The dispute in this case required the Court to interpret Section 2(f) of the Central Excise Act, 1944, read with Note 6 to Section XVI of the Central Excise Tariff Act, 1985. While the Revenue contended that Xerox India manufactured photocopier machines by assembling imported modules at its warehouses, the assessee maintained that it merely grouped and configured imported modules, which had already been assessed as complete machines, for ease of transportation and to meet customer-specific requirements, without bringing into existence any new commercially distinct product.
The judgment is significant because it revisits decades of Supreme Court jurisprudence on the meaning of “manufacture” and clarifies the distinctions among manufacture, assembly, installation, packaging, and kitting under indirect tax law.
Court: Supreme Court of India
Title of Case: Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors., 2026 INSC 805
Citation: 2026 INSC 805
Bench: Justice S.V.N. Bhatti and Justice N.V. Anjaria
Background of the Case
M/s Xerox India Ltd. was engaged in the business of manufacturing and trading photocopiers, multifunction printers, toners and photoreceptors. Besides manufacturing certain products in India, it imported photocopier modules, components and accessories from overseas group companies in Complete Knocked Down (CKD) and Semi Knocked Down (SKD) condition.
The imported consignments reached Xerox’s warehouses situated at Hyderabad and Rampur. After import, the company grouped different modules together according to the specifications of individual customers before dispatching them across the country.
The dispute related to the period April 2002 to November 2006, during which the Revenue alleged that Xerox was not merely trading imported goods but was actually manufacturing photocopier machines in India without paying central excise duty.
Show Cause Notice Issued by the Revenue
On 4 May 2007, the Department issued a Show Cause Notice alleging that the activities carried out at Xerox’s warehouses constituted manufacture under Section 2(f) of the Central Excise Act.
According to the Revenue:
- Xerox imported only parts and modules rather than complete machines.
- The imported modules had no independent commercial utility until assembled.
- Various imported and locally procured components were fitted together.
- The assembly process created marketable photocopier machines.
- Such activities amounted to manufacture within the meaning of Section 2(f).
- Consequently, Xerox was liable to pay excise duty on the finished machines cleared from its warehouse.
The Department relied extensively on:
- documents seized during search,
- purchase orders,
- import documents, and
- statements recorded under Section 14 of the Central Excise Act from senior officials of Xerox.
Revenue’s Allegations
The Revenue argued that the warehouse activities went far beyond simple storage. According to the Department:
1. Modules Were Imported Separately
The imported consignments consisted of numerous modules and components.
These included:
- work centres,
- printers,
- document feeders,
- high-capacity feeders, and
- various accessories.
These components allegedly had to be fitted together before becoming a functional photocopier.
2. Assembly Was Customer-Specific
Purchase orders showed that each customer received different configurations. Revenue argued that the very existence of multiple configurations demonstrated that manufacturing took place only after import.
3. Modules Were Not Functional Individually
Statements recorded from company executives suggested that most imported modules could not independently function. Only after assembly could they operate as photocopier machines.
4. Certain Components Were Installed Only at Xerox Warehouses
Revenue further alleged that components such as:
- Duplex Automatic Document Feeders (DADF), and
- High Capacity Feeders (HCF)
were fitted only at Xerox’s warehouse facilities and not by engineers at customers’ premises. According to the Department, this clearly established manufacturing activity.
5. Demand Raised
On this basis, the Department demanded more than ₹17.86 crore towards excise duty along with interest and penalties under Sections 11A, 11AB and 11AC of the Central Excise Act, besides proposing penalties against company executives under Rule 26 of the Central Excise Rules, 2002.
Xerox India’s Defence
Xerox denied every allegation made in the Show Cause Notice. Its principal defence rested on the argument that no new product emerged at the warehouse.
The company advanced several submissions.
Imported Goods Were Already Complete Machines
Xerox asserted that the imported goods were already classified and assessed by Customs as complete machines under Tariff Heading 8471.
Customs duty as well as Countervailing Duty (CVD) had already been paid on them.
Therefore, it was impermissible for the Revenue to subsequently treat those very goods as incomplete machines merely for levying central excise duty.
Only Kitting Was Undertaken
The company consistently described its warehouse activity as “kitting.”
According to Xerox:
- modules were grouped together,
- packed according to customer specifications,
- assigned identification numbers, and
- dispatched.
No manufacturing or assembly resulting in a new commercial product occurred. The modules were merely arranged for transportation convenience and customer requirements.
Note 6 of Section XVI Was Inapplicable
Xerox argued that Note 6 applies only where an incomplete or unfinished article is converted into a complete article.
Since imported photocopiers had already been assessed as complete machines, the deeming fiction contained in Note 6 could not be invoked.
No Jurisdiction Over Customer Premises
Another objection raised by Xerox concerned territorial jurisdiction. According to the company, even assuming some installation took place at customers’ sites, the Commissioner having jurisdiction over the Hyderabad warehouse could not demand excise duty for activities allegedly undertaken across various customer locations throughout India.
Order of the Commissioner
The Commissioner rejected Xerox’s defence.
The adjudicating authority held that:
- imported goods were merely components,
- a complete photocopier emerged only after assembly,
- Note 6 to Section XVI deemed such activity to be manufacture,
- excise duty therefore became payable.
The Commissioner further imposed penalties upon responsible officials while observing that CENVAT credit of Countervailing Duty would be available subject to proof of payment.
Appeal Before the CESTAT
Aggrieved by the Commissioner’s order, Xerox approached the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). After examining the evidence, the Tribunal completely disagreed with the Commissioner’s findings.
The Tribunal recorded several important findings:
- imported photocopiers were received in CKD condition,
- no physical assembly occurred inside the warehouse,
- HCF and DADF were already factory-fitted abroad,
- Revenue produced no evidence proving assembly inside the warehouse,
- modules were merely grouped according to customer orders,
- assigning identification numbers through computers did not amount to manufacture.
The Tribunal held that grouping components into customer-specific sets could not convert an already complete machine into a newly manufactured product. Consequently, it set aside the entire demand of excise duty.
Supreme Court’s Analysis
The Court undertook an extensive review of its earlier precedents on the meaning of “manufacture,” including Delhi Cloth & General Mills, Narne Tulaman, BPL India, Satnam Overseas, Servo-Med Industries, Quippo Energy, and Alupro Building Systems. From these decisions, the Court distilled the governing principles applicable to Section 2(f).
The Court reiterated that every process is not manufacture. Labour, skill or value addition alone is insufficient. Manufacture requires that a new and distinct commercial article must emerge possessing a different name, character or use from the original goods. The enquiry must focus upon commercial identity rather than the complexity of the process.
The Court also reaffirmed the four categories recognised in Servo-Med:
- Goods remaining exactly the same after processing – no manufacture.
- Goods remaining essentially the same – no manufacture.
- Goods transformed but not marketable – no manufacture.
- Goods transformed into a new marketable commodity – manufacture.
Applying these principles, the Court found that Xerox’s activity did not satisfy the statutory definition of manufacture.
First, the imported goods had already been classified and assessed as complete machines under Tariff Heading 8471 while clearing customs. The Revenue could not simultaneously treat them as complete machines for customs purposes and as incomplete articles for invoking Note 6 under the Central Excise Tariff.
Secondly, the Tribunal had recorded a categorical finding that no physical assembly occurred at the warehouse. The components were merely unpacked, grouped, pinned or plugged according to customer specifications and dispatched substantially in their original packing. No evidence established that the modules were assembled into complete photocopiers at the warehouse.
Thirdly, the Court held that Note 6 to Section XVI applies only where an incomplete or unfinished article is converted into a complete article. Both prerequisites, existence of an incomplete article and subsequent conversion into a finished product, were absent in the present case. The Revenue therefore failed to satisfy the statutory conditions for invoking the deeming fiction contained in Note 6.
The Court further observed that the Revenue had not even inspected Xerox’s warehouse to verify the alleged manufacturing process. In modern times, such factual allegations could easily have been substantiated through photographs, videos or other direct evidence. Instead, the Department relied largely upon assumptions and employee statements without demonstrating any actual manufacturing activity.
Decision
The Supreme Court upheld the Tribunal’s decision and dismissed the Revenue’s appeals. It concluded that Xerox’s activities amounted merely to kitting, involving the grouping and configuration of imported modules according to customer requirements. No new commercially distinct product emerged, and therefore no manufacture occurred under Section 2(f) of the Central Excise Act. Likewise, Note 6 to Section XVI of the Central Excise Tariff Act had no application because the imported goods were neither incomplete articles nor converted into complete machines through any manufacturing process.
Conclusion
The judgment reaffirms that manufacture under Section 2(f) requires the emergence of a new commercially distinct product, not merely assembly, kitting, packaging or customer-specific configuration. It also emphasises that the Revenue bears the burden of proving that a manufacturing process has actually taken place with reliable evidence. Since Xerox merely grouped imported modules already assessed as complete machines without creating a new product, the Court held that no manufacture occurred and no central excise duty was payable.
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