Fabrication of steel structurals at a construction site held not to be manufacture or excisable goods

Mere cutting, drilling, welding, fastening, riveting and assembling of duty-paid steel sections at a project site did not amount to manufacture under central excise law because the members retained their identity as structural components and no commercially new and distinct article emerged. The site used for the fabrication and erection work was treated as part of a construction project, not a factory in the statutory sense. The fabricated members, being incorporated into a permanent works contract and not marketable as movable goods, were not goods exigible to central excise duty. The Department's appeals therefore failed and the excise demand was set aside.

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Issues: (i) Whether the fabrication and erection of steel structurals amounted to manufacture under Section 2(f) of the Central Excises and Salt Act, 1944; (ii) Whether the site where the work was carried out was a factory within Section 2(m) of the Factories Act; (iii) Whether the fabricated structurals were goods exigible to central excise duty.

Issue (i): Whether the fabrication and erection of steel structurals amounted to manufacture under Section 2(f) of the Central Excises and Salt Act, 1944.

Analysis: The processes consisted mainly of cutting, drilling, welding, fastening, riveting and assembling duty-paid steel sections according to the project drawings. The resulting members retained their basic identity as angles, channels, beams and sheets and were adapted for a particular use in construction. The work did not bring into existence a commercially new and distinct article with a separate name, character and use in the market. The contract and the spot inspection also showed that the activity was part of erection work rather than a manufacturing activity in the accepted excise sense.

Conclusion: The activity did not amount to manufacture.

Issue (ii): Whether the site where the work was carried out was a factory within Section 2(m) of the Factories Act.

Analysis: The fabrication was undertaken at the project site as part of construction and erection work. The workers were engaged only for the duration of the project and were not part of a continuing industrial establishment. The site functioned as a construction yard for the particular contract and not as a factory in the statutory sense relevant to excise control.

Conclusion: The site was not a factory for the purpose of the proceedings.

Issue (iii): Whether the fabricated structurals were goods exigible to central excise duty.

Analysis: The fabricated members were incorporated into a permanent structure and were not marketable goods capable of being treated as movable property. Since the fabricated items were part of an indivisible works contract and remained attached to the earth as components of the completed shed or structure, they could not be treated as excisable goods attracting duty.

Conclusion: The fabricated structurals were not goods exigible to central excise duty.

Final Conclusion: The Department's appeals failed and the assessee's challenge succeeded, resulting in the setting aside of the excise demand on the fabricated steel structurals.

Ratio Decidendi: Mere cutting, drilling, welding and assembly of duty-paid steel sections at a construction site, where the resulting members remain identifiable as structural components of a permanent works contract and do not become commercially distinct marketable goods, does not amount to manufacture for central excise purposes.

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