Dutiability of site related activities and immovable property :

We have already seen that excise duty is a levy on moveable goods and not on immoveable goods or property. The aforesaid principle is of paramount relevance for determining the excisability of activities undertaken at project sites. The aspect of excisability of site related activities is source of perennial litigation between department and assesses. Reference may be made to the definition of immovable property which has been set out earlier.

Excise duty is chargeable when, at site, there emerges moveable goods during the course of fabrication or bringing into being of immovable property in the form of buildings, plant etc. In other words, if movable goods such as fabricated parts, structures, equipment are brought into being and they are thereafter mounted or fixed on civil foundations so as to complete the construction, excise duty will be chargeable on such movable goods, notwithstanding that the final products are items of immovable property. On the other hand, if the site work is carried out on top of civil foundation and such parts, structures etc are erected piece by piece on such foundation, no movable goods are brought into being and hence no duty is chargeable of such activities.

In this connection, the Central Board of Excise and Customs has issued Circular No. 25/89 CX dated 21.4.89. The principles laid down therein are as follows:-

(i) Duty would be chargeable on the parts and components of such goods leaving the factory in the condition in which they are removed. Thus if together, the goods can be regarded as a chimney or a tank or a scrubber or tower or a hopper in completely knocked down condition, or having the essential character of the aforementioned goods, the goods would be chargeable to duty under the headings/sub-headings appropriate to such goods in their complete form; otherwise such parts and components should be charged to duty under the headings/sub-headings appropriate to such parts and components.

(ii) At site, duty would be chargeable only if the assembly of parts/components results in a different recognizable marketable product before installation in an immovable manner. Mere bringing together of parts and components would not be excisable.

(iii) However, at site, if the piece by piece erection or installation of parts or components result in an immovable property, then no duty would be required to be levied on such property. The Board has thus reiterated the well-known principles for deciding on whether or not specific site related activities would attract excise duty liability.

The tests laid down by the Supreme Court as found in the celebrated case of Municipal Corporation of Greater Bombay vs Indian Oil Co.Ltd 1991 Suppl(2) SCC 18 can be summarized as under:

“The test was one of permanency; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place, if the answer to the former is positive it must be movable property but if the answer to the latter part is in the positive, then it would be treated as permanently attached to the earth.”

Immovable property or articles embedded to earth, structures, erections and installations are also not “goods” because they cannot ordinarily come to the market to be bought and sold – Quality Steel Tubes (P) Ltd. v. Collector 1995 (75) E.L.T. 17 (S.C.) & Mittal Engg. Works (P) Ltd. v. Collector 1996 (88) E.L.T. 622 (S.C.). Reference can also be made to the following:

Otis Elevator Company’s Case 1981 (8) E.L.T. 720 (G.O.I.)

Hyderabad Race Club’s case 1996 (88) E.L.T. 633 (S.C.)

However, the Supreme Court in Sirpur Paper Mills Ltd. v. CCE 1998 (97) E.L.T. 3 held that assembly of a paper making machine and its erection at site mainly from bought out components and by fabricating the rest of the parts at site, amounts to manufactu re. This decision has caused considerable amount of re-thinking as to what constitutes immovable property and also has left the field open for further disputes.

The Supreme Court in a landmark judgement in Triveni Engineering & Industries Ltd. v. CCE 2000 (120) E.L.T. 273 held that while fixing of steam turbine, alternator and coupling them to form a turbo alternator amounts to a manufacturing process, the resultant property being immovable the same cannot be brought to excise. This decision has once again set the ball rolling in favour of the assessee as regards immovable property and excise.

In CCE v. Man Structurals Ltd. 2001 (130) ELT 401 (S.C.) the Supreme Court held that the Tribunal has failed to consider the facts and proceeded simply upon the basis that structurals are not exigible to excise duty. It has failed to appreciate that there is a tariff entry which makes structurals exigible to excise duty and that they are so exigible, provided that they are new identifiable goods that are the result of manufacture or processes and they are marketable.

Considering the above conflicting judgments, CBEC issued Circular No. 58/1/2002-CX, dated 15-1-2002 to clarify its position on the excisability of immovable property which is as under:

(i) For goods manufactured at site to be dutiable they should have a new identity, character and use, distinct from the inputs/ components that have gone into its production. Further, such resultant goods should be specified in the Central Excise Tariff as excisable goods besides being marketable i.e. they can be taken to the market and sold (even if they are not actually sold). The goods should not be immovable.

(ii) Where processing of inputs results in a new product with a distinct commercial name, identity and use (prior to such product being assimilated in a structure which would render them as a part of immovable property), excise duty would be chargeable on such goods immediately upon their change of identity and prior to their assimilation in the structure or other immovable property.

(iii) Where change of identity takes place in the course of construction or erection of a structure which is an immovable property, then there would be no manufacture of “goods” involved and no levy of excise duty.

(iv) Integrated plants/machines, as a whole, may or may not be ‘goods‘. For example, plants for transportation of material (such as handling plants) are actually a system or a net – work of machines. The system comes into being upon assembly of its component. In such a situation there is no manufacture of “goods” as it is only a case of assembly of manufactured goods into a system. This cannot be compared to a fabrication where a group of machines themselves may be combined to constitute a new machine which has its own identity/marketability and is dutiable (e.g. a paper making machine assembled at site and fixed to the earth only for the purpose of ensuring vibration free movement)

(v) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods.

(vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be moveable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition. Rule 2(a) of the Rules for the Interpretation of Central Excise Tariff will be attracted as the guiding factor is capability of being marketed in the original form and not whether it is actually dismantled or not, into its components. Each case will therefore have to be decided keeping in view the facts and circumstances, particularly whether it is practically possible (considering the size and nature of the goods, the existence of appropriate transport by air, water, land for such size, capability of goods to move on self propulsion -ships- etc.) to remove and sell the goods as they are, without dismantling into their components. If the goods are incapable of being sold, shifted and marketed without first being dismantled into component parts, the goods would be considered as immovable and therefore not excisable to duty.

(vii) When the final product is considered as immovable and hence not excisable goods, the same product in CKD or unassembled form will also not be dutiable as a whole by applying Rule 2(a) of the Rules of Interpretation of the Central Excise Tariff. However, components, inputs and parts which are specified excisable products will remain dutiable as such identifiable goods at the time of their clearance from the factory or warehouse.

(viii) The intention of the party is also a factor to be taken into consideration to ascertain whether the embedment of a machinery in the earth was to be temporary or permanent. This, in case of doubt, may help determine whether the goods are moveable or immovable.

Keeping the above factors in mind the position is clarified further in respect of specific instances which have been brought to the notice of the Board.

(i) Turn key projects like Steel plants, Cement plants, Power plants etc. involving supply of large number of components, machinery, equipments, pipes and tubes etc. for their assembly/installation/erection/integration/inter-connectivity on foundation/civil structure etc. at site, will not be considered as excisable goods for imposition of central excise duty – the components, however, would be dutiable in the normal course.

(ii) Huge tanks made of metal for storage of petroleum products in oil refineries or installations. These tanks, though not embedded in the earth, are erected at site, stage by stage, and after completion they cannot be physically moved. On sale/disposal they have necessarily to be dismantled and sold as metal sheets/scrap. It is not possible to assemble the tank all over again. Such tanks are, therefore, not moveable and cannot be considered as excisable goods [Reference para 15 of Triveni judgement supra and the case of CCE Chandigarh v. Bhagwanpura Sugar Mills reported in 2001 (134) E.L.T. 673 (Tri.-Del.) = 2001 (47) RLT 409 (CEGAT-Del)]

(iii) Refrigeration/Air conditioning plants. These are basically systems comprising of compressors, ducting, pipings, insulators and sometimes cooling towers etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Though each component is dutiable, the refrigeration/air conditioning system as a whole cannot be considered to be excisable goods. Air conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff.

(iv) Lifts and escalators. (a) Though lifts and escalators are specifically mentioned in the tariff, those which are installed in buildings and permanently f itted into the civil structure, cannot be considered to be excisable goods. Such lifts and escalators have also been held to be non-excisable by the Government of India in the case of Otis Elevators India Co. Ltd. reported in 1981 (8) E.L.T. 720 (GOI). (b) There may, however, be instances of fabrication of complete lifts and escalators which are movable in nature as a whole and can be temporarily installed at construction sites or exhibitions for carrying men or material. Such cases alone would be liable to duty under sub-heading 8428.10 of the Central Excise Tariff.

In Unicorn Industries v. CCE 1990 (50) ELT 279, the Tribunal has held that the operation of supply of manufactured and bought out equipment and components by the assessee and erection and commissioning of the plant which comprised of the equipment and components amounts to manufacture. It was held that manufacture and clearance of various manufactu red and bought out equipments taken from their factory and erected at site led to the emergence of a new commodity liability to duty.

The Tribunal followed the Supreme Court‘s decision in Narne Tulaman Manufacturers Pvt. Ltd. Vs. CCE 1988 (38) ELT 566, wherein it was held that assembly of an excisable product out of duty paid components would amount to manufacture and the assembly of both own manufactured parts together with bought out parts/components would amount to manufacture and accordingly the person carrying on such activity was a manufacturer and liable to duty. However, the aspect on non excisability of immovable property was not argued in Narne Tulaman’s case. If the emergent final product is immovable property then no liability to excise duty accrues.

In Larsen & Toubro Limited Vs. Union of India 2009 (243) E.L.T. 662 (Bom.) , the court has held that the water treatment plant erected by embedding in civil work becomes immovable property and does not attract excise duty. It was held that collection of various parts at site not amounts to manufacture unless excisable movable product comes into existence by assembly of such parts.

Instances where site related activities result in immovable property

Particulars	Citation
Plant and machinery embedded in earth, structures, erections and installations are not goods	Quality Steel Tubes Vs. CCE 1995 (75) ELT 17 (SC)
Boiler erected at site with duty paid components which were cleared in CKD/SKD condition was held to be not excisable since the boiler became an immovable property on assembly and erection at site as it was removable only on dismantling	Chethar Vessels Ltd Vs. CCE 2009 (241) ELT 580 (T)
MS tanks of various capacities manufactured at site and attached to earth can neither be removed without dismantling nor separable without destroying. Not liable to duty as these are immovable property	Prodip Engineering works v. CCEx., Kolkata, 2007 (216) E.L.T. 534 (Tri- Kolkata)
Installing the storage systems rails flush with floor level by digging of trench and refilling it with concrete etc at site is a permanent fixture fixed to the ground which cannot be removed from the place of installation.	Collector of CE v. Nikhil Equipments Pvt. Ltd., 2004 (165) E.L.T. 487 (S.C.).

Instances where site related activities result in excisable goods and not immovable property

Particulars	Citation
UPS is goods and not an immovable property	UPS is goods and not an immovable property
RCC Poles erected for electricity purposes are goods	APSEB v. CCE, 1994 (70) E.L.T. 3 (S.C.)
Machines first assembled and then affixed to ground are goods.	Wandleside National Conductors Ltd. v. CCE, 1996 (84) E.L.T. 419 (T)
D.G. set assembled at site is goods and marketable as such, hence the same is excisable. The D.G. set is assembled and bolted to the concrete platform so that its operation is vibration free. The D.G. set could be easily unbolted and bought and sold. Therefore, D.G. set assembled at site cannot be held to be immovable property. They are goods and are marketable.	Cheran Spinners Ltd. V.CC Ex., Coimbatore, 2008 (231) E.L.T. 315 (Tri. – Chennai)