1999 (8) TMI 916 - AT - Central Excise

Summary

Issues Involved:

1. Applicability of Notification No. 35/95-C.E. and its amendment by Notification No. 84/95-C.E.
2. Legitimacy of bifurcation of the appellant's factory into two units.
3. Determination of whether the two units are independent factories or a single composite unit.
4. Eligibility for exemption from Central Excise duty under the specified notifications.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 35/95-C.E. and its amendment by Notification No. 84/95-C.E.:

The core issue revolves around whether the appellant can avail the benefits of Notification No. 35/95-C.E., dated 16-3-95, which provides a NIL rate of duty for dyed yarn if made from duty-paid yarn. This notification was amended by Notification No. 84/95-C.E., dated 18-5-95, which added a proviso that the exemption does not apply to clearances from a factory having facilities for producing single yarn. The Commissioner of Central Excise denied the benefit of these notifications to the appellant, asserting that the bifurcation of the factory into two units was merely on paper and both units were under the same control, thus forming a single composite unit.

2. Legitimacy of bifurcation of the appellant's factory into two units:

The appellant contended that the bifurcation into Unit No. 1 (Spinning Mill) and Unit No. 2 (Dyeing Unit) was legitimate and done before the amendment of Notification No. 35/95-C.E. on 18-5-95. The appellant provided evidence of resolutions by the Board of Directors, correspondence with the jurisdictional Superintendent of Central Excise, and applications for separate registration under the Factories Act. The appellant argued that these steps were taken well before the amendment, indicating a genuine bifurcation rather than a measure to evade duty.

3. Determination of whether the two units are independent factories or a single composite unit:

The appellant argued that the two units operated independently, with Unit No. 2 receiving duty-paid yarn from Unit No. 1 and the market, and both units being registered separately under the Factories Act. The appellant relied on several judicial precedents, including the Andhra Pradesh High Court's decision in Assistant Collector, Central Excise v. Nizam Sugar Factory Ltd., which held that two factories with separate identities should not have their clearances clubbed even if they are under the same management and located within the same compound.

The Revenue, however, argued that the bifurcation was a strategy to exploit the exemption and cited cases like Unique Resin Industries v. Collector of Central Excise, where units with common facilities and management were not considered independent. The Tribunal found that the facts of the present case differed from those cited by the Revenue, as the bifurcation occurred before the amendment and was supported by substantial evidence.

4. Eligibility for exemption from Central Excise duty under the specified notifications:

The Tribunal concluded that the appellant had taken necessary steps to bifurcate the factory into two independent units before the amendment of Notification No. 35/95-C.E. The Tribunal noted that the notification did not prohibit exemption for factories under the same management but focused on whether the factory had facilities for producing single yarn. Given the evidence, the Tribunal determined that the bifurcation was genuine and not a mere paper arrangement to evade duty. Consequently, the appellant was entitled to the benefits of the notifications.

Conclusion:

The Tribunal set aside the impugned orders and allowed the appeals, recognizing the bifurcation as legitimate and granting the appellant the exemption under Notification No. 35/95-C.E. and its amendment.