Turnkey boiler valuation: essential bought-out items count in assessable value, while site-erected immovable installations resist excise treatment.

In a turnkey boiler supply arrangement, essential bought-out items sent directly to the customer's site were held includible in assessable value because they formed part of the completed machine and were necessary for its functioning. The text also distinguishes factory manufacture from site erection, noting that an installation which emerges as immovable property cannot be treated as a completed movable excisable product without a sustainable valuation basis and proper jurisdiction. On the alternate footing, Notification No. 67/95-CE was treated as potentially applicable where the goods were manufactured and used within the customer's industrial premises. The combined effect was that the duty, interest and penalties were described as unsustainable.

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Issues: (i) Whether the value of bought-out items supplied directly to the customer's site was includible in the assessable value of boilers and other equipment manufactured under turnkey contracts; (ii) whether erection and commissioning at site could be treated as manufacture so as to sustain duty demand when the final system came into existence as an immovable property outside the factory premises and the adjudicating commissionerate's jurisdiction; (iii) whether exemption under Notification No. 67/95-CE could apply if the goods erected at site were treated as excisable.

Issue (i): Whether the value of bought-out items supplied directly to the customer's site was includible in the assessable value of boilers and other equipment manufactured under turnkey contracts.

Analysis: The contractual scheme showed that the manufacturer undertook design, manufacture, supply, erection and commissioning as one composite arrangement, and the bought-out items were not casual trading supplies but components chosen for the specific boiler or equipment. The record showed that several of those items were essential to make the boiler functional and to complete the contracted supply. The Court also noted that the goods cleared from the factory were not the finished installed system but incomplete machines cleared in unassembled condition, and that the value of essential items used to complete the contracted machine could not be excluded merely because those items were shipped directly to site and not routed through the factory. The Board circular and the earlier decisions in the assessee's own matters reinforced that essential components forming part of the machine's functioning are relevant to valuation.

Conclusion: The value of essential bought-out items was includible in the assessable value, and the assessee's challenge on this aspect failed.

Issue (ii): Whether erection and commissioning at site could be treated as manufacture so as to sustain duty demand when the final system came into existence as an immovable property outside the factory premises and the adjudicating commissionerate's jurisdiction.

Analysis: The Court accepted the distinction between manufacture of parts in the factory and the later site erection activity. It held that the case against the assessee was not based on taxing the immovable structure as such, but on valuing the excisable goods cleared from the factory in incomplete form and completed at site under the turnkey contract. Even so, the Court found merit in the assessee's submission that what emerged at site was an immovable property and that the site-based controversy over excisability and valuation could not be determined by the Pune Commissionerate merely because the factory was within its territory. The Court relied on the settled line of authorities that site-erected plants and similar structures, once embedded and incapable of movement without dismantling, do not answer the ordinary test of excisable goods as a completed movable product.

Conclusion: The site erection issue and the jurisdiction objection were accepted in favour of the assessee.

Issue (iii): Whether exemption under Notification No. 67/95-CE could apply if the goods erected at site were treated as excisable.

Analysis: The Court held that, even on the Revenue's own hypothesis that the erected machinery at site could be treated as excisable, the goods were capital goods used within the customer's premises in the manner contemplated by the exemption notification. Since the machinery was manufactured and used within the factory premises of the customer's industrial establishment, the notification would answer the demand, and the Revenue's case therefore could not survive on that alternate footing.

Conclusion: The exemption contention was accepted in principle and provided an additional ground against the duty demand.

Final Conclusion: The duty, interest and penalties confirmed in the impugned orders were not sustainable on the combined merits and jurisdictional grounds urged in the appeals, and the appellants were entitled to relief.

Ratio Decidendi: Where a turnkey supply involves an incomplete machine cleared from the factory and essential bought-out components are directly supplied to site to complete that machine, the value of such essential components is includible in assessable value; however, site-erected structures that emerge as immovable property cannot be taxed as excisable goods in the absence of a legally sustainable valuation basis and proper jurisdiction.

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