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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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