2017 (9) TMI 934 - AT - Central Excise

Area Based Exemption - N/N. 50/2003-CE dated 10.06.2003 - The main appellant obtained Central Excise registration in respect of Unit-I and filed a declaration on 21.04.2008 for availing area based exemption under Notification No.50/2003-CE dated 10.06.2003 in respect of Unit-II - Revenue entertained a view that the claim of the main appellant to the effect that Unit-I and Unit-II are to be dealt with separately for excise duty purposes and the exemption claimed for Unit-II on such basis, is not legally tenable - Held that - there were certain factual errors recorded by the original authority while examining the dispute. He records that the excise registration and the declaration filed under Notification No. 50/03, covered entire premises. We note that in the intimation dated 21.04.2008, the appellant categorically displayed a site plan clearly demarcating Unit-I & Unit-II with a specific remark. Similarly, the original authority records that the term unit used in the said notification refers to the said factory . The original authority records that it does not matter for Central Excise purposes as to by which name whether by name of plant, unit or the like, each set is described. Since each unit cannot be described as a factory, he proceeded to hold that the whole premises should be considered as single entity and exemption was accordingly denied. The CBEC vide their letter dated 21.03.2006 addressed to Secretary (Industrial Development), Government of Uttaranchal clarified that in case of a manufacturer, producing motor vehicles, if a new assembly line/ production line is installed after 31.03.2007, then the benefit of said notification would not be available to motor vehicles manufactured on such assembly/production line. In various decisions, the Tribunal held that terms unit and factory cannot be accorded the same meaning for the purpose of Notification No.50/03. A notification grants exemption to new industrial units or existing industrial units undertaking substantial expansion. The exemption is not with reference to a factory. This is clear from the wordings of the notification. We also agree that the definition of factory under Section 2(e) of the Central Excise Act is much wider and cannot be made applicable to a unit/industrial unit involved in manufacture of specified goods. All such units are necessary part of a factory, if located in the contagious area. Each division of a factory manufacturing different identifiable items or undertaking different identifiable processes will have to be considered as a unit of the factory. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved: Eligibility for area-based exemption under Notification No. 50/2003-CE, interpretation of "unit" vs. "factory," legal tenability of separate units within the same factory, and imposition of penalties.

Issue-wise Detailed Analysis:

1. Eligibility for Area-Based Exemption under Notification No. 50/2003-CE:
The main appellant, engaged in manufacturing motor vehicle parts, sought exemption for Unit-II under Notification No. 50/2003-CE. The Revenue disputed this, asserting that the factory should be considered a single entity, thus disqualifying the appellant from claiming exemptions for Unit-II separately. The Commissioner confirmed this view, leading to a demand of ?3,45,87,178/- and corresponding penalties.

2. Interpretation of "Unit" vs. "Factory":
The appellant argued that the terms "unit" and "factory" are not synonymous. The exemption is unit-specific, not factory-specific. The Commissioner’s interpretation that the entire factory must be registered and considered as a single entity was challenged. The appellant highlighted that a factory could comprise multiple units with separate identities if involved in distinct manufacturing activities.

3. Legal Tenability of Separate Units within the Same Factory:
The Commissioner’s findings were rebutted on several grounds:
- Common Facilities: The use of common facilities like water, electricity, and administrative sections does not legally bar the existence of separate units within the same factory.
- Location and Premises: The appellant justified that separate manufacturing facilities and products allowed for distinct units within the same premises.
- Cenvat Credit: The appellant clarified that only Unit-I availed Cenvat credit, while Unit-II, availing exemption, was not registered with the department.
- Case Law: The reliance on JK Synthetics Ltd. was argued to support the existence of multiple units within a single factory.

4. Imposition of Penalties:
Penalties were imposed on the main appellant and its officials under various provisions. The appellant contested these penalties, arguing that the Commissioner’s interpretation and findings were legally flawed.

Tribunal’s Findings:
The Tribunal noted that the Commissioner’s order contained factual errors and misinterpretations:
- The exemption notification clearly differentiates between "industrial unit" and "factory."
- The CBEC’s clarification indicated that exemptions could apply to new assembly lines within an existing factory.
- Previous judicial decisions, including those by the Supreme Court and High Courts, supported the interpretation that separate manufacturing units within a factory could independently claim exemptions.

Conclusion:
The Tribunal concluded that the impugned order was not legally sustainable. It set aside the order and allowed the appeals with consequential relief, recognizing the appellant's right to claim exemption for Unit-II under Notification No. 50/2003-CE.

(Pronounced in Court on 29.08.2017)