1994 (12) TMI 75 - SC - Central Excise

Tube mill and welding head embedded in earth not assessable to excise duty under Tariff Item 68

The SC held that a tube mill and welding head erected and installed by the appellant were not assessable to excise duty under residuary Tariff Item No. ... Excisable goods - marketability test - goods attached to the earth (immovable property) - levy under Section 3 of the Central Excises & Salt Act, 1944 - residuary tariff item No. 68Excisable goods - marketability test - goods attached to the earth (immovable property) - residuary tariff item No. 68 - Whether the tube mill and welding head erected and installed by the appellant were exigible to excise duty as 'excisable goods' under the residuary tariff item No. 68. - HELD THAT: - The Court applied the established twofold test for excise exigibility: an article must be a 'good' within the meaning of the Act (i.e., an item capable of being brought within the market) and must be marketable. Goods which are attached to the earth and thereby become immovable do not satisfy the requirement of being goods capable of being brought to market. The tube mill and welding head, though assembled from market-purchased components, were erected, embedded in the earth and installed as integral parts of the factory expansion; having become immovable, they ceased to be movable 'goods' for purposes of levy under the Act and thus failed the marketability test. Consequently, they were not exigible to duty under the residuary tariff item No. 68. [Paras 5, 6, 7]The tube mill and welding head erected and installed by the appellant were not exigible to excise duty as excisable goods under residuary tariff item No. 68.Final Conclusion: The appeal is allowed; the Tribunal's order is set aside and it is held that the installed tube mill and welding head do not attract excise duty as excisable goods under the Act. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:(a) Whether the tube mill and welding head, erected and installed by the appellant for manufacturing steel tubes and pipes out of duty paid raw material, constituted 'excisable goods' under the Central Excises & Salt Act, 1944 (the 'Act') and were therefore assessable to excise duty under the residuary tariff item No. 68 of the Schedule.(b) Whether the plant and machinery, once embedded to the earth and installed at the factory site, retained the character of movable goods capable of being brought to market and thus liable to excise duty.(c) Whether the erection and installation of such plant and machinery could be treated as manufacture of excisable goods attracting duty under the Act.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Whether the tube mill and welding head installed by the appellant are excisable goods liable to dutyRelevant legal framework and precedents: Levy and collection of excise duty under Section 3 of the Act apply to 'excisable goods' produced or manufactured. Section 2(d) defines 'excisable goods' as goods specified in the Schedule to the Central Excise Tariff Act, 1985, including salt. The twin test for exigibility of duty, as established in a series of Supreme Court decisions beginning with Union of India v. Delhi Cloth and General Mills Co. Ltd. (1963), is that the article must be (i) a 'good' as understood in commercial parlance, and (ii) marketable or capable of being brought to market for sale. The Court reiterated this in Collector of Central Excise v. Ambalal Sarabhai Enterprises and Union Carbide India Ltd. v. Union of India & Ors., emphasizing that marketability implies movability.Court's interpretation and reasoning: The Court examined whether the tube mill and welding head, once installed and embedded to earth at the appellant's factory, retained the status of movable goods capable of being marketed. It was held that goods which become attached to the earth lose their character as movable goods and thus cannot be considered 'goods' within the meaning of the Act. Since excise duty applies only to movable goods capable of being brought to market, the embedded plant and machinery could not be treated as excisable goods.Key evidence and findings: The appellant had installed the tube mill and welding head as part of an expansion project, embedding various components such as uncoiler, looper, leveler, motors, gearboxes, and welding heads into the earth. The revenue contended that the machinery was transportable and saleable, citing the imported welding head and assembled tube mill, and thus liable to duty. The appellant argued that the installation rendered the plant immovable and not capable of being sold or transported.Application of law to facts: The Court applied the established legal test of marketability and movability to the facts, concluding that the plant and machinery, being embedded and immovable, did not satisfy the definition of 'goods' liable to excise duty. The mere fact that components were purchased from the market and assembled did not convert the installed plant into excisable goods if it was immovable and not capable of being sold or transported.Treatment of competing arguments: The revenue's argument that the goods were capable of being brought to market and hence liable to duty was acknowledged. However, the Court distinguished that the test of marketability requires movability, which was absent here due to the plant's being embedded. The Court rejected the revenue's contention that the erection and installation of plant could itself be treated as manufacture of excisable goods, noting that such an interpretation would unreasonably extend excise duty to structures and installations not intended to be covered under the Act.Conclusions: The tube mill and welding head, once erected and embedded in the factory premises, ceased to be excisable goods within the meaning of the Act. They were immovable and not marketable goods, hence not liable to excise duty.Issue (c): Whether erection and installation of the plant and machinery amount to manufacture of excisable goods attracting dutyRelevant legal framework and precedents: Section 3 of the Act imposes duty on excisable goods produced or manufactured. Manufacture implies making or producing goods capable of being excised. The Court has consistently held that only movable goods capable of being bought and sold can be excisable.Court's interpretation and reasoning: The Court reasoned that erection and installation of plant and machinery is a process of setting up immovable property and does not constitute manufacture of excisable goods. To hold otherwise would result in levying duty on structures, erections, and installations, which is not the legislative intent.Key evidence and findings: The appellant's plant and machinery were installed as a part of its factory expansion and embedded into the earth, making them immovable. The revenue's claim that the machinery was marketable was negated by the physical facts of immovability.Application of law to facts: The Court applied the principle that manufacture under the Act must relate to movable goods and held that erection and installation of immovable plant does not amount to manufacture of excisable goods, hence no duty could be levied.Treatment of competing arguments: The revenue's broad interpretation to include installation as manufacture was rejected to avoid an unreasonable extension of excise duty to immovable property.Conclusions: The erection and installation of the tube mill and welding head do not amount to manufacture of excisable goods and are not liable to excise duty.3. SIGNIFICANT HOLDINGSThe Court held:'Goods which are attached to the earth and thus become immovable do not satisfy the test of being goods within the meaning of the Act nor can it be said to be capable of being brought to the market for being bought and sold.''The basic test, therefore, of levying duty under the Act is two fold. One, that any article must be a good and second, that it should be marketable or capable of being brought to market.''Erection and installation of a plant cannot be held to be excisable goods. If such wide meaning is assigned it would result in bringing in its ambit structures, erections and installations. That surely would not be in consonance with accepted meaning of excisable goods and its exigibility to duty.'Accordingly, the Court concluded that the tube mill and welding head erected and installed by the appellant as part of its factory expansion were not excisable goods liable to duty under the Act. The appeal was allowed, and the order of the Tribunal holding otherwise was set aside.