Customs, Excise and Gold Tribunal - Delhi
Triveni Engg. Works Ltd. vs Commissioner Of C. Ex. on 20 June, 1996
Equivalent citations: 1996(88)ELT238(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. These are two appeals arising out of two different orders of the Commissioner of Central Excise, Allahabad dated 24-8-1995 and Commissioner of Central Excise, Bangalore dated 28-8-1992. In both the cases duty has been demanded by the Commissioner and penalty imposed on the appellants on the ground that they had manufactured electric generator sets falling under Heading 85.02 of the Central Excise Tariff Act, 1985 at customers site against separate contracts and purchase orders. As a result of order of the Commissioner of Central Excise, Allahabad duty amounting to Rs. 2,19,14,318.00 has been demanded and penalty of Rs. 30,00,000/- has been imposed on the appellant. The period involved is from June, 1986 to May, 1991. The duty demanded in the order of the Commissioner of Central Excise, Bangalore is Rs. 17,85,220.10 and the penalty imposed is Rs. 1,75,000/- These related to the period October, 1986 to September, 1987.
2. The appellants herein had taken out Central Excise licence of several excisable goods including Steam turbine and parts thereof. The department found on enquiry and scrutiny of record that they had supplied turbo alternator or generator at site of their customers as tailor-made items against contracts. In the proceedings initiated by Commissioner of Central Excise, Allahabad show cause notice was issued on 28-8-1991 proposing to demand duty on turbo generator sets under Heading 85.02 Central Excise Tariff Act and also proposing to levy the duty on the total contracted value inclusive of erection commissioning drawing and designing charges and show cause notice also indicated that the interest accrued on advances paid by customers is also to be included in the assessable value. This aspect of valuation is not raised in the proceedings initiated by the Commissioner of Central Excise, Bangalore where the show cause notice was issued on 30-10-1991 for the generator sets and proposed to impose penalty also. The Collectors in the show cause notices also charged the appellants with having not disclosed full particulars of the supply of turbine alongwith other bought out items for setting up the electric generator sets at the customers site. The proviso to Section 11A of the Central Excises and Salt Act, 1944 for demanding duty beyond six months was also invoked. The Collectors considered the detailed reply to the show cause notices and after hearing the appellants confirmed the demand and imposed penalty on them as mentioned above. The main contention of the appellants that they manufacture only the turbines on which they had paid the duty on proper assessable value and that the emergence of the turbo generator at customers site is by affixation to the ground permanently and as such these are not goods at all, being immovable property, were all not acceptable to the Commissioners who held, inter alia, that the generator sets answer the description in the Tariff Heading 85.02 and also satisfy the criterion of marketability and hence the duty demand was confirmed in both the cases. The Commissioner of Central Excise, Allahabad also held that the duty was payable on the contracted value including notional interest on advances drawing and designing and erection commissioning charges.
3. The learned Counsel Shri V. Sridharan made elaborate submissions for the appellants and Ms. Ruchira Pant, the learned Senior Departmental Representative argued the case for the Revenue.
4. The submissions made by both the parties have been carefully considered. The appellants have contended that the turbine, alternator/generator and other equipments are permanently fixed to the ground after undertaking civil construction work after which the turbine and alternator are aligned and coupled. The combination of turbine and alternator according to them emerges as an immovable item. They come into existence at site as immovable property and hence are not 'goods' and no excise duty can be levied thereon. For examining this contention, it has to be seen as to how permanent is the attachment of the machinery to the ground. It is seen from the appeal memorandum that civil engineering work like preparation of platform is first completed wherein holes (called pockets) are provided. The turbine from appellants factory and bought out items from other factories are transported to the site. After checking the foundation for the outer dimension of the pockets, size of the pockets and height of foundation slab, the turbine is placed on the foundation platform and then fastened with foundation bolts into the pocket after levelling. Similary the alternator is also placed and bolted to the turbine through a high speed coupling between the turbine outershaft and alternator shaft and the two are aligned properly. Check is also carried out to ensure that there is no movement of the alternator pedestal. Thereafter other accessories like control panel are installed at respective places.
5. Thus it is seen that the turbine and the alternator are in fact taken to the site. Had they been immovable it would not have been possible to take them from place to place or to install them where the customers wished. Because the items are heavy and so have to be fixed in what appears to be a permanent position should not deceive us into holding that they are immovable. Fixing them is necessitated by the need to make them functionally effective to reduce vibration, and to minimise disturbance to the coupling arrangements and other connections with the related equipments. Careful and inflexible alignment and/or levelling are necessary for the operation of the unit of turbine/alternator. Many large machineries are fixed to the ground for the above reasons for optimum operation and to reduce other unwanted side effects that may arise during their operation. Stability alone demands a firm base and rigid placement. The argument that such machinery is immovable hence fails to carry conviction.
6. What is embedded to earth permanently is the platform on which the turbine and alternator are fixed with foundation bolts and removal of the machinery will not involve any dismantling of the turbine and alternator, in the sense of pulling them down or taking them to pieces, but only undoing the foundation bolts arrangement by which they are fixed to the platform and uncoupling of the two units. The turbine and alternator or the generator set thus do not answer the test of permanency which is laid down by the Supreme Court in the case of Municipal Corporation of Greater Bombay v. Indian Oil Corporation - 1991 Supp. (2) SCC 18 cited and relied upon by the learned Counsel before us. In that case Supreme Court considered the question whether petroleum tank is land within the meaning of Section 3 (r) of Bombay Municipal Corporation Act, 1888, or building as defined in Section 3(s) thereof. Section 3(r) laid down "land" includes land which is being built upon ... benefits to arise out of land, things attached to the earth or permanently fastened to anything attached to the each ... ". Section 3(s) defines building to include a house, outhouse, stable, shed, hut and every other structure ... ". The tank in question rested on a foundation of sand having a height of 2 ft 6 inches. There was a 4" thick asphalt layer to retain the sand. The steel plates were spread on the asphalt layer and the tank was put on the steel plates which acted as bottom of the tanks which rested freely on the asphalt layer. There were no bolts and nuts for holding the tanks on to the foundation. The tanks ", remained in position by their own weight. The Supreme Court held that the ,^ tanks satisfied the definition 'land' as the tanks, though resting on their own weight without being fixed with nuts and bolts, have permanently been erected without being shifted from place to place. As has been indicated above, in the present case the method of installing the turbo generator set is such as not amounting to a permanent attachment to earth.
7. The learned Counsel has relied upon the CEGAT decision in Tata Robins Fraser Ltd. v. Collector of Central Excise, reported in 1990 (46) E.L.T. 562 (Tribunal) in support of their case saying that CEGAT has held that a project as a whole is not an article or excisable goods falling under Item 68 of Central Excise Tariff as they are not goods at all. As against this we note that there is a later Tribunal decision in the case of National Radio & Electronics Co. v. Collector N. of Central Excise, Bombay - 1995 (76) E.L.T. 436 (Tribunal). In that case the contention before the Tribunal was that Uninterrupted Power System (UPS), on which Department sought to levy duty, comes into existence assembled at site as immovable property because it is finally attached to the earth and hence is not excisable goods chargeable to duty. However, this argument did not find acceptance with the Tribunal which, after noting the Supreme Court decision in Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P. -1995 (75) E.L.T. 17 (S.C.) held that the item in question is not immovable property but 'goods' since it is specified in the Tariff Schedule and marketed as such, and that, therefore, the goods are excisable goods to attract duty.
8. Learned Counsel has also relied upon Supreme Court decision in the case of Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P. -1995 (75) E.L.T. 17 (S.C.) to say that a plant/machinery embedded to earth cannot be held to be excisable goods. That was a case of tube mill plant consisting of several machines which was claimed to be embedded to earth on which the department sought to levy duty as goods not elsewhere specified in the Tariff under Item 68 of the erstwhile Central Excise Tariff. Here, however, it is found that what is embedded to earth is the platform having suitable pockets on which the turbine and alternator are placed and fixed by foundation bolts to the platform through the pockets. The duty demand in this case is also with reference to specific Heading 85.02 covering "electric generating sets and rotary converters" in the Central Excise Tariff Act, 1985 (CETA) based on Harmonised System of Nomenclature (H.S.N.). It may be useful to recall that the Supreme Court has held in the case of Collector of Central Excise, Shillong v. Wood Craft Products - 1995 (77) E.L.T. 23 (SC) that H.S.N. can be looked into to ascertain the scope of the tariff heading. In the Explanatory Note to H.S.N. Heading 85.02 which is identically worded, it is stated that the expression "generating sets" applies to the combination of an electric generator and any prime mover like for example steam turbine (as in this case). Generating sets consisting of the generator and its prime mover which are mounted (or designed to be mounted) together as one unit or on a common base are classified here provided they are presented together (even if packed separately for convenience of transport). Therefore, it is clear that the turbo generator sets in this case fully answer the description under the Heading 85.02 CETA.
9. Having found so, the next test is whether the goods answering the description in the Tariff heading are marketable in order to conclude that they are excisable goods. Ground (J) of the Appeal No. E/5555/92A would indicate that the appellants are not denying the fact that turbo alternator sets are known in the market as goods and are bought and sold in the course of trade while taking the stand that the items are not "goods" as they emerge permanently fixed to the ground. Further, a perusal of the contracts show that customers have placed orders with the appellants for turbo-alternator sets and the warranty for the working of the set is also given by the appellants who have to guarantee the entire equipment against all manufacturing defects. Further, in the Price List filed by the Allahabad unit of the appellants effective from 15-4-1986, they had declared Turbine and Alternator Base Plate, under the Column "description of excisable goods" and they have also indicated in the Remarks Column of the Price List Rs. 16.30 lakhs as value as not claimed for approval being cost of brought out items alternator, panels etc. This would further support the conclusion that the turbo generator sets emerging as a result of appellants activity of assembling turbines manufactured by them with bought out items at site amounts to manufacture of a new commercial article specifically described under Heading 85.02 of Central Excise Tariff Act and is chargeable to duty thereunder.
10. In this context, and having found that the turbo generator set is not immovable, the ratio of Supreme Court decision in the case of Name Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise - 1988 (38) E.L.T. 566 (S.C.) would apply. The Supreme Court in that case had upheld Tribunal decision that bringing together self manufactured components alongwith bought out items and fitting and assembling them at site so that they can work as one machine (weighbridge) separately enumerated in the Tariff, amounts to manufacture and would attract duty as weighbridge under the Tariff. It may be noted that in the Name Tulaman Manufactures Pvt. Ltd. case (Order No. 637/86-B-1 dated 3-10-1986 of CEGAT) it was argued before the Tribunal that they did not manufacture weighbridges and that the work of erection of weighbridge was not carried at their factory premises and further erection must not be confused with manufacturing activity. The further argument was that the Assistant Commissioner cannot hold that because they erected the weighbridges, they manufacture them as such but that they manufacture only parts of the mechanism of weighbridges and erected the whole unit at the site of the purchasers, and that, therefore, they cannot be held to have manufactured the whole system and cannot be asked to pay duty on the entire machine. The Tribunal over-ruled these arguments and held that Name Tulaman Manufactures Pvt. Ltd. is the manufacturer of weighbridges. The Tribunal observed that the complete weighbridges as described in the tariff came into operation for the first time only at the hands of Name Tulaman Manufacturers Pvt. Ltd. and, therefore, it is they who must bear the duty liability. This decision of the Tribunal as already noted above has been upheld by the Supreme Court. Therefore, it is reasonable to hold in the present case also that the setting up of the Turbo generator at site amounted to manufacture excisable goods at the hands of the appellants' units who have to pay the duty thereon.
11. Having thus found that the appellants are the manufacturers of the turbo generate sets, liability to pay duty thereon devolves on them in terms of Section 3 of the Central Excises and Salt Act, 1944 which is the charging Section and Rule 7 of Central Excise Rules which lays down that every person who produces or manufactures any excisable goods shall pay the duty leviable on such goods. It is the manufacturer who is licensed (registered) to manufacture excisable goods. The appellants hold Central Excise licence within the jurisdiction of the adjudicating authority in both the case. Hence duty on the turbo generator sets has to be discharged by the appellants. It is hence not possible to accept the appellants contention that duty cannot be demanded where the sites are outside the adjudicating authority's territorial jurisdiction.
12. There is substance in the appellants plea that while subjecting the turbo generator sets to duty Modvat credit on the bought out items should be given. Since it is not disputed that the bought out items have been used in the V manufacture of turbo generator sets, the appellants should be extended the facility subject to their establishing the claim with satisfactory evidence of duty payment on the inputs and of their use in manufacture of the final product. The fact that the appellants had not followed the prescribed procedure for availing Modvat credit need not come in the way, considering the facts and circumstance of this case where the appellants had been disputing duriability on generator sets, and there was some doubt in the matter within the department also requiring clarification.
13. The next question is whether the notional interest on deposits received by the appellants Allahabad unit should be included in the assessable value of the turbo generator sets. In the Annexures B, C & D to the show cause notice issued by the Commissioner Allahabad in calculating the duty demand notional interest accrued on the advances received by the appellants was included in the total value of the contract and duty demanded on the aggregate value. It has been argued that there was no proposal at all for such inclusion in the show cause notice and hence such a demand is not tenable. However, it is seen that the annexure to the show cause notice clearly indicates the method of calculation of demand and the appellants had also no difficulty in understanding it and in their reply to show cause notice had resisted it by contending that such deposits are received as a normal commercial practice as a safeguard against non-performance or delayed performance of contract on the part of buyer and hence there is no substance in the argument that the show cause notice was silent on this aspect of the demand. Learned Counsel, however, had argued such addition to assessable value can be justified only if it shown that there is a nexus between the price charged and advance deposit received by the appellants. It is found that the Commissioner in confirming this demand has observed that the advance received by the appellants against the contracted value was later adjusted and hence there was such nexus and has relied upon the Bombay High Court decision in the case of Britannia Industries Ltd. v. Union of India - 1989 (44) E.L.T. 630 (Bom.) wherein the High Court held that interest payable by the manufacturer on advance security deposit by dealers is includible in the assessable value because the manufacturer would have incurred such interest had he borrowed the amount from Banks. We are not considering the interest on security deposits from dealers as in the above case as it is a case of inclusion of notional interest on deposits/advances made by customers in an industry where the manufacturer makes tailer-made machinery on specific orders of customers in the assessable value. Such a case was decided by the Madras High Court in the case of Lakshmi Machine Works Ltd., Coimbatore v. Union of India & Ors -1992 (57) E.L.T. 211 (Mad.). After considering the Britannia Industries case of Bombay High Court, the Madras High Court held that in such circumstances regard should be had to provisions of Section 4 of Central Excises and Salt Act, 1944 and Rule 5 of Central Excise Valuation Rules to see whether the deposits and advances constituted an additional consideration flowing directly or indirectly from the buyer and whether such additional consideration could be computed in money terms. "In other words" the High Court observed, "one has to see in each case whether the deposits/advance received by the assessee goes to the depression of the sale price ... this factual assessment has to be made by the Quasi Judicial Authorities ... It cannot be laid down as a uniform and inflexible rule that notional interest payable on advances /deposits made by the customers can or cannot be included in the assessable value of the goods. In a particular case the notional interest may influence the sale price as amounting to additional consideration. In a particular case it may not so influence".
14. In the present case such examination of the issue with reference to guideline given by the above case in the light of provisions of Section 4 of Central Excises and Salt Act read with Rule 5 of Valuation Rules to establish the nexus between advances paid by customers and the sale price charged for goods has to be done with reference to terms of each contract. This aspect of the case requires further examination to determine the includibility of the notional interest on advance in the light of the Madras High Court judgment (supra) and the case is remanded for the purpose to the Commissioner of Central Excise, Allahabad to redetermine this issue afresh in accordance with law and after hearing the appellants in the matter.
15. The inclusion of drawing and designing charges in the assessable value will be justified, having regard to the fact that these are necessarily connected with the production of the tailor-made turbo generator sets constituting the first step in making of machinery. So also the erection charges which relate to the final stages of the emergence of the machinery at site and so such charges are includible in the assessable value in the facts and circumstances of this case.
16. There is no case for the department to demand duty in these cases invoking the longer period under Section 11A of Central Excises and Salt Act, 1944 alleging suppression of facts by the appellants. This is for the reason that there was a Circular dated 6-11-1986 by the Central Board of Excise & Customs (CBEC) that no duty would be chargeable on the combination of engines and alternator assembled at site. Subsequently, on 11-10-1990 the CBEC withdrew the Circular of 6-11-1986, but at the same time mentioned that past assessment need not be reopened and to give prospective effect to the clarification. As observed by the Supreme Court in the Case of Padmini Products v. Collector of Central Excise, Bangalore -1989 (43) E.L.T. 195 (SC), mere failure or negligence on the part of the manufacturer either to take out of licence in a case where there was scope for doubt as to whether a licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract the longer period for duty demand under Section 11A of the Central Excises and Salt Act, 1944. In the present case there was such doubt as indicated by the Board's Circulars referred to above regarding the dutiability of the generator sets assembled at site and so the ratio of the Supreme Court judgment supra will apply to the facts of this case. Further, there was also a decision dated 28-11-1990 in favour of the appellants that the generator sets were not goods and hence not excisable by the Commissioner Central Excise (Appeals), Bangalore. It is also seen from the copy of the Price List submitted at Allahabad that the name of the industrial user customer and the purchase order number are also indicted therein. In these circumstances, therefore allegation of wilful suppression of facts by the appellants is not sustainable and the duty demand in both cases beyond six months under Section 11A of Central Excises and Salt Act, 1944 is not correct in law and is set aside. For the same foregoing reasons, as there did exist circumstances in which the appellants could claim that they were under bonafide belief that their activity of assembling of turbine and alternator at site did not amount to manufacture of excisable goods, the penalty on them is not justified and is, therefore, set aside.
17. It is, therefore, held as follows :-
(1) The appellants activity of setting up of the turbo-generator sets at site amounts [to] manufacture of excisable goods answering the description under Heading 85.02 CETA on which appellants have to discharge duty liability.
(2) Appellants should be extended the facility of Modvat credit on inputs subject to their establishing the claim with satisfactory evidence of duty payment on the inputs and of their use in manufacture of the final product.
(3) Commissioner should re-determine the issue of includibility of notional interest on advances in the assessable value as directed in Para 14 above.
(4) Drawing and designing charges are includible in the assessable value, and so also, in the facts of the present case, erection charges.
(5) No case is made out to demand duty beyond six months period under Section HA of Central Excises and Salt Act.
(6) Penalty on the appellants is not justified and is set aside. The appeals are disposed of accordingly.