S.35L Central Excise Act | Only Supreme Court Can Decide Appeals On Question Of Excisability; Not High Courts: SC
The Supreme Court has held that disputes relating to the excisability of goods fall within its exclusive appellate jurisdiction and cannot be decided by High Courts under Section 35G of the Central Excise Act, 1944.“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 Supreme Court has held that disputes relating to the excisability of goods fall within its exclusive appellate jurisdiction and cannot be decided by High Courts under Section 35G of the Central Excise Act, 1944.
“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. 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”, the Court held.
The Court also ruled that the cutting, grooving and routing of Aluminium Composite Panels (ACPs) to suit building specifications does not amount to “manufacture” under Section 2(f) of the Act because no distinct commercial product emerges from the process.
A bench of Justice JB Pardiwala and Justice R Mahadevan set aside a Karnataka High Court judgment which had held that the activity amounted to manufacture and attracted excise duty. The Court restored the position taken by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which had ruled in favour of the assessee, a construction contractor.
The case arose from a dispute over ACPs imported by the company and used for exterior cladding of buildings. After import, at the assessee's premises, the ACPs were cut into required sizes, grooves were made on their reverse side. The panels were then fixed onto frames erected at project sites.
The Revenue issued a show cause notice in September 2004 alleging that the process of cutting, grooving and assembling ACPs amounted to manufacture and demanded excise duty of Rs. 21,46,437 for the period April 2002 to December 2003 along with interest and penalties.
CESTAT held that no new product came into existence and that the Revenue had failed to establish marketability of the alleged manufactured goods. The Karnataka High Court later restored the Revenue's case, prompting the present appeal before the Supreme Court.
The Revenue had challenged the CESTAT order before the Karnataka High Court under Section 35G of the Central Excise Act. The assessee argued that the dispute concerned excisability of goods and therefore only the Supreme Court could hear the appeal under Section 35L.
Section 35G provides for appeals from CESTAT to High Courts on substantial questions of law but excludes disputes relating to the rate of excise duty or valuation of goods for assessment. Such matters are appealable directly to the Supreme Court under Section 35L.
The Supreme Court analysed Sections 35G and 35L and held that questions concerning excisability are directly connected with the rate of duty and assessment. Therefore, such disputes fall within the category of matters that can be appealed only to the Supreme Court.
The Court observed that the expression “determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment” under 35L has a broad scope. It observed that a decision on whether goods are excisable is a precursor to deciding the applicable rate of duty and therefore has a direct and proximate relationship with assessment.
Section 35L(2), inserted in 2014, states that determination of taxability or excisability of goods is included within the expression “determination of any question having a relation to the rate of duty” under Section 35L(1)(b). The Court held that this provision is merely clarificatory, and the amendment only made explicit what was already implicit in the statutory scheme. Thus, it operates retrospectively, the Court held.
On the substantive issue of manufacture, the Court noted that excisability requires satisfaction of a two-fold test. First, the process must result in the emergence of distinct goods with a new name, character, identity or use. Second, the transformed goods must be marketable or capable of being marketed as distinct goods.
Applying that test, the Court found that the ACPs remained ACPs even after being cut, grooved and bent. It observed that the essential character of the product remained unchanged and the process merely adapted the panels for installation according to customer requirements. The activity only altered dimensions and shape and did not create a commercially distinct product, the Court noted.
The Court observed that changing the form of goods to facilitate their use does not amount to manufacture when the fundamental properties of the goods remain intact. It stated that the erection of frames, fixing of panels and sealing of gaps are installation activities that do not create new goods.
“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. Manufactured goods are said to be marketable when they are capable of being bought or sold, or known as a commercial product in the market”, the Court held.
The Court also reiterated that marketability is an independent requirement for levy of excise duty. It held that the burden of proving marketability lies on the Revenue and must be discharged through evidence rather than assumptions. Since the ACPs had not undergone any transformation into distinct goods, the issue of marketability became insignificant in the present case.
Holding that the process undertaken by the appellant did not result in a distinct product, the Court allowed the appeal and set aside the High Court's judgment.
Headnote
Central Excise Act, 1944 – Section 2(f) – Definition of "Manufacture" – Two-fold Test – Transformation and Marketability – Process of cutting, grooving (routing), and bending Aluminum Composite Panels (ACPs) to specific sizes for installation on building facades does not amount to "manufacture" – What enters the process is an ACP consisting of two aluminum sheets bonded to a polyethylene core, and what emerges is still an ACP cut to a particular size – The essential character, material properties, and commercial identity of the goods remain entirely unchanged – The process merely adapts the dimensions and shape of the panels to facilitate their specific use or installation as cladding, which amounts to superficial changes rather than a transformation into a distinct commercial product. [Paras 65 - 76]
Central Excise Act, 1944 – Section 35G(1) and Section 35L(1)(b) – Appellate Jurisdiction of High Court vs. Supreme Court – Dispute on Excisability of Goods – An appeal involving the determination of the taxability or excisability of goods goes to the root of assessment and is intrinsically connected with the "rate of duty" - Under Section 35G(1), the High Court's appellate jurisdiction explicitly excludes orders relating to the determination of any question having a relation to the rate of duty of excise or the value of goods for the purpose of assessment - the appropriate remedy against an order of the Appellate Tribunal determining the excisability of a product lies exclusively before the Supreme Court under Section 35L, and not the High Court. [Paras 19-38]
Central Excise Act, 1944 – Section 35L(2) [as inserted by the Finance (No. 2) Act, 2014] – Nature of Amendment – Clarificatory and Retrospective Application – Sub-section (2) of Section 35L, which explicitly states that the determination of any question having relation to the rate of duty shall include the determination of taxability or excisability of goods, is clarificatory and declaratory in nature - It does not create new liabilities or a new right of appeal, but merely makes explicit what was already implicit in the structural scheme of Sections 35G and 35L - the presumption against retrospectivity does not apply, and the amendment operates retrospectively. [Paras 43-53]
Central Excise Act, 1944 – Section 2(f) – Burden of Proof and Standard of Proof for Marketability – The burden of establishing that a transformed product is "marketable" or "capable of being marketed" lies entirely on the Revenue - Marketability is a question of fact that must be proved through objective evidence of trade parlance and commercial understanding, showing that the product can stand independently in the market as a distinct article - A mere assertion, a hypothetical possibility of sale, or the mistaken past conduct of an assessee paying duty under a bona fide error cannot discharge this burden - The standard of proof to be met by the Revenue is that of preponderance of probabilities, calibrated proportionately to the nature, rarity, or character of the specific goods in question. [Relied on Navin Chemicals Manufacturing & Trading Co. Ltd. v. Collector of Customs, (1993) 4 SCC 320; Servo-Med Industries (P) Ltd. v. CCE, (2015) 14 SCC 47; Union of India v. Delhi Cloth & General Mills Co. Ltd., 1962 SCC OnLine SC 148; Moti Laminates (P) Ltd. v. CCE, (1995) 3 SCC 23 ; Paras 84-95]
Case no. – Civil Appeal No. 8030 of 2010
Case Title – M/S Alupro Building Systems Pvt. Ltd v. Commissioner of Central Excise Bangalore-II
Citation : 2026 LiveLaw (SC) 599