Judgment:
In Appeal No. 239/89-C, arising out of Order-in-Appeal No.21-Qct./CE/JPR/88, dated 7-10-1988, the issue is whether benefit of concessional rate of excise duty under Notification No. 36/87-C.E., dated 1-3-1987 is admissible to the respondent. On the basis of their contention that they are entitled to such benefit, they have preferred six refund claims and appeals Nos. E/240/89-C to 245/89-C pertain to these refund claims. So, we have heard all these appeals together and are deciding them by this common order.
2. The respondents are manufacturing cement in their factory, known as Birla Jute & Industries (hereinafter referred to as Birla Cement Works) at Chittorgarh, Rajasthan having Central Excise L4 licence. They were granted an industrial licence by the Ministry of Industry, Government of India for substantial expansion of the installed capacity by 5 lakh tonnes (from 4 lakh tonnes to 9 lakh tonnes) to manufacture portland cement on the basis of maximum utilisation of plant and machinery.
There was a condition of the licence that such substantial expansion shall be undertaken in the existing industrial unit located at Chittorgarh (Rajasthan).
3. The respondents applied to the Collector of Central Excise, Jaipur for permission under sub-rule 4 of Rule 52A of Central Excise Rules, 1944 (hereinafter referred to as Rules) to use separate sets of gate pass books. They also informed the department ' that after expansion of cement manufacturing capacity licensed in their name, they would have separate places of packing cement in the same compound. However, single R.G. 1 Register and single P.L.A. would be maintained and for this purpose, they enclosed the revised blue print of layout plan.
Subsequently, on Notification No. 36/87 C.E., dated 1-3-1987, being issued, the respondents, vide their letter 1-3-1987, submitted the revised classification list effective from 28-2-1987 claiming exemption as provided in the notification. The Assistant Collector held that the exemption was not admissible and, therefore, he did not approve the revised classification list. The respondents preferred an appeal and the Collector, vide his order dated 7-10-1988, decided the appeal in appellants favour, set aside the order of the Assistant Collector and remanded the matter to the Assistant Collector for de novo consideration of the appellants' claim. He also directed that the new unit (hereinafter referred to as Chittor Cement Works) should be taken as separate factory provided Assistant Collector, on actual verification, find that it was so. The Collector also held that date for commencement of the production of cement from their new unit would be taken as after 1-4-1986 and certificate from the Development Commissioner for the cement industry would be accepted by the Assistant Collector subject to verification of the actual production by the new unit during the year 1987-88. Aggrieved by the impugned order, the Revenue preferred this appeal.
4. The respondents preferred six refund claims which were rejected by the Assistant Collector and in appeals which were disposed of by a common order, the Collector allowed the appeals which has given rise to Appeals Nos. E/240/89-C to E/245/89-C preferred by the Revenue.
5. We heard Shri A.S. Sunder Rajan, Id. J.D.R. for the department and S/Sh. N.R. Khaitan, K. Kumar and Nalin Talwar, Advocates, for the appellant.
6. Shri Sunder Rajan, on behalf of the Revenue, has contended that the order passed by the Collector is not proper on the following grounds: (i) that Chittor Cement Works is not a separate and distinct factory and the same is just an expansion of the already established factory (i.e. Birla Cement Works) which can be seen from the following facts: (a) The Ministry of Industry has granted licence to Birla Cement Works and not to Chittor Cement Works, for substantial expansion of the installed capacity on some conditions and condition No. 3 of the licence stipulates that expansion shall be undertaken in their existing industrial unit. Hence, according to the Revenue, neither new separate licence was issued nor expanded capacity was earmarked for manufacture within the new unit. So, according to the Revenue, it indicates that installed licensed capacity of Birla Cement Works was enhanced and creation of new factory was not approved. So, the plant and machinery required for expansion was to be in the name and account of the respondents. So, according to the Revenue, decision of the respondents to install new plant and machinery at some distance and not near the existing plant (i.e. Birla Cement Works) was to hoodwink the authorities by calling it a separate factory.
(b) The respondents' letter dated 6-6-1986, addressed to the Collector of Central Excise, Jaipur, stated that they undertook expansion of existing factory and apropos to it, the respondents requested for permission to maintain two sets of Central Excise Gate Pass books because of separate places of packing cement within the same compound. The respondents, however, stated that single R.G. 1 register and single P.L.A. would be kept but the respondents did not indicate that a separate factory had been installed within the same compound. Moreover, the blue print submitted was also of the revised lay out plan of M/s. Birla Cement Works.
(c) In their letter dated 23-10-1987, the respondents informed the Superintendent, Central Excise that no separate assessments were being made in the name of M/s. Chittorgarh Cement Works under the Income-tax and Sales-tax Act and the tax returns were furnished in the name of M/s. Birla Jute & Industries, Chittorgarh and that the respondents' Bank Account was also in the name of M/s. Birla Jute & Industries Ltd. (d) Capacity Utilisation Certificate issued by the Development Commissioner was also in the name of respondents which proves that production expansion of installed capacity was granted for the existing cement factory, i.e., Birla Cement Works.
(e) Para III of the above-mentioned certificate states that the capacity expansion licence was granted to existing factory. If the two units had been considered separate then a single certificate should not have been issued. So, according to Shri Sunder Rajan, Id.
D.R., the Ministry had also not thought of separate factories.
(f) Under the provisions of the Companies Act only M/s. Birla Jute & Industries Ltd. has been incorporated as a company and Birla Cement Works is not incorporated as a company and so the Chittor Cement Works is not a separate manufacturer.
7. So, according to Shri Sunder Rajan, in light of the above submissions, Chittor Cement Works is not a new factory. The second ground contended by Shri Sunder Rajan is that in terms of Section 6 of the Central Excises & Salt Act, 1944 (hereinafter referred to as Act) read with Rule 174 of Rules, the Central Excise licence is granted to a manufacturer/a person who engages in the production/manufacture and in this case the respondents are a manufacturer, who are already having L4 Licence and so separate L4 licence cannot be issued. The 3rd ground raised by Sh. Sunder Rajan, that direction of the Collector to take date for the commencement for the production from the new unit as after 1-4-1986 is not proper because even if the new unit is a separate factory, manufacture of cement was undertaken in the month of March, 86 i.e. prior to 1-4-1986 which is the cut-off date provided in the notification. Admittedly, in the new unit, there was production of 1534 M.T. of cement during the period 28-3-1986 to 31-3-1986. So, it is contended by the respondents that it was a trial production but the production was fully and completely manufactured in cement and it was recorded in the statutory records of the factory. It was also marketed as completely manufactured commercial product. Reliance has been placed upon order-in-appeal passed by the Collector of Appeals, New Delhi in the case of M/s. Manglam Cement Co. Ltd., Kota.
As far as the first ground is concerned, facts are not in dispute and the respondents admit that licence, by the Ministry of Industry, was granted to the respondents for expansion of manufacturing capacity, but it does not mean that the manufacturer has to expand his present factory. It can always set up new factory. According to him, emphasis is upon expansion of production capacity and not of factory. So, documents relied upon by the Revenue do not, in any way, go against the respondents because it is an admitted fact that licence to expand the manufacturing capacity has been granted to the present respondents and admittedly it is the respondents, who have undertaken the expansion and it is the production of the same manufacturer and so it is liable for payment of salestax and income-tax. He referred to Annexure-A which is a licence granted to the respondents and contended that it is nowhere stated therein that new production should be undertaken in the same factory, but what, it lays down is that the manufacturer (respondents) is permitted to expand capacity of manufacture from 4 lakh tonnes to 9 lakh tonnes. Only requirement is that it should be undertaken in Industrial Undertaking. He, further, contended that in the Notification 36/87 also, the benefit of exemption is available to production in a factory and therein also emphasis is upon new factory and it has nothing to do with the manufacturer. He, further, submitted that one manufacturer can have more than one factory and each factory can be entitled to avail of benefit under this notification. He referred to Section 13D of the Industries (Development Regulation) Act, 1951 whereby it is provided that no registered industrial undertaking can effect any substantial expansion except under and in accordance with the licence issued in that behalf by the Central Government and below that there is an explanation which explains about substantial expansion which is as under: "For the purposes of this section, 'substantial expansion' means the expansion of an existing industrial undertaking which substantially increases the productive capacity of the undertaking, or which is of such a nature as to amount virtually to a new industrial undertaking, but does not include any such expansion as is normal to the undertaking having regard to its nature and the circumstances relating to such expansion." 9. Regarding issue of licence, Sh. Bajoria, L.A., submitted that licence is to be issued for factory and one manufacturer can have more than one licence and interpretation suggested by the Revenue is not correct.
10. Regarding cut out date, which is 1-4-1986, he submitted that new unit had undertaken trial production during the last week of March and for that they had brought clinkers from the old factory. He contended that the clinkers were taken from existing unit is not disputed by the Revenue. He submitted that in any factory, trial production has to be undertaken to find out whether machinery is properly set and adjusted and there cannot be provision for such eventuality in any law. But then such things are to be t^ken as normal procedure in day-to-day affairs of industry. He also contended that if the production had begun from that date there was no reason for the factory to discontinue the production thereafter and start it again in October, 1986 or somewhere about that time in 1986. So, according to him, this very fact would suggest that the production had not started before 1-4-1986. About contention that the said product was marketed, he contended that it has to be marketed because 1534 M.T. of cement which was produced during the trial run cannot be thrown away. But that fact, by itself, would not suggest that the factory had already started production in March, 1986.
11. Shri Bajoria, L.A., cited some authorities which we shall refer at appropriate place.
12. Regarding the first contention raised by the Revenue, it appears that there is some confusion in the departmental view, regarding meaning of industrial undertaking and factory. There is no dispute that permission has been granted to Birla Jute & Industry to expand and it continues to be the owner of the new unit and so documents referred to by Sh. Sunder Rajan, lead to this fact and, in our view that is obvious, but here, as rightly pointed out by Shri Bajoria, L.A., the word 'substantial expansion' would also include establishment of new factory, as per explanation given under Section 13 of the Industrial (Development Regulation) Act, 1951. So, here the said Act itself, envisages establishment of a new factory also. In that case also, the existing undertaking is entitled to avail of all the benefits permissible to it under different enactments. Shri Bajoria, L.A., cited following authorities in support of his contention:Textile Machinery Corporation Ltd. v. Commissioner of Income-tax, West Bengal - ITR 1977 (107) 195 SC wherein it has been laid down as under: "A new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced. Such a new industrially recognisable unit of an assessee cannot be said to be re-construction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is re-construction of the old business."Commissioner of I. T., Bombay City-1 v. Associated Cement Companies Ltd. - ITR 1979 (118) 406 (Bombay) wherein also it has been held as under: "New Kilns through resulting in expansion of factories, are completely integrated units - New Kiln at each factory working independently of the old Kilns - Each new Kiln by itself constituted a new industrial undertaking entitled to concession." 14. The Revenue introduced evidence at a later stage to show that there is a conveyor belt connecting two factories which would suggest that 'Chittor' is not a new factory.
14A. As against this, it has been contended by the respondents that the belt is for carrying clinkers from their new factory to the old factory and not vice versa. So, according to Shri Bajoria, it would not suggest that the new factory is depending upon old factory but it would be other way round. Now, whether the completely new factory has come into existence physically, has to be verified and by the impugned order, the Collector (Appeals) has directed the jurisdictional Assistant Collector exactly to investigate that aspect. At that time, the Assistant Collector can investigate about this conveyor belt also. So, for the present, it does not help the Revenue.
15. Regarding issuance of licence Rule 175 of the Rules lays down procedure for obtaining licence and 175(3) reads as under: "Where the applicant has more than one place of business, he shall obtain a separate licence in respect of each such place of business." 16. So, from this, it can be seen that licence is to be issued for the factory and not for the manufacturer. So, one manufacturer can have two licences.
17. Shri Bajoria, L.A., cited the following citations in this connection:-Assistant Collector, Central Excise v. Nizam Sugar Factory Ltd., Hyderabad - 1978 (2) E.L.T. (J 489) wherein it has been held as under: "Licensing - Separate licences for each unit - Rules 174 and 175 - Two factories belonging to the same manufacturer - both factories situated in the same area enclosed by a single compound wall with common exit gate and one common profit and loss account - Court held, that place of business being not same the factories are to be treated as distinct and a separate licence for each of them is to be granted."Agarwal Rolling Mills, Mirzapur v. Collector of Central Excise, Allahabad 1985 (20) E.L.T. 143 (Trib.). In this case the Tribunal held the same way relying upon the above decision of the Andhra Pradesh High Court.
18. The respondents have also produced Circular No. 28/89 dated 17-4-1989 issued by CBEC wherein, on the same subject of extending benefit of Notification 36/87 to 'substantial expansion' unit, the board has opined as under: "The Board, accordingly, felt that the benefits of the said notification could be extended to any factory, set up as a substantial expansion or otherwise, as the case may be, provided the same is independent of the existing factory in all respects." Though, this opinion is not binding on the Tribunal, it has referred to it to shows the thinking of the higher authority in the departmental hierarchy. So, this contention of the Revenue about the difficulty or impropriety in issuing new licence to the new factory has also no force.
19. Regarding the cut-off date, only because some production on trial basis was undertaken in the new factory in March, 1986, it could not be construed to mean that in fact the production had started on that date from that period. As rightly contended by Sh. Bajoria, L.A., trial production cannot be considered to be commercial production. He has cited Commissioner of Income-tax, Pune v. Hindustan Antibiotics Ltd. - ITR (93) 548 (Bom.) wherein it has been laid down as under: "If it becomes necessary for an assessee to produce a trial product at an early stage to verify whether it can be used ultimately in the manufacture of the final article, the commencement of operation for the manufacture of the trial product would not constitute commencement of manufacture of articles for the purposes of Section 15C." Of course, this is a decision under Income-tax Act, but still, however, ratio of the judgment helps the respondents.
20. So, in view of the above discussion, we are satisfied that the appeal has no substance and requires to be dismissed. As a consequence, six appeals regarding refund claims also require to be dismissed. So, we pass the following order: Appeals Nos. 239 to 245/89-C are dismissed and impugned orders therein are confirmed.