# Lipi Boilers Ltd v. The Commissioner of Central Excise, Aurangabad

- **Citation:** 2025 INSC 1297
- **Court:** Supreme Court of India
- **Decided:** 2025-11-10
- **Bench:** J.B. Pardiwala, Sandeep Mehta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/lipi-boilers-ltd-v-the-commissioner-of-central-excise-aurangabad-38219
- **Pages:** 49

## Headnote

Issue arose whether the value of the duty paid bought out items
delivered directly at the buyer's site is liable to be included in the
value of the boiler cleared by the assessee from its factory in
completely knocked down (CKD) condition, for the assessment of
the excise duty; and whether the show cause notice is legal and
valid under the extended limitation period as provided under the
proviso to s.11A(1) of the Central Excise Act, 1944.
Headnotes†
Central Excise Act, 1944 - ss.4, 11A - Excise Duty -
Assessment - Invocation of the extended period of limitation
u/s.11A - Assessee-manufacture of boiler and boiler parts,
cleared boiler from its factory in completely knocked down
(CKD) condition - Assessment of excise duty - Value of the
duty paid bought out items delivered directly at the buyer's
site, if liable to be included in the value of the said boiler -
Show cause notice issued, if legal and valid under the extended
limitation period as provided under the proviso to s.11A(1):
Held: Value of the duty paid bought out items which were delivered
directly at the buyer's site is not liable to be included in the value
of the boiler cleared by the assessee from its factory in CKD
condition, for the purpose of assessment of excise duty - Object
of the contract was about erection and installation of immovable
plant-steam generating plant - Final product that emerges as a
result of performing the obligations under the contract, does not
constitute excisable goods under the Act - Consequently, the base
value of the boiler on which excise duty is to be levied, cannot
be equated with the total contract price, thus, the price of the
bought out parts cannot be included in the value of the boiler for
the purpose of computing excise duty under the Act - CESTAT
* Author
[2025] 11 S.C.R.
579
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
erred while declining to consider the immovability plea by the
assessee - There was erroneous reliance on tariff classification -
Revenue appears to have been swayed by the fact that 'boilers'
and 'boiler parts' are listed under Chapter 84 of the Tariff Act, 1985,
and thus, seem to have proceeded on the erroneous assumption
that all boilers, irrespective of form or configuration, attract central
excise duty - However, the revenue should have kept in mind that
the mere presence of a product in the Tariff Schedule does not
determine its excisability - Final product-steam generating plant,
emerges in the form of an immovable product in the course of
integrating the CKD parts with the bought out items - Thus, the
resultant product of the contract not being excisable goods, it is
wholly inconsequential whether or not the bought out items are
parts or accessories of it - Excess collection of excise duty from
buyer is no proof of excisability on the final product which emerges
as an immovable property - Liability of the assessee to pay duty
must be determined strictly in accordance with the charging
provisions under the law and not on the basis of any purported
recovery from the buyer - As regards the show cause notice, in
the absence of any deliberate act on the part of the assessee
with an intention to evade being established by the revenue, the
essential precondition of wilful suppression with intent to evade
duty not satisfied, thus, the invocation of the extended period of
limitation under the proviso to s.11A(1) not tenable in law - Show
cause notice issued under the proviso to s.11A(1) not legal and
hence invalid - Thus, the proceedings leading up to the instant
appeal to be quashed, and the impugned order set aside - Central
Excise Tariff Act, 1985. [Paras 59-83]

## Text

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[2025] 11 S.C.R. 578 : 2025 INSC 1297
Lipi Boilers Ltd.
v.
The Commissioner of Central Excise, Aurangabad
(Civil Appeal No(s). 856-857 of 2011)
10 November 2025
[J.B. Pardiwala* and Sandeep Mehta, JJ.]
Issue for Consideration
Issue arose whether the value of the duty paid bought out items
delivered directly at the buyer's site is liable to be included in the
value of the boiler cleared by the assessee from its factory in
completely knocked down (CKD) condition, for the assessment of
the excise duty; and whether the show cause notice is legal and
valid under the extended limitation period as provided under the
proviso to s.11A(1) of the Central Excise Act, 1944.
Headnotes†
Central Excise Act, 1944 - ss.4, 11A - Excise Duty -
Assessment - Invocation of the extended period of limitation
u/s.11A - Assessee-manufacture of boiler and boiler parts,
cleared boiler from its factory in completely knocked down
(CKD) condition - Assessment of excise duty - Value of the
duty paid bought out items delivered directly at the buyer's
site, if liable to be included in the value of the said boiler -
Show cause notice issued, if legal and valid under the extended
limitation period as provided under the proviso to s.11A(1):
Held: Value of the duty paid bought out items which were delivered
directly at the buyer's site is not liable to be included in the value
of the boiler cleared by the assessee from its factory in CKD
condition, for the purpose of assessment of excise duty - Object
of the contract was about erection and installation of immovable
plant-steam generating plant - Final product that emerges as a
result of performing the obligations under the contract, does not
constitute excisable goods under the Act - Consequently, the base
value of the boiler on which excise duty is to be levied, cannot
be equated with the total contract price, thus, the price of the
bought out parts cannot be included in the value of the boiler for
the purpose of computing excise duty under the Act - CESTAT
* Author
[2025] 11 S.C.R.
579
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
erred while declining to consider the immovability plea by the
assessee - There was erroneous reliance on tariff classification -
Revenue appears to have been swayed by the fact that 'boilers'
and 'boiler parts' are listed under Chapter 84 of the Tariff Act, 1985,
and thus, seem to have proceeded on the erroneous assumption
that all boilers, irrespective of form or configuration, attract central
excise duty - However, the revenue should have kept in mind that
the mere presence of a product in the Tariff Schedule does not
determine its excisability - Final product-steam generating plant,
emerges in the form of an immovable product in the course of
integrating the CKD parts with the bought out items - Thus, the
resultant product of the contract not being excisable goods, it is
wholly inconsequential whether or not the bought out items are
parts or accessories of it - Excess collection of excise duty from
buyer is no proof of excisability on the final product which emerges
as an immovable property - Liability of the assessee to pay duty
must be determined strictly in accordance with the charging
provisions under the law and not on the basis of any purported
recovery from the buyer - As regards the show cause notice, in
the absence of any deliberate act on the part of the assessee
with an intention to evade being established by the revenue, the
essential precondition of wilful suppression with intent to evade
duty not satisfied, thus, the invocation of the extended period of
limitation under the proviso to s.11A(1) not tenable in law - Show
cause notice issued under the proviso to s.11A(1) not legal and
hence invalid - Thus, the proceedings leading up to the instant
appeal to be quashed, and the impugned order set aside - Central
Excise Tariff Act, 1985. [Paras 59-83]
Case Law Cited
Commissioner of Central Excise, Pondicherry v. Acer India Ltd.
[2004] Supp. 4 SCR 676 : (2004) 8 SCC 173; Commissioner of
Central Excise, Lucknow, U.P. v. Chhata Sugar Co. Ltd. [2004] 2
SCR 790 : (2004) 3 SCC 466; M/s. Thermax Babcock & Wilcox
Ltd. v. Commnr. of Central Excise, Pune, Civil Appeal No(s).
3042-3043/2005; M/s. Quippo Energy Ltd. v. Commissioner of
Central Excise, Ahmedabad-II, 2025 INSC 1130; Union of India
and Others v. Bombay Tyre International Ltd. and Others [1984]
1 SCR 347 : (1984) 1 SCC 467; D.G. Gouse and Co. v. State of
Kerala [1980] 1 SCR 804 : (1980) 2 SCC 410; M/s Bharti Airtel
Ltd. v. The Commissioner of Central Excise, Pune, 2024 INSC 880 :
580
[2025] 11 S.C.R.
Supreme Court Reports
[2024] 11 SCR 1525; Quality Steel Tubes (P) Ltd. v. Collector of
Central Excise, U.P. [1994] Supp. 6 SCR 439 : (1995) 2 SCC 372;
Mittal Engineering Works (P) Ltd. v. Collector of Central Excise,
Meerut [1996] Supp. 8 SCR 796 : (1997) 1 SCC 203; Sirpur Paper
Mills Ltd v. Collector of Central Excise, Hyderabad [1997] Supp.
6 SCR 431 : (1998) 1 SCC 400; Moti Laminates (P) Ltd. v. CCE
[1995] 2 SCR 81 : (1995) 3 SCC 23; Pahwa Chemicals Private
Limited v. Commissioner of Central Excise, Delhi (2009) 4 SCC
658; Continental Foundation Joint Venture Holding v. CCE [2007]
9 SCR 554 : (2007) 10 SCC 337 - referred to.
Commissioner of C. Ex. v. Thermax Babcock & Wilcox Ltd., 2005
(182) ELT 336 (Tri.- Mumbai) - referred to.
List of Acts
Central Excise Act, 1944; Central Excise Tariff Act, 1985; Central
Excise Rules, 1944; CENVAT Credit Rules, 2001.
List of Keywords
Value of the duty paid bought out items delivered directly at the
buyer's site; Value of the boiler cleared by assessee from its
factory in completely knocked down (CKD) condition; Excise duty;
Show cause notice; Extended limitation period; Transaction value;
Manufacture of boiler and boiler parts; Completely knocked down
(CKD) condition; Erection and installation of immovable plant;
Excisable goods; Steam generating plant; Tariff Classification;
"Utility Test"; Excess collection of excise duty from buyer; Proof
of excisability.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 856-857
of 2011
From the Judgment and Order dated 23.09.2010 of the State
Agency of Maharashtra in ON Nos. 289 and 290 of 2010 and AN
Nos. 1377 of 2007 and 13 of 2008
Appearances for Parties
Advs. for the Appellant:
Prakash Shah, Sr. Adv., Jas Sanghavi, Linzy Sharan, Jasdeep
Singh Dhillon, Prabhat Chaurasia, Anirudh Jamwal, Rahul Gupta.
[2025] 11 S.C.R.
581
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
Advs. for the Respondent:
Raghavendra P Shankar, A.S.G., Gurmeet Singh Makker, Ms.
Pallavi Mishra, Pallav Mongia, Padmesh Mishra, Raman Yadav.
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgment is divided into the
following parts:
INDEX*
A. FACTUAL MATRIX ...........................................................................
3
B. THE IMPUGNED ORDER .................................................................
7
C. SUBMISSIONS ON BEHALF OF THE PARTIES ............................
9
(I). Submissions on behalf of the appellant/assessee ...............
9
(II). Submissions on behalf of the respondent/revenue ............. 13
D. ISSUES TO BE DETERMINED ........................................................ 15
E. ANALYSIS ......................................................................................... 16
(I). Whether the value of the duty paid bought out items
delivered directly at the buyer's site is liable to be
included in the value of the boiler cleared by the assessee
from its factory in completely knocked down (CKD)
condition, for the assessment of central excise duty? ........ 16
(i). Understanding the nature of Central Excise Duty,
in light of the charging provision and valuation of
quantum provision under the Central Excise Act,
1944: .................................................................................... 16
(ii). Whether the resultant final product of the contract
would fall within the ambit of "Excisable Goods"? ....... 30
(iii). Erroneous reliance on Tariff Classification .................... 48
(iv). Inapplicability of the "Utility Test" and the 'part' v.
'accessory' debate ............................................................. 49
(v). Excess collection of excise duty from buyer is no
proof of excisability ........................................................... 49
* Ed. Note: Pagination as per the original Judgment.
582
[2025] 11 S.C.R.
Supreme Court Reports
(II). Whether the show cause notice is legal and valid under
the extended limitation period as provided under the
proviso to Section 11A(1) of the Central Excise Act,
1944? .......................................................................................... 52
(i). Was there any wilful suppression of facts with an
intention to evade payment of duty by the appellant/
assessee? ........................................................................... 52
F. CONCLUSION ................................................................................... 57
1.
Since the issues raised in both the captioned appeals are the
same, the challenge in both the appeals are also to the self same
order passed by the Customs, Excise and Service Tax Appellate
Tribunal, West Zonal Bench, Mumbai (hereinafter, "the CESTAT")
and the parties are also the same, those were taken up for hearing
analogously and are being disposed of by this common judgment
and order.
2.
These statutory appeals under Section 35L(1)(b) of the Central
Excise Act, 1944 (hereinafter, "the Act, 1944"), are at the instance
of an assessee and are directed against the common final order
dated 23.09.2010 (hereinafter, "the impugned order") passed by
the CESTAT in Appeal No. E/1377/07-Mum and Cross Objection
No. E/CO/13/08, respectively by which the CESTAT reversed the
concurrent findings of the two lower authorities, allowed the appeal
filed by the revenue/respondent herein and dismissed the cross
objections filed by the assessee/appellant herein. The CESTAT
in the impugned order held that the value of the bought out items
received directly at the buyer's site and used in the erection of the
boiler are essential parts of the boiler and therefore, the value of
such bought out items has to be included in the assessable value
of the boiler for the purpose of assessing the payable central excise
duty. Accordingly, the demand of duty along with interest was upheld
by the CESTAT in the impugned order.
A.
FACTUAL MATRIX
3.
The appellant/assessee/Lipi Boilers Ltd. is a holder of Central Excise
Registration for manufacture of boiler and boiler parts falling under
[2025] 11 S.C.R.
583
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
Chapter Heading nos. 8402.10 and 8402.90 of the Central Excise
Tariff Act, 1985 (hereinafter, "the Act, 1985"), respectively.
4.
The assessee entered into an agreement with one Shri Maroli Vibhag
Khand Udyog Sahakari Mandali Ltd. (hereinafter, "the buyer"), on
29.01.2001, for designing, procuring, manufacturing and supplying
machinery and equipments for one 'no. 50 TPH MCR Capacity and
45 Kg/cm2(g) working pressure bagasse fired boiler' so that a steam
generating plant could be commissioned by 31.10.2001 (hereinafter,
" the contract").
5.
On 28.04.2005, the Assistant Commissioner of Central Excise and
Customs, Aurangabad, (hereinafter, " the Assistant Commissioner")
issued a show-cause-cum-demand notice (Sr. No. 4/2005/CEX/
dated 2005) (hereinafter, "the show cause notice") to the assessee,
alleging that the assessee cleared the final product boilers in
completely knocked down condition (hereinafter, "CKD condition")
during the period from 01.04.2000 to 30.06.2000 by paying central
excise duty without adding or taking into account the cost of 'essential'
bought out 'parts' delivered directly at the site of the buyer. According
to the show cause notice, the non-inclusion of the cost of 'essential'
bought out 'parts' worth ₹14,02,344/- (Rupees Fourteen Lakhs Two
Thousand Three Hundred and Forty-Four only) in the value of the
final product boiler resulted in undervaluation of the excisable item
and a resultant shortfall to the tune of ₹2,24,375/-(Rupees Two Lakhs
Twenty Four Thousand Three Hundred and Seventy-Five only) in
the quantum of central excise duty payable by the assessee. The
show cause notice stated that as per the amended Section 4(1) of
the Act, 1944, (w.e.f. 01.07.2000), the excise duty was payable with
reference to the transaction value of the goods sold to an unrelated
buyer and the price charged has to be the sole consideration for
sale. According to the show cause notice, since the transaction value
as per the contract included the cost of the 'essential' bought out
'parts' that were delivered directly at the site of the buyer, the central
excise duty payable by the assessee should take those into account.
6.
The show cause notice invoked the extended period of limitation
of 5 years provided under the proviso to Section 11A(1) of the Act,
1944, on the ground that the assessee had not paid central excise
duty on the bought out items and had wilfully suppressed the facts
from the knowledge of the respondent department with an intention
to evade duty. The show cause notice sought a response from the
584
[2025] 11 S.C.R.
Supreme Court Reports
assessee within a period of 30 days from its receipt, failing which,
the central excise duty amounting to ₹2,24,375/- (Rupees Two Lakhs
Twenty Four Thousand Three Hundred and Seventy-Five only) was
to be recovered from it under the erstwhile Section 11A(1) of the
Act, 1944, read with Rule 9(2) of the Central Excise Rules, 1944,
along with interest under Section 11AB of the Act, 1944 and penalty
under Section 11AC of the Act, 1944 read with Rule 173Q and Rule
57(1)(5) of the Central Excise Rules, 1944 and Rule 13 of CENVAT
Credit Rules, 2001, respectively.
7.
On 13.06.2005, the assessee replied to the show cause notice referred
to above, denying contravention of any applicable provision and
stated that the boilers in CKD condition were cleared from its factory
after duly paying the central excise duty leviable thereon, whereas
the bought out items were cleared by their respective vendors upon
payment of applicable central excise duty and transported directly
to the site of erection. The assessee pointed out that there was no
evidence on record to establish that the boiler was first assembled
at the site before it was permanently installed as an 'immovable
property'. Rather, the assessee, emphatically stated that the mere
size and weight of the boiler make it impossible to assemble the
boiler before erection. The process of erection itself involves civil
and mechanical engineering, utilising concrete, steel reinforcements,
and grouting in a manner that ensures the boiler is in a functioning
condition and in an immovable form upon completion. The assessee
also stated that such an installed boiler cannot be readily dismantled
by removing nuts and bolts and reassembled at another site. The
same may cause extensive damage to the boiler to such an extent
that its value may be reduced to a mere scrap. Based on such
reasoning, the assessee stated that since the boiler erected at
the site and attached to the earth is not 'goods', the same would
not be excisable. The assessee also stated that it had not availed
any CENVAT credit on the bought out items and that there was no
documentary evidence on record to substantiate such allegation.
8.
Upon due consideration of the reply of the assessee, the Assistant
Commissioner vide Order-in-Original dated 07.12.2005, accepted
that the demand of central excise duty on the value of the bought
out items was not sustainable. The Assistant Commissioner dropped
the demands made in the show cause notice based on the findings
which read thus:
[2025] 11 S.C.R.
585
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
"It is well settled law that value of bought out items cleared
at site by the vendors without bringing the same into
the factory premises is not liable to be included in the
assessable value of the finished product. It is also well
settled law that the boilers erected at site and attached to
earth are not 'goods' and hence not excisable. I find that
the ratio of the judgments in the case of Mittal Engineering
Pvt Works Vs C.C.E. Meerut 1996 (88) ELT 622(SC);
Tungabhadra Steel Products Ltd Vs Union of India reported
in 1998 (98) ELT 334 (HC Karnataka); Alpha Laval (I) Ltd Vs
C.C.E. Pune reported in 1998 (99) ELT 649 (Tribunal) etc
are quite applicable in this case. Therefore I am inclined
to accept the assessee's contention that the demand of
duty on the value of bought out items is not sustainable."
9.
Aggrieved by the Assistant Commissioner's Order-in-Original dated
07.12.2005, the revenue preferred an appeal before the Commissioner
of Central Excise & Customs (Appeals), Aurangabad, [hereinafter, "the
Commissioner (Appeals)"]. Vide Order-in-Appeal dated 13.07.2007
the Commissioner (Appeals), dismissed the appeal preferred by the
revenue and thereby affirmed the Assistant Commissioner's order
quashing the show cause notice.
B.
THE IMPUGNED ORDER
10. Being dissatisfied with the Order-in-Appeal dated 13.07.2007,
referred to above, the revenue preferred Appeal No. E/1377/07-Mum,
whereas the assessee filed Cross Objection no. E/CO/13/08 before
the CESTAT. Vide the common order dated 23.09.2010, the CESTAT
reversed the concurrent findings of the two lower authorities, allowed
the appeal filed by the revenue and dismissed the cross objection
filed by the assessee, thereby holding that the value of the essential
bought out items received at the buyer's site and used in the erection
of the boiler is to be included in the assessable value of the boiler
for the purpose of determining the payable central excise duty.
11. The CESTAT based its ruling on two counts:
a.
First, it found no merit in the contention that the boiler had
been permanently imbedded and is non-excisable, on the
ground that such plea had not been raised before the lower
authorities. Further, the CESTAT was of the opinion that the
586
[2025] 11 S.C.R.
Supreme Court Reports
immovability argument did not warrant any merit because the
boiler was manufactured in the factory and it was merely for
ease of transportation that the same had been cleared in CKD
condition.
b.
Secondly, the CESTAT observed that since the subject bought
out items, supplied directly to the buyer's site, were essential
parts of the boiler, those were therefore to be included in the
assessable value of the boiler.
12. The relevant observations made by the CESTAT in the impugned
order are reproduced as follows:-
"3. We find no merits in the contention of the respondent
that the boiler has been permanently imbedded and is
non-excisable as this plea was not taken before the lower
authorities. Further the respondents are paying duty at
the time of clearance of boiler from the factory, meaning
thereby the boiler is manufactured in the factory and only
ease of transportation, the same has been cleared in CKD
condition. In these circumstances, we find no merits in
this contention.
4. From the facts of the present case the respondent
received an order for supply of boiler. The respondent
manufactured boiler in the factory and cleared in CKD
condition but certain parts were purchased from the
market, which were directly supplied at site. These parts
are essential parts of the boiler, which are not in dispute,
therefore, the decision of the Tribunal in the case of
Thermax Babcock & Wilcox Ltd., (supra) held that the
value of bought out items received at site and used in
the erection of boiler includable in the assessable value
of the boiler. The respondent relies upon the decision of
the Tribunal in the case of Silson India Pvt Ltd., (supra).
We find the facts of the case are different from the facts of
present case. In the case of Silson India Pvt Ltd., (supra)
there was no evidence on record to show that full boiler
has come into existence in the factory of manufactured and
the manufacturer cleared only parts of the boiler. In the
present case the respondents are clearing the boiler in CKD
condition. Therefore, the respondents are manufacturing
[2025] 11 S.C.R.
587
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
boiler and clearing the same and as boilers bought out
items are essential parts, therefore, they are includable in
the assessable value of the boiler. The impugned order is
set aside and the appeal filed by the revenue is allowed.
Cross objection filed by the respondent is also disposed
of accordingly."
13. Thus observing, the CESTAT set aside the order of the Commissioner
(Appeals), allowed the appeal by the revenue and dismissed the
cross-objection filed by the assessee.
14. Being aggrieved by the impugned order, the assessee is here before
us with two appeals under Section 35L(1)(b) of the Act, 1944.
C.
SUBMISSIONS ON BEHALF OF THE PARTIES
(I). Submissions on behalf of the appellant/assessee
15. Mr. Prakash Shah, the learned Senior Counsel appearing on behalf
of the assessee, submitted that the contract was for designing,
procuring, manufacturing and supplying of machinery and equipment
for a steam generating plant and to do other works mentioned therein
such as painting, first filling of lubricant, transformer oil, packing and
forwarding charges, and handling and loading charges at the place
of supply.
16. The learned Senior Counsel submitted that owing to the huge size
of the boiler, it had to be cleared from the assessee's factory in CKD
condition to the site of the buyer. He submitted that the assessee
had no contractual obligation to erect or install the goods supplied by
it. As per the contract, the erection, installation and commissioning
of the steam generating plant was to be undertaken by the buyer's
engineer.
17. The learned Senior Counsel submitted that the assessee had
manufactured some of the equipments/machineries of the steam
generating plant at its factory and cleared those in CKD condition
upon payment of appropriate central excise duty. He further submitted
that the assessee had purchased some items such as feed water
pumps, fans, safety valves, level gauges, etc., from the open market,
and supplied those duty-paid bought out items directly to the buyer,
without bringing those into the assessee's factory. He submitted
that the assessee merely supplied those bought out items and did
588
[2025] 11 S.C.R.
Supreme Court Reports
not undertake any processing of those either at the site of erection
or elsewhere.
18. On the aspect of whether the bought out items were essential parts
of the boiler or not, the learned Senior Counsel argued that even
at the site of erection, the bought out items did not form part of the
boiler, but were fitted onto other machinery/equipments at the site.
He argued that such other machinery/equipment on which the bought
out parts are fitted onto, are not classifiable under Heading no. 84.02
as boiler but classifiable under Heading no. 84.04 as auxiliary plant
for use with boilers, under the Act, 1985. Thus, according to the
learned Senior Counsel, these bought out items are neither parts nor
accessories of the boiler and hence could not have been included
in the assessable value of the boilers. He went on to argue that the
CESTAT failed to appreciate that there was no material on record
to arrive at the finding that the bought out items were essential
parts of the boiler, or that their function, value and description were
provided to justify their essentiality. He submitted that the finding of
the CESTAT, that the bought out items were essential parts of the
final product manufactured by the assessee, was not supported
by any evidence or material on record. He argued that, rather, the
CESTAT's findings that the entire boiler was manufactured in the
assessee's factory and cleared in CKD condition merely for ease of
transportation, is self-contradictory to its own finding that the bought
out items, delivered directly to the buyer's site were essential parts
of the boiler.
19. He also submitted that the assessee had not claimed any CENVAT
Credit of the central excise duty paid on bought out goods. He placed
reliance on Rule 3 of the CENVAT Credit Rules, 2004 to submit that
CENVAT credit can be taken only after inputs are received in the
factory of the manufacturers and highlighted that the bought out
items were never brought into the factory of the assessee or worked
upon even elsewhere by the assessee.
20. He submitted that the final product i.e. the boiler came into existence
at the site of the buyer as an immovable property and hence is not
'goods' and therefore, not excisable.
21. He argued that the revenue is seeking to recover tax on sale of
goods in the guise of excise duty. He argued that the learned
A.S.G.'s contention that Section 4 of the Central Excise Act, 1944
[2025] 11 S.C.R.
589
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
permits inclusion of the value of bought out goods in the assessable
value of the goods manufactured by the Appellant is contrary to the
law declared by this Court in Commissioner of Central Excise,
Pondicherry v. Acer India Ltd. reported in 2004(8) SCC173 and
Commissioner of Central Excise, Lucknow, U.P. v. Chhata Sugar
Co. Ltd. reported in 2004(3) SCC 466, whereby this Court had
held that Section 4 of the Act, 1944 is a machinery provision and
subject to Section 3 of the Act, 1944 which is a charging section.
He submitted that it is trite law that levy of duty of excise is on the
manufacture or production and not on sale of goods.
22. The learned Senior Counsel vehemently contended that the
CESTAT erred in holding that the assessee had not raised the
contention regarding the boiler being non-excisable on account
of its permanent embedding on erection at site, before the lower
authorities. He submitted that the CESTAT had failed to appreciate
that the assessee, in its reply dated 13.06.2005 to the show cause
notice dated 28.04.2005, had specifically raised the contention that
the boiler on commissioning became immovable property. Further,
the said contention was accepted by the Assistant Commissioner
and the same is reflected in the form of findings recorded in the
Order-in-Original dated 07.12.2005/13.01.2006, wherein the Assistant
Commissioner held that the boilers erected at site and attached to
earth are not goods and hence not excisable.
23. The learned Senior Counsel argued that the CESTAT's reliance on
the order of the CESTAT in Commissioner of C. Ex. v. Thermax
Babcock & Wilcox Ltd. reported in 2005 (182) ELT 336 (Tri.-
Mumbai) (hereinafter referred to as "Thermax CESTAT" ) is erroneous
because in case of Thermax CESTAT (supra), when the order was
challenged before this Court in M/s. Thermax Babcock & Wilcox
Ltd. v. Commnr. of Central Excise, Pune in Civil Appeal No(s).
3042-3043/2005 (hereinafter referred to as "Thermax SC"), the
learned counsel for the Commissioner of Central Excise, Pune had
pointed out that, while computing the demands which were raised
in the show cause notice, no excise duty was demanded on the
bought out items in that matter.
24. Lastly, he contended that the CESTAT committed a serious error in
law in not remanding the proceedings to the two lower authorities
to examine the question of whether the show cause notice was time
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Supreme Court Reports
barred. He highlighted that since the Assistant Commissioner and
the Commissioner (Appeals) had dropped the demand on merits,
the CESTAT did not find it necessary to address itself on the show
cause notice being time barred.
(II). Submissions on behalf of the respondent/revenue
25. Mr. Raghavendra P Shankar, the learned A.S.G. appearing on behalf
of the revenue, on the other hand submitted that in the present case,
the taxable event of 'manufacture' occurred when the parts brought
from the appellant's factory in CKD condition and the bought out
'parts' were assembled at the buyer's site to form the functional
boiler, in discharge of its obligation as per Clause 2.1 of the contract.
He submitted that even assuming without conceding that the boiler
ceased to be 'goods' once it was affixed to the earth, the dutiable
event ('manufacture' of the boiler) had already occurred at a point
in time prior to its affixation to the earth and thus excise duty was
payable on it.
26. He argued that the taxable event of 'manufacture' under Section 3
of the Act, 1944, having occurred in the present case at the buyer's
site which is the 'place of removal', what remains thereafter is only
determination of the correct valuation of the payable excise duty on
the said taxable event.
27. He submitted that as per the amended Section 4(1) of the Act, 1944
(w.e.f. 01.07.2000), the central excise duty is payable with reference
to the transaction value of the goods sold to a buyer, where price
charged is the sole consideration for the sale. He submitted that as
per the said amended Section 4(1) read with Section 4(3)(d) of the
Act,1944, the "transaction value" means the price actually paid or
payable for the goods, when sold, which in the present dispute, would
be the total contract price. He pointed out that as per Clause 3.1(iii)
of the contract, the total contract price was inclusive, inter alia, of the
"cost of all other items which are necessary for completing supply of
the steam generating plant as per scope of supply". He submitted
that the assessee was clearing goods as per the contract value
agreed with the buyer, which included the cost right from drawing and
designing of the goods to freight, installation and commissioning of
the boilers at the site and also cost of its essential bought out parts.
He therefore argued that since the transaction under the contract was
completed after successful commissioning of the boiler, the value
[2025] 11 S.C.R.
591
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
of the bought out items would form part of the transaction value as
per Section 4(1)(a) of the Act,1944.
28. He also argued that the cost of the bought out items was recovered
by the assessee from the buyer and that the assessee had availed
CENVAT Credit of duty by including the duty paid on the bought out
items under the head 'Reimbursement of duty' and had recovered
the same from the buyer.
29. He further argued that the CESTAT was correct in holding that
the bought out items are essential parts of the boiler that was
manufactured. The learned A.S.G placed reliance on the distinction
drawn by this Court in M/s. Quippo Energy Ltd. v. Commissioner
of Central Excise, Ahmedabad-II reported in 2025 INSC 1130,
between a 'part' and an 'accessory', and the observation that a
part is an integral/constituent component which renders the article
complete and functional, i.e. the article would not be able to fulfill
its primary function without this component. On the basis of this, he
argued that the bought out items were 'parts' of the boiler and not
merely its accessories, and that from a functional perspective, the
bought out items cannot be said to be external to the transaction
under the contract for supply of a functional boiler. He argued that any
artificial vivisection of the transaction (and therefore the transaction
value) under the contract to exclude the value of the 'bought out'
parts that were nevertheless essential parts of the boiler is alien to
the contract and also to the Act,1944.
30. In the context of Thermax CESTAT(supra), the learned A.S.G. argued
that the law laid down by the CESTAT in Thermax CESTAT(supra)
had not been interfered with by this Court in appeal in Thermax
SC(supra), but was dismissed based on the observation that there
was, "no need to go into the issue raised by the appellant in this
appeal as the decision of this appeal, either ways would not affect
the appellant if the duty itself is not demanded thereupon", without
raising any doubts regarding the correctness of the CESTAT's order.
31. In such circumstances referred to above, the learned A.S.G. prayed
that there being no merit in the appeals, those be dismissed.
D.
ISSUES TO BE DETERMINED
32. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following questions
fall for our consideration:
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[2025] 11 S.C.R.
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(I). Whether the value of the duty paid bought out items delivered
directly at the buyer's site is liable to be included in the value of
the boiler cleared by the assessee from its factory in completely
knocked down (CKD) condition, for the assessment of central
excise duty?
(II). Whether the show cause notice is legal and valid under the
extended limitation period as provided under the proviso to
Section 11A(1) of the Central Excise Act, 1944?
E.
ANALYSIS
(I). Whether the value of the duty paid bought out items
delivered directly at the buyer's site is liable to be included
in the value of the boiler cleared by the assessee from its
factory in completely knocked down (CKD) condition, for
the assessment of central excise duty?
(i). Understanding the nature of Central Excise Duty, in light of
the charging provision and valuation of quantum provision
under the Central Excise Act, 1944:
33. The present matter before us strikes at the very root of the concept of
exigibility of central excise duty. Hence, at the outset, it is necessary
to recall certain foundational principles governing the levy of central
excise duty under the Act, 1944.
34. It is pertinent to note that central excise duty is a duty on manufacture
of goods. A Three-judge Bench of this Court in Union of India and
Others v. Bombay Tyre International Ltd. and Others reported in
(1984) 1 SCC 467, while discussing the concept of a duty of excise
highlighted upon the nature of the tax and observed as follows:
"12. We think it is appropriate that at the very beginning we
should briefly indicate the concept of a duty of excise[...].
The observations show that while the nature of an excise
is indicated by the fact that it is imposed in respect of the
manufacture or production of an article, the point at which
it is collected is not determined by the point of time when
its manufacture is completed but will rest on considerations
of administrative convenience, and that generally it is
collected when the article leaves the factory for the first
[2025] 11 S.C.R.
593
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
time. In other words, the circumstance that the article
becomes the object of assessment when it is sold by the
manufacturer does not detract from its true nature, that it
is a levy on fact of manufacture. In a subsequent case,
Governor-General-in-Council v. Province of Madras (AIR
1945 FC 98) the Privy Council referred to both Central
Provinces and Berar Sales of Motor Spirit and Lubricants
Taxation Act, 1938 and Province of Madras v. Boddu
Paidanna and Sons and affirmed that when excise was
levied on a manufacturer at the point of the first sale by
him "that may be because the taxation authority imposing
a duty of excise finds it convenient to impose the duty at
the moment when the excisable article leaves the factory
or workshop for the first time on the occasion of its sale.
But that method of collecting the tax is an accident of
administration; it is not of the essence of the duty of excise,
which is attracted by the manufacture itself [...]
13. We think that we have shown sufficiently that while
levy is on the manufacture or production of goods, the
stage of collection need not in point of time synchronize
with the completion of the manufacturing process. While
the levy in our country has the status of a constitutional
concept, the point of collection is location where the statute
declares it will be [...]"
(Emphasis supplied)
35. Another aspect discussed by this Court in Bombay Tyre (supra)
which is of utmost relevance to the matter before us is understanding
the nature of Section 3 and Section 4 of the Act, 1944 respectively.
Hence, before delving into the explanation regarding the nature of the
two provisions as highlighted by this Court in Bombay Tyre (supra),
it is pertinent to reproduce the provisions as it existed at the time of
the taxable event in contention, i.e. assembling of the boiler parts
in CKD condition with the bought out items at the site of erection.
36. Section 3 of the Act, 1944, that was in force at the time of the taxable
event in contention, read as follows:
"SECTION 3. Duties specified in First Schedule and
the Second Schedule to the Central Excise Tariff Act,
1985 to be levied.-
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Supreme Court Reports
(1) There shall be levied and collected in such manner as
may be prescribed,-
(a) a duty of excise to be called the Central Value Added
Tax (CENVAT) on all excisable goods which are produced
or manufactured in India as, and at the rates, set forth in
the First Schedule to the Central Excise Tariff Act, 1985
(5 of 1986);
(b) a special duty of excise, in addition to the duty of excise
specified in clause (a) above, on excisable goods specified
in the Second Schedule to the Central Excise Tariff Act,
1985 (5 of 1986) which are produced or manufactured in
India, as, and at the rates, set forth in the said Second
Schedule.
Provided that the duties of excise which shall be levied
and collected on any excisable goods which are produced
or manufactured,
(i) in a free trade zone or a special economic zone and
brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and
brought to any other place in India,
shall be an amount equal to the aggregate of the duties
of customs which would be leviable under the Customs
Act, 1962 (52 of 1962) or any other law for the time being
in force, on like goods produced or manufactured outside
India if imported into India, and where the said duties
of customs are chargeable by reference to their value;
the value of such excisable goods shall, notwithstanding
anything contained in any other provision of this Act,
be determined in accordance with the provisions of the
Customs Act, 1962 (52 of 1962) and the Customs Tariff
Act, 1975 (51 of 1975).
Explanation 1. - Where in respect of any such like goods,
any duty of customs leviable for the time being in force
is leviable at different rates, then, such duty shall, for the
purposes of this proviso, be deemed to be leviable at the
highest of those rates.
[2025] 11 S.C.R.
595
Lipi Boilers Ltd. v.
The Commissioner of Central Excise, Aurangabad
Explanation 2.