They Called It A Factory. It Was A Warehouse With A Screwdriver.
The Revenue wanted Rs 17.86 crore in excise on photocopiers put together from imported modules. The Supreme Court has dismissed its appeals, and had something pointed to say about the evidence.
The Court held that unpacking imported modules, plugging and pinning them to a customer's specific requirement and invoicing them does not fall within the definition of manufacture in Section 2(f). The Revenue failed to establish that the process changed the head under which the modules were imported, and never showed them to be unfinished or semi-finished. The Tribunal's findings were not perverse and the appeals were dismissed.
- Assembly is not automatically manufacture. A new and distinct product has to emerge.
- The burden was the Revenue's, and it was not discharged on the record.
- The Court asked for photographs. In an age of easy evidence, the process could simply have been captured and shown.
- The components were cleared in their original packing, and the disputed fittings had been done abroad at a sister concern's factory.
- Court
- Supreme Court of India
- Bench
- Justice N. V. Anjaria, Justice Sarasa Venkatanarayana Bhatti
- Citation
- 2026 INSC 805
- Reported
- [2026] 8 S.C.R. 408
- Case
- Civil Appeal Nos. 5939-5941 of 2010
- Decided
- 5 August 2026
- Outcome
- Appeals dismissed; no manufacture, demand vacated
What the Revenue said was happening
The assessee imported parts, modules and accessories of photocopier machines in completely knocked down or semi-knocked down condition from a sister concern's warehouses, paying customs duty and countervailing duty.
A show cause notice alleged that what happened at its warehouse amounted to manufacture within Section 2(f), and demanded excise duty and cess of Rs 17,86,47,382 on clearances from that warehouse.
The Commissioner confirmed the demand. The Tribunal held there was no manufacture and vacated it.
What the record actually showed
The route was this: modules imported into the country, moved out of the customs bonded warehouse, landing in the assessee's warehouse, where they are unpacked, plugged and pinned to a customer's specific requirement, and invoiced.
The Revenue could not show that in that simple process of unpacking, plugging or pinning the modules changed the head under which they had been imported. Nor were the imported modules shown to be unfinished or semi-finished.
The Tribunal had gone through the depositions of the assessee's officers, the purchase orders, the bills of entry and the storage tickets. It found the components said to have been fitted to the main module were cleared in their original packing, and that the disputed units had been fitted at the sister concern's factory abroad. No deposition said the modules were assembled in the warehouse, and the Commissioner had concluded otherwise without any verification at all.
A note on proof
The Court observed that in an era of technological advancement, the Revenue could have proved through best evidence that the photocopier is a product of change and not the result of kitting.
The process ought to have been captured in photographs as a manufacturing activity bringing a photocopier into existence.
It added that it was not finding fault with the Revenue, but was compelled to observe that what can be proved in a straight and simple way need not be induced from the convenient versions of both sides.
Who argued it
Appearances as recorded in the judgment of the Court.
Frequently asked
Is assembling imported parts a manufacture for excise?
Not by itself. On this judgment, unpacking, plugging and pinning modules to a customer's specification is not manufacture under Section 2(f).
Who has to prove that manufacture took place?
The Revenue. It failed to do so here, and the Court noted the evidence it could easily have led.
Meeting a demand that calls your assembly a manufacture
- Trace the goods from the bill of entry to the invoice and show the tariff head never changes.
- Prove the imported items were finished articles, not unfinished or semi-finished ones.
- Put the physical process on record — photographs, storage tickets, packing condition — rather than arguing about it.
- Where the adjudicating officer made no verification, say so; the Court noticed it here.
Source. Supreme Court of India, 2026 INSC 805, [2026] 8 S.C.R. 408, Civil Appeal Nos. 5939-5941 of 2010, decided 5 August 2026 by Justice N. V. Anjaria, Justice Sarasa Venkatanarayana Bhatti. This explainer is written from the judgment text as reported.
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