2026-VIL-72-SC-CE
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CENTRAL EXCISE Supreme Court Cases

Central Excise - Manufacture - Assembly of Imported Modules – Import of parts and modules of photocopiers in CKD or SKD form classifying as automatic data processing machines. At the warehouse, the Respondent-assessee undertook the activity of grouping and fitting together the imported modules to customer specifications, referred to as kitting, without performing any physical assembly in the warehouse - Revenue of the view that such activity amounted to manufacture under Section 2(f) of the Central Excise Act, 1944, and proposed recovery of excise duty. The Commissioner confirmed the demand. The Tribunal set aside the demand, finding that no physical assembly took place at the warehouse, components were cleared in original packing, and the activity was mere kitting - Whether the activity of grouping and fitting together imported modules of photocopiers into complete sets as per customer specifications amounts to manufacture under Section 2(f) of the CEA, 1944 and Note 6 of Section XVI of the CETA, 1985 - HELD - Manufacture implies a transformation where a new and different article must emerge having a distinctive name, character or use. The test for determining whether an activity amounts to manufacture is- whether a distinct commercial commodity comes into existence with a different character and identity from the original, and whether the transformed goods are marketable - The goods were imported, classified and assessed as complete machines under Tariff Heading 8471. The activity undertaken was one of grouping and fitting different parts together to customer requirement, called kitting, which amounts to mere assembly of parts without any physical transformation. No physical assembly or fitting took place at the warehouse - The Revenue failed to establish that the imported modules were unfinished or semi-finished or that conversion from incomplete to complete article was undertaken. Rule 2(a) of the GRI answers only where an article is to be classified but does not answer whether a process performed upon the article amounts to manufacture - Note 6 of Section XVI requires that the article presented must be incomplete or unfinished but having essential character of the complete article and secondly that conversion of such article into the complete article was carried out by the person sought to be charged, neither of which was established. The Tribunal's findings that no manufacturing activity was undertaken and that the activity amounted only to kitting of modules are based on evidence and material on record and are not perverse - The nomenclature employed by the Respondent for the activity, by itself, is not conclusive and determinative - The activity undertaken by the Respondent does not amount to manufacture under Section 2(f) of the CEA, 1944 - The order passed by the Tribunal is upheld and the appeals filed by the Revenue are dismissed
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