2015 (9) TMI 406 - Commissioner - Central Excise

Area based exemption - determination of substantial expansion - Notification No. 1/2010-C.E., dated 6-2-2010 - new investment by more than 25% in the existing plant and machinery which also resulted into generation of employment by 50% - Revenue contended that Since the notification is primarily aimed at increasing the industrial activity by expansion etc., taking the depreciated value of plant & machinery would go against the spirit of the notification. - Held that - The adjudicating authority has taken the depreciated value to calculate the percentage increase/expansion in the Capital. However, such an interpretation would defeat the very purpose to the context in which it has been used both technically as well as logically. - I find merits in the revenue s appeal, so far as the condition as stipulated in para 8(b)(i) for availing exemption under the notification. - Decision in the case of Bhai Jaspal Singh 2010 (10) TMI 899 - SUPREME COURT OF INDIA relied upon. Reliance of the assessee on Board s Circular dated 21-1-2004 is misplaced as the same has been issued in context to area based Notification No. 56/2002-C.E., dated 14-11-2002, - Notification 56/2002-C.E. requires substantial expansion by way of increase in installed capacity whereas Notification 1/2010 speaks of substantial expansion by way of increase in the value of fixed capital investment in plant and machinery for the purposes of expansion of capacity or modernization and diversification. However, the benefit of the Notification would still be admissible to the respondents in case they satisfy the condition laid down under Para 8(b)(ii) regarding employment. Increase in employment - revenue contended that increase in labour is not attributable to investment but was done on account of regular need of the respondents - Held that - , I find that the regular employee s strength of the respondents has increased by much over 25% over the base employment on making new investment in plant & machinery, as such, they have fulfilled the criteria for admissibility of area based exemption to them, clause 8(b)(ii) of the notification. Assessee is entitled to area based exemption, under the notification. Accordingly, the impugned order is upheld and the appeal of the revenue is rejected. - Decided against the revenue.

Summary

Issues Involved:
1. Interpretation of "substantial expansion" under Notification No. 1/2010-C.E.
2. Calculation of investment value: original vs. depreciated.
3. Verification of employment increase and its linkage to new investment.
4. Admissibility of area-based exemption under Notification No. 1/2010-C.E.

Issue-wise Detailed Analysis:

1. Interpretation of "Substantial Expansion":
The core issue revolves around whether the respondents' increase in plant and machinery investment qualifies as "substantial expansion" under Notification No. 1/2010-C.E. The notification specifies that an industrial unit must increase its fixed capital investment by at least 25% for expansion, modernization, or diversification. The adjudicating authority accepted the respondents' expansion claim based on an increase from Rs. 50.79 lacs to Rs. 66.72 lacs (31.36%).

2. Calculation of Investment Value: Original vs. Depreciated:
The Revenue contended that the adjudicating authority's use of the depreciated value of Rs. 50.79 lacs to calculate the investment increase contravenes the notification's intent. The Revenue cited Supreme Court judgments (M/s. Oblium Electrical Industries Pvt. Ltd. and K.R. Steel Union Limited) to argue that the original value of plant and machinery should be considered. The Supreme Court's decision in Bhai Jaspal Singh v. Assistant Commissioner of Commercial Taxes emphasized that "investment" should be understood as the original cost, not the depreciated value. The adjudicating authority's reliance on depreciated value was deemed inappropriate, as it would undermine the notification's purpose.

3. Verification of Employment Increase and its Linkage to New Investment:
The Revenue argued that the respondents' claim of increased employment was unsupported by authentic records. The Labour Officer's certificate did not specify the base employment, which is defined as the maximum number of regular employees in the last five years. The respondents produced a certificate from the GM, DIC, Jammu, indicating an increase in employees. However, the Revenue questioned the timing and necessity of this increase, suggesting it was due to regular needs rather than new investment. The adjudicating authority found no evidence from the Revenue to challenge the certificates provided by the respondents.

4. Admissibility of Area-Based Exemption:
The adjudicating authority examined whether the respondents met the conditions under Para 8(b)(i) and 8(b)(ii) of the notification. While the use of depreciated value for investment calculation was found erroneous, the respondents were still eligible for exemption under Para 8(b)(ii). This clause allows exemption if new investment leads to at least a 25% increase in regular employment. The respondents provided evidence of increased production capacity and employee numbers, satisfying the notification's criteria. The adjudicating authority upheld the respondents' claim for exemption, rejecting the Revenue's appeal.

Conclusion:
The adjudicating authority concluded that the respondents are entitled to area-based exemption under Notification No. 1/2010-C.E. despite the miscalculation of investment value. The respondents demonstrated compliance with the employment increase condition, validating their exemption claim. Consequently, the impugned order was upheld, and the Revenue's appeal was rejected.