2026 (3) TMI 740 - AT - Central Excise

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 ... Excise liability on activity of assembling components into Rural Load Management Units (RLMUs) - 'manufacture' under Section 2(f) - marketability of the goods - invocation of extended period of limitation under proviso to Section 11A. Classification of assembly as manufacture - job-worker as manufacturer - turnkey projects and excisability of assembled components - HELD THAT: - The Tribunal accepted the factual findings that the assembly activity at the site was undertaken by independent contractors/job-workers and noted and applied the departmental circulars which treat a job-worker as the manufacturer where the relationship is principal-to-principal and the job-worker is an independent entity. It also applied the circular treating turnkey projects as not creating excisable goods where components remain dutiable in the normal course. The record showed that appellant and its contractors had registered for and discharged service tax for erection/commissioning, components used were duty-paid, and the assembly was carried out to specifications for on-site installation. On these facts the Tribunal found that the appellant could not be regarded as the manufacturer of excisable goods and therefore was not liable to central excise duty on the assembled RLMUs. [Paras 19] Assembly of the components into RLMUs did not amount to manufacture and the appellant is not liable to pay central excise duty on the assembled RLMUs Invocation of extended period of limitation under proviso to Section 11A - requirement of intention to evade duty - HELD THAT: - The Tribunal found that the department had prior knowledge of the assembly activity (including audit references and recovery of service tax by earlier contractors), and the appellant had registered for and discharged service tax for erection/commissioning, thereby negating any basis to infer an intention to evade duty. In the absence of material establishing intention to evade, invocation of the proviso to Section 11A to extend the period of limitation was unsustainable. [Paras 20] Demand confirmed by invoking the extended period of limitation was unsustainable and cannot be upheld Final Conclusion: The impugned orders confirming central excise demand and invoking extended limitation were set aside; appeals allowed and consequential relief granted in accordance with law. 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.