On-site assembly not manufacture: turnkey erection with duty-paid components and prior disclosure negates excise liability.

On-site assembly of Rural Load Management Units performed as part of turnkey erection and commissioning contracts using duty-paid components and executed by subcontractors under a principal-to-principal relationship does not satisfy the manufacture test or independent marketability under Section 2(f); therefore no excise liability arises on the assembled units. Where the department had prior knowledge and contractors registered and discharged tax for erection/installation services, there is no suppression of facts to justify invoking the extended limitation proviso to Section 11A, rendering the demand time-barred and orders setting aside appropriate.

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Issues: (i) Whether the activity of assembling components into Rural Load Management Units (RLMUs) at site amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944; (ii) Whether the demand can be confirmed by invoking the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944.

Issue (i): Whether on the facts the assembly activity amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944.

Analysis: Evidence on record indicates that assembled units were produced at the project site as part of a turnkey/erection and commissioning contract; components were duty-paid and supplied for on-site assembly; subcontractors performed assembly work under a principal-to-principal relationship and carried out operations at the site. Circular No. 56/56/94-CX and Circular No. 58/1/2002-CX distinguish job-worker manufacture and turnkey/installation projects for excise liability; marketability requires capability of the product to perform its specific function when removed. The factual matrix shows assembly per site specifications and that the assembled unit without all components was not independently marketable prior to final commissioning. Registration and tax compliance under erection and commissioning services and prior disclosure to the department are material to classification.

Conclusion: The assembly activity does not amount to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944; therefore no excise liability arises on the assembled RLMUs.

Issue (ii): Whether invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944 is sustainable.

Analysis: The department had prior knowledge of the on-site assembly operations and the contractors had registered and discharged service tax for installation/erection activities; there is no contemporaneous material establishing suppression of facts or an intention to evade duty. Where disclosure to the department exists and the transactions were within departmental knowledge, the requirement for invoking the extended period based on suppression of facts is not satisfied.

Conclusion: Invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944 is not sustainable; the demand is time-barred.

Final Conclusion: The impugned orders confirming duty, interest and penalties are set aside and the appeals are allowed with consequential relief in accordance with law.

Ratio Decidendi: Where on-site assembly is performed as part of a turnkey/erection and commissioning contract with duty-paid components, prior departmental knowledge and registration for erection/commissioning services negates the finding of manufacture and the presence of suppression of facts necessary to invoke the extended limitation proviso to Section 11A of the Central Excise Act, 1944.

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