2026-VIL-49-SC-CE
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CENTRAL EXCISE Supreme Court Cases

Central Excise - Meaning and application of "manufacture" under Section 2(f) of Central Excise Act, 1944 – Transformation test – Two-fold test for determining manufacturing activity Cutting and grooving of aluminum composite panels – Appellant-assessee undertook the activity of importing pre-coated aluminum composite panels and cutting them into rectangular or square panels of required sizes according to design requirements, making grooves on the back side to enable affixing to buildings, and then erecting frames using angles, clamps and fasteners - Revenue contended that the process amounts to manufacture and attracts excise duty - Whether the process of cutting and grooving of aluminum composite panels amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944 – HELD - To ascertain excisability of goods, a two-fold test must be applied, first, whether the process results in emergence of goods with distinct commercial identity, name, character or use indicating transformation; and second, whether the transformed goods are marketable as distinct goods. Both tests must be satisfied cumulatively - The process undertaken does not result in emergence of distinct goods having their own character, identity or use and the essential character of goods remains entirely unchanged. The process of cutting, grooving and bending merely adapts the dimensions and shape for specific use and amounts to no more than preparation, sizing and installation for use as cladding or facade material. The final steps of erecting frame at site, fixing the cut and grooved panels onto frame using angles, clamps and sealing gaps are installation activities that do not result in creation of new distinct goods - The test of whether a distinct product has come into existence is not merely a test of physical transformation but a collective test of transformation into new product. The question is whether goods could be regarded as different commercially, not whether they look different. Mere cutting and adaptation of dimensions does not constitute manufacture. The location where the process is carried out and the fact that specifications are given by the assessee do not elevate such activities to the level of manufacture - The distinction between "processing" and "manufacturing" is critical. For an activity to amount to manufacture, it must produce a "transformation" resulting in a new and different article with a distinctive name, character or use, not merely process goods that retain their substantial identity - The process undertaken by the assessee does not result in a distinct product and therefore does not amount to manufacture under Section 2(f) of the CEA, 1944 - The impugned judgment is set aside and the appeal is allowed - Burden of proof – Marketability of goods – Burden and standard of proof required to be satisfied for establishing marketability of manufactured goods – HELD - The burden of establishing marketability of manufactured goods lies on the Revenue and must be discharged by demonstrating objective evidence that the goods are marketable - Marketable goods must be capable of standing alone in the market, recognized or traded on the basis of what they are, not on the basis of what they were. Goods are marketable when they are capable of being bought or sold in the market or are understood to be available in the market as a distinct and independent product known in commercial parlance or to the commercial community for purposes of buying and selling. Marketability must be established by objective evidence, not by assertion or assumption. The conduct of the assessee in paying excise duty in the past cannot serve as evidence of marketability. Mere mention in dictionaries or chemical directories does not establish marketability - Market enquiries must be substantiated with actual contents rather than mere reference to having conducted an enquiry. The Revenue must affirmatively demonstrate by placing adequate material on record - The burden of proving marketability of goods lies on the Revenue, and it must be discharged through objective evidence demonstrating that the goods are commercially known, capable of being bought and sold in the market as distinct products, according to a standard of proof calibrated to the specific nature and character of the goods in question - Jurisdiction of High Court under Section 35G of Central Excise Act, 1944 – Excisability of goods - Whether the High Court has jurisdiction to decide questions relating to excisability of goods under Section 35G of the Central Excise Act, 1944 – HELD - The High Court lacks jurisdiction to determine the excisability of goods under Section 35G of the Central Excise Act, 1944, as the question of excisability is intrinsically connected with the determination of rate of duty for purposes of assessment, which falls within the exclusive jurisdiction of the Supreme Court under Section 35L(1)(b) - The expression "determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment" in Section 35G must be interpreted to include questions of excisability, as excisability is a precursor to assessment and has direct and proximate relationship with rate of duty - The jurisdiction of the High Court is a creature of statute and conditions precedent to its exercise must be strictly construed. The mere fact that a question is framed as a question of law does not confer jurisdiction if the underlying subject matter of the order falls within the exclusionary bracket - The High Court therefore erred in entertaining the appeal on the question of excisability and the matter should have been brought before the Supreme Court - Clarificatory nature and retrospective application of sub-section (2) of Section 35L of Central Excise Act, 1944 - Section 35L(2) was inserted by Finance Act, 2014 to clarify that determination of disputes relating to taxability or excisability of goods is covered under the expression "determination of any question having a relation to rate of duty" – Whether sub-section (2) of Section 35L inserted by Finance Act, 2014 is clarificatory in nature and whether it has retrospective effect – HELD - The true test of whether an amendment is clarificatory depends not on the label attached to it but on whether the amendment, on purposive and contextual reading, makes explicit what was already implicit in the original provision - The Finance Bill Notes on Clauses specifically stated that the amendment seeks to clarify that determination of disputes relating to taxability or excisability is covered under the expression "determination of any question having a relation to rate of duty". The amendment does not create any new right of appeal, vest new jurisdiction in any court, impose new obligation upon assessees, or alter the mechanism of assessment. It merely clarifies that questions of excisability always fell within the expression "rate of duty," and any doubt to the contrary was unwarranted. The amendment was introduced to clarify the position of law, remove existing doubts, and correct judicial error, rendering it declaratory in nature. Procedural amendments and clarificatory amendments are presumed to be retrospective unless there is express indication to the contrary - The sub-section (2) of Section 35L operates retrospectively from the date the principal provision came into effect.
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