Factory definition under the Factories Act controlled exemption eligibility, and the duty demand and penalties failed.

Exemption under Notification No. 46/81 depended on the meaning of "factory" in the Factories Act, 1948, and the competent authority's certificates stating that the unit and connected units did not answer that definition were treated as significant evidence. The department could not disregard those certificates, especially where yearly exemption declarations had been verified and the exemption code had already been allotted. The record did not support suppression, and the inspection statements did not reliably establish that the persons concerned were workers under the Factories Act. On that basis, the finding that the unit had more than nine workers and qualified as a factory was not sustainable, so the duty demand, confiscation and penalty could not stand.

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Issues: Whether the appellants were entitled to exemption under Notification No. 46/81 on the footing that their unit did not answer the definition of a factory under Section 2(m) of the Factories Act, 1948, and whether the duty demand, confiscation and penalty could be sustained.

Analysis: The exemption notification adopted the meaning of "factory" under the Factories Act, 1948. Certificates issued by the competent Factories Act authority stated that the appellant unit and the connected units were not factories within the statutory definition. The Central Excise authorities were not justified in disregarding those certificates. The yearly declarations filed for availing the exemption had been accepted by the department after verification and the exemption code had been allotted. The finding of suppression was therefore not supported, and the department's case rested substantially on statements recorded during inspection, some of which did not establish that the persons concerned were workers within the meaning of the Factories Act. On the evidence, the conclusion that the appellant unit had more than nine workers so as to be treated as a factory was not sustainable.

Conclusion: The appellants were held entitled to the exemption and the duty demand, confiscation and penalty were not sustainable.

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