2015 (12) TMI 1438 - AT - Central Excise

Area based exemption - dispute is about another manufacturing unit (unit II) claimed to have been set up by the appellant company in March, 2010 on the first floor of the same building and this unit is also for manufacture of the same products - Denial of duty exemption under notification no. 49/03CE - Clubbing of clearances - Held that - Goods manufactured from the new machinery, if any installed, in the name of Unit-II on the first floor would be eligible for duty exemption under notification no. 49/0 3CE. However, since both the Units, - Unit-I as well as Unit-II, are upheld to be one entity and not the independent Units, they would be eligible for exemption under notification no. 49/03CE only for ten years from the date on which the Unit-I had commenced commercial production - if the Unit-I had commenced commercial production sometime in 2004 it would be eligible for exemption under this notification till 2014 only. The attempt to set up the Unit-II as a separate Unit on first floor of the Unit-I appears to be an attempt by the appellant company to enjoy the exemption in the name of Unit-II for another period of ten years. Since, we have held that Unit-II has no existence and Unit-I and Unit II have to be treated as one unit, the same would be eligible for exemption only for a period of ten years from the date on which the unit-I had commenced commercial production - Appeal disposed of.

Issues:
1. Eligibility of Unit-II for duty exemption under notification no. 49/03CE.
2. Determination of independent existence of Unit-II.
3. Allegation of creating a dummy Unit-II to avail exemption.

Issue 1: Eligibility of Unit-II for duty exemption under notification no. 49/03CE

The appellant company, engaged in manufacturing moulded plastic products, set up Unit-II in the same building as Unit-I, claiming exemption under notification no. 49/03CE. The dispute arose when officers found both units sharing space, machinery, and raw materials. The Assistant Commissioner and Commissioner (appeals) denied exemption to Unit-II, alleging it lacked independent existence. However, the Tribunal held that if Unit-II is not independent, it must be treated as part of Unit-I. Consequently, goods produced by Unit-II would be eligible for exemption under the notification, but only for ten years from Unit-I's commencement of commercial production.

Issue 2: Determination of independent existence of Unit-II

The key contention was whether Unit-II was a separate entity or merely an extension of Unit-I. The department argued that Unit-II lacked independent existence based on shared facilities and activities with Unit-I. The Tribunal agreed that both units could not be treated as independent entities. Therefore, Unit-II was considered part of Unit-I, making it eligible for exemption only for the remaining period of ten years from Unit-I's start of commercial production.

Issue 3: Allegation of creating a dummy Unit-II to avail exemption

The appellant argued that Unit-II had a separate existence and deserved exemption under the notification. They claimed that due to floods, machinery and raw materials from Unit-I were temporarily shifted to the first floor, leading to the misconception of shared resources. However, the Tribunal found that Unit-II's establishment seemed to be an attempt to extend the exemption period by the appellant company. As Unit-II was deemed non-independent, the Tribunal ruled that both units should be treated as one entity for exemption purposes, limiting the benefit to ten years from Unit-I's commencement of commercial production.

In conclusion, the Tribunal disposed of the appeal by affirming Unit-II's eligibility for duty exemption under notification no. 49/03CE but restricted the benefit to ten years from the start of commercial production by Unit-I. The judgment clarified the intertwined nature of the two units and emphasized the importance of independent existence for claiming exemptions under the specified notification.

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