Central Excise duty is levied on goods manufactured in India. The word 'manufacture' is defined in an inclusive manner in the Central Excise Act, 1944 (CEA). The word 'goods' is not defined.
Through a number of judgments, four criteria for determining levy of Central Excise duty on 'goods' have emerged over the years - that the 'goods' must be manufactured, marketable, movable and mentioned in the Central Excise Tariff.
The question of what is 'movable' and what is not, has never been free from doubt, when certain equipments or machines or facilities are assembled at site and embedded to the earth. For example, a large storage tank that comes into existence as a result of fabrication at the site or a machine that is assembled or erected at site.
The Courts have decided certain points on the subject, the most notable the being the case of Sirpur Paper Mills Ltd. [1998 (97) ELT 3 (S.C.)], wherein the Supreme Court held that if a machine is embedded to the earth only to ensure wobble-free functioning, that would not be considered as immovable for the purpose of levy of Central Excise Duty.
Now, the Central Board of Excise and Customs (CBEC) has issued detailed instructions dated January 15, 2002, on the subject. These instructions are issued in exercise of the powers vested under Section 37 B of CEA and so have statutory force.
First, the CBEC has clarified that for levy of Central Excise Duty, the goods manufactured at site should not only have new identity, character and use but also be capable of taken to the market for sale i.e. the goods should not be immovable.
Secondly, where the process of manufacture takes place in the course of construction or erection of a structure, then there would be no manufacture of 'goods' involved.
Thirdly, if the final product is not moveable and hence not dutiable, the same product in completely knocked down (CKD) condition or unassembled form will not be dutiable, even though the components, inputs and parts would remain dutiable upon their manufacture.
Fourthly, if the items erected at site can not be dismantled without substantial damage to the components and thus can not be reassembled, the assembled item would not be considered as moveable.
Fifthly, turnkey projects like steel plants, cement plants, power plants etc., huge metal tanks for storage of liquids, refrigeration/air-conditioning plants and lifts and escalators permanently fitted into civil structures would be considered as immovable.
The CBEC, however, is not too categorical on some points. For example, it says that integrated plants/machines, as a whole, may or may not be 'goods', depending upon whether the system comes into being upon combining a group of machines to constitute a new machine with its own distinct identity/marketability or whether the system comes into being during the assembly of the machines.
Also, the CBEC says that if the goods or the components assembled are incapable of being sold, shifted or marketed without first being dismantled into component parts, the goods would be considered as immoveable, even if the components do not suffer any damage during disassembly. This clarification is confusing.
Finally, the CBEC has advised case-by-case evaluation taking even the intention of party into consideration to ascertain whether the embedment of the machinery in the earth is to be temporary or permanent.
