2000 (8) TMI 86 - SC - Central Excise

Whether excise duty can be imposed on a Turbo alternator under the Act? Held that - From a perusal of the Explanatory Notes, it is clear that when generating sets consisting of the generator and its prime base mover are mounted together as one unit on a common base they are classified under the Heading 85.02; in this connection floors, concrete bases, walls, partitions, ceilings etc., even if specially fitted out to accommodate machines or appliances, cannot be regarded as a common base joining such machines or appliances to form a whole. On a combined reading of the Explanatory Notes, extracted above, there can be no difficulty in inferring that installation or erection of turbo alternator on the concrete base specially constructed on the land cannot be treated as a common base and, therefore, it follows that installation or erection of turbo alternator on the platform constructed on the land would be immovable property, as such it cannot be excisable goods falling within the meaning of Heading 85.02. For these reasons, we are of the view that the Tribunal is not correct in coming to the conclusion that the turbo alternator is excisable goods. We, therefore, set aside the order under appeal and allow these appeals with costs.

Issues Involved:
1. Whether combining steam turbine and alternator constitutes a manufacturing process.
2. Whether the resulting turbo alternator is an excisable good or an immovable property.
3. Applicability of Entry 85.02 of the Central Excise Tariff Act, 1985 to turbo alternators.
4. Marketability and mobility of turbo alternators.
5. Relevance of Circular No. 17/89 issued by the Central Board of Excise & Customs.

Detailed Analysis:

1. Whether combining steam turbine and alternator constitutes a manufacturing process:
The appellants contended that combining steam turbine and alternator does not involve any manufacturing process but merely results in an immovable property. The CEGAT observed the process at the site, where the steam turbine and alternator were transported, placed, bolted, and aligned on a platform. The Tribunal held that this process indeed constituted manufacturing, as it resulted in the emergence of a new product, turbo alternator, with a distinctive name, character, and use.

2. Whether the resulting turbo alternator is an excisable good or an immovable property:
The appellants argued that the turbo alternator, being fixed permanently on the land, should be considered immovable property and thus not subject to excise duty. The Tribunal, however, found that the turbo alternator did not meet the test of permanency. It noted that the removal of the machinery did not involve dismantling but merely undoing foundation bolts and uncoupling the units. The Supreme Court, however, disagreed, emphasizing that the turbo alternator, when removed, would be dismantled into its components, failing the test of permanency and thus not being excisable goods.

3. Applicability of Entry 85.02 of the Central Excise Tariff Act, 1985 to turbo alternators:
The Tribunal concluded that turbo alternators fell under Entry 85.02 of the CET Act, which covers electric generating sets and rotary converters. The Supreme Court examined the entry and the explanatory notes from the Harmonized System of Nomenclature (HSN), concluding that installation or erection of turbo alternators on a concrete base does not constitute a common base as per the HSN notes. Therefore, turbo alternators installed on such bases are immovable property and do not fall under Entry 85.02.

4. Marketability and mobility of turbo alternators:
The Tribunal's findings suggested that turbo alternators, being fixed to a platform, were marketable. The Supreme Court, however, highlighted that for marketability, the goods as such should be capable of being taken to the market and sold. Since turbo alternators, when dismantled, would not remain as turbo alternators but revert to their components, they failed the marketability test.

5. Relevance of Circular No. 17/89 issued by the Central Board of Excise & Customs:
The appellants cited Circular No. 17/89 to support their claim that turbo alternators do not fall under Entry 85.02. The respondents countered that the circular did not relate to electric generators and was not issued under Section 37-B of the Act. The Supreme Court did not find it necessary to delve into the circular's relevance, given the conclusions drawn from the other issues.

Conclusion:
The Supreme Court concluded that the Tribunal erred in classifying turbo alternators as excisable goods. The process of combining steam turbine and alternator constitutes manufacturing, but the resulting product, being an immovable property, does not meet the criteria of excisable goods under the CET Act. The turbo alternator's installation on a concrete base further supports its classification as immovable property. Consequently, the Supreme Court set aside the Tribunal's order and allowed the appeals with costs.

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