Justice J.B. Pardiwala, Justice R. Mahadevan, Supreme Court

The Supreme Court has held that cutting, routing and grooving Aluminium Composite Panels (ACP) for cladding and façade installation does not amount to “manufacture” under Section 2(f) of the Central Excise Act, 1944, as the process does not result in the emergence of a distinct commercial product. The Court clarified that levy of excise duty requires satisfaction of a cumulative two-fold test: first, transformation of the goods into a commercially distinct product with a new name, character or use; and second, proof that the transformed goods are marketable as such.

The Bench, after a detailed discussion on the legal position governing Sections 35G and 35L of the Central Excise Act, 1944, and the meaning and scope of “manufacture” under Section 2(f), summarised the governing principles. It held that excisability of goods has a direct nexus with the rate of duty for assessment purposes; superficial changes made merely to facilitate use, without altering the fundamental properties of goods, do not amount to manufacture; and the burden to establish marketability of the alleged manufactured goods lies on the Revenue, which must prove through objective material that the goods are commercially recognised as a distinct marketable product.

Allowing the appeal, Justice J.B. Pardiwala and Justice R. Mahadevan while setting aside the impugned judgment, observed, “…what enters the process is an ACP consisting of two aluminium sheets bonded to a polyethylene core, and what emerges from the process is still an ACP cut to a particular size, grooved at the edges, and bent into a frame. Here, the essential character of the goods remain entirely unchanged…The process of grooving or routing does not alter the material properties or the commercial character of the ACPs in any manner whatsoever. The form and shape of the ACPs are being changed to facilitate its use”.

“…It is as clear as a noon day that none of these activities, individually or collectively, result in the creation of new distinct goods. After undergoing the aforesaid process, the ACPs continues to retain its original character but in a modified form”, observed further.

Advocate Charanya Lakshmi Kumaran appeared for the appellant and N. Venkataraman, A.S.G. appeared for the respondent.

The dispute arose from excise proceedings initiated against the appellant engaged in supplying and installing ACP cladding systems. The Revenue contended that once standard ACP sheets were cut to dimensions, routed, grooved and bent into panels for use in building façades, a new excisable product emerged and became liable to duty. The appellant argued that the panels remained ACP sheets throughout; the process only adapted them for installation and did not create commercially distinct goods.

Examining Section 2(f) of the Central Excise Act, 1944, the Court reiterated that “manufacture” is the taxable event for levy of excise duty. To determine the excisability, courts must examine whether the process results in a distinct commercial product and whether such product is marketable.

Referring to Union of India v. J.G. Glass Industries Ltd. (1998) 2 SCC 32, and Servo-Med Industries (P) Ltd. v. CCE (2015) 14 SCC 47J.G. Glass, Servo-Med and Quippo Energy Ltd. v. CCE, 2025 SCC OnLine SC 2021, the Bench clarified that transformation and marketability are cumulative requirements. While transformation is essential, the “but for” commercial utility test alone cannot establish manufacture; equally, marketability without transformation is insufficient.

“…Each limb must be independently examined and satisfied on the basis of the facts and circumstances of the case, and it is only upon the conjunctive satisfaction of both limbs that an activity can be properly characterized as manufacture within the meaning of the Act, 1944”, it noted

On marketability, the Bench emphasised that the burden lies on the Revenue, which must establish through objective evidence that the goods are commercially recognised and capable of being bought and sold as a distinct product. In the present case, no such evidence was produced.

The Bench, after a detailed discussion on the position of law as regards Sections 35G and 35L, respectively, and the meaning and application of “manufacture”, noted, the following: -

  1. An appeal from an order passed by the Appellate Tribunal relating to the determination of any question having a relation to the rate of excise duty or to the value of goods for the purpose of assessment lies before this Court and not before the High Court. However, such exclusion is not attracted by every question touching the rate of duty or the value of goods. The question must have a direct and proximate relationship with assessment.
  2. The question of excisability of goods is connected with the rate of duty for the purpose of assessment. A decision on excisability of goods would be a precursor to the determination of any question having a relation to the rate of duty or to the value of goods.
  3. Sub-section (2) of Section 35L of the Act, 1944, merely gives statutory expression to the collective reading of Sections 35G and 35L respectively. It clarified that excisability always fell within the expression “rate of duty”. Thus, when an amendment intends to clarify something which is implicit in the operation of a provision, such an amendment operates retrospectively.
  4. The process of making superficial changes in order to facilitate the use of goods, which do not alter the fundamental properties of the goods, does not create a distinct product so as to pass the transformation test. To levy excise duty, marketability of the manufactured goods has to be proved. A manufactured goods are said to be marketable when they is capable of being bought or sold, or known as a commercial product in the market.
  5. The burden of establishing marketability of the manufactured goods lies on the Revenue, and it must be discharged by demonstrating “marketability” as defined in the foregoing paragraphs of this judgment. In this regard, the standard of proof while discharging the burden must be met keeping in mind the goods in question.

Accordingly, the Court held that superficial changes made merely to facilitate use, without altering the fundamental character of goods, do not amount to manufacture. Since no distinct product emerged from the process undertaken by the appellant, the appeal was allowed and the impugned judgment was set aside.

Cause Title: M/S Alupro Building Systems Pvt. Ltd. v. Commissioner Of Central Excise Bangalore II (Neutral Citation: 2026 INSC 582)

Appearances:

Appellant: Charanya Lakshmi Kumaran, Nitum Jain, Neha Choudhary, Devansh Garg, Swastik Mishra, Medha Sinha, R. Parthasarathy, AOR, Advocates.

Respondent: N. Venkataraman, A.S.G., Gurmeet Singh Makker, AOR, V.C. Bharathi, Prashant Singh II, Mukesh Kumar Singh, Mayank Pandey, Aman Jha, Advocates.

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