2016 (11) TMI 426 - AT - Central Excise

Assembly not manufacturing for excise duty unless resulting product classifiable; Tribunal dismisses Revenue appeal.

Commissioner of Central Excise, Mumbai - III Versus Alois Gutenberg Machines Pvt. Ltd.

The Tribunal found that the assembly of machines for a 'turnkey project' did not constitute manufacture for excise duty purposes unless the resulting ... Manufacturing activity or not - assembly of ‘turnkey’ supplies - computer stationary and forms - proceedings were initiated on the basis of section note 4 of Chapter VI of the Tariff - Held that:- The assembly of a system from various equipments as a ‘turnkey project’ may be a professional performance of a specialized contract which would not, however, render such turnkey projects to be manufactured unless the product that emerges is classifiable under one of the specific headings of the tariff. The rule of convenience for determining rate of duty from the classification of the dominant equipment cannot substitute for ascertainment of manufacture as legally understood. The machines supplied by M/s. AGMPL are not having a single clearly defined function and those are capable of working independently. And hence, the congregation of machines supplied and assembled by M/s. AGMPL do not create any independent excisable goods which attract Central Excise duty under chapter heading 84.43 - Demand set aside. Issues:Excisability of turnkey supplies executed by a company; Interpretation of Section XVI of the Central Excise Tariff Act, 1985; Classification of goods; Whether the assembly of various machines constitutes manufacture for excise duty purposes.Analysis:The case involved the excisability of orders for 'turnkey' supplies executed by a company and the interpretation of Section XVI of the Central Excise Tariff Act, 1985. The matter had been before the Tribunal multiple times, with the appellant challenging the orders of the original authority. The Revenue was aggrieved by an order that dropped proceedings for recovery of duty on supplies and machines seized. The Tribunal emphasized the need to ascertain the nature of the activity undertaken by the respondent.The proceedings were initiated based on Note 4 of Section XVI of the Schedule to the Central Excise Tariff Act, 1985. The Tribunal highlighted that excisability can only be attributed to a note in the schedule when expressly deemed as such. Each component of the assembly was considered to be independent stand-alone equipment subject to excise duty upon clearance from their respective factories. The assembly of a system as a 'turnkey project' did not automatically constitute manufacture unless the resulting product was classifiable under specific tariff headings.The Tribunal analyzed the certification by a Chartered Engineer, which indicated that the machines supplied were capable of working independently and did not contribute together to a clearly defined function under the relevant chapter heading. The assembly of machines did not create any independent excisable goods attracting Central Excise duty. Citing relevant case laws and circulars, the Tribunal concluded that the activity of supply and assembly carried out by the company did not amount to manufacture, but rather a trading activity.Based on the clear and unambiguous findings of the adjudicating authority, the Tribunal found no reason to interfere with the impugned order and dismissed the appeal of the Revenue. The cross objection was also disposed of in favor of the respondent. The judgment was pronounced in court on 7th April 2016.