Customs, Excise and Gold Tribunal - Delhi
Kanoria Inustries Ltd. vs Collector Of Central Excise on 19 July, 1995
Equivalent citations: 1995(79)ELT672(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. These are two separate appeals which have been filed by M/s Kanoria Industries Ltd., against the common order-in-appeal No. 39/91, dated 27-3-1991, passed by the Collector of Customs and Central Excise, (Appeals), Bangalore, who had disposed of two appeals by a single order. As both the appeals arise out of a common order, and relate to similar facts, although for two different periods, they were heard together and are being disposed of by this common order.
2. The appellants were engaged in the manufacture of cement under the name and style of Bagalkot Udyog Ltd. Their factory had been in existence since the year 1957 - their excise licence No. being 4/l/cement/57-Bagalkot. Cement was an essential commodity for the purposes of the Essential Commodities Act, and the cement industry was regulated by the provisions of the Cement Control Order, 1967. The Government had contemplated various measures to encourage setting up new cement units and to augment the supplies of the cement in the Vth plan period. On 29-4-1987 partial excise duty exemption was provided to the cement manufactured in a factory which had commenced production between 1-1-1982 to 31-3-1986, under Notification No. 124/87-C.E., dated 29-4-1987. This exemption Notification was amended, and the quantum of exemption varied from time to time. The amending Notification No. 201/88-C.E., dated 16-5-1988 made it clear that not only the cement but even the production of clinkers should have commenced during the above specified period. On 10-7-1987, the appellants wrote to the Assistant Collector of Central Excise, Gulbarga that during the time-1982, they had installed a new dry process kiln and that the cement manufactured by them from their new dry process plant should be deemed to have been manufactured from a new plant. They claimed that it could be said that they had commenced production of cement between 1-1-1982 and 31-3-1986 for the purposes of exemption under Notification No. 124/87-C.E. The Assistant Collector of Central Excise, Gulbarga replied on 5-8-1987 that their factory could not be construed as a factory which had commenced production during the period 1-1-1982 to 31-3-1986 for the purpose of exemption Notification No. 124/87-C.E. The appellants did not agree with the Assistant Collector of Central Excise, and filed revised classification list on 31-8-1987, claiming conessional duty under Notification No. 124/87-C.E. The classification lists were not approved and were returned under letter dated 16-10-1987 to the appellant company. On 26-10-1987, a refund application was filed for the period 29-4-1987 to 30-9-1987, which was returned by the department. With effect from 1-10-1987, the duty was paid under protest, although the prescribed procedure for payment of central excise duty under protest was not followed. Another refund claim was filed for the period 29-4-1987 to 31-5-1989 under letter dated 21-6-1989. A revised classification list was filed on 1-7-1989. The show cause notice was thereafter issued to M/s. Bagalkot Udyog Ltd. (subsequently renamed and styled as M/s. Kanoria Industries Ltd., Bagalkot), on 22-8-1989 proposing rejection of their claims for the benefit of Notification No. 124/87-C.E., dated 29-4-1987, on the ground that theirs was merely a modernisation of the already existing facotry. The matter was adjudicated by the Assistant Collector of Central Excise, Gulbarga, who under his order, dated 18-4-1990 for the period 29-4-1987 to 31-5-1989, duty Rs. 1,41,33,738.19 [(Appeal No. 5631) and order, dated 26-7-1990 (for the period 1-6-1989 to 31-3-1990 duty Rs. 4,69,43,913.84 (Appeal No. 5993)] discussed the issues, submissions, information on record etc., and held that their factory did not come within the purview of the eligibility for duty concession under Notification No. 124/87-C.E. Their revised classification list was rejected. On appeal, the Collector of Central Excise (Appeals), Bangalore analysed the provisions of Notification No. 124/87-C.E., and observed that in the case of the appellants, the change over from the 'wet' process to the 'dry' process was only modernisation of the plant which had resulted in expansion of the production capacity. He held that no new factory had come up. The appeal was rejected.
3. The matter was posted for hearing on 21-2-1995 when Shri L.P. Asthana, learned Advocate appeared for the appellant. Shri Sharad Bhansali, learned SDR represented the respondent.
4. Shri L.P. Asthana, the ld. advocate traced the history of the case and referred to the facts and the various stages of the present proceedings. The unit initially worked on the 'wet' process, and subsequently was converted into 'dry' process. In this conversion, a number of equipment were replaced and substantial amount of money was invested. The appellants company was under the impression that their dry process plant could be considered as a new factory for the purposes of various incentives, including excise duty relief. He referred to the various communications from the Ministry of Industry, and submitted that they qualified to be called a new factory. As the premises remained the same, they did not obtain approvals and licences as for a new factory. It was also pleaded that other units similarly placed had been extended the benefit of excise duty exemption, while they have been discriminated against. In support of his various contentions, the ld. advocate relied upon the following decisions :-
(i) Collector of Central Excise, v. Birla Jute & Industries Ltd., 1990 (46) E.L.T. (Tribunal), wherein it has been observed that substantial expansion includes establishment of a new factory.
(ii) Collector of Central Excise, v. Birla Jute and Industries Ltd., 1993 (67) E.L.T. 312 (Tribunal), wherein it has been observed that the new unit having independent manufacturing facility for production of cement with separate licence and separate agreement for supply of power etc., was eligible for separate benefit of the exemption notification.
(iii) Tata Oil Mills Company Ltd. v. Collector of Central Excise, 1989 (43) E.L.T. 183 (SC), wherein it has been held that the object and purpose of exemption and nature of actual process of manufacture involved was to be kept in mind while interpreting the exemption notification.
5. Shri Sharad Bhansali, the ld. SDR stated that the notification was clear, and referred only to the factory commencing the production during the given period. The concept of 'factory' is as per the Central Excise Law. It was only after the issue of exemption notification that they claimed that they had established a new factory during the relevant period. The ld. SDR relied upon the Supreme Court's decision in the case of Prestige Engineering (India) Ltd. v. Collector of Central Excise, Meerut -1994 (73) E.L.T. 497 (SC) wherein it has been held that the expressions defined in the Central Excises and Salt Act, 1944 are to be understood in the same sense if used in the rules and notifications issued under the said Act. The licensed factory was in production since 1971. Under the Factory Act, no new licence was taken. No new licence was also taken under the excise law. The Industrial Development Authorities also endorsed only their old licence, and no new letter of intent or manufacturing licence had been given for any separate factory. Adoption of the new technology is a continuous process, and in this case no new factory came into existence. Even the circular of the Central Board of Excise and Customs provides that the factory should be independent in all respects. It does not cover the appellants' factory. The letter dated 31-1-1986 at page 155 of the paper book from the Ministry of Industry refers to the modernisation. The expansion is not the same as establishing a new factory. The ld. SDR stated that in the case of Digvijay Cement there was a separate industrial licence and the Hon. High Court had referred it as a new unit.
6. In rejoinder, the ld. Advocate stated that the concept of the 'factory' as per excise law was not relevant. He referred to the Delhi High Court decision in the case of Andhra Cement Company Ltd. v. Union of India, 1990 (33) STL 25 (Delhi) and pleaded for the acceptance of the appeal.
7. We have carefully gone through the facts and circumstances of the case and have given our due thought and consideration to the submissions made by both the sides.
8. The appellants established a cement factory in the year 1955 at Bagalkot (Karnataka) with the initial licensed capacity of one lakh tonne of cement per annum. It appears that the central excise licence was taken in the year 1957. The process of manufacture was the wet process in which the raw materials are ground wet and fed to the kiln as a slurry. In the year 1977-78, the appellants company took a decision to switch over to the dry process of manufacture in which the raw materials are ground dry and fed to the kiln as a dry powder. Some old equipment was discarded and some new equipment was purchased. At some stage they had declared that the new equipment was worth about 14.50 crore. A part of the plant and machinery which was earlier in use when the process of manufacture was the wet process, continued to remain in use even after the switch over to the dry process. It was declared that the old equipment which continued to remain in use was worth about Rs. 75 lakhs. Some equipment like the then existing coal mill installation was used after modification The switch-over from the wet process to the dry process with the increased capacity of 1000 tonne per day, say 3.30 lakhs tonne per annum, was said to be complete in the year 1982. Their earlier Capacity was said to be 600 tonne per day. It is seen that no new licence under the Factory Act, labour laws or under the Central Excise Law was obtained. The increased capacity was endorsed on their already existing licence. From the various documents filed by the appellants, the following position appears to emerge :
(i) In the Resolutions dated 9-4-1975, and dated 9-9-1977 of the Department of Industrial Development, on cement prices, new units expansion were recognised separately, but a uniform ex-works retention price, higher than that for the then existing units, was fixed both for new units and for expansion units. It was stipulated that the capital cost per tonne of the new installed capacity will not exceed Rs. 650/-.
(ii) Letter dated 16-10-1982 addressed by the appellants to the Ministry of Industry refers to substantial expansion, installation of new capacity on dry process, modernisation programme, replacement of kilns etc. It was stated "we are pleased to inform you that the kiln has already been supplied by the suppliers and the same has been put into position and the trial runs are being taken for achieving the commercial production of the new kiln".
(iii) Communication dated 31-1-1986 from the Ministry of Industry is for the purpose of computing levy quota cement, to encourage modernisation and conversion of wet process kilns into dry process kilns.
(iv) Letter dated 2-12-1988 addressed by the appellants to the Ministry of Industry refers to increasing their capacity from 2.25 lakhs tonne to 5.55 lakh tonne per annum, and the industrial licence for the new capacity of 3.30 lakh tonne per annum. The request was made for issue of the industrial licence for their new capacity of 3.30 lakhs tonne per annum. It was stated that "the plant was old for more than 30 years and that too on wet process with very high energy consumption"
(v) Central Board of Excise and Customs Circular dated 17-4-1989 refers to the fact that a new factory should come into existence and if the "substantial expansion" as per Section 13 of the Industrial Development and Regulation Act, 1951 is merely an expansion or modernisation of the already existing factory, then the benefits of the excise exemption notification would not be available.
9. For ease of reference notification No. 124/87-CE., dated 29-4-1987 is extracted below:
"Notification, No. 124/87-Central Excises In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts cement falling under sub-heading No. 2502.20 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and manufactured in a factory which has commenced production during the period commencing on the 1st day of January, 1982 and ending with the 31st day of March, 1986, from so much of the duty of excise leviable thereon under the said Schedule as is in excess of the amount calculated at the rate of Rs. 205 per tonne :
1. Provided that such cement is manufactured out of clinker produced within the same factory in which such cement is manufactured.
Provided further that such cement is manufactured in a factory where production in respect of such cement in any financial year is not less than thirty per cent of the annual licenced capacity of the factory manufacturing cement as certified by the Development Commissioner for Cement Industry in the Ministry of Industry.
2. This Notification shall be in force upto and inclusive of the 31st day of March, 1990."
10. The expression used in the notification is 'factory'. Under Section 2(e) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act'), 'Factory' means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on. The process of manufacture of the cement is an integrated process from the stage of receipt of lime stone clay and other raw materials into the factory, upto the stage of despatches of the finished product. In some units, the production of cement starts from the stage of clinkers which are brought from outside but such units were not eligible for the above exemption. It has been made clear in the exemption notification that the concessional rate of central excise duty will be applicable to only those units which produced their own clinkers and even if clinkers are brought from outside, which have been manufactured in the factory of the same assessee, then the production of clinkers should have commenced during the specified period, so specified in the exemption notification.
11. A new factory is one which is established without merely expanding or modernising any earlier existing factory, that is to say the factory is formed without splitting up or re-constructing any existing manufacturing activity. The Supreme Court in the case of Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax, Bombay, AIR 1992 SC 1622 had observed that there could be an undertaking which although new in form may not be new in substance. It may be new in name only. Such an undertaking would not be a new undertaking. The Supreme Court held that for being a new undertaking it should not be formed by transfer of building, machinery or material. "The formation should not be by such transfer". In the case of Textile Machinery Corporation Ltd. v. CIT, West Bengal, AIR 1977 SC 1134, the Supreme Court had observed as under :
"The true test, is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under Section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit preserved".
In the case of Union of India v. Wood Papers Ltd. -1990 (47) E.L.T. 500 (SC), the Hon. Supreme Court in para 3 of their judgment, with regard to exemption Notification No. 163/65-C.E. which provided exemption to the commodity paper, manufacturing in any factory commencing production for the first time on or after the 1st March, 1964, had held "The expression 'commencing production' has to be read as commencing production of goods by a factory which was not existing and has started production on or after 1st March, 1964."
12. Exempting provisions have to be construed strictly and a person invoking an exemption or an exemption provision to relieve him of the tax liability is required to establish clearly that he is covered by the said provision. [Refer para 17 of the judgment in case of Novo Pan India Ltd., Hyderabad v. Collector of Central Excise, Hyderabad, (1994 AIR SCW 3976). The exemption notification refers to the factory which had commenced during the given period. 'Commenced' is to begin, start, 'commence' is formal, and applies to beginning a formal action. In the case of Someswara Cements and Chemicals Ltd. v. Union of India, 1992 (57) E.L.T. 593 (AP), the commencement of production has been equated to the date of going into commercial production. The Delhi High Court while interpreting the very same notification dated 29-4-1987, in the case of Mangalam Cement Company Ltd. v. Assistant Collector of Central Excise, 1992 (61) E.L.T. 444 (Delhi), equated production with the 'commercial production' as opposed to a trial production. Paras 6 to 9 of that decision deal with some pertinent aspects of the notification, and are extracted below :
* * * * * *
13. The question which one has to ask is - whether the assessee's factory commenced production during the given period. It is not the question of including one or excluding the other manufacturer from the purview of the exemption. There could be exemption to all the units; there could be exemption only to existing units or there could be exemption to new units. If production relatable to expansion is sought to be covered by exemption, then it could be so specified. Manufacturing in a factory commencing production during a particular period is not the same as the manufacturing consequent upon the expansion of an existing factory. Whenever exemption is intended to any goods produced consequent upon the expansion of an existing unit, it is so specifically provided. Notification No. 163/65-C.E. exempted paper of all sorts in addition to the paper produced in a new factory, also to the paper produced in a factory whose production capacity has been enlarged and brought into operation during the given period, to the extent such production of paper was attributable to the enlarged capacity. [Discussed by the Supreme Court in the case of Union of India v. Wood Papers Ltd., 1990 (47) E.L.T. 500 (SC). Notification No. 130/83-C.E., dated 27-4-1983 provided partial exemption to sugar produced in new units or expansion projects. The exemption notification before us neither by the ordinary meaning of the words used nor by giving them the fullest amplitude covers the old factory which had undergone the changes as effected by the appellants. No reasonable construction of the exemption notification will cover the factory of the type which was producing cement all along before the stipulated period, and in which only the process of grounding of some of the raw materials - wet or dry - is changed, in the manner as in the present case. Before grounding, the raw materials are crushed, and after the processing in the kiln, the raw material 'gypsum' is added. Thereafter, the processing in ball mill and tube mill is done. After passing through the air separator, the finished product is ready. (Refer new Encyclopaedia Brittaniea XV edition page 1076 and 1077]. In this view of the matter the appellants reliance on the Supreme Court decision in the case of Tata Oil Mills Company Ltd. v. Collector of Central Excise, 1989 (43) E.L.T. 183 (SC) is misplaced.
14. In the case of Collector of Central Excise v. Birla Jute and Industries Ltd., 1990 (46) E.L.T. 569 (Tribunal) and 1993 (67) E.L.T. 312 (Tribunal), there were two factories, the new one was at some distance separated by a wall although there was a convey or belt connecting the 'old' and the 'new' factory. This convey or belt was for carrying clinkers from the new factory to the old factory. It was shown in that case with sufficient evidence that the assessee had installed completely new plant starting from the stage of crushing lime stone, to the stage of packing. The new unit was separately licenced under the Factories Act and had separate agreement for supply of power with Rajasthan State Electricity Board. These cases in no way substantiate the case of appellants.
15. In an industry like cement based on mineral heavy raw materials, there is a heavy toll on the machinery, with normal wear, tear, depreciation etc., and having regard to its nature, replacement of equipment from time to time is a normal feature of the industry. The appellants had contended that they had purchased new equipment of about Rs. 14.50 crore, and that the equipment worth about Rs. 75 lakhs which were earlier in use, was re-used after switchover to the dry process. In the Ministry of Industry Resolution dated 9-4-1975 the capital cost per tonne of the new installed capacity was stipulated at Rs. 650/-. The capacity of the appellants company was said to be 3.30 lakhs tonne of cement per annum. The cost of buildings is not to be included in the cost of capital investment on plant and machinery (refer New Bharat Link Chain Manufacturing Pvt. Ltd., Bhanbad v. Collector of Central Excise, Patna, 1985 (19) E.L.T. 493 (Tribunal). Cost of civil works (refer Indian Barytes and Chemicals Ltd. v. Collector of Central Excise, 1990 (50) E.L.T. 196 (Tribunal), expenses for accessories, electric installations, erection etc. (refer Ahmedabad Chemical Pvt. Ltd., Ahmedabad v. Collector of Central Excise, Baroda, 1984 (16) E.L.T. 560 (Tribunal), transport charges, erection charges etc. (refer Collector of Central Excise Madurai v. Maharaja Paper Board Pvt. Ltd., Maharajapuram, 1986 (23) E.L.T. 484 (Tribunal), are excludible from computing the value of investment on plant and machinery. In the break up of the total capital cost of expansion of Rs. 9.75 crores (details filed in the court by the appellants on 21-2-1995), the cost of Rs. 4.60 crores was said to be towards quarry equipment (Rs. 103 lakhs), foundation and civil engineering (Rs. 66.01 lakhs), sales tax, freight/octroi and insurance (Rs. 96.03 lakhs), erection charges (Rs. 42.44. lakhs), electrical equipment (Rs. 55.26 lakhs), pre-operation expenses (Rs. 56 lakhs), misc. fixed assets (Rs. 25 lakhs), railway-siding (Rs. 5 lakhs), margin money (Rs. 5 lakhs) and contingency (Rs. 6 lakhs). This break up does not reflect that a new factory for production of cement with the declared capacity had been established.
16. The appellants had referred to certain Government Resolutions regarding establishment of new cement units, expansion of existing units, fixation of ex-works retention prices, switching over to the dry process, from the wet process, etc. Various incentives had been announced by the Ministry of Industry to the new units. None of these establish that the appellants factory was a new factory for purpose of Notification No. 124/-87-C.E. Further these pronouncements, in the light of an unambiguous expression "factory which has commenced production during the period commencing on the 1st day of Jan., 1982 and ending with the 31st day of March, 1986" could not form the basis for increasing or decreasing the tax burden on the tax payers. As observed by the Constitutional Bench of the Supreme Court in Hansraj Gordhandas v. H.H. Dave, 1978 (2) E.L.T. (J 350) (SC), a notification has to be interpreted in the light of the words employed by it, and not on any other basis.
17. Exemption Notification No. 124/37-C.E. was issued on 29-4-1987 and provided exemption to the commodity cement which had been manufactured in a factory which had commenced production during the period commencing on the 1st day of Jan., 1982 and ending with the 31st day of March, 1986. The exemption was applicable only to the new factory which was not in production as prior to the 1st day of Jan., 1982, and which was an existing unit as at the end of the 31st day of March, 1986. Thus there could be no element of any promise in such a situation (when the notification was issued in the year 1987 for the factory which had started their production between 1982-1986). In the case of Shri Bakul Oil Industries v. State of Gujarat, 1987 (27) E.L.T. 572 (SC), the Supreme Court had held that the Government was under no obligation to grant exemption, and that the granting of tax exemption was only by way of a concession. They had further held that in order to claim the benefit of promissory estoppel, the appellants must establish that (i) a representation was made to grant the exemption for a particular period to a new industry established in view of the representation held out by the Government and (2) the appellants had established the new industry acting upon the representation made by the Government. The Andhra Pradesh High Court in the case of Someswara Cements and Chemicals Ltd. v. Union of India, 1992 (57) E.L.T. 593 (AP), had held that the promissory estoppel cannot operate against the legislature in the exercise of its legislative functions, nor can the Government or any public authority be debarred by the doctrine of promissory estoppel from enforcing a statutory prohibition. In that case, the issue of exemption notification has been taken as a legislative function. The notification in this case is dated 29-4-1987, and was prospective in effect, although it covers the factory coming into operation in the past. As in Jan. 1982/March, 1986, no one could represent that the exemption as provided by Notification No. 124/87-C.E. will be issued in April, 1987. The notification as worded does not otherwise reflect any retrospective representation being made by the Government for having been established a factory in the past. It only provides exemption to the cement which is manufactured in a factory which has been established during the given period.
18. In the case of Andhra Cement Co. Ltd. v. Union of India, 1990 (33) STL 25 (Delhi), the Delhi High Court had noted that "the units which have made substantial expansion or modernisation of the existing units are also entitled to the relief provided the same is done through a new factory". In the present case, there is no new factory. The High Court had ruled that starting of new kiln is not a necessary pre-condition for getting the benefit of production by the new unit. In the case before us, we have considered the totality of the circumstances and have not gone only by the starting of the kilns.
19. Taking all the relevant considerations into accounts we find no merit in both these appeals. Both the Appeals are rejected.