The dichotomy between manufacture and processing has long engaged the Indian judiciary, particularly in taxation and trade matters. The differentia gains importance as the two terms are used distinctly in various enactments ie. Income Tax Act, GST Act, under Exim Policy etc.. The recent decision of the Supreme Court in Noble Resources and Trading India Pvt. Ltd. v. Union of India & Ors., 2025 LiveLaw (SC) 570, adds a nuanced layer to this jurisprudence.

The Court reaffirmed settled tests while ruling that crude degummed soybean oil, though derived from soybeans (an agricultural product), is not itself an agricultural product but a manufactured commodity.

This article analyses the decision and explores the evolving legal standards distinguishing manufacture from mere processing.

Tests to Determine 'Manufacture'

Drawing from a long line of precedents, the Apex Court reiterated five essential features to constitute a manufacturing process:

• Presence of a process or series of processes
• Transformation of the original commodity
• Emergence of a new commodity at the end of the process
• The new commodity must have a distinct name, character, or use
• Recognition in trade as distinct from the original commodity

The Court noted that crude degummed soybean oil undergoes a series of processes that convert soybeans into a product that no longer retains the essential characteristics of the original raw material. Thus, the transformation qualifies as manufacture and not mere processing. The Court elaborately dealt with the legal terminology of processing & manufacturing and, taking clue from the binding precedents of the Apex Court, summed up thus:

"43. Having examined the process undertaken by the appellant and even though the High Court acknowledges such process to be a process of manufacture, it will be useful to make a reference to the judicial precedents qua manufacture or manufacturing process. 44. In Union of India Vs. Delhi Cloth and General Mills Co. Ltd. AIR 1963 SC 791, a Constitution Bench of this Court held that the verb 'manufacture' used as a word is generally understood to mean as 'bringing into existence a new substance', howsoever minor in consequence the change may be. 'Manufacture' implies a change but every change is not manufacture. Every change of an article is the result of treatment, labour and manipulation. But something more is necessary to make it 'manufacture'. There must be transformation; a new and different article must emerge having a distinctive name, character or use. 45. The meaning of the expression 'manufacture' was considered by this Court in Deputy CST Vs. Pio Food Packers 1980 Supp. SCC 174. In the said decision, a three-Judge Bench held that the test evolved for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity. This Court laid down the following test:

• Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass.
• The nature and extent of processing may vary from one case to another.
• With each process suffered, the original commodity experiences a change.
• It is only when the change, or a series of changes, take the commodity to the point where it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that manufacture can be said to take place.

46. This view was endorsed in Commissioner of Income Tax, Orissa Vs. M/s N.C. Budharaja And Company 1994 Supp (1) SCC 280 where it was clarified that 'production' has a wider connotation than 'manufacture'. 47. In Commissioner of Income Tax Vs. Stanes Amalgamated Estates Ltd. (1998) 232 ITR 443, the Madras High Court held that eucalyptus oil extracted from eucalyptus leaves is a distinct product and not agricultural produce due to the transformation involved. 48. In Commissioner of Income Tax Vs. Cynamid India Limited (1999) 3 SCC 727, the Court ruled that rice husk remains an agricultural product because dehusking is a simple, non-industrial process and the product retains its natural form. 49. In Jai Bhagwan Oil and Flour Mills Vs. Union of India (2009) 14 SCC 63, it was held that manufacture is determined by whether the resulting product is recognized in the trade as distinct from its raw material. 50. In Collector of Central Excise, Kanpur Vs. Mineral Oil Corporation (2015) 14 SCC 64, the Court reiterated that manufacture results in a new product with a distinct name, character, or use. If the process only restores usability without transformation, it is not manufacture. 51. Thus, to constitute manufacture, the following are the essential features:

• There must be a process or series of processes.
• The original commodity or raw material undergoes a transformation through the process or series of processes.
• At the end of the process or series of processes, a new commodity emerges.
• The new commodity should have a distinct name, character or use and can no longer be regarded as the original commodity.
• It should be regarded as distinct from the original commodity and recognized as so in the trade.

52. The test is not whether the end product is a consumable product or not. Therefore, the High Court clearly missed the point by holding that because crude degummed soyabean oil was not further refined and therefore was not a consumable item; it did not have a distinct identity. This is not the test of manufacture. While there is no dispute that soyabean is an agricultural product, the High Court while endorsing the view of the Assistant Commissioner held that crude degummed soyabean oil is also an agricultural product. Certainly, crude degummed soyabean oil is distinct from soyabean; it is not the same thing as soyabean."

Earlier Supreme Court Precedents

The Court's reasoning aligns with and builds upon earlier landmark judgments:

• Union of India v. Delhi Cloth and General Mills, AIR 1963 SC 79
  The Apex Court held that manufacture is a transformation of an article which is commercially different from the one which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The Court succinctly observed thus:
  "The word 'manufacture' used as a verb is generally understood to mean as bringing into existence a new substance and does not mean 'merely' to produce some change in a substance, however minor in consequence, the change may be."
   
• Union of India v. J.G. Glass Industries Ltd., 1998 (97) ELT 5
  The Apex Court succinctly drew a distinction between manufacture vis-à-vis process and observed:
  "A two-fold test emerges for deciding whether the process is that of 'manufacture'. First, whether by the said process a different commercial commodity comes into existence... Secondly, whether the commodity which was already in existence will serve no purpose but for the said process. [...] It cannot be said that but for the process of printing, the bottles will serve no purposes or are of no commercial use."
   
• Ujagar Prints v. Union of India, (1989) 3 SCC 488
  The Court held that mere value addition or alteration may not constitute manufacture unless a new product with a distinct identity emerges. In this case, bleaching, dyeing, and printing grey cloth transformed it into a marketable commodity with a new identity.
   
• Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71
  The test laid down was whether a new commercial product with a distinct name, character, or use has emerged. Manufacture involves bringing into existence a new substance.
   
• Commissioner of Central Excise v. S.R. Tissues Pvt. Ltd., (2005) 6 SCC 310
  Conversion of jumbo rolls into toilet rolls, facial tissues, etc., was held to constitute manufacture since the end-products had a separate commercial identity.
   
• Tata Consultancy Services v. State of Andhra Pradesh, (2004) 1 SCC 308
  Software was held to be 'goods' once it acquired tangible form capable of being bought and sold—emphasizing identity in trade and use.
  The common thread in these cases is transformation plus distinct identity.
   

Manufacture vs. Processing: The Fine Line

The distinction lies in the end result. Processing may involve treatment or preparation that changes form, but manufacture results in a new product with its own identity. For instance:

• Cutting timber into logs is processing.
• Converting timber into furniture is manufacture.

In Noble Resources, the High Court erred by focusing on the fact that crude degummed soybean oil was not consumable and hence lacked distinct identity. The Supreme Court clarified that consumability is not the test—distinct name, character, or use is.
 

Implications of the Judgment

• Trade and Import Benefits: Classification of products for customs/tariff purposes must adhere to the 'distinct identity' test. Products that undergo substantial transformation may be denied agricultural concessions.
• Taxation Clarity: This judgment will guide assessments under GST, Excise, and Customs laws, especially where goods are intermediates or semi-finished products.
• Legal Certainty: By restating and applying settled doctrine, the Court ensures predictability in administrative and judicial decision-making.

Conclusion
The Supreme Court's judgment in Noble Resources is not just a reiteration but a clarification of the legal test for manufacture. It draws a clear line of demarcation between mere processing and manufacturing, emphasizing market identity and functional transformation. As industries evolve and intermediate products gain prominence in trade, this doctrine will serve as a crucial compass for regulatory classification and policy implementation.

Written By: Inder Chand Jain
Ph no: 8279945021, Email: [email protected]