Separate industrial unit test supports octroi exemption where the new unit functions independently and makes a distinct product.

Exemption from octroi under the municipal resolution was held available to a second industrial unit because it was not formed by reconstruction or splitting up of an existing business. Applying the settled test akin to section 15C of the Indian Income-tax Act, 1922, the Court treated the decisive question as whether the unit was a separate and independent production unit producing a distinct commercial product and capable of independent operation. Substantial expansion of the existing undertaking did not by itself amount to reconstruction. On the facts, the second unit satisfied the independence test, so the octroi exemption could not be denied on that ground.

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Issues: Whether exemption from octroi under the municipal resolution was available for plant and machinery imported for the second unit, and whether that unit was disqualified on the ground that it was formed by reconstruction or splitting up of an existing business.

Analysis: The exemption clause in the municipal resolution was treated as materially similar to the language of section 15C of the Indian Income-tax Act, 1922, and the settled test was applied that a new industrial undertaking is not formed by reconstruction of an existing business if it is a separate and independent production unit, yields a distinct commercial product, and can be carried on separately without losing its identity in the old business. On the facts, the second unit was set up for substantial expansion, but that circumstance alone did not establish reconstruction. The record showed that the unit was an independent undertaking manufacturing a distinct product.

Conclusion: The second unit was not formed by reconstruction of the existing business and could not be denied the octroi exemption on that ground.

Final Conclusion: The exemption claim succeeded and the municipal appeal failed, with the High Court's grant of relief left undisturbed.

Ratio Decidendi: A new industrial unit is not formed by reconstruction of an existing business when it functions as a separate and independent production unit producing a distinct commercial product, even if it results from substantial expansion of the existing undertaking.

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