On what amount is exsice duty applicable

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2010 We have entered into a contract with our client, wherein the contract is divided into two parts namely supply and service parts.

Under supply part we have to procure structure steel and reinforcement steel and supply it to our client. In the service part we have to fabricate and erect the material which was supplied by us earlier. Once the material is erected it becomes immoveable.

We would like to know whether excise duty or levy is applicable on the supply portion of our contract and if yes, then what should be the amount on which we should we pay excise duty, should it be only the prices we are charging our client for supply part or we should also add the amount of service part to it.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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04 August 2010 YOU HAVE TO SUPPLY FINSIHED GOODS TO PARTY, HENCE EXCISE DUTY IS PAYABLE ON SELLING PRICE OF FG ON WHICH YOU WILL SUPPLIED IT I.E IT WILL BE SUPPLY PLUS SERVICE PART.

Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2010 Respected sir,

we would like to mention here that the material we are suppling our not goods as they are not marketable and would be fixed to the ground after erection. So keeping in mind the above fact does excisability of our product changes or not

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CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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04 August 2010 Where change of identity takes place in the course of construction or erection of a structure which is an immovable property, then there would be no manufacture of “goods” involved and no levy of excise duty.

http://www.barandbench.com/brief/1/730/excise-duty-on-assembly-of-plant-and-machinery-at-site

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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04 August 2010 Process is not amount to manfacture, hence no excise duty on it.

Before excise duty is levied on any product, it has to cumulatively satisfy the twin tests: (a) that manufacture has taken place; and (b) goods have emerged as a direct consequence.

In a landmark decision in 1962, the Supreme Court in the Delhi Cloth Mills case defined goods and manufacture. The Bench held that an article must be something which can ordinarily come to market to be bought and sold to be called ‘goods’. It further held that ‘manufacture’ means to bring into existence a product known to the market and not merely producing some change. The Supreme Court in the South Bihar Sugar Mills case went on to hold that an article cannot be called ‘goods’ if not marketable and actual sale is immaterial. Speaking of the machinery attached to the earth, the Supreme Court in the Quality Steel Tubes case held that they are not goods and thus became immoveable property and neither satisfy the test of being goods nor can be said to be capable of being brought to the market for being bought and sold. After similar views were expressed several other cases, the Supreme Court in Sirpur Paper Mills held that just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become immovable property.

The Central Board of Excise and Customs (Board) in January 2002, issued a clarificatory notification under Section 37B of the Act. It said that; (a) For goods manufactured at site to be dutiable, they should have a new identity, character and use, distinct from inputs/ components that have gone into its production; (b) Where processing of inputs results in a new products with a distinct commercial name, identity and use (prior to such product being assimilated in a structure which would render them as a part of immovable property), excise duty would be chargeable on such goods immediately upon their change of identity and prior to their assimilation in the structure or other immovable property; (c) Where change of identity takes place in the course of construction or erection of a structure which is an immovable property, then there would be no manufacture of “goods” involved and no levy of excise duty; (d) Integrated plants/ machines, as a whole, may or may not be ‘goods’. For example, plants for transportation of material (such as handling plants) are actually a system or a net work of machines. The system comes into being upon assembly of its component. In such a situation there is no manufacture of ‘goods’ as it is only a case of assembly of manufactured goods into a system. This cannot be compared to a fabrication where a group of machines themselves may be combined to constitute a new machine which has its own identity/ marketability and is dutiable (e.g. a paper making machine assembled at site and fixed to the earth only for the purpose of ensuring vibration free movement), and ; (e) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods.