1997 JTR(SC) 1647
1998 AIR(SC) 1489 ; 1998 AIR(SCW) 366 ; 1998 97 ELT 3 ; 1997 10 JT 82 ; 1997 7 Scale 594 ; 1998 1 SCC 400 ; 1997 Supp6 SCR 431 ; 1998 KHC 660 ; 1997 10 Supreme 402
1997(10) Supreme 402
SUPREME COURT OF INDIA
Suhas C. Sen, K.T. Thomas, JJ.
Sirpur Paper Mills Ltd. -Appellant
versus
The Collector of Central Excise, Hyderabad -Respondent
Civil Appeal No. 527 of 1988
Decided on 11-12-1997
Counsel for the Parties :
For the Appellant, Jaideep Gupta, Ms. Gauri, Advocates for M/s. Khaitan, Co., Advocates.
For the Respondents, Ms. Usgaonkar, Additional Solicitor General, Dhruv Mehta,, V.K. Verma, Advocates.
Act
Referred
:CENTRAL EXCISE ACT : S.3
GENERAL CLAUSES ACT : S.3(2)(6)
TRANSFER OF PROPERTY ACT : S.3
(A) The Central Excise Act imposes duty on all excisable goods produced or manufactured in India, where 'goods' must be movable and marketable as per the General Clauses Act. The Transfer of Property Act defines immovable property as something not intended to be moved, but its application is limited when an item is capable of being detached and sold. The General Clauses Act provides interpretative support to determine the scope of 'excisable goods' and 'movable property' for taxation purposes. These provisions converge on the question of whether a paper making machine, assembled on site from duty-paid components and fixed to the ground for operational efficiency, qualifies as an excisable good or immovable property.
(B) Key legal principles include: the definition of 'goods' under the Central Excise Act requiring movability and marketability; the test of whether an item is capable of being sold in the market determines its character; attachment to earth for operational efficiency does not convert a movable machine into immovable property; and the assembled product is a new marketable commodity distinct from its components.
Facts of the case:
The appellant company erected a paper making machine using duty-paid components purchased from the market and certain parts fabricated on-site. About 90% of the machine consisted of purchased components, while the remaining parts were assembled and fixed to a concrete base at the factory site to prevent wobbling and ensure operational efficiency and safety. The excise authority imposed duty, contending that the machine was an excisable good. The appellant argued that the machine was immovable property and not liable for excise.
Findings of Court:
The Tribunal found that the machine was attached to the earth for operational efficiency and could be dismantled and sold in parts. The court held that the machine was saleable and not immovable property, emphasizing that fixing an item to the ground does not automatically render it immovable. The assembled machine was held to be a distinct, marketable commodity resulting from the manufacturing process.
Issues:
Whether a paper making machine, assembled on-site from duty-paid components and fixed to the ground for operational efficiency, constitutes an excisable good or immovable property liable for excise duty.
Ratio Decidendi:
The machine, although fixed to the ground for operational efficiency, remains movable and marketable as it can be dismantled and sold. The character of an item as immovable property is not determined by mere attachment to the earth if the item retains its nature as a movable good capable of being sold in the market. The final product is a new and distinct marketable commodity.
Result:
The appeal is dismissed, and the order of the Tribunal imposing excise duty is upheld.
(A) The Central Excise Act imposes duty on all excisable goods produced or manufactured in India, where 'goods' must be movable and marketable as per the General Clauses Act. The Transfer of Property Act defines immovable property as something not intended to be moved, but its application is limited when an item is capable of being detached and sold. The General Clauses Act provides interpretative support to determine the scope of 'excisable goods' and 'movable property' for taxation purposes. These provisions converge on the question of whether a paper making machine, assembled on site from duty-paid components and fixed to the ground for operational efficiency, qualifies as an excisable good or immovable property.
(B) Key legal principles include: the definition of 'goods' under the Central Excise Act requiring movability and marketability; the test of whether an item is capable of being sold in the market determines its character; attachment to earth for operational efficiency does not convert a movable machine into immovable property; and the assembled product is a new marketable commodity distinct from its components.
Facts of the case:
The appellant company erected a paper making machine using duty-paid components purchased from the market and certain parts fabricated on-site. About 90% of the machine consisted of purchased components, while the remaining parts were assembled and fixed to a concrete base at the factory site to prevent wobbling and ensure operational efficiency and safety. The excise authority imposed duty, contending that the machine was an excisable good. The appellant argued that the machine was immovable property and not liable for excise.
Findings of Court:
The Tribunal found that the machine was attached to the earth for operational efficiency and could be dismantled and sold in parts. The court held that the machine was saleable and not immovable property, emphasizing that fixing an item to the ground does not automatically render it immovable. The assembled machine was held to be a distinct, marketable commodity resulting from the manufacturing process.
Issues:
Whether a paper making machine, assembled on-site from duty-paid components and fixed to the ground for operational efficiency, constitutes an excisable good or immovable property liable for excise duty.
Ratio Decidendi:
The machine, although fixed to the ground for operational efficiency, remains movable and marketable as it can be dismantled and sold. The character of an item as immovable property is not determined by mere attachment to the earth if the item retains its nature as a movable good capable of being sold in the market. The final product is a new and distinct marketable commodity.
Result:
The appeal is dismissed, and the order of the Tribunal imposing excise duty is upheld.
JUDGMENT
Sen, J.-The dispute in this case is about the leviability of excise duty on paper making machine which was erected by the appellant-company by using duty paid components purchased from the market and also by fabricating certain parts of the machinery in their factory. The duty paid components purchased from the market worked out to about 90% of the parts required for the machine. In respect of the parts fabricated inside the factory of the appellant, no duty was leviable under Notification No. 118/75 dated April 30, 1975 issued by the Government. The case of the appellant is that the excise authority erroneously imposed duty on the paper making machine installed in the factory of the appellant because the Central Excise Act imposes a duty on "all excisable goods produced or manufactured in India". It is well-settled that the "goods" contemplated by Section 3 which is the charging section of the Act must be movable and marketable. The case of the appellant is that the various components of the paper making machine purchased by the appellant had to be put together at the site where the machine was erected and embedded in the ground. Certain components were also to be fabricated at site. This machine was really immovable property and did not come within the mischief of the charging section of the Central Excise Act.
2. Mr. Jaideep Gupta, appearing on behalf of the appellant, has contended that the machine was permanently attached to the ground. In fact the machine cannot be worked until and unless the same was attached to the earth as a permanent fixture. It was further argued that the machine cannot ordinarily be sole in the market. The nature of the machine is such that it cannot be transferred and offered for sale to any other party. An argument was also advanced that the machine was erected on turn key basis at the very place where the machine was ultimately embedded in a concrete base to make it a permanent fixture.
3. The Tribunal, however, rejected these contentions advanced before it on the basis of some findings of fact. The Tribunal held that the machine was attached to earth for operational efficiency. The whole purpose behind attaching the machine to a concrete base was to prevent wobbling of the machine and to secure maximum operational efficiency and also for safety. The Tribunal further held that the paper making machine was saleable and observed "if somebody wants to purchase, the whole machinery could be dismantled and sold to him in parts".
4. In view of this finding of fact, it is not possible to hold that the machinery assembled and erected by the appellant at its factory site was immovable property as something attached to earth like a building or a tree. The Tribunal has pointed out that it was for the operational efficiency of the machine that it was attached to earth. If the appellant wanted to sell the paper making machine it could always remove it from its base and sell it.
5. Apart from this finding of fact made by the Tribunal, the point advanced on behalf of the appellant, that whatever is embedded in earth must be treated as immovable property is basically not sound. For example, a factory owner or a house-holder may purchase a water pump and fix it on a cement base for operational efficiency and also for security. That will not make the water pump an item of immovable property. Some of the components of water pump may even be assembled on site. That too will not make any difference to the principle. The test is whether the paper making machine can be sold. in the market. The Tribunal has found as a fact that it can be sold. In view of that finding, we are unable to uphold the contention of the appellant that the machine must be treated as a part of the immovable property of the company. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property.
6. A further argument was made that the entire machinery as it is cannot be bought and sold because the machinery will have to be dismantled before being sold. The Tribunal has pointed out that the appellant had himself bought several items and completed the machinery. It had purchased a larger number of components and fabricated a few and manufactured the paper making machine at site. If it is sold it has to be dismantled and reassembled at another site. We do not find any fault with the reasoning of the Tribunal on this aspect of the matter.
7. Lastly, it was contended that the paper making machine was not really manufactured by the appellant. Various components and parts were purchased and a few of the parts were fabricated at the factory and the assessee ultimately assembled various parts of the machine. We are unable to uphold this argument also because it has to be seen whether a final product is something distinct and apart from the components that have gone into its production. What the appellant has erected in its factory is a paper making machine. It may have purchased various components to make the machine but nonetheless what has been produced is something quite different from the components that had been purchased. A new marketable commodity has emerged as a result of the manufacturing activity of the appellant.
8. Marketability being a question of fact, we are of the view there is no scope for interference with the order passed by the Tribunal. It cannot be said that the Tribunal has overlooked any material fact or its decision is perverse.
The appeal fails and is dismissed. No order as to costs.
Appeal dismissed.
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