Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors. | 2026 INSC 805 | 5 August 2026
What the case was about
This case turned on where routine warehouse logistics end and taxable “manufacture” begins. The Revenue authorities demanded central excise duty from Xerox India Ltd., arguing that the company’s practice of grouping imported photocopier modules into customised sets at its warehouses amounted to manufacturing photocopier machines. Xerox maintained that it was merely “kitting”—organising pre-existing components for dispatch without creating a new product. At stake was the distinction between incidental handling and the creation of an excisable good. The Supreme Court had to decide whether this activity triggered excise liability under Section 2(f) of the Central Excise Act, 1944, and whether a deeming provision in the Central Excise Tariff Act applied (para 4).
The key facts
Xerox India imported photocopier parts and modules in completely knocked down (CKD) or semi-knocked down (SKD) condition, assessed under Customs Heading 8471, and paid customs duty and countervailing duty (CVD). At its warehouses in Hyderabad and Rampur, the company grouped these imported modules—sometimes adding domestically procured components—into sets matching specific customer orders, then invoiced and dispatched them. The Revenue contended that this grouping and fitting amounted to manufacture under Section 2(f) of the Central Excise Act read with Note 6 to Section XVI of the Central Excise Tariff Act, 1985, and confirmed demands for excise duty.
The dispute gave rise to two separate proceedings. In the first, the Commissioner of Central Excise, Hyderabad-IV, passed an Order-in-Original dated 28 March 2008 confirming a duty demand. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Bangalore set aside that order on 9 November 2009, prompting the Revenue to file Civil Appeal Nos. 5939-5941 of 2010. In the second proceeding, the Commissioner of Central Excise, Meerut-II, passed an Order-in-Original dated 28 November 2008. The CESTAT quashed that order on 31 July 2017, leading to Civil Appeal Nos. 11870-11872 of 2018. In both matters, the Tribunal held that no physical assembly or manufacture occurred in the warehouses and that components were cleared essentially in their original packing. The Revenue then appealed to the Supreme Court.
The questions before the Court
The Supreme Court framed three questions for determination (para 4):
- Whether the grouping and fitting of imported modules at Xerox’s warehouses amounted to “manufacture” under Section 2(f) of the Central Excise Act, 1944.
- Whether Note 6 to Section XVI of the Central Excise Tariff Act, 1985 could deem this activity to be manufacture.
- Whether the Tribunal’s findings of fact warranted interference by the Supreme Court.
What the Court decided and why
A two-judge bench dismissed the Revenue’s appeals, upholding the Tribunal’s order that no excise duty was attracted.
The test for manufacture: The Court explained that “manufacture” under Section 2(f) requires a process that brings into existence a “new and different article” with a “distinctive name, character or use” (para 14). At one extreme, a process that leaves a commodity commercially the same article is not manufacture, however much labour, skill, or expense is involved, and mere addition of value will not convert such a process into manufacture. At the other extreme, a process need not be elaborate to qualify as manufacture, but what emerges must be recognised by the market as different in name, character, and use from what went in (para 14). Applying this framework, the Court found that Xerox’s activity was limited to unpacking, plugging, and pinning modules to match a customer’s configuration. The Revenue failed to establish that this simple process produced a new, functionally distinct article, or that the tariff heading under which the goods were imported changed at the warehouse (para 20).
Note 6 to Section XVI: This provision deems the conversion of an “incomplete or unfinished” article into a complete article to be manufacture. The Court held that two conditions must be satisfied: the article must be incomplete or unfinished, and there must be a conversion into the complete article (para 18). Neither prong was met. The goods were imported, classified, and assessed as complete machines under Heading 8471, and were cleared from the warehouse in the sets and in the original packing in which they had been received, with no conversion process performed upon them (para 18). The Court also rejected the Revenue’s reliance on Rule 2(a) of the General Rules for Interpretation of the Schedule, noting that this rule merely governs tariff classification and does not answer whether a process amounts to manufacture (para 18). Finally, the Court emphasised that the Revenue could not treat the same goods as complete machines for the purpose of levying customs duty (including CVD) and simultaneously as incomplete articles to attract Note 6 for excise duty (para 18).
Factual findings: The Court refused to disturb the Tribunal’s conclusions. It held that the Tribunal’s findings were “brief and correct,” rested on evidence, and were not perverse (para 20). The Tribunal had found that the components were cleared in their original packing, and that the imported modules were not shown to be unfinished or semi-finished (para 20). Consequently, the appeals were dismissed (para 21).
Why it matters
The judgment provides important clarity on the boundary between logistics and manufacture. Businesses that import goods in modular form and organise them into customer-specific sets can take comfort that such “kitting”—without transformative assembly into a new marketable commodity—does not by itself attract central excise duty (para 14, para 20). Companies operating bonded warehouses and distribution hubs will find the ruling particularly relevant, as it shields purely logistical activities from being recharacterised as production. The decision also reinforces that the Revenue must discharge its burden of proving a genuine manufacturing process, and cannot rely on inconsistent classifications to impose tax (para 18, para 20). By holding that goods assessed as complete machines at the customs stage cannot later be treated as unfinished articles to invoke a deeming excise provision, the Court has underscored the need for coherence between customs and excise law.