By TIOL News Service

MUMBAI, APRIL 26, 2016 : THE matter relates to excisability of orders for 'turnkey' supplies.

On the subject issue, the appellant assessee had trudged the steps of the Tribunal twice against the order of the adjudicating authority and on this occasion it is the Revenue, as the CCE, M–III, dropped the proceedings initiated against the respondent for recovery of duty of Rs.18,80,344/- on supplies made to customers and a further amount of Rs.7,48,000/- being the duty on machines seized from the premises of the respondent on 20th June 1991.

Flashback: The respondent claims to be a trader specialised in procuring various machines required for setting up facilities to produce computer forms and stationery.

Proceedings were initiated on the basis of note 4 of section XVI of the schedule to the CETA, 1985 which reads:

"4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function."

On the first occasion, consequent upon the adjudication order-in-original no. 31/92 dated 30th June 1992, the matter came up before the Tribunal and by final order no. 682/200-B1 dated 28th May 1999 it was remanded back, as the adjudicating Commissioner, by casual reliance on note 4 in section XVI of the schedule to the CETA, 1985 and without adequate elaboration, had confirmed the demand. In denovo proceedings, the Commissioner of Central Excise, Mumbai – VI, by order-in-original no. 22/2000-Commr – VI dated 28th February 2000 confirmed a revised demand after allowing certain exemption. The Tribunalby its order no. A/937-938/WZB/2004/2004/C-III dated 9th August 2004 remanded the matter back a second time for consideration of the certificate of the Chartered Engineer dated 30th December 1991 which had been disregarded on both occasions.

Thereafter, the adjudicating authority, having examined the certificate, came to a conclusion that there was no manufacture involved and this is the order that the Revenue has appealed before CESTAT.

In his findings, the CCE, Mumbai-IIIinter alia detailed thus –

++ From the chartered engineer's certification and explanation the machines quoted at serial no. 1 to 7 are capable of working independently and are being used independently in the trade. It is only at the option of the user the said machines are working in tandem. …I feel their technical expertise/opinion can be accepted as evidence in the present case before me.

++ It is evident that the machine/system provided by M/s. AGMPL to their customers is a congregation of machines purchased independently and fitted to run in tandem or independently as the need may be.

++ From the perusal of the Section Note 4 of section XVI, it appears that in order to fit into the provisions of this Section Note, there has to be a distinct machine having a clearly defined function and that such distinct machine should consist of individual components which are intended to contribute together to the clearly defined function of such distinct machine of which they are components. It therefore follows that in order to attract this Note each of the component machines should loose their individual identity and function and should result into a totally new function which is attributable to the new machine which has come into existence on their combination.

++ What comes out from the Chartered Engineer's certificate is that the machines supplied by M/s. AGMPL which are assembled at their own premises for demonstration and then dismantled and supplied and assembled, installed and commissioned further at customer's premises do not contribute together a clearly defined function under chapter heading 84.43 as the same as the same specifies as "Printing machinery, including ink-jet printing machines, other than those of heading no. 84.71; machines for uses ancillary to printing." The machines supplied by M/s. AGMPL are not having a single clearly defined function and those are capable of working independently. And hence, the congregation of machines supplied and assembled by M/s. AGMPL do not create any independent excisable goods which attract Central Excise duty under chapter heading 84.43.

++ In this case of supply of turnkey plant by the assessee, no new separate machinery having different and distinguishable function emerges. The component machines continue to have their own independent operations and functions and do not combine towards a single distinct function of any other machine. It is therefore proper and legal to hold that the activity of supply and assembly carried out by M/s. AGMPL does not amount to manufacture and hence the congregation of various machines supplied by them is not excisable. M/s AGMPL have carried out nothing but trading activity of the said machines.

The AR cited a plethora of decisions in support of the department stand of holding the goods liable to CE duty. Notable amongst them are Tata Iron and Steel Co. Ltd - 2002-TIOL-434-SC-CX, NarneTuleman - 2002-TIOL-144-SC-CX & Mil India Ltd. - 2007-TIOL-30-SC-CX.

The respondent adverted to Board Circular no. 58/1/2002-CX dated 15th January 2002 and the decisions in Beltek (India) Ltd. - 2014-TIOL-184-CESTAT-DEL, S&S Industries - 2008-TIOL-27-CESTAT-MAD in support of the order.

The Bench observed -

++ We cannot but recall the foundation for levying duties of Central Excise to hold that the excisability can be attributed to a note in the schedule only when it is expressly deemed as such. The section note that has been cited relates to the manner of classifying goods of specific chapter when considered as an aggregate of manufacture. We note from the records that each of the components of the assembly are independent stand-alone equipment with each subject to excise duty upon clearance from the respective factories of production.

++ The assembly of a system from various equipments as a 'turn-key project' may be a professional performance of a specialized contract which would not, however, render such turn-key projects to be manufacture unless the product that emerges is classifiable under one of the specific headings of the tariff. The rule of convenience for determining rate of duty from the classification of the dominant equipment cannot substitute for ascertainment of manufacture as legally understood.

Noting that the impugned order had succinctly considered the above key elements and arrived at a clear and unambiguous exposition that could not be controverted, the Bench held that there was no reason to interfere with the order.

The Revenue appeal was dismissed.

(See 2016-TIOL-990-CESTAT-MUM)