SSI EXEMPTION – MULTIPLE UNITS OF SAME MANUFACTURER

[Mr. M. GOVINDARAJAN]

Notification 1/93-CE, dated 28.02.1993 was published for exemption to first clearance of specified goods. This notification has been issued in order to encourage small scale industries. According to this notification exemption is provided to first clearance of specified goods up to the value of ₹ 30 lakhs and concessional duty thereafter in case of SSI units having a total clearances not exceeding ₹ 2 crores in the preceding year.  The said notification granted exemption on excisable goods which had an aggregate value up to a certain limit with other riders attached it as well. This notification was amended on 01.03.1994 by Notification No. 59/94-CE, dated 01.03.1994. According to this notification a manufacturer shall have an option for not availing of the benefits of the exemption contained in said paragraph and to pay duty of excise at the rate applicable to the specified goods but for the exemption contained in the said para 1, subject to the condition that such manufacturer shall pay duty at the rate applicable but for the above said exemption on all subsequent clearances of specified goods made after availing such option, in a financial year in which such date of option falls.

The issue to be discussed in this article whether SSI exemption is available to the multiple units of same manufacturer with reference to decided case law.

In ‘Commissioner of Customs & Central Excise, Meerut – I V. Janardan Plywood Industries Limited’ – 2015 (9) TMI 690 - UTTARAKHAND HIGH COURT a demand of excise duty of ₹ 6.25 lakhs under rule 9(2) of Central Excise Rules, 1944 was confirmed by the Adjudicating Authority on 28.03.2004.   This order was set aside by the Commissioner (Appeals) and later upheld by the Tribunal.

In the meantime the High Court passed an amalgamation order amalgamating M/s Dinex Plywood Private Limited, Sitapur  and Janardan Plywood Industries Limited, Dehradun  and continue the manufacturing activities.  The respondent primarily manufactures articles of wood.  A declaration was filed by the respondent on 01.04.1996 opting to pay full rate of excise duty for the unit in Sitapur and opted to avail exemption benefit under Notification 1/93-CE, dated 28.02.1993 for the unit at Dehradun.

The Revenue issued a show cause notice to the respondent for recovery of excise duty.  The ground of demand is that the respondent had opted to pya full rate of excise duty in relation the Unit I, so it cannot avail the benefits under Notification No.3/92-Ce.  Therefore the Revenue demanded the duty of ₹ 6.25 as adjudicated and set aside by Commissioner (Appeals) and the Tribunal.

The contentions of the Revenue before the High Court are as follows:

• The respondent did not exercise the exemption benefit under Notification 1/93-CE, dated 28.02.1993 but exercised its option for exemption as regard unit at Dehradun in terms of the provision in the amended notification;
• It is the manufacturer who has chosen to keep out of the exemption, therefore both the units would be kept out of the exemption;
• It is not permissible that a manufacturer exercises his exemption for one unit and chooses to keep out of it as regards another unit;
• The plain language of the amendment which talks about a ‘manufacturer’ exercising an option and not a unit or a factory exercising this option;
• While forgoing exemption in respect of unit at Sitapur the manufacturer was under a statutory obligation to pay duty at normal rate for the unit at Dehradun as it cannot claim exemption for unit at Dehradun as its other unit has kept itself out of the exemption.

The respondent assessee contended the following:

• The fiscal laws though to be strictly interpreted, yet where two meanings are possible, the meaning which is beneficial for the assessee has to be adopted;
• There is nothing in the Notification as amended, which debars one unit of a company to exercise option and another to keep out of it;
• These exemptions are for the benefit of small scale industries and, therefore, an interpretation should not come which should be detrimental to the small scale industries;

The High Court analyzed the notification.  The High Court found that the purpose of the notification is obviously for the benefit of small scale industries. The limits to those exemptions, the checks and balances in the notification are for the purposes that only the deserving small scale industries get the benefit out of the notification.  It is for the reason that if an aggregate value of the total clearance of a manufacturer exceeds ₹ 2 crore in the preceding financial year, it cannot claim exemption under the notification.  Para 2 of the said notification speaks of ‘the aggregate value of clearances of the specified goods for home consumption in a financial year’ which are ‘by a manufacturer from one or more factories’ and should not exceed a particular amount.

In the notification two crucial words ‘manufacturer’ and ‘aggregate value’ are there.  In the present case both the units is one legal entity and has to be into account for the purposes of exemption is the ‘aggregate value’ which would be the combined aggregate value of unit at Sitapur and unit at Dehradun. This is the possible interpretation.  The High Court held that once the respondent had exercised to keep out of the exemption for its Sitapur unit it cannot claim benefit of the notification for its Dehradun unit. Therefore the demand of the Revenue is justified.

The High Court accepted the legal proposition that fiscal laws have to be strictly interpreted.  The High Court relied on the judgment of the Supreme Court in ‘Union of India and others V. Wood Papers Limited and another’ – 1990 (4) TMI 55 - SUPREME COURT OF INDIA which held that liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting.   In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provision intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly.

The High Court allowed the appeal filed by the Revenue and set aside of the Tribunal.  The manufacturer could not have availed the benefit of exemption since it had opted to full rate of duty in a financial year in relation to its other unit.