Supreme Court rules that value of duty-paid bought-out items delivered directly at buyer's site cannot be included in assessable value of boilers cleared in completely knocked down (CKD) condition, as the erected boiler becomes an immovable property and hence not excisable goods.
If you manufacture boilers and supply them in completely knocked down (CKD) condition, paying excise duty on them, and also supply separately purchased items directly to the buyer's site without bringing them to your factory, can the excise department demand duty on the value of these bought-out items as part of the boiler's assessable value?
No, the excise department cannot demand duty on the value of these bought-out items.
The Supreme Court has ruled that when a boiler is erected and installed at the buyer's site, it becomes an immovable property and ceases to be "goods" for the purpose of excise duty. The value of duty-paid bought-out items delivered directly at the buyer's site cannot be included in the assessable value of boilers cleared in CKD condition.
Contract Signed - Lipi Boilers entered into agreement for designing, procuring, manufacturing and supplying machinery for steam generating plant
Show Cause Notice - Assistant Commissioner issued show cause notice alleging undervaluation by excluding bought-out items worth ₹14,02,344
Order-in-Original - Assistant Commissioner dropped demand, holding boilers erected at site are not goods and hence not excisable
Order-in-Appeal - Commissioner (Appeals) dismissed revenue's appeal, affirming Assistant Commissioner's order
CESTAT Order - Tribunal reversed lower authorities, held value of bought-out items includable in assessable value
Supreme Court Judgment - Allowed assessee's appeal, held value of bought-out items not includable in assessable value
| Legal Principle | What It Means | Application in This Case |
|---|---|---|
| Section 3 - Charging Section | Excise duty is on manufacture of excisable goods | Must first establish goods are excisable before valuation |
| Section 4 - Valuation Section | Provides method to compute duty on excisable goods | Cannot be used to determine whether goods are excisable |
| Movability Test | Goods must be movable to be excisable | Boiler erected at site becomes immovable property |
| Marketability Test | Goods must be capable of being bought and sold | Immovable boiler cannot be marketed as goods |
A condition where goods are supplied in disassembled parts for ease of transportation, to be assembled at destination.
Goods specified in Central Excise Tariff as being subject to duty of excise. Must be movable and marketable.
Property that cannot be moved, including land, benefits arising from land, and things attached to earth.
Components purchased from other manufacturers and supplied along with self-manufactured goods.
The value on which excise duty is calculated, normally the transaction value under Section 4.
"The duty of excise is chargeable with reference to the value of the excisable goods, but the measure employed for assessing a tax must not be confused with the nature of the tax itself. Valuation is a consequence of levy, not its determinant. The 'transaction value' becomes relevant only after the taxable event, i.e. manufacture of excisable goods, is first established."
This judgment reaffirms the foundational principle that excise duty is a duty on manufacture, not on sale. It clarifies that valuation provisions cannot be used to bring immovable property within the ambit of excisable goods. The ruling protects manufacturers from arbitrary demands on items that cease to be goods once erected at site.
This content is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for specific legal guidance. The information provided is based on judicial interpretation and may be subject to changes in law.
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This analysis decodes a complex excise duty dispute to help businesses understand when site-erected equipment qualifies as excisable goods and how to challenge incorrect duty demands.