By TIOL News Service

KOLKATA, MAR 20, 2013: THE dispute is whether the Digital Local Telephone Exchange Equipment (DLTEE) assembled by BSNL with the various components supplied by the vendors would amount to manufacture, whether such goods are excisable, marketable and are chargeable to central excise duty. This case perhaps will have wide ramifications, as BSNL might be assembling such systems at many places.

The appellant, M/s BSNL placed order for supply of component parts of Digital Switching System and assembled such component parts resulting in Digital Local Telephone Exchange Equipment (DLTEE) System at Panihati Telephone Exchange. It is the case of the department that the DLTEE assembled by BSNL is excisable goods falling under Chapter Heading 85.17 of Central Excise Tariff Act, 1985.

The appellants argued against the demand on various grounds, but the Tribunal held that the resultant assembly is goods, excisable and marketable and upheld the demand. The findings of the Tribunal in brief are as under:

Assembly of goods require training and expertise:

The Divisional Engineer, AGM, employees of the Appellant had clearly agreed/accepted that all these parts were assembled by the engineers of the Appellant at their site resulting into emergence of the DLTEE. Therefore, the claim of the Appellant that the DLTEE could not be assembled by them without necessary training and expertise, being contrary to the evidence, cannot be accepted.

Goods cannot be held as immovable:

From a plain reading of the observation of the Hon'ble Apex Court in (2010-TIOL-25-SC-CX), it is clear that if the attachment to earth is with an intention of affixing the property permanently, then it becomes immovable. On the contrary, if the goods are attached or affixed to earth by way of nuts and bolts to provide a wobble free operation to the machine, such attachment cannot be considered as a permanent attachment, and be called as an immovable property. The Divisional Engineer, in his statement had categorically stated that the DLTEE was screwed by nuts and bolts on the floor to avoid vibration and displacement and the same could be movable after unscrewing. It is commonsense that the DLTEE can easily be shifted to any place from the premises where it is installed, and many a time, these Exchanges are installed in different floors of a multistoried building. Therefore, by affixing the said DLTEE to the floor by nuts and bolts would not make it an immovable property and cease to be 'goods' as the intention of affixing it to the floor is not to make it a permanent structure, but to make it functional.

Goods are marketable:

The argument of the Appellant that the goods are not marketable seems to rest on the understanding that the goods would become marketable only if they are bought and sold, in its real sense, in the market. In the present case, the Digital Telephone Exchange (DLTEE), as a commodity, is known in the market as the supply of the said product has been tendered and necessary Purchase Orders were also placed on M/s. Alcatel Network Systems India Ltd. for supply of the said System. This indicates that the said Digital Switching System is being bought and sold and therefore, the test of marketability is satisfied in the present case. Since the twin test of movability and marketability, as laid down in by the Supreme Court (2011-TIOL-09-SC-CX) had been satisfied, the product emerged after assembly of various parts at Panihati known as DLTEE, is an excisable goods and leviable to excise duty under Chapter Heading 85.17 of the CETA.

Valuation:

As per the ratio in (2012-TIOL-58-SC-CX) , it is clearly laid down that even if manufactured goods are put to use at the place of its manufacture, in theory as well as in practice the same is leviable to excise duty. This situation of use of goods without its removal from the place of manufacture, is covered through a specific provision prescribed at Explanation-II to Rule 4 of the Central Excise Rules, 2002, as was in force at the material time. The said provision acknowledges that manufactured goods could be said to have been removed from the place of its manufacture when the same has been put to use at the place of manufacture and consequently, chargeable to excise duty. In the present case, there is no doubt that the Exchange had been put to use by the Appellant for rendering telephone lines to the respective customers for their use. Hence, the assessable value is correctly determined under Rule 8 of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000.

(See 2013-TIOL-474-CESTAT-KOL)