Factories often manufacture voluminous products such as cranes, lifts, turbines, towers, boilers, power plants etc. which cannot be cleared as one piece and transported to the consumers' place. They have got to be cleared in parts and assembled at the site. Sometimes a few bought out items are also added at the time of erection at site. This leads to controversies about whether a complete article has been cleared from the factory or only parts. There are also controversies about the inclusion of the bought out parts. The first guiding principle in this respect is contained in Rule 2(a) of the General Rules for Interpretation which is statutorily binding for Central Excise Classification as well as for Customs. The Rule 2(a) says that when incomplete goods, as presented, for clearance have the essential character of complete goods, they have to be classified as complete goods.
Here the expression 'as presented' would really mean 'as cleared' from the factory. This has been held by the Tribunal in the case of Tata Motors vs. CCE -2008(222)ELT289(T). However at the time of presentation before the Central Excise at the same factory (that is, as they are cleared) the parts need not be cleared all at a time since the goods are very voluminous. They can be cleared in different consignments so long as they constitute complete goods. In the case of Sulzer Flovel Hydro Ltd. vs. CCE - 2004(176)E.L.T. 195 (Tri.), the Tribunal held that piece meal clearance was essential in this case and the goods still merited classification as complete turbine and given the exemption for a complete turbine.
If goods, such as towers, are cleared in CKD/SKD condition, but they do not have the essential character of complete goods under Rule 2(a), they cannot be classified as complete towers, held the tribunal in the case of CCE vs. L&T – 2009(239)ELT373 (Tri.Chennai).
Complete goods such as boilers cleared in CKD/SKD condition from factory are to be taken as boiler even if there are some bought out parts which are included at the time of assembly at site. The value of the bought out parts will have to be included in the value of the boiler for payment of excise duty at the factory gate. This principle has been enunciated in the cases of Thermax Bobcock & Wilcox Ltd. -2005(182)E.L.T.336 (Tribunal)] and C C E vs. Lipi Boilers -2011(263)ELT271(Tri).
But if the bought out parts are major parts, the CKD pack cleared from the factory cannot deserve to be classified as complete goods. In the case of Boving Fouress Ltd. v. Commissioner - 2004(175)E.L.T.899 (Tribunal), the Tribunal held that since some major parts/ components were purchased from outside and they were directly taken to the site where turbine was erected and commissioned, whatever was cleared from the factory was not a turbine in CKD/SKD condition but only parts of turbine.
Such boilers cleared in CKD/SKD condition cleared in payment of duty at the factory does not have to pay duty again after assembly at site. This has been held in the case of Cethar Vessels Ltd. vs CCE - 2009(241)E.L.T.580 (T) and in several other cases.
But erection and commissioning charges at the time of erection at site, if paid, will have to be included in the value of the CKD unit cleared from factory if the CKD pack has paid duty as a complete unit. This has been held in the case of De Nora India vs CCE - 2010(262)E.L.T.1098(T).
The conclusion is that heavy goods such as boilers, turbines, power plants when cleared from the factory in CKD/SKD condition are to be classified as complete goods if they have the essential character of complete goods. They can be cleared in different consignments. Some bought out parts (but not major ones) can be added at the time of erection at site. The erection charges, if paid, will be added to the value of the complete goods for the purpose of valuation. No duty is payable on the assembled goods at site since the goods have already paid duty at the factory gate. The Board may consider issuing a comprehensive circular (since none exists now) incorporating all these principles.
