2003 (1) TMI 98 - SC - Income Tax

Whether it is a case of expansion of an existing unit? Held that - It will be seen from the facts on record in the present case that the so called new unit/undertaking is not totally independent of the assets of the existing unit. Admittedly certain assets, to which reference has already been made, are being utilized in the manufacturing activity carried on by the new unit. It cannot be said that the new unit is completely independent or that the new unit could do without the assets of the existing unit. If use of the old plant and machinery, etc. was necessary to complete the manufacturing process in the new unit, the new unit is not totally independent nor it is able to complete the process of manufacture of cement on its own as a viable unit. The new unit is dependent on the existing assets. A physical identity with the old unit is preserved. In view of the exception carved out in the definition of a new industrial unit contained in the Act, it cannot be said that the respondent is entitled to exemption from electricity duty. From the facts and circumstances of the case we are clearly of the view that the respondent is not entitled to exemption from electricity duty. The High Court failed to apply the real test which emerges from the judgment of this court in Textile Machinery Corporation s case 1977 (1) TMI 3 - SUPREME Court which was affirmed in a subsequent decision in Bajaj Tempo Ltd. v. CIT 1992 (4) TMI 4 - SUPREME Court . Accordingly, this appeal is allowed. The judgment of the High Court under appeal is set aside. The respondent is held not entitled to exemption from electricity duty.

Summary

Issues Involved:
1. Entitlement to exemption from electricity duty under the Bombay Electricity Duty Act, 1958.
2. Definition and interpretation of "new industrial undertaking" under the Act.
3. Application of the term "expansion" in the context of existing industrial units.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption from Electricity Duty:
The respondent sought exemption from the levy of electricity duty under section 3(2)(vii)(b) of the Bombay Electricity Duty Act, 1958, claiming that it had established a new industrial undertaking. The High Court initially ruled in favor of the respondent, granting the exemption. However, the State Government appealed this decision, arguing that the respondent's new unit was not a new industrial undertaking but an expansion of an existing one.

2. Definition and Interpretation of "New Industrial Undertaking":
The crux of the case hinged on the interpretation of "new industrial undertaking" as defined in section 3(2)(vii)(b) of the Act. The Act specifies that an industrial undertaking qualifies as new if it is not formed by the splitting up or reconstruction of an existing business, nor by the transfer of previously used buildings, machinery, or plant, and is not an expansion of an existing business. The respondent's new unit, which began operations in 1971, utilized some existing machinery and infrastructure, raising the question of whether it constituted a new undertaking or an expansion.

3. Application of the Term "Expansion":
The Supreme Court examined whether the respondent's new unit was an expansion of the existing business. The Court noted that the new unit was not entirely independent of the existing assets, as it used existing crushers, cranes, raw mills, packing machines, and old cement mills. The Court emphasized that the new unit must be self-contained and viable on its own to qualify as a new industrial undertaking. Since the new unit relied on existing assets, it was deemed an expansion of the existing business.

The Court referenced the definition of "expansion" from the New Shorter Oxford English Dictionary, which includes becoming greater in size, spreading out, and increasing the scope of operations. Applying this definition, the Court concluded that the respondent's new unit, which increased production capacity significantly but was not self-sufficient, constituted an expansion. Consequently, the respondent was not entitled to exemption from electricity duty.

Conclusion:
The Supreme Court overturned the High Court's decision, ruling that the respondent's new unit was an expansion of the existing industrial undertaking and not a new industrial undertaking as defined under the Act. Therefore, the respondent was not entitled to exemption from electricity duty. The appeal was allowed, and the High Court's judgment was set aside, with no order as to costs.