1
The Excisability of Plant and Machinery
Table of Contents
TABLE OF CONTENTS .....................................................................................................1
TABLE OF CASES ..............................................................................................................2
INTRODUCTION AND RESEARCH METHODOLOGY .............................................4
DEFINITION OF ‘MANUFACTURE’ FOR THE PURPOSE OF EXCISABILITY ..6
THE DECISION IN SIRPUR MILLS ..............................................................................11
ASSESSING THE IMPACT OF SIRPUR MILLS: THE RESPONSE OF TRIVENI
ENGINEERING .................................................................................................................13
PRACTICAL CONSIDERATIONS AND SIRPUR MILLS ..........................................16
CASE ANALYSIS ..............................................................................................................19
Sirpur Paper Mills Ltd v. Collector of Central Excise ..................................................19
Gannon Dunkerly & Co. v. CCE, Ahmedabad ..............................................................19
Commr. of C.Ex., Madras v. Chemtec Water Conditioners P. Ltd. ..............................20
Duncan Industries Ltd. v. State of UP and Ors. ............................................................20
Triveni Engineering and Indus Ltd. v. Commissioner of Central Excise ......................21
Beam Engineering Pvt. Ltd. v. Commissioner of Customs Trichy ................................21
IN CONCLUSION .............................................................................................................23
Marketability: ................................................................................................................23
Reason for Attachment: .................................................................................................23
Manner of Attachment: ..................................................................................................23
Intention: .......................................................................................................................24
BIBLIOGRAPHY ..............................................................................................................25
Articles...........................................................................................................................25
Books .............................................................................................................................25
Electronic Resources .....................................................................................................26
Websites .........................................................................................................................26
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The Excisability of Plant and Machinery
Table of Cases
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A.P. State Electricity Board v. Collector of Central Excise, Hyderabad, 1994 (70)
E.L.T. 3 (S.C.).
A.P. State Electricity Board v. Collector, 1984 (16) ELT 579.
Auto Measurematic Ltd. v. Asst. Collector of Central Excise, Madras 1997 (96) E.L.T
14 (S.C).
Beam Engineering Pvt. Ltd. v. Commissioner of Customs Trichy, 2000 (40) RLT 998
(CEGAT).
Bhor Industries Ltd. v. Collector of Central Excise, 1989 (40) E.L.T. 280 (S.C.).
Collector of Central Excise v. Ambalal Sarabhai Enterprises, 1989 (43) E.L.T. 214
(S.C.).
Commr. of C.Ex., Madras v. Chemtec Water Conditioners P. Ltd., (2000) 115 ELT 135
(Trib).
D.C.M. v. Union of India, AIR 1963 SC 791.
Duncan Industries Ltd. v. State of UP and Ors., JT 1999 (9) SC 421.
Gannon Dunkerly & Co. v. CCE, Ahmedabad, (1999) 84 ECR 365 (Trib).
Gujarat Machinery Manufacturing v. Collector, 1983 (12) ELT 825 (T).
Hindustan Polymers v. Collector of Central Excise, 1989 (43) E.L.T. 165.
Hyderabad Race Club v. Collector, 1986 (23) ELT 274.
I.A.E.C. Brokers v. Collector, 1990 (48) ELT 388 (T).
Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta, 1994 (74) E.L.T. 22.
Mittal Engg. Works Pvt. Ltd. v. Collector of Central Excise, Meerut, 1996 (88) E.L.T.
622 (S.C.).
Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad - 1995 (76) E.L.T.
241 (S.C.).
Municipal Corporation of Greater Bombay v. Indian Oil Corporation Ltd, 1991
Supp.(2) SCC 181.
Narne Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise, Hyderabad,
1988 (38) E.L.T. 566 (S.C.).
Otis Elevator Company, 1981 (8) ELT 720.
Premier Tyres v. Collector, 1986 (25) ELT 961 (T).
PSI Data Systems Ltd. v. Collector of Central Excise - 1997 (89) E.L.T. 3 (S.C.).
Quality Steel Tubes (P) Ltd. v. Collector of Central Excise - 1995 (75) E.L.T. 17
(S.C.).
S.N. Rolling Mills v. Assistant Collector, 1977 (1) ELT (J 141) (All).
3
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The Excisability of Plant and Machinery
Sirpur Paper Mills Ltd. v. Collector of Central Excise, 1998 (97) ELT 3 (SC).
South Bihar Sugar Mills, AIR 1968 SC 922.
Triveni Engineering & Industries Limited v. Collector of Central Excise Hyderabad,
2000 (120) ELT 273 (SC).
Union Carbide India Ltd. v. Union of India & Others, 1986 (24) E.L.T. 169.
4
The Excisability of Plant and Machinery
Introduction and Research Methodology
Excisability of plant and machinery is an issue upon which there has been much judicial
deliberation and although the deliberation has yielded forth some suggestions on how to
define movable property for the purposes of excisability, the problems associated with
making this distinction seem far from resolved. The conflict of interests involved in this
classification is apparent to even the layman. From the State’s perspective, classifying
more and more items as movable property and consequently ‘goods’ allows more items to
be levied duty upon. From the industry’s perspective, the additional duty for items that
were earlier considered immovable property and hence non-excisable, is unacceptable.
However, it would be presumptuous to conclude that this conflict of interest is a novel
phenomenon. Court’s have grappled with the issue for half a century and have evolved a
number of complex yet mostly inconclusive tests to define ‘goods’ for the purpose of
excisability. In this paper, the emphasis is on analyzing the jurisprudence of the last few
years in order to isolate the contributions made by these decisions to the existing tests and
standards.
The objective of this project is to arrive at a means of characterizing an item as ‘goods’ for
the purpose of excisability and to critically analyse the recent decisions of the tribunals and
the courts on this subject.
There was no paucity of literature on this point of view and no limitation was experienced
with regard to research material. However, in order to make this discussion practically
relevant the discussion borrows heavily from recent case decisions.
This paper adopts as its methodology a case analysis based approach. This is also because
this an issue with tremendous practical ramifications in the manufacturing sector.
The Chapterisation is as follows:
Chapter 1 deals with the issue of the definition of ‘manufacture’ for the purposes of
excisability. Here we discuss all the important case law that has defined manufacture for
the purposes of dutiability.
Chapter 2 deals with the effect of the decision in Sirpur Mills.
5
The Excisability of Plant and Machinery
Chapter 3 deals with the implications of the decision in Sirpur Mills.
Chapter 4 contains an analysis of the most recent cases on the subject area being discussed.
The footnoting style is standard and uniformly followed throughout.
6
The Excisability of Plant and Machinery
Definition of ‘Manufacture’ for the
purpose of Excisability
Any person or individual of ordinary prudence shall define manufacture as an activity of
making something new by assembling various parts, components and accessories, which is
totally different from its components that have gone into assembly of the product and is
known by a new name. The Chambers Twentieth Century Dictionary defines
"manufacture" as "to make, originally by hand, now used by Machinery and on a large
scale; to fabricate, concot; to produce unintelligently in quantity". The various State Sales
Tax Laws have defined "manufacture" as "various stages or steps in the process of
producing a new or distinct commercial commodity".
The Central Excise Act or Rules do not define the word "manufacture". Section 2(f)
defines the term 'manufacture' as under " 'manufacture' includes any processes, (i) incidental or ancillary to the completion of a manufactured product; and
(ii) which is specified in relation to any goods in the Section or Chapter Notes of the
Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture;
and the word 'manufacture' shall be construed accordingly and shall include not only a
person who employs hired labour in the production or manufacture of excisable goods, but
also any person who engages in their production or manufacture on his own account".
It is evident from the above that the definition of "manufacture" for a common man and as
defined by the State Sales Tax Laws, Chambers Twentieth Century Dictionary and
Wharton's Law Lexicon is almost similar and the definition of the word "manufacture" as
per Central Excise Act, 1944 is different and wide enough to cover various processes,
particularly in relation to "GOODS". Therefore, under the Central Excise the question of
dutiablitv arises only in cases where the process is undertaken in relation to goods.
Section 2(d) of the Central Excise Act, 1944 defines the terms 'Excisable Goods' as under:
7
The Excisability of Plant and Machinery
"'excisable goods' means goods specified in the Schedule to the Central Excise Tariff Act,
1985 (5 of 1986) as being subject to a duty of excise and includes salt".
Therefore, it is abundantly clear from the above that the goods mentioned in Central Excise
Tariff Act, 1985 are liable to the Duty of Excise of course at the applicable tariff rates.
The Hon'ble Supreme Court had been consistent all along as far as levy of Central Excise
Duty is concerned on Plant and Machinery erected at the customer's site and had also from
time to time laid down the criteria for such levy. The test of marketability of goods was
laid down for the first time in case of D.C.M. v. Union of India1. The Hon'ble Supreme
Court observed as under:
"It is helpful to consider also in this connection the ordinary meaning of the word "goods".
For, by the very words of the Central Excises and Salt Act, 1944, excise duty is leviable on
"goods". The Act itself does not define "goods", but defines "excisable goods" as meaning
"goods" specified in the First Schedule as being subject to a duty of excise and includes
salt. On the meaning of the word "goods" an interesting passage is quoted in the Words
and Phrases, Permanent Edition, Vol. 18 from a New York Court thus:
The first exposition I have found of the word "goods" is in Bailey's Dictionary of 1932
which defines it simply as "merchandise", and by Jhonson, who followed as the next
lexicographer, it is defined to be movables in a house, personal or immovable estates;
wares; freight; merchandies. Webster defines the word "goods" thus--- "goods, noun,
plural; (1) movables; household furniture, (2) personal or movable estate, as horses, cattles,
utensils, etc. (3) wares; merchandise, commodities bought and sold by merchants and
traders".
These definitions make it clear that to become "goods", an article must be something which
can ordinarily come to the market to be bought and sold.
Similarly in South Bihar Sugar Mills2 their Lordships observed that "the duty is levied on
goods. As the Act does not define goods, the legislature must be taken to have used that
word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it
must be something which can ordinarily come to the market to be and sold and is known in
the market". .
1
2
AIR 1963 SC 791.
AIR 1968 SC 922.
8
The Excisability of Plant and Machinery
The judgment in the case of Narne Tulaman Manufacturers Pvt. Ltd. v. Collector of
Central Excise, Hyderabad3 was in most of the cases used as a tool by most of the
Assessing/ Adjudicating Authorities, to raise and confirm demands in spite of the fact that
the issue of dutiability of weighbridge being immovable property was never raised before
the Hon'ble Supreme Court.
The Hon'ble Supreme Court in the case of Bhor Industries Ltd. v. Collector of Central
Excise4 once again, while settling the controversy observed as :
"It appears to us that under the Central Excise Act, as it stood at.the relevant time, in order
to be goods as specified in the entry the first condition was that as a result of manufacture
goods must come into existence. For articles to be goods these must be known in the
market as such or these must be capable of being sold in the market as goods. Actual sale
in the market is not necessary, user in the captive consumption is not determinative but the
articles must be capable of being sold in the market or known in the market as goods".
The Hon'ble Supreme Court had held in case of Union Carbide India Ltd. v. Union of India
& Others5 that in order to attract 'excise duty' the article manufactured must be capable of
sale to a consumer. The aforesaid principle was reiterated in Hindustan Polymers v.
Collector of Central Excise6, where it was stated that:
"Excise Duty, as has been reiterated and explained, is a duty on the act of manufacture.
Manufacture under the Excise Law is the process or activity which brings into being
articles which are known in the market as goods, and to be goods these must be different,
identifiable and distinct articles known to the market as such. It is then and then only that
manufacture takes place attracting duty. In order to be goods, it was essential that as a
result of the activity, goods must come in existence. For articles to be goods, these must be
known in the market as such and these must be capable of being sold in the market as
such".
In the matter of Collector of Central Excise v. Ambalal Sarabhai Enterprises7 the
manufacturers produced hydrolysate which was captively consumed and fell under Item
3
1988 (38) E.L.T. 566 (S.C.).
1989 (40) E.L.T. 280 (S.C.).
5
1986 (24) E.L.T. 169.
6
1989 (43) E.L.T. 165.
7
1989 (43) E.L.T. 214 (S.C.).
4
9
The Excisability of Plant and Machinery
1-E of the Central Excise Tariff. It was held to be goods, no doubt, but it was observed that
from a practical point of view it was apparent that the goods were not marketable
consequently they were not eligible to duty.
This view was once again confirmed by Hon'ble Supreme Court in the matter of A.P. State
Electricity Board v. Collector of Central Excise, Hyderabad8, where it held that:
"this Court reiterated the same principle and observed that marketability was must
irrespective of whether it was marketed or not.”
Similar views were expressed by a three judges bench headed by Hon'ble K.S. Paripoornan
holding "the provisions of the Act mandate that a finding that the goods are marketable is a
pre-requisite or "sine qua non" for levy of duty".9
The Hon'ble Supreme Court in case of Mittal Engg. Works (P) Ltd. v. CCE, Meerut10,
while deciding observed that Mono Vertical Crystallisers which were used in sugar
factories for exhausting molasses of sugar were assembled, erected and attached to the
earth at the site of the customer's sugar factory. The process involved welding and gas
cutting as deep Mono Vertical Crystallisers had to be assembled, erected and attached to
the earth by a foundation at the site of the sugar factory. It is not capable of being sold as it
is without anything more. It was also held that the erection and installation of a plant was
not excisable.
The Hon'ble Supreme Court also clarified that "The only argument on behalf of Narne
Tuleman Manufacturers Pvt. Ltd. was that it was liable to excise duty in respect of the
indicating system that it manufactured and not the whole weighbridge. The contention that
weighbridges were not 'goods' within the meaning of the Act was not raised and no
evidence in that behalf was brought on record. We cannot assume that weighbridges stand
on same footing as Mono Vertical Crystallisers in that regard and hold that because
8
1994 (70) E.L.T. 3 (S.C.).
Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta, 1994 (74) E.L.T. 22; The
aforesaid views of the Supreme Court were reiterated in number of subsequent cases i.e. Moti
Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad - 1995 (76) E.L.T. 241 (S.C.);
Mittal Engg. Works Pvt. Ltd. v. Collector of Central Excise, Meerut - 1996 (88) E.L.T. 622 (S.C.);
Quality Steel Tubes (P) Ltd. v. Collector of Central Excise - 1995 (75) E.L.T. 17 (S.C.) and PSI
Data Systems Ltd. v. Collector of Central Excise - 1997 (89) E.L.T. 3 (S.C.).
10
1996 (88) E.L.T. 622 (S.C)
9
10
The Excisability of Plant and Machinery
weighbridges were held to be eligible to excise duty so must Mono Vertical Crystallisers.
A decision cannot be relied upon in support of a proposition that it did not decide".11
Then came the decision of the Supreme Court in Sirpur Paper Mills Ltd v. Collector
Central Excise Hyderabad.12
11
This view was also clarified by Hon'ble Supreme Court while deciding the matter of Auto
Measurematic Ltd. v. Asst. Collector of Central Excise, Madras 1997 (96) E.L.T 14 (S.C).
12
1998 (97) ELT 3 (SC).
11
The Excisability of Plant and Machinery
The Decision in Sirpur Mills
In the General Clauses Act, the term ‘immovable property’ is defined to include land,
benefits arising out of land and things attached to the earth or permanently fastened to
anything attached to the earth. Consequently, the judiciary came to the conclusion that the
term ‘goods’ does not include plants and installed machinery since they are either attached
to the earth or fastened to anything attached to the earth. 13 In J.K. Export Industry v.
Collector14 the tribunal went as far as to say that even things attached to the earth by bolts
and nuts are to be treated as immovable property and not as goods.15 However, the tribunal
qualified this position by holding that movable property, which is subsequently attached to
the earth, does not cease to remain ‘goods’16 provided that such articles are workable
without being attached to the earth.17 To give a simple example, a cabinet or almirah which
is normally movable property and hence a ‘good’ does not cease to remain a ‘good’ merely
when it is attached to the earth by a platform and screws because one does need to attach
the almirah to the earth to make use of it.
The decision of the Supreme Court in Sirpur Paper Mills Ltd. v. Collector of Central
Excise18 was widely perceived as greatly impacting the position of law in this area. The
property concerned was a paper-making machine which was embedded into a concrete
platform with the help of nuts and bolts. The court held that the machine was an excisable
good since it was only fixed to the ground for the purposes of wobble-free operation and
the attachment was not critical to its functioning. Even when unattached to the ground it
retained its characteristics as a paper-making machine. The primary objection to this
decision was that, though it retained its character after being removed from the ground, the
attachment to the ground was necessary for its proper functioning.
This enlarged definition of ‘excisable goods’ did not come as a surprise to the duty-payers
because in 1990 the Central Board of Excise issued a Circular stating that machinery
which is superficially attached or bolted to a prepared foundation on the ground, in order
13
S.N. Rolling Mills v. Assistant Collector, 1977 (1) ELT (J 141) (All); Gujarat Machinery
Manufacturing v. Collector, 1983 (12) ELT 825 (T).
14
1983 (14) ELT 2390 (T).
15
See also Premier Tyres v. Collector, 1986 (25) ELT 961 (T).
16
A.P. State Electricity Board v. Collector, 1984 (16) ELT 579; Otis Elevator Company, 1981 (8)
ELT 720; I.A.E.C. Brokers v. Collector, 1990 (48) ELT 388 (T).
17
Hyderabad Race Club v. Collector, 1986 (23) ELT 274.
18
(1998) 97 ELT 3 (SC).
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The Excisability of Plant and Machinery
that its operation is vibration-free, does not by reason of such attachment become
immovable property.19
After Sirpur, if the functionality of the machine is only realised while it is fixed or
embedded in the earth then it is immovable property and not excisable. Just as a tree
cannot live without being attached in the earth, the functionality of the machine must not
exist without its being embedded to the earth. It will not do if the machine is attached or
embedded in the earth merely to improve efficiency. If the ‘machine’ comes into operation
when some of its components are embedded in the earth and then coupled together then it
is certainly not a ‘good’ and hence not excisable because upon removal the characteristics
of the machine would be lost.
19
CBE&C Circular No.13/90-CX1, dated 18-4-1990.
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The Excisability of Plant and Machinery
Assessing the Impact of Sirpur Mills:
The Response of Triveni Engineering
The judgment in Sirpur Paper Mills Ltd. had unsettled the well settled principle of law by
holding that the plant and machinery elected at site is dutiable. The operative part of the
judgment read:
"Dutiability - Plant and Machinery erected at site when dutiable marketability is a question
of fact - Goods -Immovable Property - Paper making machine assembled and erected at
site mainly from bought out components. It is a marketable commodity and is a goods.
Embedding it in a concrete base to ensure its wobble free operation does not make it
immovable property in the sense a building or tree is -Machine is capable of being sold in
parts after being dismantled from its base -Sections 2(d) and 3 of Central Excise Act, 1944.
Just because a plant and machinery are fixed in the earth for better functioning, it dot-, not
automatically become an immovable property."
This judgment had opened pandora's box and became a ready tool in the hands of
collection starved Central Excise Authorities to issue show cause notices left right on each
and every company whether engaged in execution of projects on turnkey basis or
establishing its own plant and machinery.
The situation was some what rectified by the Supreme Court in Triveni Engineering &
Industries Limited v. Collector of Central Excise Hyderabad20 where it distinguished the
judgment and order in case of Sirpur Paper Mills while relying on judgment and orders
passed in case of Municipal Corporation of Greater Bombay v. Indian Oil Corporation
Ltd21 and the judgement in M/s. Mittal Eng. Works Pvt. Ltd, v. Collector of C.E., Meerut22
in which the Hon'ble Supreme Court had distinguished the famous Narne Ttdanran's case
has reiterated the legal position that for the purpose of levy of Duty of Excise, the two
conditions mast be fulfilled namely:
(i) there must be movable goods;
20
2000 (120) ELT 273 (SC).
1991 Supp.(2) SCC 181.
22
1996 (88) E.L.T. 622 (S.C.).
21
14
The Excisability of Plant and Machinery
(ii) to meet the marketability test the goods as such should be in a position, to be taken to
the market and sold.
While dealing with departments reliance on Sirpur Paper Mills Ltd the Supreme Court
observed as under:
"Here, the decision of this Court in Sirpur Paper Mills, which is relied on by the learned
counsel for the Revenue, needs to be referred to. In that case, the question was whether
paper making machine which was assembled and erected by the appellant by using duty
paid components and by fabricating certain parts in their factory, was liable to excise duty.
The CEGAT recorded the finding that the whole purpose behind attaching the machine to a
concrete base was to prevent wobbling of the machine and to secure maximum operational
efficiency and also for safety. This court held that in view of those findings, it was not
possible to hold that the machinery assembled and erected by the appellant at its factory
site was immovable property as something attached to earth like a building or a tree. The
test, it was noted: would be whether the paper making machine could be sold in the market
and as the Tribunal had found as a fact that it could be sold, so the machine was held to be
not a part of immovable property of the company. It appears that the aforementioned two
cases - Mittal Engineering Works (P) Ltd. and Quality Steel Tubes (P) Ltd. were not
referred to in Sirpur Paper Mills Ltd.'s case".
In the instant case, the Supreme Court after considering decisions as regards "manufacture"
held that as a result of the activity carried out at the site, a new product, turbo alternator
came into existence which has a distinctive name and use different froth its components
and, therefore, the process at site amounted to a manufacturing activity. Whether turbo
alternator is excisable, the Supreme Court observed that it is well established by a series of
decisions that in order to be excisable, the article should be capable of being brought and
sold in the market.
In order to determine the excisability of "turbo alternator", the Supreme Court relied, inter
alia, on its decisions in the case of

Mittal Engineering wherein this Court held that mono vertical crystalliser had to be
assembled, erected and attached to earth by a foundation at the site and was not capable
of being sold as it is and, therefore, was not excisable goods, and
15
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The Excisability of Plant and Machinery
Quality Steel Tubes in which the Supreme Court held that tube mill and welding head
erected and installed are not capable of being brought to the market for being sold and,
therefore, are not excisable goods. The Court also observed that erection and
installation of a plant could not be held to be excisable goods and if such wide meaning
was assigned, it would result in bringing in its ambit structures, erections and
installations which would surely not be in consonance with accepted meaning of
excisable goods and its eligibility to duty.
While arriving at the final conclusion, the Hon'ble Supreme Court has stated "From a
perusal of the instant facts……it follows that installation or erection of turbo alternator on
the platform constructed on the land would be immovable property, as such it cannot
excisable goods.” Therefore, the test of immovability for the purposes of levy of Central
Excise Duty has been once again reiterated and confirmed by Hon'ble Supreme Court.
16
The Excisability of Plant and Machinery
Practical Considerations and Sirpur
Mills
The construction/ erection of plant in a turnkey project industry takes place by following a
series of detailed steps involving substantial civil engineering process, which finally results
in the construction and erection, testing and commissioning of the plant in question. It is
constructed according to the specific requirements of each customer, depending on local
conditions/technical requirements and are not at all standard one with other. This operation
involves various process of excavation, computation of loads, design and construction of
civil nature, structural work, electrical work and erection work. Therefore it is important to
distinguish such construction/ erection with simple assembly of machine at site and simply
fixing in place on the foundation with nuts or bolts for the purpose of safety.
Whereas, the facts are entirely different and the activity which is carried out by turnkey
project industry at the site is one of constructing the plant, wherein embedding, grouting
and civil foundations for laying huge structures which are integral part of the plant is a
matter of necessity without which the plant cannot be constructed. The erection of various
items on a permanent foundation as a firmly permanent fixture in a turnkey project
industry can by no stretch of imagination be construed as manufacture of individual
equipment at site which is ordinarily known, bought and sold in the market. There is no
ground assembly involved at site wherein individual equipment are manufactured and then
placed on the civil foundation by means of mere bolting. The erection of various items at
site on such a permanent foundation involves erection on position and such an erection
also requires extensive welding of items so erected, which are permanently connected to
each other and to the supporting structures or the foundation.
Following are important features in the case of turnkey project industry involved in setting
up of plant:
(a) The items erected at site are on a permanent foundation involving huge civil work and
is in the nature of permanent fixture which is not removed. The plant in question erected
/constructed comes in to existence only after its erection at site.
17
The Excisability of Plant and Machinery
(b) It is not possible to manufacture such a huge plant/machinery in the factory and be
transported from factory premises in a CKD condition and hence, it is also not possible to
do ground assembly of machinery at site. The machinery is not first assembled at site,
before it is permanently install and after installation it becomes immovable property.
(c) No individual ground assembly is done at site resulting in manufacture of identifiable
goods subjected to excise which is ordinarily known bought and sold in the market.
(d) Since the various items are erected "on position" on a permanent foundation by the
time the erection is completed and that such erected items) attains character of equipment,
capable of carrying out a process it forms integral part of the plant and it ceases to be
goods as it forms inextricable part of such integrated plant and immovable.
(e) While fixation of bolts and nuts alone does not make machinery immovable property but in the case turnkey project industry where a huge plant is constructed by process of
erection, it cannot be equated to mere fixation of bolts and nuts as in the case of Sirpur
Paper Mills Ltd.
(0 In turnkey projects, it involves substantial civil engineering such as preparation of
foundation for various equipment/ machinery to be constructed /erected, excavation, laying
of supporting structures/girders of steel, which are grouted and embedded to the
foundation, etc.
(g) The different items received at site are erected on the foundation and supported
structures piece by piece and then integrated together and by the time the integrated
functional project/plant comes into existence, it remains permanently embedded in the
ground.
(h) The parts of such erected equipment cannot be retrieved, as in such retrieval process
there will be extensive damage to the items, since it would involve gas cutting of various
items. Therefore, the parts of the plant so erected at site cannot retrieved and reassembled
and therefore are not capable of being sold to anyone and no market exists in such
circumstances as no marketable product would emerge.
(i) The plant which is set up by means of erection in a turnkey project industry do not
come to the market to be ordinarily bought and sold which is the essence of subjecting an
item to levy under excise as per the principles laid down by the Supreme Court in various
18
The Excisability of Plant and Machinery
decisions. On this aspect, there are various decisions which affirms the fact that the
plants set up at site by a turnkey project industry emerge as immovables and are not
marketable and hence not goods subjected to levy.
Hence on a close observation, one would observe that Supreme Court in Sirpur Paper
Mills case use has heavily relied on the facts and findings of the case in the said Tribunal
decision and the Hon'ble Supreme Court has come to the 'conclusion based on certain
conceded aspects on facts by the party. Therefore, the decision of the Supreme Court in
Sirpur Paper Mills Ltd. cannot be held as a "Bench- Mark" by the executive authorities
to issue show cause notice or confirm the demand blindly without analysing the merits and
factual facts of the case and also without taking into account the well settled decisions of
Supreme Court, particularly in case plant erected at site by turnkey project industry.
Therefore, the Sirpur Paper Mills decision has a very limited application to only such
facts, which are identical to the case.23
Ashok R.Prabhune, “Plant erected at Site – Dutiability”, Excise Law Times, Vol.108, A 21 at A
21 (1999).
23
19
The Excisability of Plant and Machinery
Case Analysis
Sirpur Paper Mills Ltd v. Collector of Central Excise24
Property concerned: Paper making machine fixed to the ground platform by embedding in
concrete platform
Decision of the Supreme Court: Excisable item
Reasoning of the Decision: The court held that the machine was only fixed to the ground
for the purposes of wobble-free operation. The machine could be easily removed and sold
and was therefore a marketable item. The court emphasised that merely because a machine
is fixed to the ground does not make it a immovable property. One needs to look at the
intention of the party to see reason for fixing.
My Opinion: This decision was widely perceived as greatly impacting the position of law
in this area. Before this decision the law seemed to look at the strength and nature of fixing
of the machinery. The test of excisability was whether the item could be removed without
damaging the base to which it was attached. If it could then it may be held to be excisable.
In this case the test might have been satisfied because the concrete base would be damaged
however this decision represented a turn from that course of action. Now, the court
depended more on the reason for the connection rather than the type of connection. The
court also used the ‘marketability’ test which was whether the item, once removed, would
be marketable as such. Individual components and sub-structures of a plant would not be
marketable as such because there function was only revealed in the whole of the plant
however distinct machines in the factory which had distinct independent functions would
satisfy the ‘as such’ marketability test. In this case the paper making machine satisfied the
marketability test and was thus excisable.
Gannon Dunkerly & Co. v. CCE, Ahmedabad25
Property concerned: Fabrication and erection of structures at site- Clarifloculator bridges
of M.S.Steel, fabricated and erected at site attached to earth, and forming part of water
treatment plant
Decision of Tribunal: Not marketable goods and therefore non-excisable
Reasoning of Decision:
24
25
(1998) 97 ELT 3 (SC).
(1999) 84 ECR 365 (Trib).
20
The Excisability of Plant and Machinery
1) The clarifloculator bridge is not capable of being sold in the market and is a fabricated
portion of the clarifoculator.
2) Fabrication of items from structural items by drilling, punching holes, building etc. and
erection of plant do not amount to manufacture of goods
My Opinion: Besides restating known law this Case seems to acknowledge the apparent
difference between plant integrated equipment and other machinery or equipment that may
be employed in a plant. The former are non-excisable while the latter (such as paper
making making machines [Sirpur Mills]) have been held to be excisable.
Commr. of C.Ex., Madras v. Chemtec Water Conditioners P. Ltd.26
Property Concerned: Erection of Water Treatment Plant
Decision of Tribunal: Not excisable good
Reasoning of the Decision: Court said that in this case the water treatment plant could not
be removed from the earth without dismantling it into its vessels and tanks components.
Not marketable. Case distinguished Sirpur Mills by saying that in the latter there was one
separate machine which could be removed from the ground as a whole. In this case the
water treatment plant is comprised of separate components and cannot be removed as a
whole.
My Opinion: As in Gannon Dunkerly this case reiterated the difference between
excisability of plants as a whole and the excisability of certain machinery individually in
plants. If the item sought to be taxed is one entity even when removed from the ground and
if some item can retain its functional characteristics after being removed from the ground
then excisability is highly probable.
Duncan Industries Ltd. v. State of UP and Ors.27
Property Concerned: Fertiliser Plant
Decision of Supreme Court: Immovable Property and thus not Excisable
Reasoning of the Decision: They relied upon the ancient decisions of Reynolds v. Ashby
(1904) AC 466 and upon Official Liquidator v. Sri Krishna Deo, (AIR 1959 All.247). They
reiterated that the determination is dependent upon facts and circumstance. One must look
at the intention of the parties. Was the intention to fix the plant permanently and operate it
for the fertiliser business or did they intend to remove it for sale at some time? In effect
you are determining whether it was fixed only to avoid excisability or for the bona fide
26
27
(2000) 115 ELT 135 (Trib).
JT 1999 (9) SC 421.
21
The Excisability of Plant and Machinery
purposes of use. They pointed out that in Sirpur Mills the SC had used the intention test
and there the SC had found that the machine was fixed only for operational effeciency and
could be removed and sold anytime.
My Opinion: Though the intention test is well founded in past decisions of the courts it is
not entirely conclusive. In fact, it is indefinite in its application. For instance, a machine
may be fixed in the ground with the intention of using it for the purposes of the plant and
yet it may be removed and sold later on. In effect, the intention of parties may change after
the machine has been attached to the earth and therefore the test may be defeated.
Therefore, in my opinion any test for the purposes of characterising goods must address the
character of the goods. That is why the tests employed in Gannon Dunkerly and Chemtec
Water are more certain and are more effective because they focus on the nature of the
product and its level of integration with other components. That is why it is better that if
the intention test is used it is used in conjunction with other tests that focus on the nature of
the equipment and its integration with other equipment.
Triveni Engineering and Indus Ltd. v. Commissioner of Central Excise28
Property Concerned: Turbo Alternators
Decision of the Supreme Court: Not excisable
Reasoning of Decision: The court held that whether an article is permanently fastened to
anything attached to the earth require determination of both the intentions as well as the
factum of fastening to anything attached to the earth. And this has to be ascertained from
the facts and circumstances of any case. In the present case the turbo alternator does not
come into being unless its steam turbine and alternator components are fixed into the
ground and thus it is certainly not marketable as such. Test of permanency of object is
satisfied because object per se does not come into being unless it is fixed.
My Opinion: Oft cited decision primarily because it lays out the tests. It reiterated that the
nature of the object is necessary to be evaluated. Intention is only one feature. Cannot be
used in isolation. There is difference between fixing to make it work (in instant case) and
fixing to make it work better (Sirpur Mills).
Beam Engineering Pvt. Ltd. v. Commissioner of Customs Trichy29
Property Concerned: Fuel Tanks embedded and erected at site
Decision of the CEGAT: Non-excisable
28
29
(2000) 120 ELT 273 (SC).
2000 (40) RLT 998 (CEGAT).
22
The Excisability of Plant and Machinery
Reasoning of the Decision: The question that the court determined was whether the tank
came into existence by fixing piece by piece while attached to the earth or it came into
existence and was then later attached to the earth. If it was the former then it would be
immovable property but if it was the latter then the tank would have become a good before
it was fixed to the earth and thus would be excisable. The court found that in this case the
tank came into existence at the site
My Opinion: This case reiterates the importance of the factum of connection between the
equipment and the earth. However in this case it may be noted that the fixing to the ground
may not have served any functional purpose of the tank. In this case what was more
important was the notion of ‘permanency’ which was proved by the manner in which the
tank was manufactured. Also, there is a clear intention on the part of the party to use the
tank for his own purposes.
23
The Excisability of Plant and Machinery
In Conclusion
The present case law on the point clearly indicates that there is no one test in this area for
determining whether an item is movable or immovable property. However indefinite it
may sound, the reality is that a determination in this regard depends on the facts and
circumstances of the case. However the following observations from these cases may lend
some assistance in these determinations:
Marketability:
If the item which is sought to be taxed is removable from its attachment and ‘marketable’
on its own then it will in all probability be classified as a good. However, one must
remember that the definition of ‘marketable’ is specific. It does not include components of
plant and machinery that have no function on their own if not attached to the machinery. If
it included such items then nearly everything would be ‘marketable’ someway or the other.
Furthermore, a situation may arise where a plant has X number of main machines attached
to each other. These machines may each serve a separate function but may be inseparable
from one another in terms of the actual function of the plant. Here as well the machines
may not be ‘marketable’. This is however a tricky situation and highly fact dependent. But
if the machine is on ‘it’s own’ such as a paper making machine or a fax machine or a xerox
machine then it would, in all probability be held to be excisable even if fixed to the ground.
Reason for Attachment:
If the functionality of the machine is only realised while it is fixed or embedded in the
earth then it is immovable property and not excisable. Just as a tree cannot live without
being attached in the earth, the functionality of the machine must not exist without its
being embedded to the earth. It will not do if the machine is attached or embedded in the
earth merely to improve effeciency. If the ‘machine’ comes into operation when some of
its components are embedded in the earth and then coupled together then it is certainly not
a ‘good’ and hence not excisable. This example also indicates the occassional overlap
between the ‘marketability’ test and the ‘reason for attachment’ test.
Manner of Attachment:
In some cases if the item is ‘assembled’ while connected/attached to the earth the item
may be held to be non-excisable if the above factors along with it’s manner of connection
to the earth satisfy the test of ‘permanency’ of attachment [see the Beam Engineering
Case]. Courts have sometimes assessed whether the item can be detached from the ground
24
The Excisability of Plant and Machinery
and shifted as a whole or does it have to be dismantled or reassembled. In the case of the
former it is excisable but in the case of the latter it is not [see Greater Bombay v. IOC].
Intention:
To put it simply, intention plays a role in evaluating the above factors. For example, if the
intention reveals that the reason for attachment of the machine was only for convenience
or some degree of efficiency then this will override any manner of attachment however
permanent.
25
The Excisability of Plant and Machinery
Bibliography
Articles








Anil Sood, “Plant and Machinery not dutiable- SC changes its view”, Excise Law
Times, Vol.121, A 15 (2000).
Ashok R.Prabhune, “Plant erected at Site – Dutiability”, Excise Law Times, Vol.108, A
21 (1999).
P.K.Goswanee, “Plant and Machinery embedded to earth – Dutiability”, Excise Law
Times, Vol.128, A 34 (2000).
R.M. Yashavanth, “Excisability – Plant and Machinery”, Excise Law Times, Vol.131,
A 18 (2001).
S.C.Bhide, “Erection and Installation – An Ambiguity in Excise – A critical view”,
Excise Law Times, Vol.111, A 160 (1999).
V.Balasubramanian, “Erection and Installation – Sirpur Papers Mills’ Case”, Excise
Law Times, Vol.113, A 142 (1999).
Y.B.Desai, “Erection and Installation – An Ambiguity in Excise”, Excise Law Times,
Vol.108, A 81 (2000).
Yogesh S. Patki, “Installation/Erection of Plant and Machinery – Liability to Excise
Duty”, Excise Law Times, Vol.186, A 186 (2000).
Books







Datar, A.P., Guide to Central Excise Law and Practice, Wadhwa and Company, 1999.
Datey, U.S., Central Excise: Law, Practice and Procedures, Taxmann Allied Services
Ltd., 1999.
Jain, R.K., Central Excise Tariff of India 2000-2001, Centax Publications Pvt. Ltd.,
2000.
Jain, R.K., Excise and Customs Case Referencer, Centax Publications Pvt. Ltd., 1999.
Jain, R.K., Excise and Customs: Circulars and clarifications, Centax Publications Pvt.
Ltd., 2000.
Mukhopadh, S., Interpretation of fiscal statutes in India, Centax Publications Pvt. Ltd.,
1991.
Satya, R.C., A complete guide to all Central Excise procedures, Cencus Publications,
2000.
26
Electronic Resources

Grand Jurix Database
Websites

www.manupatra.com
The Excisability of Plant and Machinery