1. These appeals are against the Order Nos. 250-251/96-Commr., dated 20-11-1996 wherein he had confirmed the demand of duty totalling amount of Rs. 5,00,50,904/- against the appellant as demanded from them under the two Show Cause Notices dated 31-3-1995, 7-10-1995. He also levied a penalty of Rs. 5,00,50,904/- on appellant in appeal filed by M/s. Josts Engineering Co. Ltd. He also inflicted a penalty of Rs. 53,00,000/- on the other appellant Shri K.R. Prasad. He also ordered the appellant M/s. Josts Engineering Co. Ltd. to pay interest of 20% on delayed payment of duty under Section 11AB of the Central Excise Act.
2. Appellants Josts Engineers Co. Ltd. are an Engineering Co. Ltd. engaged inter alia in the designing supply, erection and commissioning of spray/painting systems. The appellants also manufacture certain goods upon which the appellants have been regularly paying excise duty, which position is not in dispute in this appeal. They are in the manufacture of various types of goods and machinery falling under different tariff headings amongst others also manufacture various types of spray paint devices and such devices are either of proto type models or tailor made to suit the requirement of each individual customer. In spray paint devices the appellants manufacture components and at times fabricate them into items known as spray paint booth and put them into market or supply the same to the customers as such. As and when the appellants fabricate the entire booth or system in their factory premises they pay the duty on the value of such fabricated items and whenever they supply only the manufactured part for bringing installed in the erection of the plant at the site of the customer. They cleared such manufactured items by describing them by parts systems of payment of appropriate duty.
3. The appellants state that the said system is fabricated by them in the following manner. Customer's of the appellant after negotiation enter into agreement to purchase the entire systems as per the specifications and physical dimensions required by them for their particular application.
4. Appellants proceeded to design the plant as per requirements taking into consideration the site on which the plant is to be fabricated, erected and fixed. The engineering requirements are then planned out.
This involves project management/planning section which then decides which parts should be manufactured by the appellant themselves which parts should be given to job workers and which parts should be brought out from the market.
5. Once this is completed all the component parts i.e. (manufactured, bought out and different job workers) are received at the site plant where system is to be erected and commissioned. The system is actually erected, fabricated and affixed to the earth and commissioned at site in an immovable state. It is stated by the appellants that the system is connected to ducting pipes which are also attached to the earth and ceiling and is an immovable property. The system is also squarely a embedded in concrete blocks also bolted down to the same.
6. A show cause notice dated 12-10-1995 was issued by the Commissioner stating that during investigation an intelligence was collected by the departmental officers to the effect that the appellants who are engaged in the design manufacture and supply of complete spray system in different types and capacities to various customers without paying the appropriate duty as leviable on the goods. During the course of investigation it was found out that the appellant had requested 27 of its customers for designing complete spray painting systems as mentioned above. The assessee had raised 3 different invoices on their customers. The system is assembled at the customer's premises. They also in most of the cases the entire system was produced and brought the goods in site and sometimes brought out items are supplied provisionally at the site thereby finally on the basis of the plants of the parts are assembled, erected, fabricated and commissioned at site including embedding these goods into the earth. On the basis of the evidence gathered by the department mainly from the customer's representatives the show cause notice states that the contracts procured by the appellants mentioned by the commodity viz, spray paint system which has to be manufactured and supplied by the appellants as per their customers' specifications. Whereas the goods under this contracts have been brought out to the customers site after duly manufactured by them in complete form and some other were assembled at customer's site before gathered. This action of supplying the contract into 3 sub-contracts, i.e. one purchase order for manufacturing the items, second one for the brought out items and the third one for erection and commissioning so as to suppress the value and price of the complete subject item. The assessee had paid the duty and component part by suppressing the complete value of spray painting system. The show cause notice was also given to the other appellant K.R. Prasad for supplying the purchase order thereby he actively evaded this excise duty. In Para 13 (b) of the show cause notice the department has stated that the appellants had deliberately suppressed the fact of manufacture complete spray painting system from the department with an intent to evade payment of duty and did not pay the duty on the full value but paid the full duty only on component parts manufactured in the factory.
They demanded differential duty payable at Rs. 1,25,16,300/- as also under Rule 9(2) of the Central Excise Act r/w proviso to Section 11A of the Central Excise Act. Notice was also given under Rule 171Q of the Central Excise Rules. Notice also called upon the appellant Prasad why penalty should not be levied under Rule 209A of the Rules. Another Show Cause Notice was issued for Kalyan plant by notice dated 7-12-1995 on the same ground. On 10-6-1996 detailed replies were filed. Appellants stated that the items supplied were not marketable and they relied on the judgment of the Supreme Court in Quality Steel Tubes v. Collector C.E. -1995 (75) E.L.T. 17 and Ors. cases like State of Madras v. Gannon Dunkerly (AIR 1958 SC 560), Otis Elevators Ltd. -1981 (8) E.L.T. 720, Gujarat Machinery v. C.C.E. -1983 (12) E.L.T. 825, Braithwaite & Co. v.C.C.E. -1987 (29) E.L.T. 251, Hyderabad Race Club v. C.C.E. -1986 (23) E.L.T. 274 and J.K. Exports v. C.C.E. -1983 (14) E.L.T. 2390. The entire case of appellants contained in the reply was that there was no collusion to defraud the central excise duty and also that the goods were not goods as there are pipe or water chemical oil and gas. They were formally fixed into earth. Therefore, the excise duty is not payable. Further letters were also written on 25th September, 1996 mentioning about the personal hearing given to the assessees confirming the list of submissions made. After hearing the parties, by the impugned order. Collector had confirmed the demand of duty and inflicted penalty as stated above. Hence these two appeals.
7. Shri Sorabjee, ld. Advocate appeared for the appellant Company and Shri Vipin Jain, C.A. assisted him and appeared for the appellant Prasad. Shri M.I. Sethna, Sr. Advocate, with Shri Asokan appeared for the respondent.
8. Shri Sorabjee, ld. Counsel submitted at the outset that a plant or a paint shop for a car consists of the following : (i) Pre-treatment plant where the cars are thoroughly cleaned by removing oil and dirt.
(ii) Dry off ovens where the wet car bodies emerging from pre-treatment plant are dried.
(iv) Electrodip plant where the car bodies are dipped into electro dip tanks where electro deposition of paint takes place.
(v) Electrodip oven where the electro deposited painted bodies are dried.
(vi) Electro-deposition coolers where hot painted bodies are cooled down to ambient temperature.
"Paint finishing system is a large process plant where many activities like cleaning, phosphating, drying, cooling, electro-deposition - wherever applicable, top coat painting and paint baking takes place. In order to allow all this process to take place, a series of devices have to be assembled and installed at site. These devices further consists of manufactured parts from factories, purchased parts which are sent directly to site and with the help of firmly fixed structural members, these constituents are assembled and installed at customer's premises.
Paint Finishing System, as explained earlier, consists of various activities in Pre-treatment Plant, Dry off Oven, Cooler, Electro-deposition Oven, Spray Booths and Paint Baking Ovens.
Pre-treatment is a process where the cars are thoroughly cleaned for oil and rust. This consists of a number of tanks made up of mild steel and stainless steel in which chemicals are stored. Above the tank, an enclosure is provided to avoid any dust particles accumulating on the cars. Besides tanks, there are other supporting structures also in the Pre-treatment Line.
For the car industry, an individual tank will weigh roughly 10 tons and the size of the tank is approximately 3 metres width x 10 metres length x 3 metres height. At PAL, there are 14 such tanks lined in Pre-treatment area.
This is made up of insulated panels which are fabricated from mild steel. These are assembled on a supporting'structure duly welded to each other. The length of oven is approximately 40 metres, which can easily accommodate nearly 6-7 cars at a time. Height of the oven is approximately 6 metres.
This also consists of tanks fabricated from mild steel and stainless steel which are supported by mild steel structures. The approximate size of tank is 10 metres length x 3 metres width and 3 metres height. At PAL there are 6 such tanks.
This is made up of insulated panels which are fabricated from mild steel. These are assembled on a supporting structure duly welded to each other. The length of oven is approximately 40 metres, which can easily accommodate nearly 6-7 cars at a time. Height of the oven is approximately 6 metres.
This is made up of galvanised iron steel or mild steel panels supported by steel structures. The dimensions of the cooler will be 10 metres length x 3 metres width x 6 metres height.
This consists of water tank made up of mild steel. An enclosure manufactured from mild steel is provided. Approximate dimension of the spray booth which we have provided to PAL is 10 metres long x 6 metres wide x 12 metres high.
All this equipment is being received at site in an unassembled condition as parts of Painting System. These together with bought out items which are received directly from the suppliers at site, are erected and installed as follows : A pit is created on the floor for a depth of about 500 mm in which MS foundation bolts are anchored with the cement concrete. The structural part of the tank is fixed to the foundation bolts.
The tanks which are received in different modules along with the structural support, are placed on the foundation and it is then welded to make one single tank, thus the whole tank when it comes into an existence has become an immovable property and cannot be moved without either gas cutting or excavating from the ground.
All such equipments are interconnected by piping and electrically and then the whole system comes into an existence. The movement of car body is by overhead and floor conveyors, the speed of which is controlled by electrical panels. This system as such cannot be marketed unless the land underneath is solded.
Josts was earlier selling only small booths, known as No pump spray booth for which all the materials including bought outs used to be manufactured within the premises, biggest size of which was only 20' i.e. roughly 6 metres. These were marketable as such and were possible to handle and transportation.
Josts used to pay excise duty on the full value of such goods. In case of Bharat Earth Movers Limited, the sale was only for a small booth, the size of which was only 4 1/2 metre x 3.6 metre x 3 metre.
This was completely manufactured within the premises of the company and hence the full duty was paid.
Thus it can be seen from the above that there has been substantial difference between spray painting booth which was supplied earlier and paint finishing system which is supplied to PAL. The system which is supplied to PAL is not movable and marketable as such. Same is the case for other customers wherein systems are supplied." 9. Mr. Sorabjee further stated that by means of photographs at pages 63, 65, 66, 67 to 71 of the paper book that the entire system is embedded to the earth. Therefore it become immovable property. He further argued that it cannot be treated as a system nothing but manufacture, fabrication and erection of a system which is entirely fixed to the earth. He relied on the judgment of the Supreme Court in the case of Quality Steels Tubes v. C.C.E. -1995 (75) E.L.T. 17 where the Supreme Court held that the basic test therefore, is of levying of duty under the act is (1) that any article must be goods, and (2) it should be marketable or capable of being bought and sold in market.
Goods which are attached to earth and thus become immovable property do not satisfy test of being goods within the meaning of Act nor can it be said to be capable of being brought to the market? for being bought and sold. Therefore, both the tests as explained on this score were not satisfied in the case of appellants as the tube and fillings have been erected and installed in the premises and embedded to the earth they seized to be the goods with the meaning of Section 3 of the Act. With the erection and installation of a plant the Court held in the said case cannot be held to be movable goods and Court further added the tube mill having been erected and installed in the premises and embedded to earth they ceased to be goods and hence not exigible to duty. It was also held though goods capable of being brought to the market would attract levy erection and installation of a plant cannot be held to be excisable goods and it is not exigible to duty. In subsequent case of Mittal Engineering Works Pvt. Ltd. v. C.C.E. - 1996 (88) E.L.T. 622 (S.C.) the Supreme Court following the case of Quality Steel Tubes has held as follows : "Mono Vertical Crystallisers are not capable of being sold as they are and without anything more as they are assembled, erected and attached to the earth by a foundation at the site of the buyer and hence are not excisable "goods". It was accepted that the Mono Vertical Crystallisers were delivered to the site in CKD condition and were erected using fabrication materials. Following the said case, the Supreme Court in the case of Hyderabad Race Club in 1996 (88) E.L.T. 633 followed the Mittal Engineering case referred to above and held that the Totalizer is not goods as it is embedded to the earth. He also tried to distinguish the judgment of the Supreme Court in the case of A.P. State Electricity Board v. C.C.E. -1994 (70) E.L.T.3 (S.C.). In that case the question was a marketability of electrical pole which was embedded to earth. It was argued that in the instant case it is a case of huge structure running into several metres length, breadth and hight unless it is embedded on the earth it cannot function and exigibility to Duty therefore does not arise at all. Both cases are different. As far as the extended period is concerned the ld. Counsel argued that in view of the judgment of Supreme Court in C.C.E. v.Chemphar -1989 (40) E.L.T. 276 (S.C.) there was no conscious or deliberate withholding of information so as to evade duty intentionally revealed in the Show Cause Notice.
10. As against this Shri Sethna for the department while relying upon the order of the impugned order vehemently attacked the argument of the ld. Counsel for the appellant. He stressed at the outset that whether a thing is goods or not or whether the matters involved in the appeal are marketable or not is a question of fact. Just because, he argued the contract provides for assembly at site it does not deprive the revenue from collecting the excise duty. He read Pages 2 and 3 of the order to show that the conduct of the assesse viz. how he tried to evade to pay the duty by splitting the entire purchase order into 3 parts and also the evidence given by the various customers which go to show that appellant had not paid duty as per law but tried to evade it. He read the statements of Shri V.J. Damania, Engineering Manager of M/s.
Crompton Greaves Ltd. revealed at Pages 7, 12 and 14 of the Show Cause Notice show that there was a deliberate attempt by the assessee to evade the duty. As far as the marketability of the goods are concerned Shri Sethna vehemently argued that the facts in Mittal's case (supra) are not at all applicable to the facts of the present case here.
Erection and assembly were not part of the contract in the Mittal's case decided by the Supreme Court whereas the erection and assembly is part of the instant contract. Here the civil work was not done by the appellants and but in Mittal's case civil work was done by separately by some other contractors. Shri Sethna invited our attention to the following observations in Mittal Engg. Co.'s case 1996 (88) E.L.T. 622 (S.C.) viz. the fact that there was no debit note in respect of one customer could not reasonably have led the Tribunal to conclude that in the case of that customer a complete mono vertical crystalliser had left the appellants factory and therefore mono vertical crystalliser were marketable. He said that this point viz. exchange of debit notes between the customer and the erection company is absent in the instant case. Therefore, he argued that Mittal Engineering Work's case decided by the Tribunal must be applicable to the facts of that case alone. He also relied on the judgment of the Supreme Court in Municipal Corporation of Greater Bombay v. Indian Oil Co. - AIR 1991 SC 686 for the proposition that where the Supreme Court had held that the petroleum oil tanker owned by the respondent were liable to municipal taxation as land. Same way the excise duty in this case must held be payable. He also relied heavily on the judgment of Tribunal in the case of Triveni Engg. Works Ltd. -1996 (88) E.L.T. 238 to buttress the argument viz. excise duty was leviable in turbine and alternator bought out items taken to site and erected by producing Turbo Generator set.
It was held in that case, since the items were heavy they have to be fixed with bolts and platform which were embedded to the earth. The basis of the decision is that the turbine and alternator were not embedded in earth but are fixed to foundation by bolts to reduce vibration and disturbance to the coupling arrangement and could be removed by pulling or dismantling the same. Therefore the Tribunal held that the duty was leviable. This case was vehemently relied on by the Counsel for the revenue.
11. In reply to the said argument Shri Sorabjee cited the judgment of Alfa-Laval (India) ltd. v. C.C.E., Pune -1997 (71) ECR 412 (Tribunal) wherein the Tribunal held that in respect of the Turnkey Project erection and commissioning in respect of equipment for vanaspati plant where the plant was erected and attached at site by foundation to earth through civil work were not marketable and excisable.
12. Shri Sorabjee further invited our attention to the observation of the Supreme Court in Para 5 of the said judgment in Mittal Engg. Co. P.Ltd. to state that the principal question to which Court must address itself was whether mono vertical crystallisers were 'goods' upon which excise duty under the provisions of the Act can be levied. Therefore, he pleads that the argument of Shri Sethna was not correct.
13. We have considered the rival submissions. The case of the parties have been fully understood. As stated in the earlier portion of the order the photograph of the plant clearly shows that the outside portions of the structure are embedded to the earth. It can never be dismantled without damaging the portion and the system which is touching the earth and the system cannot work thereafter. The arguments of the parties are revolving round the question whether the structure are goods or not within the meaning of Section 3 of the Central Excise Act. In the impugned order the findings are contained in pages 11 and 12 of the impugned order. In the said order the lower authority has held as follows: "It is observed that various customers have entered into contracts and placed purchase orders with the assessee for design, manufacture, procure, supply, erection and commissioning of complete spray panting systems/booths at the premises of their customers.
Shri K.R. Prasad, Executive Vice President of the assessee had admitted/explained vide his statements recorded under Section 14 of Central Excises & Salt Act, 1944 that on receipt of orders from various customers, the assessee takes up designing, drawing and manufacture of such spray painting systems/booths as per customer's specifications/requirements. Component parts are manufactured either within their plant or got manufactured through job worker or purchased/imported, as per specific requirement. Thereafter, all such components are collected/assembled at assessee's factory premises or in some cases these are directly supplied at customer's premises. He admitted that the subject goods are of large size volume when assembled as a whole and cannot be transported or delivered as such as the factory gate.
Therefore, these spray painting systems/booths, have to be transported in semi-knocked down condition to the customer premises like any other large size machinery/plant. Thereafter, assembly/erection and commissioning were carried out by the assessee in their respective customer's premises. In view of above facts, it is obvious that the assessee had manufactured certain component parts within their factory premises and certain items had been procured through their job workers as bought out or imported, if necessary. Thereafter, assessee had assembled these items/component parts as complete spray painting system/booth. Assessee has strongly contended that these items do not fall within the meaning of goods in order to attract excise duty liability. They further stated that spray painting system must be bolted to the ground while erecting in order to prevent vibration and active rigidity. They have relied on the judgment of Hon'ble Supreme Court in Quality Steel Tubes v. C.C.E. and I find that assessee had filed classification lists declaring the subject goods as complete items falling under sub-heading No. 8424.00 of Schedule to Central Excise Tariff Act, 1985. Accordingly, the assessee had manufactured these goods. From the perusal of contract/purchase orders, I find that in the terms of delivery the installation was covered. The subject goods are recognised in the trade as a commercial commodity. These goods have a specific name and well defined usage. Before they are put to use, they have to be installed at a fixed place like any other machinery which does not change their identity. They continue to be known as paint spray system. The assessee's plea that the goods are permanently embedded to the ground and hence, will not be excisable, is misconstrued and not tenable. The immovables are constructed and not manufactured or produced, as held by Hon'ble Supreme Court in the case of Commissioner of Income Tax v. M/s. N.C. Budha Raja & Co. 1993 AIR SCW 317. In that case, the Hon'ble Supreme Court had distinguished the piles which the assessee laid by his particular method and which became a fixture in the earth to ultimately become integral part of the dam, bridge or building as the case may be from the pre-fabricated piles which are bored into the earth by the contractor or the owner as the case may be. The spray painting system/booth under consideration are fixed for the beneficial enjoyment of these goods themselves, and with a view to use these spray painting systems/booths, they have to be installed and the installation last only so long as these goods are useable. As corroborated from various statements of the customers of the assessee, these items can be dismantled as and when the need arise and can be re-erected. It is observed that the Hon'ble Supreme Court in the case of Andhra Pradesh State Electricity Board v. C.C.E., Hyderabad -1994 (70) E.L.T. 3 (S.C.) had held that the pre-stessed cement concrete poles were 'goods'. Such poles are usable only when affixed to the ground. It is further observed that in the case of IGE (India) Ltd. v. C.C.E. -1991 (53) E.L.T. 461 (Tribunal) the Tribunal after taking note of the various decisions of the Supreme Court, Madras High Court and of the Tribunal, had held that the equipment which is fixed to the earth for its beneficial enjoyment but which can be dismantled and shifted when needed, cannot be regarded as immovable property. From the facts on record, I find that the assessee is engaged in the manufacture of identifiable excisable goods i.e. spray painting system/booth. These goods are manufactured goods and are marketed and traded as such. In the present case, these are supplied/sold as identifiable goods against specifications/contracts as spray painting systems/booths falling under Central Excise sub-heading No. 8424.00. In terms of contracts/agreements with various customers, the goods were to be supplied as complete spray painting system/booth and installed/erected at site. Merely because these items because of their huge size were supplied in parts/piecemeal and reassembled/installed at site, these do not become immovable property. The photographs of the impugned goods, submitted during the proceedings, also confirm the said fact." 14. The Counsel has attacked the findings on the basis of the fact that they have filed classification lists in a proper way as well as the decision of the Supreme Court in Mittal Engineering Co. case. When we compare the nature of the goods as at page 63 of the Paper book we find a huge metal structure which is having elevated side portion which are embedded to earth by means of bolts which are guinted or permanently fixed to earth by concrete. If this is not immovable property what is a immovable property? We have carefully considered the decisions cited by Shri Sethna especially the case of Triveni Engg. Works (supra). In Triveni it was a simple case of certain items which were erected on a platform and it was held that since the items were heavy duty have to be fixed with bolts and platform which were embedded in earth. The basis of the decision was that the items were not embedded in earth but are fixed to foundation by bolts to reduce vibration and disturbance to the coupling arrangement and could be removed by pulling or dismantling the same. Please see the observation of the Tribunal in Alfa-Laval (India) Ltd. -1997 (71) ECR 412. Obviously we find that that decision in Triveni's case cannot be made applicable to the facts of this case because the entire systems in this case has been fixed to the earth by means of guiniting. If the structures are dismantled and disconnecting them with earth then the structure will get damaged and it is immovable. Therefore, that case viz. Triveni's case will not be applicable to the facts of this case. The whole approach and appreciation of the facts by Collector in our view is wrong in law and in facts. Any person can arrange their affairs in their own perception and on that score department cannot charge them with suppression. As far as the levy of interest is concerned, the Govt.'s letter dated 6-1-1997 is very clear which reads as follows : "That provisions of Section 11A shall not apply to cases pending adjudication on the date of enactment of Finance Act No. 2 Bill, 1996 which shall apply only to such cases where Show Cause Notices are issued on or after this case." 15. We are of the view that in view of the said clarification invocation of [Section] 11 AC is absolutely wrong. Since we are allowing Jost's Engineering Co.'s appeal, Prasad's appeal has also to be allowed. We are, therefore, of the view the order is not correct in law. Hence it is set aside.