In a significant ruling on central excise liability, a Supreme Court bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria held that the activity of grouping, pinning, and plugging imported photocopier parts and modules—commonly referred to as “kitting”—to meet specific customer specifications at a warehouse does not constitute “manufacture” under Section 2(f) of the Central Excise Act, 1944, read with Note 6 to Section XVI of the Central Excise Tariff Act, 1985. Dismissing the appeals filed by the Revenue, the apex court upheld the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which had set aside an excise duty demand of over Rs. 17.86 crore against M/s Xerox India Ltd.
Background of the Case
M/s Xerox India Ltd. is engaged in the business of photocopiers, toners, photoreceptors, and digital multi-functional printers falling under Tariff sub-head 8471.00. The company operates warehouses at Hyderabad (Telangana) and Rampur (Uttar Pradesh).
Xerox India imported parts, modules, and accessories of machines in complete knocked down (CKD) or semi-knocked down (SKD) condition from foreign warehouses of its sister concerns after paying Customs Duty and Countervailing Duty (CVD). At its domestic warehouses, Xerox India grouped and configured these imported modules along with certain indigenous components according to specific purchase orders received from customers.
On May 4, 2007, the Revenue issued a Show Cause Notice (SCN) for the period between April 2002 and November 2006, alleging that Xerox India’s activities at its warehouse amounted to “manufacture” under Section 2(f) of the Central Excise Act. The SCN demanded Excise Duty and Education Cess amounting to Rs. 17,86,47,382/-, along with interest and penalties on company executives, claiming that individual non-functional modules were converted into complete, functional copier-cum-printer machines.
Proceedings before Revenue and CESTAT
On March 28, 2008, the Commissioner of Central Excise, Hyderabad-IV issued an Order-in-Original (O-I-O) confirming the duty demands and penalties. The Commissioner held that complete machines came into existence only upon assembly at the warehouse, rendering duty payable on the final sale price under Section 2(f) read with Note 6 to Section XVI of the Central Excise Tariff Act.
Aggrieved by the order, Xerox India appealed to the CESTAT, South Zonal Bench at Bangalore. The Tribunal set aside the Commissioner’s order, holding that Xerox India merely received photocopiers in CKD condition that were already assessed to customs duty and CVD as complete machines under Tariff Heading 8471. The Tribunal noted that grouping parts, assigning unique numbers via computers, and clearing them in original packing sets without physical assembly inside the warehouse did not amount to manufacture, as assembly occurred at customer sites. The Revenue subsequently challenged the CESTAT decision before the Supreme Court.
Arguments of the Parties
Additional Solicitor General Mr. Raghavendra P. Shankar, appearing for the Revenue, argued that combining imported CKD/SKD parts with domestic components to create customized units constituted an irreversible assembly carried out by trained engineers, transforming individually ineffectual components into functional, marketable machines. He contended that the process fell under Section 2(f) of the Central Excise Act or Note 6 of Section XVI of the Central Excise Tariff Act, and relied on precedents including M/s Narne Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise, BPL India Ltd. v. Commissioner of Central Excise, and Quippo Energy Ltd. v. Commissioner of Central Excise.
Representing Xerox India, advocate Mr. V. Lakshmikumaran submitted that the imported items were classified, assessed, and charged to customs duty and CVD as complete machines. The activity at the warehouse was simple “kitting”—pinning, plugging, packing, and dispatching modules per customer needs—and involved no transformation into a new substance. He argued that Note 6 to Section XVI applies only when an incomplete article undergoes conversion into a finished product. Relying on decisions such as Union of India v. Delhi Cloth and General Mills Co. Ltd., Satnam Overseas Limited v. Commissioner of Central Excise, Servo-Med Industries Private Limited v. Commissioner of Central Excise, and Alupro Building Systems, he maintained that no physical manufacturing occurred at the warehouse.
Supreme Court’s Analysis and Findings
The Supreme Court examined the legal framework governing “manufacture” under Section 2(f) of the Central Excise Act, reviewing landmark precedents. The Court highlighted the fundamental test established in Union of India v. Delhi Cloth and General Mills Co. Ltd., noting that “manufacture implies a transformation where a new and different article must emerge having a distinctive name, character, or use.”
Referencing the twofold test reiterated in Servo-Med Industries Private Limited, the Court categorized post-process scenarios into four groups:
- Exactly the same post-process (no manufacture)
- Essentially the same (no manufacture)
- Transformed but not marketable (no manufacture)
- Transformed into a new, marketable commodity (amounts to manufacture)
The bench distinguished BPL India Ltd., Tulaman, and Quippo Energy Ltd. cited by the Revenue, noting distinct factual and tariff classification differences.
Addressing Note 6 of Section XVI of the Central Excise Tariff Act, the Court observed that the deeming provision requires two conditions: that the presented article was incomplete/unfinished, and that a conversion into a complete article was executed. The Court rejected the Revenue’s contradictory stance, stating:
“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.”
The Court criticized the Revenue for failing to produce concrete evidence or perform a physical verification of the premises, remarking:
“in an era of technological advancement and available wherewithal through information technology, the Revenue could have proved, through best evidence, that the photocopier is a product of change, not a result of ‘kitting’.”
The Court added that “what can be proved in a straight and simple way need not be induced from the convenient versions of both sides.”
Upholding the factual findings of the Tribunal, the Supreme Court stated that “The Tribunal’s findings are both brief and correct, and adhere to brevity.”
Decision
The Supreme Court held that the unpacking, plugging, pinning, and kitting of imported modules according to customer choices did not alter the tariff classification or transform unfinished components into a new commercial product at the warehouse. Finding no merit in the appeals, the Court dismissed Civil Appeal Nos. 5939-5941 of 2010 and Civil Appeal Nos. 11870-11872 of 2018.
Case Title: Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors.
Case No.: Civil Appeal Nos. 5939-5941 of 2010 (with Civil Appeal Nos. 11870-11872 of 2018)
Bench: Justice S.V.N. Bhatti and Justice N.V. Anjaria
Date: August 5, 2026
