Turnkey Assembly Not ‘Manufacture’: CESTAT Rules Larsen & Toubro Not Liable to Excise Duty on RLMS Units [Read Order]

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal(CESTAT) ruled that the work done by Larsen & Toubro (ECC Division) in assembling RLMS units at site is not manufacture and no excise duty is payable.

Larsen & Toubro (ECC Division), the appellant, was doing a turnkey project for Rural Load Management System (RLMS) for MESCOM. The work included supply of materials, assembly, installation, testing and commissioning of RLMS units using different components like PLC, MCCB, MCB and meters.

The department investigated the matter and issued a show cause notice saying that the appellant was manufacturing RLMS units and clearing them without paying excise duty. The Commissioner confirmed the demand along with interest and penalty. The appellant then filed appeal before the Tribunal.

The appellant’s counsel argued that the assembly work was done through subcontractors like SAR Engineering and Surabhi Electricals, who only provided labour and did the work at site. It explained that if job workers are independent then they should be treated as manufacturers as per CBEC circular.

The appellant’s counsel also argued that the activity is part of a turnkey project involving installation and commissioning at site, and such activity does not result in excisable goods. It pointed out that RLMS units cannot work without proper installation and integration at site.

The appellant’s counsel further argued that it had already registered under service tax and paid tax for erection and commissioning work. It pointed out that VAT was also paid under works contract, which shows the nature of activity is not manufacture.

The revenue counsel argued that the appellant supplied all components and got them assembled through subcontractors, so the appellant should be treated as manufacturer. It argued that subcontractors only gave manpower and the appellant controlled the process.

The two-member bench comprising P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) observed that if job worker is independent then job worker is the manufacturer as per CBEC circular.

The tribunal observed that turnkey projects involving assembly and installation at site do not create excisable goods. It explained that the appellant had paid service tax for installation work, which supports that it is a service activity.

The tribunal observed that the appellant cannot be treated as manufacturer of RLMS units and is not liable to pay excise duty. In the end, the tribunal set aside the order and allowed the appeal filed by Larsen & Toubro with relief.

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