Introduction

In Lipi Boilers Ltd. v. Commissioner of Central Excise, Aurangabad (2025 INSC 1297), a two-judge Bench of the Supreme Court of India (J.B. Pardiwala and Sandeep Mehta, JJ.) revisited foundational principles of central excise law to resolve a recurring controversy in supply-and-erection contracts. The assessee had manufactured boiler components at its factory, cleared them in completely knocked down (CKD) condition on payment of duty, and arranged for certain duty‑paid bought‑out items (like pumps, fans, safety valves) to be delivered directly to the buyer’s site for erection of a steam generating plant. The Revenue sought to include the value of these site-delivered bought-out items in the assessable value of the “boiler” cleared from the factory, relying on “transaction value” under amended Section 4 of the Central Excise Act, 1944.

The key issues were:

• Whether the value of duty‑paid bought‑out items, delivered directly to site and used in erection, is includible in the assessable value of the boiler cleared in CKD condition from the factory; and
• Whether the extended limitation under the proviso to Section 11A(1) was validly invoked on the ground of wilful suppression with intent to evade duty.

The Court allowed the assessee’s appeals, set aside the CESTAT’s order, and in doing so, reaffirmed the doctrinal sequence that excisability (under Section 3) must be established before valuation (under Section 4) can be applied. It also held that where a contract culminates in an immovable plant, excise duty cannot be computed on the total contract price or expanded to include site-delivered bought‑out items.

Summary of the Judgment

• Excisability precedes valuation: Section 3 is the charging provision (levy on manufacture of excisable goods); Section 4 provides only the measure of the levy. Transaction value under Section 4 cannot be invoked to establish that something is “excisable goods.”
• Result of the contract is an immovable steam generating plant: On a holistic reading of the contract (including civil and refractory obligations and the scale of a 50 TPH boiler), the final deliverable at site is a permanently affixed plant. It cannot be dismantled without substantial damage; therefore, it is not “goods,” hence not excisable.
• Consequently, the value of duty‑paid bought‑out items delivered directly to the site cannot be included in the assessable value of the boiler cleared from the factory in CKD condition.
• CESTAT erred in refusing to entertain the immovability plea; the assessee had raised it at the earliest stage, and it had been accepted by the adjudicating authority.
• Extended limitation under the proviso to Section 11A(1) was not invocable: No wilful suppression with intent to evade duty was established. The show cause notice was held invalid.

Analysis

Precedents Cited and Their Influence

• Union of India v. Bombay Tyre International Ltd. (1984) 1 SCC 467: The Court reaffirmed that Section 3 (levy on manufacture) and Section 4 (valuation/measure) are distinct. The measure of a tax must not be conflated with its nature. This foundational distinction anchors the judgment’s central holding: transaction value cannot be used to prove excisability.
• Moti Laminates (P) Ltd. v. CCE (1995) 3 SCC 23: Presence in the tariff schedule does not by itself make an article excisable; the article must be “goods” that have been manufactured and are marketable. This counters the Revenue’s reliance on tariff headings for boilers and parts.
• Quality Steel Tubes (P) Ltd. v. CCE (1995) 2 SCC 372 and Mittal Engineering Works (P) Ltd. v. CCE (1997) 1 SCC 203: Erection and installation of a plant is not “excisable goods.” If an installation becomes immovable on account of its embedding, it ceases to be “goods” for excise purposes. These cases directly support the conclusion that the steam generating plant erected at site is not excisable.
• Sirpur Paper Mills Ltd. v. CCE (1998) 1 SCC 400: Not every attachment to earth is immovability; the test is whether the machinery can be dismantled and sold without losing its identity. The present judgment reconciles this with the CBEC Circular by focusing on substantial damage on dismantling and the plant’s permanency.
• CBEC Circular No. 58/1/2002-CX dated 15.01.2002: If items erected at site cannot be dismantled without substantial damage and reassembled, they are not movable, hence not excisable. The Court effectively applies this principle to the large‑capacity boiler/plant scenario.
• M/s Bharti Airtel Ltd. v. CCE, Pune, 2024 INSC 880: Surveyed the meaning of “goods” across statutes and reaffirmed movability as the decisive test for excisability; borrowed the definition from the Sale of Goods Act, 1930. The judgment’s movability analysis aligns with this recent precedent.
• Commissioner of C. Ex., Pondicherry v. Acer India Ltd. (2004) 8 SCC 173 and CCE v. Chhata Sugar Co. Ltd. (2004) 3 SCC 466: Section 4 is a machinery provision subject to Section 3, the charging section; levy is on manufacture, not on sale. These authorities bolster the Court’s sequencing rule and rejection of valuation-driven excisability.
• Pahwa Chemicals Pvt. Ltd. v. CCE, Delhi (2009) 4 SCC 658 and Continental Foundation Joint Venture Holding v. CCE (2007) 10 SCC 337: For extended limitation, mere failure or incorrect statements do not amount to wilful suppression. A deliberate intent to evade duty must be shown; the Revenue did not discharge this burden.
• M/s Quippo Energy Ltd. v. CCE, Ahmedabad‑II, 2025 INSC 1130: Distinguished between “part” (integral to core function) and “accessory.” The Court here clarifies that this debate is immaterial when the final deliverable is not excisable goods at all.
• CESTAT’s Thermax Babcock & Wilcox Ltd. decision (2005 (182) ELT 336) and the Supreme Court’s disposal of appeal (CA Nos. 3042‑3043/2005): The Tribunal had included site-delivered bought-out items in value; on appeal, the Supreme Court found no duty was demanded on the bought‑out items there and hence did not test the Tribunal’s ratio. The present judgment provides authoritative clarity where Thermax could not.

Legal Reasoning

1. Section 3 v. Section 4: the sequence rule. The Court reiterates that excisability must be established under Section 3 (manufacture of “excisable goods”) before valuation under Section 4 is undertaken. Amended Section 4 (transaction value) does not alter its fundamental character as a measure; it cannot be used to prove that the output is “goods.” Valuation is a consequence of levy, not its determinant.
2. Excisable goods require movability; the contract yields an immovable plant. On a close reading of the contract (Clauses 2.1, 3.1, 10(j), 13.1.3(b)), the deliverable was a steam generating plant ready for commissioning. The scale (50 TPH, 45 kg/cm2), and the explicit civil/refractory works (fire bricks, fire cement, portland cement, ducting to chimney, etc.) demonstrate that the plant is assembled and permanently affixed at site. Dismantling would cause substantial damage; therefore, the end product is not “goods.” Following Quality Steel Tubes and Mittal Engineering, erection/installation of such a plant is not excisable.
3. Tariff classification cannot substitute the excisability test. The presence of “boilers/parts” in Chapter 84 is not conclusive. As per Moti Laminates, tariff placement does not alter the basic character of leviability; the article must be movable “goods” that have been manufactured and are marketable. That threshold fails here for the site‑erected plant.
4. Utility or “part vs accessory” debates are beside the point. Whether bought-out items are “essential” or are “parts” is irrelevant when the final deliverable is not excisable goods. Those debates apply only if a movable article comes into existence and is assessable under Section 4. Here, the integration culminates in an immovable plant; the inquiry stops at Section 3.
5. Excess collection of “duty” from the buyer is not proof of excisability. If the assessee collected any amount as “duty” beyond what is lawfully payable, the proper remedy is Section 11D (deposit to Government and consequential adjustments/refund to the person who bore the incidence). Such collection does not create a substantive excise liability nor justify expanding assessable value.
6. CESTAT’s procedural misstep. The Tribunal erroneously refused to consider the immovability plea on the ground it was not raised below. The record shows the plea was taken in the reply to the show cause and accepted by the adjudicating authority. Disregarding a foundational contention on an incorrect premise vitiated the order.
7. Extended limitation under Section 11A(1) proviso not made out. The Revenue failed to show wilful suppression with intent to evade duty. Returns were filed; the material facts were within the Department’s knowledge. Applying Pahwa Chemicals and Continental Foundation, the five‑year period could not be invoked; the show cause notice was invalid.

Impact

The judgment crystallizes several practical and doctrinal consequences for composite supply/erection contracts and valuation practice in legacy central excise disputes:

• Two-step test is mandatory: Authorities must first establish that a movable, marketable article (“goods”) emerges from the process. Only then may they compute duty on its assessable value. Attempts to use “transaction value” to prove excisability are doctrinally unsound.
• Composite contracts culminating in immovable plants: Where the contract’s end product is immovable (e.g., steam generating plants, turnkey industrial installations), assessable value cannot be inflated by adding costs of site‑delivered bought‑out items to the value of CKD clearances from the factory.
• Documentation and evidence now decisive: Contracts, drawings, site photographs, civil work bills, refractory/brickwork records, and expert affidavits will be critical to demonstrate immovability (including inability to dismantle without substantial damage).
• Tariff headings are not a shortcut: Classification follows excisability, not vice versa. The presence of a heading for “boilers” or “parts” does not by itself justify levy when the completed installation is immovable.
• “Part” vs “accessory” analysis applies only after excisability: The Quippo Energy distinction will continue to be relevant where a movable article emerges. It is inapplicable where the final deliverable is an immovable plant.
• Revenue’s remedy for over-collection is Section 11D, not valuation expansion: If sellers recoup amounts as “excise duty” beyond legal liability, the statute provides a specific mechanism. This judgment forecloses the argument that over-collection itself justifies a broader assessment base.
• Extended limitation will be scrutinized strictly: For the five‑year period, the Department must show positive acts amounting to suppression with intent to evade. Filing of returns and open contractual disclosures militate against such invocation.
• CESTAT’s adjudicatory discipline: The decision underscores that the Tribunal must address dispositive contentions rooted in the record; procedural shortcuts premised on incorrect factual assumptions will not stand.

Complex Concepts Simplified

• Excisable goods: Items specified in the Central Excise Tariff that qualify as “goods” (movable and marketable) and are manufactured in India. Immovable installations are not “goods.”
• Manufacture (Section 3): The taxable event is manufacture/production of excisable goods. If no movable goods emerge, there is no excise levy.
• Valuation (Section 4): Once excisability is established, duty is computed with reference to the “transaction value” (price actually paid/payable when sold), including certain elements, but excluding excise duty, sales tax, etc. It is a machinery provision; it does not establish that something is “goods.”
• CKD (Completely Knocked Down): Goods cleared in disassembled condition for ease of transport. CKD clearance from factory can be excisable if a movable article is being cleared. It does not convert a site‑erected plant into “goods.”
• Bought‑out items: Components procured from the market and supplied directly from vendors to the site, without entering the manufacturer’s factory or undergoing further processing by the manufacturer.
• Movability/Immovability test: If the installation is rooted/embedded in earth or attached to what is embedded for permanent beneficial enjoyment, and cannot be dismantled without substantial damage or loss of identity, it is immovable and hence not “goods.”
• Transaction value vs. excisability: Transaction value comes into play only after a movable article is found to be excisable. It cannot be used to show that an immovable plant is “goods.”
• Section 11D: If a seller collects amounts from buyers “as excise duty” in excess of what is payable, such amounts must be deposited with the Government; this does not retrospectively create excise liability where none exists.
• Section 11A limitation: Normal limitation is one year. Extended limitation up to five years requires proof of fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty.
• Part vs. accessory: A “part” is integral to the core function; an “accessory” adds convenience or ancillary utility. This distinction matters only if the final article is excisable goods.

Conclusion

The Supreme Court’s decision in Lipi Boilers restores conceptual clarity to central excise law by reasserting the primacy of excisability over valuation. It establishes a disciplined, two‑step approach:

1. Determine first whether a movable, marketable article emerges from the process (Section 3). If the contract yields an immovable plant (like a steam generating plant erected with substantial civil works), the inquiry ends—there is no excise levy.
2. Only if excisability is established, proceed to compute duty under valuation provisions (Section 4). “Transaction value” cannot be leveraged to prove that an immovable installation is “goods.”

On these principles, the Court held that the value of duty‑paid, site‑delivered bought‑out items cannot be included in the assessable value of boiler components cleared in CKD condition from the factory when the contract culminates in an immovable plant. It also reiterated that extended limitation under the proviso to Section 11A(1) demands clear proof of wilful suppression with intent to evade duty—a requirement not met in this case—rendering the show cause notice invalid.

This judgment will guide adjudication in legacy excise disputes involving turnkey and EPC contracts, deter valuation‑driven shortcuts that overlook excisability, and channel revenue recovery into the proper statutory mechanisms (like Section 11D) where over‑collection is alleged. In the broader legal context, it strengthens the doctrinal boundaries between the charge and the measure of excise duty, a distinction of enduring importance across fiscal statutes.