IMPORTANT POINT
Turbo alternator is not excisable goods.

Headnote:Central Excise Tariff Act, 1985-Heading 85.02-Turbo alternator-Two components, steam turbine and complete alternator (also called generator)-Steam turbine manufactured in assessee s factory-Purchase of duty paid complete alternator and delivery at site of customers-Turbo alternator set comes into existence on combination of steam turbine and alternator on its being fixed permanently on land-It could be said that assessee manufactured turbo alternator-Installation or errection of turbo alternator on platform constructed on land would be immovable property-Marketability test not satisfied-Turbo alternator, therefore, cannot be excisable goods falling within meaning of Heading 85.02.
       To attract exigibility of excise duty, an article must satisfy the twin conditions of being : (i) excisable goods; and (ii) produced or manufactured in India. (Para 7)
       First, advertising to the second condition - is any process of manufacture involved in bringing into existence a turbo alternator? The process is noted by the CEGAT. At the site, platform is constructed in which pockets are provided. The steam turbine from the assessees factory and the alternator from other factories are transported to the site. The steam turbine is placed on the platform which works as the foundation and then, after levelling, it is fastened with foundation bolts into the pocket. So also, the alternator is placed and bolted to the steam turbine through a high speed coupling between the steam turbine outer-shaft and alternator shaft and they are aligned properly. After ensuring that there is no movement of the alternator pedestal, other accessories are installed at their respective places. Having regard to this process, the CEGAT held, and in our view rightly, that the assessees manufactured turbo alternators. (Para 8)
       Where an activity results in emergence of a new marketable commodity with a distinctive name, character or use, it cannot but be manufacturing process. (Para 11)
       In the instant case, the appellants were, according to specified designs, combining steam turbine and alternator by fixing them on a platform and aligning them. As a result of this activity of the appellants, a new product, turbo alternator, came into existence which has a distinctive name and use different from its components. Indeed, the Tribunal referred to the orders placed for purchase of turbo alternator to point out that a new commodity emerges. On these facts, we have no hesitation in holding that the process involved in fixing steam turbine and alternator and in coupling and aligning them in a specified manner to form a turbo alternator, a new commodity, is nothing but a manufacturing process. (Para 11)
       The expression excisable goods is defined in clause (d) of Section 2 of the Act to mean goods specified in the Schedule to the CET Act as being subject to a duty of excise including salt. It is thus clear that the goods which are sought to be subjected to the excise duty must find a place in the Schedule to the CET Act. Impost on a turbo alternator is levied under Entry 85.02 in the said Schedule. A perusal of the Entry shows that a turbo alternator does not find a place therein eo nomine. The question then will be whether a turbo alternator falls within the meaning of `electric generating set . To bring a `turbo alternator under the heading it must be shown to have the attributes of excisable goods as understood in the Excise Law. They are mobility and marketability. The article in question should be capable of being brought and sold in the market - a test which is too well established be series of decisions of this Court to be elaborated here. (Paras 12 & 13)
       There can be no doubt that if an article is an immovable property, it cannot be termed as excisable goods for purposes of the Act. From a combined reading of the definition of immovable property in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is permanently fastened to anything attached to the earth require determination of both the intention as well as the factum of fastening to anything attached to the earth. And this has to be ascertained from the facts and circumstances of each case. (Para 14)
       In the instant case, it is a common ground that a turbo alternator comes into existence only when a steam turbine and alternator with all their accessories are fixed at the site and only then it is known by a name different from the names of its components in the market. The Tribunal recorded the finding that fixing of steam turbine and the alternator is necessitated by the need to make them functionally effective to reduce vibration and to minimise disturbance to the coupling arrangements and other connections with the related equipments. It also noted that removal of the machinery does not involve any dismantling of the turbine and alternator in the sense of pulling them down or taking them to pieces but only undoing the foundation bolts arrangement by which they are fixed to the platform and uncoupling of the two units and, therefore, the turbo alternator did not answer the test of permanency. The findings recorded do not justify the conclusion of the Tribunal inasmuch as on removal a turbo alternator gets dismantled into its components-steam turbine and alternator. It appears that the Tribunal did not keep in mind the distinction between a turbo alternator and its components. Thus, in our view, the test of permanency fails. (Para 20)
       The marketability test requires that the goods as such should be in a position to be taken to the market and sold and from the above findings it follows that to take it to the market the turbo alternator has to be separated into its components-turbine and the other alternator-but then it would not remain turbo alternator, therefore, the test is incorrectly applied. Though, there is no finding that without fixing to the platform such turbo alternator would not be functional, it is obvious that when without fixing, it does not come into being, it can hardly be functional. (Para 20)
       From a perusal of Explanatory Notes to Heading 85.02, it is clear that when generating sets consisting of the generator and its prime base mover are mounted together as one unit on a common base they are classified under the Heading 85.02; in this connection floors, concrete bases, walls, partitions, ceilings etc., even if specially fitted out to accommodate machines or appliances, cannot be regarded as a common base joining such machines or appliances to form a whole. On a combined reading of the Explanatory Notes, extracted above, there can be no difficulty in inferring that installation or erection of turbo alternator on the concrete base specially constructed on the land cannot be treated as a common base and, therefore, it follows that installation or erection of turbo alternator on the platform constructed on the land would be immovable property, as such it cannot be excisable goods falling within the meaning of Heading 85.02. (Para 23)

JUDGMENT

Syed Shah Mohammed Quadri, J.-These statutory appeals arise from the common order of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (for short the CEGAT ) in Appeal Nos. E/1759/95-A and E/5555/92-A dated June 20, 1996. The appellants are the assessees under the Central Excise Act, 1944 (for short, the Act ).

2. The facts giving rise to these appeals are not in dispute. The appellants deal in turbo alternators which have two components: (i) steam turbine; and (ii) complete alternator (also called Generator ). Of them, the appellants manufacture steam turbine in their factories at Allahabad and Bangalore where excise duty is paid on them under the Act. They purchase duty paid complete alternators which are delivered at the site of the customer. On the ground that the appellants failed to declare manufacture of turbo alternators, show cause notices were issued to them by the Collectors of Central Excise at Allahabad and Bangalore, inter alia, stating that turbo alternators are liable to excise duty under Heading 85.02 of the Central Excise Tariff Act, 1985 (for short the CET Act ). The appellants resisted the claim on the ground that (i) a turbo alternator set comes into existence on its being fixed permanently on the land as such it is not an excisable good but an immovable property and (ii) by the combination of steam turbine and alternator , a turbo alternator emerges at the site of the customers which does not involve my process of manufacturing, therefore, they are not liable to excise duty.

3. On August 24, 1995, the Collector of Central Excise, Allahabad and on August 28, 1992, the Collector of Central Excise, Bangalore confirmed the demand raised in the show cause notices. The assessees filed two appeals against the orders of the said Collectors before the CEGAT. On the question of levy of excise duty on turbo alternator, the CEGAT, by the impugned order dated June 20, 1996, held that turbo alternators were liable to excise duty.

4. Mr. V. Sridharan, learned counsel for the appellants, has contended that (i) in combining steam turbine and alternator, no manufacturing process is involved; (ii) the process consists of combining the fixing of the two components permanently on platform raised at the premises of the customers and thus what emerges is not goods but an immovable property; and (iii) in view of the Circular No. 17/89 dated April 21, 1989 issued by Central Board of Excise & Customs, the case does not fall under Entry 85.02 of the CET Act.

5. Mr. M. Gourishankar Murty, learned counsel for the respondents, in support of the order of the Tribunal argued that combining steam turbine and alternator amounted to manufacturing process and that merely because the two components were fixed to the platform for efficient functioning of a turbo alternator, it could not be said that it was an immovable property. In regard to Circular No. 17/89 (F.No.207/73/88-CX.6), he submitted that it did not relate to electric generator and it was not issued under Section 37-B of the Act and in any event the point was not taken before the Tribunal.

6. The short question that falls for consideration is whether excise duty can be imposed on a turbo alternator under the Act.

7. Section 3 of the Act which is the charging provision authorises levy and collection of duties of excise on all excisable goods which are produced or manufactured in India at the rates mentioned in the Schedule to the CET Act. To attract exigibility of excise duty, an article must satisfy the twin conditions of being: (i) excisable goods; and (ii) produced or manufactured in India.

8. First, adverting to the second condition - is any process of manufacture involved in bringing into existence a turbo alternator? The process is noted by the CEGAT. At the site, platform is constructed in which pockets are provided. The steam turbine from the assessees factory and the alternator from other factories are transported to the site. The steam turbine

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2000 Supreme(SC) 1282

IMPORTANT POINTTurbo alternator is not excisable goods.

Cases Referred (8)

IMPORTANT POINT
Turbo alternator is not excisable goods.