Holding

The tube mill and welding head, once erected and embedded in the premises, are not excisable goods and therefore are not liable to central excise duty.

Summary

Mis Quality Steel Tubes (P) Ltd. manufactured welded steel pipes and tubes using duty‑paid raw material and installed a tube mill and welding head as part of a plant expansion. The Central Excise authorities seized the plant and issued a show‑cause notice alleging that the machinery, classified under tariff item 58, was an excisable good for which duty was unpaid. The company contended that once erected and embedded in the earth, the plant became immovable and therefore did not satisfy the twin test of being a "good" and being marketable under the Central Excises and Salt Act, 1944. The Tribunal held the machinery was a marketable good and liable to duty, but the Supreme Court reversed this, holding that goods attached to the earth are not "goods" within the meaning of the Act and are not marketable. Consequently, the plant was not an excisable good and no duty could be levied. The appeal was allowed and the Tribunal's order set aside.

Issues considered

Whether a tube mill and welding head, once erected and installed as part of a plant, constitute an "excisable good" within the meaning of Section 3 of the Central Excises and Salt Act, 1944.
Whether immovable plant machinery satisfies the marketability test required for liability to excise duty.

Legislation cited

Central Excise Rules, 1944s. Rule 173B, s. Rule 173C, s. Rule 174, s. Rule 210, s. Rule 226, s. Rule 52A, s. Rule 9
Central Excises and Salt Act, 1944s. 2(d), s. 3
Central Excise Tariff Act, 1985

Subjects

central excise dutyexcisable goodsmarketability testimmovable propertyplant installationtariff classificationSection 3 Central Excise ActCentral Excise Rules

Judgment

MIS QUALITY STEEL TUBES (P) LTD. A
V.

COLLECTOR OF CENTRAL EXCISE, U.P.

DECEMBER 9, 1994

[R. M. SARAI ANDS. B. MAJMUDAR, JJ.] B

Central Excises and Salt Act, 1944: Section 3-Tariffitem no. 68 ofthe
Schedule-Exigibility of an article to duty-Twin test to be satisfie~
Article must be a good and should be marketable or capable of being
brought to market-Goods attached to earth and thus become immovable C
do not satisfy the test and hence not exigible to duty.

The appellant was engaged in the manufacture of welded steel
pipes and tubes which were classified before 1.8.1983 under item 28AA
of the First Schedule to the Central Excises and Salt Act, 1944. Later
on these items came to fall under tariff item 25 of the Schedule. The
steel tubes and pipes produced by the appellant were exempt from duty D
as they were produced out of duty paid raw material.

In 1976 and 1980, dispute arose about the eligibility of the goods
produced by the appellant from exemption, but the proceedings were
dropped. The appellant was informed in 1976 that the Govt. of India by
its notification no. 31/76 dated 28.3.76 having fully exempted the 'iron E
and steel products' from the operation of Rule 174 of the Central
Excise Rules, 1944, the appellant was not required to take any licence.

However in 1983 the Central Excise authorities wanted to see all
records to satisfy that the raw material was duly paid. They also visited F
the premises. Thereafter a show cause notice was issued to the
appellant for contravention of relevant provisions under the Central
Excise Rules inasmuch as the appellant had manufactured and installed
tube mills and welding head falling under tariff item 58 of the First
Schedule without licence, without payment of duty and without
observing excise formalities. The explanation sent by the appellant was G
not accepted and the Collector held that the welding head was
imported by the appellant from USA and likewise the tube mill
manufactured by the appellant was transportable, transferable, and
saleable. Consequently, the two machineries under reference did not
become a part of immoveable property. It was also held that to become
good under the Act it was not necessary that it should be actually H
439
440 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A bought and sold. Since the unit erected and installed by the appellant
was marketable or saleable, the appellant was liable to pay duty on it.
The Tribunal also went in detail on the question whether the machinery
and tubewell installed by the apppellant were goods even though they
were embedded to the earth and held that even if it was not a good
under any Tariff Schedule, but it being a good it was exciseable and the
B immoveablity and moveability of the good had nothing to do with
exciseability. Hence this appeal.

Allowing the appeal and setting aside the order of the Tribunal,
this Court

c HELD : 1. The plant of tube mill and welding head erected by the
appellant and installed as a part of expansion programme was not
exigible to duty. (445 F]

2. Levy and collection of duty is provided by Section 3 of the Act on
all 'exciseable goods other than salt which are produced or
D manufactured'. The power, therefore, to levy and collect the duty
under the charging Section arises when exciseable goods are produced
or manufactured. What is an 'excisable good' is defined by sub-section
(d) of Section 2 to mean 'goods specified in the Schedule to the Central
Excise Tariff Act, 1985) as being subject to a duty of excise and
includes salt'. The words 'exciseable good', therefore have a
E connotation of their own. (444 E to Fl

3. The basic test of levying duty under the Act is two fold. One, that
any article must be a good and second, that .it should be marketable or
capable of being brought to market. Goods which are attached to the
earth and thus become immoveable do not .satisfy the test of being
F goods within the meaning of the Act nor it can be said to be capable of
being brought to the market for being bought and sold. Therefore, both
the tests, 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. [445 B to CJ
G
Union of India and Anr. Delhi Cloth and General Mills Co. Ltd,
(1977) 1 ELT (Jl77) SC=AIR (1963) SC 791; Indian Cable Co. Ltd v.
Collector of Central Excise Calcutta (1994) 74 ELT 22; Collector of
Central Excise v.Ambalal Sarabhai Enterprises (1989) 43 ELT 214 and
Union Carbide India Ltd v. Union of India and Ors. (1986] 2 SCC 547,
H relied on.
QUALITY TUBES v. C.C.E. (R. M. SARAI, J.] 441

4. Erection and installation of a plant cannot be held to be A
exciseable goods. If such wide meaning is assigned it woulj:I result in
bringing in its ambit structures, erections and installations. That surely
would not be in consonance with accepted meaning of exciseable goods
and their exigibility to duty. [445 D]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1389/78. B
From the Judgment and Order dated 29.11.1977 of the High Court of
Gujarat in Second Appeal No. 348of1973.

S.K. Dholakia, P. Narasimhan and Ms. Promila Choudhary for the
Appellant. C
Dr. Maya Rao for the Respondents.

The Judgment of the Court was delivered by

R. M. SAHAI, J. The question of law that arises for consideration in D
this appeal is whether the tube mill and welding head erected and installed
by the appellant for manufacture of tubes and pipes out of duty paid raw
material was assesseable to duty under residuary tariff item no. 68 of the
Schedule being excisable good within the meaning of Central Excises °;tnd
Salt Act, 1944 ('Act' for short).
E
To answer the issue, few facts are necessary to be narrated. The
appellant was engaged in the manufacture of welded steel pipes and tubes
which were classified before 1.8.1983 under item 28AA of the First
Schedule to the Act. Later on these items came to fall under tariff item 25
of the Schedule. The steel tubes and pipes produced by the appellant were F
exempt from duty as they were produced out of duty paid raw material. For
the manufacture of these items the appellant had set up plant and machinery
at its factory site. The first phase of installation was completed in the year

..
1974 by putting up all process of tube making such as slitting line, tube
rolling plant, welding plant, testing equipment and galvanizing etc. The
tube which could be rolled were in the size range of 15 mm to 50 mm. The G
second phase of expansion was taken up by adding balancing facility for
the manufacture of steel tubes of higher diameters ranging upto 150 mm.
For the expansion of the project the appellant acquired various plant and
machinery, for instance, uncoiler, looper, leveller, stamping and stock
guide, forming mill, welding head, cooling zone etc. The project consisted H
442 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A of acquiring various items and components and installing them for making
a complete unit for production of steel tubes. Certain items of the plant and
machinery such as uncoiler, looper, etc. were purchased from the market
and embedded to earth and installed to form a part of the tube mill.
Components purchased from the market were like motors, coupling, gear
boxes, bearing, castings etc. These were assembled and installed on the site
B to form part of the tube mill which was also covered in the process of
welding facility. The tube mill, according to appellant, was thus not a
specific machine and component but consisted of several machines and
components which after the installation got embedded to earth and formed
part of the plant.
c In 1976 and 1980, a dispute arose about eligibility of the goods
produced by the appellant from exemption but the proceedings on reply by
the appellant were dropped. In 1976, the appellant was informed in
reference to its letter sent on 7th April, 1976 that the Government of India
vide their notification No. 31/76 dated 28.3.76 having fully exempted the
D 'iron and steel products' listed at SI. No. 22 of the aforesaid notification
from the operation of rule 174 of the Central Excises Rules, 1944, the
appellant ·was not required to take any licence. In 1983, however, the
Inspfi!ctor, Central Excise, sent a letter to the appellant regarding
manufacture of steel pipes and tubes made out of steel strips exceeding
5mm in thickness informing the appellant that the Superintendent, Central
E Excise, desires checking of the records to ascertain proof of payment of
duty on raw materials received in the factory for manufacture of steel pipes
and tubes. The appellant was required to arrange all the relevant records at
the factory premises. The letter was replied on 16th January and the
Department was requested to verify the records and also inspect the office
F of the appellant. In February, 1984 the appellant received a letter for
producing records from the date of manufacture to satisfy that the raw
material was duty paid. The premises were visited by the Assistant
Collector on 28th March, 1984 and he instead of recording any note about
the inspection of the record relating to whether the tubes were produced out
of duty paid raw material recorded a note on the status "of the working of
G the factory and observed that this was a thing of major importance and all
the plants and machinery worth about Rs. 60 lakhs were added from 1980
onwards. On 30th March the appellant submitted copies of the balance
sheets for the years 1981-82 and 1982-83. On the same day the factory was
visited by a team of officers who sent a letter, the relevant portion of which
is extracted below:
H
QUALITY TUBES v. C.C.E. [R. M. SAHA!, J.) 443

"I have been directed to collect following documents/regards A
and figures in respect of your unit for the last five fmancial
years. I shall be thankful if these figures/records are made
available.

1. Balance Sheet.
B
2. Project Report submitted to D.G.T.D./Financial Institutions and
Progress Report in respect of Plant and Machinery at various
times.

3. Figures of Clearances in respect of Pipes and Tubes/Coupling
devices/Roll Sets and electricity supplied to your workers colony." C
This letter was replied on 5.4.84 giving the details of the project started
by the appellant in 1981 and other details about balance sheet "etc. On the
same day, the plant and machinery installed in the appellant's factory
consisting of the tube mill and the welding head were seized by the
Preventive Officers. The seizure memo indicates that what was seized was D
'Plants and Machinery-Tube Mill and Welding Head manufactured and
installed in premises of Mis. Quality Steel Tube (P) Ltd. during 2nd phase
of expansion in 1981-82'. On 11th April, 1984, the Assistant Collector sent
a letter, the relevant portions of which are extracted below:-

"From perusal of Chapter VI of the project Report and E
Balance Sheet for the year 1980-81 and 1981-82 submitted
by you, it had been observed that estimated cost of plant and
machinery i.e. Tube Mill and welding head is Rs. 56,10, 000.

You are, however, requested to please intimate urgently the
cost of welding head exclusively at the time when the goods F
were actually manufactured and also its present cost as in
April, 1984.

Please also intimate the value of Tube Mill minus welding
... head separately."
G
The appellant submitted a reply on 26th April in which it was claimed
that since the tube mill and the welding head were not goods, therefore, no
duty was leviable on it. In August, 1985 a show-cause notice was issued for
contravention of provisions of Sections 6 and 9 of the Act and rules 9, 52A,
l 73B, l 73C, 174 read with Sections l 73(Q), 210 and 226 of the Central
Excises Rules inasmuch as the appellant had manufactured and installed H
444 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A tube mills and welding head falling under tariff item 58 of the First
Schedule of the Act without obtaining Central Excise licence, without
payment of appropriate central excise duty leviable thereon and without
observing other excise formalities. The reply was sent by the appellant in
October, 1984 and it was claimed that even though the plant and machinery
was erected and installed in the premises of the appellant after purchasing
B various items and components from the market, but it having been
embedded to the earth it was immovable good which was not transportable
or transferable nor it could be sold, therefore, it could not be deemed to be
exciseable good within the meaning of the Act. The Collector, Central
Excise, did not accept the explanation and it was held that the welding head
was imported by the appellant from USA and likewise the tube miU
c manufactured by the appellant was transportable, transferable and saleable.
Consequently, the two machineries under reference did not become a part
of immovable property. It was also held that to become good under the Act
it was not necessary that it should be actually bought and sold. Since the
unit erected and installed by the appellant was marketable or saleable, the
appellant was liable to pay duty on it. The Tribunal also went in detail on
D the question whether the machinery and tubewell installed by the appellant
were goods even though they were embedded to the earth and held that
even if it was not a good under any Tariff Schedule, but it being a good it
was exciseable and the immoveability and moveability of the good had
nothing to do with exciseablity.
E Levy and collection of duty is provided by Section 3 of the Act on all
'exciseable goods other tlian salt which are produced or manufactured.' The
power, therefore, to levy and collect the duty under the charging Section
arises when exciseable goods are produced or manufactured. What is an
'excisable good' is defined by sub-section (d) of Section 2 to mean 'goods
specified in the Schedule to the Central Excise Tariff Act, 1985) as being
F
subject to a duty of excise and includes salt'. The words 'exciseable good',
therefore, has a connotation of its own.

In several decision rendered by this Court commencing from Union of
India and Anr.v. Delhi Cloth and General Mills Co. Ltd, (1977) I ELT
(JI 77) SC=AIR 1963 SC 791 to Indian Cable Co. Ltd v. Collector of
G
Central Excise, Calcutta, 1994 (74) ELT 22 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) 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
H implied that it applies to such goods as are moveable. The requirement 9f
QUALITY TUBES v. C.C.E. [R. M. SARAI, J.] 445

the goods being bought to the market for being bought and sold had A
become known as the test of marketability which has been reiterated by this
Court in Collector of Central Excise v. Ambalala Sarabhai Enterprises,
1989 (43) ELT 214. The Court has held in Union Carbide India Ltd v.
Union ofIndia and Ors., [1986] 2 SCC 547 that even ifa 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 B
any article must be a good and second, that it should be marketable or
capable of being brought to market. Goods which are attached to the earth
and thus become immoveable do not satisfy the test of being goods within
the meaning of the Act nor it can be said to be capable of being brought to
the market for being bought and sold. Therefore, both the tests, as
explained by this Court, were not satisfied in the case of appellant as the C
tube mill or welding head having been arected and installed in the premises
and embedded to earth they ceased to be goods within meaning of Section 3
of the Act.

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 D
erection and installation of a plant cannot be held to be exciseable goods. If
such wide meaning is assigned it would result in brining in its ambit
structures, erections and installations. That surely would not be in
consonance with accepted meaning of exciseable goods and its exigibility
to duty.
E
In the result, this appeal succeeds and is allowed. The order passed by
the Tribunal is set aside. The question of law raised by the assessee is
decided by saying that the plant of tube mill and welding head erected by
the appellant and installed as a part of expansion programme was not
exigible to duty.
F
G.N Appeal allowed.