Supreme Court on ‘Manufacture’ Under Central Excise: Mere Kitting, Plugging or Pinning of Imported Xerox Modules Does Not Create a New Excisable Product

Case Name: Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors.

Date of Judgment: 05 August 2026

Citation: 2026 INSC 805

Bench: Justice S.V.N. Bhatti and Justice N.V. Anjaria

Held: The Supreme Court held that mere “kitting”, unpacking, plugging or pinning of imported modules and components according to a customer’s specifications does not amount to “manufacture” under Section 2(f) of the Central Excise Act, 1944 unless the process results in a new and distinct commercially identifiable article having a different name, character or use. Every process, even one involving labour, skill, expense or addition in value, cannot automatically be treated as manufacture. The decisive question is whether the process transforms the original commodity into a new article recognised and ordinarily bought and sold as a distinct commodity in the market.

The Court further held that Note 6 to Section XVI of the Central Excise Tariff Act, 1985 cannot be invoked unless two requirements are established: first, the article in question was incomplete or unfinished; and second, the person sought to be charged carried out a process converting it into a complete or finished article. Where the imported goods had already been classified and assessed as complete machines and no manufacturing process was proved at the assessee’s warehouse, the deeming provision could not be invoked.

Summary: The dispute concerned Xerox India’s importation of parts, modules and accessories of photocopiers and multifunction machines in CKD/SKD condition, on which customs duty and countervailing duty had already been paid. At its Hyderabad and Rampur warehouses, Xerox grouped or “kitted” these modules according to customer specifications. The Revenue alleged that this activity 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. For the Hyderabad operations covering April 2002 to November 2006, the Revenue raised an excise duty and education cess demand of approximately ₹17.86 crore, besides interest and penalties.

Xerox maintained that the imported goods and the machines ultimately supplied to customers were essentially the same goods. The modular form was adopted for ease and safety of transportation, while the warehouse activity merely involved kitting the modules according to customer requirements. The assessee emphasised that the goods had themselves been imported, classified and assessed to customs duty and CVD as complete machines.

The Commissioner nevertheless confirmed the demand, reasoning that what had been imported were components and modules and that a complete photocopier came into existence only through their assembly at the warehouse. CESTAT reversed that finding. It found that there was no evidence of physical assembly at the warehouse; the components were merely grouped into sets, assigned identification numbers and dispatched. Significantly, the Revenue could not demonstrate the assembly of even two parts before clearance from the warehouse.

Applying this test, the Court accepted CESTAT’s factual findings. The warehouse activity consisted essentially of pinning and plugging different modules together according to customer specifications. The Revenue failed to establish that these activities transformed the imported modules into a new commercially distinct product. More importantly, the modules had already been imported under Tariff Heading 8471 and assessed accordingly. The essential requirements necessary to attract Section 2(f) or Note 6 to Section XVI were therefore not established.

A particularly significant aspect of the ruling is the Court’s rejection of the Revenue’s attempt to use the customs classification rules to establish manufacture. The Court held that Rule 2(a) of the General Rules for Interpretation answers how an incomplete or unassembled article should be classified; it does not determine whether a process subsequently performed upon that article constitutes “manufacture.”.

Decision: The Supreme Court dismissed the  Civil Appeal  finding no reason to interfere with CESTAT’s conclusions. Consequently, the Tribunal’s finding that Xerox India’s warehouse activities did not constitute “manufacture” under Section 2(f) of the Central Excise Act stood affirmed, and the excise demands based on the alleged manufacturing activity could not be sustained.