Case: Sunflag Iron &amp; Steel Company Limited &amp; Another Vs. Additional Collector of Central Excise &amp; Others

2. FACTS(A) Writ Petition No. 2420 of 1987(a) The petitioner is a Public Limited Company registered under the provisions of the Companies Act, 1956 with its registered office at Nagpur. The petitioner is in the process of setting up an integrated steel plant to manufacture mild and alloy steel rolled products at Ekalati/Warthi Village of Bhandra District. The project was contemplated in two phases. The first phase comprises installation of sophisticated high technology electrical arc furnace with ladle refining facility, continuous caster and continuous rolling mill. The second phase comprises making of sponge iron, which is the main raw material used in the Steel Industry. The petitioner has entered into technical collaboration with the famous West German Company M/s. Krupps Industrietechnik. In order to construct a facility for carrying out its production activities, the petitioner awarded a site development and factory construction contract to M/s. BridgeRoof Company, a Public Sector Undertaking. M/s. BridgeRoof Company has undertaken the work of fabrication and erection of the complete shed of the factory including roofing and cladding. The contract between the parties requires the petitioner to provide duty paid iron and steel items like angles, channels, plates, joists, beams, etc. M/s. BridgeRoof Company fabricated certain material out of such duty paid angles, channels, plates, joists, beams, etc. supplied to them and the fabrication is done on the site where the construction of the shed is proposed. These fabricated items are embedded in the construction forming the columns and roofs of the factory shed.(b) The petitioner and M/s. BridgeRoof Co., were served with show cause notices onby the respondents. It was alleged therein that M/s. BridgeRoof Company were engaged in the work of fabrication of columns, trusses and other steel structures falling under7308.90 of Central Excise Tariff, 1985; that M/s. BridgeRoof Company as well as the petitioner were carrying out the activity of manufacturing excisable goods on the petitioners premises; that the applicable rules under the Act had not been complied with and the amount of duty had not been paid. The notice, therefore, called upon both the petitioner and M/s. BridgeRoof Company to show cause as to why penalty should not be imposed upon them under Ruleof the Central Excise Rules, 1944 (hereinafter referred to as the Rules) and to show cause as to why excise duty amounting to Rs. 1,56,163.05 leviable on the excisable goods already removed without payment of duty should not be recovered from them under Rule 9(2) of the Rules. It also called upon them to show cause as to why the goods valued at Rs. 2,67,232.40, which had been seized and released provisionally, should not be confiscated under Ruleof the Rules.(c) M/s. BridgeRoof Company gave a detailed reply datedto the show cause notice served on them. Shortly put, the contention was that the fabrication work done by them consisted of carrying out certain operations like drilling, cutting, welding, rivetting on the duty paid columns, angles, plates, etc. supplied by the petitioner and such activity did not amount to manufacture, nor did it result in the production of any goods on which excise duty could be levied. It was contended that columns, trusses and roof girders are merely structural shapes and assuming them for the purpose of construction was a fabrication activity and not a manufacturing activity since the character of the raw material remained as before despite the operations carried out on them. It was also urged that the activity did not result in sale of any new item or new commercial product being brought to the market for sale. A number of judgments of the Central Excise Gold Appellate Tribunal (CEGAT) taking the view that similar activity did not result in the production of a commercially saleable product and, therefore, did not attract the levy of excise duty were cited. Notable amongst such judgments was the judgment of the CEGAT in the case of (Aruna Industries Vishakhapatnamothers v. Collector of Central Excise, Guntur and others)1, reported in 1986(25) E.L.T. 580. The reply, in terms, states that the structurals of different shapes fabricated within the premises of the petitioners factory were not capable of being sold like sheets, rods and/or angles, which were commercially known commodities in the market place, as no one had heard about a column, beam, truss or purlin as an item of trade. The petitioner substantially adopted this reply by its reply datedand also contended that, for the same reasons, it was not liable to pay excise duty. Thereafter the show cause notice was heard and adjudicated by the Additional Collector. Detailed notes of arguments were filed before the Additional Collector reiterating the submissions of the petitioner and M/s. BridgeRoof Company citing large number of authorities including the decision of CEGAT in the case of M/s. Aruna Industries. (supra). By the impugned order datedthe Additional Collector rejected the contention of the petitioner, but took a view that as M/s. BridgeRoof Company was only a contractor, it was not liable for excise duty. As far as the petitioner was concerned, the Additional Collector was of the view that as the contractor was carrying out manufacture of excisable goods on the premises of the petitioner and such goods had been removed without complying with the applicable rules, the petitioner was liable to pay the excise duty. Consequently, the impugned order was made against the petitioner calling upon it to pay the duty of Rs. 1,56,163.05, duty on material worth Rs. 2,67,232.40 seized and provisionally released and penalty of Rs.The petitioner was also directed to take out Central Excise Licence and follow the rules under the C.E. Act.(B) Writ Petition No. 517 of 1988(a) In this case also, there is a contract under which the factory building is being constructed. For the purpose of facilitating construction of the factory building, duty paid material in the form of bars, columns, angles and so on are subjected to the process of cutting, drilling, welding, shaping and fabricated into structurals which are then embedded in cement concrete for the purpose of construction of the cold rolling mill plaint. This is done under a contract dated87, the petitioner filed a classification list under Ruleof the Rules. In the classification list, so as not to suppress any material facts, the petitioner had indicated at Item 4 that it was doing "Fabrication of columns, trusses, Gantry, Girder, Purlins, etc. for our new project at our factory site being fabricated by contractor against material supplied by us." All this material supplied by the petitioner is, duty paid material. Interestingly, in the Remarks column of the Classification list, as against Item 4, the petitioner had pointed out "No manufacture as per section 2(f) of Central ExciseSalt Act, 1944".(c) On 19th October, 1987, the Central Excise authorities served a show cause notice on the petitioner. Referring to the information given at Serial No. 4 of the classification list pertaining to fabrication of columns, trusses, Gantry, Girders, Purlins, etc., the Assistant Collector expressed the view that the product shown was excisable as it falls under7308.90 of the Central Excise Tariff Schedule. The petitioner was, therefore, called upon to show cause as to why the classification sought by the petitioner should not be modified as suggested in the show cause notice. The petitioner by its reply dated November 2, 1987 raised three issues : (i) that the fabrication activity was not "manufacture" ; (ii) that in any event the fabricated material was not "goods", which was sold as a distinct commercial product in the market or saleable as such and (iii) that the matter was clearly covered by the decision of the CEGAT in the case of Aruna Industries, Vishakhapatnam and others v. Collector, Central Excise, Guntur and others, reported in 1986(25) E.L.T. 580. The petitioner, therefore, contended that there was no question of its being called upon to pay excise duty thereon and requested that the proceedings be dropped. A personal hearing was given to the petitioner during the course of which, a detailed note of its contentions was filed.(d) Onthe Assistant Collector of Central Excise made an order rejecting the contentions urged by the petitioner holding that the fabrication of columns, trusses, Gantry Girders, Purlins, etc. from duty paid raw material supplied by the petitioner amounted to manufacture under section 2(f) of the Central ExciseSalt Act resulting in finished products which were commercially saleable, which attracted excise duty under Tariff Entry No. 7308.90. He, therefore, directed the petitioner to pay the duty in accordance with Tariff Entry No. 7308.90 on such fabricated material which was used for the construction of the factory buildings.3. Being aggrieved by the aforesaid two orders of adjudication, the petitioners are before this Court.

Reasoning: Considering the total absence of reference to judgment of the CEGAT in the case of M/s. Aruna Industries (supra), which is pat on the point (as we shall presently see), we are inclined to agree with the learned Counsel for the petitioners. Though not articulated in words, in substance and spirit both the impugned orders appear to follow the CBEC guidelines by ignoring the binding judgment of the CEGAT.The circular issued by the CBEC is made binding on the Excise authorities by reason of sectionof the Act. Sectionprovides that in its discretion, the CBEC may, for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit and that such officers and all others persons employed in the execution of the Act shall observe and follow such orders, instructions and directions of the CBEC.9. Turning then to the binding nature of the judgments of the CEGAT, we find that the proposition has never been doubted that the judgments of the CEGAT are binding on the revenue authorities. In the case of (Morarji Gokuldas Spinning Weaving Co. Ltd. and another v. Union of India and others)7, reported in 1981 E.L.T. 429(Bom.), it was pointed out by a learned Single Judge of this Court that an order passed by the Central Government in exercise of its revisional powers (under the law as it stood when no appeal was provided) was binding on the excise authorities. In the case of (Collector of Central Excise,v. Pharmaceutial Capsules Laboratories, Bombay)8, reported in 1986(25) E.L.T. 211, which was a case after the CEGAT was established, the CEGAT itself took a view that judgments of the CEGAT are binding on the revenue authorities and even the fact that they had merely filed an appeal against a particular judgment did not detract from its bindingCirculars/Orders or trade notices are not binding on the assesses at all and their efficacy and legality is always open for challenge at the instance of them. As far as the judgments rendered by the CEGAT are concerned, they are equally binding on the assesses as well as the Department. In a contest, therefore, the Circulars/guidelines/orders or trade notices issued under sectionmust necessarily yield. Thus, we hold that all officers functioning under the Act are bound by the judgments rendered by the CEGAT as long as such judgments are not stayed or reversed by a superior forum i.e. the High Court or the Supreme Court. We also hold that if at all there is a situation of conflict between a circular/guideline/order or trade notice issued under sectionof the Act and a binding judgment of the CEGAT, it is the binding judgment of the CEGAT which has to be followed by the authorities under the Act. The observations of the Division Bench of this Court in the case of (Yashwant Sahakari Sakhar Karkhane Ltd. v. Union of India and others)16, reported in 1986(26) E.L.T. 904(Bom.) fully support the view which we are inclined to take. It is an elementary proposition that an administrative circular issued by an authority, however high, can never override a binding judgment of judicial or quasi judicial authority. This is the quintessence of rule of law.In the facts and circumstances of the case, therefore, we are inclined to agree with the contentions of Mr. Thakur that driving the petitioners to the appellate authorities would be of no use. Faced with the circulars/guidelines/orders or trade notices under sectionof the Act, which have already taken a view in the matter, the assessee would have little chance to persuade the departmental authorities to take a contrary view. Mr. Thakur is right when he contends that there is no equally efficacious alternate remedy. Hence, we are of the view that these writ petitions need to be entertained.Having considered the matter from all these aspects, we are satisfied that the cases of the petitioners before us fall within the matrix exactly similar to the one in Aruna Industries and had the assessing authorities applied their minds carefully to the judgment in Aruna Industries case, there would not have been difficulty in arriving at the correct decision. Having not done so, there is an error.We are, therefore, of the view that in both the cases, fabrication of structurals at the site of the principal by using raw materials supplied by the principal did not amount to "manufacture", nor was it done at "factory", nor were the goods saleable or capable of being brought to the market for being bought or sold. We further notice that in both the cases the fabrication was with the immediate purpose of using in the factory shed or steel cold rolling mill which were being constructed and there was never an intention to sell it in the market. These facts, in our judgment, make it amply clear that the materials fabricated at the site by the contractors in both the cases were not exigible to excise duty under section 3 of the Act. Hence, the orders in both the cases need to be set aside in exercise of writ jurisdiction.