Legal principle

Superficial changes made to goods merely to facilitate their use, which do not alter their fundamental properties, do not amount to 'manufacture' creating a distinct product, and the burden of proving that the resulting goods are marketable as a distinct commercial product rests on the Revenue.

Court decision

The Supreme Court allowed the assessee's appeal and set aside the Karnataka High Court's judgment. It held that appeals involving the determination of any question relating to the rate of excise duty or the value of goods for assessment — including excisability, which is a precursor to rate-of-duty determination — lie before the Supreme Court and not the High Court, the Section 35L(2) amendment being clarificatory and hence retrospective. On the merits, cutting/grooving the ACPs involved only superficial changes to facilitate use, produced no distinct product, and since marketability — whose burden lies on the Revenue — was not established, no distinct dutiable product resulted.

Facts

M/s Alupro Building Systems Pvt. Ltd., a construction contractor, imported pre-coated Aluminium Composite Panels (ACPs) under Customs Tariff Heads 7606/7610 and then cut, routed/grooved and affixed them on building façades. Having earlier paid excise duty on this activity, it stopped from April 2002 under the bona fide belief that the process was not 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Department issued a Show Cause Notice dated 14.09.2004 demanding duty of Rs. 21,46,437 plus interest and penalties; the Additional Commissioner confirmed the demand, the Commissioner (Appeals) set aside penalty and interest but upheld 'manufacture', and the CESTAT allowed the assessee's appeal holding there was no manufacture and the Revenue had failed to prove marketability. The Revenue's appeal under Section 35G then succeeded before the Karnataka High Court, leading to the present appeal to the Supreme Court.

Key provisions

• Section 130, Customs Act, 1962 —  Appeal to High Court
• Section 130E, Customs Act, 1962 — Appeal to Supreme Court