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Commissioner Of Central Excise, Indore v. Virdi Brothers And Others
Factual and Procedural Background
Multiple appeals were filed against a common final order of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), New Delhi. The dispute centred on whether refrigeration plants, cold-storage plants, central air-conditioning plants and caustic-soda plants fabricated from duty-paid, bought-out items constitute “excisable goods” under the Central Excise Act, 1944. CEGAT held that such plants are systems rather than standalone machines and therefore not liable to excise duty. The Union authorities (appellants) challenged that finding before the Supreme Court.
Legal Issues Presented
- Whether the on-site fabrication and assembly of refrigeration, cold-storage, central air-conditioning and caustic-soda plants out of duty-paid components results in the “manufacture” of a new, marketable commodity so as to attract excise duty under the Central Excise Act, 1944.
Arguments of the Parties
Appellant’s Arguments
- The fabrication of the subject plants out of duty-paid, bought-out items amounts to the manufacture of a new marketable commodity.
- Because a new commodity emerges, excise duty is leviable on the finished plant.
Respondents’ Arguments
- The plants are merely integrated systems comprising various components such as compressors, ducting, piping and cooling towers.
- Such systems do not constitute “machines” as a whole; they are immovable and hence cannot be considered excisable goods.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Quality Steel Tubes (P) Ltd. v. CCE, (1995) 2 SCC 372 | Plant or machinery assembled at site and embedded to earth is not “goods” for excise purposes. | Relied on as foundational authority that immovable integrated plants are non-excisable. |
| Mittal Engg. Works (P) Ltd. v. CCE, (1997) 1 SCC 203 | Marketability and movability are essential to classify an article as excisable goods. | Used to reinforce the criterion of movability in determining excisability. |
| Sirpur Paper Mills Ltd. v. CCE, (1998) 1 SCC 400 | Integrated machinery fixed to the earth is not excisable. | Cited to show consistency of Supreme Court approach on immovable plant. |
| Silical Metallurgic Ltd. v. CCE, 1999 106 ELT 439 (CEGAT), affirmed by SC | Assembly of systems at site resulting in immovable goods not dutiable. | Referenced as a tribunal decision accepted by the Supreme Court. |
| Duncan Industries Ltd. v. CCE, 2000 88 ECR 19 (SC) | Distinguishes between movable goods and immovable plant for excise purposes. | Bolstered the non-excisability reasoning. |
| Triveni Engg. & Industries Ltd. v. CCE, (2000) 7 SCC 29 | Defines manufacture in the context of integrated plants. | Applied in determining that no manufacture of excisable goods occurs. |
| CCE, Jaipur v. Man Structurals Ltd., (2009) 17 SCC 550 | Further clarifies that structures assembled at site and immovable are not excisable. | Added to the chain of authorities supporting CEGAT’s conclusion. |
Court's Reasoning and Analysis
The Supreme Court observed that the excisability of plant and machinery assembled at site had already been conclusively addressed in the cited precedents. Consistent with those rulings, the Central Board of Excise & Customs issued Circular No. 58/1/2002-CX dated 15-1-2002 under Section 37-B of the Act, clarifying that:
- For on-site manufactured goods to be dutiable they must possess a distinct identity, character, use and marketability, and must be movable.
- Integrated plants that are systems, and that become immovable upon assembly, are not excisable goods, although their individual components remain dutiable.
- Specifically, refrigeration and air-conditioning plants are systems coming into existence only after installation and therefore are non-excisable; individual air-conditioning “units,” however, remain dutiable.
Because the Board circular was issued in exercise of statutory power to ensure uniform classification, and because it reflects the ratio of the Supreme Court’s prior decisions, the Court concluded that CEGAT’s finding of non-excisability was legally sound.
Holding and Implications
DISMISSED – All appeals were rejected. The CEGAT order stands, confirming that the disputed plants are not subject to excise duty.
Implications: The judgment reinforces existing jurisprudence and the Section 37-B circular, providing clear administrative guidance that integrated, immovable refrigeration, cold-storage, air-conditioning and similar plants assembled at site are non-excisable. No new legal principle was created; the decision consolidates and applies prior precedent, offering certainty to manufacturers and tax authorities alike.
Dr. Arijit Pasayat, J.— In each of these appeals challenge is to the common final order passed by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (in short “Cegat”). The basic question in all these appeals is whether refrigeration plant/cold storage plant/central air-conditioning plant/caustic soda plant can be subjected to duty under the Central Excise Act, 1944 (in short “the Act”). Stand of the appellant was that the fabrication of such plants out of duty-paid bought-out (sic items) amounts to manufacture of a new marketable commodity and therefore, excise duty is payable.
2. Cegat held that no excise duty is leviable and thus these plants are not subject to excisability. It accepted stand of the respondents that these plants are basically systems comprising of various components and are thus in the nature of systems and are not machines as a whole. Accordingly, such systems as a whole cannot be considered to be excisable goods.
3. According to learned counsel for the appellant, the view taken by Cegat is untenable. The adjudicating authority was justified in holding that fabrication of the plants in question out of duty-paid bought-out items amounts to manufacture of a new marketable commodity and therefore dutiable.
4. The issue relating to excisability of plants and machinery assembled at site has been determined by this Court in several cases. For example, Quality Steel Tubes (P) Ltd. v. CCE (1995) 2 SCC 372, (1995) 75 ELT 17; Mittal Engg. Works (P) Ltd. v. CCE (1997) 1 SCC 203, (1996) 88 ELT 622; Sirpur Paper Mills Ltd. v. CCE (1998) 1 SCC 400, (1998) 97 ELT 3; Silical Metallurgic Ltd. v. CCE (1999) 106 ELT 439 (Cegat); Duncan Industries Ltd. v. CCE (2000) 88 ECR 19 (SC); Triveni Engg. & Industries Ltd. v. CCE (2000) 7 SCC 29, (2000) 120 ELT 273 and CCE v. Man Structurals Ltd. (2009) 17 SCC 550, (2001) 130 ELT 401
5. As a matter of fact taking into account these decisions Circular No. 58/1/2002-CX dated 15-1-2002 has been issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Excise & Customs, New Delhi. The circular indicates that it was intended to clarify the question of excisability of plant and machinery assembled at site. The relevant portion of the circular reads as follows:
“Government of India,
Ministry of Finance (Department of Revenue),
Central Board of Excise & Customs, New Delhi
Sub: Excisability of plant and machinery assembled at site-Regarding
1. In exercise of the power conferred under Section 37-B of the Central Excise Act, 1944, the Central Board of Excise and Customs considers it necessary, for the purpose of uniformity in connection with classification of goods erected and installed at site, to issue the following instructions.
2. Attention is invited to Section 37-B, Order No. 53/2/98-CX, dated 2-4-1998 (F. No. 154/4/98-CD.4) [(1998) 100 ELT T9] regarding the excisability of plant and machinery assembled at site.
3. A number of Apex Court judgments have been delivered on this issue in the recent past. Some of the important ones are mentioned below:
(i) Quality Steel Tubes (P) Ltd. v. CCE (1995) 2 SCC 372, (1995) 75 ELT 17;
(ii) Mittal Engg. Works (P) Ltd. v. CCE (1997) 1 SCC 203, (1996) 88 ELT 622;
(iii) Sirpur Paper Mills Ltd. v. CCE (1998) 1 SCC 400, (1998) 97 ELT 3;
(iv) Silical Metallurgic Ltd. v. CCE (1999) 106 ELT 439 (Cegat) as confirmed by the Supreme Court vide their order dated 22-2-1999 [(1999) 108 ELT A58 (SC)];
(v) Duncan Industries Ltd. v. CCE (2000) 88 ECR 19 (SC);
(vi) Triveni Engg. & Industries Ltd. v. CCE (2000) 7 SCC 29, (2000) 120 ELT 273;
(vii) CCE v. Man Structurals Ltd. (2009) 17 SCC 550, (2001) 130 ELT 401
4. The plethora of such judgments appears to have created some confusion with the assessing officers. The matter has been examined by the Board in consultation with the Solicitor General of India and the matter is clarified as under:
a. For goods manufactured at site to be dutiable they should have a new identity, character and use, distinct from the inputs/components that have gone into its production. Further, such resultant goods should be specified in the Central Excise Tariff as excisable goods besides being marketable i.e they can be taken to the market and sold (even if they are not actually sold). The goods should not be immovable.
b. Where processing of inputs results in a new product with a distinct commercial name, identity and use (prior to such product being assimilated in a structure which would render them as a part of immovable property), excise duty would be chargeable on such goods immediately upon their change of identity and prior to their assimilation in the structure or other immovable property.
c. Where change of identity takes place in the course of construction or erection of a structure which is an immovable property, then there would be no manufacture of ‘goods’ involved and no levy of excise duty.
d. Integrated plants/machines, as a whole, may or may not be ‘goods’. For example, plants for transportation of material (such as handling plants) are actually a system or a network of machines. The system comes into being upon assembly of its components. In such a situation, there is no manufacture of ‘goods’ as it is only a case of assembly of manufactured goods into a system. This cannot be compared to a fabrication where a group of machines themselves may be combined to constitute a new machine which has its own identity/marketability and is dutiable (e.g a papermaking machine assembled at site and fixed to the earth only for the purpose of ensuring vibration free movement).
e. If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as movable and will, therefore, not be excisable goods.
5. Keeping the above factors in mind the position is clarified further in respect of specific instances which have been brought to the notice of the Board.
(iii) Refrigeration/air-conditioning plants. These are basically systems comprising of compressors, ducting, pipings, insulators and sometimes cooling towers, etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Though each component is dutiable, the refrigeration/air-conditioning system as a whole cannot be considered to be excisable goods. Air-conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff.
6. Based on the above clarifications pending cases may be disposed of. Past instructions, circulars and orders of the Board on this issue may be considered as suitably modified.
7. Suitable trade notice may be issued for the information and guidance of the trade.
8. Receipt of this order may please be acknowledged.
9. Hindi version will follow.”
6. In view of the abovesaid circular which has been issued in exercise of power conferred under Section 37-B of the Act, the view of Cegat cannot be faulted.
7. The appeals are accordingly dismissed with no order as to costs.
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