Substantial expansion exemption applies where installed capacity rises through machinery modification, if the statutory threshold is met.

An exemption notification for substantial expansion was interpreted to require an installed-capacity increase of at least 25%, without adding a separate condition that the increase must come only from proportionate addition of plant and machinery. Expansion achieved through modification or substitution of existing machinery was treated as sufficient where the statutory capacity threshold was met. On the facts, the unit's installed capacity increased by 33%, so the benefit of the notification was available and recovery was stayed.

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Issues: Whether the assessee was entitled to the benefit of the exemption notification for substantial expansion where the installed capacity had increased by 33% through modification and substitution of existing machinery rather than proportionate addition of plant and machinery.

Analysis: The notification required an increase in installed capacity of not less than 25% by way of substantial expansion. The Board's circular suggested that such increase should result from installation of additional plant and machinery, but the notification itself did not impose a further condition that the additional machinery must be proportionate to the increase in production. On the facts noted, the unit's capacity had substantially increased at the important stages of production and the end result was an increase of 33% in output. A restrictive interpretation that capacity increase must always be matched by proportionate additional machinery would amount to adding words to the exemption notification. Expansion achieved through modification or substitution of machinery was held to be sufficient, if the statutory threshold of capacity increase was satisfied.

Conclusion: The assessee was entitled to the benefit of the notification and the stay against recovery was justified.

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