Holding

The final product is an immovable steam‑generating plant and not an excisable good, so the bought‑out items are not includable in the boiler’s assessable value, and the show‑cause notice invoking the extended limitation period is invalid.

Summary

Lipi Boilers Ltd. entered into a contract to design, procure, manufacture and supply a bagasse‑fired boiler in CKD condition, with several bought‑out components delivered directly to the buyer’s site. The revenue issued a show‑cause notice alleging that the value of these bought‑out items should be added to the boiler’s assessable value and invoked the five‑year extended limitation period under the proviso to s.11A(1) of the Central Excise Act, 1944. The Tribunal held the bought‑out items were essential parts and included them in the assessable value, while also deeming the notice valid. The Supreme Court examined whether the final product was an excisable good and whether the notice complied with the statutory limitation. It concluded that the assembled plant became an immovable steam‑generating plant, not a movable good, so the bought‑out items could not be included in the boiler’s value, and the revenue failed to prove wilful suppression, rendering the extended‑period notice invalid. Consequently, the Court set aside the Tribunal’s order and allowed the appeals.

Issues considered

Whether the value of duty‑paid bought‑out items delivered directly at the buyer’s site is liable to be included in the value of the boiler cleared in CKD condition for the assessment of central excise duty.
Whether the show‑cause notice issued under the proviso to Section 11A(1) of the Central Excise Act, 1944 is legal and valid, given the requirement of wilful suppression or intent to evade duty.

Legislation cited

Central Excise Act, 1944s. 11A(1), s. 11AB, s. 11AC, s. 11D, s. 3, s. 4
Central Excise Rules, 1944
Central Excise Tariff Act, 1985
CENVAT Credit Rules, 2001

Headnote

Issue for Consideration Issue arose whether the value of the duty paid bought out items delivered directly at the buyer’s site is liable to be included in the value of the boiler cleared by the assessee from its factory in completely knocked down (CKD) condition, for the duty; and whether the show cause notice is legal and valid under the extended limitation period as provided under the proviso to s.11A(1) of the Central Excise Act, 1944. Headnotes† Central Excise Act, 1944 – ss.4, 11A – Excise Duty – Assessment – Invocation of

Subjects

Value of the duty paid bought out items delivered directly at the buyer’s siteValue of the boiler cleared by assessee from its factory in completely knocked down (CKD) conditionExcise dutyShow cause noticeExtended limitation periodTransaction valueManufacture of boiler and boiler partsCompletely knocked down (CKD) conditionErection and installation of immovable plantExcisable goodsSteam generating plantTariff ClassificationUtility TestExcess collection of excise duty from buyerProof of excisability

Judgment

[2025] 11 S.C.R. 578 : 2025 INSC 1297

Lipi Boilers Ltd.
v.
The Commissioner of Central Excise, Aurangabad
(Civil Appeal No(s). 856-857 of 2011)
10 November 2025
[J.B. Pardiwala* and Sandeep Mehta, JJ.]

Issue for Consideration
Issue arose whether the value of the duty paid bought out items
delivered directly at the buyer’s site is liable to be included in the
value of the boiler cleared by the assessee from its factory in
completely knocked down (CKD) condition, for the assessment of
the excise duty; and whether the show cause notice is legal and
valid under the extended limitation period as provided under the
proviso to s.11A(1) of the Central Excise Act, 1944.

Headnotes†
Central Excise Act, 1944 – ss.4, 11A – Excise Duty –
Assessment – Invocation of the extended period of limitation
u/s.11A – Assessee-manufacture of boiler and boiler parts,
cleared boiler from its factory in completely knocked down
(CKD) condition – Assessment of excise duty – Value of the
duty paid bought out items delivered directly at the buyer’s
site, if liable to be included in the value of the said boiler –
Show cause notice issued, if legal and valid under the extended
limitation period as provided under the proviso to s.11A(1):
Held: Value of the duty paid bought out items which were delivered
directly at the buyer’s site is not liable to be included in the value
of the boiler cleared by the assessee from its factory in CKD
condition, for the purpose of assessment of excise duty – Object
of the contract was about erection and installation of immovable
plant-steam generating plant – Final product that emerges as a
result of performing the obligations under the contract, does not
constitute excisable goods under the Act – Consequently, the base
value of the boiler on which excise duty is to be levied, cannot
be equated with the total contract price, thus, the price of the
bought out parts cannot be included in the value of the boiler for
the purpose of computing excise duty under the Act – CESTAT
* Author
[2025] 11 S.C.R. 579

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

erred while declining to consider the immovability plea by the
assessee – There was erroneous reliance on tariff classification –
Revenue appears to have been swayed by the fact that ‘boilers’
and ‘boiler parts’ are listed under Chapter 84 of the Tariff Act, 1985,
and thus, seem to have proceeded on the erroneous assumption
that all boilers, irrespective of form or configuration, attract central
excise duty – However, the revenue should have kept in mind that
the mere presence of a product in the Tariff Schedule does not
determine its excisability – Final product-steam generating plant,
emerges in the form of an immovable product in the course of
integrating the CKD parts with the bought out items – Thus, the
resultant product of the contract not being excisable goods, it is
wholly inconsequential whether or not the bought out items are
parts or accessories of it – Excess collection of excise duty from
buyer is no proof of excisability on the final product which emerges
as an immovable property – Liability of the assessee to pay duty
must be determined strictly in accordance with the charging
provisions under the law and not on the basis of any purported
recovery from the buyer – As regards the show cause notice, in
the absence of any deliberate act on the part of the assessee
with an intention to evade being established by the revenue, the
essential precondition of wilful suppression with intent to evade
duty not satisfied, thus, the invocation of the extended period of
limitation under the proviso to s.11A(1) not tenable in law – Show
cause notice issued under the proviso to s.11A(1) not legal and
hence invalid – Thus, the proceedings leading up to the instant
appeal to be quashed, and the impugned order set aside – Central
Excise Tariff Act, 1985. [Paras 59-83]

Case Law Cited
Commissioner of Central Excise, Pondicherry v. Acer India Ltd.
[2004] Supp. 4 SCR 676 : (2004) 8 SCC 173; Commissioner of
Central Excise, Lucknow, U.P. v. Chhata Sugar Co. Ltd. [2004] 2
SCR 790 : (2004) 3 SCC 466; M/s. Thermax Babcock & Wilcox
Ltd. v. Commnr. of Central Excise, Pune, Civil Appeal No(s).
3042-3043/2005; M/s. Quippo Energy Ltd. v. Commissioner of
Central Excise, Ahmedabad-II, 2025 INSC 1130; Union of India
and Others v. Bombay Tyre International Ltd. and Others [1984]
1 SCR 347 : (1984) 1 SCC 467; D.G. Gouse and Co. v. State of
Kerala [1980] 1 SCR 804 : (1980) 2 SCC 410; M/s Bharti Airtel
Ltd. v. The Commissioner of Central Excise, Pune, 2024 INSC 880 :
580 [2025] 11 S.C.R.

Supreme Court Reports

[2024] 11 SCR 1525; Quality Steel Tubes (P) Ltd. v. Collector of
Central Excise, U.P. [1994] Supp. 6 SCR 439 : (1995) 2 SCC 372;
Mittal Engineering Works (P) Ltd. v. Collector of Central Excise,
Meerut [1996] Supp. 8 SCR 796 : (1997) 1 SCC 203; Sirpur Paper
Mills Ltd v. Collector of Central Excise, Hyderabad [1997] Supp.
6 SCR 431 : (1998) 1 SCC 400; Moti Laminates (P) Ltd. v. CCE
[1995] 2 SCR 81 : (1995) 3 SCC 23; Pahwa Chemicals Private
Limited v. Commissioner of Central Excise, Delhi (2009) 4 SCC
658; Continental Foundation Joint Venture Holding v. CCE [2007]
9 SCR 554 : (2007) 10 SCC 337 – referred to.
Commissioner of C. Ex. v. Thermax Babcock & Wilcox Ltd., 2005
(182) ELT 336 (Tri.- Mumbai) – referred to.

List of Acts
Central Excise Act, 1944; Central Excise Tariff Act, 1985; Central
Excise Rules, 1944; CENVAT Credit Rules, 2001.

List of Keywords
Value of the duty paid bought out items delivered directly at the
buyer’s site; Value of the boiler cleared by assessee from its
factory in completely knocked down (CKD) condition; Excise duty;
Show cause notice; Extended limitation period; Transaction value;
Manufacture of boiler and boiler parts; Completely knocked down
(CKD) condition; Erection and installation of immovable plant;
Excisable goods; Steam generating plant; Tariff Classification;
“Utility Test”; Excess collection of excise duty from buyer; Proof
of excisability.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 856-857
of 2011
From the Judgment and Order dated 23.09.2010 of the State
Agency of Maharashtra in ON Nos. 289 and 290 of 2010 and AN
Nos. 1377 of 2007 and 13 of 2008

Appearances for Parties
Advs. for the Appellant:
Prakash Shah, Sr. Adv., Jas Sanghavi, Linzy Sharan, Jasdeep
Singh Dhillon, Prabhat Chaurasia, Anirudh Jamwal, Rahul Gupta.
[2025] 11 S.C.R. 581

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

Advs. for the Respondent:
Raghavendra P Shankar, A.S.G., Gurmeet Singh Makker, Ms.
Pallavi Mishra, Pallav Mongia, Padmesh Mishra, Raman Yadav.

Judgment / Order of the Supreme Court

Judgment

J.B. Pardiwala, J.

For the convenience of exposition, this judgment is divided into the
following parts:
INDEX*

A. FACTUAL MATRIX ........................................................................... 3
B. THE IMPUGNED ORDER ................................................................. 7
C. SUBMISSIONS ON BEHALF OF THE PARTIES ............................ 9
(I). Submissions on behalf of the appellant/assessee ............... 9
(II). Submissions on behalf of the respondent/revenue ............. 13
D. ISSUES TO BE DETERMINED ........................................................ 15
E. ANALYSIS ......................................................................................... 16
(I). Whether the value of the duty paid bought out items
delivered directly at the buyer’s site is liable to be
included in the value of the boiler cleared by the assessee
from its factory in completely knocked down (CKD)
condition, for the assessment of central excise duty? ........ 16
(i). Understanding the nature of Central Excise Duty,
in light of the charging provision and valuation of
quantum provision under the Central Excise Act,
1944: .................................................................................... 16
(ii). Whether the resultant final product of the contract
would fall within the ambit of “Excisable Goods”? ....... 30
(iii). Erroneous reliance on Tariff Classification .................... 48
(iv). Inapplicability of the “Utility Test” and the ‘part’ v.
‘accessory’ debate ............................................................. 49
(v). Excess collection of excise duty from buyer is no
proof of excisability ........................................................... 49
* Ed. Note: Pagination as per the original Judgment.
582 [2025] 11 S.C.R.

Supreme Court Reports

(II). Whether the show cause notice is legal and valid under
the extended limitation period as provided under the
proviso to Section 11A(1) of the Central Excise Act,
1944? .......................................................................................... 52
(i). Was there any wilful suppression of facts with an
intention to evade payment of duty by the appellant/
assessee? ........................................................................... 52
F. CONCLUSION ................................................................................... 57

1. Since the issues raised in both the captioned appeals are the
same, the challenge in both the appeals are also to the self same
order passed by the Customs, Excise and Service Tax Appellate
Tribunal, West Zonal Bench, Mumbai (hereinafter, “the CESTAT”)
and the parties are also the same, those were taken up for hearing
analogously and are being disposed of by this common judgment
and order.
2. These statutory appeals under Section 35L(1)(b) of the Central
Excise Act, 1944 (hereinafter, “the Act, 1944”), are at the instance
of an assessee and are directed against the common final order
dated 23.09.2010 (hereinafter, “the impugned order”) passed by
the CESTAT in Appeal No. E/1377/07-Mum and Cross Objection
No. E/CO/13/08, respectively by which the CESTAT reversed the
concurrent findings of the two lower authorities, allowed the appeal
filed by the revenue/respondent herein and dismissed the cross
objections filed by the assessee/appellant herein. The CESTAT
in the impugned order held that the value of the bought out items
received directly at the buyer’s site and used in the erection of the
boiler are essential parts of the boiler and therefore, the value of
such bought out items has to be included in the assessable value
of the boiler for the purpose of assessing the payable central excise
duty. Accordingly, the demand of duty along with interest was upheld
by the CESTAT in the impugned order.

A. FACTUAL MATRIX
3. The appellant/assessee/Lipi Boilers Ltd. is a holder of Central Excise
Registration for manufacture of boiler and boiler parts falling under
[2025] 11 S.C.R. 583

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

Chapter Heading nos. 8402.10 and 8402.90 of the Central Excise
Tariff Act, 1985 (hereinafter, “the Act, 1985”), respectively.
4. The assessee entered into an agreement with one Shri Maroli Vibhag
Khand Udyog Sahakari Mandali Ltd. (hereinafter, “the buyer”), on
29.01.2001, for designing, procuring, manufacturing and supplying
machinery and equipments for one ‘no. 50 TPH MCR Capacity and
45 Kg/cm2(g) working pressure bagasse fired boiler’ so that a steam
generating plant could be commissioned by 31.10.2001 (hereinafter,
“ the contract”).
5. On 28.04.2005, the Assistant Commissioner of Central Excise and
Customs, Aurangabad, (hereinafter, “ the Assistant Commissioner”)
issued a show-cause-cum-demand notice (Sr. No. 4/2005/CEX/
dated 2005) (hereinafter, “the show cause notice”) to the assessee,
alleging that the assessee cleared the final product boilers in
completely knocked down condition (hereinafter, “CKD condition”)
during the period from 01.04.2000 to 30.06.2000 by paying central
excise duty without adding or taking into account the cost of ‘essential’
bought out ‘parts’ delivered directly at the site of the buyer. According
to the show cause notice, the non-inclusion of the cost of ‘essential’
bought out ‘parts’ worth ₹14,02,344/- (Rupees Fourteen Lakhs Two
Thousand Three Hundred and Forty-Four only) in the value of the
final product boiler resulted in undervaluation of the excisable item
and a resultant shortfall to the tune of ₹2,24,375/-(Rupees Two Lakhs
Twenty Four Thousand Three Hundred and Seventy-Five only) in
the quantum of central excise duty payable by the assessee. The
show cause notice stated that as per the amended Section 4(1) of
the Act, 1944, (w.e.f. 01.07.2000), the excise duty was payable with
reference to the transaction value of the goods sold to an unrelated
buyer and the price charged has to be the sole consideration for
sale. According to the show cause notice, since the transaction value
as per the contract included the cost of the ‘essential’ bought out
‘parts’ that were delivered directly at the site of the buyer, the central
excise duty payable by the assessee should take those into account.
6. The show cause notice invoked the extended period of limitation
of 5 years provided under the proviso to Section 11A(1) of the Act,
1944, on the ground that the assessee had not paid central excise
duty on the bought out items and had wilfully suppressed the facts
from the knowledge of the respondent department with an intention
to evade duty. The show cause notice sought a response from the
584 [2025] 11 S.C.R.

Supreme Court Reports

assessee within a period of 30 days from its receipt, failing which,
the central excise duty amounting to ₹2,24,375/- (Rupees Two Lakhs
Twenty Four Thousand Three Hundred and Seventy-Five only) was
to be recovered from it under the erstwhile Section 11A(1) of the
Act, 1944, read with Rule 9(2) of the Central Excise Rules, 1944,
along with interest under Section 11AB of the Act, 1944 and penalty
under Section 11AC of the Act, 1944 read with Rule 173Q and Rule
57(1)(5) of the Central Excise Rules, 1944 and Rule 13 of CENVAT
Credit Rules, 2001, respectively.
7. On 13.06.2005, the assessee replied to the show cause notice referred
to above, denying contravention of any applicable provision and
stated that the boilers in CKD condition were cleared from its factory
after duly paying the central excise duty leviable thereon, whereas
the bought out items were cleared by their respective vendors upon
payment of applicable central excise duty and transported directly
to the site of erection. The assessee pointed out that there was no
evidence on record to establish that the boiler was first assembled
at the site before it was permanently installed as an ‘immovable
property’. Rather, the assessee, emphatically stated that the mere
size and weight of the boiler make it impossible to assemble the
boiler before erection. The process of erection itself involves civil
and mechanical engineering, utilising concrete, steel reinforcements,
and grouting in a manner that ensures the boiler is in a functioning
condition and in an immovable form upon completion. The assessee
also stated that such an installed boiler cannot be readily dismantled
by removing nuts and bolts and reassembled at another site. The
same may cause extensive damage to the boiler to such an extent
that its value may be reduced to a mere scrap. Based on such
reasoning, the assessee stated that since the boiler erected at
the site and attached to the earth is not ‘goods’, the same would
not be excisable. The assessee also stated that it had not availed
any CENVAT credit on the bought out items and that there was no
documentary evidence on record to substantiate such allegation.
8. Upon due consideration of the reply of the assessee, the Assistant
Commissioner vide Order-in-Original dated 07.12.2005, accepted
that the demand of central excise duty on the value of the bought
out items was not sustainable. The Assistant Commissioner dropped
the demands made in the show cause notice based on the findings
which read thus:
[2025] 11 S.C.R. 585

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

“It is well settled law that value of bought out items cleared
at site by the vendors without bringing the same into
the factory premises is not liable to be included in the
assessable value of the finished product. It is also well
settled law that the boilers erected at site and attached to
earth are not ‘goods’ and hence not excisable. I find that
the ratio of the judgments in the case of Mittal Engineering
Pvt Works Vs C.C.E. Meerut 1996 (88) ELT 622(SC);
Tungabhadra Steel Products Ltd Vs Union of India reported
in 1998 (98) ELT 334 (HC Karnataka); Alpha Laval (I) Ltd Vs
C.C.E. Pune reported in 1998 (99) ELT 649 (Tribunal) etc
are quite applicable in this case. Therefore I am inclined
to accept the assessee’s contention that the demand of
duty on the value of bought out items is not sustainable.”
9. Aggrieved by the Assistant Commissioner’s Order-in-Original dated
07.12.2005, the revenue preferred an appeal before the Commissioner
of Central Excise & Customs (Appeals), Aurangabad, [hereinafter, “the
Commissioner (Appeals)”]. Vide Order-in-Appeal dated 13.07.2007
the Commissioner (Appeals), dismissed the appeal preferred by the
revenue and thereby affirmed the Assistant Commissioner’s order
quashing the show cause notice.

B. THE IMPUGNED ORDER
10. Being dissatisfied with the Order-in-Appeal dated 13.07.2007,
referred to above, the revenue preferred Appeal No. E/1377/07-Mum,
whereas the assessee filed Cross Objection no. E/CO/13/08 before
the CESTAT. Vide the common order dated 23.09.2010, the CESTAT
reversed the concurrent findings of the two lower authorities, allowed
the appeal filed by the revenue and dismissed the cross objection
filed by the assessee, thereby holding that the value of the essential
bought out items received at the buyer’s site and used in the erection
of the boiler is to be included in the assessable value of the boiler
for the purpose of determining the payable central excise duty.
11. The CESTAT based its ruling on two counts:
a. First, it found no merit in the contention that the boiler had
been permanently imbedded and is non-excisable, on the
ground that such plea had not been raised before the lower
authorities. Further, the CESTAT was of the opinion that the
586 [2025] 11 S.C.R.

Supreme Court Reports

immovability argument did not warrant any merit because the
boiler was manufactured in the factory and it was merely for
ease of transportation that the same had been cleared in CKD
condition.
b. Secondly, the CESTAT observed that since the subject bought
out items, supplied directly to the buyer’s site, were essential
parts of the boiler, those were therefore to be included in the
assessable value of the boiler.
12. The relevant observations made by the CESTAT in the impugned
order are reproduced as follows:-
“3. We find no merits in the contention of the respondent
that the boiler has been permanently imbedded and is
non-excisable as this plea was not taken before the lower
authorities. Further the respondents are paying duty at
the time of clearance of boiler from the factory, meaning
thereby the boiler is manufactured in the factory and only
ease of transportation, the same has been cleared in CKD
condition. In these circumstances, we find no merits in
this contention.
4. From the facts of the present case the respondent
received an order for supply of boiler. The respondent
manufactured boiler in the factory and cleared in CKD
condition but certain parts were purchased from the
market, which were directly supplied at site. These parts
are essential parts of the boiler, which are not in dispute,
therefore, the decision of the Tribunal in the case of
Thermax Babcock & Wilcox Ltd., (supra) held that the
value of bought out items received at site and used in
the erection of boiler includable in the assessable value
of the boiler. The respondent relies upon the decision of
the Tribunal in the case of Silson India Pvt Ltd., (supra).
We find the facts of the case are different from the facts of
present case. In the case of Silson India Pvt Ltd., (supra)
there was no evidence on record to show that full boiler
has come into existence in the factory of manufactured and
the manufacturer cleared only parts of the boiler. In the
present case the respondents are clearing the boiler in CKD
condition. Therefore, the respondents are manufacturing
[2025] 11 S.C.R. 587

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

boiler and clearing the same and as boilers bought out
items are essential parts, therefore, they are includable in
the assessable value of the boiler. The impugned order is
set aside and the appeal filed by the revenue is allowed.
Cross objection filed by the respondent is also disposed
of accordingly.”
13. Thus observing, the CESTAT set aside the order of the Commissioner
(Appeals), allowed the appeal by the revenue and dismissed the
cross-objection filed by the assessee.
14. Being aggrieved by the impugned order, the assessee is here before
us with two appeals under Section 35L(1)(b) of the Act, 1944.

C. SUBMISSIONS ON BEHALF OF THE PARTIES

(I). Submissions on behalf of the appellant/assessee
15. Mr. Prakash Shah, the learned Senior Counsel appearing on behalf
of the assessee, submitted that the contract was for designing,
procuring, manufacturing and supplying of machinery and equipment
for a steam generating plant and to do other works mentioned therein
such as painting, first filling of lubricant, transformer oil, packing and
forwarding charges, and handling and loading charges at the place
of supply.
16. The learned Senior Counsel submitted that owing to the huge size
of the boiler, it had to be cleared from the assessee’s factory in CKD
condition to the site of the buyer. He submitted that the assessee
had no contractual obligation to erect or install the goods supplied by
it. As per the contract, the erection, installation and commissioning
of the steam generating plant was to be undertaken by the buyer’s
engineer.
17. The learned Senior Counsel submitted that the assessee had
manufactured some of the equipments/machineries of the steam
generating plant at its factory and cleared those in CKD condition
upon payment of appropriate central excise duty. He further submitted
that the assessee had purchased some items such as feed water
pumps, fans, safety valves, level gauges, etc., from the open market,
and supplied those duty-paid bought out items directly to the buyer,
without bringing those into the assessee’s factory. He submitted
that the assessee merely supplied those bought out items and did
588 [2025] 11 S.C.R.

Supreme Court Reports

not undertake any processing of those either at the site of erection
or elsewhere.
18. On the aspect of whether the bought out items were essential parts
of the boiler or not, the learned Senior Counsel argued that even
at the site of erection, the bought out items did not form part of the
boiler, but were fitted onto other machinery/equipments at the site.
He argued that such other machinery/equipment on which the bought
out parts are fitted onto, are not classifiable under Heading no. 84.02
as boiler but classifiable under Heading no. 84.04 as auxiliary plant
for use with boilers, under the Act, 1985. Thus, according to the
learned Senior Counsel, these bought out items are neither parts nor
accessories of the boiler and hence could not have been included
in the assessable value of the boilers. He went on to argue that the
CESTAT failed to appreciate that there was no material on record
to arrive at the finding that the bought out items were essential
parts of the boiler, or that their function, value and description were
provided to justify their essentiality. He submitted that the finding of
the CESTAT, that the bought out items were essential parts of the
final product manufactured by the assessee, was not supported
by any evidence or material on record. He argued that, rather, the
CESTAT’s findings that the entire boiler was manufactured in the
assessee’s factory and cleared in CKD condition merely for ease of
transportation, is self-contradictory to its own finding that the bought
out items, delivered directly to the buyer’s site were essential parts
of the boiler.
19. He also submitted that the assessee had not claimed any CENVAT
Credit of the central excise duty paid on bought out goods. He placed
reliance on Rule 3 of the CENVAT Credit Rules, 2004 to submit that
CENVAT credit can be taken only after inputs are received in the
factory of the manufacturers and highlighted that the bought out
items were never brought into the factory of the assessee or worked
upon even elsewhere by the assessee.
20. He submitted that the final product i.e. the boiler came into existence
at the site of the buyer as an immovable property and hence is not
‘goods’ and therefore, not excisable.
21. He argued that the revenue is seeking to recover tax on sale of
goods in the guise of excise duty. He argued that the learned
A.S.G.’s contention that Section 4 of the Central Excise Act, 1944
[2025] 11 S.C.R. 589

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

permits inclusion of the value of bought out goods in the assessable
value of the goods manufactured by the Appellant is contrary to the
law declared by this Court in Commissioner of Central Excise,
Pondicherry v. Acer India Ltd. reported in 2004(8) SCC173 and
Commissioner of Central Excise, Lucknow, U.P. v. Chhata Sugar
Co. Ltd. reported in 2004(3) SCC 466, whereby this Court had
held that Section 4 of the Act, 1944 is a machinery provision and
subject to Section 3 of the Act, 1944 which is a charging section.
He submitted that it is trite law that levy of duty of excise is on the
manufacture or production and not on sale of goods.
22. The learned Senior Counsel vehemently contended that the
CESTAT erred in holding that the assessee had not raised the
contention regarding the boiler being non-excisable on account
of its permanent embedding on erection at site, before the lower
authorities. He submitted that the CESTAT had failed to appreciate
that the assessee, in its reply dated 13.06.2005 to the show cause
notice dated 28.04.2005, had specifically raised the contention that
the boiler on commissioning became immovable property. Further,
the said contention was accepted by the Assistant Commissioner
and the same is reflected in the form of findings recorded in the
Order-in-Original dated 07.12.2005/13.01.2006, wherein the Assistant
Commissioner held that the boilers erected at site and attached to
earth are not goods and hence not excisable.
23. The learned Senior Counsel argued that the CESTAT’s reliance on
the order of the CESTAT in Commissioner of C. Ex. v. Thermax
Babcock & Wilcox Ltd. reported in 2005 (182) ELT 336 (Tri.-
Mumbai) (hereinafter referred to as “Thermax CESTAT” ) is erroneous
because in case of Thermax CESTAT (supra), when the order was
challenged before this Court in M/s. Thermax Babcock & Wilcox
Ltd. v. Commnr. of Central Excise, Pune in Civil Appeal No(s).
3042-3043/2005 (hereinafter referred to as “Thermax SC”), the
learned counsel for the Commissioner of Central Excise, Pune had
pointed out that, while computing the demands which were raised
in the show cause notice, no excise duty was demanded on the
bought out items in that matter.
24. Lastly, he contended that the CESTAT committed a serious error in
law in not remanding the proceedings to the two lower authorities
to examine the question of whether the show cause notice was time
590 [2025] 11 S.C.R.

Supreme Court Reports

barred. He highlighted that since the Assistant Commissioner and
the Commissioner (Appeals) had dropped the demand on merits,
the CESTAT did not find it necessary to address itself on the show
cause notice being time barred.

(II). Submissions on behalf of the respondent/revenue
25. Mr. Raghavendra P Shankar, the learned A.S.G. appearing on behalf
of the revenue, on the other hand submitted that in the present case,
the taxable event of ‘manufacture’ occurred when the parts brought
from the appellant’s factory in CKD condition and the bought out
‘parts’ were assembled at the buyer’s site to form the functional
boiler, in discharge of its obligation as per Clause 2.1 of the contract.
He submitted that even assuming without conceding that the boiler
ceased to be ‘goods’ once it was affixed to the earth, the dutiable
event (‘manufacture’ of the boiler) had already occurred at a point
in time prior to its affixation to the earth and thus excise duty was
payable on it.
26. He argued that the taxable event of ‘manufacture’ under Section 3
of the Act, 1944, having occurred in the present case at the buyer’s
site which is the ‘place of removal’, what remains thereafter is only
determination of the correct valuation of the payable excise duty on
the said taxable event.
27. He submitted that as per the amended Section 4(1) of the Act, 1944
(w.e.f. 01.07.2000), the central excise duty is payable with reference
to the transaction value of the goods sold to a buyer, where price
charged is the sole consideration for the sale. He submitted that as
per the said amended Section 4(1) read with Section 4(3)(d) of the
Act,1944, the “transaction value” means the price actually paid or
payable for the goods, when sold, which in the present dispute, would
be the total contract price. He pointed out that as per Clause 3.1(iii)
of the contract, the total contract price was inclusive, inter alia, of the
“cost of all other items which are necessary for completing supply of
the steam generating plant as per scope of supply”. He submitted
that the assessee was clearing goods as per the contract value
agreed with the buyer, which included the cost right from drawing and
designing of the goods to freight, installation and commissioning of
the boilers at the site and also cost of its essential bought out parts.
He therefore argued that since the transaction under the contract was
completed after successful commissioning of the boiler, the value
[2025] 11 S.C.R. 591

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

of the bought out items would form part of the transaction value as
per Section 4(1)(a) of the Act,1944.
28. He also argued that the cost of the bought out items was recovered
by the assessee from the buyer and that the assessee had availed
CENVAT Credit of duty by including the duty paid on the bought out
items under the head ‘Reimbursement of duty’ and had recovered
the same from the buyer.
29. He further argued that the CESTAT was correct in holding that
the bought out items are essential parts of the boiler that was
manufactured. The learned A.S.G placed reliance on the distinction
drawn by this Court in M/s. Quippo Energy Ltd. v. Commissioner
of Central Excise, Ahmedabad-II reported in 2025 INSC 1130,
between a ‘part’ and an ‘accessory’, and the observation that a
part is an integral/constituent component which renders the article
complete and functional, i.e. the article would not be able to fulfill
its primary function without this component. On the basis of this, he
argued that the bought out items were ‘parts’ of the boiler and not
merely its accessories, and that from a functional perspective, the
bought out items cannot be said to be external to the transaction
under the contract for supply of a functional boiler. He argued that any
artificial vivisection of the transaction (and therefore the transaction
value) under the contract to exclude the value of the ‘bought out’
parts that were nevertheless essential parts of the boiler is alien to
the contract and also to the Act,1944.
30. In the context of Thermax CESTAT(supra), the learned A.S.G. argued
that the law laid down by the CESTAT in Thermax CESTAT(supra)
had not been interfered with by this Court in appeal in Thermax
SC(supra), but was dismissed based on the observation that there
was, “no need to go into the issue raised by the appellant in this
appeal as the decision of this appeal, either ways would not affect
the appellant if the duty itself is not demanded thereupon”, without
raising any doubts regarding the correctness of the CESTAT’s order.
31. In such circumstances referred to above, the learned A.S.G. prayed
that there being no merit in the appeals, those be dismissed.

D. ISSUES TO BE DETERMINED
32. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following questions
fall for our consideration:
592 [2025] 11 S.C.R.

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(I). Whether the value of the duty paid bought out items delivered
directly at the buyer’s site is liable to be included in the value of
the boiler cleared by the assessee from its factory in completely
knocked down (CKD) condition, for the assessment of central
excise duty?
(II). Whether the show cause notice is legal and valid under the
extended limitation period as provided under the proviso to
Section 11A(1) of the Central Excise Act, 1944?

E. ANALYSIS

(I). Whether the value of the duty paid bought out items
delivered directly at the buyer’s site is liable to be included
in the value of the boiler cleared by the assessee from its
factory in completely knocked down (CKD) condition, for
the assessment of central excise duty?

(i). Understanding the nature of Central Excise Duty, in light of
the charging provision and valuation of quantum provision
under the Central Excise Act, 1944:
33. The present matter before us strikes at the very root of the concept of
exigibility of central excise duty. Hence, at the outset, it is necessary
to recall certain foundational principles governing the levy of central
excise duty under the Act, 1944.
34. It is pertinent to note that central excise duty is a duty on manufacture
of goods. A Three-judge Bench of this Court in Union of India and
Others v. Bombay Tyre International Ltd. and Others reported in
(1984) 1 SCC 467, while discussing the concept of a duty of excise
highlighted upon the nature of the tax and observed as follows:
“12. We think it is appropriate that at the very beginning we
should briefly indicate the concept of a duty of excise[…].
The observations show that while the nature of an excise
is indicated by the fact that it is imposed in respect of the
manufacture or production of an article, the point at which
it is collected is not determined by the point of time when
its manufacture is completed but will rest on considerations
of administrative convenience, and that generally it is
collected when the article leaves the factory for the first
[2025] 11 S.C.R. 593

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

time. In other words, the circumstance that the article
becomes the object of assessment when it is sold by the
manufacturer does not detract from its true nature, that it
is a levy on fact of manufacture. In a subsequent case,
Governor-General-in-Council v. Province of Madras (AIR
1945 FC 98) the Privy Council referred to both Central
Provinces and Berar Sales of Motor Spirit and Lubricants
Taxation Act, 1938 and Province of Madras v. Boddu
Paidanna and Sons and affirmed that when excise was
levied on a manufacturer at the point of the first sale by
him “that may be because the taxation authority imposing
a duty of excise finds it convenient to impose the duty at
the moment when the excisable article leaves the factory
or workshop for the first time on the occasion of its sale.
But that method of collecting the tax is an accident of
administration; it is not of the essence of the duty of excise,
which is attracted by the manufacture itself […]
13. We think that we have shown sufficiently that while
levy is on the manufacture or production of goods, the
stage of collection need not in point of time synchronize
with the completion of the manufacturing process. While
the levy in our country has the status of a constitutional
concept, the point of collection is location where the statute
declares it will be […]”
(Emphasis supplied)

35. Another aspect discussed by this Court in Bombay Tyre (supra)
which is of utmost relevance to the matter before us is understanding
the nature of Section 3 and Section 4 of the Act, 1944 respectively.
Hence, before delving into the explanation regarding the nature of the
two provisions as highlighted by this Court in Bombay Tyre (supra),
it is pertinent to reproduce the provisions as it existed at the time of
the taxable event in contention, i.e. assembling of the boiler parts
in CKD condition with the bought out items at the site of erection.
36. Section 3 of the Act, 1944, that was in force at the time of the taxable
event in contention, read as follows:
“SECTION 3. Duties specified in First Schedule and
the Second Schedule to the Central Excise Tariff Act,
1985 to be levied.-
594 [2025] 11 S.C.R.

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(1) There shall be levied and collected in such manner as
may be prescribed,-
(a) a duty of excise to be called the Central Value Added
Tax (CENVAT) on all excisable goods which are produced
or manufactured in India as, and at the rates, set forth in
the First Schedule to the Central Excise Tariff Act, 1985
(5 of 1986);
(b) a special duty of excise, in addition to the duty of excise
specified in clause (a) above, on excisable goods specified
in the Second Schedule to the Central Excise Tariff Act,
1985 (5 of 1986) which are produced or manufactured in
India, as, and at the rates, set forth in the said Second
Schedule.
Provided that the duties of excise which shall be levied
and collected on any excisable goods which are produced
or manufactured,
(i) in a free trade zone or a special economic zone and
brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and
brought to any other place in India,
shall be an amount equal to the aggregate of the duties
of customs which would be leviable under the Customs
Act, 1962 (52 of 1962) or any other law for the time being
in force, on like goods produced or manufactured outside
India if imported into India, and where the said duties
of customs are chargeable by reference to their value;
the value of such excisable goods shall, notwithstanding
anything contained in any other provision of this Act,
be determined in accordance with the provisions of the
Customs Act, 1962 (52 of 1962) and the Customs Tariff
Act, 1975 (51 of 1975).
Explanation 1. - Where in respect of any such like goods,
any duty of customs leviable for the time being in force
is leviable at different rates, then, such duty shall, for the
purposes of this proviso, be deemed to be leviable at the
highest of those rates.
[2025] 11 S.C.R. 595

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

Explanation 2. - In this proviso,-
(i) “free trade zone” means the Kandla Free Trade Zone
and the Santa Cruz Electronics Export Processing Zone
and includes any other free trade zone which the Central
Government may, by notification in the Official Gazette,
specify in this behalf;
(ii) “hundred per cent export-oriented undertaking” means
an undertaking which has been approved as a hundred per
cent export- oriented undertaking by the Board appointed
in this behalf by the Central Government in exercise of
the powers conferred by section 14 of the Industries
(Development and Regulation) Act, 1951 (65 of 1951),
and the rules made under that Act.;
(iii) “special economic zone” means a zone which the
Central Government may, by notification in the Official
Gazette, specify in this behalf.
(1A) The provisions of sub-section (1) shall apply in respect
of all excisable goods other than salt which are produced
or manufactured in India by, or on behalf of, Government,
as they apply in respect of goods which are not produced
or manufactured by Government.
(2) The Central Government may, by notification in the
Official Gazette, fix, for the purpose of levying the said
duties, tariff values of any articles enumerated, either
specifically or under general headings, in the First Schedule
and the Second Schedule] to the Central Excise Tariff Act,
1985 (5 of 1986) as chargeable with duty ad valorem and
may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed –
(a) for different classes or descriptions of the same
excisable goods; or
(b) for excisable goods of the same class or description-
(i) produced or manufactured by different classes of
producers or manufacturers; or
(ii) sold to different classes of buyers:
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Provided that in fixing different tariff values in respect of
excisable goods falling under sub-clause (i) or sub-clause
(ii), regard shall be had to the sale prices charged by the
different classes of producers or manufacturers or, as the
case may be, the normal practice of the wholesale trade
in such goods.”
37. Section 4 of the Act, 1944, (as amended w.e.f. 01.07.2000) that was
in force at the time of the taxable event in contention, read as follows:
“SECTION 4. Valuation of excisable goods for purposes
of charging of duty of excise.-
(1) Where under this Act, the duty of excise is chargeable
on any excisable goods with reference to their value, then,
on each removal of the goods, such value shall -
(a) in a case where the goods are sold by the assessee,
for delivery at the time and place of the removal, the
assessee and the buyer of the goods are not related and
the price is the sole consideration for the sale, be the
transaction value;
(b) in any other case, including the case where the goods
are not sold, be the value determined in such manner as
may be prescribed.
(2) The provisions of this section shall not apply in respect
of any excisable goods for which a tariff value has been
fixed under sub-section (2) of section 3.
(3) For the purpose of this section,-
(a) “assessee” means the person who is liable to pay the
duty of excise under this Act and includes his agent;
(b) persons shall be deemed to be “related” if –
(i) they are inter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and a distributor
of the assessee, or a sub-distributor of such distributor; or
(iv) they are so associated that they have interest, directly
or indirectly, in the business of each other.
[2025] 11 S.C.R. 597

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

Explanation. - In this clause-
(i) “inter-connected undertakings” shall have the meaning
assigned to it in clause (g) of section 2 of the Monopolies
and Restrictive Trade Practices Act, 1969 (64 of 1969); and
(ii) “relative” shall have the meaning assigned to it in clause
(41) of section 2 of the Companies Act, 1956 (1 of 1956);
(c) “place of removal” means
(i) a factory or any other place or premises of production
or manufacture of the excisable goods;
(ii) a warehouse or any other place or premises wherein
the excisable goods have been permitted to be deposited
without payment of duty,
from where such goods are removed;
(d) “transaction value” means the price actually paid or
payable for the goods, when sold, and includes in addition
to the amount charged as price, any amount that the buyer
is liable to pay to, or on behalf of, the assessee, by reason
of, or in connection with the sale, whether payable at the
time of the sale or at any other time, including, but not
limited to, any amount charged for, or to make provision for,
advertising or publicity, marketing and selling organization
expenses, storage, outward handling, servicing, warranty,
commission or any other matter; but does not include the
amount of duty of excise, sales tax and other taxes, if any,
actually paid or actually payable on such goods.”
38. Since the observations of this Court in Bombay Tyre (supra) which
are central to our discussion are with reference to Section 4 of the
Act, 1944 which was in force prior to the amendment of 01.07.2000,
and the revenue’s argument focuses on the amendment, the erstwhile
Section 4 of the Act, 1944 which existed at the time of Bombay
Tyre (supra) is being reproduced here for the sake of clarity, and it
read as follows:
“SECTION 4. Valuation of excisable goods for purposes
of charging of duty of excise. –
(1) Where under this Act, the duty of excise is chargeable
on any excisable goods with reference to value, such
598 [2025] 11 S.C.R.

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value, shall, subject to the other provisions of this section,
be deemed to be -
(a) the normal price thereof, that is to say, the price at
which such goods are ordinarily sold by the assessee to
a buyer in the course of wholesale trade for delivery at
the time and place of removal, where the buyer is not a
related person and the price is the sole consideration for
the sale:
Provided that
(i) where, in accordance with the normal practice of the
wholesale trade in such goods, such goods are sold by the
assessee at different prices to different classes of buyers
(not being related persons) each such price shall, subject
to the existence of the other circumstances specified in
clause (a), be deemed to be the normal price of such
goods in relation to each such class of buyers;
(ia) where the price at which such goods are ordinarily
sold by the assessee is different for different places of
removal, each such price shall, subject to the existence
of other circumstances specified in clause (a), be deemed
to be the normal price of such goods in relation to each
such place of removal;
(ii) where such goods are sold by the assessee in the
course of wholesale trade for delivery at the time and
place of removal at a price fixed under any law for the
time being in force or at a price, being the maximum,
fixed under any such law, then, notwithstanding anything
contained in clause (iii) of this proviso, the price or the
maximum price, as the case may be, so fixed, shall, in
relation to the goods so sold, be deemed to be the normal
price thereof;
(iii) where the assessee so arranges that the goods are
generally not sold by him in the course of wholesale trade
except to or through a related person, the normal price
of the goods sold by the assessee to or through such
related person shall be deemed to be the price at which
they are ordinarily sold by the related person in the course
[2025] 11 S.C.R. 599

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

of wholesale trade at the time of removal, to dealers (not
being related persons) or where such goods are not sold
to such dealers, to dealers (being related persons), who
sell such goods in retail;
(b) where the normal price of such goods is not ascertainable
for the reason, that such goods are not sold or for any
other reason, the nearest ascertainable equivalent thereof
determined in such manner as may be prescribed.
(2) Where, in relation to any excisable goods the price
thereof for delivery at the place of removal is not known
and the value thereof is determined with reference to the
price for delivery at a place other than the place of removal,
the cost of transportation from the place of removal to the
place of delivery shall be excluded from such price.
(3) The provisions of this section shall not apply in respect
of any excisable goods for which a tariff value has been
fixed under sub-section (2) of section 3.
(4) For the purposes of this section,
(a) “assessee” means the person who is liable to pay the
duty of excise under this Act and includes his agent;
(b) “place of removal” means
(i) a factory or any other place or premises of production
or manufacture of the excisable goods; [* * *]
(ii) a warehouse or any other place or premises wherein
the excisable goods have been permitted to be deposited
without payment of duty;
(iii) a depot, premises of a consignment agent or any other
place or premises from where the excisable goods are to
be sold after their clearance from the factory and,
from where such goods are removed;
(ba) “time of removal”, in respect of goods removed from
the place of removal referred to in sub-clause (iii) of clause
(b), shall be deemed to be the time at which such goods
are cleared from the factory;
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Supreme Court Reports

(c) “related person” means a person who is so associated
with the assessee that they have interest, directly or
indirectly, in the business of each other and includes a
holding company, a subsidiary company, a relative and
a distributor of the assessee, and any sub-distributor of
such distributor.
Explanation. - In this clause “holding company”, “subsidiary
company” and “relative” have the same meanings as in
the Companies Act, 1956 (1 of 1956);
(d) “value”, in relation to any excisable goods, -
(i) where the goods are delivered at the time of removal
in a packed condition, includes the cost of such packing
except the cost of the packing which is of a durable nature
and is returnable by the buyer to the assessee.
Explanation. In this sub-clause, “packing” means the
wrapper, container, bobbin, pirn, spool, reel or warp beam
or any other thing in which or on which the excisable goods
are wrapped, contained or wound;
(ii) does not include the amount of the duty of excise, sales
tax and other taxes, if any, payable on such goods and,
subject to such rules as may be made, the trade discount
(such discount not being refundable on any account
whatsoever) allowed in accordance with the normal practice
of the wholesale trade at the time of removal in respect
of such goods sold or contracted for sale.
Explanation. For the purposes of this sub-clause, the
amount of the duty of excise payable on any excisable
goods shall be the sum total of -
(a) the effective duty of excise payable on such goods
under this Act; and
(b) the aggregate of the effective duties of excise payable
under other Central Acts, if any, providing for the levy of
duties of excise on such goods, and the effective duty of
excise on such goods under each Act referred to in clause
( a) or clause (b) shall be, -
[2025] 11 S.C.R. 601

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

(i) in a case where a notification or order providing for any
exemption (not being an exemption for giving credit with
respect to, or reduction of duty of excise under such Act
on such goods equal to, any duty of excise under such Act,
or the additional duty under section 3 of the Customs Tariff
Act, 1975 (51 of 1975), already paid on the raw material
or component parts used in the production or manufacture
of such goods) from the duty of excise under such Act is
for the time being in force, the duty of excise computed
with reference to the rate specified in such Act, in respect
of such goods as reduced so as to give full and complete
effect to such exemption, and
(ii) in any other case, the duty of excise computed with
reference to the rate specified in such Act in respect of
such goods.
(e) “whole sale trade” means sales to dealers, industrial
consumers, Government, local authorities and other
buyers, who or which purchase their requirements
otherwise than in retail.”
39. Having read the erstwhile Section 3 and Section 4 of the Act, 1944,
respectively, we come back to this Court’s observation in Bombay
Tyre (supra). This Court in Bombay Tyre (supra) observed that
while Section 3 provides for the levy of the duty of excise, Section
4 provides the measure by reference to which the charge is to be
levied. It was categorically emphasised upon, that the duty of excise
is chargeable with reference to the value of the excisable goods, but
the measure employed for assessing a tax must not be confused with
the nature of the tax itself. The relevant observation of this Court in
Bombay Tyre (supra), reads as follows:
“14. We move on now to a different dimension, to the
conceptual consideration of the measure of the tax. Section
3 of the Central Excises and Salt Act provides for the levy
of the duty of excise. It creates the charge, and defines
the nature of the charge. That it is a levy on excisable
goods, produced or manufactured in India, is mentioned in
terms in the section itself. Section 4 of the Act provides the
measure by reference to which the charge is to be levied.
The duty of excise is chargeable with reference to the
602 [2025] 11 S.C.R.

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value of the excisable goods, and the value is defined in
express terms by that section. It has long been recognised
that the measure employed for assessing a tax must
not be confused with the nature of the tax…In other
words, the measure adopted could not be identified with
the nature of the tax.”
(Emphasis supplied)

40. This Court in Bombay Tyre (supra) also referred to this Court’s
judgment in D.G. Gouse and Co. v. State of Kerala reported in (1980)
2 SCC 410 which in turn had referred to a passage from Seervai’s
Constitutional Law of India, to further explain the distinction between
the subject of a tax and a measure of a tax. The relevant observation
of this Court in Bombay Tyre (supra), reads thus:
“14. […] The point was considered by this Court again
in D.G. Gouse and Co. v. State of Kerala [(1980) 2 SCC
410] where reference was made to the measure adopted
for the purpose of the levy of tax on buildings under the
Kerala Building Tax Act. The Court examined the different
modes available to the Legislature for measuring the levy
with the annual value of the building and prescribing a
uniform formula for determining its capital value and for
calculating the tax. In the course of its judgment, the Court
cited with approval a passage from Seervai’s Constitutional
Law of India [Second Edn. Vol.2 at p. 1258]:
“…Another principle for reconciling apparently
conflicting tax entires follows from the fact that a tax
has two elements: the person, thing or activity on
which the tax is imposed, and the amount of the tax.
The amount may be measured in many ways; but
decided cases establish a clear distinction between
the subject-matter of a tax and the standard by
which the amount of tax is measured. These two
elements are described as the subject of a tax and
the measure of a tax…”
It is, therefore, clear that the levy of a tax is defined by its
nature, while the measure of the tax may be assessed by
its own standard. It is true that the standard adopted as
[2025] 11 S.C.R. 603

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

the measure of the levy may indicate the nature of the tax
but it does not necessarily determine it […]”
41. It is clear from the above-quoted observations of this Court in
Bombay Tyre (supra) that Section 3 of the Act, 1944 specifies the
subject-matter on which the excise duty is to be levied, whereas
Section 4 of the Act, 1944 prescribes the measure of such excise
duty. Unfortunately, in the case on hand, the revenue lost sight of
this crucial distinction in the nature of these two statutory provisions.
The revenue erred in its application of the amended Section 4 of the
Act, 1944 (w.e.f. 01.07.2000) by conflating the two distinct stages
of excise duty assessment, i.e. (i) levy under Section 3 and (ii)
computation of the quantum of levy under Section 4 of the Act, 1944,
into one. Although Section 4 was amended (w.e.f. 01.07.2000) to
modify the valuation methodology, yet such amendment did not alter
the essential character of the provision and it continues to remain a
provision for prescribing the measure of the tax and not a charging
provision in itself.
42. In other words, the ‘transaction value’ becomes relevant only after the
taxable event, i.e. manufacture of excisable goods, is first established.
The measure of tax cannot be invoked to prove that what has been
produced is excisable. The revenue has, erroneously relied upon
the ‘transaction value’ derived from the ‘contract price’ to argue
that the excise duty on the boiler has to be computed on the basis
of the contract price. However, for the revenue to contend that the
contract price would become the basis of the ‘transaction value’ for
the purpose of determination of the payable excise duty, it has to
first establish that the final product of the contract itself is excisable.
43. Applying the foundational principles set out hereinabove, it is clear
that the ‘transaction value’ under Section 4 of the Act, 1944, merely
serves as the basis for computing the quantum of excise duty payable,
but cannot determine excisability. It must necessarily be borne in
mind that valuation is a consequence of levy, not its determinant.
Accordingly, the correct sequence of central excise duty assessment
under the Act, 1944 is as follows:
i. First, determining the applicability of the charging provision under
Section 3, i.e. whether the process results in the manufacture
of excisable goods; and
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ii. Secondly, (if the first condition is satisfied), computing the
quantum of excise duty payable under the valuation provisions,
such as Section 4 (or Section 4A, although Section 4A is not
relevant to this present matter before us).
44. Thus, it is necessary to first examine whether the resultant product
that emerges at the buyer’s site by assembling the parts brought
in CKD condition along with the bought out items, qualifies as an
“excisable good” under the Act, 1944. Only if such product which
emerges as a result of the contract qualifies as excisable goods
can the next step of evaluation be undertaken, i.e. to see whether
or not the contract price can be treated as the ‘transaction value’
under Section 4, for computing the quantum of payable excise duty.
Consequently, if upon such examination it is found that the contract
price could validly be taken as the ‘transaction value’ under Section 4,
a show cause notice may be issued seeking why the value of the
bought out items should not be added to the value of the boiler. In
other words, if upon examination it is found that the resultant product
of the contract is not excisable goods, then the contract price cannot
be considered as the ‘transaction value’ for the purpose of determining
the payable central excise duty on the boiler, which in turn would
also mean that the value of the bought out goods is not liable to be
included in the value of the boiler for computing central excise duty.

(ii). Whether the resultant final product of the contract would
fall within the ambit of “Excisable Goods”?
45. The term “excisable goods” defined under Section 2(d) of the Act,
1944, as it existed at the time of the taxable event in question read
as follows:
“SECTION 2. Definitions.- In this Act, unless there is
anything repugnant in the subject or context,-

xxx xxx xxx
(d) “excisable goods” means goods specified in the First
Schedule and the Second Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986) as being subject to a duty of
excise and includes salt;”
46. The term “goods” has not been defined in the Act, 1944. However,
through a catena of judgments of this Court, it is now a settled
[2025] 11 S.C.R. 605

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

position of law that excise duty is leviable only on ‘goods’ and that
the test of movability is the decisive factor in ascertaining whether
an article qualifies as “goods” for the purpose of central excise
duty. A Coordinate Bench of this Court in a judgment in M/s Bharti
Airtel Ltd. v. The Commissioner of Central Excise, Pune reported
in 2024 INSC 880, undertook an extensive examination of the
expression “goods” under the Act, 1944. After a close examination
of the meaning of “goods” under Section 2(7) of the Sale of Goods
Act, 1930, Section 2(52) of the Central Goods and Services Tax
Act, 2017, Section 2(d) of the Central Sales Tax Act, 1956, Section
2(22) of the Customs Act, 1962, Section 2(i) of the Competition Act,
2002, Section 2(13) of the Motor Vehicles Act, 1988, Section 2(f) of
the Micro, Small and Medium Enterprises Development Act, 2006,
Section 2(14) of the Bureau of Indian Standards Act, 2016 and
Section 2(21) of the Consumer Protection Act, 2019, respectively,
this Court concluded that the definition of “goods” under the Sale
of Goods Act, 1930 seems to be the basis of the term “goods” in
other Statutes. Therefore, this Court observed that for the meaning
of the term “goods”, the definition given in the Sale of Goods Act,
1930 would be primarily relied upon. The relevant observation of
this Court in Bharti Airtel (supra) is as follows:
“11.2.5 “Goods” has not been defined in the Central Excise
Act, 1944. We, therefore, look into other statutes. The term
“goods” has been defined under various statutes some of
which may be mentioned as below.

xxx xxx xxx
11.2.6 From the above, it appears that the definition of
“goods” under the Sales of Goods Act, 1930 seems to be
the basis of the term “goods” in other Statutes. Hence,
we would primarily rely on the definition given in the Sale
of Goods Act.”
47. This Court in Bharti Airtel (supra) went further to observe that since
the items in consideration before it, were neither actionable claim nor
money, nor falling within the inclusive clause of the definition, viz.,
stocks, shares, growing crops, grass, and things attached to or forming
part of the land which are agreed to be severed before sale or under
contract of sale, the test of movability would determine whether those
items would be “goods”. However, this Court observed that in order
606 [2025] 11 S.C.R.

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to determine whether an item is movable or immovable, the enquiry
has to go beyond a simpliciter application of the definitions of the
terms “movable goods” and “immovable goods” under Section 3(36)
of the General Clauses Act, 1897 and Section 3(26) of the General
Clauses Act, 1897 read with Section 3 of the Transfer of Properties
Act, 1882, respectively. The relevant observation of this Court in
Bharti Airtel (supra) reads as under:
“11.2.7 The items in consideration viz., towers and
prefabricated buildings are neither actionable claim nor
money, nor do they come within the inclusive clause of
the definition, viz., stocks, shares, growing crops, grass,
and things attached to forming part of the land which
are agreed to be severed before sale or under contract
of sale.

xxx xxx xxx
11.3 Thus, the focus of our inquiry now will be to ascertain
whether these items namely, towers, its parts thereof
and prefabricated buildings are movable or immovable
properties.
11.3.1 As to what is a movable property has been defined
and can be understood from the expansive meaning
assigned to it under Section 3(36) of the General Clauses
Act, 1897 which states that,“movable property shall
mean property of every description except immovable
property”.
11.3.2 The aforesaid definition categorically indicates
that movable and immovable properties are mutually
exclusive. Thus, if it is found that these items are not
immovable properties, these invariably can be treated as
movable properties under Section 3(36) of the General
Clause Act and thus will be “goods” within the meaning
of Section 2(7) of the Sale of Goods Act, 1930 and hence
may qualify as “capital goods” within the meaning of Rule
2(a)(A) subject to fulfilling other conditions mentioned
therein.
11.3.3 As to what is immovable property has been explained
under Section 3 of the Transfer of Property Act, 1882
[2025] 11 S.C.R. 607

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

which specifies that “immovable property does not include
standing timber, growing crops or grass”.
11.3.4 It has been also defined under Section 3(26) of the
General Clauses Act, though not exhaustively, but in an
inclusive manner by providing that “immovable property”
shall include “land, benefits to arise out of land and things
attached to the earth, or permanently fastened to anything
attached to the earth”.
11.3.5 Therefore, we have to consider whether these items
are attached to the earth or are permanently fastened to
anything attached to the earth, for if these are found to be
so, these will be immovable properties and hence cannot
be “goods” and consequently, cannot be “capital goods”
within the scope of the CENVAT Rules.
11.4 As to what amounts to “attached to earth” as mentioned
under Section 3(26) of the General Clauses Act, has been
explained under Section 3 of the Transfer of Property Act,
1882 to mean as rooted in the earth, as in the case of
trees and shrubs; imbedded in the earth, as in the case
of walls or buildings; or attached to what is so imbedded
for the permanent beneficial enjoyment of that to which
it is attached.
11.5 For easy reference, the aforesaid definition clauses of
the Transfer of Property Act, 1882 and the General Clauses
Act, 1897 as may be relevant are reproduced below.
Section 3(36) of the General Clauses Act.
“movable property” shall mean property of every
description, except immovable property;
Section 3(26) of the General Clauses Act.
“immovable property” shall include land, benefits to
arise out of land, and things attached to the earth,
or permanently fastened to anything attached to the
earth.
Section 3 of the Transfer of Property Act.
“immovable property” does not include standing
timber, growing crops or grass.
608 [2025] 11 S.C.R.

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Under Section 3 of the Transfer of Properties Act,
“attached to the earth” means:
(a) rooted in the earth, as in the case of trees and
shrubs;
(b) imbedded in the earth, as in the case of walls or
buildings; or
(c) attached to what is so imbedded for the permanent
beneficial
enjoyment of that to which it is attached.
11.6 From the above, it is now clear that if these items,
namely towers and parts thereof and prefabricated
buildings/shelters are considered to be “goods”, these
cannot be immovable properties. Conversely, if these are
not rooted in the earth, nor imbedded in the earth nor
attached to what is so imbedded for the permanent
beneficial enjoyment of that to which it is attached,
these cannot be immovable properties and can qualify
to be movable properties and hence, “goods”.
11.6.1 Since, towers and parts thereof and prefabricated
buildings/shelters apparently appear to be fixed on the
earth or building, these seem to be immovable properties
at the first blush. However, the first appearance may not
be decisive to indicate the real character of these items,
whether these are immovable or movable properties, as
demonstrated by the conflicting views of the two High
Courts on this issue. Hence, we need to delve further to
arrive at the correct position in law on this issue.
11.7 In order to determine whether any property is movable
or immovable, this Court, in the light of the statutory
provisions has applied certain principles. It has also been
noted that such determination may be done not based
on a single test but after applying several criteria on the
facts of each case.”
(Emphasis supplied)
[2025] 11 S.C.R. 609

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

48. We should now look into a few landmark judgments to help us
understand when an article would be considered as movable or
immovable for the purpose of levying excise duty under the Act, 1944.
49. This Court in Quality Steel Tubes (P) Ltd. v. Collector of Central
Excise, U.P. reported in (1995) 2 SCC 372 dealt with the question
whether the tube mill and welding head erected and installed by the
assessee for manufacture of tubes and pipes out of duty-paid raw
materials amounted to “excisable good” assessable to duty under
the Act, 1944. This Court observed that, the basic test of levying
duty under the Act, 1944 is two fold: One, that any article must be
a good and second, that the same should be marketable or capable
of being brought to market. Goods which are attached to the earth
and thus become immovable do not satisfy the test of being goods
within the meaning of the Act, nor can it be said to be capable of
being brought to the market for being bought and sold. It was held
that the subject tube mill or welding head having been erected and
installed in the premises and embedded to earth, ceased to be
goods within the meaning of Section 3 of the Act,1944. This Court
categorically observed that erection and installation of a plant cannot
be held to be excisable goods. This Court’s observation in Quality
Steel (supra) reads thus:
“4. Levy and collection of duty is provided by Section 3 of
the Act on all ‘excisable goods other than salt which are
produced or manufactured’. The power, therefore, to levy
and collect the duty under the charging Section arises
when excisable 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 ‘excisable
good’, therefore, has a connotation of its own.
5. In several decisions rendered by this Court commencing
from Union of India and Anr., v. Delhi Cloth and General
Mills Co. Ltd. MANU/SC/0245/1962 : to Indian Cable
Co. Ltd. v. Collector of Central Excise, Calcutta MANU/
SC/0012/1995 : 1994ECR20(SC) the twin test of exigibility
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)
610 [2025] 11 S.C.R.

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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 brought 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 MANU/SC/0012/1990 : The Court
has held in Union Carbide India Ltd. v. Union of India
and Ors. MANU/SC/0306/1986 : 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 Immovable 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 brought 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 installation of
a plant cannot be held to be excisable 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
excisable goods and its exigibility to duty.
(Emphasis supplied)

50. This Court in Mittal Engineering Works (P) Ltd. v. Collector of
Central Excise, Meerut reported in (1997) 1 SCC 203, expressed
its agreement with the observation in Quality Steel (supra) that
erection and installation of a plant cannot be held to be an excisable
good. This Court in Mittal Engineering (supra) observed as follows:
[2025] 11 S.C.R. 611

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

“9. Upon the material placed upon record and referred to
above, we are in no doubt that the mono vertical crystalliser
has to be assembled, erected and attached to the earth
by a foundation at the site of the sugar factory. It is not
capable of being sold as it is, without anything more. As
was stated by this Court in the case of Quality Steel
Tubes (P) Ltd. the erection and installation of a plant
is not excisable. To so hold would, impermissibly,
bring into the net of excise duty all manner of plants
and installations.
(Emphasis supplied)

51. The issue of movability was once again discussed by this Court in
Sirpur Paper Mills Ltd v. Collector of Central Excise, Hyderabad
reported in (1998) 1 SCC 400, whereby this Court clarified through
an analogy that merely attaching of an item to the earth would not
make it immovable property for the purpose of the Act, 1944. This
Court considered the movability test from the perspective of its
marketability in dismantled form and agreed with the Tribunal’s view
in that case that the the subject machine had been attached to the
concrete base to prevent its wobbling but if somebody wanted to
purchase the whole machinery, it could be dismantled and sold to
him in parts. The relevant observation of this Court in Sirpur Paper
Mills (supra) is as follows:
“3 […] The Tribunal held that the machine was attached
to earth for operational efficiency. The whole purpose
behind attaching the machine to a concrete base was to
prevent wobbling of the machine and to secure maximum
operational efficiency and also for safety. The Tribunal
further held that the paper- making machine was saleable
and observed “if somebody wants to purchase, the whole
machinery could be dismantled and sold to him in parts”.
4. In view of this finding of fact, it is not possible to hold
that the machinery assembled and erected by the appellant
at its factory site was immovable property as something
attached to earth like a building or a tree. The Tribunal
has pointed out that it was for the operational efficiency of
the machine that it was attached to earth. If the appellant
612 [2025] 11 S.C.R.

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wanted to sell the paper-making machine it could always
remove it from its base and sell it.
5. Apart from this finding of fact made by the Tribunal, the
point advanced on behalf of the appellant, that whatever
is embedded in earth must be treated as immovable
property is basically not sound. For example, a factory
owner or a householder may purchase a water pump and
fix it on a cement base for operational efficiency and also
for security. That will not make the water pump an item of
immovable property. Some of the components of the water
pump may even be assembled on site. That too will not
make any difference to the principle. The test is whether
the paper-making machine can be sold in the market. The
Tribunal has found as a fact that it can be sold. In view of
that finding, we are unable to uphold the contention of the
appellant that the machine must be treated as a part of the
immovable property of the Company. Just because a plant
and machinery are fixed in the earth for better functioning,
it does not automatically become an immovable property.
6. A further argument was made that the entire machinery
as it is cannot be bought and sold because the machinery
will have to be dismantled before being sold. The Tribunal
has pointed out that the appellant had himself bought
several items and completed the machinery. It had
purchased a large number of components and fabricated
a few and manufactured the paper-making machine at
site. If it is sold it has to be dismantled and reassembled
at another site. We do not find any fault with the reasoning
of the Tribunal on this aspect of the matter.”
(Emphasis supplied)

52. Thus, as per this Court’s observation in Sirpur Paper Mills (supra),
it can be inferred that if an item can be dismantled and reassembled
at another site, such an item would still be considered as movable
‘goods’ under the Act, 1944. However, the test of dismantling
was qualified by a subsequent Circular (no. 58/1/2002-CX) dated
15.01.2002, issued by the Central Board of Excise and Custom
(hereinafter, “CBEC”), Department of Revenue, Ministry of Finance,
[2025] 11 S.C.R. 613

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

Government of India, in which it was mentioned under Clause (e) that
if an item that is assembled or erected at site cannot be dismantled
without substantial damage to its components and thus cannot be
reassembled, then such items would not be considered as ‘movable’,
and will, therefore, not be excisable goods. The CBEC Circular dated
15.01.2022 reads as follows:
“(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 movable and will, therefore, not be excisable goods.”
53. Having regard to the case law discussed above, it becomes
imperative to determine whether the steam generating plant, as
erected and commissioned at the site retains the character of “goods”
as understood under the Act, 1944, in terms of being a movable
property. For this, we must look into few relevant clauses of the
contract to discern the object of the contract and the resultant item
that emerges out of it.
54. Clause 1(b) of the contract reads as follows:
“1. DEFINITIONS:
[…] b) STEAM GENERATING PLANT: It shall mean the
plant & machinery and equipment for Boiler as specified
in Annexure I to VI attached herewith and forming part of
the agreement.”
55. Clause 2.1 of the contract reads as follows:
“2. Scope of Supply:
2.1 The Seller shall design, procure, manufacture, supply of
the machinery and equipments for one no. 50 TPH MCR
Capacity and 45 Kg./cm2(g) working pressure, bagasse
fired boiler as detailed in Annexure I to V annexed to
and forming part of this Agreement conformity with the
specifications including clarifications and elucidations laid
down therein and according to the progressive delivery
schedules to be drawn up by the Seller and to be approved
by the Purchaser and their authorised inspection agency,
614 [2025] 11 S.C.R.

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so that the plant shall be ready for commissioning within
the time provided in clause 4.1 of the Agreement.
(Emphasis supplied)

56. Clause 3.1 of the contract reads as follows:
“3. CONTRACT PRICE:
3.1 The Sellers agree to design, procure, manufacture,
supply of the machinery and equipment for Steam
Generating plant and do other work herein mentioned
as specified in Annexure I to V annexed to and forming
part of the Agreement at a Total Price of Rs.360.00 lacs
(Rupee Three Crores Sixty Lacs only) hereinafter referred
to as Contract Price subject to terms and conditions as
hereinafter provided as per the break-up given below:
i) Ex-works: (Ex-Sellers or their sub-contractors workshop
or place of supply) price of machinery and equipment for
Steam Generating plant according to specification and
details given in Annexure I to V is Rs.350.00 lacs (Rupees
Three Crores Fifty lacs Only)
ii) Price of materials required for following necessary
facilities in respect of 3.1 (i) above.
a) Paints required for final painting. It shall include primer
and paints as per colour scheme to be given by Purchaser.
b) First filling of lubricants. It shall include oil and grease.
c) First filling of transformer oil, if any.
d) Packing and Forwarding charges.
e) Freight Charges upto the site.
f) Handling and loading at the place of supply.
g) Total cost of above items (a) to (f) - Rs. 10.00 lacs
(Rupees Ten lacs only.)
iii) Total Contract Price Rs. 360.00 lacs - (Rupees Three
Crores Sixty lacs only.)
It is to be clearly understood that the total Contract Price
is inclusive of the cost of the following:
[2025] 11 S.C.R. 615

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

a) Cost of all other items which are necessary for
completing supply of the Steam Generating plant as per
scope of supply.
b) All taxes, duties and octroi paid by the Seller or their
sub- contractors on raw materials and other materials for
their own manufacture of finished equipment or parts of
finished equipment.
c) Custom duty on imported raw-materials.”
(Emphasis supplied)

57. Clause 10(j) of the contract reads as follows:
“Boiler Refractory Work: The Sellers have to provide all
necessary refractories both ordinary and special inclusive
of standard and special fire bricks, fire cement, fire clay,
asbestos ropes, asbestos sheets etc. for wherever they
are required including hot air duct. The ducting between
the boiler and the chimney and the entire boiler brick
work will also be the Sellers responsibilities. Red bricks
and port land cement, sand and lime shall be provided
by the Purchasers.”
(Emphasis supplied)

58. Clause 13.1.3(b) of the contract reads as follows:
“13. TERMS OF PAYMENT:
13. 1. The Purchasers shall pay the contract price in the
following manner free of interest.

xxx xxx xxx
13. 1.3. 7.5% (Seven & half Percent) of the contract price
of machinery and equipments (mentioned against 3.1 (i)
necessary facilities contained in 3.1 (ii) (a) to (f) of the
Agreement, i.e. Rs. 27,00,000/- (Rupees Twenty seven
Lacs Only.) within 3 (three) months of signing of the
Agreement and on fulfilling all the following contractual
obligation by the Sellers:
616 [2025] 11 S.C.R.

Supreme Court Reports

[…] b) Placing order, releasing advances and furnishing
the order acceptance copies from the concerned vendors
for following critical bought out items:
• Boiler quality plates for steam and mud-drum
• High pressure valves and fittings including safety
valves.
• ID, FD and SA fans.
• Drives for above fans including panels.
• Wet Scrubber.
• Instrumentation.
• Furnace grate.
• Feed pumps, transfer pumps and their drives.
• All Bagasse Carrier Chain and Drives.
• Economizer and Air Pre-heaters.
• Soot Blowers
AND
• Supply of Boiler structural material.”
(Emphasis supplied)

59. A close reading of Clause 2.1, and Clause 3.1 of the contract,
respectively, indicates that the scope of the contract was design,
procurement, manufacture and supply of the machinery and
equipment for a steam generating plant. The poorly drafted definition
of “Steam Generating Plant” under Clause 1(b) of the contract
causes an overlap between the terms ‘boiler’ and ‘steam generating
plant’. However when the definition of “Steam Generating Plant”
to mean “the plant & machinery and equipment for Boiler” is read
in light of the scheme of the contract as a whole, we find that the
object of the contract was that the boiler parts manufactured by the
assessee and transported to the site of erection in CKD condition
would be assembled at the site of delivery along with the bought out
parts which were directly delivered there, in order to form a steam
generating plant. The steam generating plant comes into existence
as a composite system comprising various components- some
[2025] 11 S.C.R. 617

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

manufactured by the assessee (such as the boiler in CKD condition)
and other components such as the bought out items. When these
are assembled and erected together at the buyer’s site, the process
results in a steam generating plant that is permanently affixed to the
earth and hence becomes an immovable property.
60. The revenue seeks to suggest that the mere act of assembling the
boiler parts cleared in CKD condition from the assessee’s factory,
together with the duty-paid bought out items delivered directly at the
site of erection, simpliciter brings into existence excisable goods in
the form of a boiler. In other words, the revenue’s contention is that
the boiler in CKD condition and the bought out items first coalesce
into a movable boiler before being affixed to the ground, and that
it is at this intermediate stage that excise duty is to be levied. The
revenue’s proposition would hold good only if it were established that
such a movable boiler, distinct from the immovable steam generating
plant, does in fact come into existence as a result of the assembling
of the CKD parts and bought out items. However, such a proposition
as suggested by the revenue is both impractical and improbable
when examined in light of the nature, volume and magnitude of the
boiler in question, as indicated by Clause 2.1 of the contract, which
provides its specifications as being a ‘50 TPH MCR Capacity and
45 Kg./cm2(g) working pressure, bagasse fired boiler’.
61. While referring to Clause 10(j), read with Clause 13.1.3(b) of the
contract, we find that the assembly involves civil engineering using
fire bricks, fire cement, portland cement, fire clay, asbestos ropes,
asbestos sheets and other materials indicating that civil engineering
work had to be undertaken in the course of assembling the boiler.
The erection and assembly of a ‘50 TPH MCR Capacity and 45 Kg./
cm2(g) working pressure, bagasse fired boiler’ cannot possibly be
akin to assembling movable equipment or machinery that can exist
independently as ‘goods’. It is not akin to, for example, affixing a water
pump on a residential building with cement, which can be removed
without damage. Rather, the process of assembling would involve
the integration of massive structures, and piping systems that are
aligned, welded, and permanently embedded into the foundation at the
buyer’s premises. Such process of assembly, erection and installation
involving construction materials like bricks, clay, sand, cement, etc.
clearly indicate that the resultant product cannot be dismantled into
its constituent parts without being substantially damaged.
618 [2025] 11 S.C.R.

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62. Thus, we find merit in the arguments raised by the assessee that the
mere size and weight of the boiler make it impossible to assemble the
boiler before erection, and that the process of erection itself involves
civil and mechanical engineering with the use of concrete, steel
reinforcements, and grouting in such a manner that the coming into
existence of the boiler in a functioning condition is in an immovable
form. The assembly and erection of the boiler is essentially intertwined
in such a manner that we also find merit in the assessee’s argument
that such an installed boiler cannot be readily dismantled by merely
removing nuts and bolts and reassembled at another site without
causing extensive damage to the boiler to an extent so as to reduce
its value to mere scrap.
63. The object of the contract therefore is about erection and installation
of an immovable plant. As noted by this Court in Quality Steel
(supra) and unequivocally affirmed by another Co-ordinate Bench of
this Court in Mittal Engineering (supra), “erection and installation
of a plant cannot be held to be excisable goods” and therefore, the
steam generating plant that emerges as a result of the contract
cannot be held to be an excisable good. Consequently, the base
value of the boiler on which excise duty is to be levied, cannot be
equated with the total contract price which is inclusive of the price
of the bought out items.
64. Applying the above principles to the facts of the present case, we
arrive at the finding that the final product that emerges as a result
of performing the obligations under the contract, does not constitute
excisable goods under the Act, 1944. Consequently, the base value
of the boiler on which excise duty is to be levied, cannot be equated
with the total contract price. Therefore, the price of the bought out
parts cannot be included in the value of the boiler for the purpose
of computing central excise duty under the Act, 1944.
65. Before proceeding further, we find it necessary and crucial to highlight
that the CESTAT committed a glaring error when it declined to
consider the immovability plea by the assessee, on the ground that
the said plea was not taken before the lower authorities. Contrary
to the CESTAT’s findings in the impugned order, the documents on
record clearly indicate that the said plea was taken by the assessee
right from the earliest stage of its reply to the show cause notice itself.
We find that the facts on record support the assessee’s contention
[2025] 11 S.C.R. 619

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

that in its reply dated 13.06.2005 to the show cause notice dated
28.04.2005, it had specifically raised the contention that the boiler on
commissioning became immovable property. Materials on record also
indicate that the said contention regarding immovability was accepted
by the Assistant Commissioner and the same reflects in the finding
recorded in the Order-in-Original dated 07.12.2005/13.01.2006 that
boilers erected at site and attached to earth are not goods and hence
not excisable. Therefore, for the CESTAT to ignore the most central
issue, going to the root of the entire dispute, on an erroneous finding
of fact, is an egregious flaw in the impugned order.

(iii). Erroneous reliance on Tariff Classification
66. At this stage, it is also important to address this issue from one
another angle and provide a cautionary note in this respect. The
revenue appears to have been swayed by the fact that ‘boilers’ and
‘boiler parts’ are listed under Chapter 84 of the Tariff Act, 1985, and
therefore seem to have proceeded on the erroneous assumption that
all boilers, irrespective of form or configuration, attract central excise
duty. However, the revenue should have kept in mind that the mere
presence of a product in the Tariff Schedule does not determine its
excisability. The first and primary enquiry must be whether the item
satisfies the conditions of the charging section under Section 3 of
the Act, 1944, an essential condition of which is that the subject
matter is a movable good.
67. A significant observation made by a Three-judge Bench of this Court
in Moti Laminates (P) Ltd. v. CCE reported in (1995) 3 SCC 23
that succinctly drives home this cautionary note reads as follows:
“11. […] The Tariff Schedule by placing the goods in specific
and general category does not alter the basic character of
leviability. The duty is attracted not because an article is
covered in any of the items or it falls in residuary category
but it must further have been produced or manufactured
and it is capable of being bought and sold.”

(iv). Inapplicability of the “Utility Test” and the ‘part’ v.
‘accessory’ debate
68. Further, it is relevant to note that both the revenue and the CESTAT
have erroneously resorted to focusing on whether the bought out parts
620 [2025] 11 S.C.R.

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were essential to the functioning of the assembled boiler or not. The
determination of the question, whether or not the bought out items
were ‘parts’ or ‘accessories’, in terms of this Court’s observation in
Quippo (supra), would have been of some relevance in the present
matter only if the resultant product of the contract would fall within
excisable goods. In other words, the question of utility would have
been relevant to the determination of payable excise duty, if a
movable boiler had resulted from integrating the CKD parts with the
bought out items.
69. However, as observed above, in the present case, the final product,
i.e. the steam generating plant, emerges in the form of an immovable
product in the course of integrating the CKD parts with the bought
out items. Therefore, the resultant product of the contract not being
excisable goods, it is wholly inconsequential whether or not the
bought out items are parts or accessories of it.

(v). Excess collection of excise duty from buyer is no proof
of excisability
70. It is also necessary to address the contention raised by the revenue
that the assessee availed CENVAT Credit of duty paid on the bought
out items and recovered the same from the buyer. The revenue has
placed reliance on this to bolster its argument that the value of the
bought out items should be included in the dutiable value shown at
the time of clearance of the boiler.
71. Irrespective of the fact whether the assessee had denied the allegation
in its Section 14 statement under the Act, 1944, it is necessary to
point out the error committed by the revenue in making such an
argument.
72. Even if there is any substance in the allegation that excise duty on
the value of the bought out items was collected by the assessee
from the buyer, that by itself would not lead to the conclusion that
the value of the bought out items must be included in the value of
the final product for the purpose of computing payable excise duty.
Rather, if the revenue indeed believed that the assessee had collected
excise duty from the buyer on the value of the boiler by including
the price of the bought out items, the correct course of action for
the revenue should have been to invoke the provisions of Section
11D of the Act, 1944, which specifically provides a mechanism for
[2025] 11 S.C.R. 621

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

recovery of any amount collected by an assessee from a buyer, by
representing as excise duty in excess of what is payable as such.
Section 11D of the Act, 1944 reads as such:
“SECTION 11D. Duties of excise collected from the
buyer to be deposited with the Central Government. –
(1) Notwithstanding anything to the contrary contained
in any order or direction of the Appellate Tribunal or any
Court or in any other provision of this Act or the rules
made thereunder, every person who is liable to pay duty
under this Act or the rules made thereunder, and has
collected any amount in excess of the duty assessed
or determined and paid on any excisable goods under
this Act or the rules made thereunder from the buyer
of such goods in any manner as representing duty of
excise, shall forthwith pay the amount so collected to
the credit of the Central Government.
(2) Where any amount is required to be paid to the credit
of the Central Government under sub-section (1) and
which has not been so paid, the Central Excise Officer
may serve, on the person liable to pay such amount, a
notice requiring him to show cause why the said amount,
as specified in the notice, should not be paid by him to
the credit of the Central Government.
(3) The Central Excise Officer shall, after considering
the representation, if any, made by the person on whom
the notice is served under sub-section (2), determine the
amount due from such person (not being in excess of the
amount specified in the notice) and thereupon such person
shall pay the amount so determined.
(4) The amount paid to the credit of the Central Government
under sub-section (1) or sub-section (3) shall be adjusted
against the duty of excise payable by the person on
finalisation of assessment or any other proceeding for
determination of the duty of excise relating to the excisable
goods referred to in sub-section (1).
(5) Where any surplus is left after the adjustment under
sub-section
622 [2025] 11 S.C.R.

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(4), the amount of such surplus shall either be credited to
the Fund or, as the case may be, refunded to the person
who has borne the incidence of such amount, in accordance
with the provisions of section 11B and such person may
make an application under that section in such cases
within six months from the date of the public notice to be
issued by the Assistant Commissioner of Central Excise
for the refund of such surplus amount.”
(Emphasis supplied)

73. Upon a bare reading of Section 11D of the Act, 1944 it is clear that
the failure of the revenue to resort to the statutory recourse available
under Section 11D, and instead to seek to justify inclusion of the
value of the bought out items in the assessable value of the boiler,
reflects an error in application of the law. The invocation of Section
11D would be justified in a case where an assessee has collected
any sum purporting to be the excise duty without the authority of
law. Consequently, even assuming in arguendo that any excess
amount was collected from the buyer under the garb of excise duty,
such collection cannot confer excisability on the final product which
emerges as an immovable property. The liability of the assessee to
pay duty must be determined strictly in accordance with the charging
provisions under the law and not on the basis of any purported
recovery from the buyer.

(II). Whether the show cause notice is legal and valid under the
extended limitation period as provided under the proviso
to Section 11A(1) of the Central Excise Act, 1944?

(i). Was there any wilful suppression of facts with an intention
to evade payment of duty by the appellant/assessee?
74. In the present case, the extended period of limitation of five years
under the proviso to Section 11A(1) of the Act, 1944 was invoked by
the revenue on the ground that the assessee had wilfully suppressed
the fact that it had not paid duty on the bought out items, with the
intention to evade Central Excise duty. The relevant paragraph from
the show cause notice invoking the extended limitation period reads
thus:
[2025] 11 S.C.R. 623

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

“[…]It further appears that the extended period of limitation
as provided under proviso to Sect 11A(1) of Central Excise
Act 1944 is invokable in the present case because
the noticee has not paid duty on bought out items
and also not paid duty on clearance of the bought
out items with intention to evade Central Excise duty,
the noticee appears to have willfully suppressed the
facts from the knowledge of the Department regarding
incorrect valuation of the goods and clearance of the
bought out items without payment of duty, without filing
of the declaration required under provisions of Rule 57 A
of erstwhile C. Excise Rules 1944, without declaring the
clearance of the bought out items in their RT-12 returns […]”
(Emphasis supplied)

75. The assessee has raised the contention that the conditions for invoking
the extended period of limitation under the proviso to Section 11A
having not been met, the show cause notice and the consequent
proceedings based on it were not maintainable. In order to examine
the issue of limitation, let us first refer to the provision itself. Section
11A of the Act, 1944, which was in force at the time of the issuance
of the show cause notice reads as follows:
“SECTION 11A. Recovery of duties not levied or not
paid or short- levied or short-paid or erroneously
refunded. - (1) When any duty of excise has not been
levied or paid or has been short-levied or short-paid or
erroneously refunded, whether or not such non-levy or non-
payment, short- levy or short payment or erroneous refund,
as the case may be, was on the basis of any approval,
acceptance or assessment relating to the rate of duty on
or valuation of excisable goods under any other provisions
of this Act or the rules made thereunder, a Central Excise
Officer may, within one year from the relevant date, serve
notice on the person chargeable with the duty which has
not been levied or paid or which has been short-levied or
short-paid or to whom the refund has erroneously been
made, requiring him to show cause why he should not
pay the amount specified in the notice :
624 [2025] 11 S.C.R.

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Provided that where any duty of excise has not been
levied or paid or has been short-levied or short-paid or
erroneously refunded by reason of fraud, collusion or
any wilful mis-statement or suppression of facts, or
contravention of any of the provisions of this Act or of
the rules made thereunder with intent to evade payment
of duty, by such person or his agent, the provisions of
this sub- section shall have effect, as if, for the words one
year, the words “five years” were substituted.”
(Emphasis supplied)

76. A bare reading of Section 11A(1) along with its proviso would indicate
that ordinarily, notice has to be issued within one year, however the
proviso stipulates that the notice can be issued within five years from
the relevant date if , the non-levy, short-levy, or erroneous refund
has occurred on account of either of the following – fraud, collusion,
wilful misstatement or suppression of facts, or contravention of any
of the provisions of the Act, 1944 or rules thereunder, with an intent
to evade payment of duty. The proviso employs selective choice
of words which contemplate a state of mind, whereby the noticee
has knowingly and deliberately done something or omitted to do
something which has resulted in non-levy, short-levy or erroneous
refund of duty. In contrast, for the normal period of one year, there
is no requirement of any state of mind, and the fact of non-levy,
short-levy or erroneous refund of duty by itself would be sufficient
to invoke the provisions of Section 11A(1) of the Act, 1944.
77. In the context of invoking the extended period of limitation under
Section 11A of the Act, 1944, this Court in Pahwa Chemicals Private
Limited v. Commissioner of Central Excise, Delhi reported in
(2009) 4 SCC 658, observed that mere failure does not amount
to wilful misdeclaration or wilful suppression and that there must
be some positive act on the part of an assessee to bring the case
within the mischief of wilful misdeclaration or wilful suppression, as
the case may be. This Court in Pahwa Chemicals (supra) observed
as follows:
“6. It is settled law that mere failure to declare does not
amount to wilful misdeclaration or wilful suppression.
There must be some positive act on the part of the
[2025] 11 S.C.R. 625

Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad

party to establish either wilful misdeclaration or wilful
suppression. When all facts are before the Department
and a party in the belief that affixing of a label makes
no difference does not make a declaration, then there
would be no wilful misdeclaration or wilful suppression.
If the Department felt that the party was not entitled to
the benefit of the notification, it was for the Department
to immediately take up the contention that the benefit of
the notification was lost.”
(Emphasis supplied)

78. The allegation levelled against the assessee in the present matter
before us is of wilful suppression with an intention to evade central
excise duty. Therefore, the following observation of this Court in
Continental Foundation Joint Venture Holding v. CCE reported
in (2007) 10 SCC 337 is required to be referred to:
“12. The expression ‘suppression’ has been used in the
proviso to Section 11-A of the Act accompanied by very
strong words as ‘fraud’ or ‘collusion’ and, therefore, has
to be construed strictly. Mere omission to give correct
information is not suppression of facts unless it was
deliberate to stop (sic evade) the payment of duty.
Suppression means failure to disclose full information with
the intent to evade payment of duty. When the facts are
known to both the parties, omission by one party to do
what he might have done would not render it suppression.
When the Revenue invokes the extended period of
limitation under Section 11-A the burden is cast upon it to
prove suppression of fact. An incorrect statement cannot
be equated with a wilful misstatement. The latter implies
making of an incorrect statement with the knowledge that
the statement was not correct.”
(Emphasis supplied)

79. Judged by these principles laid down by this Court on the application
of the proviso to Section 11A(1) of the Act, 1944, we find that the
assessee is justified to contend that the extended period of limitation
could not have been invoked in the present case since the assessee
626 [2025] 11 S.C.R.

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bona fide believed that the bought out items are not to be included
in the assessable value of the boiler. A perusal of the show cause
notice would show that the revenue itself admits that the assessee
had filed the RT-12 returns with the revenue, which means that the
revenue had the material particulars on record which it could have
acted upon within the normal one year period. There is nothing on
record to indicate that any material information had been suppressed
by the assessee with any intention to evade payment of central
excise duty.
80. Therefore, in the absence of any deliberate act on the part of the
assessee with an intention to evade being established by the revenue,
the essential precondition of wilful suppression with intent to evade
duty is not satisfied. Consequently, the invocation of the extended
period of limitation under the proviso to Section 11A(1) is held to
be not tenable in law.
81. The show cause notice being held to be invalid, the proceedings
leading up to this present appeal are also liable to be quashed, and
accordingly the impugned order is set aside.

F. CONCLUSION
82. We hereby conclude that the value of the duty paid bought out items
which were delivered directly at the buyer’s site is not liable to be
included in the value of the boiler cleared by the assessee from its
factory in CKD condition, for the purpose of assessment of excise duty.
83. We also hold that the show cause notice issued under the proviso
to Section 11A(1) of the Act, 1944 is not legal and hence invalid.
84. Therefore, for all the foregoing reasons, the appeals succeed and
are hereby allowed.

Result of the case: Appeals allowed.

†
Headnotes prepared by: Nidhi Jain