CESTAT- New Delhi : ‘Green houses in ready to assemble sets’ manufactured by assessee classifiable under Heading No. 9406 00 11

CESTAT, New Delhi Bench

Jain Irrigation Systems Ltd. Vs. Commissioner of Central Excise & Service Tax, Alwar

Justice Dr. Satish Chandra, President And V. Padmanabhan, Technical Member

Final Order Nos. 50792-50794 Of 2018
Excise Appeal Nos. 51339, 51340, 51341 Of 2017

February  26, 2018 

ORDER

V. Padmanabhan, Technical Member – The present appeals have been filed against the order-in-original No. ALW-EXCUS-000-COM-003-17-18 dated 03-05-2017 passed by the Commissioner of Central Excise, Alwar.

2. Brief facts of the case are that the appellant -assessee is engaged in the manufacture of various types of pipes and irrigation system. The Department acted on an intelligence that the appellant was evading Central Excise duty in the manufacture and clearance of “green houses”, visited the factory premises on 11-12-2014 and carried out verification of the record. After scrutiny of the record resumed during the visit, and recording the statements of various personnel including Sh. Vijay Singhvi, Factory Manager and Authorised Signatory and Sh. D. I. Desarda, Sr. Vice President (Taxation), Department issued show cause notice dated 15-11-2016. After the due process of adjudication the impugned order came to be passed in which the adjudicating authority held that the appellant has manufactured and supplied “green houses” in ready to assemble condition to Rajasthan Horticulture Development Society, Directorate of Horticulture, Jaipur. The Central Excise duty on such goods to the extent of Rs.3,20,99,394/- was demanded alongwith interest and penalty of equal amount. Penalty was also imposed to the extent of Rs.50 lakhs on Sh. D. I. Desarda, Sr. V.P. (Taxation) and Rs.10 lakhs on Sh. Vijay Singhvi, Factory Manager and A.S. under Rule 26 of the Central Excise Rules, 2002. Aggrieved by the impugned order, appeals have been filed by the assessee as well as the other company employees who have been penalised.

3. With the above background, we heard Sh. M. K. Gupta, ld. Advocate appearing on behalf of the appellant as well as Sh. R. K. Mishra, ld. AR representing Revenue.

4. The arguments of the ld. Counsel are summarised below:

(i)   The appellant received orders for supply of “green houses” as per the Expression of Interest floated by the Rajasthan Horticulture Development Society, Directorate of Horticulture, Jaipur. The appellant was one of the successful bidders.

(ii)   In their factory, they fabricated various components mostly in the form of pipes, girders, columns etc. Other components required for assembly of the “green houses” such as nuts, bolts etc. as well as the panels to be used as walls and roof of the green houses made of glass polyfilm. For the goods fabricated within the factory, the goods were cleared under excise invoices, classifying the same under 84249000 as parts of mechanical appliances and claiming the benefit of Notification No. 12/12-CE dated 17-03-2012 (Entry No. 242). This entry grants exemption to parts of mechanical appliances of a kind used in agriculture or horticulture. The rest of the bought out components were received in the depot of the appellant and subsequently despatches under commercial invoices. The bought out goods as well as those components manufactured in the factory were assembled at site into the form of green house which was not liable to payment of duty, being an immovable property.

(iii)   The department has considered the green houses to be classifiable under “pre-fabricated buildings” falling under 94060019. The adjudicating authority has charged Central Excise duty on the total value of goods including the goods manufactured in the factory as well as bought out components, even though the value of the bought out components was much more than the value of the goods fabricated in their factory.

(iv)   He submitted that the goods supplied by the appellant were not ready to assembly units for green houses and hence, they are not liable for classification under 94060011 as claimed by the adjudicating authority. They are classifiable only under 94060019. He further submitted that the HSN Explanatory Note under heading note 9406 specifies that when the parts of buildings and equipments are presented separately, (other than ready to assembly sets), such goods are excluded from the heading 9406 and are to be classified in their own appropriate headings.

(v)   He submitted that there is no excise duty liability on bought out components. But, he fairly admitted that the classification of the goods fabricated by the appellant may not correctly fall under CETH 84249000 as claimed by the appellant.

(vi)   He also submitted that the demand is time barred since the appellant’s unit has been regularly audited by the department internal audit.

(vii)   As an alternate plea, he also submitted that in case the entire demand is upheld, the benefit of cum duty price may be extended to the appellant. He further submitted that the appellant, in such a case will also be eligible for the cenvat credit on the inputs procured from outside.

5. Ld. AR vehemently justified the impugned order. He argued that the facts of the case are different from what has been submitted by the ld. Counsel representing the appellant. He referred to the statements recorded from Sh. Vijay Singhvi and submitted that he has categorically admitted that what has been supplied by the appellant are green houses in ready for assembly form. The depot where the bought out components are said to have been received is nothing but fictitious and it is on record that all the bought out components have been received in the factory of the appellant and have been cleared alongwith components fabricated in their factory, in the form of complete ready to assembly kits.

Such ready to assemble sets for green houses are classifiable under 94060011. The Chapter Note 4 to heading 9406 specifically provides for classification of such goods under 9406.

He further submitted that the appellant has suppressed the fact that goods were being cleared in ready to assemble sets and have wrongly claimed the benefit of Notification No. 12/12 (Sl. No. 242). The goods fabricated in the appellants factory are definitely not in the nature of main heading 8424 and are not covered within Sl. No. 242.

He also argued that during the course of audit, only test check of the documents are carried out and this cannot be a reason for claiming that the demand is time barred.

6. We have heard very elaborately the submissions from both sides and have carefully perused the appeal record. The appellant has received orders from the Government of Rajasthan for supply of green houses. Such green house are to be supplied to specific size for which orders have been placed. The appellant is required to assemble such green house at the specific site and handover the same. In the appellant’s factory some of the components required for such green house are fabricated. Such components include pipes, girders, column etc. The rest of the items required for putting together green houses are procured from outside. These include minor components such as nuts, bolts etc. and also major elements such as class/ polyfilm sheets which are required for use in the ceiling as well as wall of the green houses. It so happens that the value of bought out items are much more than that of the goods fabricated within the factory. Before proceeding further we reproduced below the competing tariff headings:

8424 Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines
8424 10 00 – Fire extinguishers, whether or not charged………….
8424 20 00 – Spray guns and similar appliances
8424 30 00 – Steam or sand blasting machines and similar jet projecting machines
  – Other appliances:
8424 81 00 — Agricultural or horticulture………….
8424 89 — Other:
8424 89 19 — Painting equipment, including electrostatic phosphating and powder coating equipment.
8424 89 20 – Industrial bellows………….
8424 89 90 — Other………….
8424 90 00 – Parts………….
Tariff item Description of goods
(1) (2)
9406 Prefabricated buildings
0406 00 -prefabricated buildings
  — Green houses:
0406 00 11 — Green house – in ready to assemble sets
9406 00 19 — Other………….
  —- Other………….
9406 00 91 — Prefabricated housing material………….
9406 00 92 — Prefabricated construction for cold storage………….
9406 00 93 — Silos for storing ensilage………….
9406 00 99 — Other………….

The appellant has claimed the benefit of Notification No. 12/2012 dated 17-03-2012 (Sl. No. 242). Such benefit is available for parts of mechanical appliances of a kind used in agriculture or horticulture. It is easily seen that the goods fabricated in the factory which are in the nature of pipes, girders etc. do not merit classification under 8424. Consequently, such claim of the appellant is without merit. However, the more significant issue is regarding whether the appellant has cleared green houses in ready to assembly form.

7. The heading 9406 of the Central Excise Tariff covers pre-fabricated buildings. In this connection, Note 4 to Chapter 94 is reproduced below for ready reference:

‘Note 4 of the Chapter 94 of CETA 1985, provide that—

“4. For the purposes of heading 9406, the expression “prefabricated buildings” means buildings which are finished in the factory or put up as elements, presented together, to be assembled on site, such as housing or worksite accommodation, officers, schools, shops, sheds, garages or similar buildings.”‘

8. The HSN Explanatory Notes to 9406 has provided guidance as to the scope of pre-fabricated buildings. For ready reference the same is reproduced below:

“This heading covers prefabricated buildings, also known as “industrialised buildings of all materials. These buildings, which can be designed for a variety of uses, such as housing, worksite accommodation, offices, schools, shops, sheds, garages and greenhouses, are generally presented in the form of:

– complete buildings, fully assembled, ready for use;

– complete buildings, unassembled;

– incomplete buildings, whether or not assembled, having the essential character of prefabricated buildings.

In the case of buildings presented unassembled, the necessary elements may be presented partially assembled (for example, walls, trusses) or cut to size (beams, joists, in particular) or, in some cases, in indeterminate or random lengths for cutting on the site (sills, insulation, etc.) … …

Presented separately, parts of buildings and equipment, whether or not identifiable as intended for these buildings, are excluded from the heading and are in all cases classified in their own appropriate headings”. (Emphasis Supplied)

9. To decide the correct nature of the goods supplied by the appellant, it is necessary to examine whether what has been supplied is pre-fabricated buildings in ready to assemble sets or only components of the pre- fabricated buildings.

10. The claim of the appellant before the adjudicating authority as well as in appeal is that only some of the components of the green houses has been fabricated in the appellant’s factory and cleared to the depot. Hence, other bought out items are received by the appellant in their depots. Finally, it is claimed that all the components are assembled at site where it become immovable property. Hence, it has been submitted that the appellant, at the most should be required to pay excise duty only on the components fabricated within the factory.

11. The investigation undertaken by the Department has established that the facts are different. Sh. V. Singhvi, Factory Manager and A.S. has admitted in his statement that all components required for the green houses are transported to the designated site in ready to assemble conditions. The Department has also established that the appellant has deliberately issued invoices for supply in two parts – one for the items fabricated in their factory and the other for the bought out items (commercial invoice).

12. The tariff entry 9406 00 11 covers the green houses in ready to assemble sets. It stands established that the supply which has been made is for green houses in ready to assemble condition. Such goods are specifically covered under the above tariff heading.

13. After careful examination of the entire case, we are convinced that the goods cleared by the appellant are classifiable under 9406 00 11 as green houses in ready to assemble sets and liable for payment of excise duty during the period under dispute. Such Central Excise duty is required to be paid on the entire value of the green houses i.e. including the value of both the components fabricated in the factory as well as those procured from outside. However, the appellant will be entitled to the benefit of cenvat credit on goods procured from outside subject to verification of such entitlement on the basis of documents to be produced by the appellant. The Adjudicating Authority will allow such cenvat credit after verification of documents which will be produced by the appellant, as per law.

14. It is also fairly well settled that the total consideration received is to be considered as cum duty price and such benefit will be entitled to the appellant.

15. In view of the above discussions, demand for Central Excise duty under 9406 made in the impugned order is upheld but with the modification that the appellant will be entitled to cenvat credit subject to the verification of documents. They will also be entitled to the cum duty price benefit which will be worked out and extended by the adjudicating authority.

15.1 In the result, appeals are partially allowed.

[Citation : 2018-Taxcaselaw-24-CESTAT-Delhi-GST]