2000 (8) TMI 86 - SC - Central Excise

Turbo alternators installed on site are immovable property, not excisable goods under Heading 85.02; appeal allowed.

SC held that turbo alternators erected on a site constitute immovable property and are not excisable goods under Heading 85.02. The Court found the ... Liability to excise duty on turbo alternators under Heading 85.02 - manufacture steam turbine - purchase duty paid complete alternators - Appellants resisted the claim on the ground that (i) a turbo alternator set comes into existence on its being fixed permanently on the land as such it is not an excisable good but an immovable property and (ii) by the combination of 'steam turbine' and alternator, a turbo alternator emerges at the site of the customers which does not involve any process of manufacturing, therefore, they are not liable to excise duty. Held that:- In the instant case it is a common ground that a turbo alternator comes into existence only when a steam turbine and alternator with all their accessories are fixed at the site and only then it is known by a name different from the names of its components in the market. The Tribunal recorded the finding that fixing of steam turbine and the alternator is necessitated by the need to make them functionally effective to reduce vibration and to minimise disturbance to the coupling arrangements and other connections with the related equipments. It also noted that removal of the machinery does not involve any dismantling of the turbine and alternator in the sense of pulling them down or taking them to pieces but only undoing the foundation bolts arrangement by which they are fixed to the platform and uncoupling of the two units and, therefore, the turbo alternator did not answer the test of permanency laid down by this Court in the case of Municipal Corporation of Greater Bombay [1990 (11) TMI 407 - SUPREME COURT]. In our view, the findings recorded do not justify the conclusion of the Tribunal inasmuch as on removal a turbo alternator gets dismantled into its components - steam turbine and alternator. It appears that the Tribunal did not keep in mind the distinction between a turbo alternator and its components. Thus, in our view, the test of permanency fails. The marketability test requires that the goods as such should be in a position to be taken to the market and sold and from the above findings it follows that to take it to the market the turbo alternator has to be separated into its components - turbine and the other alternator - but then it would not remain turbo alternator, therefore, the test is incorrectly applied. Though, there is no finding that without fixing to the platform such turbo alternator would not be functional, it is obvious that when without fixing, it does not come into being, it can hardly be functional. From a perusal of the Explanatory Notes, it is clear that when generating sets consisting of the generator and its prime base mover are mounted together as one unit on a common base they are classified under the Heading 85.02; in this connection floors, concrete bases, walls, partitions, ceilings etc., even if specially fitted out to accommodate machines or appliances, cannot be regarded as a common base joining such machines or appliances to form a whole. On a combined reading of the Explanatory Notes, extracted above, there can be no difficulty in inferring that installation or erection of turbo alternator on the concrete base specially constructed on the land cannot be treated as a common base and, therefore, it follows that installation or erection of turbo alternator on the platform constructed on the land would be immovable property, as such it cannot be 'excisable goods' falling within the meaning of Heading 85.02. For these reasons, we are of the view that the Tribunal is not correct in coming to the conclusion that the turbo alternator is excisable goods. We, therefore, set aside the order under appeal and allow these appeals with costs. Issues Involved:1. Whether combining steam turbine and alternator constitutes a manufacturing process.2. Whether the resulting turbo alternator is an excisable good or an immovable property.3. Applicability of Entry 85.02 of the Central Excise Tariff Act, 1985 to turbo alternators.4. Marketability and mobility of turbo alternators.5. Relevance of Circular No. 17/89 issued by the Central Board of Excise & Customs.Detailed Analysis:1. Whether combining steam turbine and alternator constitutes a manufacturing process:The appellants contended that combining steam turbine and alternator does not involve any manufacturing process but merely results in an immovable property. The CEGAT observed the process at the site, where the steam turbine and alternator were transported, placed, bolted, and aligned on a platform. The Tribunal held that this process indeed constituted manufacturing, as it resulted in the emergence of a new product, turbo alternator, with a distinctive name, character, and use.2. Whether the resulting turbo alternator is an excisable good or an immovable property:The appellants argued that the turbo alternator, being fixed permanently on the land, should be considered immovable property and thus not subject to excise duty. The Tribunal, however, found that the turbo alternator did not meet the test of permanency. It noted that the removal of the machinery did not involve dismantling but merely undoing foundation bolts and uncoupling the units. The Supreme Court, however, disagreed, emphasizing that the turbo alternator, when removed, would be dismantled into its components, failing the test of permanency and thus not being excisable goods.3. Applicability of Entry 85.02 of the Central Excise Tariff Act, 1985 to turbo alternators:The Tribunal concluded that turbo alternators fell under Entry 85.02 of the CET Act, which covers electric generating sets and rotary converters. The Supreme Court examined the entry and the explanatory notes from the Harmonized System of Nomenclature (HSN), concluding that installation or erection of turbo alternators on a concrete base does not constitute a common base as per the HSN notes. Therefore, turbo alternators installed on such bases are immovable property and do not fall under Entry 85.02.4. Marketability and mobility of turbo alternators:The Tribunal's findings suggested that turbo alternators, being fixed to a platform, were marketable. The Supreme Court, however, highlighted that for marketability, the goods as such should be capable of being taken to the market and sold. Since turbo alternators, when dismantled, would not remain as turbo alternators but revert to their components, they failed the marketability test.5. Relevance of Circular No. 17/89 issued by the Central Board of Excise & Customs:The appellants cited Circular No. 17/89 to support their claim that turbo alternators do not fall under Entry 85.02. The respondents countered that the circular did not relate to electric generators and was not issued under Section 37-B of the Act. The Supreme Court did not find it necessary to delve into the circular's relevance, given the conclusions drawn from the other issues.Conclusion:The Supreme Court concluded that the Tribunal erred in classifying turbo alternators as excisable goods. The process of combining steam turbine and alternator constitutes manufacturing, but the resulting product, being an immovable property, does not meet the criteria of excisable goods under the CET Act. The turbo alternator's installation on a concrete base further supports its classification as immovable property. Consequently, the Supreme Court set aside the Tribunal's order and allowed the appeals with costs.