In M/s Alupro Building Systems Pvt. Ltd v. Commissioner of Central Excise, Bangalore-II (Civil Appeal No. 8030 of 2010, decided on May 27, 2026), the Supreme Court of India adjudicated a vital dual-pronged dispute concerning the jurisdictional limits of High Courts in fiscal matters and the statutory thresholds of “manufacture” under Section 2(f) of the Central Excise Act, 1944. The appeal was preferred by the assessee against a Karnataka High Court order that had overturned a CESTAT ruling and restored an assessment demanding excise duty on Aluminum Composite Panels (ACPs) subjected to cutting, grooving, and routing for building façades.
The Supreme Court allowed the appeal and set aside the High Court’s judgment, resolving two major questions of law. First, on the Jurisdictional Issue, the Court held that the High Court lacked jurisdiction under Section 35G because thresholds of taxability or excisability are intrinsically tied to the “rate of duty” for assessment, making such orders appealable exclusively to the Supreme Court under Section 35L. It affirmed that the 2014 insertion of Section 35L(2) was purely clarificatory and therefore retrospective. Second, on the Merits of Excisability, the Court ruled that cutting and routing ACPs to fit specific dimensions does not alter their essential characteristics or bring into existence a commercially distinct product, failing the primary transformation test required to trigger a taxable event under excise law.
1. Factual Matrix & Judicial Trajectory
- The Commercial Activity: The appellant is a construction contractor that imports pre-coated ACPs (made of a rigid polyethylene sheet core bonded between two aluminum sheets) in standard sizes. At its premises, the appellant cuts these sheets into required rectangular/square panels and carves grooves on the back side (routing/grooving) to enable them to be mechanically affixed onto masonry framing structures at client sites.
- The Tax Dispute: The appellant initially paid excise duty but discontinued it after April 2002 under the bona fide belief that this customization process did not constitute “manufacture”. On September 14, 2004, the Revenue issued a Show Cause Notice (SCN) demanding Rs. 21,46,437/- in duty, plus interest and penalties, asserting that the structural transformation made the product dutiable.
- The Fora Below: The Additional Commissioner confirmed the demand, which was partially upheld by the Commissioner (Appeals) who deleted the penalties but sustained the duty classification. On further appeal, the CESTAT reversed this finding, ruling that the process did not create a new product and that the Revenue failed to discharge its burden of proving that the processed panels were independently “marketable”.
- High Court Intervention: The Revenue filed an appeal under Section 35G before the Karnataka High Court, which allowed the appeal on April 1, 2010, holding that since the panels underwent irreversible geometric alterations to suit custom site conditions, a commercially distinct product had emerged. The assessee appealed this decision to the Supreme Court.
2. Legal Issues & Determinations
A. Jurisdictional Competence of the High Court & Retrospectivity of Section 35L(2)
The first critical inquiry was whether the High Court possessed the statutory authority under Section 35G to entertain an appeal centered on the excisability of goods.
- The Exclusive Scheme: A collective reading of Section 35G(1) and Section 35L(1)(b) establishes a mutually exclusive appellate framework. High Courts are explicitly barred from deciding cases that involve “the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment”.
- Excisability as a Precursor to Rate of Duty: Justice J.B. Pardiwala rejected the idea that “excisability” is independent of the “rate of duty”. Determining whether a product is subject to a tax levy is a mandatory, logical precursor to the assessment itself. The statutory exclusion uses the expansive words “any” and “in relation to,” indicating that even peripheral questions going to the root of a fiscal assessment fall outside the High Court’s jurisdiction.
- Retrospective Nature of the 2014 Amendment: The Court examined sub-section (2) of Section 35L, inserted via the Finance (No. 2) Act, 2014, which explicitly states that questions relating to the rate of duty include determinations of taxability or excisability. The Court declared that this amendment did not create a new right or create a new liability; it merely made explicit what was already implicit in the law. Because it was declaratory and curative, designed to prevent conflicting judicial views across different states, Section 35L(2) operates retrospectively. Thus, the Revenue’s appropriate remedy was to appeal the CESTAT order directly to the Supreme Court, rendering the High Court’s judgment void for want of jurisdiction.
B. The Transformation Test under Section 2(f) “Manufacture”
On the merits, the Court evaluated whether cutting and routing ACPs met the legal definition of “manufacture” under Section 2(f).
- No New Substance: Relying on the landmark Constitution Bench ruling in Delhi Cloth & General Mills (1962), the Court reiterated that manufacture requires a transformation that brings a new substance into existence, rather than a mere physical change in an existing material.
- Adaptation is Not Transformation: What entered the appellant’s workshop were aluminum composite panels, and what left were still aluminum composite panels. Cutting them down to size and drilling placement holes merely adapted their dimensions to fit specific architectural grids. The essential material properties, chemical composition, and commercial identity of the panels remained entirely unaltered. Drawing parallels to R. Tissues (2005) (cutting jumbo tissue rolls) and Aman Marble Industries (2005) (cutting marble blocks into slabs), the Court held that sizing and installation activities do not cross the threshold of manufacture.
C. The Marketability Doctrine & Burden of Proof
The Court reviewed the secondary requirement of excisability: the marketability test.
- The Standalone Inquiry: Summarizing the legal positions in Servo-Med Industries (2015) and Quippo Energy (2025), the Court outlined a matrix of four scenarios, emphasizing that transformation and marketability must be satisfied cumulatively. To be marketable, an item must be capable of standing alone in trade as an independent commercial product.
- The Standard of Proof: The Court ruled that the burden of proving that an item is marketable lies squarely on the Revenue and must be discharged using objective evidence, not mere assertions or dictionary definitions. The standard of proof required is a preponderance of probabilities, calibrated to the nature and rarity of the goods. In this case, the customized, cut-to-size panels were tailored exclusively for specific building façades and were not commodities traded generally in the open market. However, since the panels failed the primary transformation test, the question of marketability became secondary.
3. Conclusion & Final Order
- The Process Rules: The Court concluded that superficial, geometric modifications to facilitate the fitting and installation of goods without altering their core commercial identity do not amount to a manufacturing activity under Section 2(f) of the Act.
Decretal Mandate: The Civil Appeal filed by the assessee is allowed, and the impugned judgment of the Karnataka High Court dated April 1, 2010, is formally set aside. All connected pending applications are disposed of accordingly.
2026 INSC 582
M/S Alupro Building Systems Pvt. Ltd V. Commissioner of Central Excise Bangalore-ii (D.O.J. 27.05.2026)
