TMI Blog2012 (10) TMI 824X X X X Extracts X X X X X X X X Extracts X X X X ..... edabad Electricity Company Limited. The Board’s circular clearly clarifies the excisability and marketability and removes the doubt regarding the excisability or dutiability of immovable properties in terms of Rule 2(a) of Rules of Interpretation of Central Excise Tariff. It also makes a clear distinction though the inputs, parts or components which are specified excisable products will remain dutiable and identifiable at the time of their clearance from the factory or place of manufacture. If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. - E/825/2006 - A/2251/2011-WZB/AHD - Dated:- 21-12-2011 - Shri M.V. Ravindran, Dr. P. Babu, JJ. REPRESENTED BY : Shri J.S. Negi, SDR, for the Appellant. Shri Anand Nainawati, Advocate, for the Respondent. [Order per : P. Babu, Member (T)]. - The distinction between tax-payers and the tax-exempted affected the rights to residence and sale of property. A tax-payer could not settle in a tax exempt village and could sell or mortgage his land only to another taxpayer. Tax-exempt land could be sold only by one holding similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared the assessee had knowingly and wilfully evaded payment of Central Excise duty of Rs. 69,91,973.40 on the said structures classifiable under S.H. No. 7308.90. Thus, a notice to show cause was issued to the assessee on 11-12-89 demanding duty of Rs. 69,91,973.40 under Section 11A of the Central Excises Salt Act, 1944 read with Rule 2(2) of the erstwhile Central Excise Rules, 1944 and also proposing imposition of penalty on the said assessee as well as AEC. (iii) The Commissioner while deciding the case (i.e. SCN dated 11-12-1989) observed that the contract entered into between the assessee and AEC was for manufacture, erection, testing and commissioning of a Power Plant as per agreement arrived between the two as a turnkey project for power plant. For doing so, various structures such as angles, slabs, beams, bars, billets etc. were fabricated and were erected after assembly, installation, interconnectivity and foundation i.e. the work of Civil Structure nature at site. Thus, the Commissioner observed that there were no grounds for confirming the demand and imposing penalty. He placed reliance on the various case laws referred by the said assessee through their communica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition of C. Ex. duty - the components, however, would be dutiable in the nominal course. In the instant case the excise duty is sought to be demanded not on the turnkey project but on the components i.e. structures in this case and in terms of the latter part of the concerned para of the said circular it has been clearly mentioned that the components would be dutiable in the normal course. 2. In the instant case the show cause notice clearly brings out the facts that the structures were fabricated at the site provided by AEC and subsequently removed to the erection site of F Project. Para 4 (ii) of the Board s Circular No. 154/26/99-CX.4, dated 15-1-2002 stipulates that 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 their structure or other immovable property . Thus, the structures would be chargeable to duty in the instant case. 3. In an identical issue in the case of Mahindra and Mahi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hened and is also borne out by the various pronouncements of the Hon ble CEGAT, the Board of Customs and Excise and lower adjudicating or appellate authorities. 5.1 The processes carried out by them are more mechanical process and in their view these do not bring out any new substance product or article known as such to the market and there is no physical transformation to give rise to new identifiable and marketable goods. In this connection they referred to the following case laws to support their view. 1. Union Carbide v. U.O.I. - 1986 (24) E.L.T. 169 (S.C.) 2. Bhor Industries v. C.Ex - 1989 (40) E.L.T. 280 5.2 It has been held therein that marketability is an essential ingredient for levy of excise duty and unless an article is known to the market by its name, character or use, no excise duty would be chargeable. It is their submission that at the works site at Ahmedabad, they do not produce any marketable goods. The working on the raw materials involved as stated above were mere cutting to sizes, drilling holes revetting, welding, bending etc., which are only physical and mechanical processes which do not transform the raw materials into any new identifiable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependently known as such in the market or on commercial parlance. As has been observed in the case of M/s. Aruna Industries by the Hon ble Tribunal, the rafters purlins etc., are not known as such to those dealing in such goods in the market. These are no marketable articles produced by us at the aforesaid site and we submit that no excise duty is chargeable and hence the question of following excise procedures does not arise. In view of this no penalty is leviable. 5.7 As they had acted in the bona fide belief that the activities at site are not excisable, there is no case for levy of any penalty as has been held in the following cases, namely : 1. Hindustan Steel v. State of Orissa - 1978 (2) E.L.T. J159 (S.C.) 2. Garden Reach Shipbuilders v. Collr. C.Ex. - 1985 (5) STR 157 = 1985 (19) E.L.T. 447 (Tri. - Cal.) 3. Hindustan Lever Ltd. v. Collr. C.Ex. - 1989 (43) E.L.T. 568 6. It was also submitted that the tariff item under which the articles are proposed to be classified has not been spelt out. They relied upon the judgment of the Hon ble Supreme Court of India in the case of Bhor Industries (supra) stating that marketability is an essential condition for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the crane runs. Towler - The particular steel tower in question fabricated by us is for supporting transmission line cables through which electric power passes. He further stated that these iron and steel structures are removed to the erection site of F project at Sabarmati and the charges for loading, unloading and charges have been included in their rate quoted for the said project. (emphasis supplied) 11. In the statement of Shri M.L. Kapoor recorded on 10-3-89 though he has stated that these fabricated steel structures of iron and steel are not classifiable under Chapter SH No. 7308.90, the supply of raw materials to the said unit for job work of fabrication of steel structures have been confirmed. He confirmed that the photocopies of bills No. l to 27 raised by the unit for the job work carried out for F project of the M/s. Ahmedabad Electricity Company Limited have been submitted vide their letter dated 19-10-89. 12. We have gone through the contract dated 31-3-86 on installing of 110 MW installation of F project. The para relevant to payment is as follows : (a) Fabrication work : 90% value of the fabricated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(c) above shall suit the fabricated structures covered in item 1 2. 3 4. Transporting fabricated steel work under Item No. 1 from fabricator s workshop, delivery to actual work site and erecting the same at all elevations including second coat of approved primer after necessary touch-up coat on disturbed areas during erection and 3 coats of approved quality finish paint as per drawing and specification. 3522 Two points are very significant from the above: (a) it gives the description of items to be supplied (b) transportation of items and delivery to actual work site and erecting the same at all elevations. If that is so, certain goods are manufactured and transported to work site for the fabrication and erection purposes. 13. The conclusion therefore is that they were manufacturing these items like trusses, purlins, bracings, crane girders and others mentioned in the contract and were transporting it to a site for which they were charging transportation/delivery charges. Though in the statement of Ivon Jacob, he states that no new items come into existence after the fabrication and prior to erection as the process invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Heading 73.08 of the Tariff Act, 1985. In other words, so far as the Tariff Heading 73.08 is concerned, the said notification of exemption to the goods manufactured otherwise than in a factory as defined in Section 2(m) of the Factories Act, became wholly irrelevant and by virtue of the definition of the word, factory in the Central Excise Act, excisable goods manufactured even on an open site were to be treated as manufactured in a factory. This will be clear from the definition of the word factory in Section 2(e) of the Central Excise Act, which is reproduced hereunder and which would be applicable in the context of the provision of the said Act :- Section 2(e) - Factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on . 11.5 The decision in Aruna Industries (supra) was in respect of structurals manufactured in open site i. e. otherwise than in a factory as defined in section 2(m) of the Factories Act, which were exempted from ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question whether fabrication work was done in an open site or in a factory , as defined in Section 2(m) of the Factories Act having become irrelevant in the context of Heading 73.08, the ratio in Aruna Industries would not on that count be applicable in respect of fabrication work done in an open site, having regard to the provisions of the said Act including the definition of manufacture in Section 2(f) and factory in Section 2(e) of the said Act read with Heading 73.08 of the First Schedule to the Tariff Act. It would, therefore, be incorrect to assume that the decision of the Supreme Court in Man Structurals approves the ratio of the decision of the Tribunal in Aruna Industries on the question of manufacturing process involved, which arises in the context of Heading 73.08 for decision by this Tribunal pursuant to these matters having been remanded by Hon ble Supreme Court after setting aside the decisions earlier given in these appeals in which the ratio of Aruna Industries was followed. 12. As noticed hereinabove, the first part of Tariff Heading 73.08 deals with structures and parts of the structures of the nature, which are enumerated in the parenthesis and which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same even after they got fixed by referring to the quantities of the raw material that went into making them for the purpose of ascertaining their value. Therefore, any enquiry into the raw material used was only for the purpose of ascertaining the value of the parts of the structures which were already fabricated at the site, and was not an enquiry for imposing excise duty on the raw material, i.e. members such as angles, plates, etc. It was an enquiry to ascertain the value of the parts of the structures which were fabricated such as trusses, ladders, doors, windows, columns, beams, rafters, glazing frames, crane girders, hoppers, bracings, gable runners, platform, hand-rails, gratings rails, walk-ways, stairs, gutter supports, ladders, railings, etc. We have already noted the contractual terms and the relevant statements which clearly indicate that the parts of the structure were first fabricated on the ground and thereafter they were used for erecting the designed structures. In our opinion, all these parts of structures which were fabricated were distinct marketable commodities the existence of which was brought about by the process of manufacture as defined in Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such structure, in our opinion, provides an adequate market for such goods. 13.1 Commodity character in the concept of marketable commodity is transitory relationship between the goods and the buyers. The goods during their passage, sometimes through several hands from the possession of the first into the possession of the last owner, are commodities, but, as soon as they have reached their economic destination in the hands of the ultimate consumer, they obviously cease to be marketable commodities and become consumption goods as opposed to the concept of commodity . Differences in the marketability of commodities is phenomenon of a far reaching practical importance. Marketability of commodities has its own limitations. Marketability of goods is limited with respect to the persons to whom they can be sold. The owner of a commodity does not have the power to sell it to any person of his choice. The owner has no choice of selling his commodity to persons who have no requirement of it, who are prevented by legal or physical circumstances from purchasing it, or who have no knowledge of the availability of the offer. The marketability of commodities is also limited with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewed through a hawker s eye. Hawking in its traditional sense, where the hawker moves with the goods screaming for the attention of potential customers, cannot be applied to the marketability of such structures or parts of structures, unless the concept of hawking itself is widened to include E-hawking . The customer in the context of such product is the person who places the order for fabrication of such parts of structure to be raised by entrusting the contract to the manufacturer of such structurals or by itself engages workers on job basis to get them manufactured. Such customers provide adequate marketability to the movable structures and parts of structures falling under Heading 73.08 which remain excisable goods until they are permanently fixed to become part of some immovable structure. Therefore, in our opinion all the above items fall under Heading 73.08 are marketable commodities. 14. When a part of structure is prepared and disassembled, the members thereof will be angles, rods etc., prepared for use in such structure. These are not angles, or plates merely cut or drilled without reference to a particular structure. The later part of Heading 73.08 would apply to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch 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. (ii) 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. (iii) 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. (iv) 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 component. In such a situation there is no manufacture of goods as it is only a case of assembly of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the factory or warehouse. (viii) The intention of the party is also a factor to be taken into consideration to ascertain whether the embedment of a machinery in the earth was to be temporary or permanent. This, in case of doubt, may help determine whether the goods are movable or immovable. (emphasis supplied) 16.2 In the case of turnkey projects like steel plants, cement plants, power plants etc. the clarification is as follows : 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. (i) Turnkey projects like steel plants, cement plants, power plants etc. involving supply of large number of components, machinery, equipments, pipes and tubes etc. for their assembly/installation/erection/integration/inter-connectivity on foundation/civil structure etc. at site, will not be considered as excisable goods for imposition of central excise duty - the components, however, would be dutiable in the normal course (emphasis supplied) 17. Therefore it is very clear that the goods manufactured by the assessee it is excisable and duty is leviab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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