Legal Review and Analysis of Lipi Boilers Ltd vs The Commissioner of Central Excise Aurangabad 2025 INSC 1297
In-Short
Case: Lipi Boilers Ltd. vs. The Commissioner of Central Excise, Aurangabad, 2025 INSC 1297 (Supreme Court of India).
Short Caption: Supreme Court rules that a boiler erected and installed at site, becoming an immovable property, is not "excisable goods"; hence, the value of bought-out items supplied directly to the site cannot be included for calculating Central Excise Duty.
1. Heading of the Judgment
Lipi Boilers Ltd. vs. The Commissioner of Central Excise, Aurangabad
Civil Appeal Nos. 856-857 of 2011
Supreme Court of India
Judgment Dated: 10th November, 2025
Citation: 2025 INSC 1297
2. Related Laws and Sections
This judgment primarily interprets and applies provisions from the Central Excise Act, 1944:
Section 3: The charging section that levies duty on the "manufacture or production" of "excisable goods".
Section 4: The valuation provision that defines "transaction value" for computing the quantum of duty payable.
Section 11A: Pertains to the recovery of duties not levied or short-levied, including the invocation of an extended period of limitation in cases of fraud, collusion, or wilful suppression of facts.
Section 11D: Pertains to the recovery of amounts collected as duty from the buyer but not payable as such.
Section 2(d): Defines "excisable goods".
The judgment also references the Central Excise Tariff Act, 1985.
3. Basic Judgment Details
Appellant (Assessee): Lipi Boilers Ltd.
Respondent (Revenue): The Commissioner of Central Excise, Aurangabad.
Subject Matter: The appeal challenged the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which had reversed the orders of the lower authorities.
Underlying Dispute: Whether the value of duty-paid "bought out items" (like feed water pumps, fans, valves), supplied directly to the customer's site, should be included in the assessable value of boilers cleared by the appellant from its factory in Completely Knocked Down (CKD) condition for charging Central Excise Duty.
Final Outcome: The Supreme Court allowed the appeals filed by Lipi Boilers Ltd., setting aside the order of the CESTAT.
4. Core Principle and In-Depth Analysis of the Judgment
The Core Issue: The Excisability of a Site-Erected Plant and the Legality of Including Bought-Out Items in its Valuation
The central legal conflict was whether the final product emerging from the contract—a steam generating plant—constituted "excisable goods" under the Central Excise Act, 1944. The resolution of this primary issue would automatically determine the secondary issue of whether the value of bought-out items could be added to the value of the boiler for duty calculation.
Analysis of the Court's Legal Reasoning
A. Foundational Principles: The Distinction Between Levy and Valuation
The Supreme Court began its analysis by reiterating a fundamental distinction established in its precedent, Union of India vs. Bombay Tyre International Ltd. (1984).
Section 3 is the Charging Provision: It creates the levy and defines its nature—a tax on the "manufacture or production" of "excisable goods".
Section 4 is a Machinery Provision: It merely provides the measure or method for valuing the goods for the purpose of quantifying the duty.
The Court emphatically stated that "valuation is a consequence of levy, not its determinant." It criticized the Revenue for putting the cart before the horse by first looking at the transaction value under Section 4 to argue for excitability, instead of first establishing that excitable goods indeed came into existence under Section 3.
B. The Paramount Test of Movability for "Excisable Goods"
The Court conducted a thorough examination to determine if the site-erected steam generating plant qualified as "goods". Relying on a catena of judgments, including Quality Steel Tubes and Mittal Engineering Works, the Court laid down the following principles:
Immovable Property is Not Goods: For an item to be "goods", it must be movable. Items that are permanently attached to the earth, becoming immovable property, are not "goods" and hence, not excisable.
The Test for Movability: The Court applied the test from Bharti Airtel Ltd. (2024), which looks at whether the item is (a) rooted in the earth, (b) embedded in the earth, or (c) attached to what is so embedded for permanent beneficial enjoyment. If it is, it is immovable.
Application to the Present Case: Analyzing the contract, the Court found that the assembly of the boiler involved extensive civil engineering work—using concrete, bricks, cement, and grouting—integrating it permanently into the foundation. The Court accepted the assessee's argument that the boiler, due to its massive size (50 TPH capacity), could not be assembled before erection and, once erected, could not be dismantled without being substantially damaged and reduced to scrap. Therefore, the final product was an immovable property.
Consequence: Citing Quality Steel Tubes, the Court held that "erection and installation of a plant cannot be held to be excisable goods."
C. Erroneous Reliance on Other Arguments by the Revenue and CESTAT
The Supreme Court systematically dismantled the other grounds on which the Revenue and the CESTAT had based their decisions:
Tariff Classification is Not Determinative: The mere fact that "boilers" are listed in the Central Excise Tariff Act does not make every boiler excisable. The primary test of movability must be satisfied first.
The "Part" vs. "Accessory" Debate is Moot: The question of whether the bought-out items were essential parts of the boiler (relying on Quippo Energy) becomes irrelevant once the final product is held to be non-excisable. The utility test only becomes relevant at the valuation stage, which presupposes a valid levy.
Alleged Collection of Duty is Not Proof: The Revenue's argument that the assessee had collected duty on the bought-out items was held to be misplaced. The Court clarified that if this were true, the proper legal recourse for the Revenue was to invoke Section 11D of the Act for recovery of amounts collected without authority of law, not to use it as a basis to justify the inclusion of value for duty assessment.
D. Invalidity of the Show Cause Notice and Invocation of Extended Limitation
The Court also addressed the legality of the show cause notice issued under the extended period of limitation (5 years instead of 1) under the proviso to Section 11A(1). The Revenue had invoked this extended period alleging "wilful suppression" by the assessee.
Burden of Proof on Revenue: The Court reiterated that the burden to prove wilful suppression, with an intent to evade duty, lies on the Revenue.
No Evidence of Suppression: The Court found that the assessee had disclosed all relevant facts in its RT-12 returns. A bona fide legal disagreement on the valuation of a product, where all facts are on record, does not constitute "wilful suppression". The Court held that the essential pre-condition for invoking the extended period was not met, rendering the show cause notice invalid ab initio.
5. Final Outcome and Supreme Court's Directions
The Supreme Court allowed the appeals filed by Lipi Boilers Ltd.
The impugned order of the CESTAT was set aside.
It was conclusively held that the value of the duty-paid bought-out items delivered directly to the buyer's site is not liable to be included in the assessable value of the boiler cleared from the factory in CKD condition.
The show cause notice issued under the extended period of limitation of Section 11A(1) was declared illegal and invalid.
6. (MCQs) Based on the Judgment
1. In the case of Lipi Boilers Ltd. vs. CCE, Aurangabad, what was the Supreme Court's primary reason for holding the site-erected boiler as non-excisable?
(a) The boiler was not manufactured by the appellant but only assembled.
(b) The boiler, once erected and embedded in the earth, became an immovable property and hence ceased to be "goods".
(c) The bought-out items used in the boiler were not essential parts.
(d) The appellant had already paid excise duty on the bought-out items.
2. According to the Supreme Court's judgment, what is the fundamental legal relationship between Section 3 and Section 4 of the Central Excise Act, 1944?
(a) Section 4 defines what goods are excisable, and Section 3 quantifies the duty.
(b) Section 3 is the charging provision that creates the levy, while Section 4 is a machinery provision that provides the measure for valuing the duty.
(c) Both sections are independent and can be invoked separately by the Revenue.
(d) Section 4 overrides Section 3 in matters of valuation for composite contracts.
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