Holding

Assembly of plant and machinery that results in an immovable structure does not create dutiable ‘goods’; only a new, movable, marketable product with a distinct identity specified in the Central Excise Tariff is liable to excise duty.

Summary

The Commissioner of Central Excise, Indore appealed against the CEGAT order that held no excise duty was payable on the erection of boiler, membrane‑cell and solvent‑extraction plants assembled on site by Mis Cethar Vessels Ltd. The core issue was whether such assembly created immovable property or a new marketable commodity that would be a "good" under the Central Excise Act and thus liable to duty. The Supreme Court referred to Circular No. 58/1/2002‑CX, which clarifies that only goods that acquire a new identity, are movable, marketable and listed in the Central Excise Tariff attract duty; assembly that results in an immovable structure does not constitute manufacture of goods. Applying this, the Court held that the plants, being fixed to the earth and not capable of being dismantled without substantial damage, are immovable and therefore not excisable. Consequently, the matter was remitted to the CEGAT for fresh consideration in light of the Virdi Brothers decision and the circular, and the appeals were disposed of.

Issues considered

Whether erection/fabrication of boiler, membrane‑cell technology or solvent‑extraction plant at site creates immovable property or a new marketable commodity liable to excise duty.
Whether such assembled plant falls within the definition of ‘goods’ under the Central Excise Act, 1944 for the levy of duty.
How Circular No. 58/1/2002‑CX influences the determination of excisability of plant and machinery assembled at site.

Legislation cited

Central Excise Act, 1944s. 3, s. 37B

Subjects

excise dutyplant and machineryassemblyimmovable propertyCentral Excise ActCircular No.58/1/2002-CXexcisabilityboilermembrane cell technologysolvent extraction plantCEGAT

Judgment

COMMISSIONER OF CENTRAL EXCISE, INDORE A
v.
MIS. CETHAR VESSELS LTD. AND ORS.

MAY 15, 2007

[DR. ARIJITPASAYAT ANDS.H. KAPADIA,JJ.) B

Central Excises Act, 1944:

s.3-Erection/fabrication of Boiler/Membrane Cell Technology/Solvent
extraction plant by assembling various components and parts-Liability to C
pay excise duty orr-Held: Issue relating to excisability ofplants and machinery
assembled at site has been clarified in Circular No. 58/J/2002-CX dated
15th January, 2002-As the factual aspect was not considered by CEGAT,
matter is remitted to it for fresh consideration in the light of Virdi Brothers
=~~~~ D
The question for consideration in the present Appeal is whether
erection/fabrication of Boiler/Membrane Cell Technology/Solvent extraction
plant at site by assembling various components and parts, brings into existence
immovable property or whether it amounts to manufacture of new marketing
commodity liable to excise duty. E
Disposing of the Appeal, the Court

HELD: 1.1. 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 F
indicates that it was intended to clarify the question of excisability of plant
and machinery assembled at site. (Para 6] (704-B]

1.2. The matter is clarified as following: (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 G
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

701 H
702 SUPREME COURT REPORTS [2007] 6 S.C.R.

A 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
B be no manufacture of "goods" involved and no levy of excise duty. (d) Integrated
plantvmachines, 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 "
c compared to a fabrication where a group of machines themselves may be
.o(

combined to constitute a new machine which has its own identity/marketability
and is dutiable. (e) Ifitems 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
D considered as moveable and will, therefore, not be excisable goods.
(Para 6) (705-B-H; 706-A)

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
E 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; CCE, Jaipur v. Man
Structurals Ltd., (2001) 130 E.L.T. 401 and Commissioner o/Centrai Excise,
Indore v. Mis Virdi Brothers and Ors.,* (2006) 14 SCALE 115, relied on.

F 8. As the basic factual aspects were not considered by the CEGAT. This
Court deems it proper to remit the matter to it for a fresh consideration in
the light of the judgment in *Virdi Brothers and Ors. case and Circular. .,
(Para 8] (706-G) ...,
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5391-5393 of
G 2002.
From the Final Order No. 100-102/2002 dated 28.01.2002 of the Customs,
Excise & Gold (Control) Appellate Tribunal, South Zonal Bench, at Chennai
in Appeal Nos. E/469, 470 & 1047 of2001.

WITH
H
COMMNR OF CENTRAL EXCISE, INDORE v. CETHAR VESSELS LTD. [PASA YAT, J.l 703

C.A. Nos. 6533-6534 of2002, 4100 of 2003 and D.344 7 of2006. A
Dr. R.G. Padia, Sr. Adv., Navin Prakash, Ajay Shanna, Vikram Gulati and
B. Krishna Prasad for the Appellant.

M.P. Devanath, Sudhir Kumar Gupta, Shobha and Rajesh Kumar for the
Respondents B
The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. 1. All these appeals involve identical questions
and are, therefore, taken up together for consideration.

2. In all these appeals challenge is to the final order passed by the
c
Customs Excise and Gold (Control) Appellate Tribunal, New Delhi (in short
the 'CEGAT'). The basic question is whether the erection of Boiler at site by
assembling various components and parts has brought into existence
immovable property or not that is the issue involved in Civil Appeal Nos.
5391-5393 of2002, 4100 of2003 and 3447 of2006. In Civil Appeal Nos.6533- D
34 of2002 the erection related to Membrane Cell Technology and Civil Appeal
No.4156 relates to solvent extraction Plant. Stand of the appellant is that the
fabrication of such plants out of duty paid bought out items amounts to
manufacture of a new marketable commodity and therefore excise duty is
~~ E
3. 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. F
4. 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.
G
5. 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,
H
704 SUPREME COURT REPORTS [2007) 6 S.C.R.

A (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.)

6. As a matter of fact taking into account these decisions Circular
B 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:
c "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
D
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.
E
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
F 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.);
G
(fu) 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
H 22.2.99 (1999 (108) E.L.I. A58 (S.C.);
COMMNR OF CENTRAL EXCISE, !NDORE v. CETHAR VESSELS LTD. (PASA YAT, J.] 705

(v) Duncan Industries Ltd v. CCE, Mumbai, (2000) 88 ECR 19 (S.C.)); A
(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 B
confusion with the a<sessing 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/ c
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.
D
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
E
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.
F
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.
G
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) H
706 SUPREME COURT REPORTS [2007] 6 S.C.R.

A 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
B
5. Keeping the above factors in mind the po~ition is clarified further
in respect of specific instances which have been brought to the notice
of the Board.
xx xx xx
c (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
D 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
E 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.
F
9. Hindi version will follow."
~
7. These aspects were highlighted in Commissioner of Central Excise, ~
Indore v. Mis Virdi Brothers and Ors., (2006) 14 SCALE 115].

G 8. As the: basic factual aspects were not considered by the CEGA T we
deem it proper to remit the matter to it for a fresh consideration in the light
of the judgment in Virdi Brothers and Ors. case (supra) and Circular referred
to above.

9. The appeals are accordingly disposed of with no orders as to costs.
H D.G. Appeals disposed of.