Customs, Excise and Gold Tribunal - Bangalore
Abb Industries vs Commissioner Of C. Ex. on 5 October, 2005
ORDER T.K. Jayaraman, Member (T)
1. This is an appeal against the Order-in-Original No. 67/2000-RP, dated 31-10-2002 passed by the Commissioner of Central Excise and Customs, Visakhapatnam.
2. The brief facts of the case are as follows:
The appellants, M/s. ABB Industries (hereinafter referred to as M/s, ABB or the appellant) having registered office in New Delhi. M/s. Hindustan Petroleum Corporation Ltd. (HPCL), Gummalladoddi had placed a purchase order from M/s. ABB for design, supply, erection and commissioning of the Complete Terminal Automation System for Vijayawada and Rajahmundry Terminals. The issue in this appeal is excisability of the 'Terminal Automaton System (TAS)'. The Commissioner of Central Excise held that the Terminal Automation System' is excisable and classifiable under Heading 84.71 of the Central Excise Tariff. Hence he demanded duty of Rs. 1,12,75,052/- under proviso to Section 11A(1) of the Central Excise Act, 1944. Equal penalty was imposed under Section 11AC. Interest was demanded under Section 11AB. Further he ordered confiscation of the TAS under Rule 173Q of Central Excise Rules, 1944. But he gave an opportunity to M/s. HPCL to redeem the same on payment of a fine of Rs. 10 lakhs. A penalty of Rs. 5 lakhs was imposed on M/s. HPCL under Rule 209A of the Central Excise Rules, 1944. The appellants have strongly challenged the findings of the Original authority.
3. Shri K. S. Ravishankar, learned Advocate appeared for the appellants and Shri Ganesh Havanur, learned SDR appeared on behalf of the Revenue.
4. The learned Advocate urged the following points:
(i) The Commissioner has ignored the evidence which establishes that the entire contract was a 'turnkey contract' despite clinching evidence available on record. The show cause notice and the impugned order both admitted at several instances the entire commissioning of the system by the appellants. The depositions of various persons recorded in the notice at Paragraphs 3.3, 3.6 and 3.7 state that the system was custom-built, that the system was embedded to earth and could not sold in the market as such. Para 7 of the show cause notice records that the system was assembled and erected at site of HPCL.
(ii) The Apex Court in the case of Thermax Ltd. has held that erection and installation activity of plant cannot come under excise by relying on the decision in the case of Quality Steel Tubes (P) Ltd. .
(iii) The colour photographs of the system which are also a part of the Paper Book show that the system is immovable and cannot be considered as movable property and the conclusion that it is a computer system is perverse and contrary to facts and evidence. A computer system would not have pipelines and would not be erected or fabricated.
(iv) The evidence tendered during investigation by HPCL on 19-1-2001 which is at pages 49-50 of the Paper Book filed on 11-10-2004 shows that there is a turnkey contract, that the construction of the system by piece-by-piece erection at site and that it was fastened to the earth and was not intended to be removed as a system as whole and it became a permanent erection.
(v) The deposition of the official of HPCL, Shri K. Mohan Babu on 19-1-2001, in answer to the question at page 55 of the Paper Book shows that the system was erected at site on a strong foundation and base frame, designed specifically for HPCL. At page 5 of his statement of the same date, he states that the system was specifically designed and erected at site and could not be used anywhere else,
(vi) The functional and operational requirements of the system are described at pages 140-144 of the Paper Book. This establishes the contention of the appellants and disproves the theory of the Revenue.
(vii) The Board vide Circular No. 58/1/2002-CX., dated 15-1-2002 has clarified that Projects will not be considered as 'excisable goods' for imposing central excise duty. The Board as per Circular No. 25/89 dated 19-4-1989 has also clarified that piece-by-piece erection/installation resulting in immovable property would not attract excise levy.
(viii) The erection of plant, machinery and equipment was brought under service tax only recently from 16-6-2005. This was by amending the Finance Act, 1994. Also commissioning and installation services are taxable under Service Tax law from 1-7-2003 by amendment of Service Tax Law by the Finance Act, 2003.
(ix) In support of his contention, he relied on the following case laws:
(i) Quality Steel Tubes (P) Ltd. v. CCE
(ii) Triveni Engineering and Industries Ltd. v. CCE
(iii) CCE v. Hyderabad Race Club
(iv) CCE v. Josts Engineering Co. Ltd.
(v) CCE v. Nikhil Equipments Pvt. Ltd.
(vi) CCE v. Damodar Ropeways & Constructions Co. (P) Ltd.
(vii) Thermax v. CCE
(viii) Ion Exchange (I) Ltd. v. CCE
(ix) Cethar Vessels Ltd. v. CCE
(x) Blue Star Ltd. v. CCE
(xi) CCE v. Radiant Electronics Ltd.
(xii) Ganpati Ropeways Pvt. Ltd. v. CCE .
5. At the time of hearing on 30-8-2005 and 31-8-2005, the learned SDR filed some expert opinion from one Dr. E.V. Prasad, Professor of Department of Computer Science and Engineering. The learned Advocate vehemently objected the production of additional evidence at the stage of appellate proceedings. He relied on the following case laws:
(i) Jain Exports Pvt. Ltd. v. UOI
(ii) Minerals and Metal Trading Corporation v. R.C. Mishra
(iii) State of UP. v. Manbodhan Lal Srivastava
(iv) CCE v. Vaigai Thread Processors Ltd.
6. We have considered the records of the case carefully. The following facts are not in dispute. The appellant, a Norwegian Company was awarded a 'turnkey contract' for erection and installation, design and commissioning of TAS or Terminal Automation System by the HPCL for their Visakha-Vijayawada Pipeline Project. For the said purpose, M/s. HPCL had imported items manufactured by the appellants in Norway, USA, Israel and Netherlands. The appellant also procured certain items in India. It is seen that the entire system has been specifically designed for M/s. HPCL. Considerable engineering skill is required for assembly of the system. The whole system is computerized. The manner of embedding in earth of the system, storage and delivery of petroleum products by the system, entry and exit of transporting trucks for loading and access to the terminals, loading operations and security control are brought out in the Order-in-Original. The general function of the Terminal Automation System (TAS) includes receipt of petroleum products through pipeline, storage in tank farm, loading to distribution carriers, sealing of carriers, gases control/stock/truck loading area and management of reporting of the data, etc. The primary responsibility of the TAS shall be to ensure that the product loading by permanently take place in a secure, orderly, timely and well documented manner. On going through the photographs of the system, we find that a lot of civil work is involved in the erection of the system. The whole system is embedded to the earth. It is very evident that without causing much damage, the entire system cannot be shifted to any other place. In fact, it is very clear that the system is tailor made and cannot be used elsewhere as such. It is also seen that the various individual components are duty paid. The entire system has got several computers. On that ground, we cannot come to the conclusion that the TAS is a data processing machine. In every complex control system data processing will be there. But it does not mean that a control system simply process and does nothing else. In our view, the entire Terminal Automation System (TAS) is a 'turnkey project' and immovable property. In this connection, Para 5(1) of the Board Circular dated 15-1-2002 is re-produced as follows:
5. Keeping the above factors in mind the position is clarified further in respect of specific instances which have been brought to the notice of the Board.
(i) Turn key projects like Steel Plants, Cement plants, Power plants, etc. involving supply of large number of components, machinery, equipments, pipes and tubes, etc. for their assembly/installation/erection/integration/interconnectivity on foundation/civil struct-ure etc. at site, will not be considered as excisable goods for imposition of central excise duty - the components, however, would be dutiable in the normal course.
The above decision clearly covers the TAS or Terminal Automation System. Hence the appeal of the appellant is allowed.
(Pronounced in the open Court on 5-10-2005)