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TMI Blog2024 (3) TMI 976X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Order of Hon'ble High Court of Bombay dated 20.04.2012. Accordingly, M/s VVF Limited (Unit-II) had surrendered their Registration Certificate and M/s VVF (India) Ltd, being the resultant company, submitted application for Central Excise Registration and obtained new Central Excise Registration bearing No. AADCV4970GEM006 for factory premises of M/s VVF Limited (Unit-II) on 25.05.2012. 1.1 M/s VVF had set up new industrial unit with original investment of Rs. 34,66,48,392/- in Plant and Machinery and commenced production of finished goods on 25.12.2005. As a unit located in the Kutch district, they applied to the department for benefit of area-based exemption in terms of Notification No. 39/2001-CE, dated 31.07.2001. M/s VVF Limited was enjoying benefit of the same from December, 2005 onwards. M/s VVF obtained two certificates both dated 07.03.2006 issued by the committee consisting of the Chief Commissioner of Central Excise Ahmedabad and the Principal Secretary to the Government of Gujarat, Department of Industries & Mines, Gujarat bearing File No. V/30-25/CCO/Tech/Kutch/2005, in terms of Para 3(ii) and 3(iv) of the Notification No 39/2001-CE dated 31.07.2001, as amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the records. It appears to us that the issue in dispute can be addressed both on a legal as also factual matrix. We are, accordingly framing the following questions that need to be addressed: 1. Insofar as the legal dispute is concerned the following questions arise for consideration: i) Whether a new industrial unit, which admittedly is eligible to the benefit of exemption in terms of Notification No.39/2001 dated 31.7.2001 can be denied the benefit of exemption in respect of goods manufactured using Plant and Machinery installed after 31.12.2005. Particularly by reading in a condition to the exemption notification, which does not exists in the notification, as has been done by the adjudicating authority. In other words whether the adjudicating authority was correct in adding a condition in Explanation I (ii), which defines the expression "set up on or after the date of publication of this Notification in the official gazette but not later than 31st day of December 2005", to the effect that "ALL" civil construction and installation of plant and machinery, should have been completed before the cut-off date, even though no such condition exists in the notification. ii) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod within which the commercial production had to commence, being the date relevant for reckoning the original value of investment in plant and machinery as also for reckoning the 5 year period for which the exemption was to be available. All that was required was that any civil construction work in the factory premises and any installation of plant and machinery therein commences only after 31st July 2001 but before the cut-off date. For ease of reference the relevant extract of the Notification as enacted is reproduced herein below: Gujarat)- Exemption to excisable goods (except those specified in Annexure) and cleared from Units in Kutch District of Gujarat In exercise of the powers conferred by sub-section (1) of section SA of the Central Excise Act 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule to the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 31st day of July, 2003; (ii) in order to avail of this exemption, the manufacturer shall produce a certificate from a Committee consisting of the Chief Commissioner of Central Excise, Vadodara and the Principal Secretary to the Government of Gujarat. Department of Industry, to the jurisdictional Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, that the unit in respect of which exemption is claimed is a new unit and has been set up during the time period specified in condition (i) above (iii) Before effecting clearances under this notification, the manufacturer shall also furnish a declaration regarding the original value of investment in plant and machinery installed in the factory as on the date of commencement of commercial production, to the Assistant Commissioner of the Deputy Commissioner of Central Excise, as the case may be (iv) The manufacturer shall also produce a certificate from the said Committee confirming the original value of investment and such a certificate shall be produced within a period of one month from the date of commencement of commercial production, or such extended period as the said Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) any civil construction work on its factory premises and any installation of plant and machinery therein commences only on or after the date of publication of this notification in the Official Gazette; and (b) the said civil construction work on its factory premises and installation of plant and machinery therein is completed, and the unit starts commercial production, not later than the 31st day of December, 2005. 7. The relevant extract of the revised notification, after the aforesaid amendments read as under: In exercise of the powers conferred by sub-section (1) of section SA of the Central Excise Act 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excuse (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978) the Central Govemment being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule to the Central Excise Tariff Act 1985 (5 of 1986) other than goods specified in the Annexure appended to this notification and cleared from a unit located in Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty Commissioner may allow. (V) In case on the basis of such certification, or otherwise, the original value of investment in plant and machinery, (a) is found to be less than rupees twenty crore but was declared to be rupees twenty crore or more, the manufacturer shall be liable to pay back the entire amount of duty exemption availed under the notification alongwith interest at the rate of twenty four per cent, per annum as if no exemption were available or (b) is found to be less than the declared value and was declared to be below rupees twenty crore, the manufacturer shall be liable to pay duty on the goods cleared, if any, in excess of twice the actual value of original investment in each of the years during which exemption has been claimed under this notification alongwith interest at the rate of twenty four per cent, per annum, as if no exemption were available to those clearances under this notification. (VI) The exemption shall apply for a period not exceeding five years from the date of commencement of commercial production by the unit. ................................................... Explanation I- For the purpose of this notification,- (i) a change in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption notification, especially a benevolent one which has been issued with the objective of encouraging investment in the earthquake ravaged region of Kutch. In our view there is neither any legal basis nor rationale for reading in the word 'ALL' in the exemption notification and with reference to the same construe that since some machinery was installed after the cut-off date, the benefit of the exemption would not be available, to goods manufactured using the said machinery. The law with respect to strict construction of the term of an exemption notification and there being no scope to add any words or conditions to the same has been settled by the Hon'ble Gujarat High Court in the case of Inter-Continental India vs UOI reported in 2003 (154) ELT 37 which has been affirmed by the Apex Court as reported in 2008 (226) ELT 16. 10. This Tribunal has also in the case of Welspun Ltd vs CCE reported in 2019 (1) TMI 371 held that in the context of this very notification that there is no bar in installing Plant and Machinery post 31.12.2005 as long as the unit has commenced commercial production not later than 31.12.2005. The relevant observations of the Tribunal are extract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for 5 years irrespective of any of the amount of value or quantity is available. We have also perused the Board Circular No. 110/21/2006-Cx dated 10.07.2008 wherein the ambiguity with respect to eligibility of benefit of exemption notification was clarified as under: "Point No. 1: Whether the benefit of exemption would be available goods/products that the units start manufacturing after the cut off date for the commencement of commercial production i.e. 31/12/2005. Comments: There would be two situations. First is that where a unit introduces a new product by installing fresh plant, machinery or capital good after the cut of date in such a situation, exemption would not be available to this new product. The said new product would be cleared on payment of duty, as applicable and separate records would be required to be maintained to distinguish production of these products from the products which are eligible for exemption. The other situation is the one where a unit starts producing some products (after the cut off date) using the plant and machinery installed upto the cut of date and without any addition to the plant and machinery. For example, in case of plastic mould ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant or machinery or on the production of new products by an eligible unit after the cut-off date and during the exemption period of ten years as per the notification. Therefore, it is clarified that in all the above situations, the benefit of the excise duty exemption under the notifications would continue to be available to eligible industrial units. However the period of exemption would remain ten years and would not get extended on account of such modifications or additions under any circumstances." 15. From the above clarification, it is clear that irrespective of any addition or modification in the plant and machinery since the notification did not place a bar or restriction on such addition/modification, the exemption shall be available in 10 years as per the above referred notification. In the present case also objective of the exemption notification no. 39/2001-CE is same that industrialization in the Kutch region therefore the clarification issued in above is equally applicable to the present case for the reason that in the notification no 39/2001-CE also it does not place any bar or restriction on any addition or modification in the plant and machinery. We find that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he context of similar area based exemption schemes, introduced with the objective of industrialising the backward areas/areas ravaged by natural calamities. These circulars clearly clarify in unequivocal terms that the benefit of the exemption would not be lost even if additional plant and machinery was installed in the eligible units after the cut-off date. Though the said circulars have been issued in the context of the Himachal Pradesh and Uttarakhand exemption schemes, however on an examination of the terms of exemption under the Kutch and the Himachal/Uttarakhand schemes, it appears that both are broadly on the same lines and seek to achieve a common objective. The law on the point that the objective underlying the issuance of an exemption is relevant and that authorities should be cognizant of the same is settled by the Apex Court in the case of Oblum Electrical Industries Pvt. Ltd vs Collector of Customs reported in 1997 (94) ELT 449 and as also CC vs. Rupa & Company reported in 2004 (170) ELT 129 For a better appreciation, the Board's understanding with respect to addition of plant and machinery after the cut-off date on a unit's eligibility to claim exemption is extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notifications No. 49/2003-CE. and 50/2003-CE, both dated 10-6-2003, in the following situations: a. When there is a change in the ownership of a Unit already availing of the benefit of an area-based exemption Notification; b. When a Unit availing of the exemption physically shifts to a new location within the areas specified in the exemption Notification, and c. When a Unit availing of the exemption under an area-based Notification expands by acquiring a plot of land adjacent to its existing premises and installing new plant/machinery on such land. 3. The above issues have been examined by the Beard. As the exemption is extended to a Unit, any change in its ownership would not jeopardize the admissibility of exemption for the remaining part of the ten year exemption period subject to the condition that the new owner exercises his option in writing to avail of the benefit of the exemption Notification before effecting the first clearance 4. So far as the case of an eligible unit physically shifting to a new location is concerned, it is clarified that the exemption in such cases should be available for the residual period of exemption. However, the cases of relocated units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lot with at least one common boundary with the existing plot and merge it with the existing plot/premises to make it one unit. 14. From the above Board's clarifications, we find that while the CBEC has taken pains of clarifying time and again that the mere addition of plant and machinery after the cut-off date will not have any adverse impact on the units eligibility to claim benefit of the exemption. However, the adjudicating authority has chosen to completely ignore and side step the same on a frivolous count that the circulars were issued in the context of the Himachal, Uttarakhand scheme. We are not able to appreciate as to how the mere fact that the circular has been issued in the context of the exemption notification for a different geographical location can be a ground for refusing to apply the clarification afforded therein. 15. The reasoning of the adjudicating authority that under the Himachal/Uttarakhand exemption scheme, exemption was even extended to existing units, undertaking substantial expansion, which was missing in Kutch, would in our view make no difference, to the question whether any addition of plant and machinery after the cut-off date would dis-entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstalled a smelter. If such a smelter was to break down or become in-operational for any reason after commencement of commercial production, going by the revenue's stand the unit could not have replaced the smelter and continued with its production. This in our view is clearly antithetical to the objective that the notification in question seeks to achieve. We are therefore of the view that the clarification dated 22 12.2010 referred to above issued by the CBEC represents the correct logical and rationale interpretation of the exemption notification. 18. The adjudicating authority has instead of taking cognizance of and applying the clarification issued by the CBEC, which was binding upon it, has instead chosen to refer to some internal communication between the TRU and the Chief Commissioner In this context it is relevant to note that the said internal correspondence vide letters dated 17.10.2001, 25.4.2006 and 10.7.2008 issued by the TRU seem to be in the context of certain queries which had been raised by the Chief Commissioner and in response to the views expressed by the Chief Commissioner thereon. These letters are not circulars issued by the Board under Section 37B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the adjudicating authority the same seems to be permissible in a case where the addition of plant and machinery is done to improve the quality of the product manufactured and does not result in increase in the production capacity. This interpretation is based on application of TRU letter dated 10.7.2008 wherein the TRU has communicated to the Chief Commissioner, Ahmedabad that "As long as there is no increase in the capacity of production and alteration or addition are made to enhance the quality of the product or efficiency gains, the benefit of notification shall not be denied." 21. The aforesaid clarification issued under TRU letter dated 10.7.2008 has been applied by the Tribunal in the case of CCE vs Rudraksh Detergent and Chem Pvt Ltd reported in 2010 (260) ELT 469, which decision was affirmed by the Apex Court by dismissal of the Civil Appeal as reported in 2019 (168) ELT A341. 22. The Appellant has contended that installation of the second Splitting column and certain ancillaries to the same were undertaken with the objective of improving the quality of the goods manufactured by the unit. While, according to the adjudicating authority, the addition of the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng time, where after it slows down as equilibrium is approached and that splitting from 90 to 95% would take about another 4 hours and so on. This phenomenon has been explained in the technical books/write-up, produced before us in the form of extract of the book titled "The manufacture of soap, other detergents and glycerine by Mr Edger Woollatt. The same phenomenon has also been explained in the following amongst other publications. a. Fatty Acids and Derivatives from Coconut Oil by Gregorio C. Gervajio b. Bailey's Industrial Oil and Fat Products (Volume 2) by Daniel Swern c. Fatty Acids Technology published by Gianazza International d. Oleochemicals (Processing Plant) published by IPS Engineering 26. If optimum DoS (Degree of Split) is not achieved in the splitting reaction, then higher quantum of un-split oil (viz., the vegetable oil and its derivatives which are not split in view of lesser degree of split achieved) would be carried forward and remain present in the Crude/Split Fatty Acid. When the crude/split fatty acid is subjected to distillation, the un-split oil would not be distilled and would be collected at the bottom of the distillation column as a resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, however it is evident from the production data that there hasn't been in any real change in the production after installation of the second Splitting column. The production data in our view can be taken as a safe guide for manifesting the intention of the appellant in installing the second Splitting column. If the objective was not to improve the quality but to increase the production the same would have been reflected atleast by some noticeable increase in the production consequent to the installation of the second splitting column. 31. We find that it is evident from the undisputed monthly production data, particulars of which are extracted herein below, that the production, even after installation of the second splitting column (October 2006 as per the Department/January 2007 as per the Appellant and March 2007 as per the installation agency) had remained on the same range as prior to installation thereof. The maximum monthly production which was achieved prior to installation of the second Splitting column was 14751.561 MTs in the month of June 2006. Therefore undisputedly, a production of atleast 14751.561 MTs could have been achieved on a month on month basis, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a dispute with respect to the date when the second Splitting column was installed. While this dispute is inconsequential, in our view and does not impact the outcome of the dispute in hand. However the presumption of the adjudicating authority that this second splitting column was installed within 7 days of the same having been shipped by the manufacturer in October 2006, which to us does not seem to be logical and reasonable especially when viewed in light of the statement recorded under Section 14 of the installation agency, as per which the column was installed in March 2007. In our view, in light of the appellant's submission that the second splitting column was installed in January 2007, that is the earliest point of time that the adjudicating authority could have considered as the date of installation of the second splitting column. However as pointed out above, dispute on this aspect has no bearing on the outcome of the issue in hand. 33. Despite the fact that the record undisputedly establishes that there has been no increase in the production, the adjudicating authority has held that since the appellant was manufacturing final product of the desired quality by usi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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