ORDER
P.G. Chacko, Member (J)
1. Appeal No. E/2465/99-B filed by M/s. TRF Limited, [formerly known as Tata Robins – Fraser Limited] Jamshedpur is against a demand of duty of Rs. 44,61,122/- confirmed against them by the Commissioner of Central Excise, Bhopal under Rule 9(2) of the Central Excise Rules, 1944 read with the proviso to Section 11A(1) of the Central Excise Act, 1944 and is also against penalties of Rs, 44,61,122/- each imposed on them by the Commissioner under Section 11AC of the Act and Rule 173Q of the Rules. The seven appeals, Nos. 3271 to 3278/2000-B excluding No. 3274 (which was found to be a duplicate of No. 3271 and hence cancelled by the Registry), filed by the department are against grant, by the Commissioner, of the exemption under Notifications No. 61/90-C.E., dated 20-3-90 and No. 41/94-CE., dated 1-3-94 and of the benefit of Section 4(4)(d)(ii) of the Act to M/s. TRF Ltd. while quantifying the duty to be paid by them. The order challenged in these eight appeals is the Commissioner’s Order-in-Original No. 32-33/99, dated 14-6-99 which was passed in adjudication of two show-cause notices (SCNs), one issued on 19-3-98 to M/s. Associated Cement Co. Limited, Kymore and M/s. TRF Limited, Jamshedpur and the other issued on 21-12-98 to five sub-contractors of M/s. TRF Limited. The SCN proceedings have been dropped as against M/s. ACC Limited and the Jive sub-contractors, and the Revenue has no grievance against this.
2. The brief facts of the case are as follows :- M/s. ACC Limited [in short, ACC], who were engaged in the manufacture of cement, wanted to have in their factory site at Kymore a belt conveyor system for conveyance of lime stone, coal, clinker etc. and, for this purpose, entered into a contract with M/s. TRF Limited [in short, TRF]. As part of this contract, five purchase orders were placed with TRF by ACC. The scope of works to be executed by TRF under the purchase orders has been noted in para (4) of the Commissioner’s order and the same is reproduced below for easy reference :-
S.No.
P.O. No.
Scope
(i)
KP/6800/4/01 /XC/06601 /St., dt.
19-11-93
For
design and engineering charges for 22 Nos.
conveyors including necessary steel structural,
components thereof.
(ii)
KP/6800/4/02/XC/06601
/STP, dt. 19-11-93.
For
supply of certain equip-ments & accessories of con-veyors
(iii)
KP/6800/4/03/XC/06601/ST,
dt. 19-11-93.
Fabrication,
erection, testing, commissioning of structure
non magnetic steel compo-nents of conveyors like hop-pers chutes, skirts
& dust plates etc.
(iv)
KP/6800/5/8071
/XC/10101 /jK, dt. 18-7-94
Erection
& commissioning charges
(v)
KP/6800/5/8070/10101/FS, dt. 18-7-94
Manufacture & supply of belt convey or for
clinker, gypsum supply.
TRF, in turn, assigned the above work to five sub-contractors, for which there was an enabling provision in the contract entered into between the former and ACC. TRF were to provide raw steel, paints & thinner, handling equipments, electricity etc. free of cost to the sub-contractors and the latter were required to fabricate and erect the sub-contracted items (conveyor galleries, walkways, stairs and other structural works for conveyors) at ACC’s site according to the drawings and specifications of the former. The sub-contractors were required to provide only consumables and tools & tackles necessary for executing the work. The supervision of the work was also by TRF. The sub-contractors had to perform only the labour part of the specified works. The works were duly executed by the parties concerned, and the belt conveyor system was commissioned at ACC’s site during May – July, 1996. Nobody paid duty of excise on what so emerged at the site. The department invoked the extended period of limitation under the proviso to Section 11A(1) of the Act and, by the SCNs under reference, demanded duty to the tune of Rs. 1.82 crores on the conveyor system from ACC, TRF and the sub-contractors. Penalties were also proposed to be imposed on all the parties for alleged contravention of various provisions of Central Excise law. The SCNs were contested on numerous legal and other grounds. The chief contention was that the conveyor system was an immovable property and hence not excisable. In adjudication, the Commissioner held the conveyor system to be excisable and chargeable to duty under CSH 8428.90 and also held TRF to be its manufacturer under Section 2(f) of the Act. He also upheld the charge of “suppression with intent to evade payment of duty” against them. After extending the benefit of Exemption Notifications and that of the provisions of Section 4(4)(d)(ii) of the Act, the Commissioner confirmed duty demand to the extent of Rs. 44,61,122/- against TRF and imposed penalties on them under Section 11AC and Rule 173Q. He accepted the objections of all other parties and dropped proceedings against them.
3. Heard both sides. Ld. Advocate, Sh. S. Sarkar, submitted on behalf of TRF, that the entire activity of fabrication and erection of the conveyor system at customer’s site had been carried out bit by bit with various duty-paid materials and that the conveyor system had emerged as an immovable structure which was not excisable goods within the meaning of Section 3 of the Central Excise Act. He pointed out that, in their own case, it was so held by this Tribunal by order reported in 1990 (46) E.L.T. 562 [Tata Robins Fraser Ltd. v. CCE] and that the department’s appeal against that order was dismissed by the Supreme Court as reported in 1996 (84) E.L.T. A-108. He also relied on the decision of the Tribunal in Fenner (India) Ltd. v. CCE, Nagpur [2001 (129) E.L.T. 644 (T) = 2001 (96) ECR 563 (T)]. Counsel also relied on Trade Notice No. 109/89, dated 7-6-89 of C.E. Collectorate, Hyderabad. He produced photographs of various profiles of the conveyor system to show the immovable nature of the conveyor system. He also contended that the system was not excisable and chargeable to duty as it was not capable of being brought into the market and sold. Case law was also cited on the marketability test of excisability. He, further, argued that the entire demand of duty was, even otherwise, barred by limitation. Going by this Tribunal’s decision in Tata Robins Fraser (supra), M/s. TRF Limited entertained a bona fide belief that the conveyor system installed by them at ACC’s site was not excisable. Even if it be assumed that duty was chargeable on the conveyor system, the benefit of Modvat credit on inputs would have been available to TRF. There was no question of their having done or suppressed anything with intent to evade payment of duty. Therefore, ld. Counsel argued, there was no reason to invoke the extended period of limitation. The demand, raised by SCN dated 19-3-98, for duty on the conveyor system installed in July, 1996 was time-barred. With regard to penalty, Counsel submitted that the imposition of penalty under Section 11AC was illegal as that provision of law was not in force at the material time.
4. Ld. JDR, Sh. Jagdish Singh reiterated the findings of the Commissioner as contained in paragraphs 18 and 22 of the impugned order, on the excisability and limitation issues respectively. He placed strong reliance on the Supreme Court’s decision in Sirpur Paper Mills Ltd. v. CCE – 1998 (97) E.L.T. 3 (S.C.) in support of the Commissioner’s finding that the conveyor system was fixed in the earth only for operational efficiency and the same was excisable goods chargeable to duty. Arguing for the appellant in the Revenue’s appeals, Id. DR submitted that only two issues were involved in those appeals viz., whether the benefit of exemption under Notifications 61/90-CE. and 41/94-CE. was available to the ‘goods’ and whether duty element was liable to be deducted from the contracted price of the ‘goods’ to arrive at its assessable value in terms of Section 4(4)(d)(ii) of the Act. The DR reiterated the grounds of the appeals on the said issues. Advocate Sarkar submitted that there was no proposal in the SCN to deny the benefits to his client.
5. Ld. Advocate, Sh. S.K. Bansal, who appeared on behalf of ACC and Sh. Sabir Khan (one of the sub-contractors), submitted that, the demand of duty raised on ACC and all sub-contractors having been vacated by the Commissioner and there being no challenge against such decision, no penalty could be imposed on ACC or any of the sub-contractors. The Revenue’s prayer for imposition of penalty had no legal basis, he argued.
6. We have carefully examined the submissions. The principal issue before us is whether the belt conveyor system was excisable goods chargeable to duty under CH 84.28. In view of settled law, a decision on this issue will depend on how the system came into existence, i.e., whether “manufacture” within the meaning of this term under Section 2(f) of the Central Excise Act was involved in the process as also on whether the item was marketable. TRF, in their reply to SCN dated 19-3-98, gave an account of how the complete conveyor system had been brought into existence, which appears to have been accepted by the adjudicating authority and has not been disputed by the Revenue in these appeals. The relevant pleadings of TRF as contained in para 5(D) of their reply to the SCN are as under :
“At the site of ACC the complete belt conveyor systems were erected bit by bit as immovable properties. Some of the relevant aspects in this regard are as under:
(i) Based on the load data and other requirements, civil foundations were laid by ACC with the help of cement, steel, concrete etc. Laying down of such civil foundations was a massive work which took more than one year. (ii) More than 1000 MT of Steel materials were used for fabricating columns, short posts, stringers, deck frames, chutes, Head frames, tail frames, stain cases etc. All these items were fabricated and erected bit by bit and were permanently joined by welding. The columns and short posts were grouted permanently with civil foundations. (iii) Galleries were fabricated and erected as per the requirements of the systems of accommodate idlers, beltings, electricals etc. (iv) Junction Houses and Transfer Points were erected at one end of each gallery. These Junction Houses/Transfer Points were erected to receive the in-coming materials and feed the same to the next conveyor through chutes. These were erected as permanent structures with the help of beams, channels, angles, plates etc. The columns of Junction Houses/Transfer Points were permanently grouted with the civil foundations. (v) In case of underground conveyors, underground tunnel was erected with the help of cement, steel, concrete, chips, sand etc. Thereafter chutes were erected by cutting and permanently welding plates and other steel materials. Thereafter stringers and short posts were erected and permanently embedded with the help of cement, concrete, bolts, .inserts etc. Thereafter beltings, idlers, pulleys and required electricals were installed to carry the materials through the underground conveyors from the bottom most of the runnel portion to over-ground. (vi) Thereafter different mechanical and electrical items were installed, erected and aligned. These were inter alia as under: (a) Idlers of different types and sizes. (b) Pulleys of different types and sizes. (c) Bearings & Plummer blocks for the pulley mounting. (d) Belting of various rating, which were laid and spliced to make endless. (e) Scrappers of different sizes for belt cleaning. (f) Take up units for keeping the belting under constant tension. (g) Gear box, couplings, motors, drive base frames, all of various sizes for rotating the pulleys for movement of belting for transportation of material were fitted as per requirements. (h) Safety switches and control switches for the safety operation as well as to control the conveyors from the master control room were fitted. (i) Insertable bag filters were installed to keep the working area free from dust. (j) The entire conveyor structures were covered with asbestos sheets & galvanized corrugated steel sheets."
It is clear from the above process that the entire conveyor system was ‘built’ like a building and not ‘manufactured’ like goods. Beginning with the laying of civil foundation in the earth, the system was erected bit by bit and step by step till it became complete with a covering of asbestos and steel sheets. At no stage during the process did any commercially distinct and marketable conveyor emerge to be excised under CH 84.28. What emerged was only as an immovable property embedded through a massive civil foundation to the earth. The embedment was permanent. Once the system so emerged, it was not possible to remove or dismantle it without breaking the civil foundation, cutting the welded joints and substantially damaging the numerous structural components. It is far from conceivable to think that the conveyor system could be brought to the market for being bought and sold. The Commissioner’s finding that the conveyor system could be dismantled, sold and again erected somewhere else does not make sense to us, nor can we persuade ourselves to agree with his observation that the embedment of the conveyor system to earth was only for its operational efficiency. The adjudicating authority appears to have failed to apply the ratio of Sirpur Paper Mills Ltd. (supra) correctly to the case on hand. In the case before the Apex Court, the question arose as to whether Paper Making Machine which was fixed on a concrete base on the ground in the assessee’s factory was excisable. The Court observed that the test was whether the machine could be sold in the market. In view of the Tribunal’s finding of fact that it could be sold in the market, the Court held the machine to be excisable. The conveyor system, in the instant case, was not capable of being sold in the market. Even the Commissioner has not recorded any finding that it could be sold in the market. Therefore, the decision of the Commissioner on the excisability issue is not in keeping with the marketability test applied in Sirpur Paper Mills case.
7. True, the Hon’ble Supreme Court, in Sirpur Paper Mills case, held the machine not to be an immovable property despite its having been fixed to a concrete base. But that was based on a finding of fact that the fixation was for the sole purpose of making the machine wobble-free in its operation. The present case is distinguishable. As is apparent from the record, the conveyor system was built on a large ground area as per ACC’s requirements of conveying/handling raw materials etc. within their cement factory site. The civil foundation embedded in the earth provided the necessary terrestrial support to the massive system and held it in its position. It worked like the civil foundation of any building or other civil structure. There is no evidence on record to show that the conveyor system was attached to the earth for attaining operational efficiency and nothing else as observed by the adjudicating authority. We have to reject this finding of the lower authority as perverse.
8. We note that, after considering its decision on the aspect of movability of the machine in Sirpur Paper Mills (supra), the Hon’ble Supreme Court has held in the case of Duncans Industries Limited v. State of UP [2000 (88) ECR 19 (SC)] that the question whether any machinery embedded in the earth is movable or immovable property depends upon the facts and circumstances of the particular case. In deciding such question in the Duncans case, the Court took into account the fact that the party had permanently fixed the plant and machinery to the ground with the intention of running the factory and not with the intention of removing such fixtures for sale. In the instant case too, we see an element of permanency in the fixation of the belt conveyor system to the ground and this, in our view, has a decisive bearing on the question whether the system is movable or immovable.
9. The adjudicating authority, apparently, has not applied its mind to the Apex Court’s decision on marketability issue in Quality Steel Tubes (P) Ltd. v. CCE [1995 (75) E.L.T. 17 (S.C.)] and in Mittal Engineering Works (P) Ltd. v. CCE [1996 (88) E.L.T. 622 (S.C.)], though that authority has cited these decisions in its order. Had the Commissioner followed the ratio of the Apex Court’s decisions, he would have had no option but to hold that the conveyor system was not marketable.
10. We note that in view of the Apex Court’s ruling in a line of decisions, including those referred to hereinabove, the Central Board of Excise & Customs has, of late, clarified (vide CBEC Section 37B Order No. 58/1/2000-CX., dated 15-1-2002) as under :-
“For 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. Further, such resultant goods should be specified in the Central Excise Tariff as excisable goods besides being marketable i.e. they can be taken to the market and sold (even if they are not actually sold). The goods should nut be immovable.
If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as movable and will, therefore, not be excisable goods.
The intention of the party is also a factor to be taken into consideration to ascertain whether the embedment of a machinery in the earth was to be temporary or permanent. This, in case of doubt, may help determine whether the goods are movable or immovable.”.
11. The Commissioner has classified the item under CSH 8428.90 and over-emphasised the existence of the Tariff entry as the strongest factor for holding it to be excisable. In view of Apex Court’s rulings as correctly noted by the Board, apart from having to be covered under the CE Tariff, goods to be excisable should not be immovable and should be capable of being taken to the market and sold. The belt conveyor system in question was permanent, immovable and incapable of being marketed and the same would belong to the non-excisable category. Only those conveyors which are movable in nature and can be temporarily installed at construction sites etc. for carrying materials will be liable to duty under CSH 8428.90.
12. In view of our findings, we hold that the belt conveyor system in question is not excisable. The demand of duty on the item is illegal and the same is set aside. Consequently, the penalties imposed on TRF are also set aside. The non-imposition of penalty on ACC and the sub-contractors is found in order.
In the result, Appeal No. E/2465/99-B is allowed and the Revenue’s appeals are dismissed.