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CASE NO.: Appeal (civil)  203-214 of 2002

PETITIONER: Commnr. of Central Excise, Indore

RESPONDENT: M/s Virdi Brothers and Ors

DATE OF JUDGMENT: 12/12/2006

BENCH: Dr. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T (With Civil Appeal Nos. 1374-1376/2002, 5863/2002 and 8337-8344/2002)

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  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 amounts to manufacture of a new marketable  commodity and therefore, excise duty is payable.  

       The 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.  

       According to learned counsel for the appellant, the view  taken by the 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.   

       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 Pvt. Ltd.  v. CCE (1995  (75) E.L.T. 17 (SC); Mittal Engineering Works Pvt. Ltd. v CCE,  Meerut (1996 (88) E.L.T. 622 (SC); Sirpur Paper Mills Ltd. v.  CCE, Hyderabad (1998 (97) E.L.T. 3 (SC); Silica Metallurgical  Ltd. v. CCE, Cochin (1999 (106) E.L.T. 439 (Tribunal); Duncan  Industries Ltd. v. CCE, Mumbai (2000 (88) ECR 19 (SC);  Triveni Engineering & Industries Ltd. v. CCE (2000 (120)  E.L.T. 273 (SC) and CCE, Jaipur v. Man Structurals Ltd. (2001  (130) E.L.T. 401 (S.C.)

       As a matter of fact taking into account these decisions  Circular No.58/1/2002-CX dated 15th January, 2002 has been  issued by the Government of India, Ministry of Finance

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(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

       In exercise of the power conferred under  Section 37B of the Central Excise Act, 1944, the  Central Board of Excise and Custom 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 37B Order  No.53/2/98-CX, dated 2.4.98 (F.No.154/4/98- CD.4) (1998 (100 E.L.T.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 Pvt. Ltd.  v. CCE  (1995 (75) E.L.T. 17 (S.C.);   (ii)    Mittal Engineering Works Pvt. Ltd. v CCE,  Meerut (1996 (88) E.L.T. 622 (S.C.);

(iii)   Sirpur Paper Mills Ltd. v. CCE,  Hyderabad (1998 (97) E.L.T. 3 (S.C.);   (iv)    Silica Metallurgical Ltd. v. CCE,  Cochin (1999 (106) E.L.T. 439 (Tribunal) as  confirmed by the Supreme Court vide their  order dated 22.2.99 (1999 (108) E.L.I. A58  (S.C.);   (v)     Duncan Industries Ltd. v. CCE, Mumbai  (2000 (88) ECR 19 (S.C.));

 (vi)    Triveni Engineering & Industries  Ltd. v. CCE (2000 (120) E.L.T. 273 (S.C.)  

(vii)    CCE, Jaipur v. Man Structurals  Ltd. (2001 (130) E.L.T. 401 (S.C.)

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

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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 products 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 net work 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 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 paper making 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  moveable and will, therefore, not be  excisable goods.

  xx              xx              xx              xx

5.      Keeping the above factors in mind the position  is clarified further in respect of specific instances

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which have been brought to the notice of the Board.   xx              xx              xx              xx

(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."

In view of the above said Circular which has been issued  in exercise of power conferred under Section 37B of the Act,  the view of the CEGAT cannot be faulted.   

The appeals are accordingly dismissed with no order as  to costs.