Installed capacity for fiscal exemption must reflect designed machinery capacity, not actual working output, in favour of the assessee.

For exemption under Notification No. 128 of 1977, annual installed capacity had to be determined by the capacity recognised in the industrial licence, DGTD records, import permission and technical opinion, not by a notional working capacity derived from actual production. The paper mill was accepted as having an installed capacity of 5000 tonnes per annum, because installed capacity means the designed capacity of the machinery and not the fluctuating output achieved in practice. The departmental method of multiplying daily production by working days was therefore unsound. In a fiscal exemption matter, any remaining doubt was resolved in favour of the assessee, and the demand based on the higher capacity was unsustainable.

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Issues: Whether, for the purpose of exemption under Notification No. 128 of 1977, the paper mill's annual installed capacity had to be taken as the capacity recognised by the industrial licence and DGTD records, or whether it could be treated as the working capacity on the basis of actual production.

Analysis: The notification referred to annual installed capacity. The material on record, including the industrial licence, the import permission, the earlier DGTD communication, and technical opinion, showed that the unit was recognised as having an installed capacity of 5000 tonnes per annum. The later departmental computation by multiplying daily output by working days treated installed capacity as equivalent to working capacity, which was held to be unsound because installed capacity is the designed capacity of the machinery and not the fluctuating production achieved in actual working conditions. In a fiscal exemption matter, where doubt remained, the interpretation favourable to the assessee was applied.

Conclusion: The impugned demand based on a higher notional capacity was unsustainable, and the assessee was entitled to the exemption on the basis of 5000 tonnes per annum installed capacity.

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