Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Central Excise Chennai ... vs Kone Elevators India Ltd. And Cce ... on 6 June, 2001
ORDER
Shri S.L.Peeran
1. The Revenue's appeal filed is against the Order-in-Appeal No.89/95 (M) dated 9.5.95 by which he has held that assessee's activity of entering into contracts with the customers for supply of lifts by installation and commissioning of the same at buyer's site with warranty of certain period would not be goods classifiable under chapter heading 84.28. He has taken into consideration various judgements cited by the assessee and also trade notices issued in this regard. He had gone through various stages of installation of the lift in the building and has come to the conclusion that erection brings into existence as immovable property and is not goods. However, he has taken a view that the component parts manufactured by the appellants alone could be subject to excise levy as parts of lifts under chapter heading 84.31. The findings recorded in paras 4 to 6 is extracted herein below:-
4. I have carefully considered the appeal, the submission made during the hearing, the detailed paper book and the case laws relied upon by the appellants. It is obvious that the controversy can be resolved only on a clear finding as to whether the various components manufacture as well as bought from the open market and removed in that condition by the appellants can be regarded as lifts in SKD/CKD condition, on the ground that these components put together have already attained the essential character of a lift, and they are cleared in knocked down condition only for the convenience of transport. If not, it has further to be decided whether after erection and commission, excisable goods answering to the description of lift has come into existence or not. In this connection, it will be useful to refer to the various processes and stages undertaken by the appellants before a lift used in any residential flats or office complex or anywhereelse comes into being. A lift consists of the following major components and stages according to the write up furnished by the appellants:--
(i) Machine Room Equipments such as
a) Controller
b) Gear Unit
c) Overspeed Governor
(ii) Shaft equipment such as a) buffers, b) guide brackets, c) guide rails, d) car sling, e) car body, f) car door, g) landing door, h) landing entrance, i) ropes and fastenings, j) cables and wires.
(iii) Signal equipments such as a) Push box be, b) Indicator boxes.
1. In the process of installation the materials are received in stages.
Stage I material Guide/Guide bracket State II material landing door/Landing Entrance State III material Carbody/Sling/Winding Unit State IV material Contrller, Wiring, Signal equipment
2. Scaffolding inside shaft is erected to gain access to the total height of shaft.
3. The shaft is plastered to ensure that the dimensions are as per requirement. Pockets are cut from the walls to fix the brackets securely in places. These have to be done precisely in that particular job as the smooth movement of the lift depends on the accuracy of this work.
4. Guide rails are fixed on to the brackets and alligned. Depending on the height of the shaft the end guide rails are cut and the guide joints are filed/adjusted to ensure that they are smooth.
5. The landing doors are now fixed by fixing landing entrance frame, landing sill and top track unit. The door panels are hung after ensuring that all the doors in all the landings are in exact allignment. The gate lock to ensure proper clasing of the door is fitted and aligned.
6. On the machine room proper bed is cast and on this the channel or beam is placed and grouted. On this the Gear unit consisting of Gear, Motor, Sheave and Brake is placed and alligned so that the centre of the car suspension and centre of the counter weight suspension are matched.
7. The car sling assembly is made by fixing the a) lower beam assembly consisting of Safety Gear, Lower beam and buffer stricker, b) Verticals and c) Upper beam assembly consisting of upper beam, suspension at installation job site.
The car floor is then fixed to Sling by isolation and aligned. The car body panels delivered as individual panels are then assembled to form a shed. The car ceiling/roof is then fitted to complete the Carbody.
8. As the sling contains a safety device to protect lift against over speeding this device t=is now adjusted carefully be measuring the clearances.
9. The overspeed Governor is positioned in the machine room. Rope is passed through this and clamped to the safety device in the car. A tension weight is provided in the pit through which the overspeed Governor rope passes. Tension weight bracket is grouted. This completes the safelty allignment.
10. The counter weight is positioned between the guide rails by means of guide shoes and fillers for balancing the car is added to the counter weight frame.
11. The ropes to hang the car and counter weight are measured and cut. The ends are prepared and clamped to the car and the counter weight by suspension fastenings.
12. The car door consisting of door operator, car sill, door panels is fixed on to the car body and adjusted precisely to synchornise with the lancing doors.
13. Blocks and cast in the pit and buffer springs are placed on the top of it. This act as safeties against over travel.
Pockets are cut in the front walls and boxes are grouted. The signal equipments are then fixed on to the boxes.
With this the mechanical installation is completed.
14. Depending on the wiring diagram provided for the particular installation the wiring is done in the job by connecting different switches on the car and the shaft and in the lobby and in the machine room. Nearly about 200 different wiring connections are made in the job. The connection between the shaft and the car which is moving is made by a flexible connection called travelling cables. The entire wiring is meticulously checked for the continuity test and matching for the controller sent in the particular job. As different voltage levels are used, improper wiring will lead to damages of assemblies. The controller is now fixed in the machine room, cables are run from the controller to the motor, brake and to the machine room switches. The wires brought from the shaft are now terminated on the controller.
15. Complete earthing is provided. Scaffolding is now dismantled.
This completes the electrical installation.
16. Once proper power supply is made available the various components are now ready for testing. The controller is put in test made. The motor is run at slow, speed and all the switches are adjusted. The power is given to the doors and the doors are adjusted as per the adjustment manuals given for the job. The controller is now put in normal mode and lift is made to travel from floor to floor. The smooth travel is adjusted byu changing the parameters on the electronic PCBs. The lift will not be stopping correctly at this point of time. The leveling yanes in the shaft are adjusted precisely and electronic circuits are tuned to stop the lift at the level.
All the features provided for a particular job such as overload weighing, fire men operation, attendant operation are all checked.
If intercom is provided this is now wired and checked. If voice announcer is provided this is separately wired and checked.
If local inspection is required the lift is subjected to this inspection.
17. All safety functions are tested and the lift is handed over for beneficial use to the customer.
5. From the above, it is very clear that by no stretch of imagination it can be construed that the various parts and components removed from the factoryatt different stages constitute a lift as is understood by a lay man either by virtue of their having attained essential character of a lift or they being cleared in CKD or SKD condition. So many things remain to be done at the site of the customer after which only the lift comes into being. The winding unit is the assembly that gives the elevator up and down motion and the potential to move up and down at the prescribed speed and with the prescribed load. and the main suspension ropes are the ropes through which the car body and the counterweight frame assembly are suspended; and finally, the shaft wiring equipment is responsible for ensuring power supply to the car and signalisation etc. etc. All the above components become functional only at the site after being erected and after such erection they are immovable and the purpose of Central Excise Act, and the lift as found in the customer's site is not liable to Central Excise Duty.
6. In view of the above discussions, 1 hold that the component parts manufactured by the appellants alone would be subject to excise levy as parts of lifts under Chapter heading 84.31 and the v valuation should be according to cost of construction taking into account the proportionate escalation charges in the contract value. Bought out items undergoing any, further process of manufacture in the appellant's factory or at site would also be liable to Central Excise duty. The order in original is modified accordingly.
2. Assessee has also filed cross appeal on the ground that proportionate escalation charges are not required to be added to the assessable value. Assessee contends that once it is held as immovable property, then question of adding escalation charges does not arise.
3. We have heard Shri S.Kannan, Ld.DR for the Revenue and Shri Krishna Srinivasan, Advocate for the assessees.
4. Ld.DR points out to Note 4 of Section XVI of Central Excise Tariff to argue that this note has not been taken into consideration by the Commissioner (Appeals) for the purpose of holding the item to be 'goods'. As per this note, 'where a machine consists of individual components intended to contribute together to a clearly defined function covered by one of the heading in Chapter 84 or 85, then the whole falls to be classified in the heading appropriate to that function'. He further points out that Commissioner (Appeals) has not established as to how the components/sub-assembly have not attained essential character of lifts, whether in CKD/SKD condition at the time of removal from the factory gate.
5. On the other hand, the AC in her order-in-original has discussed as to how the goods have attained the essential character of the lifts. he submitted that the major work done at the site is only civil work relating to construction and the elaborate findings observed by the Commissioner relate to erection part of the lifts and the very nature of the product is that, it was only to be cleared as parts and not as lifts, which finding is not correct. He contended that lift is a commercial item known as such in the market and has its own identity. Lifts by its nature are normally cleared from disassembled or CKD/SKD condition and if classification under chapter heading 84.31 as 'components' is resorted to, then chapter heading 84.28 of CETA'85 which specifically provides for 'lifts', escalator etc. will become redundant for under circumstances, the lift, as conceived in the Order-In-Appeal will ever be cleared from a factory. He contended that overspeed governor, driving mechanism and controller are essential items and are all assembled and tested at the factory before they are despatched to the site in CKD/SKD condition. The nature of testing involves whether the lift assembled at the factory before clearances in SKD/CKD condition do fulfill the function of lift namely vertical movement/lifting. This aspect has not been examined by the Commissioner.
6. Ld.Counsel referred to the entire technical literature, specifications and enormous evidence on record to contend that lift will not come into existence unless it is constructed alongwith immovable property and if the installation becomes operational it assumes into a immovable property. He referred to various IS specifications, technical literature, and various other material on record to contend that the item viz. lifts as parts are assembled at the site alongwith construction of the building and the lift becomes functional only if it is fully become part and parcel of the immovable property. He contends that the issue is fully covered by the judgement of the Apex Court rendered in the case of TRIVENI ENGG. INDUSTRIES LTD Vs CCE reported in 2000 (120) ELT 273 wherein the Apex Court clearly laid down that after assembly, when the item continues to be goods, only then it can be held to be excisable goods. However, on completion of process of erection, if the item becomes immovable property, then it is not excisable. The Apex court has taken into consideration the earlier judgment rendered and distinguished NARNE TULAMAN PVT. LTD Vs CCE Hyderabad case, 1988 (38) ELT 568. He relied on the judgement MITTAL ENGINEERING WORKS (P) LTD Vs CCE Meerut 1996 (88) ELT 622 (SC) wherein also the aspect of excisability has been clearly laid down that 'mono vertical crystallisers were delivered to the customers in a knocked down condition had to be assembled and erected at the customer's factory. Such assembly and erection was done either by the appellants or by the customer. 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 Apex Court has noted that once the erection is attached to the foundation to the earth it would not make the item marketable and would not fall within the definition of 'goods' as defined in the Act and is not marketable. He relied on the judgement of QUALITY STEEL TUBES (P) LTD Vs CCE U.P. reported in 1995 (75) ELT 17 (SC) wherein the plant and machinery embedded to earth, structures, erections and installations were held to be immovable property. Ld. Counsel also referred to the judgement of GANAPATI ROPEWAYS PVT. LTD Vs CCE Chandigarh 1999 (112) ELT 395 (T) wherein ropeway system was held to have come into existence only when the items procured by the appellants were assembled and erected at site of customers and held to be non-excisable and dutiable.
7. Ld. Counsel also referred to the judgement of NIKHIL EQUIPMENTS PVT. LTD Vs CCE Pune reported in 1997 (95) ELT 527 (T) wherein also it was held that storage system cleared from factory in kit or CKD form wherein civil work to lay the rails on which the system is fixed, fabrication of system by welding including final painting to be under taken at site, would not come into existence as they become immovable property. Further reliance was placed in SPACE AGE ENGG. PROJECTS (P) LTD Vs CCE Pune 1995 (78) ELT 544 (T) wherein also idlers, pulleys and structurals were held to be regarded as component parts, not having acquired essential character of conveyors, stackers/reclaimers for classifying under 84311.00. Ld. Counsel submitted that this judgement applies on all fours to the facts of the present case. He also referred to Hyderabad Collectorate Trade Notice No. 109/89 dated 7.6.89 which clarified about the assembly of lifts in the building and it was clarified that once on assembly, if the item becomes immovable, then it was not goods.
8. On careful consideration of the submissions, and examination of the records, we notice that the Commissioner has examined in great length the entire material and has clearly concluded that what was removed were only parts and they cannot be treated as lift for the reason that lift would come into existence only after they are installed alongwith immovable property and becomes functional. They relied on chapter note 4 to Section XVI of CETA which is not applicable in this case as chapter note 4 would comes into play where all the parts are put into the operation immovable property comes into existence like conveyor etc. which are independent of immovable property and are functional as final goods. In the present case, such possibility has not been discussed by the Commissioner (Appeals). The entire findings clearly indicates that the item ought to be fixed to the building including landing doors, pulleys, CWT, guide rails, ropes and fastenings for lifts, safety, buffer for electrical passengers and goods lifts. All these operations would be possible only if they are fixed to the building and the lift operates as part & parcel of immovable property. Therefore, all the citations referred to which are noted above would clearly apply to the facts of this case, and item being immovable property cannot be subject to excise under the tariff heading claimed by the revenue.
9. We further notice that the aspect pertaining to classification of lifts was considered by the Govt. of India in Ref: OTIS ELEVATOR COMPANY (INDIA) LTD SPACE - 1981 (8) ELT 720 (GOI) and it was clearly held that if article does not come into existence until it is fully erected or installed, adjusted, tested and commissioned in a building, and that on complete erection and installation such article becomes part of immovable property, then it cannot be described as goods attracting levy of any central excise duty. The findings recorded in paras 3 & 4 is extracted below:-
"3. S/Shri L.K. Nagandhi, S.J. Sorabjee, V.J. Taraporevala and S.K. Wadia, appeared for the personal hearing. Government have carefully considered the submissions in the revision application and the submissions made at the time of personal hearing and the further submissions sent after the hearing. In their revision application and during the personal hearing, the following main contentions have been urged on behalf of the petitioners:-
"3. (i) They have contended that the contracts for erection and installation of elevators and escalators were indivisible Works contracts and do not constitute contracts for sale of goods. They have stated that all the parts manufactured by them or purchased from the open market for parts wherever leviable and further they have stated that the elevators and escalators do not come into existence until they are fully erected or installed, adjusted, tested and commissioned in a building and that on complete erection and installation the elevators and escalators become a part of immovable property and cannot be described as goods. In support of this they have referred to the affidavit of Shri L.N. Venkatraman, Construction Executive of their company. They have also relied on the judgement of the High Court of Bombay in a Sales Tax matter (Sales Tax Reference No. 5 of 1965). The High Court by its order dated 22-1-1968 held that the contract for furnishing and erecting the elevator installation was a composite but indivisible contract for work and labour and no sales of goods can be spelt out of the contract.
(ii) The next contention is that assuming that the elevators and escalators are goods, the petitioners would be eligible to get the benefit of Notification No. 85/79 which exempts goods falling under tariff item 68 and manufactured in premises other than a factory.
(iii) They have further stated that in view of the above erection of lifts which is different from manufacture of goods should not attract duty and that in case the above two contentions are not found acceptable then they should at least get the benefit of exclusion of post-manufacturing expenses while determining the assessable value."
4. Government find considerable force in the petitioners contention referred to the para 3(i) above that elevators and escalators erected and installed by them become a part of immovable property and hence are not goods. In the judgement of the High Court of Bombay referred to above the Court have held that the contract for erection and installation of elevators was a composite and indivisible contract for work and labour and that it cannot be regarded as a contract for sale of goods. Government further observe that elevators and escalators installed in buildings are firmly affixed to the building and are not intended to be moved and accordingly could not merit to be called goods. Government, therefore, hold that the elevators and escalators erected and installed by the petitioners could not be considered as goods and hence would not be assessable under tariff item 68 of Central Excise Tariff. Government, would, however make it clear that the component parts of the elevators and escalators manufactured and cleared from their respective factory (ies) would be chargeable to duty at the appropriate rates. However, no further duty is chargeable when these component parts are assembled at site to erect or instal and commission the elevators in buildings because at that state the elevators and escalators become a part of the immovable property. The revision application is disposed of accordingly on this short point without going into the other contentions."
10. Therefore applying the ratio of all the judgements including the judgement of GOVT. OF INDIA in Ref. OTIS ELEVATOR CO. (I) LTD (supra) as extracted above, the findings of the Commissioner on classification is upheld and Revenue appeal is dismissed.
11. In so far as the appeal of the assessee is concerned, there is lot of merit in their submission that once the item has been held to be an immovable property then for the purpose of valuation the cost of construction and proportionate escalation charges cannot be added in the assessable value and the Commissioner's order to this extent is not sustainable. Therefore, the appeal of assessee is allowed and the order of Commissioner (Appeals) to this extent is set aside. Thus, both the appeals are disposed of accordingly.
(Pronounced in open court on 6.6.01)