TMI Blog1986 (5) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis that these contractors fabricate steel structurals from out of iron and steel products like plates, angles, joists, channels, rods and strips as per the specification of VSP. The steel structurals so fabricated are shifted to the project site for the erection of the shed aforesaid. According to the Department, these steel structurals fabricated from the iron and steel product s by cutting, drilling holes and welding is goods different from and has a distinctive character and use as compared to the raw materials. The entire work of fabrication and erection done by the firms amount to manufacture under Section 2(f) of the Central Excises Salt Act, 1944. These goods would, therefore, attract duty under T.I. 68. They have not taken out necessary licences despite such a requirement under the rules nor have they paid duty undr T.I. 68, CET. Replies were sent to the show cause notices alleging that fabrication and erection of structural steel were part of the execution of works on contract and that they were not goods as understood in the commercial parlance. The work of fabrication would not attract the provisions of the Central Excises Salt Act, 1944. They have stated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of erection of structures. The structurals which are brought into existence by the work done by the firms would be different from the raw materials supplied to them. The work carried out by the firms is highly intricate, specialised and of a technical nature. They do not become immovables and merit classification as goods falling under Tariff Item 68. The appeal by M/s. Aruna General Industries (322/85) is to set aside the demand for excise duty of Rs. 7,79,340/- and the penalty of Rs. 5,000/- imposed by the Collector of Central Excise, Guntur holding that the goods would attract duty. 5. Mrs. Zutshi, SDR, appeared for the Department in all the cases and S/Shri C. Natarajan Kampani, Consultants appeared for the asse-ssees. 6. Mrs. Zutshi raised the following points: She argued that the nature of the structurals fabricated by the firms acquired a name, character and use different from the raw materials. They were tailor-made to suit the customers requirements. The test of marketability would not apply because of the specific nature of the activity. The raw materials such as, channels, angles, joists, etc. were fabricated into articles such as, trusses, purlins, column ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of the case: MANUFACTURE: 1961 (12) STC 590 (Devgun Iron and Steel Rolling Mills, Gobindgarh v. The State of Punjab and Others,) (P H,H.Ct.) When steel is rolled into rolled steel sections the outcome is a different and new commodity and when it is sold, there is a sale of a different commodity and not a sale of steel over again. 1967 (20) STC 450 (Devi Dass Gopal Krishnan and Others v. The State of Punjab and Others - Supreme Court) When oil is produced out of oil-seeds, the process certainly transforms raw material into different article for use and oil-seeds can therefore be said to be used in the manufacture of goods. 1971 (27) STC 575 (Vijaya Cycle Rickshaw Co. v. Commissioner of Sales Tax, UP - Allahabad High Court) The process of assembly produces a different entity having a new identity. That process is as much a part of the manufacturing process as is the production of the components. Assembled cycles are therefore liable to be treated as manufactured cycles . 1976 (37.) , STC 319 (State of Tamil Nadu v. Pyare Lal Malhotra -Supreme Court) The mere fact that the substance of raw material out of which it is made has also been taxed in some other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding precincts merely shows that there may be some premises with precincts and some premises without precincts. The expression does not exclude lands. AIR 1961 (48) Allahabad 301, Sita Ram and Another v. State. 9. Shri C. Natarajan raised the following points: The rebpondents did not manufactrure any goods. They were allotted a site in the fabrication yard and they carried on the fabrication work according to the designs and drawings of VSP. The citation in 1984 (17) E.L.T. 127 = 1984 ECR 1057 will not apply to the facts of the present case as finished products like, trusses, purlins, etc. were sold in the same form by the appellants. But in this case, the products were removed to the erection site and put together according to specific designs. They acquired the name of trusses, purlins, columns, etc. only after fabrication. In a way, there were adhoc creations arising consequent to the fabrication. There was no manufacture. 10. He further urged that these structurals cannot be goods and they were part of a works contract. There was a composite contract for work and labour. In the case of M/s. Union Carbide (India) Limited (Civil Appeal 1103 of 1972), the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act in the sense that the consideration for the entire work including the fabrication and supply of materials is the payment of an inclusive lump sum, there is no scope for applying the notion of a contract of sale of goods. The materials supplied for the performance of a contract are merely accessory to the work and labour. In cases, where the contract consists of the fabrication and erection of steel structures of buildings on the site of the customer, the main test is to find out whether the customer ever bargained for the sale and purchase of the component parts used in the work of fabrication and erection or construction. If, under the contract, structural materials are to be affixed to the land and only thereafter the property therein would pass to the customer notwithstanding that they were approved by him, and even paid for, the contract would be a works contract." FACTORIES ACT: CMP 2081/82 dated 3-8-84 (Madras) (Dr. P.S.S. Sundra Rao v. Inspector of Factories, Vellore - Judgment of Justice Quadar) Laundry attached to medical college and hospital cannot be separated from the main institution. Employees are not workers and the laundry is not a factory. 1984 (18) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle is manufactured or not. The nature and extent of processes may vary from case to case. But it is well-settled that only when the change or series of change take the commodity to a point where commercially it can no longer be regarded as the original commodity but recognised as a new and distinct article that a manufacture would be said to have taken place. Admittedly, the taxable event is manufacture and the burden of establishing that a new commodity commercially known as a distinct and separate commodity having its own character, name and use is on the Department. 15. With these settled principles, we have to analyse the facts of the case in order to find out whether there was a manufacture. In the show cause notice issued by the Department on 5-5-1984 we find the following allegations in respect of the work done: Iron and Steel Products like plates, channels, angles, joists, and beams are provided by VSP to the Contractor. These raw materials are drawn by the Contractor from the stores of VSP and taken to their fabrication yard. The new materials are then cut to size as per the design already given to the Contractor by VSP. Thereafter through simple processes of cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtially erected columns and beams. We must point out that the Deputy Collector has observed on inspection that the processes of cutting, drilling and welding did not completely change the identity of the individual members nor a new commercial commodity with the distinct name, character and use. The raw materials no doubt underwent a change but such activity was not sufficient in his opinion to hold that a commercially different and distinct commodity has emerged. These observations by the authorities who had actually inspected the fabrication work cannot easily be brushed aside. 16. We have also seen the photographs of the works done on the raw materials and also the fabrications carried on at the spot. A close scrutiny of the photographs indicate that except for cutting to size, drilling holes for the purpose of fastening their raw materials with nuts and bolts and such other fabrication activity, there was no manufacture, in the strict sense of the term. As already pointed out it must be shown that the finished product had acquired a different name in the commercial community and had a distinct use. The process of cutting by itself cannot be considered as a highly technical or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structural steels and clading works. The contracts comprise of the construction and the completion of the works. There is nothing in the contracts to hold that there was a sale of raw materials by one party to the other. In 1955 (16) 5TC 827 (supra) it was held that if the contract was an entire indivisible contract in the sense that the construction for the entire work including the fabrication and supply of material is the payment of an inclusive sum, there was no scope for applying the notion of a contract of sale of goods. In this case, the contract consists of merely the fabrication and erection of the steel structures and the buildings. Such a contract has been held to be a works contract. Applying principles of this decision it is manifest that it is a composite contract for work and labour and it is not a contract for sale of goods. 19. The SDR mainly relied on 1984 (17) E.L.T. 127 = 1984 ECR 1057 (supra). The present appeal is mainly on the ratio of this decision. But if we analyse the facts of that case we find that the ratio of that decision will not apply to the present instance. From a perusal of the judgment we find that the appellants therein brought into existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a factory . The explanation to Notification No. 46/81 indicates that the expression factory has the meaning assigned to it in clause (m) of Section 2 of the Factories Act. It is common case that the respondents erected the structures on the site allotted to them by VSP. It was urged on behalf of the respondents that an open yard could never be a factory. In AIR 1962 SC 29 (Ardeshir H. Bhiwandiwala v. State of Bombay (now Maharashtra) it was held that the expression premises must not be restricted to mean building and be taken to cover open land as well. In that case, even the salt works were treated as factory. But on the facts of the present case we have already held that the assessees were only erecting a construction and that they were fabricating the materials on the spot. In the case of Engineering Construction Corporation (Criminal Rev.267/78) the Hon ble Gujarat High Court has held that the provisions of the Factory Act would not apply. To a similar effect is the decisions of the 1962 (1) LLJ SC 427 (supra), the decision of the Madras High Court in LPA 22-24/74 (ESIC V. K. Ramachandran), it was held that construction workers who put up the additional constructions have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emselves fixed to the columns. From these facts, it is abundantly clear that the fabrications or fixtures cannot be considered as movable properties. They are not in any event goods to attract Central Excise duty. 25. In view of the above discussion, we hold that the appeals by the Department are not maintainable and are dismissed. The appeal No.322/85-B1 is allowed. 26. [Order per : Syiem, Member (T)]. - The department s case is due to their perception of trusses, purlins, beams, columns, platforms, as goods which have been manufactured from channels, angles, joists, sheets, and therefore, must be subjected to duty. Nothing could be more fallacious. There are no such goods as trusses, columns, purlins, made from channels, angles, joists. A truss is only a frame made from steel, timber, concrete etc. All the members remain unchanged; but their length etc. may have to be modified by cutting to the desired length; they may be joined by bolting, welding etc. to hold them together in a given position to fit a given application. But and this is very important, it is not a truss except when it trusses say, a roof, to hold it up in a particular shape. Its function is to provide a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t given spots - no factory can ensure this. It is only the man at the location of the building project who can determine where the holes must be, and who can drill them so that they fit into other sections or shapes for bolting. At other times, the sheet may be too large and so must be cut and sized suitably, that it may go into the place chosen for it. That sheet, however, cut or drilled with holes it may be, does not cease to be a sheet - one can still see it as a sheet, the shape it took at the steel factory. The I beam retains this shape but in perhaps, a shorter length because it has been cut to fit. A person can see the I beam as it was and one can also see the I beam doing the work for which its shape best fits it for, a shape it was given by design at the steel factory, because in these applications an I does it better than any other shape. 29. Let us examine this further. An I shape is the cross-section of the beam called by this name. It is useful only in some purposes and not in others. There is an engineering and physical basis for this. A beam of this shape takes higher lateral weights than a simple straight beam. This is just one example - there are severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t piled them one on top of another, we cannot see how else the building or shed would be erected. The people at the construction site did not make trusses, purlins, platforms - they took angles, beams, sheets and by putting them together in a new form, made what are called trusses, purlins and so. A section or sections were sections and alone or with other sections and members were used to truss up the roof, to form rafters or whatever they formed. They come into being only because of the roof they support, or the wall they hold up. They are not hawked the way goods like sheets, angles can be hawked and sold. These last are well known commodities in the market place, - no one has heard of a truss or a purlin as an item of trade. They can of course, be sold, but only as the complete or finished structure - the shed, building, the cage, the bridge: they do not form a merchandise; they are just parts of a larger, differently designated unit. The man who buys the structure will not buy the truss, though there may be dozens of them - he will buy only the structure the whole construction. 31. We will take a leaf out of the SDR s book. She quoted an encyclopaedia that defined structural ..... X X X X Extracts X X X X X X X X Extracts X X X X
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