’s warehouse. The imported modules were already classified and assessed as complete machines, remained in their original packing, and were merely grouped according to customer requirements. Consequently, Note 6 of Section XVI could not be invoked, as the Revenue failed to prove either that the imported goods were incomplete articles or that they were converted into complete machines by the assessee.
The Supreme Court also observed that the Revenue had not even inspected the assessee’s premises to establish the alleged manufacturing process. It remarked that, in the present era, such factual assertions could easily have been proved through photographs or other direct evidence rather than assumptions. In the absence of any evidence showing that a new excisable product emerged, the Tribunal was justified in treating the activity as mere kitting and not manufacture.
Accordingly, the Supreme Court upheld the CESTAT’s order, held that no excise duty was leviable, and dismissed the Revenue’s appeals.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
