2004 (6) TMI 227 - AT - Central Excise

Eligibility for separate registration u/r 174 - Bifurcation of unit - SSI Exemption - Validity of demands for duty and penalties - Whether the second Units of the respondent-companies were eligible for exemption in respect of first clearances of 3500 M.Ts. of paper for 2000 - 2001 in terms of Notification No. 6/2000-C.E. (as amended) - HELD THAT - We find that the company had resolved to bifurcate their manufacturing unit into (Units I and II) as early as on 7-2-2000 as evidenced by a certified copy of the relevant resolution of the Company's Board Meeting, available on record. This Resolution of the Company was prior to the issuance of the subject Notification. Hence it will be incorrect to presume that the decision to bifurcate the manufacturing unit was taken with mala fide intention of availing undue benefit under the Notification. The correspondence between the Company and the Assistant Commissioner of Central Excise indicates that it was categorically stated by them that upon bifurcation, each unit would have separate machinery lines from the pulp stage to the final product stage of paper and would function independently from 29-8-2000. It was further claimed by them that it was necessary to have two units with separate registration for having effective control over the production of various types of paper. It was also pointed out to the Assistant Commissioner that four other companies working under the same Range had been granted separate registration in respect of their second Units created by bifurcation. These submissions of the party were not properly considered by the original authority. This infirmity in the decision of the original authority was rightly detected by the Commissioner (Appeals) and, therefore, the latter directed the former to grant registration to the party after verification of the particulars furnished by them. We do not see any reason to interfere with the order of the lower authority. Accordingly, the Appeal is rejected. Admittedly, Unit II of each of the respondent-companies was recognised as factory within the meaning of this expression under Section 2(e) of the Central Excise Act, by the proper officer of Central Excise, who issued separate registration certificate to the unit. Such registration certificates were in force during the relevant periods of dispute. The relevant demands of duty were raised in respect of periods during which the registration certificates were in operation. Hence the Revenue cannot be heard to contend that the respondent-Units were not separate factories during the period of dispute. Therefore, we hold that, during the subsistence of the separate registration certificate issued to Unit II by the proper officer of Central Excise, it was not open to the department to treat Units I and II as a single factory and deny Unit II the benefit of Notification No. 6/2000-C.E. (as amended). The demands of duty raised on the respondent-Units are, therefore, unsustainable. Ld. Commissioner was right in vacating the proposal for demanding duty from and imposing penalty on, the respondent-Units. In the absence of effective challenge to these findings, we have to uphold the Commissioner's order justifying the grant of separate registration to the second Units of the respondent-companies. In the result, the impugned orders are only to be affirmed and we do so. The appeals are rejected.

Summary

Issues Involved:
1. Eligibility for separate registration u/r 174.
2. Entitlement to exemption benefit under Notification No. 6/2000-C.E. (as amended).
3. Validity of demands for duty and penalties.

Summary:

1. Eligibility for Separate Registration u/r 174:
The respondents, engaged in manufacturing paper under Chapter 48 of the CETA, 1985, applied for separate registration for their bifurcated units. The Assistant Commissioner rejected the application, citing mala fide intentions to exploit exemption benefits. However, the Commissioner (Appeals) allowed the appeal, noting that the registering authority lacked jurisdiction to decline registration u/r 174. The Tribunal upheld this decision, finding no reason to interfere with the lower authority's order.

2. Entitlement to Exemption Benefit under Notification No. 6/2000-C.E. (as amended):
The respondents bifurcated their factories and obtained separate registrations for Unit II, which then availed the exemption for the first clearance of 3,500 M.Ts. of paper. The department contended that the bifurcation was a 'colourable device' to gain undue benefits and issued show-cause notices demanding duty and proposing penalties. The adjudicating authority found the bifurcation and separate registration valid, granting the exemption. The Tribunal affirmed this, stating that the exemption was factory-based as per the Notification's clear and unambiguous language. The Tribunal distinguished the cited case law and upheld the separate registrations, noting that the units functioned independently with separate machinery, workforce, and stockyards.

3. Validity of Demands for Duty and Penalties:
The Tribunal found that the demands for duty and penalties were unsustainable as the separate registration certificates were valid during the disputed period. The Commissioner's findings that the units were independent and did not mix production facilities were upheld. The Tribunal rejected the appeals, affirming the impugned orders and vacating the demands and penalties proposed by the department.