2016 (4) TMI 266 - AAR - Central Excise

Excise duty exemption upheld for M/s Lakhani Footwear Private Ltd expansion in Haridwar

The ruling determined that the applicant, M/s Lakhani Footwear Private Ltd, was eligible for excise duty exemption under Notification No. 50/2003-CE for ... Area-based excise duty exemption - substantial expansion - cut-off date / sunset clause - continuation of exemption on addition or modification of plant and machinery - eligibility of new industrial unit commencing production before cut-off date - administrative clarification by CBECSubstantial expansion - continuation of exemption on addition or modification of plant and machinery - administrative clarification by CBEC - Whether the expanded facility denominated as Haridwar Plant-II constitutes an eligible expansion of the existing unit for purposes of Notification No. 50/2003-CE and thus continues to be entitled to the area-based exemption. - HELD THAT: - The Authority examined Notification No. 50/2003-CE and CBEC Circular No. 939/29/2010-CX (22.12.2010), which clarifies that an eligible unit that commences commercial production before the cut-off date remains entitled to exemption and that the notification does not bar addition or modification of plant and machinery or production of new products during the exemption period. The applicant proposes to effect expansion within the same khasra nos., install fresh plant and machinery, and treat the expanded capacity as Plant-II for administrative purposes while continuing consolidated excise compliance. The Authority held that neither obtaining separate factory/ESI/PF registrations nor segregating premises by a wall converts the expanded capacity into an ineligible separate unit where the expansion is in substance an increase in productive capacity within the existing location. Reliance was also placed on CBEC Circular No. 960/03/2012-CX (17.02.2012) which treats expansion by acquiring adjacent land and installing new plant/machinery as akin to expansion within existing premises and endorses continuity of exemption for the residual period. Applying these clarifications to the facts - expansion within the same khasra nos. and commencement of commercial production within the prescribed timeline - the Authority concluded that the proposed Plant-II is an expansion of the existing unit and remains eligible for exemption under the notification. [Paras 13, 15, 16]The expanded facility (Plant-II Haridwar) is to be regarded as an eligible expansion of the existing unit and qualifies for exemption under Notification No. 50/2003-CE.Cut-off date / sunset clause - eligibility of new industrial unit commencing production before cut-off date - administrative clarification by CBEC - Whether commencement of commercial production on 26.03.2010 satisfies the cut-off requirement so as to render the expanded capacity eligible for exemption despite being brought into effect after earlier factory registration formalities. - HELD THAT: - Notification No. 50/2003-CE restricts eligibility for new units to those commencing commercial production not later than 31.03.2010. The applicant filed the required intimation showing commercial production commencing on 26.03.2010. The Authority noted that condition (2)(a) of the Notification is therefore satisfied. Further, CBEC Circulars (22.12.2010 and 17.02.2012) clarify that additions or fresh installations after the cut-off do not extinguish entitlement where the unit commenced production before the cut-off, and that expansion by acquiring adjacent land is to be treated similarly. Having regard to these clarifications and the stated policy objective of promoting industrial growth in the State, the Authority found that the proposed expansion does not fall foul of the sunset clause and that the residual period of exemption applies to the expanded capacity. [Paras 11, 12, 15, 16]Because commercial production commenced on 26.03.2010 and in light of the CBEC clarifications, the expanded capacity is not disqualified by the sunset clause and remains eligible for the notification's exemption.Final Conclusion: The Authority ruled that goods manufactured from the expanded unit (Plant-II Haridwar) established by the applicant from expansion of the existing unit shall be entitled to the benefit of Notification No. 50/2003-CE, the expansion being treated as eligible under the notification and not being disqualified by the cut-off/sunset provision. Issues Involved:1. Eligibility of the proposed Unit-II for excise duty exemption under Notification No. 50/2003-CE.2. Applicability of the sunset clause to the proposed Unit-II.Issue-wise Analysis:1. Eligibility of the proposed Unit-II for excise duty exemption under Notification No. 50/2003-CE:The applicant, M/s Lakhani Footwear Private Ltd, proposed a substantial expansion by installing more than 25% additional plant and machinery at their existing location in Haridwar. They planned to create a new unit, Haridwar Plant-II, within the same plot but separated by a wall, and sought to maintain separate factory licenses, ESI, and PF codes for the new unit. The applicant argued that this expansion qualifies under the substantial expansion clause as per Board’s Circular No. 772/5/2004 CX. dated 21.1.2004 and thus should continue to enjoy the excise duty exemption under Notification No. 50/2003-CE.The Revenue objected, stating that the proposed Unit-II would be an altogether different entity from the existing unit and that the new unit, coming into existence after the sunset clause of 31.03.2010, would not be eligible for the exemption.The ruling observed that the applicant had submitted the required Intimation/Declaration dated 29.03.2010, showing compliance with the conditions of Notification No. 50/2003-CE. The Notification exempts goods from units located in specified areas from whole of the duty of excise, subject to the unit commencing commercial production before 31.03.2010. The applicant’s unit commenced commercial production on 26.03.2010, thus satisfying the conditions.The ruling further referenced CBEC Circular No. 939/29/2010-CX dated 22.12.2010, which clarified that the notification does not restrict any addition/modification in the plant or machinery after the cut-off date. The applicant’s proposal to manufacture new products by installing fresh plant/machinery was consistent with this clarification. Therefore, the applicant could continue to avail the benefit of excise exemption.2. Applicability of the sunset clause to the proposed Unit-II:The Revenue’s second objection was that the proposed Unit-II, coming into existence after the sunset clause of 31.03.2010, would not be eligible for the exemption. The applicant relied on CBEC Circular No. 960/03/2012-CX dated 17.02.2012, which clarified that the expansion of an eligible unit by acquiring an adjacent plot of land and installing new plant and machinery should continue to enjoy the exemption for the residual period.The ruling observed that the proposed expansion within the same plot (Khasra No. 72 and 74) was akin to the situation described in the Circular. It emphasized the intention of the Government’s New Industrial Policy, which aimed to facilitate industrial development and generate employment in Uttarakhand. Denying the exemption for the expanded unit would contradict this policy.Conclusion:The ruling concluded that the benefit of Notification No. 50/2003-CE dated 10.06.2003 would be available to goods manufactured from the expanded unit, Haridwar Plant-II. The applicant’s proposal to effect substantial expansion within the same plot and the compliance with the conditions of the notification and relevant CBEC circulars justified the continuation of the excise duty exemption.