Triveni Engineering & Industries Ltd. & Anr. vs Commissioner Of Central Excise & Anr.

Supreme Court8 August 2000Shivaraj V. Patil · Syed Shah Mohammed Quadri

SCC(2000) 7 SCC 29
Neutral2000 INSC 381
AIRAIR 2000 SC 2896
SCR[2000] Supp (2) SCR 199

Ratio decidendi

The rule this decision rests on

Where an article is assembled from duty-paid components at a customer's site by fixing them to a platform specially constructed on land, the article does not satisfy the test of excisable goods under the Central Excise Act, 1944 because it fails both the permanency and marketability tests: permanency because removal requires dismantling it into its original components, and marketability because it cannot be taken to market and sold without being separated into those components, at which point it ceases to be the article in question. Where an article is fixed to earth or attached to land in such a manner that removal would require dismantling or separation into components, it constitutes immovable property rather than movable goods, and the test for determining whether an article is permanently fastened requires examination of both the intention and the factum of fastening, to be ascertained from the facts and circumstances of each case. Under Entry 85.02 of the Central Excise Tariff Act, 1985 (Electric Generating Sets), the Explanatory Notes to the Harmonized System of Nomenclature establish that concrete bases, platforms, walls, partitions and other structures specially constructed on land to accommodate machines cannot be regarded as a common base joining such machines to form a whole for purposes of classification as an electric generating set.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

PETITIONER:TRIVENI ENGINEERING & INDUSTRIES LTD. & ANR.

Vs.

RESPONDENT:COMMISSIONER OF CENTRAL EXCISE & ANR.

DATE OF JUDGMENT: 08/08/2000

BENCH:Syed Shah Mohammad Quardri, J. & Shivaraj V. Patil, J.

JUDGMENT:

SYED SHAH MOHAMMED QUADRI,J.

L....I..........T.......T.......T.......T.......T.......T..J

These statutory appeals arise from the common order ofthe Customs, Excise and Gold (Control) Appellate Tribunal,New Delhi (for short the CEGAT) in Appeal Nos.E/1759/95-Aand E/5555/92-A dated June 20, 1996. The appellants are theassessees under the Central Excise Act, 1944 (for short,the Act). The facts giving rise to these appeals are notin dispute. The appellants deal in turbo alternators whichhave two components : (i) steam turbine; and (ii) completealternator (also called Generator). Of them, theappellants manufacture steam turbine in their factories atAllahabad and Bangalore where excise duty is paid on themunder the Act. They purchase duty paid complete alternatorswhich are delivered at the site of the customer. On theground that the appellants failed to declare manufacture ofturbo alternators, show cause notices were issued to them bythe Collectors of Central Excise at Allahabad and Bangalore,inter alia, stating that turbo alternators are liable toexcise duty under Heading 85.02 of the Central Excise TariffAct, 1985 (for short the CET Act). The appellantsresisted the claim on the ground that (i) a turbo alternatorset comes into existence on its being fixed permanently onthe land as such it is not an excisable good but animmovable property and (ii) by the combination of steamturbine and alternator, a turbo alternator emerges at thesite of the customers which does not involve any process ofmanufacturing, therefore, they are not liable to exciseduty. On August 24, 1995, the Collector of Central Excise,Allahabad and on August 28, 1992, the Collector of CentralExcise, Bangalore confirmed the demand raised in the showcause notices. The assessees filed two appeals against theorders of the said Collectors before the CEGAT. On thequestion of levy of excise duty on turbo alternator, theCEGAT, by the impugned order dated June 20, 1996, held thatturbo alternators were liable to excise duty.Mr.V.Sridharan, learned counsel for the appellants, hascontended that (i) in combining steam turbine andalternator, no manufacturing process is involved; (ii) theprocess consists of combining and fixing of the twocomponents permanently on platform raised at the premises ofthe customers and thus what emerges is not goods but animmovable property; and (iii) in view of the CircularNo.17/89 dated April 21, 1989 issued by Central Board ofExcise & Customs, the case does not fall under Entry 85.02of the CET Act. Mr.M. Gourishankar Murty, learned counselfor the respondents, in support of the order of the Tribunalargued that combining steam turbine and alternator amountedto manufacturing process and that merely because the twocomponents were fixed to the platform for efficientfunctioning of a turbo alternator, it could not be said thatit was an immovable property. In regard to CircularNo.17/89 (F.No.207/73/88-CX.6), he submitted that it did notrelate to electric generator and it was not issued underSection 37-B of the Act and in any event the point was nottaken before the Tribunal. The short question that fallsfor consideration is whether excise duty can be imposed on aturbo alternator under the Act. Section 3 of the Act whichis the charging provision authorises levy and collection ofduties of excise on all excisable goods which are producedor manufactured in India at the rates mentioned in theSchedule to the CET Act. To attract exigibility of exciseduty, an article must satisfy the twin conditions of being:

(i) excisable goods; and (ii) produced or manufactured inIndia. First, adverting to the second condition is anyprocess of manufacture involved in bringing into existence aturbo alternator? The process is noted by the CEGAT. Atthe site, platform is constructed in which pockets areprovided. The steam turbine from the assessees factory andthe alternator from other factories are transported to thesite. The steam turbine is placed on the platform whichworks as the foundation and then, after levelling, it isfastened with foundation bolts into the pocket. So also,the alternator is placed and bolted to the steam turbinethrough a high speed coupling between the steam turbineouter-shaft and alternator shaft and they are alignedproperly. After ensuring that there is no movement of thealternator pedestal, other accessories are installed attheir respective places. Having regard to this process, theCEGAT held, and in our view rightly, that the assesseesmanufactured turbo alternators. In State of Maharashtra vs.The Central Provinces Manganese Ore Co.Ltd. (1977 (1) SCC

643), the question was whether mixing of manganese ores,obtained from different mines, by a pre-determined mode ofunloading at the ports resulted in manufacture of aconglomerate termed oriental mixture by the company. Itwas held that the formation of the mixture by the mereprocess of unloading did not involve any process ofmanufacture. The term oriental mixture was employed bythe company to name a particular type of conglomerate whichthe unloading at one place of various types of manganese oreproduced. What is to be determined is whether there hasbeen manufacture of a new product which has a separatecommercially current name in the market and that mere givingof a new name by the seller to what is really the sameproduct is not the manufacture of a new product. Nearer tothe issue is the decision of this Court in Narne TulemanManufacturers Pvt. Ltd.,Hyderabad vs. Collector of CentralExcise, Hyderabad (1989 (1) SCC 172). The assessee thereincarried on the activity of assembling the three componentsof the weighbridge and bringing into existence the completeweighbridge which has a distinctive name, character or use.

There also, the assessee contended that out of the threecomponents, only one, indicator system of the machine, wasbeing manufactured by it which had already suffered exciseduty and the other components, which were also duty paidcomponents, were purchased from others. It was held thatthe activity of fitting and assembling the three componentsresulted in bringing into being complete weighbridge whichhas a distinctive name, character or use. Therefore, itwould amount to manufacture of that product which is liableto excise duty. Thus, where an activity results inemergence of a new marketable commodity with a distinctivename, character or use, it cannot but be manufacturingprocess. (See : Union of India vs. Delhi Cloth & GeneralMills [1963 Suppl. (1) SCR 586]) In the instant case, theappellants were, according to specified designs, combiningsteam turbine and alternator by fixing them on a platformand aligning them. As a result of this activity of theappellants, a new product, turbo alternator, came intoexistence which has a distinctive name and use differentfrom its components. Indeed, the Tribunal referred to theorders placed for purchase of turbo alternator to point outthat a new commodity emerges. On these facts, we have nohesitation in holding that the process involved in fixingsteam turbine and alternator and in coupling and aligningthem in a specified manner to form a turbo alternator, a newcommodity, is nothing but a manufacturing process. Nowreverting to the first condition, the expression excisablegoods is defined in clause (d) of Section 2 of the Act tomean goods specified in the Schedule to the CET Act as beingsubject to a duty of excise including salt. It is thusclear that the goods which are sought to be subjected to theexcise duty must find a place in the Schedule to the CETAct. Impost on a turbo alternator is levied under Entry85.02 in the said Schedule, which reads as under :

-------------------------------------------------------------------------- Heading No. Sub-Heading Description of Rate of Duty No. Goods

---------------------------------------------------------------------------

(1) (2) (3) (4)

--------------------------------------------------------------------------- 85.02 ELECTRIC GENERA- TING SETS AND ROTARY CONVERTERS

8502.10 Diesel generating Nil sets assembled, at site of installation, from duty paid engine and generator

8502.90 Other 13%

--------------------------------------------------------------------------

A perusal of the Entry shows that a turbo alternator does not find a place therein eo nomine. The question then will be whether a turbo alternator falls within the meaning of electric generating set. To bring a turbo alternator under that heading it must be shown to have the attributes of excisable goods as understood in the Excise Law. They are mobility and marketability. The article in question should be capable of being brought and sold in the market a test which is too well established by series of decisions of this Court to be elaborated here. 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 require 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. In Municipal Corporation of Greater Bombay & Ors. Vs. Indian Oil Corporation Ltd. (1991 Suppl. (2) SCC 18), one of the questions this Court considered was whether a petrol tank, resting on earth on its own weight without being fixed with nuts and bolts, had been erected permanently without being shifted from place to place. It was pointed out that the test was one of permanency; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place, if the answer to the former is in the positive it must be a movable property but if the answer to the latter part is in the positive then it would be treated as permanently attached to the earth. In Quality Steel Tubes (P) Ltd. vs. Collector of Central Excise, U.P. (1995 (2) SCC 372), this Court had to consider the question whether the tube mill and welding head erected and installed by the appellant for the manufacture of tubes and pipes out of duty-paid raw material were assessable to duty under residuary Tariff Item No.68 of the Schedule, being excisable goods within the meaning of Central Excise Act. While re-stating the test, namely, first the article must be goods and secondly that it should be marketable or capable of being brought to market, it was held that goods which are attached to the earth and thus become immovable did not satisfy the test of being goods within the meaning of the Central Excise Act nor can be said to be capable of being brought to the market for being sold. In that case, it was found that both the tests were not satisfied and, therefore, the tube mill and welding head erected by the appellant were not exigible to excise duty. It was held that erection and installation of a plant could not be held to be excisable goods and if such wide meaning was assigned, it would result in bringing in its ambit structures, erections and installations which would surely not be in consonance with accepted meaning of excisable goods and its exigibility to duty. The question whether mono vertical crystallisers answer the meaning of goods fell for consideration of this Court in Mittal Engineering Works (P) Ltd. vs. Collector of Central Excise, Meerut (1997 (1) SCC 203). Mono vertical crystallisers are used in sugar factories to exhaust molasses of sugar. The component parts of mono vertical crystallisers were cleared on payment of excise duty from the premises of the appellants therein and they were then assembled, erected and attached to the earth at the site of the customers sugar factory. The process involved welding and gas cutting. The CEGAT held that the mono vertical crystalliser was complete when it left the factory and upheld the demand of excise duty on clearance thereof. This Court pointed out that the mono vertical crystalliser, had to be assembled, erected and attached to the earth by a foundation at the site of the sugar factory and it was not capable of being sold as it is, without anything more. Bharucha,J., speaking for the Court, observed : The erection and installation of a plant is not excisable and to so hold would, impermissibly, bring into the net of excise duty all manner of plants and installations.

The case of Narne Tulaman Manufacturers (P) Ltd. (supra) was distinguished on the ground that in that case the contention that weighbridge was not goods within the meaning of the Act, was not raised and no evidence in that behalf was brought on record. It was observed : We cannot assume that weighbridges stand on the same footing as mono vertical crystallisers in that regard and hold that because weighbridges were held to be exigible to excise duty so must mono vertical vertical crystallisers. Here, the decision of this Court in Sirpur Paper Mills Ltd. vs. Collector of Central Excise, Hyderabad (1998 (1) SCC 400), which is relied on by the learned counsel for the Revenue, needs to be referred to. In that case, the question was whether paper-making machine which was assembled and erected by the appellant by using duty paid components and by fabricating certain parts in their factory, was liable to excise duty. The CEGAT recorded the finding that the whole purpose behind attaching the machine to a concrete base was to prevent wobbling of the machine and to secure maximum operational efficiency and also for safety. This court held that in view of those findings it was not possible to hold that the machinery assembled and erected by the appellant at its factory site was immovable property as something attached to earth like a building or a tree. The test, it was noted, would be whether the paper-making machine could be sold in the market and as the Tribunal had found as a fact that it could be sold, so the machine was held to be not a part of that the aforementioned two cases -- Mittal Engineering immovable property of the company. It appears Works (P) Ltd. and Quality Steel Tubes (P) Ltd. (supra), -- were not referred to in Sirpur Paper Mills Ltd.s case. Further, in the instant case, it is a common ground that a turbo alternator comes into existence only when a steam turbine and alternator with all their accessories are fixed at the site and only then it is known by a name different from the names of its components in the market. The Tribunal recorded the finding that fixing of steam turbine and the alternator is necessitated by the need to make them functionally effective to reduce vibration and to minimise disturbance to the coupling arrangements and other connections with the related equipments. It also noted that removal of the machinery does not involve any dismantling of the turbine and alternator in the sense of pulling them down or taking them to pieces but only undoing the foundation bolts arrangement by which they are fixed to the platform and uncoupling of the two units and, therefore, the turbo alternator did not answer the test of permanency laid down by this Court in the case of Municipal Corporation of Greater Bombay (supra). In our view, the findings recorded do not justify the conclusion of the Tribunal inasmuch as on removal a turbo alternator gets dismantled into its components steam turbine and alternator. It appears that the Tribunal did not keep in mind the distinction between a turbo alternator and its components. Thus, in our view, the test of permanency fails. The marketability test requires that the goods as such should be in a position to be taken to the market and sold and from the above findings it follows that to take it to the market the turbo alternator has to be separated into its components -- turbine and the other alternator -- but then it would not remain turbo alternator, therefore, the test is incorrectly applied. Though, there is no finding that without fixing to the platform such turbo alternator would not be functional, it is obvious that when without fixing, it does not come into being, it can hardly be functional. It will be useful to refer to the Explanatory Note issued by the Harmonized System of Nomenclature (HSN) to which Mr.Sridharan invited out attention. We also note that HSN received the approval of this Court in CCE vs. Woodcraft (1995 (3) SCC 454), which explained the scope of Heading 85.02 as under :

..Generating sets consisting of the generator and its prime mover which are mounted (or designed to be mounted) together as one unit or on a common base (see the General Explanatory Note to Section XVI), are classified here provided they are presented together (even if packed separately for convenience of transport). The Explanatory Note further contained : Floors, concrete bases, walls, partitions, ceilings, etc., even if specially fitted out to accommodate machines or appliances, should not be regarded as a common base joining such machines or appliances to form a whole. From a perusal of the above Explanatory Notes, it is clear that when generating sets consisting of the generator and its prime base mover are mounted together as one unit on a common base they are classified under the Heading 85.02; in this connection floors, concrete bases, walls, partitions, ceilings etc., even if specially fitted out to accommodate machines or appliances, cannot be regarded as a common base joining such machines or appliances to form a whole. On a combined reading of the Explanatory Notes, extracted above, there can be no difficulty in inferring that installation or erection of turbo alternator on the concrete base specially constructed on the land cannot be treated as a common base and, therefore, it follows that installation or erection of turbo alternator on the platform constructed on the land would be immovable property, as such it cannot be excisable goods falling within the meaning of Heading 85.02. For these reasons, we are of the view that the Tribunal is not correct in coming to the conclusion that the turbo alternator is excisable goods. We, therefore, set aside the order under appeal and allow these appeals with costs.

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