Separate factory sheds may not be clubbed for excise liability where each premises fails the statutory factory test.

Separately situated factory sheds on different plots, with separate premises and precincts, were treated as distinct factories for excise purposes under Section 2(m) of the Factories Act, 1948. The tariff provision applied only to goods manufactured in a factory, while the exemption covered goods made in premises other than a factory. On that reasoning, workers could not be clubbed across independent sheds to fasten duty liability, and registration as a small scale industrial unit did not change the statutory test. The analysis states that, on these facts, the goods were not liable to excise duty and the demand and penalty were unsustainable.

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Issues: Whether two separately situated factory sheds of the same assessee could be clubbed together as one factory for the purpose of excise duty liability under Tariff Item 68 and Notification No. 85/79-C.E., and whether the assessee was entitled to exemption for goods manufactured in those sheds.

Analysis: The two sheds were on different plots, had separate premises and precincts, and were divided by another factory. Each shed had to be treated as a separate factory for the purposes of the definition of factory under Section 2(m) of the Factories Act, 1948. The tariff description under Tariff Item 68 applied only to goods manufactured in a factory, while Notification No. 85/79-C.E. exempted goods manufactured in premises other than a factory. Since each shed, taken separately, did not satisfy the statutory concept of a factory, the workers could not be clubbed to fasten duty liability. The registration as a small scale industrial unit did not alter the position because the exemption turned on the existence of a factory under the Factories Act, 1948, not on the status of the industrial unit.

Conclusion: The assessee was not liable to excise duty on the goods manufactured in either shed, and the demand and penalty were unsustainable.

Final Conclusion: The appeal succeeded, and the impugned order was set aside with consequential relief to the assessee.

Ratio Decidendi: For excise purposes, separately situated and independently functioning premises must be assessed on their own statutory character as factories, and duty cannot be imposed by clubbing workers from distinct sheds unless the premises together constitute one factory within the relevant statutory definition.

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