2025 (12) TMI 1072 - AT - Central Excise

Fabricating steel trusses, columns and girders from duty-paid inputs-cutting/welding CKD shed parts held not 'manufacture' u/s2(f)

Fabrication of truss, columns, girders and other structural components from duty-paid iron and steel items was assessed to determine whether it amounted ... Process amounting to manufacture or not - fabrication of truss, columns, girders and other structural components in the respondent's factory, out of duty-paid iron and steel items - Cenvat credit passed without receiving the goods - failure to consider CBEC Circular No 107/18/95-CX dated 02.03.1995 - non-consideration of the fact that the Adjudicating authority in his findings stated that the assessee had not produced any concrete evidence before him to prove that the inputs were actually received in their factory and accounted for in their records. HELD THAT:- The respondent has manufactured truss, columns, girders, etc., as per the layout of the given structures. They use Angles, Channels, Plates, Joists, Tubes, Rods, etc., for fabrication of the said structures. The said materials are cut and then welded together to fabricate the impugned goods in their factory. The structural items that came in their workshop were unassembled part of shed, intended for erection at the customers’ site. It is observed that these unassembled parts were tailor made goods, removed in CKD condition and they are not goods capable of being bought and sold in the market. Further, it is noted that the respondent’s submission that they have paid Service Tax on the services rendered by them and thus the services rendered by them are, in fact, rightly classifiable under the category of ‘works contract service’. Thus, the Respondents have not undertaken any manufacturing activity chargeable to central excise duty. Regarding the reliance placed by the Revenue on the decision in the case of Mahindra & Mahindra Ltd. v. Commissioner of C.Ex., Aurangabad & ors. [2005 (11) TMI 103 - CESTAT, NEW DELHI], it is found that in the said case, fabrication of iron and steel structures like roof frame of sheds at the construction site was considered as a process amounting to manufacture. However, in the present case, the activity undertaken by the respondent would amount to undertaking works contract service. Further, there is no evidence available on record to prove that the goods were capable of being marketed and hence, the process undertaken by them cannot be termed as ‘manufacture’ as defined under Section 2(f) of the Central Excise Act, 1944. Thus, the decision in the case of Mahindra & Mahindra Ltd. cited by the Revenue is also distinguishable from the facts and circumstances of the present case. There are no infirmity in the order dropping the proceedings against the respondent passed by the Ld. Commissioner (Appeals) - the impugned order dated 19.03.2018 passed by the Commissioner (Appeals) - appeal of Revenue rejected. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether fabrication of truss, columns, girders and other structural components in the respondent's factory, out of duty-paid iron and steel items, resulted in 'manufacture' of excisable goods under Section 2(f) of the Central Excise Act, 1944. (2) Whether the structural components so fabricated, being tailor-made parts of factory sheds removed in unassembled/CKD condition to customers' sites, satisfied the test of 'goods' and 'marketability' under Section 2(d) of the Central Excise Act, 1944. (3) Whether, in the facts of the case, the respondent's activity was more appropriately classifiable as provision of works contract service rather than manufacture of excisable goods. (4) Whether the precedents relied on by the Revenue (relating to fabrication of steel structures) were applicable to the present facts. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1) & (2): Whether fabrication in factory amounted to manufacture of excisable, marketable goods Legal framework (as discussed by the Court/Tribunal) (a) Section 2(d) of the Central Excise Act, 1944 - Explanation that 'goods' include any article or material which is capable of being bought and sold for a consideration, and such articles shall be deemed to be marketable. (b) The Court reiterated that excisability requires a 'twin test': (i) the article must be manufactured; and (ii) it must be capable of being marketed / saleable and known to the market as a distinct commodity. (c) Reliance placed (through the Commissioner (Appeals)) on the Supreme Court decision in Gujarat Narmada Valley Fert. Co. Ltd. v. Collector of C.Ex. & Cus., affirming that mere specification in the Tariff does not suffice; marketability (capability of being sold/known in the market) is essential. Interpretation and reasoning (d) The respondent fabricated truss, columns, girders and similar structural items in its factory from Angles, Channels, Plates, Joists, Tubes, Rods etc., as per the layout and specifications of individual customers' factory sheds. (e) The fabricated items were removed in parts/unassembled (CKD condition) from the factory to the customers' sites, where they were assembled and erected as factory sheds permanently embedded to earth. The final erected sheds were undisputedly non-excisable. (f) The Tribunal endorsed the finding that the impugned structural components were tailor-made, intermediate parts of specific factory sheds, made solely to the design and requirement of particular clients, and not capable of any general or independent use elsewhere. (g) The only 'customer' for each set of impugned goods was the particular client for whom the shed was being erected; the components were not goods that could be brought to the general market for sale, nor shown to be bought or sold as a commodity in the market. (h) The purchase orders examined showed provisions for VAT and Service Tax on erection, with no reference to payment of central excise duty on the fabricated structural parts, supporting the finding that the transaction was not treated by the parties as involving sale of excisable goods. (i) The Department did not adduce any evidence to show that similar tailor-made structural components were bought and sold in the market as goods, or that the specific impugned items were capable of being marketed. (j) The Court agreed with the Commissioner (Appeals) that, although the items are classifiable as 'steel structures' under the Central Excise Tariff, this classification alone does not render them excisable in the absence of proof of marketability. Conclusions (k) The structural items, being tailor-made, unassembled parts of factory sheds intended solely for specific clients and not shown to be capable of being bought and sold in the market, did not satisfy the test of 'goods' and 'marketability' under Section 2(d). (l) Consequently, the process carried out by the respondent did not result in manufacture of excisable goods for the purposes of Section 2(f) and Section 3 of the Central Excise Act, 1944. (m) On this ground, the demand of central excise duty, interest and penalties was unsustainable. Issue (3): Characterisation of activity as works contract service rather than manufacture Interpretation and reasoning (n) The respondent had contracts with customers for supply, fabrication, transportation and erection of structural work (factory sheds) at customers' sites. (o) The Tribunal noted the respondent's submission, accepted by the Commissioner (Appeals), that Service Tax had been paid on the services rendered under the category of 'works contract service.' (p) The Court observed that the overall activity, viewed as a composite contract for supply and erection of factory sheds permanently embedded to earth, was more appropriately treated as provision of works contract service, rather than manufacture of distinct excisable goods. (q) In the absence of marketable goods emerging, the process could not be treated as manufacture under Section 2(f); instead, the tax liability properly arose under Service Tax on works contract, already discharged by the respondent. Conclusions (r) The respondent's activity constituted works contract service involving fabrication and erection of factory sheds, not manufacture of excisable goods. (s) No central excise duty was chargeable on the fabricated structural components in the circumstances of the case. Issue (4): Applicability of precedents cited by Revenue Interpretation and reasoning (t) In the decision concerning Richardson & Cruddas Ltd., the fabricated goods were sold to customers as marketable commodities. The Tribunal distinguished that case on the factual ground that, in the present matter, the goods were tailor-made to individual client specifications, and no evidence existed of their being sold or capable of being sold in the open market. (u) In the Mahindra & Mahindra Ltd. decision, fabrication of iron and steel structures like roof frames at site was treated as a process of manufacture. The Tribunal held that this precedent was inapplicable because, in the present case, the activity was in the nature of a works contract, and-critically-there was no evidence that the impugned goods were marketable. (v) The Tribunal emphasized that, in both authorities relied on by Revenue, either the goods were sold or the issue was distinct; by contrast, the decisive feature in the present case was absence of marketability and the works-contract nature of the transaction. Conclusions (w) The precedents cited by the Revenue were factually distinguishable and did not govern the present case. (x) The Commissioner (Appeals) correctly relied on the Supreme Court's marketability jurisprudence to hold the impugned goods non-excisable. Overall Conclusion (y) The fabricated structural components removed from the respondent's factory were not 'goods' within the meaning of Section 2(d), and their fabrication did not amount to 'manufacture' of excisable goods under Section 2(f). The respondent's activity was in the nature of works contract service on which Service Tax had been paid. The order of the Commissioner (Appeals) dropping the excise duty demand, interest and penalties was upheld, and the Revenue's appeal was rejected.