2010 (2) TMI 446 - AT - Central Excise

Area based exemption - The issue in the present case is different in as much as, the appellants are not seeking the benefit of exemption on the ground of substantial increase in production but on the ground of substantial increase in the installed capacity. Held that - no doubt that appellant achieved substantial expansion in installed capacity to required extent. Exemption under Notification available.

Summary

Issues:
Interpretation of paragraph 2(b) of Notification No. 50/2003-C.E., dated 10th June, 2003 regarding substantial expansion of industrial units.

Analysis:
The dispute in this case revolves around the interpretation of paragraph 2(b) of Notification No. 50/2003-C.E., dated 10th June, 2003, which pertains to the exemption applicable to industrial units that have undertaken substantial expansion by increasing installed capacity by not less than twenty-five percent after a specified date. The Appellate Tribunal considered the case where the appellants had replaced an old furnace with a new furnace of higher capacity, leading to an increase in installed capacity from 4 MT to 5 MT per charge. The Department contended that this replacement did not constitute substantial expansion as per the notification.

The Adjudicating Commissioner and the Department relied on Circular No. 772/5/2004-CX and certain tribunal decisions to deny the exemption based on the concept of substantial expansion. However, upon reviewing the arguments, the Tribunal found that the cited decisions dealt with cases of substantial expansion of production, distinguishing it from substantial expansion of a unit itself.

The Tribunal analyzed paragraph 3(a) of the Circular dated 21-1-2004, which discusses an increase in installed capacity resulting from additional expansion of plant and machinery. It clarified that the installation of additional plant and machinery could lead to an increase in installed capacity, and replacing old equipment with new, higher-capacity machinery could qualify as substantial expansion. In this case, the appellants had not only replaced the old furnace with a new one but also obtained additional sanctioned load of electric power, demonstrating a matching increase in auxiliary facilities. Consequently, the Tribunal concluded that the appellants had achieved substantial expansion in installed capacity as required by the notification, making them eligible for the exemption.

Therefore, the Tribunal set aside the impugned order and allowed the appeals, emphasizing that the replacement of the old furnace with a new one of higher capacity, along with the increase in auxiliary facilities, constituted substantial expansion warranting the exemption under Notification No. 50/2003-C.E.