Supreme Court holds assembly and erection of large boiler at site not excisable; bought‑out parts excluded from assessable value

A bench of Justices J.B. Pardiwala and Sandeep Mehta heard appeals by Lipi Boilers Ltd. challenging the CESTAT’s reversal of earlier orders and its finding that the value of duty‑paid bought‑out items delivered directly to the buyer’s site must be included in the assessable value of a boiler cleared in completely knocked down (CKD) condition; the appeals also raised the validity of a show‑cause notice issued invoking the extended five‑year limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944.

The Court allowed the appeals and set aside the CESTAT order. It held that the steam‑generating plant which came into existence on site by assembling CKD components together with bought‑out items became an immovable product and therefore did not qualify as “goods” liable to central excise; accordingly the cost of bought‑out items delivered directly to site could not be added to the assessable value of the boiler. The Court further held that the show‑cause notice invoking the extended five‑year period under Section 11A(1) was not maintainable as there was no proved wilful suppression with intent to evade duty. The Court, in its reasoning, observed: Background The dispute arose from a contract dated 29.01.2001 by which Lipi Boilers agreed to design, procure, manufacture and supply machinery and equipment for a 50 TPH bagasse‑fired boiler and related steam‑generating plant. The assessee cleared components from its factory in CKD condition and vendors delivered certain duty‑paid bought‑out items (pumps, fans, valves, instrumentation, etc.) directly to the buyer’s site. The Assistant Commissioner issued a show‑cause notice in 2005 alleging undervaluation by excluding bought‑out items worth ₹14,02,344 and demanding duty of ₹2,24,375 while invoking the proviso to Section 11A(1) on grounds of wilful suppression. The assessee replied that the boilers, once erected and attached to earth, became immovable and non‑excisable and that bought‑out items were supplied by vendors and not processed by the assessee. The Assistant Commissioner quashed the demand, observing that “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,” and the Commissioner (Appeals) affirmed that decision. The CESTAT, however, set aside those orders, holding that the boilers were manufactured in the factory and cleared in CKD condition and that the bought‑out items were “essential parts” and therefore includable; it observed “we find no merits in the contention of the respondent that the boiler has been permanently imbedded and is non‑excisable…” The Supreme Court reviewed legislative provisions and precedent (including Quality Steel, Mittal Engineering and Sirpur Paper Mills), held that exigibility depended first on whether the product was a movable “good” under Section 3, and concluded that the assembled steam‑generating plant was immovable and not excisable. The Court also applied settled tests on invocation of the extended limitation and found no evidence of deliberate suppression or intent to evade duty; it relied on authorities that mere non‑declaration did not suffice to extend limitation. The appeals succeeded and the impugned CESTAT order was set aside.

Case Details: Case No.: Civil Appeal Nos. 856–857 of 2011 (2025 INSC 1297) Case Title: Lipi Boilers Ltd. v. The Commissioner of Central Excise, Aurangabad Appearances: For the Petitioner(s): Mr. Prakash Shah, Senior Counsel for Lipi Boilers Ltd. For the Respondent(s): Mr. Raghavendra P. Shankar, Additional Solicitor General for the Commissioner of Central Excise, Aurangabad

Judgment delivered by Justices J.B. Pardiwala and Sandeep Mehta on 10 November 2025.