Citation Codes

Equivalent Citations

citation codes

Case Number

Order No. 7 and 8/91-A in Appeal No. E/1499 and 1500/88-A

Judges

I.J Rao, Member (T)
S.V Maruthi, Member (J)
G.A Brahma Deva, Member (J)

Acts

Section 9(2) of the Central Excises and Salt Act, 1944
Central Excises and Salt Act, 1944.
GENERAL CLAUSES ACT
provisions of Section 4(1)(a)
Section 2(f).21.
Section 4(4)(c)

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Smart Summary

Tribunal Order — M/s. Elpro International Ltd. & M/s. I.G.E. (Common Order)

Factual and Procedural Background

This is a consolidated hearing of two appeals brought by M/s. Elpro International Ltd. (Elpro) and M/s. I.G.E. (I.G.E.) against an order of the Collector of Central Excise. Elpro, incorporated in 1963, manufactures certain components and parts for X-ray equipment (L-4 licence), and sells those components to I.G.E. I.G.E., incorporated in 1930, procures other essential components (notably X-ray tubes and high voltage cables from BEL), assembles, installs and supplies complete X-ray machines to end customers.

After introduction of a tariff item, the department levied central excise duty on items manufactured by Elpro on the basis of prices at which I.G.E. sold complete equipment; Elpro paid duty under protest and filed price-lists under departmental direction. A departmental show cause notice (18-11-1987) alleged under-valuation/evaded duty by Elpro and sought recovery of duty for Oct 1982–June 1987; the notice also proposed penalty proceedings against I.G.E. for alleged conspiracy and abetment. The Collector confirmed demand and imposed penalties (Rs. 25,000 each) on both. Both parties appealed to the Tribunal.

Legal Issues Presented

Whether the Collector's order against M/s. I.G.E. went beyond the scope of the show cause notice (which proposed penalty under Section 9(2) for conspiracy/abetment) and therefore was unsustainable.
Whether M/s. I.G.E. is a "related person" of M/s. Elpro within the meaning of Section 4(4)(c) (i.e., whether there is direct or indirect mutual interest/control making the prices charged by I.G.E. includible in Elpro's assessable value).
Whether M/s. I.G.E. should be treated as an agent or as a manufacturer for purposes of excise liability (and the consequences of each characterisation for assessable value under Section 4).
Whether assembly and installation of components at the customer's site by I.G.E. amounts to "manufacture" within the meaning of Section 2(f), thereby creating a new excisable product (a complete X-ray machine) and making its value dutiable.
Whether X-ray equipment, once assembled/installed at site, is "immovable property" (and thus outside excise) or remains "goods" assessable under the Act.
Whether the assessable value for duty approval should include bought-out items and installation/other expenses incurred up to delivery (i.e., whether the contract value less erection cost or other formulation should be applied).
Whether penalty proceedings under Section 9(2) (as framed in the show cause notice) were properly invoked against I.G.E. given the legal meaning and scope of that provision.

Arguments of the Parties

M/s. I.G.E. (Appellant) — Principal contentions summarised

The Collector's order went beyond the show cause notice: the notice sought penalty under Section 9(2) for conspiracy/abetment; the Collector held I.G.E. to be a manufacturer and liable to pay duty — a materially different finding than alleged in the notice.
The system of I.G.E. procuring parts (from Elpro, BEL and others) and assembling/commissioning at site has existed since 1963; it was known to the department and cannot be characterised as a scheme to evade duty.
The essential components (X-ray tubes and high-tension cables) procured from BEL did not enter Elpro's factory and were assembled at customers' sites; therefore, the goods cleared from Elpro were incomplete and not the same as the complete machine claimed by the department.
Assembly, installation and commissioning at site are engineering activities (taking 10–12 weeks by qualified personnel) and should be treated as installation, not manufacture; the work renders items immovable and is akin to the dewatering (Wellpoint) case.
Reliance on precedents such as Tata Robins Fraser Ltd. and Diamond Clock: where bought-out items are fitted at site and incomplete machines are cleared from manufacturer, subsequent value of bought-out parts supplied later should not be included in assessable value of manufacturer.
Argued that Supreme Court decision in Narne Tulaman does not apply to these facts.

M/s. Elpro (Appellant) — Principal contentions summarised

Elpro cleared only incomplete X-ray systems (three items) to I.G.E.; installation charges and additions by I.G.E. at customer site are not part of assessable value under Section 4 and cannot be used to recover duty from Elpro on the complete machine.
There is no allegation that I.G.E. is a favoured buyer; Elpro relied on precedent to contend that I.G.E. is not a related person and that the Collector's approach is contrary to Section 4 and prior Tribunal decisions (Diamond Clock, ICIM, Carbon Industries, Wellpoint Systems).
Contended that Elpro supplies components on a principal-to-principal basis and that contracts between Elpro and I.G.E., and between I.G.E. and end-customers, were distinct; the goods cleared from Elpro and those for which the department seeks duty are not identical.

Revenue / Collector (as reflected in the order) — Principal findings and contentions

The Collector held that Elpro sold incomplete X-ray equipment (semifinished) to I.G.E., but paid duty on prices finally charged by I.G.E. only after excluding prices of essential components (X-ray tubes, high-tension cables) for high-rating machines.
The Collector found that I.G.E. supplied bought-out items, inserted and commissioned them at customers' sites; assembly and setting up at site amounts to "manufacture" within Section 2(f).
He found that M/s. General Electric Co.'s 40% shareholding in Elpro and its affiliation with I.G.E. established a related-person relationship, so prices charged by I.G.E. should form part of Elpro's assessable value (price-lists should have been filed in Part II with contract copies).
The Collector treated I.G.E. as the real manufacturer of complete X-ray equipment and directed both Elpro and I.G.E. to pay duty on the full contract value (excluding cost of erection and commissioning), while allowing MODVAT where admissible.
He included various expenses (after sale service, marketing, storage, handling, interest on inventory, value of bought-out items) in the assessable value formula under Section 4.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Narne Tulaman Manufacturers (P) Ltd. v. CCE [1988 (38) E.L.T. 566] (Supreme Court)	Assembling several components at site can amount to "manufacture" when the assembly brings into existence a new product known to the market and excise law (weighbridge example).	The Tribunal relied on this Supreme Court authority to hold that assembling Elpro's components together with bought-out items procured by I.G.E. at the customer's site produces a new product (X-ray machine) and that such assembly amounts to manufacture — supporting dutiability of the assembled machine.
Tata Iron & Steel Co. Ltd. v. Union of India [1988 (33) E.L.T. 297]	Supply in knocked-down condition can still result in formation of an excisable article; inability to transport the entire assembly does not mean no excisable article has come into existence.	The Tribunal cited this decision to support the proposition that on-site assembly which results in a market-recognised product can be dutiable; used to reinforce the Narne Tulaman principle in the factual matrix.
Diamond Clock Mfg. Co. Ltd. v. CCE [1988 (34) E.L.T. 662] (Tribunal)	If incomplete machines are cleared from factory and essential parts supplied and fitted later by another trader, value of such parts supplied later should not be included in the manufacturer's assessable value (as stated in the quoted passage).	The Tribunal observed that Diamond Clock as earlier decided did not have the benefit of the Supreme Court's Narne Tulaman observations and therefore was of limited assistance; Diamond Clock was distinguished on facts.
Tata Robins Fraser Ltd. v. CCE [1990 (15) ETR 34] (Tribunal)	Addressed assessability where products are assembled at site or delivered as part of turnkey projects; noted concerns about immovable property and whether completion at site constitutes manufacture.	The Tribunal found Tata Robins Fraser not relevant to the present facts because that case involved a project where the product was treated as immovable property (turn-key) and thus not dutiable; by contrast the X-ray equipment here was held not to be immovable property.
Wellpoint Systems case [1986 (26) E.L.T. 1015] (Tribunal)	Case concerning dewatering systems where assembly/installation at site was argued not to be "manufacture".	Appellants relied on this case to argue that assembly at site amounted to installation (not manufacture). The Tribunal noted the reliance but distinguished the facts, referencing Narne Tulaman's authority.
Coromandel Fertilizers (Supreme Court — cited by Collector)	Used (by the Collector in his order) in discussing agency/related-person characterisation (context of agent vs. related person).	The Tribunal noted the Collector invoked Coromandel Fertilizers in relation to agency; however it criticised the Collector's simultaneous treatment of I.G.E. as both related person and agent and directed further examination of agency/agreements.
Attic Industries (Supreme Court — referenced)	Authority on framing the concept of "related person" (referred by parties to support positions on relatedness).	The opinion records that parties referred to Attic Industries to argue that I.G.E. is not a related person; the Tribunal required the Collector to make specific inquiry under Section 4(4)(c) rather than simply drawing inferences from shareholding facts.
ICIM v. CCE [1989 (41) E.L.T. 287] (Tribunal)	Discussed related person issues and whether treatment as related person is appropriate.	Relied upon by Elpro to support that I.G.E. was not a related person; the Tribunal directed the Collector to undertake an inquiry into mutuality of interest / control rather than accept the Collector's brief conclusion.
Carbon Industries (P) Ltd. v. CCE [1985 (19) E.L.T. 435] (Tribunal)	Concerns over assessability where goods cleared are components and completion is alleged later at site; used to contest inclusion of downstream additions in assessable value.	Appellants relied on this authority; the Tribunal recorded the reliance but proceeded to apply Narne Tulaman and related authorities in its analysis, remanding factual inquiries on relatedness and agency to the Collector.
K.N. Subramaniam Chattiar v. M. Chidambaram (AIR 1940 Madras 527) & Peruman Naicar v. Ramaswamy Kone (AIR 1969 Madras 346)	Authorities considered on the test for "immovable property" — whether attachment to earth is for permanent beneficial enjoyment of land or merely for chattel's enjoyment.	The Tribunal relied on these Madras High Court principles (and the General Clauses Act, Sec. 3(26)) to conclude that X-ray equipment, though fixed for use, remains movable in nature and is not immovable property for excise purposes.
General Clauses Act, Section 3(26)	Statutory definition of "immovable property" (includes things attached to earth or permanently fastened to anything attached to earth).	The Tribunal used this statutory definition and accompanying High Court jurisprudence to determine that X-ray equipment is not immovable property and therefore could be subject to excise duty when assembled into a market-recognised product.

Court's Reasoning and Analysis

The Tribunal proceeded in two parallel lines of reasoning: (A) procedural/scope review of the Collector's order in respect of I.G.E.; and (B) legal/factual issues concerning Elpro's liability and the nature of the product.

A. Scope and procedural correctness as to M/s. I.G.E.

The show cause notice as issued to I.G.E. sought imposition of penalty under Section 9(2) for entering into a conspiracy with Elpro and abetting evasion of duty. The Tribunal observed that Section 9(2) (as quoted in the order) deals with second-offence imprisonment under Section 9 and does not expressly deal with conspiracy or abetment, calling into question the legal basis of the notice as framed. More directly, the Tribunal concluded that the Collector’s findings — that I.G.E. was a manufacturer liable to pay duty on the entire contract value — were substantively different from the allegations in the notice (which focused on conspiracy/penalty). Because the Collector's order imposed liability and duty obligations not plainly raised in the notice, the Tribunal found the order against I.G.E. to have "traversed beyond" the show cause notice and therefore set aside the Collector's order insofar as it related to M/s. I.G.E.

B. Issues concerning M/s. Elpro and substantive legal questions

For Elpro the Tribunal examined three interlinked questions: (i) whether I.G.E. is a "related person" of Elpro under Section 4(4)(c); (ii) whether the assembled X-ray equipment is "immovable property" and thus non-excisable; and (iii) whether assembly at site amounts to "manufacture".

On relatedness, the Tribunal carefully quoted Section 4(4)(c) ("related person means a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and include a holding company, a subsidiary company, a relative and a distributor..."). The Collector's basis for finding relatedness (notably General Electric Company's 40% shareholding in Elpro and an asserted affiliation) was criticised as insufficiently supported: there was no material demonstrating administrative or financial control, mutuality of interest, or a flow of consideration between Elpro and I.G.E. The Tribunal therefore directed the Collector to make specific inquiry into administrative and financial ties, mutuality of interest, and to re-examine any agreement to determine whether I.G.E. was an agent or related person. The Tribunal emphasised that mere shareholding by a third party (General Electric) in Elpro does not, without more, establish that I.G.E. is a related person.

Concerning immovability, the Tribunal applied the General Clauses Act definition of "immovable property" (s.3(26)) and relevant Madras High Court authorities. The Tribunal accepted the principle that a chattel which is ordinarily movable does not become immovable merely because it is fixed for beneficial use; permanence of attachment to the earth in the sense used for buildings/trees is required. The Tribunal found the X-ray equipment could be dismantled and shifted (dismantling charges had been collected in one instance), and therefore concluded that X-ray equipment is not immovable property.

On the manufacture issue the Tribunal relied principally on the Supreme Court's Narne Tulaman decision: where multiple components are assembled at site and the assembly brings into existence a new, market-recognised product listed under excise, that activity amounts to manufacture. The Tribunal also cited Tata Iron & Steel to show that supply in knocked-down or site-assembled condition can still produce an excisable article. Applying those authorities to the facts — Elpro supplies three components, I.G.E. procures essential items from BEL and non-essential items from others, and assembles and commissions at the customer's site — the Tribunal concluded that the assembly brings into existence a new product (X-ray machine) that is dutiable.

The Tribunal observed that some earlier Tribunal authorities (e.g., Diamond Clock) which might assist the appellants did not have the benefit of the Narne Tulaman decision and were distinguishable on the facts. Nevertheless, given unresolved factual questions about relatedness/agency and given that the Collector's finding on relatedness was unsupported by necessary inquiry, the Tribunal did not finally fix Elpro's liability; instead it remanded Elpro's appeal to the Collector for fresh consideration consistent with the legal principles it stated (including instructions to inquire into related person status and agency and to re-examine the contracts and material).

Holding and Implications

Holding:

— M/s. I.G.E. (India) Ltd.: APPEAL ALLOWED

The Tribunal set aside the Collector's order insofar as it related to M/s. I.G.E., on the ground that the Collector's order traversed beyond the allegations contained in the show cause notice (which proposed penalty under Section 9(2) for conspiracy/abetment) and thus could not be sustained.

— M/s. Elpro International Ltd.: APPEAL REMANDED

The Tribunal remanded the matter to the Collector for fresh consideration on specified issues. Although the Tribunal concluded as a matter of law that (a) X-ray equipment is not immovable property and (b) assembly at site can amount to manufacture (relying on Narne Tulaman and Tata Iron & Steel), it directed the Collector to:

Conduct an inquiry into whether M/s. I.G.E. is a "related person" of M/s. Elpro under Section 4(4)(c) (examining administrative/financial control, mutuality of interest, and any flow of consideration);
Re-examine the written agreement(s) and other material to determine whether I.G.E. is an agent of Elpro (and to clarify the contractual/privity relationships);
Recompute assessable value and duty, if any, in accordance with the Tribunal's legal conclusions and after addressing the factual inquiries ordered above.

Implications: Directly, the Collector's order as against I.G.E. has been set aside; Elpro's appeal requires fresh departmental inquiry and reassessment consistent with the Tribunal's directions. The Tribunal applied existing Supreme Court and High Court authority (notably Narne Tulaman and the General Clauses Act interpretation) rather than creating new precedent; its decision requires more fact-finding by the Collector before any final excise liability on Elpro is fixed.

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I.G.E (India) Ltd. v. Collector Of Central Excise

[Order per : S.V. Maruthi, Member (J)]. - These two appeals are filed by the assessee i.e. M/s. Elpro International Ltd. and their related person M/s. I.G.E. and both the appeals are disposed of by this common order as the issues are inter-connected.

2. The assessee (hereinafter referred to as M/s. Elpro) was incorporated in 1963 to manufacture low powered X-ray equipment, and some of the components and parts of high powered X-ray equipment of different models and specifications. It has L-4 licence, and manufactures portable and mobile low powered X-ray equipment. This X-ray equipment includes bought out items one of which is X-ray tubes which is manufactured by BEL. X-ray equipment thus manufactured is sold to I.G.E. M/s. I.G.E. in turn sell the low powered X-ray equipment to their customers viz; doctors, clinics and hospitals. Since M/s. Elpro do not have the facility to manufacture high powered X-ray equipment, they manufacture -

(i) Floor to Ceiling X-ray rails,

(ii) X-ray column/Tube stand,

(iii) X-ray tables with a base.

3. The parts and components thus manufactured are sold to M/s. I.G.E. which in turn purchases X-ray tube unit and high voltage cables from BEL, and other non-essential parts from other manufacturers to make it a complete X-ray unit, sells the same to their customers under an agreement. The shareholding of M/s. Elpro is as follows:

General Electric Co. of India	- 40%
Investment Corpn. of India	- 6%
Nationalised Commercial Banks	- 10%
Govt. Institutions like Indian Assurance Co. Ltd.	- 8%
General public	- 36%

and the total number of shareholders is 1,394/-.

4. After the introduction of Tariff Item No. 68, the deptt. levied Central Excise duty on the items manufactured by M/s. Elpro on the prices at which the parts and components were sold to their customers by M/s. I.G.E. M/s. Elpro paid duty under protest. Till February 10th, 1986 M/s. Elpro filed invoices in lieu of price-lists. Thereafter, from March 1st, 1986 the price-lists were filed under part IV at the instance of the deptt. and the duty was paid on the prices at which the goods were sold by M/s. I.G.E. under protest.

5. M/s. I.G.E. was incorporated in 1930 and carrying on business in buying components/parts of electro-mechanical equipments, and engaged in private services such as installation, assembling, fitting, commissioning etc. They sell a complete electro mechanical machine to their customers. It has 16 branches and four resident engineers all over India and 110 highly qualified technical personnel. They buy from M/s. Elpro X-ray tables, floor to ceiling X-ray column stand and X-ray generators comprising of controls and high voltage transformers. The X-ray tubes and high voltage cables which are essential in completing the X-ray equipment are purchased from BEL directly, store them in their godown at Bombay and Patna. According to them, a complete high or medium powered X-ray machine comprises of the following components/parts.

(i) Mechanical components/parts,

(ii) Various types of X-ray tables, like simplex (hand operated),

(iii) Horizontal rezent (power operated),

(iv) X-ray columns,

(v) Electric equipments/parts,

(vi) X-ray generator comprising of X-ray controls, and high voltage transformers,

(vii) X-ray tube units,

(viii) High voltage cables.

6. The components/parts thus, purchased from M/s. Elpro and BEL are tested, assembled, fitted, inserted and demonstrated at the customers site in pursuance of an agreement entered into with them.

7. In addition to the above, the following material is necessary for bringing into existence a complete X-ray machine and M/s. I.G.E. purchases the following items from other manufacturers:

(i) Dark room accessories,

(ii) Sleerings,

(iii) Revealex,

(iv) Caling hanger,

(v) Tube stand 72.1

(vi) Flouroscopic screen

8. While so, a show cause notice was issued by the deptt. on 18-11-1987 to M/s. Elpro and M/s. I.G.E. & others. The allegations against M/s. Elpro inter alia are that they failed to furnish full and complete description of X-ray equipment in the classification list; that they failed to include in the assessable value amounts recovered by their related persons M/s. I.G.E. on account of installation charges and ‘testing charges’ and submitted the value of ‘incomplete X-ray machine’, that value of essential/integral parts of the said X-ray machine such as X-ray tube unit, high tension cables, have been deliberately excluded from the price submitted to the deptt., in a bid to ‘undervalue’ the product and thereby evaded the central excise duty; that they have failed to declare the correct pattern of sale through their ‘related persons’ and have deliberately excluded a part of the advertisement expenses; made the central excise department believe that the product despatched from the factory by M/s. Elpro was incomplete X-ray machine conforming to the description in the classification list, when in fact, an incomplete X-ray machine was despatched from their factory and after fitting the incomplete machine with certain essential components by their ‘related persons’, the machine was sold to the customers, and that they entered into a conspiracy and a secret understanding with M/s. Elpro. It was proposed in the show cause notice to recover duty for the period from Oct., 82 to June, 87 amounting to Rs. 12,38,863.37.

9. The allegations against M/s. I.G.E. are that they were directed to show cause why a penalty should not be imposed under Section 9(2) for entering into a conspiracy with M/s. Elpro and abetting the commission of an offence viz; the evasion of Central Excise duty.

10. Both M/s. Elpro and M/s. I.G.E. filed their replies. On giving a personal hearing to the parties, the Collector confirmed the demand and imposed a penalty of Rs. 25,000/- against both.

11. The Collector held that 100% of the X-ray equipment, semifinished, was sold to M/s. I.G.E. by M/s. Elpro, and paid duty on the price finally charged by M/s. I.G.E. on their incomplete X-ray equipment but after excluding the price of essential components like X-ray tubes and cables in respect of X-ray machines of high rating. M/s. I.G.E. supplied certain bought out items along with the semi-finished manufactured items by M/s. Elpro to the customers and got them inserted and commissioned at the customers site. X-ray tubes units and high tension cables are essential parts of the X-ray equipment. He also observed that the price of bought out items has been raised to the extent of nearly 30% to 40%. He further observed that M/s. Elpro supplied incomplete X-ray equipments under the agreement executed between them and M/s. I.G.E. and the transaction between M/s. Elpro and M/s. I.G.E. is not on principal to principal basis. He also held that the completion of the product has been set up by assembling different items required for completion of X-ray parts and therefore, setting up of the same, amounts to manufacturing process within the definition of Section 2(f) of the Act.

12. On the question of the ‘related persons’, he held that M/s. General Electric Co. is having 40% share capital in M/s. Elpro. Therefore, M/s. Elpro is owned by General Electric Co. M/s. I.G.E. is an affiliated company of General Electric. Therefore, M/s. Elpro is a creation of M/s. I.G.E. In the circumstances he observed that the prices charged by M/s. I.G.E. should form part of the assessable value and accordingly, M/s. Elpro/M/s. I.G.E. should have filed price lists in part-II along with a copy of the contract.

13. He further held that M/s. I.G.E. is the real manufacturer of the X-ray equipment and its accessories. M/s. Elpro International was having mutual interest in the company of M/s. I.G.E. and vice versa.

14. He directed M/s. Elpro/I.G.E. to pay duty on the full contract value of X-ray equipment excluding the cost of erection and commissioning. He also observed that M/s. Elpro/I.G.E. are entitled for modvat of duty paid on the components wherever admissible.

15. According to the Collector, the assessable value for the purposes of approval of the price-lists is in part-II under the provisions of Sec. 4. He also held that the assessable value should be the contract value minus the actual cost of erection, installation, but, should include all the expenses such as after sale service, marketing and selling organisational expenses, advertisement expenses, incurred by M/s. Elpro and M/s. I.G.E. up to the date of delivery of complete X-ray system at the site on account of storage charges, handling charges, interest on inventory and the value of bought out items.

16. He observed that X-ray equipment is not immovable property but goods assessable under Section 4 of the Act.

17. Challenging the above order Shri Banerjee on behalf of M/s. I.G.E. raised the following contentions:

The order of the Collector traverses beyond the allegations made in the show cause notice. It was contended that the show cause notice against M/s. I.G.E. only directed to show cause as to why penalty should not be imposed on them under Section 9(2) of the Central Excises and Salt Act, 1944, for having entered into a conspiracy with M/s. Elpro and thereby abetting the commission of an offence namely, evasion of central excise duty whereas the Collector held M/s. I.G.E. as manufacturer and makes them liable to pay duty on the X-ray equipment. M/s. I.G.E. was incorporated in 1930 whereas M/s. Elpro was set up in 1963, to manufacture lightening arresters, magnets, heating elements, and components/parts of X-ray equipment. M/s. Elpro sells these components/parts to M/s. I.G.E, on principal to principal basis and M/s. I.G.E. in turn purchases the remaining essential parts from M/s. BEL and other manufacturers and undertakes installation at the site of the customers. This system of procuring the components and parts from M/s. Elpro and BEL and other manufacturers has been in vogue since 1963 and till 1975 these components/parts of the X-ray machine were not liable to levy of any excise duty. Therefore, the allegation that the system was devised to evade payment of excise duty is beyond anybody’s comprehension.

18. The department was aware of the system in operation and forced M/s. Elpro to pay duty on the prices charged by M/s. I.G.E. and never treated M/s. I.G.E. as manufacturer. The components/parts purchased by M/s. I.G.E. from BEL and other manufacturers never entered the premises of M/s. Elpro but are stored in their godown and transported directly for assembling, installation, erection and commissioning by M/s. I.G.E. personnels. Therefore, privity of contract is between M/s. Elpro, BEL and other manufacturers and the end customers, as M/s. I.G.E. alone enters into a contract with the end customers for supply of X-ray equipment. Mere purchase/collection of various components/parts does not bring into existence a X-ray machine. M/s. I.G.E. has to undertake various operations to bring into existence the X-ray machine, namely, i) assembling of various components which become immovable at this stage, ii) inter-connection of wiring of various components/parts, iii) caliberation of various components commissioning of the machine. All these activities are described as installation which is an engineering work requiring 10 to 12 weeks and highly qualified and trained and experienced engineers. The work of installation is an engineering work and not manufacturing activity and the assembling of various components/parts renders most of them immovable. Relying on Tata Robins Fraser Ltd. v. CCE - (Tri.) —1990 (15) ETR page 34, he submitted that mere collection of various components/parts at site partly by manufacture from its own factory, partly getting them from other factories partly buying some from the market will not amount to manufacture within the meaning of Section 2(f) of the Act. He also relied on the following passage of Diamond Clock Mfg. Co. Ltd. v. CCE [1988 (34) E.L.T. page 662] :-

“The Anand traders supply bought out items to their customers. These consist of cables and adaptors. It appears that these three are, essential for the operation of the meter but they are not manufactured by the appellants, nor are they fitted into the machines before clearance. If this is the tactual position and only incomplete machines are cleared from Diamond factory the value of such parts supplied to customers by ‘Anand Traders’ later should not be included."

and contended that M/s. I.G.E. purchases some parts from M/s. Elpro and some parts from BEL and non-essential parts from other manufacturers. The essential parts purchased from BEL never entered the factory premises of M/s. Elpro and are stored in their godown and they are not fitted in their premises before clearance but are assembled at the customer’s site, therefore, no duty is payable by M/s. I.G.E. on the complete X- ray machine.

19. He also submitted that the judgment of the Supreme Court in Narne Tulaman Manufacturers (P) Ltd. v. CCE [1988 (38) E.L.T. page 566] is not applicable to the facts of the present case.

20. It is further submitted that M/s. I.G.E. is not a related person of M/s. Elpro. The activity carried on by M/s. I.G.E. is akin to dewatering system which came up for consideration before this Tribunal in Wellpoint System case [1986 (26) E.L.T. page 1015]. Therefore, the assembling of components/parts at site by M/s. I.G.E. does not amount to manufacture within the meaning of Section 2(f).

21. He finally contended that X-ray equipment becomes immovable property at the stage of assembly i.e. before installation i.e. before the work of inter-connection of wires, caliberation or commissioning of X-ray machine is done. Therefore, no excise duty is leviable on X-ray machine.

22. Mr. Gopal Prasad, appearing on behalf of M/s. Elpro in addition to the contentions already raised by Mr. Banerjee submitted that the order traverses beyond the show cause notice as the allegation in the show cause notice is gross under-valuation of goods whereas in the order the Collector held that M/s. Elpro manufactured and supplied a complete X-ray machine a case under Section 3, read with Sec. 2(f) of the Act.

23. M/s. Elpro admittedly cleared from the factory only an incomplete X-ray system, additions to such incomplete X-ray system by M/s. I.G.E. at customer’s site and the installation charges incurred at customer’s site cannot form part of the assessable value under Section 4 of the Act. Further the goods cleared from M/s. Elpro and goods on which duty is sought to be levied are not the same. Therefore, the question of M/s. I.G.E. being related person is irrelevant. In support of this contention Shri Gopal Prasad relied upon the order of this Tribunal in Diamond Clock Mfg. Co. v. CCE (supra).

24. There is no allegation that M/s. I.G.E. is a favoured buyer. Therefore, the question of related person does not arise. In support of his contention he relied on the order of this Tribunal in ICIM v. CCE [1989 (41) E.L.T. page 287].

25. Admittedly, M/s. Elpro manufacture only an incomplete X-ray system, the demand of duty by including the value of bought out components by M/s. I.G.E. and installation and other charges is opposed to Section 4 of the Act. In support of this contention he relied on the orders of this Tribunal in Carbon Inds. (P) Ltd. v. CCE [1985 (19) E.L.T. page 435]; Wellpoint Systems case [].

26. The department sought to recover differential duty from M/s. Elpro being duty worked out on the entire X-ray system less the duty already paid on the components/parts manufactured and cleared. Short levy of duty can be collected only in respect of the same goods, such short levy in the order under appeal is sought to be collected in respect of differential duty alleged goods, i.e. on the one hand duty paid on the clearances of incomplete X-ray system, and duty leviable on complete X-ray machine installed by I.G.E. Such a proceeding is beyond the provision of the Act.

27. It is next contended that the department is sought to recover the duty from M/s. Elpro not only on the value of the goods manufactured and cleared from M/s. Elpro’s factory but also on the value of bought out components of M/s. I.G.E. which never entered L-4 premises of Elpro and on installation charges incurred by I.G.E. which is beyond the scope of Section 4 of the Act.

28. It is submitted that the share-holders of M/s. Elpro and M/s. I.G.E. are as follows :-

Shareholders of M/s. Elpro		Shareholders of M/s. I.G.E.
General Electric	40%	General Electric	40%
Investment Corpn. of India and Ewart Investment	6%	Faridabad Investment Co. Ltd.	53%
Nationalised commercial banks	10%	S.C. Dabriwala	1%
Govt. Institutions like New India Assurance company Ltd.	8%	R.K. Dabriwala	2%
General Public	36%	Mrs. Indu Dariwala	1%
Total Number of shareholders	1394	Mrs. Parameshwari Devi	1%
		Ratanpura Properties & Trading Company Ltd.	5%
		Dabri Properties & Trading Company Ltd.	1.5%

The above shows that M/s. I.G.E. is not a related person of M/s. Elpro within the meaning of Section 4(4)(c) of the Act in view of the judgment of the Supreme Court in Attic Industries.

29. It is next contended that M/s. Elpro entered into a contract with M/s. I.G.E. which is only for the supply of 3 items namely, Floor to Ceiling X-ray rails, X-ray column/tube stand, and X-ray tables which is on principal to principal basis whereas M/s. I.G.E.’s contract with the customers is for the supply of complete X-ray equipment and it includes procurement from Elpro some of the mechanical and electrical components/parts manufactured by Elpro; procuring from BEL the essential components/parts; procuring other bought out items from other manufacturers; undertaking assembling of various components referred to above at the end customers site. Therefore, it cannot be held that M/s. I.G.E. is the related person of M/s. Elpro.

30. It is next contended that the order is beyond the scope of the show cause notice, as it holds that the related person completes the assembly and manufacture of X-ray machine by attending to fitting of essential components and installation at the end customers site. The Collector added in construing the definition of manufacture to include installation and testing job undertaken by M/s. I.G.E. It is further submitted that the definition of related person is not satisfied as either Elpro or I.G.E. are associated with each other directly or indirectly or have interest directly or indirectly in the business of each other. It is neither a holding company, nor a subsidiary company. M/s. I .G.E. is neither a relative or distributor of I.G.E. Therefore, the concept of the related person is not applicable to them.

31. Taking up the appeal of M/s. I.G.E. first the main contention is that the order of the Collector traverses beyond the scope of the show cause notice.

32. In this context it is relevant to extract the allegations against I.G.E. in the show cause notice. They are as follows :-

“M/s. I.G.E. (India) Ltd. Bombay-21 and the Directors and employees mentioned at S. Nos. 11 to 20 are also directed to show cause to the Collector of Central Excise and Customs, Pune, P.M.C.’s Commercial Bidg., Hirabagh, Tilak Road, Pune 411002 as to why, penalty should not be imposed on them under Section 9(2) of the Central Excises and Salt Act, 1944 for entering into a ”conspiracy" with the assessee and thereby abetting the commission of an offence viz. the evasion of Central Excise duty."

33. In short, the proposal in the show cause notice is to impose penalty under Section 9(2) for entering into conspiracy with the assessee namely, M/s. Elpro and abetting the commission of offence i.e. evasion of central excise duty.

34. We may at the outset point out that Section 9(2) provides for imprisonment for a term which may extend to 7 years and with fine, if any person convicted of an offence under Section 9 is again convicted of an offence under Section 9. It is not clear how Section 9(2) is relevant as it neither deals with conspiracy nor abetment of an office.

34.1 We may also consider the findings of the Collector against M/s. I.G.E. They are as follows:-

“M/s. I.G.E. are real manufacturer of X-ray equipment and its accessories. The assessee/I.G.E. has entered into a contract for supply of complete X-ray system and not separately, factory made goods, bought out items etc.

The assessee/I.G.E. has not done trading in the bought out items but received the same from the suppliers at their site or where installation work of X-ray system is going on as a part of the complete X-ray apparatus to be manufactured or supplied at the site.

The assessable value to be given for an approval in the price-list is part II but the provisions of Section 4(1)(a) should actually be the contract value minus the actual cost of erection/installation but it would include inter alia all expenses incurred by the asses see/I.G.E. upto the date of delivery of complete X-ray system.

Profit earned by assessee/I.G.E. has to be included in the assessable value.......

As mentioned above bought out items i.e. X-ray tube units, High Tension cables are not traded but complete X-ray system is manufactured and supplied by the assessee/I.G.E., as such on the entire value of so-called contract the assessee/I.G.E. has to pay central excise duty.

‘’As I understand it is nothing but composite excisable article as emerged at the customers site which both, M/s. Elpro & I.G.E. are joining hands with each other and make contribution and supply to customers."

35. In short, the findings of the Collector are, that M/s. I.G.E. is the manufacturer of the complete X-ray system and they are not trading in any bought out items and that the assessable value should be the contract value minus the cost of installation as the I.G.E. supplies the entire X-ray system, and therefore, I.G.E. has to pay excise duty on the entire contract value of the X-ray system.

36. The Collector makes both M/s. Elpro and I.G.E. liable to pay duty on entire X-ray system.

37. We have already referred to the allegations made in the show cause notice in the earlier part of this order. According to which I.G.E. conspired and abetted the evasion of central excise duty. There is no allegation that I.G.E. has actually manufactured and that they are not trading in any bought out items and that the assessable value should be the entire contract value, on which I.G.E. has to pay central excise duty. Therefore, we are of the view that the order of the Collector against M/s. I.G.E. traverses beyond the show cause notice and is, therefore, cannot be sustained. We accordingly set aside the order of the Collector in so far as M/s. I.G.E. is concerned.

38. Now taking up the appeal of M/s. Elpro the main contention is that they supply only components/parts of high rate X-ray machine under the contract namely:

(i) X-ray Floor to Ceiling Rail,

(ii) X-ray Column,

(iii) X-ray table with base and bucky comprising of imported grid, and I.G.E. purchased essential parts from BEL namely, X-ray tube unit, and High voltage cable and from BEL and other non-essential parts from other manufacturers and that I.G.E. is not a related person

and it is only at the instance of the department they are filing the price-list under part- IV and paying duty on the prices at which I.G.E. is selling to customers in respect of those components/parts and that X-ray equipment is not goods and immovable property, and therefore, X-ray equipment is not liable to pay any excise duty.

39. The liability of M/s. Elpro to pay duty on the entire X-ray equipment arises provided:

(i) M/s. I.G.E. is a related person/agent,

(ii) X-ray equipment is goods and not immovable property.

40. It is an admitted fact that M/s. Elpro is supplying only the components and parts namely:

(i) X-ray Floor to Ceiling Rail,

(ii) X-ray Column,

(iii) X-ray table with base and bucky comprising of imported grid. etc.

under a contract to M/s. I.G.E. It is also an admitted fact that M/s. I.G.E. is purchasing the essential parts namely X-ray table unit & High Voltage cable from BEL and other non-essential parts from other manufacturers. It is also an admitted fact that M/s. Elpro is paying duty on components/parts supplied by them under the contract to I.G.E. on the price at which I.G.E. is selling them to their customers. It is also an admitted fact that they are filing price-list at the instance of the department under part IV and paying duty under protest. It is also an admitted fact that I.G.E. is entering into contract with the end customers for the supply of entire X-ray machine though the said agreement is not before us. We may also point out that the agreement entered by M/s. Elpro with I.G.E. is also not before us.

41. The Collector on one hand holds that I.G.E. is a related person and on the other hand he says that M/s. I.G.E. is an agent and relies on the decision of the Supreme Court in Coromandal Fertilizers. M/s. I.G.E. cannot be a related person as well as an agent of M/s. Elpro. It should either be a related person or an agent. In either case M/s. Elpro has to pay duty on the entire value of X-ray equipment provided the X-ray equipment is goods supplied to the customers. In this context we may examine the finding of the Collector that I.G.E. is a related person of M/s. Elpro. According to him M/s. I.G.E. is a related person for the reason M/s. General Electric Co. is having 40% share capital in M/s. Elpro. Therefore, M/s. Elpro is owned by General Electric Co., M/s. I.G.E. is an affiliated company of General Electric Co., therefore, M/s. Elpro is a creation of General Electric Company, M/s. I.G.E. It is not clear what the Collector means by saying that M/s. I.G.E. is an affiliated company of General Electric Company. It is the GEC which is holding 40% shares in M/s. Elpro, M/s. I.G.E. does not become the related person of M/s. Elpro if GEC holds 40% shares in M/s. Elpro. In other words the shares are held by GEC in M/s. Elpro and not by I.G.E. The relationship between I.G.E. and GEC and Elpro are not elaborated, and discussed.

42. We may now refer to the definition of related person under Section 4(4)(c) of the Act. It reads:

“ ‘related person’ means a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and include a holding company, a subsidiary company, a relative and a distributor of the assessee and distributor of such distributor.”

The first part of the definition speaks of a person who is associated with the assessee that they have interest directly or indirectly in the business of each other. The Collector has not referred to any material as to how M/s. Elpro and I.G.E. are interested in the business of each other. There is no evidence as to the financial or administrative control, or interest of M/s. Elpro in M/s. I.G.E. and vice-a-versa. No inquiry is made to establish mutuality of interest between M/s. Elpro and M/s. I.G.E. Further the share holding of both the companies which were referred to in earlier paragraph does not indicate mutuality of interest between the two. Merely holding 40% shares that too by General Electric Co. in Elpro does not make M/s. I.G.E. the related person of M/s. Elpro.

43. It is true that M/s. Elpro was filing price lists under part-IV and paying duty in respect of components/parts supplied by them to M/s. I.G.E. on their prices to the customers. However, the payment of duty is under protest. Further the fact that M/s. Elpro filed price-list under part IV without challenging the same by way of appeal does not estop them from claiming that M/s. I.G.E. is not their related person as there could be no estoppel against law. Before holding M/s. I.G.E. is the related person of M/s. Elpro the criteria laid down in Section 4(4)(c) should be satisfied. Admittedly, the second and 3rd part of the definition of the related person is not satisfied. The Collector draws an inference from the fact that M/s. I.G.E. is raising the prices of the bought out items while depressing the prices of the components and parts purchased from M/s. Elpro, and therefore, there is a mutuality of interest. There is no evidence that some consideration has flown back from M/s. I.G.E. to M/s. Elpro or vice-a-versa.

44. We, therefore, direct the Collector to make an inquiry as to how M/s. I.G.E. is a related person of M/s. Elpro within the meaning of Sec. 4(4)(c). He has to consider the administrative, financial interest and control of both the companies and the mutuality of interest between the two companies. We may also point out the fact that the price of bought out items is enhanced by 30 to 40% may not be a ground sufficient to establish financial interest between the two unless there is a clear finding that there is a flow back of money to M/s. Elpro.

45. The Collector in his order also holds that M/s. I.G.E. is the sole selling agent of M/s. Elpro, but does not refer to any material in support of his finding. It is true that M/s. Elpro sells the components/parts to M/s. I.G.E. under an agreement. This agreement is not before us. The Collector is, therefore, directed to re-examine the agreement and any other relevant material and consider whether M/s. I.G.E. is an agent of M/s. Elpro.

46. The next question to be considered is whether X-ray equipment is immovable property, and therefore, not excisable goods under Section 2(d) of the Act.

47. It is contended that since X-ray table floor to ceiling column, tube stand, X-ray generators and other things are fastened to the earth and the X-ray tube units and high voltage cable are fitted the X-ray equipment is immovable property and, therefore not excisable goods.

48. The expression immovable property is not defined under the Central Excises and Salt Act, 1944. Therefore, we have to take recourse to the definition under the General Clauses Act. Sec. 3(26) defines immovable property and it reads as follows :-

‘"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;’

49. The Madras High Court in K.N. Subramaniam Chattiar v. M. Chidambaram (AIR 1940 Madras 527) while construing the definition of immovable property observed that “a thing is imbedded in earth or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached, then it is part of the immovable property. If the attachment is merely for the beneficial enjoyment of the chattel itself then it remains a chattel even though fixed for the time being so that it may be enjoyed. The question must in each case be decided according to circumstances”. No doubt, this decision arose under the transfer of property Act. The said decision was considered by Madras High Court in Peruman Naicar v. Ramaswamy Kone and Another (AIR 1969, Madras 346). The learned judges held that “for a chattel to become part of immovable property and to be regarded as such property we should think, it must become attached to the immovable property as permanently as building or a tree is attached to the earth. If in the nature of things the property is movable property and for its beneficial use or enjoyment it is necessary to imbed or fix on earth though permanently i.e. when it is in, use it should not be regarded as immovable property for that reason”. The learned judges referred to with approval the observations made by a single judge of the same High Court in Subramaniam v. Chidambaram.

50. From the above it follows, by nature, if the property is movable and for its beneficial use or enjoyment it is necessary to fix it on earth though permanently i.e. when it is in use, it is not immovable property. In the instant case the components/parts both essential and non-essential are fixed to earth for its beneficial enjoyment and by fixing it to the earth it does not become part of the earth, and therefore, it is not immovable properly. It is also not disputed that X-ray equipment can be dismantled and shifted. From the records we find that the dismantling charges were also collected from one of the customers.

51. Therefore, we are of the view that X-ray equipment is not immovable property.

52. The next question to be considered is whether assembling the bought out items at customers site amounts to manufacture.

53. The Supreme Court in Narne Tulaman Mfgrs. (P) Ltd. v. CCE [1988 (38) E.L.T. page 566] was considering a question whether the activity of assembling 3 components, namely; i) Plateform; ii) Loadcell; iii) Indicating system, amounts to manufacture. The weighbridge was manufactured by the appellants which consists of three parts, i) Plateform, ii) Loadcell, iii) Indicating system. The contention of the appellants was that they got the plateform manufactured from other people. The loadcell was imported and the appellants only made the indicator. In other words, the case of the appellants was that it manufactures only the indicator system. The Tribunal held that “the appellant bought out the 3 components together at site fitted and assembled them together so that they can work as one machine as such the appellants manufacture and created weighbridge.” Challenging the above order of the Tribunal it was contended before the Supreme Court that the appellants were liable to pay duty only for the indicator system which they have manufactured. Repelling the same it was held that:

“The activity of assembling three components, i) plateform, ii) loadcell, and iii) indicating system, amounts to manufacture as it brings into existence weighbridge a new product known to the market and known under the excise item. The mere fact that the appellants bought out two parts and manufactured only indicating system and paid duty thereon will not change the position because parts and end products are separately dutiable”.

54. Similarly, in Tata Iron & Steel Co. Ltd. v. U.O.I. [1988 (33) E.L.T. page 297] it was held that where the entire assembly cannot be transported, that can be done only in knocked-down condition. The supply in that condition does not mean that no excisable article has come into existence. Therefore, cranes transported in knocked-down condition are also liable to duty.

55. From the above it follows that if a person assembles some items at site and brings into existence a new item known to the excise law and also to the commercial world as such, the assembling amounts to manufacture and the new product is dutiable.

56. In the instant case M/s. Elpro manufactures three items and supplies them to M/s. I.G.E. and M/s. I.G.E. procured two essential items from BEL and non-essential items from other manufacturers and assembles them at the site of the customers. By assembling these components/parts a new product namely, X-ray machine/equipment known to the excise law and commerical world comes into existence. In the light of the Supreme Court judgment (supra) the assembly amounts to manufacture and the new product is dutiable.

57. The reliance placed by both the appellants on Diamond Clock Mfg. (P) Ltd. (supra) may not be of much assistance to them as the order of this Tribunal in the said case did not have the benefit of the observations of the Supreme Court in Narne Tulaman case.

58. The, order of this Tribunal in Tata Robins Fraser Ltd. v. CCE [1990 (15) ETR page 34] though the judgment of the Supreme Court in Narne Tulaman case was referred to there was no discussion as to why it was not applicable to the facts of the case. It was observed that “the Collector had not pointed out as to which item have been specifically assembled at site out of the components bought out by the appellants, at site either from their own works or from the independent fabricator or purchased from the market. He has apparently taken the completion of the products as assembly of the machine at site. The product itself being an immovable property cannot be charged to duty”. In other words, the subject matter of the appeal was the assessability of Turn Key project which admittedly is immovable property and not goods. Therefore, not dutiable. Therefore, the order of this Tribunal in Tata Robins is not relevant to the facts of this case.

59. In the light of the above observation the appeal of M/s. Elpro International is remanded to the Collector for consideration afresh. The appeal filed by M/s. I.G.E. (India) Ltd. is allowed.

I.G.E (India) Ltd. v. Collector Of Central Excise

Tribunal Order — M/s. Elpro International Ltd. & M/s. I.G.E. (Common Order)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

M/s. I.G.E. (Appellant) — Principal contentions summarised

M/s. Elpro (Appellant) — Principal contentions summarised

Revenue / Collector (as reflected in the order) — Principal findings and contentions

Table of Precedents Cited

Court's Reasoning and Analysis

A. Scope and procedural correctness as to M/s. I.G.E.

B. Issues concerning M/s. Elpro and substantive legal questions

Holding and Implications

I.G.E (India) Ltd. v. Collector Of Central Excise

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