2006 (6) TMI 27 - AT - Central Excise

Tribunal rules lighting towers not subject to excise duty

The Tribunal ruled in favor of the appellants, setting aside the duty demand and penalties. It held that the appellants were not manufacturers under the ... Manufacture versus trading - de jure manufacturer / job-worker principle - excisability of goods assembled and installed at site - movability and embedment test for levy - assessable value - inclusion of bought-out components - natural justice - opportunity to affected third partiesManufacture versus trading - de jure manufacturer / job-worker principle - assessable value - inclusion of bought-out components - Appellants are not manufacturers within the meaning of Central Excise law and cannot be made liable to pay central excise duty as manufacturers of the lighting towers. - HELD THAT: - The Tribunal held that the factual matrix and earlier findings establish that the towers were fabricated and assembled by independent manufacturers/job workers (notably the decision accepting M/s Telekrit as manufacturer). Reliance on precedent that the job-worker who processes raw material is the manufacturer supports the conclusion that the trading company, which procured orders and got towers made by independent manufacturers, is not the manufacturer for excise purposes. Branding (stickers), warranty claims, or representations made to buyers do not convert a trader into a manufacturer; such acts may only affect the job-worker's entitlement to small-scale exemptions but do not render the trader the de jure manufacturer. Consequently, demands premised on treating the appellants as manufacturers, and on inclusion of bought-out electrical components in the assessable value on that basis, are misdirected. [Paras 3, 5, 6, 7, 10]Demand and penalties founded on treating the appellants as manufacturers are set aside; appellants are not liable as manufacturers.Excisability of goods assembled and installed at site - movability and embedment test for levy - Lighting towers erected/installed at site that are embedded to earth or fixed to civil structure are not exigible to central excise duty where they are immovable in character. - HELD THAT: - Applying settled authorities and administrative guidance, the Tribunal found that where towers are erected/installed at site and become embedded or affixed such that they are immovable, they do not attract central excise. The capacity of the item to be dismantled and shifted without substantial damage or extraordinary labour is relevant; where items are effectively immovable once erected, they fall outside excise levy. The Tribunal followed precedents holding that site-erected immovable goods are not exigible and saw no reason to uphold the Commissioner's contrary conclusion. [Paras 3, 8, 9, 10]The towers erected/installed at site do not attract central excise; the demand cannot be sustained on this basis.Natural justice - opportunity to affected third parties - Findings adverse to the appellants based on information about independent manufacturers who were not afforded an opportunity to be heard are unsafe. - HELD THAT: - The Tribunal observed that the Commissioner relied on reports and conclusions regarding the independent manufacturers without giving those manufacturers an opportunity to rebut or clarify, which renders such findings unfair. Where conclusions about the identity or role of third-party manufacturers materially affect the assessment of the appellant, denial of opportunity to those third parties undermines the validity of the impugned order. In the present case, this deficiency contributed to the setting aside of the demand. [Paras 4, 10]Findings predicated on material concerning independent manufacturers who were not heard are void in fairness and contribute to the setting aside of the demand and penalties.Final Conclusion: The Tribunal set aside the duty demands and penalties against the appellants, holding they cannot be treated as manufacturers for central excise purposes and that site-erected lighting towers that are immovable do not attract excise; findings based on material from independent manufacturers who were not given an opportunity to be heard were also held to be unsafe. Issues Involved:1. Classification of the activity as trading or manufacturing.2. Determination of the manufacturer for Central Excise purposes.3. Applicability of Central Excise duty on the lighting towers.4. Legality of the show cause notice and procedural fairness.5. Excisability of goods assembled and installed at site.Detailed Analysis:1. Classification of the Activity as Trading or Manufacturing:The appellants contended that their activity was purely trading. However, the Commissioner concluded that the activities were covered under the definition of manufacture. The Commissioner noted that the appellants procured orders, got tower structures fabricated, and attached essential lighting components, thereby manufacturing the final product classified under Heading No. 85.43. The Commissioner also observed that the appellants' invoices, transportation documents, and packing slips indicated that the goods were received by customers under the appellants' cover, and the appellants assembled the components at the site.2. Determination of the Manufacturer for Central Excise Purposes:The Tribunal emphasized that M/s. Telekrit Electricals (Nagpur) Pvt. Ltd. had been previously accepted as a manufacturer of such lighting towers. The Tribunal held that since these manufacturers were recognized as independent manufacturers, the appellants, who were traders, could not be considered manufacturers. The Tribunal referenced the Apex Court's decision in Ujagar Prints, which established that job workers are the manufacturers even if raw materials are supplied by traders.3. Applicability of Central Excise Duty on the Lighting Towers:The Commissioner argued that the lighting towers were not immovable property and could be dismantled and reassembled, making them excisable. However, the Tribunal found that the lighting towers, once assembled and installed at the site, became immovable property and were not subject to Central Excise duty. The Tribunal relied on previous rulings, including the Central Coalfields Ltd. and Aruna Industries cases, which held that such towers embedded into the earth were not leviable to duty.4. Legality of the Show Cause Notice and Procedural Fairness:The Tribunal noted that M/s. Orbit and M/s. Telekrit were not given an opportunity to substantiate their identity as independent manufacturers during the issuance of the show cause notice. This procedural lapse rendered the Commissioner's findings biased and void. The Tribunal emphasized the need for fairness and adherence to procedural requirements in the issuance of show cause notices.5. Excisability of Goods Assembled and Installed at Site:The Tribunal reiterated the settled position that goods assembled and installed at the site, which become immovable property, are not excisable. The Tribunal referenced the TTG and Triveni Engineering Industries cases and the CBEC Circular No. 58/1/2002-CX, which supported this view. The Tribunal concluded that the lighting towers, once installed and embedded to earth, were not movable and thus not subject to Central Excise duty.Conclusion:The Tribunal set aside the duty demand and penalties imposed on the appellants. The appeals were allowed, and the Tribunal held that the appellants could not be considered manufacturers under the Central Excise Act, 1944. The lighting towers, once installed at the site, were deemed immovable property and not subject to excise duty.