Separate factory status and trial production distinguished for excise exemption where expanded unit operated independently.

A substantially expanded unit may qualify as a separate factory for excise exemption if it operates as an independent industrial unit with physical separation, even where ownership and accounts remain common; the notification was therefore not denied on that basis. Trial production in March 1986 did not amount to commencement of commercial production before the 1-4-1986 cut-off, because testing activity is distinct from regular manufacture. On both points, the exemption claim was upheld and the Revenue's objection failed.

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Issues: (i) Whether a unit set up in the course of substantial expansion of an existing industrial undertaking could be treated as a separate factory for availing exemption under Notification No. 36/87-C.E. dated 1-3-1987; (ii) Whether production undertaken in March 1986 as trial production could be treated as commencement of production before the cut-off date 1-4-1986.

Issue (i): Whether a unit set up in the course of substantial expansion of an existing industrial undertaking could be treated as a separate factory for availing exemption under Notification No. 36/87-C.E. dated 1-3-1987.

Analysis: The notification was construed with reference to the concept of a factory rather than merely the identity of the manufacturer. Substantial expansion under the industrial law was held to be capable of resulting in a new industrial unit, and a manufacturer could have more than one factory and, correspondingly, more than one excise licence where the places of business were distinct. The independent nature of the new unit and its physical separation were treated as material, and the departmental objection based on the common ownership, common accounts, and expansion licence in the name of the existing undertaking was rejected.

Conclusion: The new unit could be treated as a separate factory, and the benefit of the notification was not excluded on that ground.

Issue (ii): Whether production undertaken in March 1986 as trial production could be treated as commencement of production before the cut-off date 1-4-1986.

Analysis: Trial production was distinguished from commercial production. Mere manufacture of some quantity during testing, even if entered in records and cleared, did not by itself establish commencement of regular production for the purpose of the exemption condition. The relevant consideration was the actual start of production in the commercial sense, and the short trial run before the cut-off date was held insufficient to defeat the claim.

Conclusion: The March 1986 trial run did not amount to commencement of production before 1-4-1986.

Final Conclusion: The exemption claim survived both objections, so the Revenue's challenge failed and the common order allowing the assessee's relief stood undisturbed.

Ratio Decidendi: For exemption purposes, a substantially expanded unit may be treated as a separate factory if it functions as an independent industrial unit, and trial production does not constitute commencement of commercial production unless regular manufacturing activity has actually begun.

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