Judgment:
1. These are two appeals - one filed by M/s. ICB Private Limited (hereinafter referred to as 'M/s. ICB'), and the other filed by M/s.
Indian Sugar and General Engineering Corporation (hereinafter referred to as 'M/s. Indian Sugar'), being aggrieved with the common Order-in-Original dated 28-12-1987, passed by the Collector of Central Excise, Baroda. As both the appeals arise out of the common Order-in-original, they were heard together and are being disposed of by this common order.
2. The matter relates to the excisability and dutiability of the two Hor-ton Spheres fabricated, installed and erected for Liquid Petroleum Gas (LPG) vessels/tanks at the site premises of the Oil and Natural Gas Commission (ONGC), near Ankleshwar in the State of Gujarat. These Horton Spheres were part of the LPG Recovery Plant for whose construction the contract on turn key basis had been given by the ONGC to M/s. ICB. With regard to the Horton Spheres, M/s. ICB gave a sub-contract to M/s. Indian Sugar. Sections/components for the Horton Spheres were manufactured by M/S. Indian Sugar in their factory at Yamuna Nagar in the State of Haryana and such sections/components, etc., were cleared by M/s. Indian Sugar on payment of appropriate Central Excise duty under proper gate passes. The Collector of Central Excise, Baroda, who had adjudicated the matter, had considered M/s. ICB as the manufacturer of the two Horton Spheres in question within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act'). The Central Excise duty of Rs. 16.50 lakhs was demanded and penalty of Rs. 10,000/- was imposed on M/s. ICB. No duty was demanded from M/s. Indian Sugar; however, a penalty of Rs. 10,000/- was imposed on them.
3. The matter was heard on 20-3-1997 when Shri J.F. Pochkhanawala, Sr, Advocate with Shri J.B. Verma, Advocate appeared for M/s. ICB. Shri K.C. Lodha, Manager (Commercial) represented M/s. Indian Sugar. For the Revenue, Shri A.K. Agarwal, SDR is present.
4. Shri J.F. Pochkhanawala, Sr. Advocate submitted that the Horton Spheres were manufactured by M/s. Indian Sugar in their factory at Yamuna Nagar in the State of Haryana and were brought to the site near Ankleshwar in the State of Gujarat after paying Central Excise duty on such Spheres at the time of clearance from the factory. M/s. ICB were not concerned with the manufacturing of the Horton Spheres in question.
M/s. ICB were not the manufacturer of the goods. They were a separate legal entity, separate from M/s. Indian Sugar. Order on M/s. Indian Sugar for supply of Horton Spheres was placed at arms length. No raw material was supplied by them to M/s. Indian Sugar. M/s. Indian Sugar were not the hired labour of M/s. ICB. M/s. Indian Sugar were also not a dummy unit. He further submitted that at the site the goods were permanently embedded to the earth; they ceased to be goods and no Central Excise duty could be levied and collected on immovable property. The Horton Spheres were specific to the project. Further, the Department had hill knowledge of the activities of M/s. ICB and there could be no question of any suppression. He assailed the adjudication order also on the ground of classification and quantum of duty. It was pleaded by the ld. Sr. Advocate that M/s. ICB were under a bonafide belief that the structural activity at their site by their contractors did not amount to the activity of manufacture by them and there was no case for imposing any penalty. In support of his contentions, the Sr.
Advocate relied upon a number of decisions.
5. Appearing for M/s. Indian Sugar, Shri K.C. Lodha, Manager (Commercial) submitted that they had not engaged themselves in any manufacturing activity at the site near Ankleshwar in the State of Gujarat and they were not required to take out any Central Excise licence for their activities at that place. The adjudicating authority had held M/s. ICB as the manufacturer and there was no case for imposition of any penalty on M/s. Indian Sugar.
6. Shri A.K. Agarwal, SDR replied that the order passed by the Collector of Central Excise, Baroda was very detailed and contained adequate reasons for her findings. The various issues raised by the appellants had been dealt with in detail by the adjudicating authority and he reiterated the findings as recorded in the adjudicating order.
7. We have carefully considered the matter. M/s. ICB were awarded a contract by ONGC on 9-5-1983 for commissioning on turn key project basis, a LPG Recovery Plant at Ankleshwar in the State of Gujarat. On 13-9-1983, M/s. ICB placed a Purchase Order with M/s. Indian Sugar for designing, fabrication, and supply of pre-fabricated components for two LPG Horton Spheres. The Horton Spheres are Spherical Steel Storage facility for storing LPG. Each Horton Sphere was to have a diameter of 11.46 meters weighing 116 M.T. The pre-fabricated components were to be transported to site at Ankleshwar in the State of Gujarat, assembled, erected, welded, hydro-tested and painted. Various sections/components for the Horton Spheres were manufactured by M/s. Indian Sugar in their factory at Yamuna Nagar in the State of Haryana. These sections/components, etc., were cleared on payment of Central Excise duty as applicable to them, under proper gate passes. Sale invoices were also prepared. The copies of relevant gate passes and sale invoices were filed with the monthly RT-12 Returns.
At Ankleshwar, firstly eight iron pillars, (foundation legs) were raised at concrete platforms; than the various sections/components of Horton Spheres were set-up on these pillars configuration step by step, and fixed in position by welding. The Horton Spheres when finally erected became part of a huge embedded structure.
8. M/s. Indian Sugar manufactured the sections consisting of petals of the spheres, supporting structural, platforms, ladders, etc., in their factory at Yamuna Nagar, in the State of Haryana. From the factory at Yamuna Nagar as already described above, they were cleared on payment of Central Excise duty. These were huge loads and were transported to the site at Ankleshwar in the State of Gujarat.
9. Now, let us have a look at what was done at the site. At the site, the re-inforced cement concrete foundation was laid-down with earth excavation of 2.5 mtr. depth. Eight iron foundation legs in the form of supporting struc-turals to mount and fix spherical storage device, were raised of 2.5 + 1 mtr. each. On such spherical heads of the supporting structurals, the petals of the spheres were assembled and installed step by step, positioned appropriately and then welded together. Safety valves and manholes were provided while installing the Horton Spheres together with erection of ladders and platforms.
10. In the background of these facts, could it be said that the activities at the site had resulted in the manufacture of distinctly indentifiable goods having distinct name, character and use and the Horton Spheres so installed were goods for the purpose of levy and collection of excise duty.
11. To recapitulate, . ICB awarded a sub-contract to M/s. Indian Sugar.
The sub-contract was in two parts; one part related to the design, fabrication and supply of pre-fabricated components for LPG Horton Spheres, and the second part related to the erection of the said LPG Horton Spheres on concrete foundations and on steel legs at the site in the State of Gujarat. On the supply portion excise duty liability was admitted. After the supply of the various items at site no process of manufacture had been undertaken. The supplies were just supplies. The present proceedings have been instituted for the processes undertaken subsequent to the supplies at the site. Foundations had already been laid and high steel legs had been embedded to the earth with a shaped configuration on the top of the legs to receive spherical body. The items cleared from the factory of M/s. Indian Sugar at Yamuna Nagar (Haryana) on payment of Central Excise duty, were positioned, installed and erected piece by piece, and by the time Horton Spheres took their shape, they had been welded to the legs configuration. At that time, it could not be said that any goods had come into existence. It could not be said that such Horton Spheres had been manufactured as a distinct identifiable product, the product as known and understood for the purpose of levy and collection of Central Excise duty.
12. It had been alleged in the show cause notice and it had been held by the adjudication authority that the activities at the site amounted to the manufacturing activity and Horton Spheres were goods and were classifiable under Heading No. 8485.90 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the 'Tariff'). In para-6 of the show cause notice, it was alleged as under :- 6. In the light of the facts as discussed in the foregoing paras, it appears that M/s. ICB Pvt. Ltd., Engineers & Constructors, site office, Pilludra Village near-Ankleshwar Dist. Broach, Registered Office 168, C.S.T. Road, Kalina, Bombay - 400 098 and M/s. the Indian Sugar & General Engineering Corporation, site office Pilludra Village, Near, Ankleshwar Distt. Broach, Registered Office Yamunnagar Dist: Ambala, Haryana, have contravened the provisions of Rule 174 read with Section 6 of the Central Excises & Salt Act, 1944. Rule 173F read with Rule 9(1), Rule 173B, Rule 173C, Rule 173G (2) read with Rule 52 A and Rule 173 G (4) read with Rule 53 of the Central Excise Rules, 1944 in as much as M/s. ICB Private Ltd., Bombay engaged themselves in the manufacture of goods viz. 'two Horton Spheres' classifiable and chargeable to duty of Central Excise under Chapter - 84 (sub-heading 8485.90) of the Central Excise Tariff Act, 1985 (erstwhile Tariff Item 68 of the First Schedule to the Central Excises & Salt Act, 1944), though they did not hold L-4 licence for undertaking manufacture at the site premises of Central tank farm of O.N.G.C. situated near Pilludra Village, and M/s. The Indian Sugar & General Engineering Corporation, Yamunanagar, also engaged themselves in the manufacture of the aforesaid goods i.e. 'two Horton Spheres' classifiable and chargeable to duty of Central Excise under Chapter - 84 (sub-heading 8485.90) of the Central Excise Tariff Act, 1985, without their having applied for and obtained Central Excise licence in form L-4 for such manufacture at the site premises of Central tank farm of O.N.G.C. situated near Pilludra Village, they failed to determine their liability to duty on the said goods manufactured and removed by them without payment of duty leviable thereon as mentioned in para-5 above, failed to file classification list and price list as required, failed to prepare and issue gate passes in the prescribed form for the removal of the said goods and further failed to maintain statutory accounts of the production and removals of the aforesaid goods, which all acts of contravention on their part appear to constitute offences of the nature as described in Clauses (a), (b), (c), and (d) of Sub-rule (1) of Rule 173 Q of the Central Excise Rules, 1944, committed by them by reason of wilful mis-statements and suppression of facts with an intent to evade payment of Central Excise duty." 13. In their reply dated 13-1-1987 to the show cause notice dated 5-11-1986, M/s. ICB have submitted that after the foundation was constructed at the site M/s. Indian Sugar erected Horton Spheres from the sections transported to the site. First, all the sections of the spheres were installed step by step and positioned properly. After putting the sections in position, the same were welded together. The safety valves and man holes were also provided while installing the Horton Spheres together with erection of ladder and platforms. They explained that the said Horton Spheres could not be understood as goods in any sense of that term. The Horton Spheres when installed were immovable property and were permanently attached to the earth. They also submitted that the said Horton Spheres could not come into the market to be bought and sold nor they were known as such in the market.
14. .In the case of K.N. Subramaniam Chettiar v. M. Chidambaram - AIR 1940 Madras 527, the Madras High Court while construing the definition of immovable property, observed that "if a thing is embedded in the earth or attached to what is so embedded for the permanent beneficial, enjoyment of that to which it is attached, then it is part of the immovable property. If the attachment is merely for the beneficial enjoyment of chattel itself then it remains a chattel even though fixed for the time being so that it may be enjoyed." In the case of Peruman Naicar v. Ramaswamy Kone - AIR 1969 Madras 346, the Madras High Court held that "for a chattel to become part of immovable property and to be regarded as such property, we should think, it must become attached to the immovable property as permanently as building or a tree is attached to the earth. If in the nature of things the property is moveable property and for its beneficial use or enjoyment it is necessary to imbed or fix on earth though permanently i.e. when it is in use it should not be regarded as immovable property for that reason." The Division Bench in the case of Paruman Naicar (Supra) approved the observations of the single judge in the K.N. Subramaniam Chettiar's case, referred to above. These two decisions were considered by the Hon'ble Supreme Court in the case of Municipal Corporation of Greater Bombay v. The Indian Oil Corporation Ltd. reported in JT1990 (4) SC 533 and after consideration thereof, the Supreme Court laid-down the following test to determine whether certain assembly/erection would result in immovable property or not: "The tanks, though, are resting on earth on their own weight without being fixed with nuts and bolts, they have permanently been erected without being shifted from place to place. Permanency is the test.
The chattel whether is 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 is yes to the former it must be a movable property and thereby it must be held that it is not attached to the earth. If the answer is yes to the latter it is attached to the earth. For instance a shop for sale of merchandise or eatables is a structure. The same could be sold by keeping in a push cart which has its mobility from place to place. Merely it is stationed at a particular place and business was carried on, it cannot be said that push cart is a shop. The fact that no nuts and bolts was used to inbed the tank to the earth by itself is not conclusive. Though the witness stated that the tank is capable of being shifted as a fact the tanks were never shifted from the places of erection. By scientific process, the tanks stands on their own weight on the earth at the place of erection as a permanent structure." The ld. Sr. Advocate had referred to the Tribunal's decision in the case of Tata Robins Fraser Ltd. v. CCE -1990 (46) E.L.T. 562 (Tribunal). The Tribunal had held that merely collecting the various component parts at site partly by manufacturer from one's own factory, partly getting them manufactured from other factories and partly buying some components from the market will not mean manufacture of the entire conveyor belt system in CKD condition, involved in that case.
15. Let us have a look at the Tariff sub-heading No. 8485.90 under which the Department had sought to classify the Horton Spheres as erected at the site in the State of Gujarat.
"Machinery parts, not containing electrical connectors, insulators, coils, contacts or other electrical features, not specified or included elsewhere in this Chapter." 8485.10 Ships' propellers and blades therefor 8485.90 Other M/s. ICB in para-5 of their reply dated 13-1-1987 to the show cause notice had submitted as under:- "5. In these circumstances, the allegation in paragraph-4 of the said show cause notice that our clients had manufactured any goods chargeable to excise duty under sub-heading 8485.90 of the Central Excise Tariff Act, 1985, is entirely unsustainable. In any event, our client submit that assuming, while denying, that the said Horton Spheres could be at all considered as goods, they do not fall for classification under sub-heading No. 8485.90 as erroneously alleged in the said show cause notice.
"84.85 - Machinery parts, not containing electrical connectors, insulators, coils, contacts or other electrical features not specified or included elsewhere in this Chapter.
It is submitted that under no circumstances can the two fully erected Horton Spheres be described as "Machinery parts". The said Horton Spheres are LPG Storage Tanks and are neither machines nor machinery.
It is now well settled that the word "machinery" when used in ordinary language, Prima facie means some mechanical contrivances which by themselves or in connection with one or more mechanical contrivances, by the combined movement and interdependent operation of their respective parts, generate power or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result. (See 1982 E.L.T. 53, at page 57). In (1979) 43 STC 338, the Gujarat High Court held : "It is no doubt true that mere assembly of articles or things would not amount to a machinery. Some solid structure with no moving parts cannot be termed as machinery." The said Horton Spheres are not mechanical contrivances and they have no moving parts, nor do they apply or direct natural forces to produce any result. They are merely reservoirs in which LPG can be stored safely. Thus, under no circumstances, could Heading No. 84.85 or any of its sub-headings be attracted to the said Horton Spheres. The imposition of excise duty under that tariff entry is, therefore, mis-directed and un-sustainable in law." We do not consider that even if separately taken into account, the Horton Spheres could be considered as machinery parts at the stage of their erection at site. We consider that even under the extended meaning of machine in Section Note-5 under Section-XVI of the Tariff, they could not be considered as machinery parts. They also could not be considered as machinery parts of equipment, apparatus or appliance.
'Machine' means a mechanical device consisting of a planned and an organised arrangement of various part, each part having definite functions, and in which energy is transmitted or modified from one point to another. The term 'machinery' when use in ordinary language, prima facie, means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances, by the combined movement and inter-dependent operation of their respective parts, generate power or evoke, modify, apply or direct natural forces with the object in each case of affecting definite and specific result.
According to the Gujarat High Court at Ahmedabad in the case of Ambica Wood Works v. State of Gujarat -1979 (43) STC 338, in order to be a machinery, the following four factors must exist, namely :- (1) a complete and integrated collection of several objects or articles; (2) these objects or articles should interact in unison-upon or with each other; (3) this inter-action is prompted by application of force, which may be manual or motive power; and (4) the movement should be with a view to do some specific activity or to obtain specific or definite result." We do not consider that the Horton Spheres as erected and installed were machinery parts.
16. We also consider that they were not an apparatus, appliance or equipment. The apparatus is a compound instrument designed to carry out a specific function or for a particular use. In order to decide, whether a particular object is an apparatus, an inquiry has to be made as to what operation it performs.
Appliance is a device that draws electric or other energy and produces a desired work saving or other result. The Gujarat High Court in Star Radio Electric Co. v. Commissioner of Sales Tax, 1971 (27) STC 367, had observed that appliance has been defined or employed as meaning a mechanical thing, an apparatus or device; an instrumental means, aid or appurtenance; a thing applied or used as a means to an end, either independently or sub-ordinately.
Equipment is one or more assemblies capable of performing a complete function - an out fit, furnishings, supplies, tools for performing a job.
17. Taking all the relevant facts and circumstances into account, we do not agree with the view taken by the ld. Collector of Central Excise, Baroda in her Order-in-Original dated 28-12-1987.
18. In view of the above discussion, we allow both these appeals.
Ordered accordingly.