Summary
The value of duty-paid bought-out items delivered directly to the buyer's site cannot be added to the assessable value of a boiler cleared in completely knocked down condition, because the steam generating plant that emerges on erection at site is immovable property and not excisable goods; the transaction value under Section 4 is relevant only once excisability under Section 3 is established. The extended limitation under the proviso to Section 11A(1) was also wrongly invoked as no wilful suppression was shown. CESTAT's order was set aside.
Issues
- Whether the value of duty-paid bought-out items delivered directly at the buyer's site is includible in the assessable value of a boiler cleared from the factory in CKD condition.
- Whether the product emerging from assembly and erection of the boiler at site is 'excisable goods' under the Central Excise Act, 1944.
- Whether the show cause notice was validly issued within the extended limitation period under the proviso to Section 11A(1) of the 1944 Act.
Provisions considered
- Section 3, Central Excise Act, 1944The charging provision levies duty on excisable goods produced or manufactured; the first inquiry is whether the process results in excisable (movable) goods. (¶¶ 36, 39, 41, 43, 66)
- Section 4 (as amended w.e.f. 01.07.2000), including Section 4(3)(d), Central Excise Act, 1944A machinery provision prescribing the measure of duty; transaction value becomes relevant only after excisability under Section 3 is established and cannot be used to prove excisability. (¶¶ 37, 38, 41, 42, 43, 44)
- Section 2(d), Central Excise Act, 1944Excisable goods are goods specified in the Tariff schedules; since 'goods' is undefined, the test of movability and marketability applies, and things attached to the earth are not goods. (¶¶ 45, 46, 47)
- Sections 3(26), 3(36) (GCA); Section 3 (TPA), General Clauses Act, 1897; Transfer of Property Act, 1882Applied through Bharti Airtel to decide whether the erected plant was attached to the earth and therefore immovable property, not goods. (¶ 47)
- Section 11D, Central Excise Act, 1944If the assessee collected excess amounts as excise duty from the buyer, the remedy was recovery under Section 11D; such collection cannot make an immovable product excisable. (¶¶ 70, 72, 73)
- Section 11A(1) and proviso, Central Excise Act, 1944The extended five-year period requires fraud, collusion, wilful misstatement or suppression with intent to evade; mere omission is not enough and the burden lies on the revenue. (¶¶ 74, 75, 76, 77, 78, 79, 80)
- Chapter 84 (Headings 8402.10, 8402.90), Central Excise Tariff Act, 1985Listing of boilers in the Tariff does not by itself make every boiler excisable; the product must first satisfy the charging section. (¶¶ 66, 67)
Held
- Excise duty is a levy on manufacture of goods: Section 3 defines the subject of the levy and Section 4 only its measure. The correct sequence is first to establish that excisable goods were manufactured and only then compute value; transaction value or contract price cannot establish excisability. (¶¶ 34, 39, 41, 42, 43, 44)
- Only movable and marketable articles are goods for excise purposes; erection and installation of a plant attached to the earth is not excisable goods, and an item assembled at site that cannot be dismantled and reassembled without substantial damage is not movable. (¶¶ 46, 49, 50, 51, 52)
- Read as a whole, the contract was for a steam generating plant formed at site by assembling the CKD boiler parts with the bought-out items through civil and mechanical works using refractories, cement and the like; the resulting 50 TPH boiler plant was permanently embedded and could not be dismantled without being reduced to scrap. The revenue's theory of an intermediate movable boiler was impractical. (¶¶ 59, 60, 61, 62)
- Since the plant emerging from the contract was immovable and not excisable goods, the contract price could not be the base value of the boiler, and the price of bought-out items could not be included in its assessable value. (¶¶ 63, 64, 82)
- CESTAT erred in refusing to consider the immovability plea on the ground that it was not raised earlier, when it had been raised in the reply to the show cause notice and accepted by the adjudicating authority. (¶ 65)
- Inclusion of an item in the Tariff schedule does not determine excisability, and whether bought-out items are 'parts' or 'accessories' (the utility test) is irrelevant where the resulting product is not excisable goods. (¶¶ 66, 67, 68, 69)
- Even if the assessee had collected duty on the bought-out items from the buyer, that would not make the final product excisable; the revenue's remedy for excess collection lay under Section 11D. (¶¶ 72, 73)
- The extended period under the proviso to Section 11A(1) requires a deliberate act with intent to evade, which the revenue must prove; mere omission is not suppression. The assessee bona fide believed the items were not includible and had filed RT-12 returns, so the extended period was not available and the show cause notice was invalid. (¶¶ 76, 77, 78, 79, 80, 81, 83)
Result
Appeals allowed; CESTAT's common order dated 23.09.2010 was set aside and the show cause notice held invalid.