Commnr. Of Central Excise, Ahmedabad vs Solid & Correct Engg. Works & Ors

usage and character emerged out of the said

process. Resultantly the end-product; namely, Asphalt

Drum/Hot Mix Plants became exigible to Central Excise duty,

which duty Solidmec had successfully avoided. The notice

also proposed to levy penalties upon all the five concerns

under appropriate provisions of the Central Excise Act.

5. The respondents filed their responses to the show

cause notice, which were duly considered by the

Commissioner who confirmed the duty demanded in the

show cause notice and levied suitable penalties upon each

one of the units. Aggrieved by the order passed by the

Commissioner the respondents preferred appeals before the

Customs, Excise and Gold (Control) Appellate Tribunal (for

short `CEGAT') which were partly allowed by the Tribunal by

its order dated 19th August, 2002. Relying upon the material

on record and the depositions of the partners comprising the 6

concerns, the Tribunal held that Solidmec had supplied all

the components at the buyer's site some of which had been

manufactured by the manufacturing units of the group while

others were purchased from the market. The cost of

erection, commissioning etc. was also charged by Solidmec

from the buyers. Solidmec was, therefore, engaged in the

manufacture of the plants in question declared the Tribunal

in the following words:

"The sum total of the aforesaid evidence is that M/s Solidmec supplied all the essential components to make a hot mix plant at the buyer's site. Some of the components were manufactured by the manufacturing units and the other components were purchased from the market. These were erected and commissioned by Solidmec and the cost of erection, commissioning, etc., were charged from the buyers. In these circumstances they deserve to be termed as manufacturers."

6. The Tribunal next examined the question whether the

plants so manufactured could be termed as "goods". Relying

upon the decision of this Court in Triveni Engineering & 7

Industries Ltd. & Anr. V. Commissioner of Central

Excise 2000 (120) ELT 273 (SC) the Tribunal held that

since the dimensions of the plant were substantial

comprising three main components namely, 4 bin feeder,

the conveyor and dryer unit and since the said components

had to be separately embedded in earth on a foundation 1.5

feet deep what was manufactured could not be said to be

"goods" especially when the same could not be dismantled

and re-assembled without undertaking the necessary civil

works. The duty demand raised against Solidmec was on

that basis set aside leaving open certain other related issues

including the question of jurisdiction of the

Commissioner. The Tribunal further held that the

manufacturing units were entitled to the benefit of

exemption under Notification 1/93. The use of brand name

"Solidmec" for the plants or their components manufactured

by the sister concerns did not, according to the Tribunal,

disentitle the said units to the benefit of exemption having

regard to the fact that the size of the stickers giving the 8

brand name of the manufacturing units was bigger than that

of Solidmec the marketing company. The plea of limitation

raised by the respondents was, however, left undecided by

the Tribunal keeping in view the fact that the erection of

plants by Solidmec did not in the opinion of the Tribunal

amount to manufacture of exigible goods. In the ultimate

analysis the Tribunal upheld the demand of Rs.1,97,875/-

against M/s Solmec Earthmovers Equipments and

Rs.2,16,347/- against M/s Solid and Correct Engineering

Works but reduced the penalty levied upon them to Rs.2

lakhs each. The penalty levied upon the partners was,

however, remitted. The order of confiscation of the plant,

land and building was in consequence of the findings

recorded by the Tribunal set aside.

7. An application seeking rectification of the above order

was then filed before the Tribunal by the respondents. It

was argued that the Tribunal had upheld the duty and

penalties levied upon the respondents-applicants on the

premise that the respondents had not contested the 9

classification of the products under Sub-heading 8474.90 as

parts and components in place of Sub-heading 8474.10

applicable to complete machines. It was urged that although

the applicants had not questioned the classification

determined by the Department in the order passed by the

Commissioner it had specifically pleaded that the entire

demand for duty was barred by limitation. The Tribunal

accepted that argument and accordingly by its order dated

8th April, 2003 modified its earlier order and deleted the

demand of duty as also the penalty in toto. The subsequent

order deleting the duty and penalty in toto has been

questioned in CA Nos.5461-5462/2003.

8. We have heard Mr. P.P. Malhotra, learned Additional

Solicitor General for the appellants and Mr. S.K. Bagaria,

learned senior counsel for the respondents at length. Two

questions in our opinion arise for our determination:

(1) Whether setting up of an Asphalt Drum Mix Plant by

using duty paid components tantamounts to 1

manufacture of excisable goods within the meaning of

Section 2(d) of the Central Excise Act, 1944? and

(2) Whether the respondents engaged in the manufacture

of parts and components used for setting up of Asphalt

Drum/Hot Mix Plant were entitled to the benefit of

Notification No.1/93-CE, dated 28th February, 1993

issued under sub-section (1) of Section 5A of the

Central Excise Act, 1944 as amended from time to

time?

9. We shall take up the questions ad seriatim.

Re: Question No.1

10. Section 3 of the Central Excise Act, 1944, inter alia,

sanctions what was during the relevant period called `central

excise duty' on all "excisable goods" produced or

manufactured in India at the rates set forth in First Schedule

to the Central Excise Tariff Act, 1985. The term "excisable

goods" appearing in Section 3 has been defined under 1 Section 2(d) of the said Central Excise Act which reads as

under:

"2(d): "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt.

Explanation: For the purposes of this clause, "goods" includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable."

11. Entry 8474 in the First Schedule to the Central Excise

and Tariff Act, 1985 stipulates the rate at which excise was

payable on machinery of the kind enumerated in that Entry

which reads:

"Machinery for sorting, screening, separating, washing, crushing, grinding, mixing or kneading earth, stone, ores or other mineral substances, in solid (including powder or paste) form; machinery for agglomerating, shaping or moulding solid mineral fuels, ceramic paste, unhardened cements, plastering materials or other mineral products in powder or paste form; machines for forming foundry moulds of sand."

1 12. It is evident from the above that any machinery which

is used for mixing is dutiable. That Asphalt Drum/Hot Mix

Plant is a machinery meant for mixing etc. was not disputed

before us. It was fairly conceded by Mr. Bagaria that

assembling, installation and commissioning of Asphalt

Drum/Hot Mix Plants amounted to manufacture inasmuch as

the plant that eventually came into existence was a new

product with a distinct name, character and use different

from what went into its manufacture. Super added to the

above is the fact that Section 2(f) of the Central Excise Act

does not define the term "manufacture" exhaustively. The

definition is inclusive in nature and has been understood to

mean bringing into existence a new product with a distinct

name, character and use. (See (i) Union of India V. Delhi

Cloth and General Mills Co. Ltd. (1977) 1 ELT 199, (ii)

BPL India Ltd. V. CCE (2002) 5 SCC 167, (iii) Sirpur

Paper Mills Ltd. V. Collector of Central Excise,

Hyderabad (1998 (1) SCC 400).

1

13. Mr. Bagaria strenuously argued that even when the

setting up of the plant has been held to be tantamount to

manufacture of a plant and even when the plant may be

machinery covered by Entry 8474 of the First Schedule to

the Central Excise Act, the same would not necessarily

amount to manufacture of `exigible goods' keeping in view

the fact that such plants have to be permanently embedded

in earth. Reliance in support was placed by Mr. Bagaria

upon the finding recorded by the Tribunal that the plant is

required to be fixed to a foundation that is 1 and = ft. deep

for the sake of stability of the plant which causes heavy

vibrations while in operation. The following passage from

the Tribunal's order was in particular relied upon by Mr.

Bagaria in support of his submission that the size and nature

of the plant was such as made its fixing to the ground

essential:

"The individual element such as feeder bins, conveyor, rotary mixing drum, asphalt tank, fuel tanks, etc. have to be separately embedded into the earth. This is done on a civil foundation of 1.5 deep. This is because 1

the weight of the material as well as the vibrations caused by the movement thereof is very substantial. The drier at one time holds 40MT of raw material."

14. Relying upon certain decisions of this Court, Mr.

Bagaria argued that the plants in question did not satisfy the

test of marketability and moveability. According to Mr.

Bagaria, the setting up of the plant was no more than an

accretion/annexation to immovable property which was far

from manufacture of goods exigible to excise duty. We shall

presently refer to the decisions relied upon by Mr. Bagaria,

but before we do so we may briefly refer to the relevant

statutory provisions to examine, what would constitute

moveable or immoveable property.

15. The expression "moveable property" has been defined

in Section 3(36) of the General Clauses Act, 1897 as under:

"Section 3(36) : "movable property" shall mean property of every description, except immovable property."

1 16. From the above it is manifest that the answer to the

question whether the plants in question are movable

property, would depend upon whether the same are

immovable property. That is because anything that is not

immovable property is by this very definition extracted

above "moveable" in nature.

17. Section 3 of the Transfer of Property Act, 1882 does

not spell out an exhaustive definition of the expression

"immovable property". It simply provides that unless there

is something repugnant in the subject or context `immovable

property' under the Transfer of Property Act, 1882 does not

include standing timber, growing crops or grass. Section

3(26) of the General Clauses Act, 1897, similarly does not

provide an exhaustive definition of the said expression. It

reads:

"Section 3(26) : "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth."

1 18. It is not the case of the respondents that plants in

question are per se immoveable property. What is argued is

that they become immovable as they are permanently

imbedded in earth in as much as they are fixed to a

foundation imbedded in earth no matter only 1= feet deep.

That argument needs to be tested on the touch stone of the

provisions referred to above. Section 3(26) of the General

Clauses Act includes within the definition of the term

"immovable property" things attached to the earth or

permanently fastened to anything attached to the earth.

The term "attached to the earth" has not been defined in the

General Clauses Act, 1897. Section 3 of the Transfer of

Property Act, however, gives the following meaning to the

expression "attached to the earth":

"(a) rooted in the earth, as in the case of trees and shrubs;

(b) imbedded in the earth, as in the case of walls and buildings;

1 (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached."

19. It is evident from the above that the expression

"attached to the earth" has three distinct dimensions, viz.

(a) rooted in the earth as in the case of trees and shrubs (b)

imbedded in the earth as in the case of walls or buildings or

(c) attached to what is imbedded for the permanent

beneficial enjoyment of that to which it is attached.

Attachment of the plant in question with the help of nuts and

bolts to a foundation not more than 1= feet deep intended

to provide stability to the working of the plant and prevent

vibration/wobble free operation does not qualify for being

described as attached to the earth under any one of the

three clauses extracted above. That is because attachment

of the plant to the foundation is not comparable or

synonymous to trees and shrubs rooted in earth. It is also

not synonymous to imbedding in earth of the plant as in the

case of walls and buildings, for the obvious reason that a

building imbedded in the earth is permanent and cannot be 1

detached without demolition. Imbedding of a wall in the

earth is also in no way comparable to attachment of a plant

to a foundation meant only to provide stability to the plant

especially because the attachment is not permanent and

what is attached can be easily detached from the

foundation. So also the attachment of the plant to the

foundation at which it rests does not fall in the third

category, for an attachment to fall in that category it must

be for permanent beneficial enjoyment of that to which the

plant is attached.

20. It is nobody's case that the attachment of the plant to

the foundation is meant for permanent beneficial enjoyment

of either the foundation or the land in which the same is

imbedded.

21. In English law the general rule is that what is annexed

to the freehold becomes part of the realty under the maxim

quidcquid plantatur solo, solo cedit. This maxim, however,

has no application in India. Even so, the question whether a 1

chattel is imbedded in the earth so as to become immovable

property is decided on the same principles as those which

determine what constitutes an annexation to the land in

English law. The English law has evolved the twin tests of

degree or mode of annexation and the object of annexation.

In Wake V. Halt (1883) 8 App Cas 195 Lord Blackburn

speaking for the Court of Appeal observed:

"The degree and nature of annexation is an important element for consideration; for where a chattel is so annexed that it cannot be removed without great damage to the land, it affords a strong ground for thinking that it was intended to be annexed in perpetuity to the land."

22. The English law attaches greater importance to the

object of annexation which is determined by the

circumstances of each case. One of the important

considerations is founded on the interest in the land wherein

the person who causes the annexation possesses articles

that may be removed without structural damage and even

articles merely resting on their own weight are fixtures only 2

if they are attached with the intention of permanently

improving the premises. The Indian law has developed on

similar lines and the mode of annexation and object of

annexation have been applied as relevant test in this

country also. There are cases where machinery installed by

monthly tenant was held to be moveable property as in

cases where the lease itself contemplated the removal of the

machinery by the tenant at the end of the tenancy. The

mode of annexation has been similarly given considerable

significance by the courts in this country in order to be

treated as fixture. Attachment to the earth must be as

defined in Section 3 of the Transfer of Property Act. For

instance a hut is an immovable property, even if it is sold

with the option to pull it down. A mortgage of the super

structure of a house though expressed to be exclusive of the

land beneath, creates an interest in immovable property, for

it is permanently attached to the ground on which it is built.

23. The courts in this country have applied the test

whether the annexation is with the object of permanent 2

beneficial enjoyment of the land or building. Machinery for

metal-shaping and electro-plating which was attached by

bolts to special concrete bases and could not be easily

removed, was not treated to be a part of structure or the

soil beneath it, as the attachment was not for more

beneficial enjoyment of either the soil or concrete.

Attachment in order to qualify the expression attached to

the earth, must be for the beneficial attachment of that to

which it is attached. Doors, windows and shutters of a house

are attached to the house, which is imbedded in the earth.

They are attached to the house which is imbedded in the

earth for the beneficial enjoyment of the house. They have

no separate existence from the house. Articles attached that

do not form part of the house such as window blinds, and

sashes, and ornamental articles such as glasses and

tapestry fixed by tenant, are not affixtures.

24. Applying the above tests to the case at hand, we have

no difficulty in holding that the manufacture of the plants in 2

question do not constitute annexation hence cannot be

termed as immovable property for the following reasons:

(i) The plants in question are not per se immovable property.

(ii) Such plants cannot be said to be "attached to the earth" within the meaning of that expression as defined in Section 3 of the Transfer of Property Act.

(iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free.

(iv) The setting up of the plant itself is not intended to be permanent at a given place.

The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed.

25. We may, at this stage, refer to the decisions of this

Court which were relied upon by learned counsel for the

parties in support of their respective cases.

26. In Sirpur Paper Mills Ltd. (supra) this Court was

dealing with a near similar situation as in the present case.

The question there was whether the paper machine 2

assembled at site mainly with the help of components

bought from the market was dutiable under the Central

Excise Act, 1944. The argument advanced on behalf of the

assessee was that since the machine was embedded in a

concrete base the same was immovable property even when

the embedding was meant only to provide a wobble free

operation of the machine. Repelling that contention this

Court held that just because the machine was attached to

earth for a more efficient working and operation the same

did not per se become immovable property. The Court

observed:

"5. Apart from this finding of fact made by the Tribunal, the point advanced on behalf of the appellant, that whatever is embedded in earth must be treated as immovable property is basically not sound. For example, a factory owner or a householder may purchase a water pump and fix it on a cement base for operational efficiency and also for security. That will not make the water pump an item of immovable property. Some of the components of the water pump may even be assembled on site. That too will not make any difference to the principle. The test is whether the paper-making machine can be sold in the market. The Tribunal has found as a fact that it can be sold. In view of that finding, we are unable to uphold the contention of the appellant that the machine 2

must be treated as a part of the immovable property of the Company. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property."

27. In M/s Narne Tulaman Manufacturers Pvt. Ltd.

Hyderabad V. Collector of Central Excise, Hyderabad

(1989 (1) SCC 172), this Court was examining whether

the assembly of parts of machine by an assessee to bring

into existence a weighbridge as a complete machine

amounted to manufacture hence liable to duty even when its

parts are separately taxable. Answering the question in the

affirmative this Court held that the assembling of the

components of the weighbridge brought into existence a

complete weighbridge which had a distinctive name,

character and use hence exigible to duty. The fact that the

assessee was himself manufacturing only one part of the

component used in the erection of a weighbridge did not

mean that the complete machine once the same was

assembled by using duty paid parts was not exigible to

excise duty.

2

28. In Triveni Engineering's case (supra), the question

that fell for consideration was whether a turbo alternator

comprising two components (i) steam turbine and (ii)

complete alternator and fixing the same on a platform

brought about a new dutiable product. The Court held that

the process of fixing the same on a platform and aligning

them in a specified manner that turbine was nothing but a

manufacturing process and a new commodity come into

existence in the said process. The machine so manufactured

was, however, erected on a platform specially constructed

for that purpose which made the machine immovable in

character. The Court declared that while determining

whether an article is permanently fastened to anything

attached to the earth both the intention as well as the

factum of fastening has to be ascertained from the facts and

circumstances of each case. The following passage is

apposite in this regard:

2

"There can be no doubt that if an article is an immovable property, it cannot be termed as "excisable goods" for purposes of the Act. From a combined reading of the definition of "immovable property" in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the excise law. Whether an article is permanently fastened to anything attached to the earth requires determination of both the intention as well as the factum of fastening to anything attached to the earth. And this has to be ascertained from the facts and circumstances of each case."

(emphasis supplied)

29. Applying the above test to the case at hand, the plants

in question were neither attached to earth within the

meaning of Section 3(26) of the General Clauses Act nor

was there any intention of permanently fastening the same

to anything attached to the earth.

30. Reliance was placed by Mr. Bagaria upon the decision

of this Court in Quality Steel Tubes (P) Ltd. V. CCE, U.P.

1995 (75) ELT 17 (SC) and Mittal Engineering Works

(P) Ltd. V. CCE, Meerut 1996 (88) ELT 622 (SC). In

Quality Steel Tubes case (supra) this Court was examining

whether `the tube mill and welding head' erected and 2

installed by the assessee for manufacture of tubes and pipes

out of duty paid raw material was assessable to duty under

residuary Tariff Item No.68 of the Schedule being excisable

goods. Answering the question in negative this Court held

that tube mill and welding head erected and installed in the

premises and embedded to earth ceased to be goods within

the meaning of Section 3 of the Act as the same no longer

remained moveable goods that could be brought to market

for being bought and sold. We do not see any comparison

between the erection and installation of a tube mill which

involved a comprehensive process of installing slitting line,

tube rolling plant, welding plant, testing equipment and

galvanizing etc., referred to in the decision of this Court with

the setting up of a hot mix plant as in this case. As observed

by this Court in Triveni Engineering & Industries case

(supra), the facts and circumstances of each case shall have

to be examined for determining not only the factum of

fastening/attachment to the earth but also the intention

behind the same.

2

31. In Mittal Engineering Works case (supra), this Court

was examining whether the mono vertical crystallisers

erected and attached by a foundation to the earth on the

site of the sugar factory could be treated as goods within the

meaning of Central Excise Act, 1944. This Court on facts

noted that mono vertical crystallisers are fixed on a solid

RCC slab having a load bearing capacity of about 30 tonnes

per sq. mt. and are assembled at site with bottom plates,

tank coils, drive frames, supports, plates, distance places,

cutters, cutter supports, tank ribs, distance plate angles,

water tanks, coil extension pipes, loose bend angles, coil

supports, railing stands, intermediate platforms, drive frame

railings and flats, oil trough, worm wheels, shafts, housing,

stirrer arms and support channels, pipes, floats, heaters,

ladders, platforms, etc. The Court noted that the mono

vertical crystallisers have to be assembled, erected and

attached to the earth on a foundation at the site of the sugar

factory and are incapable of being sold to consumers in the 2

market as it is without anything more. Relying upon the

decision of this Court in Quality Steel Tubes case (supra),

the erection and installation of mono vertical crystallisers

was held not dutiable under the Excise Act. This Court

observed that the Tribunal ought to have remembered that

mono vertical crystallisers had, apart from assembly, to be

erected and attached by foundation to the earth and,

therefore, were not, in any event marketable as they were. This decision also, in our opinion, does not lend any support

to the case of the assessee in these appeals as we are not

dealing with the case of a machine like mono vertical

crystallisers which is permanently embedded in the structure

of a sugar factory as was the position in the Mittal

Engineering Works case (supra). The plants with which

we are dealing are entirely over ground and are not

assimilated in any structure. They are simply fixed to the

foundation with the help of nuts and bolts in order to provide

stability from vibrations during the operation. 3

32. So also in T.T.G. Industries Ltd. V. CCE, Raipur

2004 (167) ELT 501 (SC), the machinery was erected at

the site by the assessee on a specially made concrete

platform at a level of 25 ft. height. Considering the weight

and volume of the machine and the processes involved in its

erection and installation, this Court held that the same was

immovable property which could not be shifted without

dismantling the same.

33. It is noteworthy that in none of the cases relied upon

by the assessee referred to above was there any element of

installation of the machine for a given period of time as is

the position in the instant case. The machines in question

were by their very nature intended to be fixed permanently

to the structures which were embedded in the earth. The

structures were also custom made for the fixing of such

machines without which the same could not become

functional. The machines thus becoming a part and parcel of

the structures in which they were fitted were no longer 3

moveable goods. It was in those peculiar circumstances that

the installation and erection of machines at site were held to

be by this Court, to be immovable property that ceased to

remain moveable or marketable as they were at the time of

their purchase. Once such a machine is fixed, embedded or

assimilated in a permanent structure, the movable character

of the machine becomes extinct. The same cannot thereafter

be treated as moveable so as to be dutiable under the

Excise Act. But cases in which there is no assimilation of the

machine with the structure permanently, would stand on a

different footing. In the instant case all that has been said

by the assessee is that the machine is fixed by nuts and

bolts to a foundation not because the intention was to

permanently attach it to the earth but because a foundation

was necessary to provide a wobble free operation to the

machine. An attachment of this kind without the necessary

intent of making the same permanent cannot, in our

opinion, constitute permanent fixing, embedding or

attachment in the sense that would make the machine a 3

part and parcel of the earth permanently. In that view of the

matter we see no difficulty in holding that the plants in

question were not immovable property so as to be immune

from the levy of excise duty.

34. Our answer to question no.1 is accordingly in the

affirmative.

Re: Question No.2

35. The Tribunal, as noticed in the earlier part of this order,

has taken the view that the respondents-manufacturing

units were entitled to the benefit of exemption under

Notification No.1/93 as amended from time to time as the

use of brand name Solidmec for the plants or the

components manufactured by such units did not disentitle

the said units from claiming the benefit of the exemption

having regard to the fact that the size of the sticker giving

the brand name of the manufacturing units was bigger than

that of Solidmec, the marketing company. Mr. Bagaria

learned senior counsel for the respondent fairly conceded 3

that the reasoning given by the Tribunal based on the size of

the sticker was not legally sustainable. He, however, urged

that since the manufacturing units had also raised some

other defences including one on the ground of limitation,

even if the order passed by the Tribunal was set aside, the

matter may have to go back to the Tribunal to enable it to

examine the said alternative contentions. Mr. Malhotra did

not have any serious objection to this course being followed.

He urged and, in our opinion rightly so, that since the

Tribunal's view on the question of exemption was

unsustainable the order passed by the Tribunal has to be set

aside and the matter remitted back for a fresh disposal qua

the said units by reference to the other contentions urged on

behalf of the units which the Tribunal has not examined. In

that view of the matter our answer to question No.2 is in the

negative.

36. In the result we allow these appeals, set aside orders

dated 19th August 2002 and 8th April 2003 passed by the

Tribunal and remand the matter back to the Tribunal for 3

passing fresh orders on the subject appropriately dealing

with the alternative contentions which the respondents may

urge keeping in view the observations made hereinabove.

The appellants shall also be entitled to one set of costs

assessed at Rs.25,000/- only.

.....................................J. (D.K. JAIN)

.....................................J. (T.S. THAKUR) New Delhi:

April 8, 2010