1. These are eight appeals arising from the common adjudication order dated 27-2-1998 passed by the Commissioner of Central Excise, Chandigarh by which he disposed of duty demands against the appllants arising from 8 show cause notices. A duty demand of Rs. 3,37,51,829.25 was confirmed against the appellants on different counts covered by the show cause notices.
2. The common issue raised in all the appeals is whether the appellants are eligible for exemption provided under Notification No. 35/95-C.E., dated 16-3-1995 (upto 23-7-1996) and thereafter under Notification No.8/96-C.E., dated 23-7-1996 and superceded by Notification No. 4/97, dated 1-3-1997.
3. The appellants are engaged in the manufacture of cotton and acrylic yarn falling under Chapters 52 and 55 of the Schedule to the Central Excise Tariff Act, 1985. The common allegation against the appellant is that prior to 15-5-1995, they were paying the Central Excise duty on the goods at the stage at which they were cleared by them. After coming into force of Notification No. 35/95, dated 16-3-1995, under which the process of dyeing was exempted, according to the Department, the appellants had deliberately split their unit into two units, Unit No.(1) becoming the spinning unit and Unit No. (2) becoming a dyeing unit, with the intention of availing the benefit of Notification No. 35/95 by which the process of dyeing came to be exempted. It was alleged that the said bifurcation was made with a view to avoid payment of Central Excise duty on the value addition from the spinning stage to the dyeing stage. The Department alleges that even as per the appellant's letter dated 22-4-1995, it was admitted that the dyeing unit has been separated only for administrative and operational purposes, otherwise its ownership was vested with M/s. Vardhman Spinning and General Mills Ltd. Even as per the resolution passed by the Board of Directors of the appellant Company dated 19-4-1995, it had been resolved that two units will remain integral parts of the company for all purposes. Even the electricity connection was in the name of the Company and Unit No. (2) namely, Dyeing unit, did not have any independent electricity connection.
4. The appellants in their replies to the different show cause notices maintained that there was no bar in law for bifurcation of their unit.
They had bifurcated the unit into two units with effect from 9-4-1995 for administrative and operational purposes; the two units had thereafter become independent of each other in the sense that whereas Unit No. 1 manufactured yarn, Unit No. 2 undertook only dyeing and bleaching of the yarn. The matter was adjudicated by the Commissioner after hearing the representations of the appellants reiterating their submissions made in the replies to the show cause notices.
5. The Commissioner adopted the reasoning followed by his predecessor in two earlier orders-in-original dated 14-9-1997 and 29-9-1999 and passed the impugned order.
6. We have heard Shri R. Santhanam, ld. Advocate for the appellants and Shri R.S. Sangia, ld. JDR for the respondent Collector.
7. Ld. Counsel referred to the Final Order Nos. 751-756/99-D, dated 31-8-1999 passed by this Tribunal in their own cases in which the very same issue had been considered and similar demands made against the appellants had been set aside. Ld. Counsel submitted that the said Final Order fully covered the issue raised before us in the present appeal. He therefore, prayed that the same may be followed and the impugned order set aside.
8. He submitted that in terms of Notification No. 35/95 yarn falling under Chapters 51, 52, 54 and 55 was eligible for nil rate of duty when they were dyed, printed, bleached or mercirised if the same was manufactured out of yarn falling under the same Chapters and on which appropriate duty of excise had already been paid. By amending Notification No. 84/95-C.E., dated 18-5-1995, a proviso was added to the Notification stating that the exemption would not apply to clearances of yarn from a factory having facility (including plant and equipment) for producing single yarn. He submitted that even before the amendment, the Board of Directors of the appellant Company had passed a resolution on 19-4-1995 to divide the appellant's factory into two units and on the very same day, the appellants had informed the jurisdictional Superintendent of Central Excise about the said decision followed by a subsequent letter dated 28-4-1995 stating that two separate units, one consisting of the spinning mills and the other engaged in the process of dyeing and excise duty was being paid by the appellants on clearances of yarn from Unit No. 1 before it was received at Unit No. 2 for dyeing. A lay out plan in respect of the two units had also been submitted to the Officer concerned on 24-9-1995. Further appellants had also applied on 6-5-1995 to the Directorate of Factories for obtaining separate registration under the Factories Act in respect of the dyeing unit. Appellants had again written to the Department for approval of the lay out plan of the two units. A similar request was also made on 18-10-1995. Instead of granting permission to the lay out plan, the Department had chosen to issue a show cause notice for denying the duty exemption available to the appellants under Notification No. 35/95. Ld. Counsel emphasised the fact that the appellant company had decided to bifurcate the factory into two units even before the amending Notification No. 84/95, dated 18-5-1995 had been issued. It cannot therefore, be alleged that the appellants had bifurcated their factory only with the intention to evade payment of duty. Ld. Counsel submitted that the final order of the Tribunal dated 31-8-1999 referred to above had held that in the facts and circumstances of the case, it was clear that the appellants had bifurcated their factory into two units prior to the issue of Notification No. 35/95 on 18-5-1995. Relying on the Andhra Pradesh High Court in the case of Nizam Sugar Mills 1978 (2) E.L.T. (J 489) holding that different factories are to be treated as distinct and separate even when they belonged to the same manufacturer, the Tribunal had upheld the assessee's claim and also noted that Nizam Sugar Factory case had been followed by subsequent decisions of the Tribunal. Ld.
Counsel further mentioned that the appellants had shown before the authorities that they had obtained separate registration under the Factories Act in respect of their dyeing unit and therefore, the dyeing unit was a separate factory eligible for the duty exemption given under the Notification.
9. Defending the impugned order, ld. JDR contended that in terms of the proviso to Notification No. 35/95 as amended by Notification No. 84/95, dated 18-5-1995, duty exemption given to yarn was not applicable when the clearance took place from a factory having facilities for producing single yarn. It was not in dispute that the appellants were producing yarn falling under Chapters 51,52,54 and 55 in their factory, and they were also dyeing such yarn in. the same factory before 9-4-1995.
Appellants had bifurcated their factory into two units only with a view to evade payment of duty by purporting to show that the factory manufacturing yarn was different from the factory engaged in the dyeing of the same yarn. The purported bifurcation was only for the sake of record and in paper. Further, definition of 'factory' under the Factories Act served an entirely different purpose and was intended to be in furtherance of the objects of that Act. For purposes of Central Excise Law, 'factory' as defined in Section 2(e) of the Central Excise Act, 1944, alone was relevant. According to the said definition, 'factory' meant any premises including precincts thereof in which or in a part of which excisable goods other than salt were manufactured.
There was no dispute that the appellants were manufacturing yarn in Unit No. 1 and sending the same for dyeing to Unit No. 2 on payment of duty. However there was no sale. The transfer of yarn from Unit No. 1 to Unit No. 2 was not on a principal to principal basis. It was only after dyeing the yarn, the yarn was sold to various customers or transferred to the depots. The process carried out in two units was a continuous process and the two units were under the direct control and supervision of the same Board of Directors. He referred to the observations made in the order-in-original passed by the Commissioner on 28-8-1997 which had been relied upon in the impugned order stating that the question involved was basically a determination of the fact as to whether in the circumstances of the case, the purported bifurcation of the appellant factory into two units had in fact given rise to two separate units or entities. He relied on the Tribunal's decision in Cotah K. Prakash and Ors. v. CCE 1987 (32) E.L.T. 790 wherein it was observed that a factory would normally be any one premises including its precincts or in different places within one compound. Reliance was also placed on the Tribunal decision in CCE v. Shivagurunathan Synthetics Ltd. 1998 (104) E.L.T. 657 in which the Tribunal upheld the findings of the Commissioner to the effect that in terms of Section 2(e) of Central Excise Act, a factory comes into existence only on its obtaining registration under the Central Excise Rules.
10. We have considered the submissions and have perused the case law cited before us. We find that the dispute lies within narrow compass.
In terms of Notification No. 84/95 a proviso was added to Notification No. 35/95 by which the exemption given to yarn falling under Chapters 51, 52, 54 or 55 would not be available to yarn cleared from a factory having facility (including plant and equipment) for producing single yarn. The appellants' case is that the clearance of yarn from their dyeing unit, being an independent unit and different from the unit producing single yarn was entitled to duty exemption since it was a separate factory different from the factory producing single yarn.
Their main argument is that the bifurcation of their composite factory had taken place even before Notification dated 18-5-1995 came into effect. Therefore on the date of coming into force of Notification dated 18-5-1995 incorporating the proviso, there were two independent factories and the factory engaged in the dyeing process was not a factory producing single yarn which alone would disentitle them from the duty exemption. The Department's contention is that in fact, in spite of the claim of the appellants that there was a boundary wall between the two units and that there was a separate registration of the dyeing unit under the Factories Act, 1948 there was in fact no separate 'factory' in the eye of the Excise law since no registration of the separate factory had been obtained by the appellants under Rule 174 of the Central Excise Rules. Ld. Counsel had contended that the appellants had submitted lay out plan of the two units after their decision to bifurcate the composite unit and in spite of clarification given to the Department by letters dated 11-10-1995 and 12-10-1995, the authorities had refused to grant a separate registration. Such denial of registration could not be made a ground for denying the benefit they were entitled to under the Exemption Notification.
11. We find from a reading of the provisions of Rule 174 (9) of the Central Excise Rules relating to Registration of manufacturers of excisable goods, that the proper officer has to grant a registration certificate under Rule 174 within 30 days of receipt of application for such registration. Where such registration certificate is not granted within the said period, the registration applied for shall be deemed to have been granted. The Department has not disputed the fact that the appellants had applied for registration. Further, after their decision to bifurcate the composite unit and the appellants had submitted the lay out plan for the purpose of obtaining registration and had also submitted clarifications on 11-10-1995 and 12-10-1995 apart from making further request on 18-10-1995. We find that in terms of Rule 174(9) the appellants would be deemed to have been granted the registration after 30 days of receipt of the application. In the face of these undisputed facts, we are of the view that non-obtaining of a separate registration cannot be made a ground for holding that the two units constituted one 'factory' and therefore, not entitled to the benefit of Notification 35/95. We note that once the application has been submitted for registration under Rule 174 of the second unit as a factory, and a period for 30 days has expired, the unit engaged in the process of dyeing yarn, has to be accorded the status of factory and as a result their claim for being treated as a factory eligible for duty exemption under the Proviso to Notification 35/95 as amended cannot be denied. We also derive support from the earlier decision of the Tribunal dated 31-8-1999 and relied on by the appellants folding that since the appellants have taken steps for bifurcation before 18-5-1995, they would be entitled to being considered as a separate factory.
12. In the light of the discussion above, we allow the present batch of 8 appeals and set aside the impugned orders. Appellants will be eligible for consequential benefits, if any, in accordance with the law.