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PETITIONER: M/S. QUALITY STEEL TUBES (P) LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, U.P.

DATE OF JUDGMENT09/12/1994

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) MAJMUDAR S.B. (J)

CITATION:  1995 SCC  (2) 372        JT 1995 (1)    99  1994 SCALE  (5)183

ACT:

HEADNOTE:

JUDGMENT: R.M. SAHAI, J.: 1.     The question of law that arises for consideration  in this  appeal  is  whether the tube  mill  and  welding  head erected  and installed by the appellant for  manufacture  of tubes and pipes out of duty paid raw material was assessable to  duty under residuary tariff item no. 68 of the  Schedule being excisable good within the meaning 100 of Central Excises & Salt Act, 1944 (Act’ for short). 2.      To answer the issue, few facts are necessary  to  be narrated.   The appellant was engaged in the manufacture  of welded  steel pipes and tubes which were  classified  before 1.8.1983  under item 28AA of the First Schedule to the  Act. Later  on these items came to fall under tariff item  25  of the  Schedule.  The steel tubes and pipes  produced  by  the appellant were exempt from duty as they were produced out of duty  paid raw material. For the manufacture of these  items the appellant had set up plant and machinery at its  factory site.  The first phase of installation was completed in  the year  1974 by putting up all process of tube making such  as slitting  line, tube rolling plant. welding  plant,  testing equipment  and  galvanizing  etc. The tube  which  could  be rolled were in the size range of 15 mm to 50 mm. The  second phase of expansion was taken up by adding balancing facility for  the  manufacture  of steel tubes  of  higher  diameters ranging  upto 150 mm.  For the expansion of the project  the appellant   acquired  various  plant  and   machinery,   for instance,  uncoiler,  looper, leveller, stamping  and  stock guide,  forming mill, welding head, cooling zone  etc.   The project consisted of acquiring various items and  components and   installing  them  for  making  a  complete  unit   for production  of steel tubes. Certain items of the  plant  and machinery such as uncoiler, looper, etc. were purchased from the  market  and embedded to earth and installed to  form  a part of the tube mill. Components purchased from the  market

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were  like motors, coupling, gear boxes,  bearing,  castings etc.  These were assembled and installed on the site to form part of the tube mill which was also covered in the  process of welding facility. The tube mill, according to  appellant, was thus not a specific machine and component but  consisted of   several  machines  and  components  which   after   the installation  got embedded to earth and formed part  of  the plant. 3.      In 1976 and 1980, a dispute arose about  eligibility of  the goods produced by the appellant from  exemption  but the proceedings on reply by the appellant were dropped.   In 1976, the appellant was informed in reference to its  letter sent  on 7th April, 1976 that the Government of  India  vide their  notification  No. 31/76 dated  28.3.76  having  fully exempted the ’iron and steel products’ listed at SI. No.  22 of the aforesaid notification from the operation of rule 174 of  the Central Excises Rules, 1944, the appellant  was  not required  to  take  any  licence.  In  1983,  however,   the Inspector,  Central Excise, sent a letter to  the  appellant regarding  manufacture of Steel pipes and tubes made out  of steel  strips  exceeding  5 mm in  thickness  informing  the appellant  that the Superintendent, Central Excise,  desires checking  of  the records to ascertain proof of  payment  of duty   on  raw  materials  received  in  the   factory   for manufacture  of  steel pipes and tubes.  The  appellant  was required to arrange all the relevant records at the  factory premises.   The letter was replied on 16th January  and  the Department  was  requested to verify the  records  and  also inspect  the office of the appellant. In February, 1984  the appellant  received a letter for producing records from  the date  of  manufacture to satisfy that the raw  material  was duty  paid.   The  premises were visited  by  the  Assistant Collector  on 28th March, 1984 and he instead  of  recording any  note  about the inspection of the  record  relating  to whether the tubes were 101 produced  out of duty paid raw material recorded a  note  on the  status of the working of the factory and observed  that this was a thing of major importance and all the plants  and machinery  worth  about Rs. 60 lakhs were  added  from  1980 onwards. On 30th March the appellant submitted copies of the balance  sheets  for the years 1981-82 and 1982-83.  On  the same  day the factory was visited by a team of officers  who sent  a letter, the relevant portion of which  is  extracted below:               "I  have  been directed to  collect  following               documents/records  and figures in  respect  of               your unit for the last five financial years. I               shall  be thankful if these  figures/  records               are made available.               1. Balance Sheet.               2     Project     Report     submitted      to               D.G.T.D./Financial  Institutions and  Progress               Report  in  respect of Plant  &  Machinery  at               various times.               3. Figures of Clearances in respect of  Pipes &                    Tubes/Coupling   devices/Roll   Sets    &               electricity supplied to your workers colony." This letter was replied on 5.4.84 giving the details of  the project  started by the appellant in 1981 and other  details about  balance  sheet etc.  On the same day, the  plant  and machinery installed in the appellant’s factory consisting of the  tube  mill  and the welding head  were  seized  by  the Preventive  Officers. The seizure memo indicates  that  what was seized was ’Plants & Machinery-Tube Mill & Welding  Head

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manufactured and installed in premises of M/s. Quality Steel Tube (P) Ltd. during 2nd phase of expansion in 1981-82’   On 11th April, 1984, the Assistant Collector sent a letter, the relevant portions of which are extracted below:-               "From  perusal  of Chapter VI of  the  project               Report and Balance Sheet for the year  1980-81               and  1981-82  submitted by you,  it  has  been               observed  that  estimated cost  of  plant  and               machinery  i.e. Tube Mill and welding head  is               Rs. 56,10,000/-.                   You  are,  however,  requested  to  please               intimate  urgently  the cost of  welding  head               exclusively  at the time when the  goods  were               actually  manufactured  and also  its  present               cost as in April, 1984.                   Please  also  intimate the value  of  Tube               Mill. minus welding head separately." The  appellant submitted a reply on 26th April in  which  it was  claimed that since the tube mill and the  welding  head were  not goods, therefore, no duty was leviable on  it.  In August,   1985   a   show-cause  notice   was   issued   for contravention  of provisions of Sections 6 and 9 of the  Act and rules 9, 52A, 173B, 173C, 174 read with Sections 173(Q), 210  and  226 of the Central Excises Rules inasmuch  as  the appellant  had  manufactured and installed  tube  mills  and welding  head  falling  under tariff item 58  of  the  First Schedule  of  the  Act  without  obtaining  central   excise licence, without payment of appropriate central excise  duty leviable   thereon  and  without  observing   other   excise formalities. The reply was sent by the appellant in October, 1984  and  it  was claimed that even though  the  plant  and machinery  was erected and installed in the premises of  the appellant after purchasing various items and components from the market, but it having been embedded to the earth it  was immoveable good which was not transportable or  transferable nor  it could be sold, therefore, it could not be deemed  to be excisable good within the meaning of the Act. The 102 Collector,  Central Excise, did not accept  the  explanation and.  it was held that the welding head was imported by  the appellant  from USA and likewise the tube mill  manufactured by   the  appellant  was  transportable,  transferable   and saleable.  Consequently, the two machineries under reference did  not become a part of immoveable property.  It was  also held that to become good under the Act it was not  necessary that it .p162 should be actually bought and sold. Since  the unit  erected and installed by the appellant was  marketable or saleable, the appellant was liable to pay duty on it. The Tribunal  also  went in detail on the question  whether  the machinery and tubewell installed by the appellant were goods even  though they were embedded to the earth and  held  that even if it was not a good under any Tariff Schedule, but  it being  a  good it was exciseable and  the  immoveablity  and moveability   of   the   good  had  nothing   to   do   with exciseability. 4.     Levy and collection of duty is provided by Section  3 of  the Act on all ’exciseable goods other than  salt  which are produced or manufactured. The power, therefore, to  levy and collect the duty under the charging Section arises  when exciseable  goods are produced or manufactured. What  is  an ’excisable good’ is defined by sub-section (d) of Section  2 to  mean  ’goods specified in the Schedule  to  the  Central Excise  Tariff  Act,  1985) as being subject to  a  duty  of excise  and  includes salt’. The  words  ’exciseable  good’, therefore, has a connotation of its own.

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5.       In  several  decisions  rendered  by   this   Court commencing  from Union of India & Anr., v. Delhi  Cloth  and General Mills Co., Ltd., 1977 (1) ELT (J177) SC = Am 1963 SC 791 to Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta 1994 (74) ELT 22 the twin test of eligibility of an article to duty under Excise Act are that it must be a  good mentioned  either in the Schedule or under Item 68 and  must be  marketable. In Delhi Cloth Mills (supra) it having  been held  that the word ’good’ applies to those goods which  can be brought to market for being bought and sold it is implied that  it  applies  to  such  goods  as  are  moveable.   The requirement  of  the goods being brought to the  market  for being  bought  and  sold has become known  as  the  test  of marketability  which  has been reiterated by this  Court  in Collector of Central Excise v. Ambalal Sarabhai Enterprises, 1989 (43) ELT 214. The Court has held in Union Carbide India Ltd. v. Union of India & Ors. (1986) 2 SCC 547 that even  if a  good  was capable of being brought to  market,  it  would satisfy   the  test  of  marketability.   The  basic   test, therefore,  of levying duty under the Act is two fold.  One, that  any article must be a good and second, that it  should be  marketable or capable of being brought to market.  Goods which  are attached to the earth and thus become  immoveable do not satisfy the test of being goods within the meaning of the Act nor it can be said to be capable of being brought to the  market for being bought and sold.  Therefore, both  the tests, as explained by this Court, were not satisfied in the case  of appellant as the tube mill or welding  head  having been  erected and installed in the premises and embedded  to earth they ceased to be goods within meaning of Section 3 of the Act. 6.    Learned counsel for the revenue urged that even if the goods  were capable of being brought to the market it  would attract levy. True, but erection and instal- 103 lation of a plant cannot be held to be exciseable goods.  If such wide meaning is assigned it would result in bringing in its  ambit  structures, erections  and  installations.  That surely  would not be in consonance with accepted meaning  of exciseable goods and its exigibility to duty. 7.      In the result, this appeal succeeds and is  allowed. The order passed by the Tribunal is set aside. The  question of law raised by the assessee is decided by saying that  the plant of tube mill and welding head erected by the appellant and  installed  as  a part of expansion  programme  was  not exigible to duty. 104