![Kitting of Imported Photocopier Modules Is Not Manufacture, Note 6 to Section XVI Not Attracted: Supreme Court in CCE, Hyderabad-IV v. Xerox India Ltd. [2026 INSC 805]](/assets/images/article-gst.svg)
Quick Answer: Grouping imported photocopier modules into sets and pinning and plugging them together to meet a customer's specification ("kitting") at a warehouse is not "manufacture" under Section 2(f) of the Central Excise Act, 1944. The goods were imported and assessed as complete machines, so Note 6 to Section XVI of the Tariff did not apply either. The Supreme Court dismissed the Revenue's appeals against Tribunal orders setting aside an excise demand of about Rs. 17.86 crore on Xerox India.
In Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors. (2026 INSC 805), the Supreme Court held that the Revenue must bring an assessee's activity strictly within Section 2(f) of the Central Excise Act, and that kitting of imported modules, being only pinning and plugging parts together into a complete set as per the customer's specification, does not amount to manufacture (para 17). Note 6 to Section XVI of the Central Excise Tariff Act needs both an incomplete article and its conversion by the person charged, and the Revenue cannot treat the same goods as complete for customs duty and CVD but incomplete for Note 6 (para 18). A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria found the Tribunal's findings correct and not perverse (paras 20–21).
Status: CESTAT, South Zonal Bench, Bangalore order dated 09.11.2009 in Central Excise Appeal Nos. E/591, 592 and 596 of 2009, and order dated 31.07.2017 in Appeal Nos. E/975, 976 and 977 of 2009, upheld; Revenue's Civil Appeal Nos. 5939-5941 of 2010 and 11870-11872 of 2018 dismissed (paras 1–2, 21).
Headnote: Kitting of Imported Modules Is Not Manufacture
Central Excise Act, 1944 – Section 2(f) – Manufacture – Central Excise Tariff Act, 1985 – Note 6 to Section XVI – Rule 2(a) of the General Rules for the Interpretation of the Schedule – Imported photocopier modules in CKD/SKD condition – Kitting at warehouse – Pinning and plugging to customer specification – Burden on Revenue – Findings of fact of the Tribunal.
Held: (i) A process that leaves the commodity commercially the same article is not manufacture, however much labour, skill or expense is bestowed on it; but a process need not be elaborate to be manufacture if the market recognises what emerges as different in name, character and use (para 14).
(ii) Section 2(f) is an inclusive definition; each case must be assessed on its own merits, with care in drawing analogies, keeping in view the four categories in Servo-Med (para 15).
(iii) The nomenclature the assessee uses on the factory or warehouse floor is not conclusive; BPL India, Narne Tulaman and Quippo Energy are distinguishable, the first because of the heading under which the kits were imported and the others because they dealt with assembly of distinct parts (para 16).
(iv) The Revenue must bring the activity strictly within Section 2(f); pinning and plugging different parts together into a complete set as per the customer's specification, called kitting, does not fall within it (para 17).
(v) Note 6 requires that the article presented was incomplete or unfinished and that the person charged converted it into the complete article; goods imported and assessed as complete machines under Heading 8471 cannot be treated as incomplete for Note 6, and Rule 2(a) is a rule of classification, not of manufacture (para 18).
(vi) The Tribunal's findings that no assembly took place in the warehouse and that the HCF and DADF were fitted at the sister concerns' factories abroad rest on evidence and are not perverse (paras 19–20).
(paras 14–21)
Case Details: CCE, Hyderabad-IV v. Xerox India Ltd. (2026 INSC 805)
Final Outcome: Revenue's appeals dismissed; Tribunal orders setting aside the excise demands upheld.
Case: Commissioner of Central Excise, Hyderabad-IV v. M/s Xerox India Ltd. & Ors.
Neutral Citation: 2026 INSC 805
Case No.: Civil Appeal Nos. 5939-5941 of 2010, with Civil Appeal Nos. 11870-11872 of 2018
Court: Supreme Court of India (Civil Appellate Jurisdiction) – Reportable
Date of Decision: 5 August 2026
Bench: Justice S.V.N. Bhatti (author) and Justice N.V. Anjaria
Relevant Acts & Sections: Central Excise Act, 1944 – Sections 2(f), 3, 11A, 11AB, 11AC and 14; Central Excise Tariff Act, 1985 – Note 6 to Section XVI of the First Schedule and Rule 2(a) of the General Rules of Interpretation; Central Excise Rules, 2002 – Rule 26
Impugned Orders: CESTAT, South Zonal Bench, Bangalore order dated 09.11.2009 in Central Excise Appeal Nos. E/591, 592 and 596 of 2009 (against Order-in-Original No. 04/2008-C Ex. dated 28.03.2008, Commissioner of Central Excise, Hyderabad-IV); order dated 31.07.2017 in Appeal Nos. E/975, 976 and 977 of 2009 (against Order-in-Original No. 57/COMMR./Meerut-II/2008 dated 28.11.2008, Commissioner of Central Excise, Meerut-II) (paras 1–2)
Counsel: Mr. Raghavendra P. Shankar, Additional Solicitor General, for the Revenue; Mr. V Lakshmikumaran for the Assessee (paras 10–11)
Source: Supreme Court of India
Key Holdings of the Supreme Court
- Manufacture under Section 2(f) has inner and outer limits: no manufacture if the commodity stays commercially the same; manufacture if the market recognises a new article (para 14).
- Labels such as "kitting" are not decisive; the question is whether the activity amounts to manufacture (para 16).
- Pinning and plugging imported modules into a set to a customer's specification is not manufacture (para 17).
- The Revenue cannot treat goods as complete for customs duty and CVD and as incomplete for Note 6 (para 18).
- Rule 2(a) of the General Rules of Interpretation decides classification, not whether a process is manufacture (para 18).
- The Tribunal's findings of fact were brief, correct and not perverse (para 20).
Brief Facts of the Case
Xerox India Ltd. imported parts, modules and accessories of photocopiers and printers in CKD or SKD condition from its group's warehouses abroad, paying customs duty and CVD, and held them at warehouses in Hyderabad and Rampur. On 04.05.2007 the Revenue issued a show cause notice for April 2002 to November 2006, alleging that the activity at the Hyderabad warehouse was manufacture, and proposing excise duty and ED Cess of Rs. 17,86,47,382 with interest, penalty, and penalties on two executives under Rule 26 (paras 5–6.4).
The assessee replied that the goods were imported and assessed as complete machines under Heading 8471, shipped in modular form for safe transport, and only kitted for packing and customer specification (paras 7–7.5). The Commissioner confirmed the demand on 28.03.2008, holding that a complete machine came into existence by assembly at the warehouse (paras 8–8.2).
The CESTAT, Bangalore set aside the order, finding that the HCF and DADF were factory fitted, that no fitting or assembly took place in the warehouse, and that grouping parts and assigning a unique number by computer was not manufacture. A similar demand from Meerut-II was set aside by the order dated 31.07.2017. The Revenue appealed both (paras 2, 9).
Issues Before the Supreme Court
- Whether the grouping and, to whatever extent, the fitting together of imported modules into photocopiers at the warehouse to meet a customer's need amounts to "manufacture" under Section 2(f) of the Central Excise Act read with Note 6 to Section XVI of the Tariff (para 4).
Court's Findings and Reasoning
Revenue's case (paras 10–10.4): The ASG argued that combining imported modules with local components to create bespoke machines was an irreversible assembly by trained engineers, that Rule 2(a) only prevents evasion, that refurbishment by cannibalisation was manufacture, and that the extended period applied.
Assessee's case (paras 11–11.5): Counsel argued that the activity was kitting, that Note 6 applies only to incomplete articles, that the goods were classified as complete machines on import, and that the Tribunal's findings of fact bound the Court.
Review of precedent (paras 13–15): The Court tabulated Delhi Cloth Mills, Narne Tulaman, BPL India, Satnam Overseas, Servo-Med, Quippo Energy and Alupro, and drew from them the inner and outer limits of manufacture and the Servo-Med categories.
Precedents distinguished (para 16): The Court declined to compare the case strictly with earlier facts. BPL India differed in the heading under which the kits were imported, and Tulaman and Quippo dealt with assembly of distinct parts.
No manufacture (para 17): The goods were imported under Heading 8471 with customs duty paid against it. On the facts accepted by the Tribunal, the activity was pinning and plugging parts into a complete set, which does not fall within Section 2(f).
Note 6 and Rule 2(a) (para 18): Neither prong of Note 6 was made out: the goods were complete machines when imported, assessed and cleared in original packing, with no process done in the warehouse. Rule 2(a) only tells where an article is classified.
Best evidence (para 19): The Revenue drew its conclusions without inspecting the premises. The Court observed that in an era of technological advancement the Revenue could have proved the process through best evidence, such as photographs.
Tribunal's findings upheld (para 20): The Tribunal considered the depositions, purchase orders, bills of entry and storage tickets. The Revenue could point to no contrary evidence, and no executive deposed that modules were assembled in the warehouse.
Final Outcome and Directions
- No reason to disturb the Tribunal's findings (para 21).
- Civil Appeal Nos. 5939-5941 of 2010 and Civil Appeal Nos. 11870-11872 of 2018 dismissed (para 21).
- Pending applications disposed of (para 22).
Legal Principle Laid Down
To levy excise duty, the Revenue must bring the activity strictly within Section 2(f) of the Central Excise Act. Kitting, that is, grouping imported modules and pinning and plugging them into a complete set for a customer, without any transformation into a new article, is not manufacture. Note 6 to Section XVI applies only where an incomplete article is converted into a complete one by the person charged, and goods assessed as complete machines on import cannot be treated as incomplete to attract it (paras 14, 17–18).
Precedents Relied Upon
- Union of India v. Delhi Cloth and General Mills Co. Ltd., (1962) SCC OnLine SC 148 – Relied upon – manufacture requires transformation into a new article with a distinct name, character or use. Discussed at paras 9, 13.
- Narne Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise, (1989) 1 SCC 172 – Distinguished – assembly of distinct parts into a weighbridge. Discussed at paras 13, 16.
- BPL India Ltd. v. Commissioner of Central Excise, Cochin, (2002) 5 SCC 167 – Distinguished – heading under which kits were imported differed. Discussed at paras 13, 16.
- Quippo Energy Ltd. v. Commissioner of Central Excise, Ahmedabad-II, (2025) 152 GSTR 264 (SC) – Distinguished – assembly of distinct parts into a Power Pack. Discussed at paras 13, 16.
- Satnam Overseas Limited v. Commissioner of Central Excise, New Delhi, (2015) 13 SCC 166 – Considered – essential character test. Discussed at para 13.
- Servo-Med Industries Pvt. Ltd. v. Commissioner of Central Excise, Mumbai, (2015) 14 SCC 47 – Relied upon – twofold test and four categories of goods. Discussed at paras 13, 15.
- Alupro Building Systems, (2026) SCC OnLine SC 986 – Considered – cutting and grooving ACPs not manufacture. Discussed at para 13.
Important Paragraphs of the Judgment
Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.
Para 14: "At the inner limit, a process that leaves the commodity commercially the same article is not manufacture however much labour, skill, or expense may have been bestowed upon it, and an addition to value will not, by itself, convert such a process into manufacture."
Para 16: "We hasten to add that the nomenclature employed by the Assessee on the floor of the factory/warehouse, by itself, is not a conclusive and determinative circumstance."
Para 17: "To sustain the impugned demand, the Revenue must bring the Assessee’s activity strictly within the definition of Section 2(f) of the C E Act."
Para 18: "The Revenue cannot, upon one and the same set of facts, treat the goods as complete machines for the purpose of levying customs duty including CVD, and as incomplete articles for the purpose of attracting Note 6."
Para 18: "It answers the question where an article is to be classified; but it does not answer the question whether a process performed upon the article amounts to manufacture."
Para 20: "These findings are not perverse, rest upon evidence, and have been arrived at by careful consideration of the material on record."
Practical Impact of the Ruling
- For importers and traders: Kitting imported modules to a customer's configuration, without transformation, does not attract excise duty as manufacture (para 17).
- For the Revenue: A consistent position is required: goods assessed as complete machines at import cannot be called incomplete to invoke Note 6 (para 18).
- For adjudicating officers: Claims of manufacture should be backed by inspection and best evidence, such as photographs of the process (para 19).
- For litigants: Tribunal findings of fact that rest on evidence and are not perverse will not be disturbed (para 20).
FAQs on Kitting and Manufacture Under Central Excise
1. What did the Supreme Court decide in CCE, Hyderabad-IV v. Xerox India Ltd.?
It dismissed the Revenue's appeals and upheld the Tribunal orders that set aside the excise demands on the assessee's warehouse activity (para 21).
2. Is kitting of imported modules manufacture?
No. Pinning and plugging different parts together into a complete set as per the customer's specification does not fall within Section 2(f) (para 17).
3. When does Note 6 to Section XVI apply?
Only when the article presented was incomplete or unfinished and the person charged converted it into the complete article (para 18).
4. Does Rule 2(a) of the General Rules of Interpretation make assembly manufacture?
No. It is a rule of classification and does not answer whether a process amounts to manufacture (para 18).
5. Does the assessee's label for an activity decide the question?
No. The nomenclature used on the floor of the factory or warehouse is not conclusive; the activity itself is tested (para 16).
Keywords: 2026 INSC 805, CCE Hyderabad v. Xerox India, Section 2(f) Central Excise Act, manufacture, kitting, photocopier modules, CKD SKD imports, Note 6 Section XVI, Rule 2(a) General Rules of Interpretation, CVD, Heading 8471, Servo-Med, Delhi Cloth Mills, BPL India, Quippo Energy, CESTAT, Justice S.V.N. Bhatti, Justice N.V. Anjaria, Supreme Court judgment
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Download Judgment PDF – CCE, Hyderabad-IV v. Xerox India Ltd.
Source: Supreme Court of India (official website).