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CASE NO.: Appeal (civil)  6790-6791 of 2005

PETITIONER: M/s. Ibex Gallagher Pvt. Ltd. & Anr

RESPONDENT: Commissioner of Central Excise, Bangalore        

DATE OF JUDGMENT: 17/08/2007

BENCH: Dr. ARIJIT PASAYAT & D.K. JAIN

JUDGMENT: J U D G M E N T       Dr. ARIJIT PASAYAT, J.

1.      These appeals have been directed against the judgment  of the Customs, Excise and Service Tax Appellate Tribunal,  South Zonal Bench, Bangalore (in short \021CESTAT\022).  Challenge  before the CESTAT was to the order in original 7/04 dated  14.7.2004 passed by a Commissioner of Central Excise,  Bangalore No.3. By the said order the Commissioner  confirmed demands on bringing into existence \023electric power  fencing system by use of solar power\024. The same was classified  in sub-heading 8543.90 as \023other electrical machinery and  apparatus having individual functions\024. The Commissioner  had invoked larger period in terms of Section 11A of the  Central Excise Act, 1944 (in short the \021Act\022).  He confirmed the  duty demand and also imposed like sum as penalty under  Section 11AC of the Act.  Penalty of rupees five lakhs was also  levied on the Managing Director.  According to the Revenue for  the purpose of manufacture and clearance of the said item,  namely, solar power electric power fencing system, the  appellant brings various items which are also duty paid such  as insulator, insulation test tool kit, battery charger and also  procure various items from outside stores. They get GI wire,  springs, battery, solar panel and Voltage Stabilizer etc. as  bought out items and procured items such as Kiwitha Post,  posts and pipes etc. on job work basis and imported certain  items as such six channel controller and key pad etc. These  are all erected as a fence at various sites. The Commissioner  after examining Section 2(b) of the Act held that process of  erection of the fence at the site will bring into existence this  item as a new product distinct from all the products used.   According to the assessee, the item is fixed on the walls and  separately also on poles and they are not classifiable as  electrical machines and apparatus having individual function  under heading 8543.90. The Tribunal repealed the contention  of the assessee and held as follows:

    \023On a careful consideration and  examining the impugned order, and the  record, we are satisfied that the item which  has come into existence is an electrical  appliances having individual functions.  All the  items are put together to bring into existence  this item, Electric Power Fencing system and  the same is also powered by using solar power.   The catalogue as well as the statement of the  MD is relied by Revenue to say that the item  can be relocated and item can be saved and it

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does not get destroyed and dismantled merely  because the evidence has to be reused if at all  for use in other places does not mean that the  item has got destroyed while refixing the same.  The item has not become immovable property  on erection piece by piece.  The poles are fixed  and the wires are fenced with all the other  parts.  The fence gives electric shock to  animals when they want to cross the same it  acts not only as an electrical barrier but also  as a psychological barrier as no human or  domestic animal having felt the shock once will  attempt to go anywhere near the fence again.   The power fence systems of various  components which are brought out and some  are manufactured and some are imported.   They are all assembled to bring into existence  solar power fence as a system.  There is no  civil work for erection and the item does not  become part and parcel of immoveable  property as contended.  Therefore, the item  satisfies the tariff description. We are of the  considered opinion that it is goods and liable  for duty in the Chapter heading already noted  supra.  However, the prayer of the appellant  for modvat credit and cum duty benefit is  required to be extended in terms of the ratio of  the judgment cited (supra). The submission  that the demands are partly time barred as the  department was aware of all the details  collected by them for 1998 and the show cause  notice issued in 2003 makes the demands time  barred is a well considered plea and require to  be accepted in the light of the following  judgments cited by them.       1)      Cosmic Dye Chemical v. CCE Bombay (1995  (75) ELT 721 (SC) 2)      CCE v. Chemphar Drugs & Linements (1989  (40) ELT 276 (SC) 3)      Padmini Products v. CCE (1989 (43) 195  (SC) 4)      Pushpam Pharmaceuticals Company v. CCE  Bombay (1995 (78) ELT 401 (SC)

The penalty of Rs.5 lakhs on the Managing  Director is excess. Hence it is reduced to  Rs.50,000/-. The matter is remanded to  Commissioner for re-working out after granting  benefit of modvat and treating clearance as  cum duty as pleaded by the appellants in the  light of large bench judgment rendered in the  case of Shre Chakra Tyres.  Appeals are  allowed by remand only for recomputation of  duty.  Order accordingly.\024                         \023

2.      However, the penalty was reduced to Rs.50,000/- in the  case of the Managing Director.

3.      In support of the appeal leaned counsel for the appellant  submitted that the excisability on plant and machinery  assembled at site has been considered by this Court and  placed strong reliance on decision of this Court in  Commissioner of Central Excise, Indore v. Virdi Brothers  [2007 (207) ELT 321 (SC)].                      

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 4.      Learned counsel for the Revenue, on the other hand,  submitted that though in some cases this Court remanded the  matter to the CESTAT to decide on the factual aspects, in this  case categorical findings have been recorded on the aspects for  which remand has been made and, therefore, the assessee\022s  appeal is without merit.

5.      Apart from Virdi Brothers case (supra) this Court in  Commissioner of Central Excise, Indore, v. Cethar Vessels Ltd.  [2007 (212) ELT 454 (SC)] also dealt with the similar question.       

6.      According to learned counsel for the appellant, the view  taken by the CEGAT is untenable. The adjudicating authority  was not 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.   

7.      The issue relating to excisability of plants and machinery  assembled at site has been determined by this Court in several  cases, e.g. 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.).

8.      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  (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:

                       \023Government 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:

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(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  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 \023goods\024 involved and  no levy of excise duty.

d.      Integrated plants/machines, as a

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whole, may or may not be \021goods\022. 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 \021goods\022 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  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.

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9.      Hindi version will follow.\024

9.      As the basic factual aspects were not considered by the  CEGAT we deem it proper to remit the matter to it for a fresh  consideration in the light of the judgment in Virdi Brothers\022  case (supra) and Cethar Vessels\022 case (supra) and Circular  referred to above.

10.     The appeals are accordingly disposed of without any  order as to costs.