2004 (7) TMI 92 - SC - Central Excise

Whether both these factories are one or they are separate? Held that - Simply because both the factories are in the same premises that does not lead to the inference that both the factories are one and the same. In the present case from the facts it is apparent that there is no commonality of the purpose both the factories have a separate entrance there is a passage in between and they are not complimentary to each nor they are subsidiary to each other. The end product is also different one manufactures duplex board and the other manufactures paper. They are separately registered with the Central Excise Department. The staff is separate their management is separate. It is also not the case of revenue that end product of one factory is raw material for the other factory. From the above facts it is apparent that there is no commonality between the two factories both are separate establishments run by separate Managers though at the apex level it is maintained by the appellant company. There are separate staff separate finished goods. Simply because both the factories may have common boundaries that will not make it one factory. Accordingly we are of the opinion that the view taken by the Tribunal does not appear to be well-founded and likewise the view taken by the Commissioner Central Excise. Accordingly we allow both these appeals set aside the order of the Tribunal passed on June 7 2002 as well as the order passed by the Commissioner Central Excise New Delhi-III on September 28 2001 in both the appeals.

Summary

Issues:
1. Whether two factories owned by the same company and situated in close proximity can be considered as one entity for the purpose of Central Excise duty?

Analysis:
The judgment pertains to two appeals arising from a common order of the Customs Excise and Gold (Control) Appellate Tribunal. The appellant, a limited company engaged in manufacturing, had two relevant factories: a Paper Board Factory and a Specialty Paper Factory. The Specialty Paper Factory had accumulated stock transferred to the Paper Board Factory for disposal under Central Excise registration. The issue arose when the Central Excise Department objected to the appellant availing a duty concession for both factories, citing common ownership and balance sheet. The Commissioner imposed duty and penalty, upheld by the Tribunal. The key question was whether the factories should be treated as one entity. The Supreme Court analyzed the definition of 'factory' under the Central Excise Act, emphasizing the lack of common purpose, separate registrations, distinct products, staff, and management between the two factories. The Court concluded that proximity and common ownership do not make two factories one entity. Consequently, the Court allowed both appeals, overturning the Tribunal and Commissioner's orders, emphasizing the distinct nature of the factories and absence of commonality, setting aside the duty and penalty imposed.

The judgment highlights the importance of considering specific factors beyond common ownership and proximity in determining whether separate factories should be treated as one entity for Central Excise duty purposes. The Court emphasized the need to assess commonality of purpose, distinct products, separate registrations, staff, and management to establish the independence of each factory. The decision underscores that mere physical proximity and common ownership are insufficient grounds to merge separate manufacturing units into a single entity for taxation purposes. The judgment provides clarity on the interpretation of the term 'factory' under the Central Excise Act, emphasizing the need for a comprehensive assessment of various factors to determine the distinctiveness of manufacturing units owned by the same entity.