Area based exemption remains available when 25% capacity expansion is achieved through replacement of plant and machinery.

Area based exemption under Notification No. 50/03-CE was available where the assessee achieved the stipulated 25% increase in production capacity through replacement of old plant and machinery. The earlier view in the assessee's favour, upheld by the High Court, treated the mode of expansion as immaterial once the capacity increase condition was satisfied. On that basis, the exemption claim was held to meet the notification's requirement, the departmental challenge failed, and the impugned order was upheld.

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Issues: Whether the assessee was entitled to area based exemption under Notification No. 50/03-CE dated 10/06/2003 when production capacity was increased by 25% through replacement of old plant and machinery.

Analysis: The benefit of the notification had already been examined in the assessee's favour in an earlier decision, and the High Court had upheld that view by holding that replacement of old plant and machinery would not disqualify the industry if the object of increasing capacity by 25% was achieved. On that reasoning, the claim satisfied the requirement of the notification.

Conclusion: The assessee was entitled to the exemption; the departmental challenge failed.

Final Conclusion: The impugned order was upheld and the department's appeal was rejected.

Ratio Decidendi: Where the stipulated increase in production capacity is achieved, area based exemption cannot be denied merely because the expansion was effected by replacement of old plant and machinery.

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