Unit-wise area-based exemption depends on commercial production of each industrial unit, not the entire factory.

Area-based industrial exemption is determined unit-wise by reference to the concerned industrial unit's commencement of commercial production, not by clubbing the entire factory. A factory making multiple commodities may contain separate industrial units, and eligibility must be tested for each unit individually against the cut-off date. Applying that approach, exemption was sustained for Pan Chatni and Scented Elaichi under Notification No. 50/2003-CE, and the benefit linked to substantial expansion for Scented Supari was also upheld. The Revenue's factory-wide objection failed, and the exemption relief remained intact.

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Issues: (i) Whether separate products and sections within the same factory could be treated as distinct industrial units for the purpose of exemption under the area-based notification, and whether the date of commencement of commercial production had to be examined unit-wise. (ii) Whether the assessee was entitled to exemption for Pan Chatni and Scented Elaichi under Notification No. 50/2003-CE and for Scented Supari on the ground of substantial expansion.

Issue (i): Whether separate products and sections within the same factory could be treated as distinct industrial units for the purpose of exemption under the area-based notification, and whether the date of commencement of commercial production had to be examined unit-wise.

Analysis: The notification granted exemption to new industrial units commencing production on or after the specified date and did not proceed on the basis of factory-wide aggregation. The relevant test was whether the particular industrial unit had commenced commercial production after the cut-off date. The reasoning approved that a factory manufacturing more than one commodity could contain separate manufacturing units, and that the exemption had to be examined with reference to the concerned unit rather than the entire factory.

Conclusion: The unit-wise approach was held to be correct and the Revenue's factory-wide objection failed.

Issue (ii): Whether the assessee was entitled to exemption for Pan Chatni and Scented Elaichi under Notification No. 50/2003-CE and for Scented Supari on the ground of substantial expansion.

Analysis: The record showed that the relevant products were treated as separate industrial units and the commencement of commercial production was to be determined with reference to those units. The Tribunal applied the distinction between trial production and commercial production and followed the settled view that a unit undergoing expansion is to be tested unit-wise for eligibility. On that basis, the findings of the Commissioner (Appeals) allowing the exemption were found consistent with the governing exemption scheme.

Conclusion: The assessee was entitled to the exemption for Pan Chatni and Scented Elaichi, and the benefit of substantial expansion for Scented Supari was also upheld.

Final Conclusion: The order granting exemption relief was sustained and the Revenue's challenge failed.

Ratio Decidendi: For an area-based industrial exemption, eligibility is determined unit-wise by the commencement of commercial production of the concerned industrial unit, and not by clubbing the entire factory as one unit.

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