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2025 (4) TMI 364 - AT - Central ExciseArea Based Exemption - Eligibility for exemption under N/N. 50/2003-CE dated 10.06.2003 - goods manufactured and cleared from the factory of the appellant situated at 7 KM Stone Muradabad Road Kashipur - HELD THAT - The order passed by the Tribunal shows that it was the adjudicating authority that had to visit the factory and decide the issue denovo. On record is an application dated 12.09.2018 submitted by the appellant which clearly mentions that the impugned order dated 20.03.2018 was passed by the Commissioner in contravention of the direction issued by the Tribunal and that too without affording any opportunity to the appellant. It also mentions that the adjudicating authority has relied upon a document which was neither a part of the show cause notice nor part of the earlier proceedings and no response was invited from the appellant. No reliance can therefore be placed on these two documents which in fact are the sole document on the basis of which the Commissioner has recorded a finding that manufacturing activity is being carried out in Khasra No. 281. The Tribunal in the order dated 31.01.2017 had clearly held that if no manufacturing activity was carried out in Khasra No. 281 the department would have no case. From a perusal of the layout plan and the report dated 20.01.2010 submitted by the lekhpal it is clear that no manufacturing activity was carried out in Khasra No. 281. The layout plan in fact clearly shows that the manufacturing activity was carried out only in Khasra No. 284. Khasra No. 281 admeasures 290 Meters in length and 2.53 Meters in width. It has a boundary wall and according to the appellant only a sewer line for extermination of sewage from the factory passes through Khasra No. 281. It also has a small pit for treatment of the sewage before it is discharged in a government drain located in the said Khasra. No manufacturing activity therefore can be said to have been carried out in Khasra No. 281. The area of Khasra No. 281 is about 7% of the total area of the area covered by the Khasra No s. 281 282 283 and 284. The Exemption Notification is a beneficial notification for promoting manufacturing activity in the backward area of the State of Uttrakhand. Merely because Khasra No. 281 measuring 0.146 Hectares is not mentioned in Annexure-II of the Exemption Notification which in fact includes Khasra No s. 282 283 and 284 should not result in denying the benefit of the Exemption Notification to the appellant when no manufacturing activity is taking place in Khasra No. 281. It transpires from the decisions of the Tribunal in Forbes Company 2017 (10) TMI 73 - CESTAT ALLAHABAD and Saral Wire Craft 2017 (7) TMI 1479 - CESTAT NEW DELHI that where production is carried in a majority portion covered by the Exemption Notification the assessee would be entitled to the benefit of the Exemption Notification. The decisions also hold that it is not necessary that every inch of the land should be utilized for installation of the machines for there can be some open area. In such cases the benefit of area based exemption should not be denied when the plots are adjacent. Conclusion - No reliance can therefore be placed on these two documents which in fact are the sole document on the basis of which the Commissioner has recorded a finding that manufacturing activity is being carried out in Khasra No. 281. The appellant is entitled to the exemption. Appeal allowed.
ISSUES PRESENTED and CONSIDERED
The primary issue for consideration was whether the appellant, M/s. Diamond Entertainment Technologies Pvt. Ltd., was entitled to claim exemption from the payment of central excise duty under Notification No. 50/2003-CE dated 10.06.2003. This exemption applied to goods manufactured and cleared from units located in specified areas listed in Annexure-II of the notification. The specific legal question was whether the appellant's factory, partly located on Khasra No. 281, which was not listed in Annexure-II, affected their eligibility for the exemption. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The Exemption Notification No. 50/2003-CE exempts goods manufactured in specified areas from central excise duty. The notification specifies certain Khasra numbers in Annexure-II, and the appellant's factory spans Khasra Nos. 281, 282, 283, and 284, with only 282, 283, and 284 being listed in Annexure-II. The legal framework also includes Section 2(e) of the Central Excise Act, 1944, defining "factory" as premises where manufacturing occurs, including any part of it. Court's Interpretation and Reasoning The Tribunal initially remanded the case to ascertain whether Khasra No. 281 was used for manufacturing. It was emphasized that if Khasra No. 281 was vacant and only had a boundary wall, the department would have no case. However, if manufacturing was conducted there, the exemption would not apply. Upon remand, the Commissioner concluded that a water treatment plant on Khasra No. 281 was part of the factory premises, thereby including it in the manufacturing area. This interpretation was based on the definition of "factory" and the role of pollution control equipment as capital goods under the Cenvat Credit Rules, 2004. Key Evidence and Findings The appellant contended that no manufacturing occurred on Khasra No. 281, which only contained a boundary wall, a sewer line, and a sewage treatment pit. The layout plan and a report from a lekhpal supported this claim, showing manufacturing activities were confined to Khasra No. 284. Conversely, the department relied on reports from the Assistant Commissioner and the Sub-Divisional Magistrate, which claimed a water treatment plant existed on Khasra No. 281. Application of Law to Facts The Tribunal found that the Commissioner's reliance on reports not disclosed to the appellant violated procedural fairness. The layout plan and lekhpal's report indicated no manufacturing on Khasra No. 281, aligning with the Tribunal's earlier decision that the department had no case if no manufacturing occurred there. Treatment of Competing Arguments The appellant argued that the Exemption Notification should not be denied due to the minor portion of land (Khasra No. 281) not being listed, especially since no manufacturing occurred there. The department maintained that the presence of a water treatment plant constituted manufacturing activity within the factory precincts. Conclusions The Tribunal concluded that the appellant was entitled to the exemption since the manufacturing activities took place on the specified Khasras (282, 283, and 284), and no manufacturing occurred on Khasra No. 281. The procedural irregularity of not disclosing critical reports to the appellant further weakened the department's case. SIGNIFICANT HOLDINGS The Tribunal emphasized the importance of procedural fairness, noting, "No reliance can, therefore, be placed on these two documents, which in fact are the sole document on the basis of which the Commissioner has recorded a finding that manufacturing activity is being carried out in Khasra No. 281." The Tribunal reaffirmed the principle that exemptions should not be denied when the majority of manufacturing occurs on specified lands, citing previous decisions in Forbes & Company and Saral Wire Craft. The final determination was that the appellant was entitled to the exemption, setting aside the Commissioner's order and allowing the appeal. The Tribunal underscored that the Exemption Notification aimed to promote manufacturing in underdeveloped areas, and denying the exemption due to a minor non-specified Khasra, where no manufacturing occurred, contradicted this objective.
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