Case Note & Summary
The appellant, M/s Alupuro Building Systems Pvt. Ltd., is a construction contractor that imports pre-coated Aluminum Composite Panels (ACPs) and undertakes the process of cutting, grooving, and routing them to fix on building facades. The appellant initially paid excise duty on this process but later discontinued under the belief that it did not amount to 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Revenue issued a show cause notice demanding duty, interest, and penalty for the period April 2002 to December 2003. The Additional Commissioner confirmed the demand, and the Commissioner (Appeals) upheld the finding of manufacture but set aside penalty and interest. The CESTAT allowed the appellant's appeal, holding that the process did not amount to manufacture and that the Revenue failed to prove marketability. The Revenue appealed to the High Court under Section 35G, which reversed the CESTAT order, holding that the process amounted to manufacture. The Supreme Court considered two main issues: whether the High Court had jurisdiction under Section 35G to decide the question of manufacture, and whether the process of cutting and grooving ACPs constitutes manufacture. On jurisdiction, the Court held that Section 35G limits the High Court's jurisdiction to questions of law relating to rate of duty or value of goods, and the issue of manufacture is a question of fact or mixed law and fact, falling within the exclusive jurisdiction of the Supreme Court under Section 35L. On the merits, the Court applied the two-fold test from precedents: first, whether a new product with a distinct name, character, and use emerges; second, whether the transformed goods are marketable as distinct goods. The Court found that the cutting and grooving of ACPs did not change their essential identity; they remained ACPs, only altered in size and shape for functional utility. The Revenue failed to prove that the processed panels were marketable as separate goods. Therefore, the process did not amount to manufacture. The Supreme Court allowed the appeal, set aside the High Court's judgment, and restored the CESTAT order.
Headnote
A) Central Excise - Manufacture - Section 2(f) Central Excise Act, 1944 - Process of cutting, grooving, and routing of Aluminum Composite Panels (ACPs) - The appellant imported pre-coated ACPs and cut them into required sizes, made grooves on the back side, and fixed them on building facades. The issue was whether this process amounted to 'manufacture' under Section 2(f) of the Act. The Supreme Court held that the process did not bring into existence a new product with a distinct name, character, or use. The ACPs remained the same product, only altered in size and shape for functional utility. The Court emphasized that mere cutting and grooving, without changing the essential identity of the goods, does not constitute manufacture. The Revenue failed to prove that the processed panels were marketable as distinct goods. Held that the process does not amount to manufacture (Paras 34-48). B) Central Excise - Marketability - Burden of Proof - Section 2(f) Central Excise Act, 1944 - For a process to be considered manufacture, the resulting goods must be marketable as distinct commodities. The burden of proving marketability lies on the Revenue. In this case, the Revenue did not adduce any evidence to show that the cut and grooved ACPs were sold as separate products in the market. The Supreme Court held that the Revenue failed to discharge its burden, and therefore, the process could not be considered manufacture. Held that marketability is an essential ingredient of manufacture (Paras 51-54). C) Central Excise - Jurisdiction of High Court - Section 35G and Section 35L Central Excise Act, 1944 - The High Court's jurisdiction under Section 35G is limited to appeals involving questions of law relating to the rate of duty or value of goods. The issue of whether a process amounts to manufacture is a question of fact or mixed law and fact, which falls within the exclusive jurisdiction of the Supreme Court under Section 35L. The High Court erred in entertaining the appeal and deciding the issue of manufacture. Held that the High Court lacked jurisdiction to decide the question (Paras 10-24).
Issue of Consideration
Whether the process of cutting, grooving, and routing of Aluminum Composite Panels (ACPs) undertaken by the appellant amounts to 'manufacture' under Section 2(f) of the Central Excise Act, 1944, and whether the High Court had jurisdiction under Section 35G of the Act to decide the issue.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment of the High Court, and restored the order of the CESTAT. The Court held that the process of cutting, grooving, and routing of ACPs does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944, and the High Court lacked jurisdiction under Section 35G to decide the issue.
Law Points
- Manufacture under Section 2(f) Central Excise Act
- 1944 requires emergence of a new product with distinct name
- character
- and use
- marketability is an essential ingredient
- burden of proof on Revenue to establish marketability
- High Court's jurisdiction under Section 35G is limited to questions of law relating to rate of duty or value of goods
- process of cutting and grooving ACPs does not amount to manufacture
