Cutting and Grooving Aluminium Panels for Building Use Is Not “Manufacture” Unless a New Marketable Product Emerges: Supreme Court

Held: The Supreme Court held that cutting, grooving, routing, bending and fixing Aluminium Composite Panels to suit the design requirements of a building does not amount to “manufacture” under Section 2(f) of the Central Excise Act, 1944, unless the process brings into existence a new and distinct commercial product having a separate name, character, identity or use and such resultant product is marketable as a distinct commodity. The Court clarified that superficial or functional changes made to facilitate installation do not become manufacture merely because the panels are cut to size or adapted for a customer’s requirement. The Court also held that questions of excisability are questions relating to the rate of duty for purposes of assessment and therefore fall within the appellate route to the Supreme Court under Section 35L, not the High Court under Section 35G.

Summary: The appellant was a construction contractor engaged in fixing imported pre-coated Aluminium Composite Panels on building façades. The panels were cut into required sizes, grooved or routed on the back side, bent into frames and then fixed at site using angles, clamps, fasteners and sealants. The Revenue treated this process as manufacture and issued a show cause notice demanding excise duty, interest and penalty. The CESTAT allowed the assessee’s appeal, holding that the process did not create a new product and that the Revenue had failed to prove marketability of any separate goods. The Karnataka High Court reversed the CESTAT and held that cutting, grooving and routing resulted in a distinct commercially identifiable product. The Supreme Court disagreed, holding that what entered the process was an ACP and what emerged was still an ACP, only adapted in dimension and shape for façade installation. The Court explained that manufacture requires both transformation into distinct goods and marketability of those goods, and the Revenue failed to satisfy this test. The Court also held that the High Court lacked jurisdiction because the dispute concerned excisability, which is directly connected with assessment and rate of duty.

Decision: The Supreme Court allowed the appeal, set aside the judgment of the Karnataka High Court dated April 1, 2010, and restored the position that the process undertaken by the appellant did not result in a distinct manufactured product liable to excise duty. The Court held that the High Court ought not to have entertained the Revenue’s appeal under Section 35G in a matter concerning excisability, and all pending applications, if any, were disposed of.