2017 (5) TMI 49 - AT - Central Excise

Area Based Exemption - Substantial expansion of installed capacity - benefit of N/N. 50/2003-CE dated 10.06.2003 - claim of Revenue is that the corrugation machine is crucial machinery for manufacturing of corrugated boxes has not been installed, therefore, in the absence of the installation of the said machinery, there is no expansion of more than 25% of installed capacity and appellant is not entitled for the benefit of said Notification - whether the appellant has increased installed capacity more than 25% w.e.f 26.07.2004 or not? - Held that - any increase in installed capacity means other than installation of additional plant and machinery would not qualify for the benefit of exemption notification, there should be increase in installed capacity of an existing unit by not less than 25% should be the result of installation of additional plant and machinery. In the CBEC Circular, it is nowhere set out that there should be increased in more than 25% in the machinery installed in the factory of the appellant. The CBEC Circular clarified that there should be additional plant and machinery which should result in increase of more than 25% in the installed capacity. The Hon ble High Court of Uttrakhand in the case of Uttaranchal Iron & Ispat Ltd. 2010 (12) TMI 491 - UTTARAKHAND HIGH COURT has held that the circular nowhere says that such machinery, in order to be additional machinery, should be in addition to those, which are in existence. The said clarification, which also used the word additional investment in plant and machinery in modernization, read with other part of circular, makes it abundantly clear that the additional plant and machinery, mentioned therein, is not in addition to the existing, but signifies something new brought-in in the manufacturing process, which is turn, increases the capacity. The appellant has made some addition in their plant and machinery which resulted in increases their production capacity more than 25% which is not disputed by the Revenue, and thus is entitled for exemption - as the appellant is entitled for benefit of exemption Notification 49-50/2003-CE dated 10.06.2003, therefore, the demand confirmed against the appellant are not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to benefit of exemption Notification No. 50/2003-CE dated 10.06.2003.
2. Increase in installed capacity by more than 25%.
3. Validity of duty demand along with interest and penalty.

Detailed Analysis:

1. Entitlement to Benefit of Exemption Notification No. 50/2003-CE:
The primary issue revolves around whether the appellant is entitled to the benefit of exemption Notification No. 50/2003-CE dated 10.06.2003. The appellant contended that they undertook substantial expansion by increasing their installed capacity by more than 25% and commenced commercial production before the stipulated date. They filed the required declaration on 26.07.2004, opting for the benefit of the exemption notification. The department, however, argued that the appellant did not install crucial machinery, such as an additional corrugation machine, which they considered vital for claiming the exemption. The Assistant Commissioner and the Commissioner (A) upheld this view, leading to the denial of the exemption benefit.

2. Increase in Installed Capacity by More than 25%:
The appellant argued that they increased their installed capacity from 1175 MT to 1825 MT, a more than 55% increase, supported by a certificate from the DIC and a report from a Chartered Engineer. The department's position was that the increase did not result from the installation of crucial machinery like a corrugation machine. However, the Tribunal observed that the CBEC Circular No. 772/5/2004-CX dated 21.01.2004 did not specify the need for an increase in each section of the manufacturing unit. The circular emphasized that any increase in installed capacity should result from the installation of additional plant and machinery, not necessarily new machinery. The Tribunal cited several precedents, including cases like Uttaranchal Iron & Ispat Ltd. and Hatikuli Tea Estate, to support the view that the overall increase in capacity, regardless of the specific machinery involved, qualifies for the exemption.

3. Validity of Duty Demand Along with Interest and Penalty:
Given the Tribunal's finding that the appellant did indeed increase their installed capacity by more than 25%, the denial of the exemption notification was deemed incorrect. Consequently, the duty demands along with interest and penalties imposed on the appellant were found unsustainable. The Tribunal set aside the impugned orders, allowing the appeals and granting consequential relief to the appellant.

Conclusion:
The Tribunal concluded that the appellant was entitled to the benefit of exemption Notification No. 50/2003-CE dated 10.06.2003, as they had substantially increased their installed capacity by more than 25%. The orders denying the exemption and the subsequent duty demands, interest, and penalties were set aside, and the appeals were allowed with consequential relief.