Supreme Court Holds Appeals On Excisability Of Goods Lie Before It, Not High Courts

The Supreme Court has recently held that disputes over whether goods are excisable fall within the exclusive appellate jurisdiction of the Supreme Court and cannot be decided by High Courts.

Setting aside a Karnataka High Court judgment, the Court observed, "The provisions of Sections 35G and Section 35L, read together, always pointed to one and only one conclusion: that the question of excisability fell within the exclusive appellate jurisdiction of the Supreme Court."

A Bench of Justice J.B. Pardiwala and Justice R. Mahadevan held that the Karnataka High Court lacked jurisdiction to entertain the revenue's appeal concerning the excisability of goods.

The Bench observed, "In view of Section 35G(1) read with Section 35L(1)(b) the appropriate remedy for the respondent-Revenue would have been to approach this Court."

The dispute arose from excise proceedings against Alupro Building Systems Pvt. Ltd., a construction contractor that imported pre-coated Aluminium Composite Panels (ACPs) and cut, grooved, and bent them to suit the design requirements of building facades before fixing them on structures.

The revenue authorities alleged that these activities amounted to manufacture and sought to recover excise duty, interest and penalties. The Customs, Excise and Service Tax Appellate Tribunal ruled in favour of the company, but the Karnataka High Court later reversed that decision and restored the demand.

Counsel appearing for the company, argued that the issue of excisability fell within the Supreme Court's appellate jurisdiction and that cutting and grooving ACPs did not result in the emergence of a new product with a distinct name, character or use.

The Revenue, represented by Additional Solicitor General N. Venkataraman and advocate G.S. Makker, argued that routing and grooving brought about an irreversible change in the panels, altered their end use and therefore satisfied the test of manufacture.

Addressing the jurisdictional issue, the Court held that questions of excisability are inseparable from the determination of duty liability and therefore fall within the category of disputes reserved for the Supreme Court.

It observed, "An issue on excisability of goods would be intrinsically connected with the 'rate of the duty' for the 'purpose of assessment'. The decision on excisability of goods is a precursor 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. Afterall, the levy of excise duty presupposes that the goods upon which such assessment is to be made, are downstream consequences of determination of excisability. To hold otherwise would be to sever what is inherently a continuous chain of fiscal adjudication into fragments, which the legislature could never have intended."

The court also clarified that the existence of a substantial question of law could not confer jurisdiction where the statute expressly excluded the High Court's appellate jurisdiction.

It held, "Jurisdiction cannot be assumed merely because the question is framed as question of law, if the underlying subject matter of the order is that the legislature has explicitly placed beyond the reach of the High Court."

Having found that the appeal was not maintainable before the High Court, the Court also examined whether the activities undertaken by the company amounted to manufacture. It concluded that no distinct commercial product emerged after the ACPs were cut, grooved and bent.

The bench observed, "The answer is an emphatic 'No'. We say so because 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."

Explaining its conclusion, the court held, "The process of cutting, grooving, and bending does not alter the fundamental nature of identity of the ACP, it merely adapts its dimensions and shape for a specific use. In other words, it amounts to no more than preparation, sizing, and installation of the ACPs for use as a cladding or façade material."

The bench further observed, "After undergoing the aforesaid process, the ACPs continues to retain its original character but in a modified form."

Allowing the appeal, the Supreme Court concluded that the Revenue ought to have challenged the Tribunal's order before the Supreme Court and that the activities undertaken by Alupro Building Systems did not amount to manufacture attracting excise duty.

For Appellants: Advocate Charanya Lakshmikumaran, Advocate R. Parthasarathy, AOR, Advocate Neha Choudhary, Advocate L. Badri Narayanan, Advocate Medha Sinha, Advocate Swastik Mishra, Advocate Atrey GC, Advocate R. Parthasarathy.

For Respondents: Advocate Gurmeet Singh Makker, AOR.