V.C. Daga, J.
1. These two writ petitions under Article 226 of the the Constitution of India impugn the action of the respondents to levy and/or attempt to levy excise duty on fabrication and construction of 'structurals' contending that such activities do not amount to manufacture within the meaning of section 2(f) of the Central Excise and Salt Act, 1944 and the Rules framed thereunder (hereinafter referred to as 'the said Act' and the 'Rules' respectively for the sake of brevity).
2. The facts in both the writ petitions are more or less similar though differing on marginal facts having no bearing on the ultimate decision. The legal issues involved in both the petitions are identical so this common judgment and order would dispose of both the petitions. For the sake of convenience we propose to refer to the relevant facts drawn from Writ Petition No. 3121/1989.
Factual Matrix:
3. The 1st petitioners are a company registered under the Companies Act, 1956, inter alia engaged in civil engineering and building construction projects. Petitioner No.2 is a share-holder and director of the 1st petitioner-Company.
4. By a Memorandum of Agreement dated 24th July, 1986, the 1st petitioner entered into a contract with Bharat Petroleum Corporation Ltd. (BPCL) to construct LGP filling plaint; whereunder the petitioners were to carry out, construct and complete the following major civil works, viz.:
(i) Earth work i.e. excavation, filing foundation, plinth etc.;
(ii) providing plain and re-enforced concrete;
(iii) Masonry work;
(iv) Finishing,printing and flooring to masonry surface and walls;
(v) Doors and windows.
(vi) Structural steel and allied works;
(viii) Miscellaneous like fixing, A.C. rain water, down take pipes, 'RCC', ' 'Jalli', fan clamps etc.
With a view to execute the contract, the petitioners purchased duty paid steel channels, angles plates etc. from the Steel Authority of India Ltd. and other dealers and were brought to the construction site of the petitioners. At the site, the channels angles plates etc. were first cut into various sizes, drilled with holes and welded as per the specifications and designs given by BPCL for this particular works contract. The cut, drilled or welded steel items were, than, erected on concrete columns by fixing them with nuts and bolts to form trusses, purlins, columns which were integral parts of immovable structures duly embedded in the earth. This construction work was commenced under the aforesaid contract dated 24th July, 1986 and completed the same in the month of June, 1987.
5. The petitioners treated the aforesaid activities of cutting, drilling and welding of steel items like channels angles and plates etc. as activities not amounting to 'manufacture' According to the petitioners, the same did not bring about any transformation of the said steel items into a new commodity known as distinct and separate commodity having its own character use and name. Petitioner, therefore, did not pay any excise duty on the aforesaid fabricated items.
6. On 17th July, 1987, the 4th respondent visited the construction site and after inspection thereof called upon the petitioner to submit a copy of the contract with BPCL. Accordingly, the same was submitted. Thereafter, officers of the department paid visit to the site and recorded statement of the Project-Incharge of the 1st petitioner and one more executive of the first petitioner. Both of them categorically stated that activities of fabrication done at site were not excisable.
7. The 2nd respondent on 28th July, 1988 issued a show cause notice to the petitioners calling upon them to show cause why excise duty amounting to Rs. 4,78,325.70 p. on the structurals allegedly covered under Sub-heading 73.08.80 of CET, manufactured and cleared during the period November, 1986 to June, 1987 and valued at Rs. 31,88,838.18 should not be demanded from the 1st petitioner under Rule 9(2) of the Rules read with the proviso to section 11(A) of the Act and why penalty should not be imposed on the 2nd petitioner under Rule 173(Q)(1) read with Rule 226 of the Rules.
8. The aforesaid show cause notice was replied by the petitioners' vide letter dated 12.9.1988, denying that the petitioners were liable to pay duty amount as demanded or otherwise or liable to penal action.
9. The 3rd respondent after hearing the petitioner, vide its order dated 5th June, 1986 (impugned order) confirmed the demand set up in the show cause notice and imposed a penalty of Rs.2 lacs on the 1st petitioner and Rs. 50,000/- on the 2nd petitioner.
10. So far as another writ petition bearing No. 4698/1989 is concerned, challenge is to the show cause notice issued by the Revenue calling upon them to show cause why their activities of erecting pralines, beams trusses at factory site should not be treated as structural articles falling under Sub-heading No. 7308.90 of Schedule to the Tariff Act exigible to excise duty.
11. Being aggrieved by the order passed by the 3rd respondent in Writ Petition No.3121/1989 and show cause notice issued to the petitioners in Writ Petition No. 4698/1989 both of them preferred these petitions under Article 226 of the Constitution of India, contending therein that they are not liable to pay excise duty under Heading 73.09 or otherwise, both prior to and after its amendment, since activity of cutting, drilling and welding steel items neither amounts to 'manufacture' nor results into producing 'goods' for the purposes of the Act and the Rules.
Preliminary Objection & Consideration:
12. At the outset, Shri Jetly, learned Counsel appearing for the Revenue raised preliminary objection to the maintainability of the petitions contending that the order impugned in Writ Petition No. 3121/89 being appealable under section 35 of the Act, the petitioners should be relegated to appellate remedy.
13. So far as Writ Petition No. 4698/89 is concerned, by way of preliminary objection, it is contended that the petitioners be directed to file their reply to the show cause notice with a direction to the respondents to hear the parties and adjudicate upon the matter. Consequently, it is thus submitted that this Court should refuse to exercise writ jurisdiction in favour of the petitioners.
14. Shri Jimmy Pochkhanwala, learned Senior Counsel appearing for the petitioner in writ petition No. 3121/89 whereas Shri D.B., Shroff, learned Counsel for the petitioner in writ petition No. 4698/1989 urged that the issues sought to be canvassed in the present petitions have already been concluded by various judgments of this Court as well as that of the Apex Court. Consequently, petitioners should not be relegated to alternate remedy. Both of them submitted that these petitions were filed somewhere in the year 1989 and are being heard after a lapse of almost 14 years. Considering the long pendency of the petition before this Court, it would not be in the interest of justice to relegate the parties to the alternate remedy. Shri Pochkhanwala submits if the High Court has not entertained his petition, the petitioners could have moved the appellate authority because at the date on which the petitions were moved the period prescribed for filing appeal had not expired. At that time appeal could have been filed but was not filed. Now, this Court would not be justified in dismissing the petition as not maintainable on the ground of not availing alternate remedy, especially after having entertained and heard on merits. Reliance is placed on the judgment of the Apex Court in the case of Hirday Narayan v. I.T.O., Berily 'reporte d in : [1970]78ITR26(SC) .
15. The submission advanced on behalf of the petitioners cannot be brushed aside in view of the fact that this petition is pending for adjudication for past 14 years. The period prescribed for filing appeal has expired. There is no power with the appellate authority to condone delay of about 14 years. In our view, in view of the laid down and settled by various judgments of this Court as well as of the Apex Court, it would not be in the interest of justice to relegate the parties to alternate remedy at such a belated stage.
Submissions:
16. Learned Counsel appearing for the respective petitioners urged that the action on the part of the respondents in purporting to levy excise duty on the so-called 'structurals' and the consequent confirmation of the demand made by the 3rd respondent by the impugned orders impugned in Writ Petition No.3121/89 is illegal, arbitrary and null and void. In support of this submission, various factual and legal contentions were raised during the course of hearing. Petitioners have also challenged constitutionality, validity and vires of Rule 73 of the Central Excise Rules, contending that it is ultra vires Article 366 and 225 of the Constitution of India and section 37 of the Act.
17. According to the petitioners, by using the said material in the construction of new buildings they neither manufactured any new or different articles, nor did they bring into existence any goods capable of being bought or sold in the market. The cutting welding, and drilling work done at factory site to suit the plans and designs of the new buildings proposed in the project were meant wholly and exclusively for the construction of the new buildings.
18. According to the petitioners, neither petitioners nor the contractors under any circumstances manufactured or produced any structures or parts of structures. The only reason why the said materials were cut, welded, drilled, fastened, etc. was to build the new structures in the expansion programme of which the said materials became integral immovable parts. According to the petitioners, the said material, after being so modified by cutting, welding, drilling etc. were useless for any purpose other than construction of the very same new building and were incapable of sale to any consumer in the open market either as goods or as articles of iron and steel.
19. According to the petitioners, construction activities in both petitions were completed in terms of the respective contracts; whereunder the contractors constructed the stipulated buildings by erecting permanent structures affixed to the earth.
20. During the course of hearing, petitioners placed reliance on number of judgments of the Supreme Court and High Courts including that of Union Carbide India v. Union of India : [1987]165ITR1(SC) and Bhor Industries Ltd. v. Collector of Central Excise : [1990]184ITR129(SC) in support of their submissions detailed reference to which at this stage of judgment is not necessary since they are being referred to in detail in latter part of this judgment.
21. Shri Jetly, learned Counsel appearing for the Revenue, without prejudice to his preliminary objection did not dispute that to make 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. According to him, where process 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 in the immovable property. In other words, where change of identity takes place in the course of construction or erection of a structure which is an immovable property, then, there would no manufacture of 'goods' involved and levy of excise duty would not be permissible.
22. Shri Jetly further submitted that it would be necessary to appreciate that there is tariff entry under sub-heading 7308.09 which makes structurals exigible to excise duty; if it results in new identifiable marketable goods due to manufacture or carrying on other processes. According to him, this aspect has not been gone into either by this Court or by the Apex Court in any of the cited precedents. He thus submits, considering existence of tariff entry goods of the petitioner are liable to be treated as exigible to excisable duty. He placed reliance on the judgment of the Apex Court in the case of Collector of Customs v. Nab Structurals Ltd. 2001(130) ELT 401 (SC) in support of his submission.
Issue
23. In view of the aforesaid rival contentions, the issue involved in the present case is: whether the fabrication of trusses, columns and pralines at site which became a part of immovable property are liable to excise duty under sub-heading 9308.90 of Tariff Act and/or the provisions of Central Excise and Salt Act, 1944.
24. Before embarking upon the rival submissions, it is necessary to consider relevant tariff entry applicable to the cases at hand.
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Heading Sub-heading Description Rate of No. No. of goods. Duty.
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(1) (2) (3) (4)
73.08 Other articles of iron or steel.
7308.10 Bottom Stools, stirring or poking roids, splash plates and Nil.
thoughts as are used in the factory or production in the manufacture
of steel ingots and melted either during or after such use in the said factory.
7308.20 Chin and parts thereof, 15%. of iron or steel.
7308.30 Nails, tacks, drawing pins corrugated nails, staples
(other than those of heading No. 83.05) and similar articles of iron or steel whether or not
with heads of other material, but excluding such articles with heads of copper.
Reverts, cotters, cotter-pins, washers (including springs washes)
and similar articles of iron and steel.
7308.41 Circlips. 20%
7308.49 other 15%
7308.50 Sewing needles, knitting needles, dodkins. crochet hooks,
embroidery stilettos and similar articles for use in the hand, of iron
or steel; safety pins and 15% other pins of iron or steel not
else where specified or included.
7308.60 Springs and leaves of springs, of iron or steel. 15%
7308.70 Stoves, ranges, greates, cookers (including those with
subsidiary boilers for central heating) barbecues, braziers, gasrings,
plate warmers and similar non-electric appliances, and parts
thereof, of iron or steel, radiators for central heating, not
electrically heated and parts thereof, of iron or steel;
air heaters and
hot air distributors (including distributors which can
distribute fresh or conditioned air), not electrically heated, incorporating a
motor-driven fan or blower, and parts thereof, of iron or steel. 15%
7308.80 Sanitaryware and parts thereof, or iron or steel. 15%
7308.90 Other. 15%.
Consideration:
25. Scope of an entry in the tariff is a matter of law. However, whether a product comes within an entry is a mixed question of law and fact.
26. In the case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad, reported in : 1995ECR1(SC) , Apex Court held that section 3 levies duty on all excisable goods mentioned in the schedule provided they are produced and manufactured. Therefore, where the goods are specified in the schedule, they are excisable goods but whether such goods can be subjected to duty would depend on whether they are produced or manufactured by the assessee. The expression ' produced or manufactured' has been explained by this Court to mean that the goods so produced must satisfy the test of marketability. Consequently, it is always open to an assessee to prove that even though the goods were excisable goods, they could not be subjected to duty as they were not produced or manufactured by it or if they had been produced or manufactured, they were not marketed or capable of being marketed.
27. Similarly, in the case of Union of India v. Delhi Cloth & General Mills Co. Ltd. reported in : 1997(92)ELT315(SC) , Apex Court held that the commodity which is sought to be made liable to duty must be marketable in the condition in which it emerges and not a commodity that may require further processing or packing to be made marketable.
28. In the case of Collector of Central Excise v. Ambalal Sarabhai Enterprises reported in : [1990]185ITR87(SC) Apex Court held on interpretation of section 3 that the duty of excise is on the manufacture of goods and for an article to be 'goods: they must be known in the market as such or they must be capable of being sold in the market as goods. Actual sale was not necessary . User in the captive consumption was not determinative of that article being capable of being sold in the market or known in the market as goods. Even transient items of article can be 'goods', provided they were known in the market as distinct and separate articles having separate uses during the short life span. Thus, the goods, with even unstable character can be marketable, if during the short period, they were capable of being known or sold in the market.
29. Learned Counsel for the petitioners also relied upon a judgment of the Supreme Court in the case of Municipal Corporation of Greater Bombay v. I.O.C. Ltd. : AIR1991SC686 , wherein it is ruled that assuming there is manufacture of article before the same is chargeable to duty it must satisfy the test of marketability. The burden to prove marketability is upon the department. The mere mention of an article in an entry in the Central Excise Tariff's is not sufficient to attract duty unless the twin test of Article being 'goods and marketable' are satisfied.
30. In the case of Wainganga Sahakari S. Karkhana Ltd. : 2002(142)ELT12(SC) , the Apex Court upheld the view taken by the Tribunal in the case of Aruna Industries v. Collector (T) and Richardson and Cruddas (1972) Ltd. v. Collector (T). The Tribunal in the case of Aruna Industries v. Collector (cited supra) has held as under:
(i) making of structural shapes like trusses, beams, girders etc. from raw materials such as plates, channels, angles by cutting, drilling relating etc. and assembling structural shapes for construction of a building or a shared is a fabrication activity and not a manufacturing activities and hence not liable to duty.
(ii) that the premises in which such fabrication activity was being carried out could not be considered as a factory.
(iii) that the fabrication of trusses and other fixtures such as beams, girders etc. came into existence as a part of immovable property and hence cannot be considered as goods, goods are only movable property; as they are not goods no excise duty is payable.
This Court, had also an occasion to consider the identical question in the case of Sunflag Iron and Steel Co. Ltd. v. Addl. Collector of Central Excise, Nagpur, : 2003(162)ELT105(Bom) as to whether fabrication by contractors of steel structures, factory shed including roofing and cladding, at site, using raw materials supplied by the principal amounts to manufacture. This Court held that fabricated material at site was not liable to excise duty since it was neither done in the factory nor the goods produced were marketable. While taking this view, this Court has also approved the view taken by the Tribunal in Aruna Industries referred to hereinabove.
31. A view similar to above has also been taken by another Division Bench of this Court in the case of Gannon Dunkerly & Co. Ltd. v. Union of India : 2003ECR143(Bombay) reiterating earlier view taken by this Court in Tata Engineering and Locomotive Co. Ltd. : 1997(89)ELT463(Bom) . Similar view has also been taken by the Madhya Pradesh High Court and the Karnataka High Court in the cases of Bajaj Tempo Ltd. : 1997(95)ELT212(MP) , and Thungabhadra Steel Products Ltd. v. Union of India : 1998(98)ELT334(Kar) .
32. The Apex Court in the case of Quality Steel Tubes (P) Ltd. v. Collector : 1995ECR209(SC) has also ruled that erection of installation of plant cannot be said to result in excisable goods. In the case of Mittal Engineering Works (P) Ltd. v. Collector : 1996(88)ELT622(SC) the Supreme Court ruled that mono vertical crystallises had to be assembled and erected at the customer's factory. Such assembly and erection was done either by the Appellants in that case or by the Customers. Similar view has been reiterated by the Apex Court in the case of Triveni Engineering and Industries Ltd. v. Collector of Central Excise : 2000(120)ELT273(SC) .
33. The excise is an impost on the activity of the manufacture of 'goods'. If what results from activity is an immovable property the same is to be treated as such and no duty is leviable in view thereof.
34. In the present cases at hand, the expansion activities resulted in the bringing into existence of civil structures of iron and steel which are permanently affixed to the earth as such they are immovable property not liable to excise duty. In this behalf, the petitioners rightly relied upon judgment of the Apex Court in the case of Mittal Engineering Works (Supra); Thungabhadra Steel Products Ltd.(supra) and Triveni Engineering (Supra).
35. It is no doubt true that in order to arrive at a decision as to whether an article to be classified is immoveable property the test of permanency is paramount. However, if an article is merely affixed to the earth for its beneficial user or enjoyment it is not immovable property. As laid down by this Court, in the case of Sunflag Iron and Steel Co. Ltd., the assessee carried out activity which was in parimateria with that of the activity of the present petitioners. In the said case also, the assessee had entered into an agreement for supply, fabrication and erection of structural steels and cladding works of Rolling Mills and steel melting shop (a shed) in the project area. For the purpose of carrying out the fabrication and erection of structural engineering works, the assessee used to supply duty paid material, which consisted of iron and steel products like plates, angles, channels, rods and strips as per required specifications. The contractor used to fabricate them by subjecting them to the process of cutting, drilling, riverting, welding and joining as required by the technical designs. The Excise Authorities called upon the assessee to pay excise duty by taking the view that it was 'manufacturing' or 'producing' excisable goods, which fell within the applicable Tariff entry in a well considered judgment in the CEGAT held that, in the first place, the activity of fabrication of the raw material indicated that it did not amount to manufacture and it was merely an act of fabrication or facilitation of the iron rods, angles, channels and so on for being fitted into the structure that was being built. While taking this view, the Division Bench relied upon judgment of Aruna Industries referred to above. The Division Bench reached to the conclusions reading as under:
' Having considered the matter from all these aspects, we are satisfied that, the cases of the petitioners before us fall within the matrix exactly similar to the one in Aruna Industries and had the assessing similar to the one in Aruna Industries and had the assessing authorities applied their minds carefully to the judgment in Aruna Industries case, there would not have been any difficulty in arriving at the correct decision. Having not done so, there is an error.
We are, therefore, of the view that in both the cases, fabrication of structurals at the site of the principal by using raw materials supplied by the principal did not amount to 'manufacture', nor was it done at 'factory' nor were the goods saleable or capable of being brought to the market for being sold.
We further notice that in both the cases the fabrication was with the immediate purpose of using the factory shed or steel cold rolling mill which were being and there was never an intention to sell it in the market. These facts, in our judgment, make it amply clear that the material fabricated at the site by the contractors in both the cases were not exigible to excise duty under section 3 of the Act. Hence, the orders in both the cases need to be set aside in exercise of writ jurisdiction.'
The aforesaid view of the Division Bench in Sunflag Iron and Steel Co. Ltd. came to be followed by another Bench of this Court in the case of Gannon Dunkerly & Co. Ltd. v. Union of India : 2003ECR143(Bombay) Both these judgments have been recently affirmed by the Apex Court in the Civil Appeals carried at the instance of the Revenue in Civil Appeal bearing Nos. 7533 and 7534 of 2001, vide its common order dated 28.8.2003. Both appeals were dismissed by the Supreme Court by common speaking order with the result both judgments and orders of this Court in the aforesaid 2 cases have been merged into the order of the Apex Court on the touchstone of Doctrine of Merger recognised by the Apex Court in the case of V.M. Salgaoncar & Bros. P. Ltd. v. Commissioner of Income-tax 2000 (38) RLT 619 (SC).
36. On the above canvas, in our considered view, petitioners have made out a case that activities which were carried out by them were exactly in parimateria with the activities carried out by the petitioners in Sunflag Iron and Steel Co. Ltd. and consequently, their cases can be conveniently taken as covered by the law laid down by this Court in the case of Sunflag Iron and Steel Co. Ltd. duly affirmed by the Apex Court.
37. We, thus, hold that considering facts in the cases at hand activities of fabrication and erection of structurals carried out at site; out of duty paid material; did not amount to 'manufacture' nor did it give birth to the ' goods' capable of being sold in the market. Consequently, impugned order in Writ Petition No. 3121/1989 and impugned show cause notice issued in Writ Petition No. 4698/1989 need to be quashed and set aside.
38. At this juncture, it will not be out of place to mention that in view of the view taken by us, it is not necessary for us to decide the issues relating to the constitutionality and vires of Tariff 7308 of the Central Excise and Tariff Act, 1985 or for that purpose the question of limitation for issuing show cause notice raised in Writ Petition No. 4698/1989.
39. In the result, we allow both the writ petitions and make the rule absolute in terms of prayer clause (a) of the respective petition with no order as to costs.
40. At this stage, learned Counsel appearing for the petitioners submit that the bank guarantees furnished by them in both the cases may be returned to them duly discharged to enable them to surrender the same to their respective banker. We see no difficulty in accepting this submission. The Revenue is directed to return the bank guarantees with necessary endorsement to the petitioners so as to enable them to surrender them to the respective banker within 8 weeks from today.