Commissioner, Customs and Central Excise vs Uttaranchal Iron and Ispat Ltd.

Barin Ghosh, C.J.—The Excise Department issued a notice to the Respondent contending that since capacity expansion of the Respondent was not done by any additional plant or machinery, Respondent is not entitled to exemption under the Notification dated 10th June, 2003. In relation to Notification dated 10th June, 2003, a clarification was issued on 21st January, 2004. By the said clarification, the term ''substantial expansion'', as used in the Notification dated 7th January, 2003, followed in the Notification dated 10th June, 2003, was clarified as follows:

(a) Increase in installed capacity of an existing unit by not less than 25% should be the result of installation of additional plant and machinery. Any increase in the installed capacity by means other than installation of additional plant and machinery would not qualify for the benefit of exemption under "substantial expansion".

(b) As substantial expansion is defined in terms of increase in installed capacity by 25% or more, value of investment in plant and machinery is not criteria to define substantial expansion. So long as additional installation of plant and machinery results into increase in installed capacity by not less than 25% quantum or value of investment in plant and machinery is not very material in deciding the criteria of substantial expansion.

(c) There is no bar on use of second hand machinery for undertaking substantial expansion so long as it enhances the existing installed capacity by not less than 25%. What is relevant is the increase in installed capacity by not less than 25% by way of additional installation of plant and machinery.

(d) The term substantial expansion is not defined in terms of original or depreciated value of plant and machinery. The only criteria to be satisfied is accretion in installed capacity by at least 25% with additional plant and machinery.

(e) Additional investment in plant and machinery in modernization or for improving the quality of existing products, unless it leads to increase in installed capacity by 25% or more, would not tantamount to substantial expansion.

Respondent filed his response to the show-cause, which having not been accepted, it was held that the Respondent is not entitled to exemption in terms of the Notification dated 7th January, 2003 read with the Notification dated 10th June, 2003. Respondent, accordingly, approached the Appellate Authority and, having lost before it, went before the Tribunal. Tribunal noted, to which there appears to be no dispute, that the Commissioner of Excise determined the installed capacity of the Respondent, u/s 3A of the Central Excise Act (Compounded Levy Scheme), and that after the Respondent made a claim that it has increased its installed capacity, the Surveyor engaged by the Excise Department found that the installed capacity of the Respondent has been increased by more than 25% of its installed capacity. The Tribunal also noticed that the said Surveyor reported that in order to increase the capacity, Respondent modified its existing furnace by increasing its length from 70 ft. to 120 ft. The Tribunal found that the earlier motor was replaced by a heavier motor. Tribunal also found that the earlier gearbox, too, was replaced. There appears to be no dispute to these findings of the Tribunal. Having had found the same, Tribunal concluded that by making modification of the already existing machinery, since the installed capacity has been increased by more than 25%, Respondent was entitled to the benefits under the order of the Government dated 7th January, 2003, read with the order dated 10th June, 2003.

In the present Appeal, it has been contended by the Revenue that the existing furnace was modified and the existing motor and gearbox were replaced and, accordingly, additional plant and machinery were not used for increasing the installed capacity. We feel that the Board''s Circular dated 21st January, 2004 must be read as a whole. A look at the Circular would make it clear that emphasis was given to factual increase of 25% capacity by installation of additional plant and machinery. Such additional plant and machinery may be secondhand, value whereof may be minimal, but some additional plant and machinery must be deployed for increasing the installed capacity. It did not say that the existing line of production, and the equipments used there for, should remain and a separate line of production consisting of new plant and machinery, having 25% capacity of the existing one, should be brought-in. In other words, while using the word ''additional plant and machinery'', it was not insisted that the existing plant and machinery should remain. What was held out was that something additional should be brought-in, in the form of plant and machinery, which may be secondhand, and by dint of which, capacity has been expanded. In the instant case, the length of the existing furnace was increased. The furnace, which was in existence, is not the furnace, which is now in existence. The furnace, which is now in existence, is an additional plant. It is true that the additional plant, in the form of furnace, is an old plant made to the specification by modification thereof, but there is no bar to that in the clarification Circular dated 21st January, 2004. The gearbox and the motor have been replaced. Those are additional machinery. The Circular nowhere says that such machinery, in order to be additional machinery, should be in addition to those, which are in existence. The said clarification, which also uses the words

We, accordingly, conclude that there is no scope of interference with the judgment and order of the Tribunal impugned in the present Appeal. The Appeal is, accordingly, dismissed.