Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No. 856–857 of 2011 |
| Diary Number | 39487/2010 |
| Judge Name | HON’BLE MR. JUSTICE J.B. PARDIWALA |
| Bench | HON’BLE MR. JUSTICE J.B. PARDIWALA; HON’BLE MR. JUSTICE K.V. VISWANATHAN |
| Precedent Value | Binding Authority |
| Overrules / Affirms | Affirms Supreme Court precedents on “goods” and movability; reverses CESTAT decision |
| Type of Law | Central Excise / Indirect Tax |
| Questions of Law |
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| Ratio Decidendi |
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| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon by Court |
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| Facts as Summarised by the Court |
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Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts and customs/excise authorities |
| Persuasive For | High Courts addressing excise on site-erected installations |
| Overrules | CESTAT, West Zonal Bench, Mumbai in Appeal No. E/1377/07-Mum |
| Distinguishes | Silson India Pvt. Ltd. v. CCE (Tribunal) |
| Follows | Quality Steel Tubes (P) Ltd. v. Collector (1995); Mittal Engineering Works v. Collector (1997) |
What’s New / What Lawyers Should Note
- Confirms that a plant assembled and permanently embedded on-site is not “goods” and is not excisable under the Central Excise Act.
- Reinforces that Section 4 valuation provisions cannot be used to confer excisability; Section 3 charge first must be triggered on a movable product.
- Clarifies that direct-site duty-paid parts cannot be added to assessable value when assembly results in an immovable installation.
- Emphasises that invoking the five-year extended limitation under Section 11A(1) proviso requires evidence of wilful misstatement or suppression with intent to evade excise duty.
- Advises that any excess duty collected from a buyer must be recovered under Section 11D, not by re-characterizing sale proceeds as assessable value.
Summary of Legal Reasoning
- Charge vs. Valuation Distinction: Section 3 imposes the excise duty on manufacture of movable goods; Section 4 prescribes the method of valuation once liability under Section 3 is established (Bombay Tyre).
- Movability/Marketability Test: Goods affixed or embedded to earth through erection and civil works lose movability and cannot meet the prerequisite for excise liability (Quality Steel; Mittal; Sirpur Paper Mills).
- Contract Analysis: Boiler components and duty-paid parts were assembled on-site using concrete, bricks, and civil engineering, creating a permanently embedded plant—an immovable installation, not excisable goods.
- Inclusion of Bought-out Parts: As the resultant product is not a movable good, its value cannot derive from the total contract or transaction value under Section 4, so direct-site parts cannot be added to the assessable value.
- Invalidity of Extended Limitation SCN: Proviso to Section 11A(1) requires deliberate suppression or misstatement with intent to evade—absent such proof, the SCN issued after one year but within five is invalid (Pahwa Chemicals; Continental Foundation JV).
- Recovery of Unauthorized Collections: Even if duty were collected from the buyer on these parts, recourse must lie under Section 11D, not by altering valuation of the final product.
Arguments by the Parties
Petitioner (Assessee):
- Contractual scope limited to CKD supply; no obligation to erect; actual erection by buyer’s engineers.
- Bought-out items were supplied duty-paid by vendors and never entered the factory; no CENVAT credit was claimed.
- Boiler becomes an immovable asset upon civil erection; not “goods” under the Excise Act.
- Inclusion of direct-site parts in assessable value contradicts the nature of a charging provision; Section 4 cannot confer excisability.
- Extended limitation cannot apply absent proof of wilful suppression; immovability plea was raised at first instance before lower authorities.
Respondent (Revenue):
- Manufacture occurs upon assembly of CKD parts and bought-out items at site; taxable event completed before embedment.
- Amended Section 4 transaction value (contract price) includes bought-out parts and is sole consideration.
- Bought-out items are functionally “parts” (not mere accessories) essential to the boiler’s operation.
- Assessee recovered CENVAT credit and duty reimbursement from the buyer; reflects inclusion in transaction value.
- Extended five-year limitation applicable due to wilful suppression of material facts.
Factual Background
Between April and June 2000, the assessee cleared boiler parts from its factory in CKD condition, while certain essential parts were purchased duty-paid by third-party vendors and delivered directly to site. The revenue issued a show-cause notice alleging undervaluation by excluding the cost of these parts from the assessable value of the boiler and invoked the five-year extended limitation for wilful suppression. After two levels of appeal quashed the demand, the CESTAT reversed, including direct-site parts in valuation. The Supreme Court granted special leave, disputing excisability and the validity of the extended-period notice.
Statutory Analysis
- Section 3, Central Excise Act, 1944: Charging provision for duty on manufacture of excisable goods—goods must be movable.
- Section 4, Central Excise Act, 1944: Valuation provision prescribing “transaction value” methodology; not a charging section.
- Section 11A(1), Central Excise Act, 1944: Limitation for SCNs—one year normally; five years if fraud, collusion, wilful misstatement or suppression with intent to evade.
- Section 11D, Central Excise Act, 1944: Recovery mechanism for duty collected without authority from buyers.
Alert Indicators
- ✔ Precedent Followed – Affirms Supreme Court’s movability/marketability test.
- 📅 Time-Sensitive – Clarifies strict requirements for invoking five-year limitation.