2017 (10) TMI 7 - AT - Central Excise

Area Based Exemption - substantial expansion of unit - N/N. 49/2003 dated 10.6.03 - whether the respondent assessee has increased the installed capacity of its plant and machinery by over 25% which is the requirement to be satisfied to be eligible for area based exemption under the category of substantial expansion? - Held that - The increase in the installed capacity by more than 25% has been certified by the independent Chartered Engineer, Shri Rohit Oberai of M/s. Oberoi Associates, Kashipur. The same fact has also been endorsed by the Professor of Department of Paper Technology, Saharanpur as well as IIT Roorkee. The reports submitted by the technical experts reveal that such increase in installed capacity is the result of changes carried out by the respondent by way of replacement material / consumables and by installing machinery meant for improvement in quality of products. Similar issue decided in the case of COMMISSIONER OF CUS. & C. EX. Versus UTTARANCHAL IRON & ISPAT LTD. 2010 (12) TMI 491 - UTTARAKHAND HIGH COURT , where it was held that it is the factum of substantial expansion which is the determinative factor for grant of exemption. It is immaterial whether the substantial expansion is as a result of additional or new plant and machinery or by renovation /modification of existing plant and machinery. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Eligibility for area-based exemption under substantial expansion criteria.

Analysis:
The appeal before the Appellate Tribunal CESTAT New Delhi involved a dispute regarding the eligibility of an assessee, a manufacturer of paper and paper boards in Uttarakhand, for area-based exemption under Notification No.49/2003. The assessee claimed the benefit of the notification due to a substantial expansion of their unit, increasing the installed capacity from 50TPD to 65TPD, exceeding the 25% threshold. The original authority initially denied the exemption, leading to the appeal. The primary issue revolved around whether the increase in capacity was valid for the exemption.

The Revenue contended that the machinery claimed by the assessee for capacity enhancement was actually replacement material and alterations, not constituting substantial expansion as per CBEC circular guidelines. The Revenue argued that eligibility for the exemption required additional investment in plant and machinery to achieve the capacity increase. On the other hand, the respondent argued that despite the increase resulting from replacement and alterations, the benefit should still apply. The respondent submitted expert certifications and relied on various case laws to support their claim.

After considering the arguments and evidence, the Tribunal found that the crucial issue was whether the assessee had genuinely increased the installed capacity by over 25%, a prerequisite for the exemption. The independent Chartered Engineer and technical experts confirmed the capacity increase, attributing it to the changes made by the assessee. Referring to a High Court decision and other precedents, the Tribunal emphasized that substantial expansion, regardless of the method (new machinery or modifications), was the key factor for exemption eligibility.

Ultimately, the Tribunal upheld the lower authority's decision in favor of the assessee, dismissing the Revenue's appeal. The judgment highlighted that the method of achieving substantial expansion was secondary to the actual increase in capacity, as long as the expansion was genuine. The decision was pronounced on 09.08.2017 by Mr. V. Padmanabhan, Member (Technical), at the Appellate Tribunal CESTAT New Delhi.