Custom, Excise & Service Tax Tribunal
Vvf India Limited vs Kutch (Gandhidham) on 20 March, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
EXCISE Appeal No. 10290 of 2021 - DB
(Arising out of OIO-KCH-EXCUS-000-COM-15-2020-21 dated 30/12/2020 passed by
Commissioner of Central Excise and Service Tax-KUTCH (GANDHIDHAM))
VVF INDIA LIMITED ........Appellant
Survey No. 635,
Galpadar-Anjar Road,
Anjar, Kutch, Gujarat
VERSUS
Commissioner of C.E.-KUTCH (GANDHIDHAM) ......Respondent
Central Excise & Service Tax Commissionerate,
Centeral Excise Bhavan Plot No. 82,
Sector 8, Gandhidham(Kutch)
Gandhidham(Kutch), Gujarat
WITH
EXCISE Appeal No. 10205 of 2021 - DB
(Arising out of OIO-KCH-EXCUS-000-COM-15-2020-21 dated 30/12/2020 passed by
Commissioner of Central Excise and Service Tax-KUTCH (GANDHIDHAM))
RUSTOM G JOSHI ........Appellant
Plot No.199,
Opposite Sion Fort Garden, Sion (East)
Mumbai, Maharashtra
VERSUS
Commissioner of C.E.-KUTCH (GANDHIDHAM) ......Respondent
Central Excise & Service Tax Commissionerate,
Centeral Excise Bhavan Plot No. 82,
Sector 8, Gandhidham(Kutch)
Gandhidham(Kutch), Gujarat
APPEARANCE:
Shri Vipin Kumar Jain, Shri Vishal Agarwal, Shri Uday Shetty & Ms Dimple Gohil,
Advocates for the Appellant
Shri Mihir G Rayka, Addl. Commissioner for the Respondent
CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON'BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No. 10643-10644/2024
DATE OF HEARING: 07.12.2023
DATE OF DECISION: 20.03.2024
RAMESH NAIR
M/s VVF Limited (Unit-II), Survey No, 635, Galpadar-Anjar Road,
Taluka-Anjar, Dist Kutch-370 110 (Gujarat) (hereinafter referred to as
"M/s. VVF" for the sake of brevity), were engaged in manufacture of
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"Crude Fatty Acid", "Split Fatty Acid" and "Crude Glycerin" falling under
CETH No. 15200000 & 38231900 of the first Schedule to the Central
Excise Tariff Act, 1985 (hereinafter referred to as the "CETA"), for which
they were holding Central Excise Registration certificate bearing No.
AAACV3847RXM008. A scheme of arrangement for Demerger of the
Demerged Undertaking of VVF Limited into VVF (India) Limited was
approved by the Order of Hon'ble High Court of Bombay dated
20.04.2012. Accordingly, M/s VVF Limited (Unit-II) had surrendered their
Registration Certificate and M/s VVF (India) Ltd, being the resultant
company, submitted application for Central Excise Registration and
obtained new Central Excise Registration bearing No. AADCV4970GEM006
for factory premises of M/s VVF Limited (Unit-II) on 25.05.2012.
1.1 M/s VVF had set up new industrial unit with original investment of
Rs. 34,66,48,392/- in Plant and Machinery and commenced production of
finished goods on 25.12.2005. As a unit located in the Kutch district, they
applied to the department for benefit of area-based exemption in terms of
Notification No. 39/2001-CE, dated 31.07.2001. M/s VVF Limited was
enjoying benefit of the same from December, 2005 onwards. M/s VVF
obtained two certificates both dated 07.03.2006 issued by the committee
consisting of the Chief Commissioner of Central Excise Ahmedabad and
the Principal Secretary to the Government of Gujarat, Department of
Industries & Mines, Gujarat bearing File No. V/30-
25/CCO/Tech/Kutch/2005, in terms of Para 3(ii) and 3(iv) of the
Notification No 39/2001-CE dated 31.07.2001, as amended (hereinafter
referred to as "the Notification" for the sake of brevity).
1.2 The officers of the Directorate General of Central Excise Intelligence,
Zonal Unit, Ahmedabad (hereinafter referred to as "DGCEI") gathered
intelligence that M/s VVF installed only one Oil Splitting Unit prior to cut
off date of 31.12.2005 (hereinafter referred to as "first splitting unit") and
had purchased and installed another Oil Splitting Unit (hereinafter referred
to as "second splitting unit") after cut off date of 31.12.2005, in the said
factory premises to enhance production capacity which both oil splitting
units are independent, however, they availed exemption under Notification
No. 39/2001-CE dated 31.07.2001 by availing re-credit/refund of duty
paid on finished excisable goods manufactured by both the oil splitting
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units. As per condition envisaged in Notification No. 39/2001 ibid,
assessee was eligible for benefit of exemption only in respect of finished
goods manufactured out of the plant and machinery installed on or before
31.12.2005 and as such M/s VVF had wrongly availed benefit of
notification supra on goods manufactured from the second oil splitting
unit.
1.3 On the basis of above fact the department was of the view that
second splitting unit admittedly set up after cut-off dated of 31.12.2005,
the exemption of 39/2001-CE dated 31.07.2001 is not admissible to the
appellant. Accordingly, after detail investigation show cause notice dated
04.03.2015 was issued which was culminated into impugned order-in-
original dated 04.03.2015 whereby the exemption Notification No.
39/2001-CE was denied and consequent demand of duty has been
confirmed along with interest, penalties and fine. A personal penalty was
also imposed on Shri Rustom G. Joshi, director of the appellant company.
Therefore, the present appeals are filed by the appellants.
2. Shri Vipin Jain, learned counsel appearing on behalf of the
appellants argued in detail during hearing on 07.12.2023. The learned
counsel also filed a detailed written submission post hearing on
31.01.2024 which is taken on record and considered.
3. Shri Mihir Rayka, learned Additional Commissioner, appearing on
behalf of the revenue also made his detail submissions on the line of the
findings given by the Adjudicating Authority in the impugned order.
4. We have carefully considered the submissions made by both sides
and perused the records. It appears to us that the issue in dispute can be
addressed both on a legal as also factual matrix. We are, accordingly
framing the following questions that need to be addressed:
1. Insofar as the legal dispute is concerned the following questions arise
for consideration:
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i) Whether a new industrial unit, which admittedly is eligible to the
benefit of exemption in terms of Notification No.39/2001 dated
31.7.2001 can be denied the benefit of exemption in respect of
goods manufactured using Plant and Machinery installed after
31.12.2005. Particularly by reading in a condition to the exemption
notification, which does not exists in the notification, as has been
done by the adjudicating authority. In other words whether the
adjudicating authority was correct in adding a condition in
Explanation I (ii), which defines the expression "set up on or after
the date of publication of this Notification in the official gazette but
not later than 31st day of December 2005", to the effect that "ALL"
civil construction and installation of plant and machinery, should
have been completed before the cut-off date, even though no such
condition exists in the notification.
ii) Whether the CBEC circulars issued in the context of similarly worded
area based incentive schemes could have been ignored by the
adjudicating authority and instead reliance placed on some internal
communications between the TRU and the Chief Commissioners of
Central Excise.
iii) Whether demand for central excise duty could have been raised
without filing an appeal against the re-credit/refund orders.
iv) Whether the demand for central excise duty could have been raised
for a period beyond 5 years from the relevant date.
2. Insofar as the factual dispute is concerned the following questions arise
for consideration:
i) Whether the benefit of exemption could have been denied, in
respect of goods produced using the Second Splitting column, which
according to the appellant was installed for improving the quality of
the final product?. While, according to the Revenue the same was
installed for increasing the production capacity
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ii) Whether there was any fraud, suppression, wilfull mis-statement so
as to warrant invocation of the extended period of limitation?
3. Both sides are at idem that Notification No.39/2001 dated 31.7.2001
was issued to boost economic development and to create new
employment opportunities, consequent to a devastating earthquake which
impacted the Kutch district in Gujarat on 26th January, 2001. The
notification granted exemption from payment of so much of the central
excise duty, as is equivalent to the amount of duty paid by the
manufacturer other than the amount of duty paid by utilization of CENVAT
credit. The exemption was subject to the condition that the manufacturer
first utilizes the whole of CENVAT credit available with it and pays the
balance amount in cash. Further the exemption was to be given effect to
by way of refund of the duty paid in cash.
4. It is pertinent to note that the exemption under the Notification was
limited to twice the value of the investment, for each year, in cases where
the original value of the plant and machinery installed in the factory was
below Rupees 20 crores on the date of commencement of the commercial
production and in cases where the original value of investment in plant
and machinery was in excess of 20 crores, there was no limitation with
respect to the extent of the exemption available under the Notification.
5. The Notification, as initially enacted, did not provide for any time period
within which the commercial production had to commence, being the date
relevant for reckoning the original value of investment in plant and
machinery as also for reckoning the 5 year period for which the exemption
was to be available. All that was required was that any civil construction
work in the factory premises and any installation of plant and machinery
therein commences only after 31st July 2001 but before the cut-off date.
For ease of reference the relevant extract of the Notification as enacted is
reproduced herein below:
Gujarat)- Exemption to excisable goods (except those specified in Annexure) and
cleared from Units in Kutch District of Gujarat
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In exercise of the powers conferred by sub-section (1) of section SA of the
Central Excise Act 1944 (1 of 1944), read with sub-section (3) of section 3 of the
Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and
sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile
Articles) Act, 1978 (40 of 1978), the Central Government being satisfied that it is
necessary in the public interest so to do, hereby exempts the goods specified in the
First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other than goods
specified in the Annexure appended to this notification and cleared from a unit
located in Kutch district of Gujarat from so much of the duty of excise or the
additional duty of excise, as the case may be, leviable thereon under any of the said
Acts as is equivalent to the amount of duty paid by the manufacturer of goods other
than the amount of duty paid by utilization of CENVAT credit under the CENVAT
Credit Rules, 2001:
Provided that in the case of a unit having an original value of investment in plant
and machinery. installed in the factory below rupees twenty crore on the date of
commencement of commercial production in that unit, the exemption contained
herein shall apply only for the first clearances up to an aggregate value not
exceeding twice the value of such investment from the date of commencement of
commercial production, in each year.
2. The exemption contained in this notification shall be given effect to in the
following manner, namely
(a) The manufacturer shall submit a statement of the duty paid other than the
amount of duty paid by utilization of CENVAT credit under the CENVAT Credit
Rules, 2001, to the Assistant Commissioner or the Deputy Commissioner of
Central Excise, as the case may be, by the 7th day of the next month in which
the duty has been so paid
(b) The Assistant Commissioner or Deputy Commissioner of Central Excise, as the
case may be. after such verification, as he may deem necessary, shall refund
the amount of duty paid other than the amount of duty paid by utilization of
CENVAT credit during the month under consideration to the manufacturer by
the 15th day of the next month
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(c) If there is likely to be any delay in such verification, the Assistant
Commissioner or the Deputy Commissioner of Central Excise, as the case may
be, shall refund the amount on provisional basis by the 15th day of the next
month to the month under consideration, and thereafter may adjust the
amount of refund by such amount as may be necessary in the subsequent
refunds admissible to the manufacturer
3. The exemption contained in this notification shall be subject to the following
conditions, namely
(i) It shall apply only to new industrial units, that is to say, units which are
set up on or after the date of publication of this notification in the
Official Gazette but not later than the 31st day of July, 2003;
(ii) in order to avail of this exemption, the manufacturer shall produce a
certificate from a Committee consisting of the Chief Commissioner of
Central Excise, Vadodara and the Principal Secretary to the
Government of Gujarat. Department of Industry, to the jurisdictional
Assistant Commissioner or the Deputy Commissioner of Central Excise,
as the case may be, that the unit in respect of which exemption is
claimed is a new unit and has been set up during the time period
specified in condition (i) above
(iii) Before effecting clearances under this notification, the manufacturer
shall also furnish a declaration regarding the original value of
investment in plant and machinery installed in the factory as on the
date of commencement of commercial production, to the Assistant
Commissioner of the Deputy Commissioner of Central Excise, as the
case may be
(iv) The manufacturer shall also produce a certificate from the said
Committee confirming the original value of investment and such a
certificate shall be produced within a period of one month from the
date of commencement of commercial production, or such extended
period as the said Assistant Commissioner or Deputy Commissioner
may allow.
(v) In case on the basis of such certification, or otherwise, the original
value of investment in plant and machinery,
(a) is found to be less than rupees twenty crore but was declared
to be rupees Twenty crore or more, the manufacturer shall be
liable to pay back the entire amount of duty exemption availed
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under the notification along with interest at the rate of twenty
four per cent per annum as if no exemption were available; or
(b) is found to be less than the declared value and was declared to
be below rupees twenty crore, the manufacturer shall be liable
to pay duty on the goods cleared, if any, in excess of twice the
actual value of original investment in each of the years during
which exemption has been claimed under this notification
along with interest at the rate of twenty four per cent per
annum, as if no exemption were available to those clearances
under this notification
(vi) The exemption shall apply for a period not exceeding five years from
the date of commencement of commercial production by the unit.
4. .................................................................
Explanation: For the purpose of this notification, -
(I) .................................................................................
(II) the expression "set up on or after the date of publication of this notification in
the Official Gazette shall mean that any civil construction work on its factory
premises and any installation of plant and machinery therein commences only
on or after the date of publication of this notification in the Official Gazette.
(III) .....................................................................
6. To bring certainty with respect to the date by which the commercial
production should commence, for reckoning the original value of
Investment in plant and machinery as also for determining the 5 year
period for which the exemption would be available, the Central
Government, vide Notification No. 09/2004-CE dated 21.01.2004 read
with Notification No. 55/2004-CE dated 09.11.2004, amended the
expression "set up on or after the date of publication of this Notification in
the Official Gazette" by substituting the same with the expression "set up
on or after the date of publication of this notification in the Official Gazette
but not later than the 31st day of December, 2005", to mean that -
(a) any civil construction work on its factory premises and any
installation of plant and machinery therein commences only on or
after the date of publication of this notification in the Official
Gazette; and
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(b) the said civil construction work on its factory premises and
installation of plant and machinery therein is completed, and the
unit starts commercial production, not later than the 31st
day of December, 2005.
7. The relevant extract of the revised notification, after the aforesaid
amendments read as under:
In exercise of the powers conferred by sub-section (1) of section SA of the
Central Excise Act 1944 (1 of 1944), read with sub-section (3) of section 3 of the
Additional Duties of Excuse (Goods of Special Importance) Act, 1957 (58 of 1957) and
sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile
Articles) Act, 1978 (40 of 1978) the Central Govemment being satisfied that it is
necessary in the public interest so to do, hereby exempts the goods specified in the
First Schedule to the Central Excise Tariff Act 1985 (5 of 1986) other than goods
specified in the Annexure appended to this notification and cleared from a unit
located in Kutch district of Gujarat from so much of the duty of excise or the
additional duty of excise, as the case may be, leviable thereon under any of the said
Acts as is equivalent to the amount of duty paid by the manufacturer of goods other
than the amount of duty paid by utilization of CENVAT credit under the CENVAT
Credit Rules, 2001:
Provided that in the case of a unit having an original value of investment in
plant and machinery installed in the factory below rupees twenty crore on the date
of commencement of commercial production in that unit, the exemption contained
herein shall apply only for the first clearances up to an aggregate value not
exceeding twice the value of such investment from the date of commencement of
commercial production, in each year.
............................................................
............................................................
3. The exemption contained in this notification shall be subject to the following conditions, namely (I) It shall apply only to new industrial units, that is to say, units which are set up on or after the date of publication of this notification in the Official Gazette but not later than the 31st day of December, 2005 (II) In order to avail of this exemption, the manufacturer shall produce a certificate from a Committee consisting of the Chief Commissioner of Central Excise. Ahmedabad and the Principal Secretary to the Government 10 | P a g e E/10290&10205/2021-DB of Gujarat. Department of Industry, to the Jurisdictional Assistant Commissioner or the Deputy Commissioner of Central Excise as the case may be, that the unit in respect of which exemption is claimed is a new unit and has been set up during the time period specified in condition (i) above.
(III) Before effecting clearances under this notification, the manufacturer shall also furnish a declaration regarding the original value of investment in plant and machinery installed in the factory as on the date of commencement of commercial production, to the Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be.
(IV) The manufacturer shall also produce a certificate from the said Committee confirming the original value of investment and such a certificate shall be produced within a period of one month from the date of commencement of commercial production, or such extended period as the said Assistant Commissioner or Deputy Commissioner may allow.
(V) In case on the basis of such certification, or otherwise, the original value of investment in plant and machinery,
(a) is found to be less than rupees twenty crore but was declared to be rupees twenty crore or more, the manufacturer shall be liable to pay back the entire amount of duty exemption availed under the notification alongwith interest at the rate of twenty four per cent, per annum as if no exemption were available or
(b) is found to be less than the declared value and was declared to be below rupees twenty crore, the manufacturer shall be liable to pay duty on the goods cleared, if any, in excess of twice the actual value of original investment in each of the years during which exemption has been claimed under this notification alongwith interest at the rate of twenty four per cent, per annum, as if no exemption were available to those clearances under this notification.
(VI) The exemption shall apply for a period not exceeding five years from the date of commencement of commercial production by the unit.
...................................................
Explanation I- For the purpose of this notification,-
(i) a change in the name or in the nature of ownership or a change in location of an existing unit would not entitle anyone for treatment as a "new" industrial unit.
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(ii) the expression "set up on or after the date of publication of this notification in the Official Gazette but not later than the 31st day of December, 2005" shall mean that,-
(a) any civil construction work on its factory premises and any installation of plant and machinery therein commences only on or after the date of publication of this notification in the Official Gazette; and
(b) the said civil construction work on its factory premises and installation of plant and machinery therein is completed, and the unit starts commercial production, not later than the 31st day of December, 2005 A reading of the notification keeping in mind the background in which it was issued and the purpose that it seeks to achieve, it appears that the Central Government has merely provided an entry point stipulation for an entity to qualify as a new industrial unit, being eligible to claim benefit of the exemption. There is no bar or any kind of restriction envisaged or provided for in the Notification with respect to addition of any further plant and machinery after the cut-off date. The only stipulation post 21 January, 2004 is that any civil construction work in the factory and installation of plant and machinery should have commenced after 31 July, 2001 and that the plant should have commenced commercial production not later than 31.12.2005. The date of commencement of commercial production being relevant for the purpose of determining the original value of investment in Plant and Machinery as also the date from which the 5 year period for the exemption is to be reckoned.
8. The adjudicating authority has erred in, adding words/conditions to the exemption notification and suggest that ..............." all civil constructions and the machineries shall have installed before cut-off date..........". Though elsewhere in the order the adjudicating authority does not dispute that if the addition of the plant and machinery after the cut-off date was merely to improve the quality of the product, such addition was permissible. The mis-reading of the notification by adding the word "ALL" is evident in para 16 as also 25 of the impugned order. 12 | P a g e E/10290&10205/2021-DB
9. We find that it is impermissible to read in any condition or word into an exemption notification, especially a benevolent one which has been issued with the objective of encouraging investment in the earthquake ravaged region of Kutch. In our view there is neither any legal basis nor rationale for reading in the word 'ALL' in the exemption notification and with reference to the same construe that since some machinery was installed after the cut-off date, the benefit of the exemption would not be available, to goods manufactured using the said machinery. The law with respect to strict construction of the term of an exemption notification and there being no scope to add any words or conditions to the same has been settled by the Hon'ble Gujarat High Court in the case of Inter-Continental India vs UOI reported in 2003 (154) ELT 37 which has been affirmed by the Apex Court as reported in 2008 (226) ELT 16.
10. This Tribunal has also in the case of Welspun Ltd vs CCE reported in 2019 (1) TMI 371 held that in the context of this very notification that there is no bar in installing Plant and Machinery post 31.12.2005 as long as the unit has commenced commercial production not later than 31.12.2005. The relevant observations of the Tribunal are extracted herein below.
"12. .................... As regard the Explanation-l (ii) (b) of Clause 4 of Notification No.39/2001-CE, we find that the civil construction work on its factory premises and installation of plant and machinery thereunder should be completed and the unit starts commercial production not later than 31.12.2005. From this, we are of the view that only condition is that civil construction and plant and machinery involving investment of more than 20 Crores should be completed and that commercial production in the said unit should start before 31.12.2005. As per the undisputed fact completion of construction and installation of plant and machinery involving investment more than 20 Crores completed and commercial production in such unit was started on 14.01.2005. After fulfilling such condition, the appellant was entitled for exemption for 5 years from the date of commencement of the commercial production. In the notification, there is no cap on the value or quantity of the final product to be cleared during the 5 years of exemption period, therefore, we do not see that the appellant have violated any condition of the Notification No. 39/2001-CE as held by Hon'ble Supreme court in the case of Tullow India Ltd (supra) and Compack Pvt. Ltd (Supra). it was clearly held that exemption Notification must be interpreted strictly and literally and nothing can be imported into the condition of 13 | P a g e E/10290&10205/2021-DB the notification which does not exist in the notification........(emphasis supplied in bold)
13. We observed that if the interpretation of the department is accepted than In other words it restrict the investment to be made after 31.12.2005 which is not the object of the whole scheme of industrialization in the Kutch district. The intention of the Government's this scheme was that the more and more industry with maximum investment are setup, the exemption is provided only for 5 years. It is not the case that by increasing the investment, the appellant is getting exemption for more than 5 years. Irrespective of huge investment the appellant is entitled for exemption only up to the 5 years from the commencement of commercial production. Therefore, the intention of the notification is very clear that if the initial civil work and installation of the Plant and Machinery is completed and commercial production in such unit started before 31.12.2005, the exemption for 5 years irrespective of any of the amount of value or quantity is available. We have also perused the Board Circular No. 110/21/2006-Cx dated 10.07.2008 wherein the ambiguity with respect to eligibility of benefit of exemption notification was clarified as under:
"Point No. 1:
Whether the benefit of exemption would be available goods/products that the units start manufacturing after the cut off date for the commencement of commercial production i.e. 31/12/2005.
Comments:
There would be two situations. First is that where a unit introduces a new product by installing fresh plant, machinery or capital good after the cut of date in such a situation, exemption would not be available to this new product. The said new product would be cleared on payment of duty, as applicable and separate records would be required to be maintained to distinguish production of these products from the products which are eligible for exemption.
The other situation is the one where a unit starts producing some products (after the cut off date) using the plant and machinery installed upto the cut of date and without any addition to the plant and machinery. For example, in case of plastic moulded products a unit may commence the production of different products simply by changing the moulds and dies. In that case, the unit would be eligible for the benefit of Notification because the plant and machinery used for manufacture has remained the same. In this connection, it is further clarified that for the purpose of computing the original value of plant and machinery, the value of plant and machinery installed on the date of commencement of commercial production only shall be considered."
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14. From the above clarification it is clear that since assessee is required to make the declaration wherein a product on which the exemption is entitled to be availed must be declared. Any new product manufactured after 31.12.2005 shall not be eligible for exemption. In the facts of the present case, the appellant right from the beginning declared the final product i.e. bed sheets and terry towels they have not started production of any new product after 31.12.2005, therefore, as per the clarification of the Board given hereinabove the appellant cannot be denied the exemption on the product declared and the same were being manufactured throughout the period of exemption. We also find that in respect of the identical Exemption Notification which is area based bearing No. 49/2003-CE dated 10.06.2003 and Notification No 50/2003- CE dated 10.06.2003 in respect of units setup in the State of Uttarakhand and Himachal Pradesh, the clarification were sought from the Board on the availability of benefit of the said exemption notification on the following issue:
"Where the installed capacity in a particular unit is upgraded after the cut- off date, so as to increase the efficiency of the machinery by installing ancillary machines or replacement of some parts etc, but in such a way that it does not lead to increase in capacity of production"
"Board has examined the matter. Under the said notifications, any new unit set up or an existing unit which has undergone substantial expansion that commences commercial production before the cut-off date is entitled to excise duty exemption in respect of excisable goods (other than those appearing in the negative list) manufactured and cleared for a period of ten years from the date of commencement of commercial production. The provisions of these notifications do not place a bar or restriction on any addition/modification in the plant or machinery or on the production of new products by an eligible unit after the cut-off date and during the exemption period of ten years as per the notification. Therefore, it is clarified that in all the above situations, the benefit of the excise duty exemption under the notifications would continue to be available to eligible industrial units. However the period of exemption would remain ten years and would not get extended on account of such modifications or additions under any circumstances."
15. From the above clarification, it is clear that irrespective of any addition or modification in the plant and machinery since the notification did not place a bar or restriction on such addition/modification, the exemption shall be available in 10 years as per the above referred notification. In the present case also objective of the exemption notification no. 39/2001-CE is same that industrialization in the Kutch 15 | P a g e E/10290&10205/2021-DB region therefore the clarification issued in above is equally applicable to the present case for the reason that in the notification no 39/2001-CE also it does not place any bar or restriction on any addition or modification in the plant and machinery. We find that since the appellant have strictly followed the conditions of the notification no- 39/2001-CE particularly completion of civil work and plant and machinery and commencement of commercial production before 31.12.2005, the exemption for 5 years is available."
11. We also note that the Hon'ble Tripura High Court has in the case of UOI vs. Dharampal Satyapal Ltd as reported in 2021 (9) TMI 474 as also the CESTAT in the cases of Wipro Enterprises Ltd vs CCE reported in 2022 (8) TMI 1098 and MR Tubes Pvt. Ltd vs. CCE reported in 2022 (10) TMI 263, held that addition of plant and machinery after the cut-off date does not disentitle the unit from the benefit of area based exemption.
12. We also note that under the Notification, for a unit to be eligible to claim exemption it has to produce a certificate from a committee consisting of the Chief Commissioner of Central Excise and the Principal Secretary, Department of Industry, to the effect that the unit in respect of which exemption is being claimed is a new industrial unit and has been set up before the cut-off date. The Committee also has to certify the original value of investment in plant and machinery. It is not in dispute that the certification as envisaged under the notification were issued to the appellant and have not been revoked till date. To us it appears that the notification does not envisage revocation of the certificates and denial of exemption granted thereunder merely because some additional plant and machinery has been installed after the cut-off date. This in our view is clearly reflective of the intention of the Central Government while notifying the exemption. The only situation provided in the notification for revocation of the certificates and denial of the exemption is, if it is found that the original value of investment in plant and machinery was less than 20 crores but was declared to be more than 20 crores or where the value declared though been less than 20 crores was found to be incorrect. It is nobody's case that there is any manipulation in the declared value of original plant and machinery and consequently in our view there is no legal or logical or justifiable reason to deny the benefit of exemption in 16 | P a g e E/10290&10205/2021-DB respect of the goods produced using the plant and machinery installed after the cut-off date.
13. It is also relevant to note that the CBEC has issued various circulars in the context of similar area based exemption schemes, introduced with the objective of industrialising the backward areas/areas ravaged by natural calamities. These circulars clearly clarify in unequivocal terms that the benefit of the exemption would not be lost even if additional plant and machinery was installed in the eligible units after the cut-off date. Though the said circulars have been issued in the context of the Himachal Pradesh and Uttarakhand exemption schemes, however on an examination of the terms of exemption under the Kutch and the Himachal/Uttarakhand schemes, it appears that both are broadly on the same lines and seek to achieve a common objective. The law on the point that the objective underlying the issuance of an exemption is relevant and that authorities should be cognizant of the same is settled by the Apex Court in the case of Oblum Electrical Industries Pvt. Ltd vs Collector of Customs reported in 1997 (94) ELT 449 and as also CC vs. Rupa & Company reported in 2004 (170) ELT 129 For a better appreciation, the Board's understanding with respect to addition of plant and machinery after the cut-off date on a unit's eligibility to claim exemption is extracted herein below:
Circular No.939/29/2010 dated 20 February 2010
2. Representations have been received from Trade and Industry Associations seeking clarification on the availability of the exemption benefit under these notifications in the following situations
(i) Where a unit starts producing some new products after the cut-off date using plant and machinery installed up the said cut-off date and without any further addition to the plant and machinery.
(ii) Where the installed capacity in a particular unit is upgraded after the cut-off date, so as to increase the efficiency of the machinery by installing aricillary machines or replacement of some parts etc. but in such a way that it does not lead to increase in capacity of production.
(iii) Where new dosage forms are manufactured after the cut-off date on the same line of production with the same machinery 17 | P a g e E/10290&10205/2021-DB
(iv) Where a unit manufacturers a new product by installing fresh plant, machinery or capital goods after the cut-off date.
3. Board has examined the matter. Under the said notifications, any new unit set up or an existing unit which has undergone substantial expansion that commences commercial production before the cut-off date is entitled to excise duty exemption in respect of excisable goods (other than those appearing in the negative list) manufactured and cleared for a period of ten years from the date of commencement of commercial production. The provisions of these notifications do not place a bar or restriction on any addition/modification in the plant or machinery or on the production of new products by an eligible unit after the cut-off date and during the exemption period of ten years as per the notification. Therefore, it is clarified that in all the above situations, the benefit of the excise duty exemption under the notifications would continue to be available to eligible industrial units. However the period of exemption would remain ten years and would not get extended on account of such modifications or additions under any circumstances.
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Circular No.960/03/2012-dated 17.2.2012
2. References have been received from field formations as well as from trade and industry seeking clarification regarding admissibility of benefit under area-based exemption Notifications No. 49/2003-CE. and 50/2003-CE, both dated 10-6-2003, in the following situations:
a. When there is a change in the ownership of a Unit already availing of the benefit of an area-based exemption Notification;
b. When a Unit availing of the exemption physically shifts to a new location within the areas specified in the exemption Notification, and c. When a Unit availing of the exemption under an area-based Notification expands by acquiring a plot of land adjacent to its existing premises and installing new plant/machinery on such land.
3. The above issues have been examined by the Beard. As the exemption is extended to a Unit, any change in its ownership would not jeopardize the admissibility of exemption for the remaining part of the ten year exemption period subject to the condition that the new owner exercises his option in writing to avail of the benefit of the exemption Notification before effecting the first clearance 18 | P a g e E/10290&10205/2021-DB
4. So far as the case of an eligible unit physically shifting to a new location is concerned, it is clarified that the exemption in such cases should be available for the residual period of exemption. However, the cases of relocated units should be examined on a case-to-case basis and the exemption should be allowed to continue subject to certain safeguards like establishing through proper inventorisation and certification by a Chartered Engineer that the unit has relocated its plant, machinery, equipment, manpower etc. and relocation to areas specified in the relevant Notification only and not across States and/or Notifications.
5. In the context of expansion of a Unit by acquiring an adjacent plot of land and installing new plant and machinery on such land, attention is invited to Board's Circular No. 939/29/2010-CX., dated 22-12-2010 [2011 (263) ELT. T3] wherein it was, inter alia, clarified that any growth in the production/output of a unit by installing fresh plant and machinery would be eligible for exemption under these area-based Notifications. The situation of expansion of an eligible unit by acquiring an adjacent plot of land and installing new plant and machinery on such land, is akin to expansion by way of installing new plant and machinery inside the existing plot/premises. It is, therefore, clarified that in such cases, the exemption should continue to be available for the residual period of exemption Circular No.968/02/2013-CX dated 1.4.2013
2. Representations have been received from the Trade seeking further clarifications as to whether the term 'adjacent used in the said clarification would also include a plot which is not immediately adjoining the existing plot but at some distance away from the existing plot.
3. The matter has been examined. Para 5 of the aforesaid circular dated 17- 2-2012 is meant for a situation where the expansion is done by acquiring the adjoining plot with at least one common boundary which merges with the existing plot/premises to make it one unit Installing of new plant and machinery in a plot which is away from the existing plot is not akin to the situation mentioned in para 5 of the said circular. Installation of plant and machinery on such a plot would tantamount to setting up another unit by the manufacturer, the eligibility of exemption of which is independent of the eligibility of exemption to the existing unit
4. For the removal of doubts, it is therefore clarified that the clarification in para 5 of the Circular No. 960/03/2012-CX, dated 17-2-2012 is meant for the units which undertake expansion by acquiring the adjoining plot with at least one common boundary with the existing plot and merge it with the existing plot/premises to make it one unit.
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14. From the above Board's clarifications, we find that while the CBEC has taken pains of clarifying time and again that the mere addition of plant and machinery after the cut-off date will not have any adverse impact on the units eligibility to claim benefit of the exemption. However, the adjudicating authority has chosen to completely ignore and side step the same on a frivolous count that the circulars were issued in the context of the Himachal, Uttarakhand scheme. We are not able to appreciate as to how the mere fact that the circular has been issued in the context of the exemption notification for a different geographical location can be a ground for refusing to apply the clarification afforded therein.
15. The reasoning of the adjudicating authority that under the Himachal/Uttarakhand exemption scheme, exemption was even extended to existing units, undertaking substantial expansion, which was missing in Kutch, would in our view make no difference, to the question whether any addition of plant and machinery after the cut-off date would dis-entitle the unit to the benefit of the exemption. The aspect regarding the unit commencing commercial production by a cut-off date equally applies to the Kutch as also the Himachal/Uttarakhand exemption notification. We are therefore of the view that the clarification issued by the CBEC vide Circular No. 939/29/2010-CX dated 22.12.2010 to the effect that there is no bar or restriction on any addition/modification in the plant or machinery or on the production of new products by an eligible unit after the cut-off date and during the exemption period of ten years, would apply equally in the context of the Kutch notification.
16. We find logic and rationale in the aforesaid clarification issued by the CBEC, as the objective of the exemption is to promote industralisation in regions which are industrially backward or have suffered on account of natural calamity. This objective would be achieved and furthered by providing for a cut-off date by which the units should commence commercial production, so that there is a finite and a definitive time line for the industrialisation to commence. However, limiting the addition of the plant and machinery after the cut-off date and suggesting that the unit should remain static and should not grow and develop, would be clearly contrary to the object and purpose that the Notification seeks to achieve. As has been rightly clarified in the Circular, the consequence of addition of plant and machinery after the cut-off date is that the period for which exemption can be claimed with the addition of the new plant and 20 | P a g e E/10290&10205/2021-DB machinery will be limited to the un-expired period of the exemption. In other words if the exemption is for a period of 5 years and plant and machinery is added after expiry of 2 years, the period for which the benefit of exemption would be available to goods manufactured using the said Plant and machinery would be limited to 3 years.
17. We may also look at the dispute from another perspective, if the revenue's contention is to be accepted it would mean that the unit has to freeze in a point of time and no further addition of any machinery equipment can be made to the same during the period of exemption. Such a suggestion would in our view absurd and illogical. We can test the absurdity of such an interpretation, by considering an example of a unit manufacturing copper anode from copper concentrate, for which it has installed a smelter. If such a smelter was to break down or become in- operational for any reason after commencement of commercial production, going by the revenue's stand the unit could not have replaced the smelter and continued with its production. This in our view is clearly antithetical to the objective that the notification in question seeks to achieve. We are therefore of the view that the clarification dated 22 12.2010 referred to above issued by the CBEC represents the correct logical and rationale interpretation of the exemption notification.
18. The adjudicating authority has instead of taking cognizance of and applying the clarification issued by the CBEC, which was binding upon it, has instead chosen to refer to some internal communication between the TRU and the Chief Commissioner In this context it is relevant to note that the said internal correspondence vide letters dated 17.10.2001, 25.4.2006 and 10.7.2008 issued by the TRU seem to be in the context of certain queries which had been raised by the Chief Commissioner and in response to the views expressed by the Chief Commissioner thereon. These letters are not circulars issued by the Board under Section 37B of the Central Excise Act nor the context in which such letters were issued is forth coming therefrom. In any case the clarification issued by the CBEC reflect the position of the Board and that the internal TRU communication, which on the face of it appears to be in variance and at odds with the subsequent CBEC clarification, cannot be countenanced. It is also relevant to note that the Hon'ble Delhi High Court has in the case of Association of Technical textile Manufacturers vs UOI reported in 2023 (11) TMI 666 held 21 | P a g e E/10290&10205/2021-DB that a TRU letter has no sanctity in law and cannot be considered as a circular issued by the Board.
19. The adjudicating authority has also overlooked the settled principle of law that circulars issued by the Board can at times tone down the rigours of law and that the benefit under the notification could be extended through a circular. This position as enunciated by the Hon'ble Apex Court in the case of J K Lakshmi Cement Ltd vs Commercial tax Officer reported in 2018 (14) GSTL 497 has completely been ignored by the adjudicating authority. The relevant observations of the Apex Court read as under :
The Commercial Tax Department, by a Circular, could have extended the benefit under a Notification and, therefore, principle of estoppel would apply, though there are authorities which opine that a circular could not have altered and restricted the notification to the detriment of the assesse. Circulars issued under tax enactments can tone down the rigours of law, for an authority which wields power for its own advantage is given right to forego advantage when required considered necessary. This power to issue circulars is for just, proper and efficient management of the work and in public interest It is a beneficial power for proper administration of fiscal law, so that undue hardship may not be caused. ..............."
We feel that the CBEC circulars have only clarified what was obvious and implicit in the exemption notification and in any case applying the ratio laid down by the Apex Court, if there was any ambiguity, the same has been resolved by the circular.
20. We are therefore of the view that the addition of any plant and machinery after the cut-off date would not disentitle the Appellant, being a new industrial unit, from the benefit of exemption in respect of goods manufactured using the said plant and machinery. Even, according to the adjudicating authority the same seems to be permissible in a case where the addition of plant and machinery is done to improve the quality of the product manufactured and does not result in increase in the production capacity. This interpretation is based on application of TRU letter dated 10.7.2008 wherein the TRU has communicated to the Chief Commissioner, Ahmedabad that "As long as there is no increase in the capacity of production and alteration or addition are made to enhance the quality of the product or efficiency gains, the benefit of notification shall not be denied."
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21. The aforesaid clarification issued under TRU letter dated 10.7.2008 has been applied by the Tribunal in the case of CCE vs Rudraksh Detergent and Chem Pvt Ltd reported in 2010 (260) ELT 469, which decision was affirmed by the Apex Court by dismissal of the Civil Appeal as reported in 2019 (168) ELT A341.
22. The Appellant has contended that installation of the second Splitting column and certain ancillaries to the same were undertaken with the objective of improving the quality of the goods manufactured by the unit. While, according to the adjudicating authority, the addition of the second Splitting column had resulted in increase in the production capacity and on this count alone the case of the appellant was outside the scope of the clarification issued by the TRU in its letter dated 10.07.2008. For a resolution of this factual dispute it may be relevant to examine the appellant's manufacturing process, the facilities with which the project has been conceived, as is evident from the disclosures made to various authorities. The production achieved by the Appellant before and after addition of the second Splitting column also needs to be examined.
23. The Appellant had set-up the unit in question to manufacture crude fatty acid/split fatty acid, wherein glycerine arose as a by-product. The crude/split fatty acid manufactured by the Appellant was consumed by VVF (India) Ltd, captively at its other units at Sion and Taloja in Maharashtra.
24. The activity of obtaining crude/split fatty acid and glycenne from vegetable oil is technically known as "Splitting of oil or "Hydrolysis" process. This process is carried out in a "Splitting Column", where the oil is continuously fed into the Splitting Column from the bottom (at a temperature of around 80°C-90°C). Water is continuously fed from the top of the Splitting Column (at a temperature of around 85°C-90°C). Steam at about 50 bar pressure is injected in the column and this pressure is maintained for split reaction. For the oil to be split to its optimum level, the feed has to be subjected to the requisite pressure within the Splitting column for several hours. The time duration for which the oil remains within the Splitting columns would determine the degree of split, which is referred to as the Degree of Split.
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25. In technical terms, the measure of splitting reaction is defined as "Degree of Split (DoS=Acid Value/Saponification Value x 100, i.e., AV/SV x 100). The reaction mechanism occurring while splitting is that first, water emulsifies in oil/fat. This water reacts sequentially to split the fat, from tri to di-glyceride, from di to mono-glyceride and finally from mono- glyceride to fatty acid. In other words, the splitting process is nothing but breaking the complex triglycerides (fatty matter) contained in the vegetable oils into simple fatty acids. As per the technical literature it appears that generally around 90% of the fat would be split in four hours of processing time, where after it slows down as equilibrium is approached and that splitting from 90 to 95% would take about another 4 hours and so on. This phenomenon has been explained in the technical books/write- up, produced before us in the form of extract of the book titled "The manufacture of soap, other detergents and glycerine by Mr Edger Woollatt.
The same phenomenon has also been explained in the following amongst other publications.
a. Fatty Acids and Derivatives from Coconut Oil by Gregorio C. Gervajio b. Bailey's Industrial Oil and Fat Products (Volume 2) by Daniel Swern c. Fatty Acids Technology published by Gianazza International d. Oleochemicals (Processing Plant) published by IPS Engineering
26. If optimum DoS (Degree of Split) is not achieved in the splitting reaction, then higher quantum of un-split oil (viz., the vegetable oil and its derivatives which are not split in view of lesser degree of split achieved) would be carried forward and remain present in the Crude/Split Fatty Acid. When the crude/split fatty acid is subjected to distillation, the un-split oil would not be distilled and would be collected at the bottom of the distillation column as a residue and would have to be subjected to splitting and thereafter distillation.
27. It appears to us that the quality of the crude/split fatty acid would depend upon the time period for which it is allowed to be processed in the splitting column. There appears to be merit in the submission of the appellant that a better degree of split would be achieved i.e. the quality of 24 | P a g e E/10290&10205/2021-DB the output would be better if the oil is allowed to be processed in the splitting column for a longer duration.
28. It appears from the drawings first prepared in June, 2005 that the appellant's plant was conceived with two Splitting columns. Further while applying to the Chief Commissioner for grant of certificate envisaged in the notification, the appellant had in its letter dated 23.12.2005 categorically informed that its investment in plant and machinery were continuing even beyond the cut-off date. It is also an undisputed fact that some of the machines and infrastructure required for the functioning of the second Splitting column were in place prior to the cut-off date. It appears that the project of the appellant was conceived, with the understanding that there would be two splitting columns.
29. The Appellant have also explained and demonstrated, which we will deal with a little later, that the production actually undertaken by it during the period in question, could have been achieved even by using a single Splitting column. The reason why the second Splitting column was installed was to achieve a higher degree of split by increasing the time for which the oil remained within the splitter. It is the case of the adjudicating authority that there is no evidence of improvement in the quality of the output and that it could be safely assumed that the quality of the output prior to installation of the second Splitting column and subsequent thereto was the same.
30. We find that neither sides have adduced any evidence to substantiate whether or not there was any difference in the quality of the output prior to and subsequent to installation of the second Splitting column. However, this in our view may not be determinative as what would be relevant, to fall within the realm of the TRU clarification will be the object with which the additional plant and machinery has been installed. While there is nothing to show whether there was an improvement or not in the quality of the output, however it is evident from the production data that there hasn't been in any real change in the production after installation of the second Splitting column. The production data in our view can be taken as a safe guide for manifesting the intention of the appellant in installing the second Splitting column. If the objective was not to improve the quality but to increase the production the same would have been reflected atleast 25 | P a g e E/10290&10205/2021-DB by some noticeable increase in the production consequent to the installation of the second splitting column.
31. We find that it is evident from the undisputed monthly production data, particulars of which are extracted herein below, that the production, even after installation of the second splitting column (October 2006 as per the Department/January 2007 as per the Appellant and March 2007 as per the installation agency) had remained on the same range as prior to installation thereof. The maximum monthly production which was achieved prior to installation of the second Splitting column was 14751.561 MTs in the month of June 2006. Therefore undisputedly, a production of atleast 14751.561 MTs could have been achieved on a month on month basis, which translates to 177018.732 MTs on an annual basis. In none of the 12 months period after addition of the second Splitting columns did the production ever reach near the said figure or cross 177018.32 MTs. This clearly demonstrates that the installation of second splitting column was not to increase the production but apparently was with the objective of improving the quality.
Month Production of Crude / Split fatty acid
(MT)
December 2005 911.260
January 2006 10698.149
February 2006 5847.711
March 2006 9724.624
Month Production of Crude / Split fatty acid
(MT)
April 2006 12430.443
May 2006 9837.997
June 2006 14751.561
July 2006 14401.234
August 2006 11074.070
September 2006 3621.380
October 2006 5095.084
November 2006 9775.950
December 2006 11636.369
January 2007 11831.132
February 2007 12102.252
March 2007 13285.474
F. Y. 2007-08
Month Production of Crude / Split fatty acid
(MT)
April 2007 12880.765
May 2007 14825.473
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June 2007 17953.374
July 2007 16491.069
August 2007 18208.823
September 2007 12156.158
October 2007 15117.227
November 2007 10112.627
December 2007 11119.120
January 2008 12017.444
February 2008 11681.202
March 2008 14823.653
F. Y. 2008-09
Month Production of Crude / Split fatty acid
(MT)
April 2008 7269.708
May 2008 18101.962
June 2008 12339.149
July 2008 16849.975
August 2008 10977.859
September 2008 11466.371
October 2008 15030.564
November 2008 6362.321
December 2008 5244.044
January 2009 3625.164
February 2009 8494.693
March 2009 896.220
F. Y. 2009-10
Month Production of Crude / Split fatty acid
(MT)
April 2009 8268.960
May 2009 4687.680
June 2009 8930.873
July 2009 8480.053
August 2009 10836.330
September 2009 10822.109
October 2009 14034.244
November 2009 14059.742
December 2009 14153.200
January 2010 11939.684
February 2010 12089.330
March 2010 12713.270
April 2010- December-2010
Month Production of Crude / Split fatty acid
(MT)
April 2010 10973.780
May 2010 8808.830
June 2010 13943.220
July 2010 9824.840
August 2010 12866.640
September 2010 11162.680
October 2010 13792.220
November 2010 18085.090
December 2010 19597.870
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32. While we are discussing the production achieved by the Appellant prior to and subsequent to the installation of the second Splitting column, there is also incidentally a dispute with respect to the date when the second Splitting column was installed. While this dispute is inconsequential, in our view and does not impact the outcome of the dispute in hand. However the presumption of the adjudicating authority that this second splitting column was installed within 7 days of the same having been shipped by the manufacturer in October 2006, which to us does not seem to be logical and reasonable especially when viewed in light of the statement recorded under Section 14 of the installation agency, as per which the column was installed in March 2007. In our view, in light of the appellant's submission that the second splitting column was installed in January 2007, that is the earliest point of time that the adjudicating authority could have considered as the date of installation of the second splitting column. However as pointed out above, dispute on this aspect has no bearing on the outcome of the issue in hand.
33. Despite the fact that the record undisputedly establishes that there has been no increase in the production, the adjudicating authority has held that since the appellant was manufacturing final product of the desired quality by using the 1 Splitting column, the output was less, as more splitting time was required and that installing the second Splitter obviously enhanced speed of the process and processing capacity of the appellant and it could get the desired quality of final product and process higher quantity of raw material thereby leading to higher production. The adjudicating authority has also held that each of the two Splitters had a capacity of 200 TPD and that he was not convinced that the output designed to be manufactured with two Splitters could have been manufactured by One Splitter of 200 TPD. Unfortunately these findings of the Respondent are belied by the undiluted production data figures. The combined production achieved even after the installation of the second Splitter seems to be lesser than what could have been achieved by a single Splitter alone. Further the 200 TPD capacity as explained by the appellant is the output guaranteed by the supplier of technology at 99% degree of split. Obviously the production numbers clearly show that the daily production was higher than 200 TPD and that the plant was functioning operating at a lesser degree of Split and was able to achieve a production of around 15000 MT per month.
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34. We are therefore of the view that on facts it appears that the second Splitter was installed with a view to improve the quality of the output and not to increase the production, which fact seems to be vindicated by the production data. We are therefore of the view that, applying the TRU clarification dated 10.7.2008 the additional plant and machinery having been installed with a view to improve the quality of production and not with a view to increase the production, the benefit of exemption cannot be denied to goods manufactured using the second Splitting Column.
35. The Appellant has also addressed the arguments on the aspect of proceedings being without jurisdiction as the orders sanctioning re- credit/refund has not been appealed against, the demand being time barred and also the demand being beyond the maximum period of five years from the relevant date. We are not dealing with these submissions as we are of the view that in both on law as on facts the Appellant has been able to demonstrate that the demands raised against it are unsustainable.
5. We also find that the imposition of penalty on the Managing Director, Mr.Rustom Joshi is also not sustainable.
6. In the result, the impugned order is set aside. The appeals are allowed with consequential relief, in any, in accordance with law.
(Pronounced in the open court on 20.03.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Raksha