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Gujarat Machinery Manufacturers Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1983)LC567DTri(Delhi)
AppellantGujarat Machinery Manufacturers
RespondentCollector of Central Excise
Excerpt:
.....that the appellants have a research & development department in their factory. they erected a pilot plant in this department for r & d work. they manufactured about 70% of the components of this pilot plant in their own factory and bought the remaining 307 or so of the components from outside the point to be decided in these three apeals is whether the appellants are liable to pay any central excise duty on the pilot plant or on the components of the said plant manufactured by themselves in order to facilitate a proper understanding of the issue involved, we reproduce below the relevant exemption notification :- reproduce "in exercise of the powers conferred by sub-rule (1) of rule 8 of the excise rules 1944, and in supersession of the notification no dated 1-3-1975, the central.....
Judgment:
1. The subject three appeals arise out of the cqmmon Order-in-Appeal which was passed in respect of three Orders-in-Original Since a common issue is involved in all the three appeals, they were heard together.

2 The facts in brief are that the appellants have a Research & Development Department in their factory. They erected a pilot plant in this department for R & D work. They manufactured about 70% of the components of this pilot plant in their own factory and bought the remaining 307 or so of the components from outside The point to be decided in these three apeals is whether the appellants are liable to pay any Central excise duty on the pilot plant or on the components of the said plant manufactured by themselves In order to facilitate a proper understanding of the issue involved, we reproduce below the relevant exemption notification :- reproduce "In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Excise Rules 1944, and in supersession of the notification No dated 1-3-1975, the Central Govt. hereby exempts goods falling under Item No.68 of First Schedule to the under Item No.68 of the First Schedule to the Central Excises and Salt Act 1944 (1 of 1944) manufactured in a factory and intended for use in the factory in which they are manufactured, or in any other factory of the same manufacturer, from the whole of the duty of excise leviable thereon ; Provided that where such use is in a factory of a manufacturer differ ent from his factory where the goods have been manufactured exemption" contained in this notification shall be allowable subject to the Proper officer being satisfied that the goods are intended for such use Provided further that nothing contained in this notification shall apply to complete machinery manufactured in a factory and meant for producing or processing any goods, even if they are intended for use in the same factory in which they are manufactured or in any other factory of the same manufacturer." 3. The appellants were heard on the 2nd and 18th March 1983 The appellants maintained that no duty was payable either on the pilot plant' or on the components for the following reasons:- (1) The pilot plant is a chemical plant fixed to the ground and hence it cannot be treated as "goods". In support of their argument they produced an affidavit and a photograph of the subject pilot 'plant and relied on Govt.of India's order in revision in respect of Otis Lifts (1981 ELT 290).

(2) The parts manufactured by them for the pilot plant were just components and not complete machinery. These components were exempt under the main part of the exemption notification and the second proviso to the said notification was not applicable to these components since this proviso applied only to complete machinery.

(3) Assuming that the components manufactured by them were to be considered as complete machinery, they were, in any case, not "meant for producing or processing any goods" as they had been used in the erection, of the subject pilot plant the designed or intended purpose of which was only research and development activity. No doubt, some quantity of the goods was produced in this pilot plant but that was incidental to the R&D activity. In support of their argument, the appellants gave an affidavit stating that the cost of the subject pilot plant was Rs. 44.31 lakhs while the total value of the goods produced in this plant during three years (1978-79 to 1980-8l) was only Rs. 67,000/-. Besides, the goods so produced were of sub-standard quality. They stated that for this reason also the second proviso to the notification was not applicable to the components or to the pilot plant manufactured by them.

4. The Department's representative agreed that the subject pilot plant was a chemical plant and not machinery and hence the second proviso to the notification was not applicable. However, he did not feel that the appellants were entitled to the exemption contained in the main part of the notification since in his view use of the components for assembling the pilot plant did not amount to "use" as contemplated in the main part of the notification.

5. We have carefully considered the matter. From the affidavit and the photograph given by the appellants, it is clear that the subject pilot plant is a chemical plant fixed to the ground. It is in the nature of immovable property and cannot go to the market for being bought and sold. We, therefore, hold that this plant cannot be considered goods so as to attract duty leviable under Item 68 of the Central Excise Tariff- "All other goods, not elsewhere specified,..." The question then remains to decide the liability of the components themselves which were manufactured by the appellants and removed to their R&D department for erection of the subject pilot plant. We agree with the appellants that these components were not complete machinery in terms of the second proviso nor were they "meant" for producing or processing any goods.

The pilot plant was designed, intended or meant to undertake research and development work and the production of an insignificant quantity of goods in the course of three years in this plant was only incidental to the R&D work. The second proviso to the notification is, therefore, not applicable to the facts of these appeals. As regards the appellants' entitlement to exemption in respect of the components under the main part of the notification, we find no merit in the Department's objection. The use contemplated by the notification in the course of captive consumption would naturally depend upon the nature of the goods in question. Since, in this case, the goods were in the nature of components or parts and not complete machinery, the components by themselves cannot produce any goods. Therefore, whether an outside customer buys these components or appellants themselves use these components, the only use to which the components could be put has to be in the assembly or erection of a chemical plant and it is the complete plant which would produce or process any goods. We, therefore, hold that by removing the subject components to their R&D department in the same factory and using the said components in the assembly and erection of the subject pilot plant, the appellants have satisfied the condition of the main part of the notification relating to use and, as such, they are entitled to exemption under the said notification.

6. In the light of the aforesaid discussion, we allow all the three appeals with consequential relief to the appellants.


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