Factory-based excise exemption cannot be denied by clubbing separate units of the same company; consequential penalty also falls.

Exemption under a central excise notification could not be denied by treating two separately situated factories of the same company as one unit. The condition in question was framed by reference to a factory lacking the facility for producing single yarn, and the units were at different locations and remained separate factories. The notification could not be rewritten by substituting the concept of a manufacturer for the statutory reference to a factory. As the notification's condition was satisfied, denial of exemption was unwarranted, and the director's penalty under Rule 209A, being consequential to the unsustainable demand, also could not stand.

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Issues: Whether exemption under the relevant central excise notifications could be denied on the footing that two separately situated factories of the same company were one unit, and whether the penalty under Rule 209A could survive.

Analysis: The exemption condition applied to a factory lacking the facility for producing single yarn. The two units were at different locations and were separate factories, not one factory merely because they belonged to the same company. The notification could not be rewritten by substituting the concept of a manufacturer for the statutory reference to a factory. Since the condition of the notification was satisfied, denial of exemption was unwarranted. The penalty imposed on the director was consequential to the unsustainable demand.

Conclusion: The exemption was admissible to the assessee and the penalty on the director could not stand.

Final Conclusion: The impugned order was set aside and the appeals were allowed.

Ratio Decidendi: For exemption conditions framed with reference to a factory, separate factories of the same company cannot be treated as one unit unless the notification so provides; the notification must be applied as written.

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