Customs, Excise and Gold Tribunal - Tamil Nadu
Silical Metallurgic Ltd. vs Commissioner Of Central Excise on 15 May, 1998
Equivalent citations: 1998(61)ECC359, 1998ECR69(TRI.-CHENNAI), 1999(106)ELT439(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. As similar question of law and facts arise from both these appeals, they are taken up together for disposal as per law. The appeal in the case of M/s. Silical Metallurgic Ltd. was heard on 29-4-1998, while the appeal of M/s. Indsil Electrosmelts Ltd. was heard on 30-4-1998. Both the impugned orders have arisen from the same Collectorate and disposed of by the same Collector (Appeals). Hence, for the purpose of identical order in the case of M/s. Indsil Electrosmelts Ltd., the appeal arises from Order-in-Appeal No. 105/96(C), dated 14-3-1996, while the appeal in the case of M/s. Silical Metallurgic Ltd. arises from Order-in-Appeal No. 106/96(C), dated 14-3-1996. The duty raised in the case of M/s. Indsil Electrosmelts Ltd. is Rs. 13,08,339.15 and the classification proposition is under 8514.00. The parties have taken identical stand and the same citations were given and it was represented by Shri P. Thomas, Consultant before the Commissioner (Appeals). Before us, Shri P. Thomas appeared in the case of M/s. Silical Metallurgic Ltd., while in the case of Indsil Electrosmelts Ltd. Shri D. Sankaran, Advocate appeared.
In the case of M/s. Indsil Electrosmelts Ltd., it was contended that the Electric Arc Furnace was constructed at their site procured all the component parts required from local market as well as the factories of production which has discharged their duty liabilities, at the time of the clearances from the factories of their production. It was contended that the construction and installation of the above Electric Arc Furnace which is a turn-key project and the construction and installation at site piece by piece had been carried out for a long period of time and finally the resultant plant which is fixed to the ground with railing arrangement and wheel base for very slow rotation, not intended to be moved therefrom had become an immovable property, thereby not attracting Central Excise duty. It was contended that the furnace is constructed brick by brick in a steel shell and rammed with carbon paste. Any movement of this furnace as a whole within their plant will cause cracks in the brick lining and render the furnace totally useless. The bricks and paste used are duty paid. The main costliest part of the furnace is its duty paid high value brick lining which is fragile as such and not meant for movement as a whole as a commodity. It cannot be dismantled and re-installed even within their factory. It is submitted that the furnace totally weighing about 100 M.T. which had been brought into existence by constructing at site various items of components piece by piece and does not answer to the description of goods.
In the show cause notice dated 27-3-1995, the department had also stated that on a visit to the factory by the A.C. of Central Excise, Palakkad and party it was found that M/s. Indsil Electrosmelts have manufactured one Electric Arc Furnace (not completed) for the manufacture of Ferro Alloys in their factory. On enquiry about the manufacturing process it was informed by the assessee that the raw materials viz. iron ore/M.S. Scraps, quartz and charcoal are mixed in the certain ratio and fed into the electric arc furnace. The Electric Arc Furnace is designed so as to produce high temperature in the range of 1600°C to 1900°C. After feeding the above raw materials into the Electric Arc Furnace they are fused at the high temperature ranging from 1600°C to 1900°C using electricity to produce Ferro Silicon their final product. The weight of the furnace is about 100 Tons and its main parts are the rotating mechanism, the furnace bottom and the furnace shell. The main feature of the above said furnaces is that it is designed so as to rotate over the rails at the bottom, which as admitted by the assessee adds up to the efficiency of the furnace. The said furnace is the most important machinery used by the assessee for the manufacture of their final product viz. Ferro Silicon and other Ferro alloys. The said furnace had been manufactured by the assessee M/s. Indsil Electrosmelts Ltd. They had engaged and obtained the design of the furnaces from a consultant/designer viz. Shri A. Nandagopal, T.V.S. Nagar, Coimbatore. M/s. Indsil Electrosmelts had also engaged job workers for the manufacture of the major components of the furnace as per the requirements. They have supplied the requisite raw materials to the job workers and the transportation cost of the materials were borne by them. The final process viz. the assembling of various items was done at the premises of M/s. Indsil Electrosmelts Ltd. by themselves.
(c) As noted earlier, the Commissioner (Appeals) noted the same contentions and passed an identical order in the case of M/s. Silical Metal-lurgic Ltd., whose facts and details are noted in succeeding paragraphs.
2. In the case of M/s. Silical Metallurgic Ltd., the appeal arises from Order-in-Appeal No. 106/96(C), dated 14-3-1996, wherein the Commissioner (Appeals) held that Electrical Furnace goods are not immovable property and that they have been rightly classified under sub-heading 7202.00 of Central Excise Tariff Act. The brief facts of the case are that the appellants are manufacturers of Ferro Silicon and other Ferro alloys falling under sub-heading 8514.00 of Central Excise Tariff Act, 1985. They manufactures Electric Arc Furnace without obtaining licence from the department, without filing the classification list and without maintaining statutory records besides submitting returns and paying Central Excise duty on the said goods. Therefore, the show cause notice was issued to them proposing to classify the Electric Furnaces under sub-heading 8514.00 demanding duty of Rs. 15,51,589/- under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of Central Excise Act, 1944 and also they were called up to explain why penalty under Rule 173Q should not be imposed on them.
3. The appellants took a stand that the component parts etc. required for the construction of the furnace was purchased from the local market as well as from the factories of their production which had been discharged their duty liability. They have stated that the furnace is made for the production of their final product i.e. Ferro Silicon and the said furnace had come into existence as immovable property and not goods and as such not attracting any duty. They have stated that the furnace weighing about 250 M.T. not intended to be moved and capable of being moved as a whole. The Furnace is a special type and if the same is dismantled, one can obtain only a few of the component parts and the rest would be scrap. They stated that the furnace was installed at site by embedding the bottom portion to the earth up to a depth of 15 feets in masonry work and permanently fixed in a plant. They contested that the plant erected and assembled at site cannot be treated as goods. They relied on the judgment of the Tribunal rendered in the case of Tata Robins Fraser Ltd. v. C.C.E. reported in 1990 (46) E.L.T. 562 (Tribunal), wherein it had been held that bringing into existence at site of the submerged Electrical Arc Furnace by construction and installation as a turn key project is not intended to be moved therefrom and which also cannot be moved therefrom without dismantling the entire structure. The Tribunal has held that such an activity do not amount to an activity of manufacture to bring into existence as goods as the item is not a movable property. They also stated that even if, the department proceeded to consider it as goods, they were entitled for the benefit of Modvat credit for the said item under Rule 57Q and there will be no loss or gain to the department in the matter, They have relied on several judgments in support of their case.
4. The learned Commissioner has held that the Electric Arc Furnace is definitely a heavy block of machinery weighing about 250 M.T. and it has to be assembled on civil work having a depth of 15 feet. The furnace so assembled consists of (a) central pillar bolted to the foundation embedded to the earth by civil work at a depth of 15 feet, (b) the axis on which the furnace with rotation mechansim and the wheels and rail arrangements etc. and (c) the furnace constructed brick by brick in a steel shell and rammed with carbon paste. The foundation is bolted and all of this forms an integral part of the special type of furnace. He has also noted their plea that once it is constructed, it becomes a part of immovable property since it cannot be dis-assembled and erected at another place since dismantling would result in recovery of only certain component parts but the most expensive parts namely refractory bricks, tamping paste etc. would be destroyed and would result only in scrap. The learned Commissioner (Appeals) rejected the plea on the premise that it is not in the nature of lift which becomes an integral part of the building in which it is installed. He observed that this is more in the nature of manufacturing machinery which is erected on deep foundation on account of its size and weight and for the purpose of stability and to prevent vibration and consequential damage. He has noted that the original authorities pointed out that M/s. A.B.B. Ltd., Baroda and M/s. Inducto Therms (I) Ltd., Ahmedabad are manufacturers of this type of Electric Arc Furnace and such furnace is erected normally at the site and inter alia it can be dis-assembled also. He has observed that during such dismantling certain parts may be damaged. Refractory bricks by their very nature are such that dismantling would cause lot of damage, but by that reason itself, it cannot be to hold that they are immovable property. He has not followed any of the judgments except in the case of Name Tulaman Manufacturers Pvt. Ltd. v. Assistant Collector of Customs - reported in 1988 (38) E.L.T. 566 (S.C.), wherein the weighbridge assembled in three different components which were considered as process of manufacture. He was not discussed the case laws relied before him.
5. Arguing for the appellants, the learned Counsel while reiterating the submissions made before the lower authorities points out that in the judgment of Name Tulaman Manufacturers Pvt. Ltd., the Hon'ble Supreme Court did not deal with the aspect pertaining to immovable property but only considered weighbridge is an item for classification and such assembling resulted in goods. He submitted that this was clarified by the Hon'ble Supreme Court in later judgments. He submitted that the furnace had been constructed like a Kiln, brick by brick in a steel shell and rammed with carbon paste (tamping paste) and the entire mass is backed by burning and heating for 20 days to set as 'onemonolithic' piece and on account of this baking it is more appropriate to call this a Kiln instead of calling this as a furnace. Removal of the above so called furnace, which is akin to Kiln from the site of installation, which is also not meant for displacement as a whole as a commodity is impossible without dismantling and destroying the same. Therefore, his contention in terms of several judgments of the Supreme Court does not constitute rules for the purpose of classification. He relied on the judgment rendered in the case of Tata Robins Fraser Ltd., cited supra. He also submitted that the appellants are entitled for Modvat credit and in this regard, he relied on the judgment rendered in the case of Indian Oxygen Ltd. reported in 1995 (80) E.L.T. 573.
6. On a careful consideration of the submissions it is clear that this Furnace had not been manufactured in any factory in an assembled form and taken to the site for erection. As can be seen from the facts which are not disputed, the Electric Arc Furnace had been constructed and installed at site and it consists of (i) central pillar bolted to the foundation embedded to the earth by civil works at a depth of 15 feet, (ii) the axis on which the furnace with rotation mechansim and the wheels and rail arrangements etc. and (iii) the furnace constructed brick by brick in a steel shell and rammed with carbon paste. The foundation, the bolting arrangements to the foundation, the railings as well as the wheels form integral parts of the sub-merged Electrical Arc Furnace. It is strongly contended that the bricks are laid like a Kiln, brick by brick in a steel shell and rammed with carbon paste and the entire mass is baked by burning and heating for 20 days. It is seen that these facts and the manner in which the Furnace has come into existence has not been disputed by the lower authorities. The construction of the Electric Arc Furnace has taken place simultaneously with the civil work and the foundation has not acted as a base for laying the machinery. The observation of the Commissioner (Appeals) that the foundation has been laid for the purpose of erecting the furnace is not in terms with the facts pleaded by the appellants. He has observed that similar furnace has made by M/s. A.B.B. Ltd. and M/s. Inductotherms (I) Ltd. This aspect of the matter has not been put to the appellants nor there is any evidence that the furnace has come into existence of goods in another factory and being erected in another factory. The facts disclosed that the item has come into existence along with civil work and the same cannot be dismantled and on such dismantling only spare parts are recoverable. The learned Commissioner relied on the judgment in the case of Name Tulaman Manufacturers Pvt. Ltd. and also in the case of Mittal Engineering Works Pvt. Ltd. reported in 1996 (88) E.L.T. 622 (S.C.). The Hon'ble Supreme Court has distinguished this judgment and observed in Para 8 that in that case 'the contention that weighbridges were not goods' within the meaning of the Act was not raised and no evidence in that behalf was brought on record. While discussing the aspect pertaining to Mono Vertical Crystallisers which has been assembled, erected and attached to the earth by a foundation at the site of the sugar factory. The Hon'ble Supreme Court held that it cannot be assumed that weighbridges stand on the same footing as Mono Vertical Crystallisers in that regard and hold that because weighbridges were held to be exigible to excise duty so must Mono Vertical crystallisers. The Court has observed that the decision cannot be relied upon in support of a proposition that it did not decide. The Hon'ble Supreme Court after a detailed discussion held that the contention Mono Vertical Crystallisers are not goods within the meaning of the Act. The relevant portion of the judgment of Hon'ble Supreme Court in Paras 5 to 12 are noted hereinbelow :-
"5. The principal question to which we must address ourselves is whether Mono Vertical Crystallisers are 'goods' upon which excise duty under the provisions of the Act can be levied.
6. In Union of India and Anr. v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 S.C. 791, a Constitutional Bench considered the application of the provisions of the Act to the hydrogenated oils that are known as 'vanaspati'. 'Goods' were not defined in the Act. The meaning, as found by the Court from dictionaries, showed "that to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold". In Bhor Industries Ltd., Bombay v. Collector of Central Excise, Bombay, 1989 (1) S.C.C. 602, the view taken in the case of Delhi Cloth and General Mills Co. Ltd. and reiterated in South Bihar Sugar Mills Ltd. etc. v. Union of India and Ors., 1963 (3) S.C.R. 21, and Union Carbide India Ltd. v. Union of India, 1986 (2) S.C.C. 547, was applied to crude PVC films. It was held that they "were not known in the market and could not be sold in the market and was not capable of being marketable". In Indian Cable Company Ltd., Calcutta v. Collector of Central Excise, Calcutta and Ors., 1994 (6) S.C.C. 610, this Court considered the question of PVC compounds, and observed that marketability was a decisive test for dutiability. It meant that the goods were saleable or suitable for sale. They need not in fact be marketed. They should be capable "of being sold to consumers in the market, as it is without anything more". The case that comes closest to that which we have before us is the case of Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P., 1995 (2) S.C.C. 372. The issue was whether "the tube mill and welding head erected and installed by the appellant for manufacture of tubes and pipes out of duty-paid raw material" was assessable to excise duty. The Court observed, having regard to the earlier decisions aforementioned, "The basic test, therefore, of levying duty under the Act is two-fold. One, that any article must be goods and second, that it should be marketable or capable of being brought to the market. Goods which are attached to the earth and thus become immovable and 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." It was also said that the "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."
7. Learned counsel for Revenue relied upon the judgment in Name Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central Excise, Hyderabad, 1988 Supp. (3) S.C.R. 1. An indicating system was one of the three parts of a weighbridge, namely, (1) a platform, (2) load cells and (3) the indicating system. The Tribunal found that the appellant brought the three components together at site, fitted and assembled them so that they could work as one machine and, as such, the appellant manufactured a weighbridge. The question, therefore, was whether the activity carried out by the appellant, of assembling the three components of the weighbridge, brought into being a complete weighbridge, which had a distinct name, character or use. The argument of the appellant was that it was making only a part of the weighbridge, that is, the indicating system, and that alone was dutiable. It was held that the end product, namely, the weighbridge, was a separate product which came into being as a result of the endeavour and activity of the appellant, and the appellant must be held to have manufactured it. The appellant's case that it was liable only for a component part and not the end product was, therefore, rejected.
8. Learned counsel for the Revenue submitted that if even a weighbridge was excisable, as held in the case of Name Tulaman Manufacturers Pvt. Ltd., so was a mono vertical crystalliser. The only argument on behalf of Name Tulaman Manufacturers Pvt. Ltd. was that it was liable to excise duty in respect of the indicating system that it manufactured and not the whole weighbridge. The contention that weighbridges were not 'goods' within the meaning of the Act was not raised and no evidence in that behalf was brought on record. We cannot assume that weighbridges stand on the same footing as mono vertical crystallisers in that regard and hold that because weighbridges were held to be exigible to excise duty so must mono vertical crystallisers. A decision cannot be relied upon in support of a proposition that it did not decide.
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.
10. The Tribunal took an unreasonable view of the evidence. It was the case of the appellants, not disputed by the Revenue, that mono vertical crystallisers were delivered to the customers in a knocked down condition and had to be assembled and erected at the customers' factory. Such assembly and erection was done either by the appellants or by the customer. Where it was done by the appellants, fabrication materials of the customer were used and the customer sent to the appellants debit notes in regard to their value. Where the assembly and erection was done by the customer, there was no occasion for it to send to the appellants a debit note. The fact that there was no debit note in respect of one customer could not reasonably have led the Tribunal to conclude that in the case of that customer a complete mono vertical crystalliser had left the appellants' factory and that, therefore, mono vertical crystallisers were marketable. The Tribunal ought to have remembered that the record showed that mono vertical crystallisers had, apart from assembly, to be erected and attached by foundations to the earth and, therefore, were not, in any event marketable as they were.
11. Having regard to the material on record, we come to the conclusion that mono vertical crystallisers are not 'goods' within the meaning of the Act and therefore, not exigible to excise duty.
12. The appeal is allowed. The judgment and order under appeal is set aside. There shall be no order as to costs."
The Hon'ble Supreme Court again in the case of Auto Measurematic Ltd. v. Assistant Collector of Central Excise, Madras reported in 1997 (96) E.L.T. 14 (S.C.) reiterated that the decision in the case of Name Tidaman Manufacturers was considered by the Court in the case of Mittal Engineering and it was explained that the only argument on behalf of Name Tulaman Manufacturers had been that it was liable to excise duty in respect of the indicating system that it manufactured and not the whole weighbridge. The Court observed that the contention weighbridges were not goods within the meaning of the statute were not raised, and no evidence in that regard was brought on record. The Court further observed that Name Tulaman Manufacturers judgment did not lay down that the weighbridges were excisable goods.
7. In the case of Quality Steel Tubes (P) Ltd. v. C.C.E. reported in 1995 (75) E.L.T. 17 (S.C.) the Hon'ble Supreme Court held that plant and machinery embedded to earth, structures, erections and installations are rot excisable goods, since they do not pass the twin test of being capable of being brought to the market. The Supreme Court noted several judgments and observed that the basic test of levying duty under the Act was two fold. One, that any article must be goods and second, that it should be marketable or capable of being brought to the 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 bought and sold. Therefore, the Hon'ble Supreme Court held that 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 the goods within the meaning of Section 3 of the Act. Observing the contention of the learned Counsel for the Revenue that even if the goods were capable of being brought to the market it would attract levy, the Hon'ble Supreme Court observed that "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."
8. Even in the case of Tata Robins Eraser Ltd., the Tribunal held that the completion of the project work as apparently being taken as an assembly of the machinery at site, the project itself being an immovable property cannot be chargeable to duty.
9. Taking into all the facts and circumstances and the manner in which the Electric Arc Furnace has come into existence, the only conclusion arrived at, is that, the judgments of the Hon'ble Supreme Court cited supra, apply to the facts of the present case and in that view of the matter, the impugned orders are required to be set aside and the appeals are to be allowed, which we order accordingly.