Full Judgment Text
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PETITIONER:
M/S. QUALITY STEEL TUBES (P) LTD.
Vs.
RESPONDENT:
COLLECTOR OF CENTRAL EXCISE, U.P.
DATE OF JUDGMENT09/12/1994
BENCH:
SAHAI, R.M. (J)
BENCH:
SAHAI, R.M. (J)
MAJMUDAR S.B. (J)
CITATION:
1995 SCC (2) 372 JT 1995 (1) 99
1994 SCALE (5)183
ACT:
HEADNOTE:
JUDGMENT:
R.M. SAHAI, J.:
1. The question of law that arises for consideration in
this appeal is whether the tube mill and welding head
erected and installed by the appellant for manufacture of
tubes and pipes out of duty paid raw material was assessable
to duty under residuary tariff item no. 68 of the Schedule
being excisable good within the meaning
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of Central Excises & Salt Act, 1944 (Act’ for short).
2. To answer the issue, few facts are necessary to be
narrated. The appellant was engaged in the manufacture of
welded steel pipes and tubes which were classified before
1.8.1983 under item 28AA of the First Schedule to the Act.
Later on these items came to fall under tariff item 25 of
the Schedule. The steel tubes and pipes produced by the
appellant were exempt from duty as they were produced out of
duty paid raw material. For the manufacture of these items
the appellant had set up plant and machinery at its factory
site. The first phase of installation was completed in the
year 1974 by putting up all process of tube making such as
slitting line, tube rolling plant. welding plant, testing
equipment and galvanizing etc. The tube which could be
rolled were in the size range of 15 mm to 50 mm. The second
phase of expansion was taken up by adding balancing facility
for the manufacture of steel tubes of higher diameters
ranging upto 150 mm. For the expansion of the project the
appellant acquired various plant and machinery, for
instance, uncoiler, looper, leveller, stamping and stock
guide, forming mill, welding head, cooling zone etc. The
project consisted of acquiring various items and components
and installing them for making a complete unit for
production of steel tubes. Certain items of the plant and
machinery such as uncoiler, looper, etc. were purchased from
the market and embedded to earth and installed to form a
part of the tube mill. Components purchased from the market
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were like motors, coupling, gear boxes, bearing, castings
etc. These were assembled and installed on the site to form
part of the tube mill which was also covered in the process
of welding facility. The tube mill, according to appellant,
was thus not a specific machine and component but consisted
of several machines and components which after the
installation got embedded to earth and formed part of the
plant.
3. In 1976 and 1980, a dispute arose about eligibility
of the goods produced by the appellant from exemption but
the proceedings on reply by the appellant were dropped. In
1976, the appellant was informed in reference to its letter
sent on 7th April, 1976 that the Government of India vide
their notification No. 31/76 dated 28.3.76 having fully
exempted the ’iron and steel products’ listed at SI. No. 22
of the aforesaid notification from the operation of rule 174
of the Central Excises Rules, 1944, the appellant was not
required to take any licence. In 1983, however, the
Inspector, Central Excise, sent a letter to the appellant
regarding manufacture of Steel pipes and tubes made out of
steel strips exceeding 5 mm in thickness informing the
appellant that the Superintendent, Central Excise, desires
checking of the records to ascertain proof of payment of
duty on raw materials received in the factory for
manufacture of steel pipes and tubes. The appellant was
required to arrange all the relevant records at the factory
premises. The letter was replied on 16th January and the
Department was requested to verify the records and also
inspect the office of the appellant. In February, 1984 the
appellant received a letter for producing records from the
date of manufacture to satisfy that the raw material was
duty paid. The premises were visited by the Assistant
Collector on 28th March, 1984 and he instead of recording
any note about the inspection of the record relating to
whether the tubes were
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produced out of duty paid raw material recorded a note on
the status of the working of the factory and observed that
this was a thing of major importance and all the plants and
machinery worth about Rs. 60 lakhs were added from 1980
onwards. On 30th March the appellant submitted copies of the
balance sheets for the years 1981-82 and 1982-83. On the
same day the factory was visited by a team of officers who
sent a letter, the relevant portion of which is extracted
below:
"I have been directed to collect following
documents/records and figures in respect of
your unit for the last five financial years. I
shall be thankful if these figures/ records
are made available.
1. Balance Sheet.
2 Project Report submitted to
D.G.T.D./Financial Institutions and Progress
Report in respect of Plant & Machinery at
various times.
3. Figures of Clearances in respect of Pipes &
Tubes/Coupling devices/Roll Sets &
electricity supplied to your workers colony."
This letter was replied on 5.4.84 giving the details of the
project started by the appellant in 1981 and other details
about balance sheet etc. On the same day, the plant and
machinery installed in the appellant’s factory consisting of
the tube mill and the welding head were seized by the
Preventive Officers. The seizure memo indicates that what
was seized was ’Plants & Machinery-Tube Mill & Welding Head
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manufactured and installed in premises of M/s. Quality Steel
Tube (P) Ltd. during 2nd phase of expansion in 1981-82’ On
11th April, 1984, the Assistant Collector sent a letter, the
relevant portions of which are extracted below:-
"From perusal of Chapter VI of the project
Report and Balance Sheet for the year 1980-81
and 1981-82 submitted by you, it has been
observed that estimated cost of plant and
machinery i.e. Tube Mill and welding head is
Rs. 56,10,000/-.
You are, however, requested to please
intimate urgently the cost of welding head
exclusively at the time when the goods were
actually manufactured and also its present
cost as in April, 1984.
Please also intimate the value of Tube
Mill. minus welding head separately."
The appellant submitted a reply on 26th April in which it
was claimed that since the tube mill and the welding head
were not goods, therefore, no duty was leviable on it. In
August, 1985 a show-cause notice was issued for
contravention of provisions of Sections 6 and 9 of the Act
and rules 9, 52A, 173B, 173C, 174 read with Sections 173(Q),
210 and 226 of the Central Excises Rules inasmuch as the
appellant had manufactured and installed tube mills and
welding head falling under tariff item 58 of the First
Schedule of the Act without obtaining central excise
licence, without payment of appropriate central excise duty
leviable thereon and without observing other excise
formalities. The reply was sent by the appellant in October,
1984 and it was claimed that even though the plant and
machinery was erected and installed in the premises of the
appellant after purchasing various items and components from
the market, but it having been embedded to the earth it was
immoveable good which was not transportable or transferable
nor it could be sold, therefore, it could not be deemed to
be excisable good within the meaning of the Act. The
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Collector, Central Excise, did not accept the explanation
and. it was held that the welding head was imported by the
appellant from USA and likewise the tube mill manufactured
by the appellant was transportable, transferable and
saleable. Consequently, the two machineries under reference
did not become a part of immoveable property. It was also
held that to become good under the Act it was not necessary
that it .p162 should be actually bought and sold. Since the
unit erected and installed by the appellant was marketable
or saleable, the appellant was liable to pay duty on it. The
Tribunal also went in detail on the question whether the
machinery and tubewell installed by the appellant were goods
even though they were embedded to the earth and held that
even if it was not a good under any Tariff Schedule, but it
being a good it was exciseable and the immoveablity and
moveability of the good had nothing to do with
exciseability.
4. Levy and collection of duty is provided by Section 3
of the Act on all ’exciseable goods other than salt which
are produced or manufactured. The power, therefore, to levy
and collect the duty under the charging Section arises when
exciseable goods are produced or manufactured. What is an
’excisable good’ is defined by sub-section (d) of Section 2
to mean ’goods specified in the Schedule to the Central
Excise Tariff Act, 1985) as being subject to a duty of
excise and includes salt’. The words ’exciseable good’,
therefore, has a connotation of its own.
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5. In several decisions rendered by this Court
commencing from Union of India & Anr., v. Delhi Cloth and
General Mills Co., Ltd., 1977 (1) ELT (J177) SC = Am 1963 SC
791 to Indian Cable Co. Ltd. v. Collector of Central Excise,
Calcutta 1994 (74) ELT 22 the twin test of eligibility of an
article to duty under Excise Act are that it must be a good
mentioned either in the Schedule or under Item 68 and must
be marketable. In Delhi Cloth Mills (supra) it having been
held that the word ’good’ applies to those goods which can
be brought to market for being bought and sold it is implied
that it applies to such goods as are moveable. The
requirement of the goods being brought to the market for
being bought and sold has become known as the test of
marketability which has been reiterated by this Court in
Collector of Central Excise v. Ambalal Sarabhai Enterprises,
1989 (43) ELT 214. The Court has held in Union Carbide India
Ltd. v. Union of India & Ors. (1986) 2 SCC 547 that even if
a good was capable of being brought to market, it would
satisfy the test of marketability. The basic test,
therefore, of levying duty under the Act is two fold. One,
that any article must be a good and second, that it should
be marketable or capable of being brought to market. Goods
which are attached to the earth and thus become immoveable
do not satisfy the test of being goods within the meaning of
the Act nor it can be said to be capable of being brought to
the market for being bought and sold. Therefore, both the
tests, as explained by this Court, were not satisfied in the
case of appellant as the tube mill or welding head having
been erected and installed in the premises and embedded to
earth they ceased to be goods within meaning of Section 3 of
the Act.
6. Learned counsel for the revenue urged that even if the
goods were capable of being brought to the market it would
attract levy. True, but erection and instal-
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lation of a plant cannot be held to be exciseable goods. If
such wide meaning is assigned it would result in bringing in
its ambit structures, erections and installations. That
surely would not be in consonance with accepted meaning of
exciseable goods and its exigibility to duty.
7. In the result, this appeal succeeds and is allowed.
The order passed by the Tribunal is set aside. The question
of law raised by the assessee is decided by saying that the
plant of tube mill and welding head erected by the appellant
and installed as a part of expansion programme was not
exigible to duty.
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