Case: Triveni Engg. &amp; Inds. Ltd  Vs. Commr. Of Central Excise

The facts giving rise to these appeals are not in dispute. The appellants deal in turbo alternators which have two components : (i) steam turbine; and (ii) complete alternator (also called `Generator). Of them, the appellants manufacture steam turbine in their factories at Allahabad and Bangalore where excise duty is paid on them under the Act. They purchase duty paid complete alternators which are delivered at the site of the customer. On the ground that the appellants failed to declare manufacture of turbo alternators, show cause notices were issued to them by the Collectors of Central Excise at Allahabad and Bangalore, inter alia, stating that turbo alternators are liable to excise duty under Heading 85.02 of the Central Excise Tariff Act, 1985 (for short `the CET Act). The appellants resisted the claim on the ground that (i) a turbo alternator set comes into existence on its being fixed permanently on the land as such it is not an excisable good but an immovable property and (ii) by the combination of `steam turbine and `alternator, a turbo alternator emerges at the site of the customers which does not involve any process of manufacturing, therefore, they are not liable to exciseAugust 24, 1995, the Collector of Central Excise, Allahabad and on August 28, 1992, the Collector of Central Excise, Bangalore confirmed the demand raised in the show cause notices. The assessees filed two appeals against the orders of the said Collectors before the CEGAT. On the question of levy of excise duty on turbo alternator, the CEGAT, by the impugned order dated June 20, 1996, held that turbo alternators were liable to excise duty.

Court's reasoning:
20. Further, in the instant case, it is a common ground that a turbo alternator comes into existence only when a steam turbine and alternator with all their accessories are fixed at the site and only then it is known by a name different from the names of its components in the market. The Tribunal recorded the finding that fixing of steam turbine and the alternator is necessitated by the need to make them functionally effective to reduce vibration and to minimise disturbance to the coupling arrangements and other connections with the related equipments. It also noted that removal of the machinery does not involve any dismantling of the turbine and alternator in the sense of pulling them down or taking them to pieces but only undoing the foundation bolts arrangement by which they are fixed to the platform and uncoupling of the two units and, therefore, the turbo alternator did not answer the test of permanency laid down by this Court in the case of Municipal Corporation of Greater Bombay (supra). In our view, the findings recorded do not justify the conclusion of the Tribunal inasmuch as on removal a turbo alternator gets dismantled into its componentssteam turbine and alternator. It appears that the Tribunal did not keep in mind the distinction between a turbo alternator and its components. Thus, in our view, the test of permanency fails.21. The marketability test requires that the goods as such should be in a position to be taken to the market and sold and from the above findings it follows that to take it to the market the turbo alternator has to be separated into its componentsturbine and the other alternatorbut then it would not remain turbo alternator, therefore, the test is incorrectly applied. Though, there is no finding that without fixing to the platform such turbo alternator would not be functional, it is obvious that when without fixing, it does not come into being, it can hardly be functional.22. It will be useful to refer to the Explanatory Note issued by the Harmonized System of Nomenclature (HDN) to which Mr. Sridharan invited out attention. We also note that HSN received the approval of this Court in CCE v. Woodcraft, 1995(3) SCC 454, which explained the scope of Heading 85.02 as undersets consisting of the generator and its prime mover which are mounted (or designed to be mounted) together as one unit or on a common base (see the General Explanatory Note to Section XVI), are classified here provided they are presented together (even if packed separately for convenience of transport)."The Explanatory Note further contained :"Floors, concrete bases, walls, partitions, ceilings, etc., even if specially fitted out to accommodate machines or appliances, should not be regarded as a common base joining such machines or appliances to form a whole.From a perusal of the above 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.