1996 (6) TMI 209 - AT - Central Excise

Manufacture of Turbo-Generator Sets: Excise Duty Ruling

The Tribunal held that the appellants' activity of setting up turbo-generator sets at the site amounts to the manufacture of excisable goods under Heading ... Goods - Immovable property Issues Involved:1. Whether the activity of setting up turbo-generator sets at the site amounts to the manufacture of excisable goods.2. Applicability of Modvat credit on inputs.3. Includibility of notional interest on advances in the assessable value.4. Inclusion of drawing, designing, and erection charges in the assessable value.5. Validity of demanding duty beyond the six-month period u/s 11A of the Central Excises and Salt Act, 1944.6. Justification of the penalty imposed on the appellants.Summary:1. Manufacture of Excisable Goods:The Tribunal held that the appellants' activity of setting up turbo-generator sets at the site amounts to the manufacture of excisable goods under Heading 85.02 of the Central Excise Tariff Act, 1985. The Tribunal rejected the appellants' contention that the turbo-generator sets are immovable property and not goods, stating that the machinery does not meet the test of permanency as laid down by the Supreme Court in the case of Municipal Corporation of Greater Bombay v. Indian Oil Corporation.2. Modvat Credit:The Tribunal acknowledged the appellants' plea for Modvat credit on bought-out items used in the manufacture of turbo-generator sets. The appellants should be extended the facility of Modvat credit subject to establishing the claim with satisfactory evidence of duty payment on the inputs and their use in the manufacture of the final product.3. Notional Interest on Advances:The Tribunal remanded the issue of includibility of notional interest on advances in the assessable value to the Commissioner of Central Excise, Allahabad, for re-determination. The Tribunal emphasized the need to examine the nexus between advances paid by customers and the sale price charged for goods, as guided by the Madras High Court judgment in Lakshmi Machine Works Ltd. v. Union of India.4. Drawing, Designing, and Erection Charges:The Tribunal held that drawing and designing charges are includible in the assessable value as they are necessarily connected with the production of tailor-made turbo-generator sets. Similarly, erection charges, which relate to the final stages of the emergence of the machinery at the site, are also includible in the assessable value.5. Duty Demand Beyond Six Months:The Tribunal found no case for the department to demand duty beyond the six-month period u/s 11A of the Central Excises and Salt Act, 1944, alleging suppression of facts by the appellants. The Tribunal referred to the CBEC Circular dated 6-11-1986, which indicated doubt within the department regarding the dutiability of generator sets assembled at the site, and the Supreme Court judgment in Padmini Products v. Collector of Central Excise, Bangalore.6. Penalty:The Tribunal set aside the penalty imposed on the appellants, stating that there existed circumstances in which the appellants could claim a bona fide belief that their activity of assembling turbine and alternator at the site did not amount to the manufacture of excisable goods.Conclusion:The appeals were disposed of with the following directions:1. The appellants' activity amounts to the manufacture of excisable goods under Heading 85.02 CETA.2. Appellants should be extended Modvat credit on inputs subject to satisfactory evidence.3. The Commissioner should re-determine the issue of includibility of notional interest on advances.4. Drawing, designing, and erection charges are includible in the assessable value.5. No duty demand beyond six months u/s 11A of the Central Excises and Salt Act.6. The penalty on the appellants is set aside.