Excise duty not leviable on Contract of Erection and Commissioning of Boiler

S.S. Engineer Vs Commissioner of Central Excise (CESTAT Mumbai)

Brief facts of the case are that the Appellant M/s S.S. Engineers are engaged in the sale of own manufactured goods and also engaged in trading of bought out items which are used in erection, installation and commissioning of Sugar Plant and other goods falling under chapter 84 of the First schedule to the Central Excise Tariff Act, 1985. The Appellant during the activity of installation of setting up of Sugar Plants are clearing to site their own manufactured goods on payment of duty and also using bought out goods. In case of erection by other persons they are supplying goods to the site. They were issued show cause notices for the period July, 2000 to September, 2007 contending that they are manufacturing Sugar Machinery falling under chapter 84 and cleared the same on payment of duty and carry out the activities of installations at site as per the contract entered into with the customers. For completion of activities they procure/ purchase components liked electric motor, gears, gear boxes, pumps, valve etc. from other manufacturers or dealers. As the goods are cleared as per composite contract between assessee and buyer, the value of the goods include costs right from the drawing & designing of the goods to its installation and commissioning and also the costs of its essential spare parts i.e bought out parts. The Appellant have not determined the correct and proper value of the goods/ essential spare parts (bought out items) as required under section 4 of the Central Excise Act, 1944 and thus there has been an undervaluation of goods supplied to the customer for completion of projects at site. The Appellant have failed to pay central excise duty on the clearance of essential spare parts (bought out items) of the goods and have not included the value of bought out goods in the invoices for the purpose of payment of excise duty. They have contravened the provisions of Section 4 of the Central Excise Act, 1944 and Rule 4 of Central Excise Rules, 2002. Further that during the installation of sugar plant and its commissioning the Appellant procured parts/components/ equipments required for manufacture/ assembly of excisable goods viz. Mill House, Cane Unloader, Cane leveller, Cane feeding device, Cane- rake- Bagassee Carrier including Secondary rake Carriers, Juice Sulphiter, Juice Heaters, Evaporators, Vacum pans, Vacum filters, Sugar Elevators, condensers , Grass Hoppers, Feeder Table. The Appellant has manufactured the said excisable goods and installed in the sugar plant. The said goods are moveable and can be dismantled, removed, transported and installed at any other sugar factory. The said goods although assembled at site and attached by foundation to the earth, these goods can be dismantled without substantial damages to their components and can be reassembled and thus movable. The show cause notice cited the instances in cases where some of the goods of other sugar factories were dismantled and were transported to Appellant’s customer for erection, installation and commissioning. It was alleged that the Appellants are manufacturers of said goods and carried out the manufacturing activity in their customer’s premises. It was alleged that the goods were manufactured at site and were excisable goods on which duty is required to be paid. Further that since no duty is paid on the said Sugar Plant therefore the Appellant is not eligible for captive consumption under Notification No. 67/95 – CE dt. 16.03.95. Accordingly the Sales value appearing in Balance Sheet reduced by the value shown in ER- Returns was alleged to be value of Bought out items or the goods alleged to have been manufactured on site and duty was demanded on said value. That the facts were not intimated to the department and it came to the knowledge of the department only at the time of audit. The Appellant has suppressed the facts and therefore they are liable for penalty u/s 1 1AC of the Act/ Rule 25 of the Central Excise Rules, 2002.

2. The Appellant filed reply to the said show cause notices submitting that the demand on bought out items is erroneous. They submitted that it does nowhere appears from the Show Cause Notices as to whether the duty is being demanded on the price at which they have sold the bought out items to their customers or on the component parts supplied by them on payment of excise duty at the site of the customer or on the sugar mill plant, which they got erected and commissioned at the customer’s site through sub-contractors by assembling the bought out components as well as the components manufactured by them after including the selling price of the bought out items in the selling price of the sugar mill plant. They submitted that in case of clearance of goods from their factory, they paid central excise duty on the same which is not disputed and in case of bought out items used in the erection and commissioning of the sugar mill plant the manufacturer of the goods has already paid duty. Such goods were not brought to their factory but were directly cleared at site of the customer without availing credit. It was also submitted that the impugned items alleged to have been manufactured on site are not belonging to any transportable articles but are the commercial names of various sections of sugar mill plant. They are of huge dimension in width and height and these items are installed and erected at the site piece-by-piece. They are not movable and marketable and are sections of entire sugar plant. These are the sections of the entire sugar plant. Unless these units are permanently attached to the earth, they cannot function. These are essential parts of the entire unit, which is attached to the earth and thus do not fall under the category of goods. The Appellant also relied upon the Board circular No. 58/ 1/2002-CX dated 15.1.2002 that if the goods are in capable of being sold, shifted and marketed without first being dismantled into components / parts, the goods would be considered as immovable and, therefore, not excisable. They also relied upon various decisions of the Honble Supreme Court to this effect. They also submitted that if it is assumed that they are manufacturers of the said equipments which are excisable, they are not liable to pay any excise duty on the said equipments as in terms of Notification No. 67/95-CE dated 16.3.1995 as the goods manufactured and used within the factory of production are eligible for exemption under said Notification No. 67/95-CE dated 16.3.1995. That, as the various equipments alleged to have been manufactured by them at the factory site of the sugar mill plant remained at the factory site and used in the manufacture of dutiable excisable goods, therefore, exemption under Notification No. 67/95-CE is available to the said equipments. They also submitted that the demand is hit by limitation of time, hence not sustainable.

3. The adjudicating authority vide order-in-original dated 27.12.2016 confirmed the demand and imposed penalties as proposed in the show-cause notices. He held that the issue to be decided is whether the value of bought out items which are essential items for the functionability of the goods contracted by the buyer from the Appellant is to be included in the transaction value or not. That the Appellant in engaged in the manufacture and supply of sugar machinery carries out the activities at site of their customers as per the contract entered with their customers. For completion of the order as per the contract, some of the components are manufactured themselves and some are bought out. The adjudicating authority relied upon the contract dt. 26.08.2005 of 80 TPH Boiler entered by the Appellant with Shri Dhyaneshwar SSK. He held that as per the scope of supply the seller shall design, procure, manufacture and supply of boiler. Contract price is inclusive of cost of all other items which are necessary for completing the supply of the Machinary & equipment as per scope of supply. The scope of supply as per the agreement states that the design, manufacture, procurement and supply of equipment for boiler of 80 TPH capacity shall be in conformity with the specifications which will enable the machinery & equipment ready for commissioning & commercial production. The agreement clearly states that the Appellant will design, manufacture and supply Boiler 80 TPH. The contract price is for design, procurement, manufacture, supply and do the checking of erection, commissioning of Boiler 80 TPH capacity at site. The scope of supply is entire Boiler of 80 TPH. The Appellant manufactures some of the parts of boilers in their own premises. A boiler is made up of many critical components each of which is required to make the boiler fully functional. The technical specification of the boiler is as per Annexure-I to the agreement. The other critical items required to make the boiler functional are as per Annexure – II to the agreement and these critical items which are part of the boiler are purchased by the Appellant from other manufacturers/ vendors. The Appellant places separate purchase orders on different vendors/ manufacturers for supply of these critical components. The critical components are required by the Appellant to complete the manufacturing of boiler as per the purchase agreement. The Appellant enters into agreement with the sugar factory (their customer) to design, procure, manufacture, supply and do the checking of erection and commissioning of Boiler of 80 TPH. The Boiler is a complete system made up of many parts and components. Some of these are manufactured by the Appellant and some are procured or got manufactured from other vendors. When all these put together, the Appellant completes the supply of boiler as per the agreement. The Appellant though under contract to supply the Boiler System does not manufacture/ assemble the entries system at their manufacturing premises. They only manufacture some components at their premises. The remaining critical bought out parts are directly delivered to the customer’s place. It is here that the Appellant actually puts together all the components and complete the manufacturing of Boiler. Thus the completion of manufacturing of the boiler takes place on the site i.e location of the customer. Without the critical components the boiler system will be incomplete and non – functional and the Appellant will not be able to fulfill the supply as per the agreement. Thus the value of bought out items supplied directly at site and then used by the Appellant to complete the manufacturing process and deliver the boiler as per agreement is liable to be included in the assessable value of the boiler. The adjudicating authority has placed reliance upon the judgments in case of Commissioner Vs. Thermax Bobcock & Wilcox Ltd. 2005 (182) ELT 336, Walchandnagar Ind. Ltd. Vs. CCE. Pune – III 2014 (311) ELT 274, CCE, Delhi Vs. Frick India Ltd 2007 (216) ELT 497 (SC), CCE, Aurangabad Vs. Lipi Boiler Ind. Ltd. 2011 (263) ELT 271 (Tri, Mum). Aggrieved by the impugned order, the present appeal has been filed.

4. Shri Prakash Shah, Ld. Counsel appearing for the Appellant submits that during investigation the Department had physically inspected the two sugar factories and they had also submitted photographs of the various machinery on which duty is being sought. He submits that the impugned order accepts that the bought out items were not used in their factory for manufacture of the goods nor such goods were received in their factory. No evidence is on record to show that which of the bought out goods are required to make the machinery manufactured by the Appellant functional. The demand has been made on the ground that the bought out goods are required for manufacture of Boiler without which the system will be incomplete and non-functional. The contract of 80 TPH Boiler relied upon by the Department nowhere shows that they are liable to pay duty on the contract price. They have only supplied the bought-out items which were already duty paid as well as their own manufactured goods on which duty was paid at the time of clearance. They were not engaged in erection or installation of the Boiler and the said activity was undertaken by separate persons. The contract did not include erection of Boiler but only for supply of goods to be used in such boilers which was part of a power plant in a sugar factory. The various bought out items were directly installed piece-by- piece on several foundations or structures at specific places in the huge power plant system. The price received by them is for scope of supply of goods, as laid-down in the technical specifications. The adjudicating authority has erred in holding that the bought out items are critical items for completing the manufacture of the Boiler. That all the capital items become functional only after installation and commissioning of the plant at customer’s site and thus become immovable property. The impugned order has erred in holding that the contract price is transaction value, as termed u/s 4 of the Central Excise Act, is applicable only for the goods manufactured and cleared from the factory and certainly not applicable to the impugned goods. The judgments relied upon by the adjudicating authority are in context with the fact when the boiler and other machineries were cleared is in knocked-down conditions (KDC). That since in this case, they only supplied their own manufactured goods and bought out items which were used by some other contractors to erect the Boiler, they being not manufacturer, no duty can be demanded from them. It is impossible that the 80 TPH Boiler can be taken to the market in the form in which it emerged at the site of the customer. The bought out goods were directly sent to the site and were used at the site by separate erection contractors appointed by the customer. He has also produced the copies of the contracts involved in the present appeals and has also taken us through the photographs of various erections/installations made by them viz. Turbine System – Part of Power Plant at M/s Dnyaneshwar SSK – Ahmednagar, Boiler System – Part of Power Plant at M/s Dnyaneshwar SSK – Ahmednagar, Turbine System, Boiler System – Part of Power Plant – Babanrao Shinde Ltd. – Solapur, Process Section – Rajaram Bapu SSK – Sangli, Milling Section – Jawahar SSK Ltd. – Kolhapur, Complete Sugar factory – Bajaj Hindustan Ltd., Uttar Pradesh. He submits that in any case the Boiler and other systems have come into existence as immovable property at the site of the customer and as apparent from the photographs it is not possible to shift the same as it is but only after dismantling the whole structure. Further that the goods manufactured by the Appellant and bought out goods alongwith other goods were put together at site and has admittedly came into existence as immovable property. The 80TPH Boiler is a complete system made of any parts and components. It is evident that the Appellant did not clear the same in knocked down or Semi Knocked down condition. The bought out goods and the goods cleared by them were even not sufficient to erect the boiler. No duty can be demanded on goods which become immovable property on erection as held in case of Triveni Engineering 2000 (120) ELT 273 (SC). That the adjudicating authority in Para 13.14 has held that the Appellant completed manufacturing of the boilers on site by putting together bought out and manufactured goods and thus new product came into existence known as boiler. That in absence of process of putting them together no new product with distinct commercial name, identity and usage prior to its assimilation and structure. There is no material to show that the Appellant carried out any process of manufacture on bought out and manufactured goods. The bought out goods and the goods cleared by the Appellant were not even enough to complete the boiler system as chimney and other civil works were not part of Appellant’s work. He further submits that the whole demand was confirmed merely on the basis of one instance of Boiler agreement applying to all the projects by treating that all the agreements are having same base. He submits that the show cause notice and the adjudication order failed to appreciate that Appellant entered into contracts with the buyers for sugar machinery factory. He also relies upon the earlier order in Appellant’s own case as reported in 2008 (221) ELT 54 wherein it was held that the activity undertaken by the Appellants does not result into excisable goods. He submits that alternatively they are also entitled for the exemption under Notification No. 67/95 – CE as held in the said judgment. He also submits that in the year 2008 the Commissioner himself is of the view that no show cause notice should be issued as demand is not sustainable and hence after the period of the impugned show cause notice i.e. after 2008, no further show cause notices was issued to them. He also submits that the demand is time barred and no penalty is imposable as the revenue was in knowledge of all the facts.

5. Shri Hitesh Shah, Ld. Commissioner (A.R.) appearing for the revenue reiterates the findings of the adjudication order. He submits that the value of bought out goods is includible in the assessable value of the goods and duty is recoverable from the Appellant. He submits that the contracts were of supply and supervision of Erection and Commissioning and in some cases the erection and commissioning were also undertaken by the Appellant. He has also produced the list of contracts and activities undertaken under such contracts. He relies upon the Tribunal’s order cited in the impugned order. He also relies upon orders in case of Jabil Circuit India Pvt. Ltd.- 2014 (307) ELT 891 (Tri-Mumbai), Lipi Boilers Industries Limited-2011 (263) ELT 271 (Tri-Mum), Electronics & Controls Power System Pvt. Ltd.- 2010 (257) ELT 578 (Tri-Bang), Solid & Correct Engineering Works-2010 (252) ELT 481 (SC), Cheran Spinners Ltd. – 2008 (231) ELT 315 (Tri-Chennai), Elson Machines Pvt. Ltd.- 1988 (38) ELT 571 (SC), Plasmac Machine Mfg. Co. Pvt. Ltd.,- 1991 (51) ELT 161 (SC), Sirpur Paper Mills Ltd.- 1998 (97) ELT 3(SC), Telekrit Electricials (Nagpur P. Ltd.- 2001 (134) ELT 765 (Tri) Mumbai.

6. We have carefully considered the submissions made by both the sides and perused the records. We find that some of the show cause notices were issued on the ground that the value of bought out items supplied by the Appellant is includible in the value of the contract price and duty was demanded on said contract/ agreement value after deducting the value of the Appellant’s own manufactured goods as appearing in ER-1 Returns. In another set of show cause notices it was alleged that the Appellant have produced the excisable goods during installation of plants and the same were installed in sugar plants and therefore liable for duty on goods viz. Mill House, Cane Unloader, Cane leveller, Cane feeding device, Cane- rake- Bagassee Carrier including Secondary rake Carriers, Juice Sulphiter, Juice Heaters, Evaporators, Vacum pans, Vacum filters, Sugar Elevators, condensers , Grass Hoppers, Feeder Table etc. However in such show cause notices also the duty was demanded on the Total Sales value reduced by the value shown in ER – 1 Returns filed by the Appellant. We are unable to comprehend as to what is the basis of such demands. The show cause does not specify as to what are the bought out goods and how they have been considered as critical goods and what is the basis of arriving at assessable value. Even in case of show cause notices wherein it was alleged that the goods manufactured on location were excisable, it is not forthcoming from the show cause notice as to how the duty computation was made on whole contract price. Notably many of the contracts entered into by the Appellant in this appeal are only for supply of goods and supervision of erection and commissioning and thus stands of different footing from the agreements where the Appellant themselves undertook the erection activity.

7. We find that the adjudicating authority has ultimately confirmed the demand against Appellant on whole agreement/ contract price by discussing and relying upon one of the Contract of Boiler of 80 TPH. The demand has been made considering the contract price as value of goods. We find from the agreement that the said agreement is for supply of goods for the 80 TPH Boiler and supervision of erection and commissioning. The Appellant themselves did not carry out erection or commissioning of the said Boiler but after supply of goods only supervised the erection. In such case no duty can be demanded from the Appellant as they are only supplier of goods. It is not the allegation of the department that the Appellant’s own manufactured goods and the bought out goods when put together would result into emergence of new product i.e Boiler. The Appellant do not clear the Boiler in Complete knocked down Condition or Semi Knocked Condition. The Appellant’s own manufactured goods, at the time of clearance from the factory, have identity of individual components or equipments which has not been disputed by the revenue. Though the adjudicating authority held that the bought out items are critical components of the Boiler but we find that even not a single bought out component has been named as critical component which shows that the allegation has no basis. Simply by alleging that the value of bought out goods are liable to be included in the assessable value, duty cannot be demanded. Even though the show cause notice mainly alleged that the bought out items are liable for duty but in the impugned order the demand has been made on whole contract price which shows that the demand has no basis. Nevertheless we find that the 80 TPH Boiler on the basis of which demand has been confirmed against the Appellant is a huge structure which was erected at site and is permanently attached to earth. It was erected piece by piece and not by merely putting some goods together viz. the Appellant’s own manufactured goods alongwith bought out components. We have gone through all the contracts/ agreements entered into by the Appellant during the impugned years as well as photographs of some of the contracts placed in the appeal. We find that all the contract were for either erection and set up of sections of the Sugar factory or the Sugar factory itself. All these Section are part of Power plant system of Sugar factory i.e Boiler or turbine system or the factory itself which are in huge set up of machinery and equipment embeded permanently to earth. None of these sections can be removed as such or in Knocked down condition or semi knocked down condition. It has to be dismantled and to be broken up into pieces if it is to be shifted which will lead to losing its identity of any goods. The impugned order has relied upon some instances where some goods were brought from other sugar factory and were used in installation at Appellant’s factory. We find that these goods were brought to Appellant unit by dismantling the system of old sugar plants. However the adjudicating authority failed to appreciate that after dismantling into prices the identity of the goods did not remain as of goods which was recognizable in old sugar factory. It turned into individual components or goods since they were not in the form of knocked down condition. We are thus of the view that by means of any imagination the agreements under which the goods were supplied by the Appellant or in case where the Appellant themselves erected the plants or their sections cannot be held to be any contract for manufacture of excisable goods. We are unable to comprehend that huge boilers erected on site piece by piece with the Appellant’s manufactured goods and bought out goods which become immovable property are excisable goods. It cannot be removed in knocked down condition or semi knocked down condition. It has to broken up into pieces which would not even recognizable as boiler. What has come into existence at site are huge boiler systems which were part of power systems or whole sugar manufacturing sections or plants. Undoubtedly the whole property which came into existence are immovable property. Without dismantling these systems they cannot be shifted. Thus there is no reason to demand duty on the contracts undertaken by the Appellant. Further as far as demand of duty under the guise of bought out goods is concerned we find that when the bought out goods are not being part of any excisable goods at the time of their clearances in that case no duty can be demanded. In case of M/s Intech Surface Coating Pvt. Ltd. Vs. CCE, Pune – III, this bench on the issue of inclusion of bought out items in the assessable value has held as under :

“We have gone through the rival submissions. We find that it is not in dispute that the Revenue is seeking to include the cost of bought out items supplied directly to site for the purpose of charging Central Excise duty. It is not in dispute that no manufacturing activity in respect of such items has been done by the appellant. The liability to Central Excise duty arises only when there is a manufacturing activity undertaken and in the absence of manufacturing activity the liability of Central Excise does not arise. On a similar issue in the case of Acer India Ltd. (supra) observed as follows:

55. It must be borne in mind that central excise duty cannot be equated with sales tax. They have different connotations and apply in different situations. Central excise duty is chargeable on the excisable goods and not on the goods which are not excisable. Thus, a goods which is not excisable if transplanted into a goods which is excisable would not together make the same excisable goods so as to make the assessee liable to pay excise duty on the combined value of both. Excise duty, in other words, would be leviable only on the goods which answer the definition of excisable goods and satisfy the requirement of Section 3. A machinery provision contained in Section 4 and that too the explanation contained therein by way of definition of transaction value can neither override the charging provision nor by reason thereof a goodswhich is not excisable would become an excisable one only because one is fitted into the other, unless the context otherwise requires.

4.1. Tribunal in the case of Emerson Network Power India P. Ltd. (supra) in a similar circumstance observed as follows:

“4. The entire duty demand on bought-out items pertains to installation of air-conditioning machines at site. From the perusal of the list of bought-out items such as floor grills, piping, cabling etc., it would be seen that they are not parts of air-conditioning machines manufactured and cleared, but items required purely at site. Therefore, the appellants are right in contending that the cost of bought-out items cannot be included in the assessable value.”

Relying on the aforesaid decisions the appeal is allowed.

8. Drawing parallels from the above order we find that there is no reason to demand duty on the bought out goods as the Appellant has not manufactured any goods which are recognizable as excisable goods. Further we find that the same controversy arose in the earlier period and the matter travelled upto the Tribunal. The findings of the Tribunal as recorded in case of S.S. Engineers Vs. CCE, Pune – III 2008 (221) ELT 54 (TRI) are as under :

3. It is the case of the department that the disputed items were not supplied by the appellants as a whole at the site of the sugar factories but assembled out of the various parts and components supplied by the sugar factories, as seen from the chart herein below :-

It is also the case of the department, as seen from the show cause notices and the impugned orders, that the items are huge items encompassing wide area and cannot be transported and installed as such in any other premises but require to be dismantled before transport and installation at any other site. In view of this admitted position, the ratio of the Apex Court in Triveni Engineering & Indus. Ltd. v. CCE, 2000 (120) E.L. T. 273 (S. C.) is directly attracted to the facts of this case. In paragraph 20 of that decision, the Apex Court held that the marketability test requires that the goods as such should be in a position to be taken to the market and sold. In that case, for taking turbo alternator to the market, it has to be separated into components, viz. turbine and alternator and then would not remain turbo alternator and therefore the turbo alternator cannot be excisable goods falling within the meaning of Heading 85.02. The Supreme Court set aside the finding of the Tribunal that the turbo alternator was excisable goods. The above decision has been followed by the Tribunal in the case of CCE, Chandigarh v. Bhagwanpura Sugar Mills, 2001 (134) E.L.T. 673 and Indica Chemical Indus. (P) Ltd. v. CCE, Meerut, 2005 (185) E.L.T. 67. We further note that vide Circular No. 58/1/2002-CX dated 15-1- 2002, the CBEC has clarified inter alia that if any goods installed at site are capable of being sold or shifted as such after removal from the base and without dismantling into its component parts, the goods would be considered to be movable and thus excisable and if the goods are incapable of being sold, shifted and marketed without first being dismantled into component parts, the goods would be considered as immovable and therefore not exigible to duty. The clarification has been issued in the light of the Apex Court’s judgment cited supra as well as in the case of Quality Steel Tubes Pvt. Ltd. v. CCE, 1995 (75) E.L.T. 17 (S.C.) and Mittal Engineering Works Pvt. Ltd. v. CCE, 1996 (88) E.L.T. 622 (S.C.).

4. The Commissioner has relied upon the decision of the Tribunal in CCE, Chennai v. Binny Ltd., 2003 (151) E.L.T. 106, holding that similar items were excisable, however, as rightly pointed out by the learned counsel for the appellants, the assessees did not challenge the Commissioner’s order treating some of the sugar manufacturing equipment as movable and hence excisable, for the reason that the demand was dropped on the ground that it was barred by limitation and hence the finding of excisability was not contested by the

5. In the light of the above discussion, following the ratio of the apex j court’s decision in Triveni Engg. & Inds. Ltd. supra, on the basis of which CBEC Circular No. 58/1/2002-CX., dated 15-1-2002, which is binding on the Revenue authorities, was issued, we set aside the demands and penalties and allow both the appeals.

The above order of the Tribunal has been upheld by the Hon’ble High Court as reported in Commissioner v. S.S. Engineers – 2008  (232) E.L.T. A200 (Bom.)]. We find that in the present case also the show cause notices alleged that the Appellant manufactured the same goods as above and duty demand has been made. Applying the above ratio of the Tribunal we are of the view that the demand of duty made against the Appellant on goods erected, installed at site are absolutely not sustainable. We also find from the Miscellaneous application filed by the Appellant that the jurisdictional Commissioner vide noting dt. 11.11.2008 viewed that the value of the bought out items cannot be included in the assessable value of the manufactured goods in view of the fact that the bought put items did not enter into the factory of the Applicant and no credit is being taken of the duty paid on such items. After this noting the Appellant were not issued show cause notice and thus the department itself appreciated the fact that the duty demand is not sustainable. Even otherwise also we find that if the revenue demands duty on bought out goods in that case it has not been disputed that the goods were itself duty paid and the Appellant did not avail any credit of the same. Further even the bought out goods have been used in erection of the Sugar plant or its sections at site which are non excisable. Thus we are of the view that bought out goods which were taken directly to the site for erection/ installation does not invite any excise duty. The revenue has relied upon the judgments in case of Commissioner Vs. Thermax Bobcock & Wilcox Ltd. 2005 (182) ELT 336, Walchandnagar Ind. Ltd. Vs. CCE. Pune – III 2014 (311) ELT 274, CCE, Delhi Vs. Frick India Ltd 2007 (216) ELT 497 (SC), CCE, Aurangabad Vs. Lipi Boiler Ind. Ltd. 2011 (263) ELT 271 (Tri, Mum) amongst others. We find that in all these judgments the facts were altogether different whereas in the present issue the goods which came into existence and being immovable goods do not fall under the definition of excisable goods. Whereas in case of Thermax supra the bought out items were cleared from the factory and thus it was held that the boiler was cleared in unassembled condition. In the present case the bought out items were cleared to the customer’s site directly and in turn was used in erection of immovable property. It itself is not clear as to what were the bought out items. Clearly the whole demand is fallacious. In case of Walchandnagar Industries supra the goods cleared were in assembled form and were excisable goods before their clearance from the factory. In case of Frick India Ltd., the issue involved was whether the value of bought items is includible in the value of Compressor whereas in the present case the issue is demand of duty under the guise of bought out goods which itself is not clear and even the goods coming into existence at site does not merit consideration as excisable goods. Thus we find that all the judgments cited by the Appellant does not have any effect on the present controversy. whereas the Appellant’s case for the previous period stands decided in their favour. We also find that even if it is assumed that any duty is demandable from the Appellant, it would not be liable to be paid as the alleged activity of installation of goods took place at the factory of customer and hence they are eligible for exemption in terms of Notification No. 67/95 – CE.

9. The adjudicating authority has confirmed duty demand on the contract price. However since we have held that the goods which came into existence after using the bought out goods and the Appellant’s own manufactured goods has resulted into immovable property i.e whole sugar plant or its part in the form of Power section or other sections, we do not find any reason to demand duty on the same. In case of Kerala State Electronics & Controls Power Systems P. LTD. 2004 (171) ELT 281, the Tribunal held as under :

5. On a careful consideration and perusal of the impugned orders, we notice that the bought out items were independently supplied to the site and they are in the form of junction boxes, signal heads and cables. They are not part of the traffic controller. All these items go to form traffic signal system, which according to the appellant is an immovable property. The authorities below have held that the value of the bought out items is to be added to the assessable value of traffic controller. On a perusal of the judgments cited by the Counsel we find that the value of the bought out items is not required to be added to the duty paid goods cleared by the assessee from their factory. These judgments clearly apply to the facts of the case while the citations relied by the SDR pertains to a situation where bought out items are essential parts of the items supplied by the assessee and hence its value was required to be added. The situation is not the same in the present case as all the bought out items are sent to the site for erection of traffic signal system. Hence, they become part of the immovable property and cannot be considered as part of the traffic controller unit cleared by the appellant. Therefore, respectfully following the ratio of the judgments cited by the Counsel, the impugned order is set aside and appeals allowed.

The above order was upheld by the Hon’ble Apex Court as reported in Commissioner v. Kerala State Electronics Development Corporation Ltd. – 2006 (199) E.L.T. A130 (S.C.)]. 

In case of India Tube Mills and Metal Industries Vs. CCE, Mumbai 2017 – TIOL – CESTAT – MUM this bench on the similar issue by relying upon the judgment of Hon’ble Apex Court in case of Triveni Engineering & Indus Ltd. – 2000 (120) ELT 237 (SC) = 2002-TIOL-14- SC-CX has held as under :

2.1 As regards the bought out items, it is supplied directly from the supplier to the site and the same do not involve any manufacturing activity of LPG Bullets. All other activities such as fitting out of the bought out items and erection & installation is taking place at the site of the customer. All these activities are carried out to make the LPG Bullets as immovable goods, therefore, all such activities are not part and parcel of the manufacturing activity of the appellant in respect of LPG Bullets. Therefore, inclusion of any amount over and above the price of the LPG Bullets adopted for clearing of the goods from the factory is incorrect and without authority of law. In support, she placed reliance on the following decisions:-

a) Triveni Engineering & Indus Ltd. – 2000 (120) ELT 237 (SC) = 2002-TIOL-1 4-SC-CX

b) Milestone Aluminium Co. Pvt. Ltd. – 2007 (214) ELT 417 (T)

c) Sanmar Weighing Systems Ltd. -2005 (190) ELT 228 (T) = 2005- TIOL- 1 298-CESTAT-MAD

d) Emerson Network Power India Pvt. Ltd. – 2004 (176) ELT 168 (T)

e) Fuse Base Eltoro Ltd. – 2000 &1 16) ELT 179 (T)

f) Goetze (India) Ltd. – 2004 (169) ELT 274 (T) = 2004-TIOL-366- CESTAT-DEL

g) Kerala State Electronic Dev. Corpn. – 2008 (224) ELT 88 (T) = 2007-TIOL-1 558-CESTAT-BANG

h) BHEL Vs. CCE – 2001 (138) ELT 1223 (T)

i) Neycer India Ltd. -2005 (192) ELT 620 (T)

j) Mahindra & Mahindra Ltd. – 2015 (321) ELT 513 (T) k) Pace Marketing Specialities Ltd. -2000 (119) ELT 77 (T)

I) Jai Hind Oil Mills & Co. – 1994 (71) ELT 902 (Bom).

3. On the other hand, Shri V. K. Shastri, learned Asstt. Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.

4. We have carefully considered the submissions made by both We find that the Revenue has not disputed the value of Rs.42 lakhs for each LPG bullets. However, the demand was raised only on inclusion of the value in respect of bought out items and certain activities taken place at the site for erection and installation of the said LPG bullets. We find that all these elements such as bought out items are undisputedly supplied from the supplier to the site. It is not taking part in the manufacture of LPG Bullets. These bought out parts are used only for erection and installation of LPG Bullets at site and other activity at site are also related to erection and installation. The said activity of erection and installation in our considered view is not amount to manufacture. Moreover, after erection and installation of the LPG Bullets, it become immovable goods. For this reason also, if at all any activity by any imagination is amount to manufacture, by virtue of immovability of LPG Bullets, the activities at site cannot be charged to excise duty. With these undisputed facts, we are of the view that the value of Rs.42 lakhs adopted by the appellant in respect of LPG Bullets, which is not in dispute, no further addition can be made.

5. As per our above discussion, the demand does not sustain. Accordingly, the impugned order is set aside and the appeal is allowed.

On the identical issue this Tribunal passed various other judgments in favour of assesses which are reproduced below:

(i) Cheema Boilers Limited Vs. Commissioner of Central Excise & ST, Chandigarh-2018-VIL-235-CESTAT-CHD-CE-

“5. Heard the parties and considered the submissions. The facts of the case are not in dispute that appellants are having purchase orders for Erection, Commissioning and Installation of Boilers at site. The appellant is clearing parts from factory to the site and certain bought out items are also directly supplied to the site from various vendors, on payment of duty. It is a fact on record that boiler in question emerges at site which become an immovable property, which is not excisable goods therefore, not leviable for duty. As the Boilers on which the Revenue is demanding duty are not excisable goods therefore, the question of payment of duty does not arise. Further, we find that bought out items have never came to the factory of the appellant and the appellant is liable to pay duty only on the goods manufactured by them. In that circumstance, for the bought items, the appellant is not required to pay duty. Therefore, we hold that demands in the impugned orders are not sustainable. Accordingly, the impugned orders are set aside.”

(ii) Tycon Automation Pvt. Ltd. Vs. Commissioner of Central Excise, Noida- 2017 (357) ELT 861 (Tri.-All)

“6. Having considered the rival contentions. We find that it is an admitted case of Revenue that the appellant have not brought the bought out items in their factory of manufacture and it is further admitted fact that the control panels are not cleared along with bought out items from the factory of manufacture. Under such circumstances, we hold that there is no application of Rule 6 of the Valuation Rules, 2000. We further hold that there is no misdeclaration of the transaction value by the appellant. Under the facts and circumstances that the appellant have placed the orders on third-party vendors for supply of the bought out items directed to their customers and have paid the applicable sales tax/VAT, the same does not attract levy of excise duty. We also take notice of the fact that in para No. 27.14 of the impugned order the Adjudicating Authority observed as follows :-

“I find that the bought out items have not been brought to the factory premises and have not been used in the manufacturing of the goods – control panels. The bought out items were directly sent to their customers and being essential and inseparable part of the control panel, they were installed at the site by them.”

7. Thus we find that it is an admitted fact that the bought out items have never entered the factory premises of the appellant so as to become part of the manufactured control panel nor the same have been cleared along with the control panels. Accordingly, we allow these appeals and set aside the impugned order. The appellant will be entitled to consequential benefits in accordance with law including refund of amount deposited during investigation. Accordingly, the personal penalty on the Director Mr. Dinesh Kumar Bhardwaj is also deleted.”

From the consistent views of this Tribunal’s in above judgments, ratio of which squarely applicable to the present case, impugned order is not sustainable.

10. The appellant also raised the issue of Cenvat Credit on bought out goods. We agree with the submission of appellant that when revenue seeks to demand duty on the value of bought out goods the appellant shall be entitled for cenvat credit of duty paid on such bought out goods.

11. Regarding the issue of availability of Notification No. 67/95-CE 16.3.1995 on the alleged excisable goods coming into existence at site, we find that if the contention of Revenue is accepted that the goods while erection/installation was manufactured at site, the same shall be eligible for exemption notification No. 67/95-CE dt. 16.3.95 which reproduced below:

“Inputs captively consumed within the factory of production

In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts –

(i) capital goods as defined in rule 57Q of the Central Excise Rules, 1944 manufactured in a factory and used within the factory of production;

(ii) goods specified in column (2) of the Table hereto annexed (hereinafter referred to as ‘inputs’) manufactured in a factory and used within the factory of production in or in relation to manufacture of final products specified in column (3) of the said Table; from the whole of the duty of excise leviable thereon which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) :

Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products (other than those cleared either to a unit in a Free Trade Zone or to a 100% Export Oriented Undertaking or to a unit in an Electronic Hardware Technology Park or to a unit in a Software Technology Parks), which are exempt from the whole of duty of excise leviable thereon or are chargeable to ‘Nil’ rate of duty.

Explanation. – For the purposes of this notification ‘inputs’ does not include –

(i) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;

(ii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under section 4 of the Central Excises and Salt Act, 1944 (1 of 1944).

TABLE

On reading of above notification it is clear that capital goods manufactured and used within the factory of production shall be exempted. As per the facts of the case the machines which undoubtedly capital goods falling under Chapter 84/85 erected and installed within the Sugar Mills product of which i.e. Sugar/Molasses etc. is liable to duty. Thus all the conditions of Notification No. 67/95- CE stands fulfilled. Even though it is accepted that the Appellant have manufactured the goods at site but fact remains that the capital goods manufactured within the premises of Sugar Mills and used there in only. Ownership has no criteria in the Central Excise Act, for lvey of duty and exemption therefrom. Though we have given finding that erection/installation of machineries at site is not excisable goods having immoveable, however, even if it is assumed that revenue’s contention of excisability is correct, the goods coming into existence at site which is well within the Sugar Mills shall be eligible for exemption Notification No. 67/95-CE. Hence on this count also the demand does not sustain. Accordingly we hold that no duty is demandable from the Appellants on merits.

12. The Appellant has pleaded that the demand is time barred. We find from the records that the facts were in the knowledge of the revenue since very beginning and even earlier to the demand confirmed against the Appellant which was eventually set aside by the Tribunal. The said order passed by Tribunal reported at 2008(22 1)ELT54 was upheld by the Hon’ble Mumbai High Court. In such facts, we find that there is no ground to raise demand by invoking extended period of limitation as there is no suppression or malafide intention on part of the Appellant. Thus in our above observations and findings on fact as well as on the basis of orders passed by the Tribunal, Hon’ble High Court and Hon’ble Apex Court supra we do not find any reason to demand duty from the Appellant. We thus hold that the demand and penalty confirmed against the Appellant are not sustainable on multiple counts as discussed above and requires to be set aside.

13. Accordingly the impugned order is set aside and the appeal is allowed with consequential reliefs, if any, in accordance with law. Miscellaneous application is disposed of accordingly.

(Pronounced in court on 17/04/2018)