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 ... Manufacture - excisable goods - marketability and mobility test - immovable property versus movable goods - permanency test - classification under Heading 85.02 - electric generating sets - HSN Explanatory Note on common baseManufacture - weighbridge precedent - Whether the activity of combining and fixing the steam turbine and alternator at site amounts to a process of manufacture. - HELD THAT: - The Court examined the factual process at site - construction of a platform with pockets, placement and bolting of the steam turbine and the alternator, high-speed coupling and alignment, and installation of accessories - and accepted the CEGAT's finding that these operations result in the emergence of a new product known in the market as a turbo alternator. Relying on precedent that assembly or fitting of components into a complete article having a distinctive name, character or use constitutes manufacture, the Court held that the specified assembling, coupling and alignment operations amounted to a manufacturing process. [Paras 8, 11]The process of combining and fixing the steam turbine and alternator in the specified manner at site constitutes manufacture.Excisable goods - marketability and mobility test - immovable property versus movable goods - classification under Heading 85.02 - electric generating sets - HSN Explanatory Note on common base - permanency test - Whether a turbo alternator, so produced or assembled at site, is 'excisable goods' classifiable under Heading 85.02 and therefore exigible to excise duty. - HELD THAT: - The Court applied the twin tests for excisability - that the article must be 'goods' capable of being brought to market (mobility and marketability) - and examined whether the installation on a concrete platform constituted a 'common base' so as to bring the assembled unit within Heading 85.02. Relying on HSN Explanatory Notes (approved by this Court) which classify generating sets mounted together on a common base as falling under Heading 85.02 but exclude floors or concrete bases specially fitted to accommodate machines from being regarded as a common base, the Court concluded that the turbo alternator comes into being only when its duty-paid components are fixed on a platform constructed on the land. The Court found that on removal the unit is dismantled into its components and that the platform cannot be treated as a common base joining the machines into a single marketable article. Consequently the turbo alternator, as installed on the concrete base, fails the marketability/mobility test and is to be treated as immovable property for the purpose of excise exigibility. [Paras 12, 22, 23]A turbo alternator installed on a platform constructed on land is not 'excisable goods' under Heading 85.02 and is not exigible to excise duty.Final Conclusion: Although the on-site assembling and coupling of the steam turbine and alternator amounts to manufacture, the turbo alternator as installed on the concrete platform falls to be treated as immovable for excise purposes and does not satisfy the marketability/mobility test under Heading 85.02; the Tribunal's order upholding exigibility is set aside and the appeals are allowed 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.