2006 (12) TMI 3 - SC - Central Excise

Supreme Court Rules Cold Storage & Air-Conditioning Plants Not Taxable Under Excise Law.

The Supreme Court dismissed the appeals challenging the final order by CEGAT, affirming that the refrigeration plant, cold storage plant, central ... Excisability of plant and machinery assembled at site - manufacture resulting in a new identity, character and use - marketability of resultant goods - immovable property and attachment to earth - assembly into a system versus fabrication of a new machine - Circular No.581/2002 - CX (clarification under Section 37B)Excisability of plant and machinery assembled at site - assembly into a system versus fabrication of a new machine - manufacture resulting in a new identity, character and use - marketability of resultant goods - immovable property and attachment to earth - Whether refrigeration/airconditioning/caustic soda and similar plants fabricated or assembled at site are excisable under the Central Excise Act, 1944. - HELD THAT: - The Tribunal's conclusion that such plants are not excisable goods is upheld. The Court accepted that refrigeration and airconditioning installations are essentially systems formed by assembling dutiable components (compressors, ducting, piping, insulators, cooling towers, etc.) and that the system as a whole does not acquire a separate identity as excisable goods merely by onsite assembly. The Court relied upon earlier decisions dealing with siteerected machinery and on Circular No.581/2002CX (issued under the Board's powers) which clarifies that excise attaches only where processing or fabrication produces a resultant movable good with a new identity, character and use, and which is specified in the Central Excise Tariff and marketable. The Circular further explains that where change of identity occurs during construction of an immovable structure, or where assembled items become immovable by attachment to earth such that they cannot be dismantled without substantial damage, there is no manufacture of goods for excise purposes. The Circular also distinguishes integrated machines (which, if they acquire a distinct marketable identity, are dutiable) from networks or systems that come into being solely by assembly of manufactured components. Applying these principles, refrigeration/airconditioning systems as assembled systems are not excisable as goods, though their individual components remain dutiable. [Paras 2, 5, 6]The CEGAT's finding that the plants in question are not excisable goods is affirmed and the appeals are dismissed.Final Conclusion: Appeals dismissed; CEGAT's view that refrigeration/airconditioning and similar plants assembled at site are systems and not excisable goods is affirmed in light of precedents and Circular No.581/2002CX, subject to the distinction that individually dutiable components and siteassembled machines with a distinct marketable identity remain chargeable. Issues involved:Challenge to final order by CEGAT on excisability of refrigeration plant, cold storage plant, central air-conditioning plant, and caustic soda plant under Central Excise Act, 1944.Detailed Analysis:1. Excisability of Plants:The main issue in the appeals was whether refrigeration plant, cold storage plant, central air-conditioning plant, and caustic soda plant can be subjected to duty under the Central Excise Act, 1944. The appellant argued that fabricating these plants amounts to manufacturing a new marketable commodity, thus attracting excise duty. However, CEGAT held that no excise duty is leviable on these plants as they are systems comprising various components and not machines as a whole. Therefore, such systems cannot be considered excisable goods.2. Legal Precedents and Circulars:Several legal precedents were cited to determine the excisability of plants and machinery assembled at the site. The Circular No.581/2002 -CX issued by the Government of India provided further clarification on the excisability of plant and machinery assembled at the site. The Circular emphasized that for goods to be dutiable, they should have a new identity, character, and use distinct from their components, be specified in the Central Excise Tariff, and be marketable. It differentiated between goods that can be dismantled without substantial damage and those that cannot, stating the former are excisable while the latter are not.3. Impact of Circular on CEGAT's Decision:The Circular issued under Section 37B of the Act clarified the criteria for excisability of goods assembled at the site. Based on this Circular, the view taken by CEGAT that no excise duty is leviable on the mentioned plants was deemed correct. The Circular's guidelines aligned with CEGAT's decision that these plants, being systems of components, are not excisable goods as a whole.4. Dismissal of Appeals:Considering the Circular and legal precedents, the appeals challenging CEGAT's final order were dismissed by the Supreme Court with no order as to costs. The Court upheld CEGAT's decision that the refrigeration plant, cold storage plant, central air-conditioning plant, and caustic soda plant are not subject to excisability under the Central Excise Act, 1944.In conclusion, the Supreme Court's judgment affirmed the position that the mentioned plants are not excisable goods under the Central Excise Act, 1944, based on the Circular's guidelines and legal precedents. The decision highlighted the distinction between goods that qualify for excise duty and those that do not, emphasizing the need for a new identity, marketability, and distinct use for goods to be considered excisable.