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3 May 2016

Area Based exemption- to install a new plant in existing unit

In the case of AUTHORITY FOR ADVANCE RULINGS (CENTRAL EXCISE, CUSTOMS & SERVICE TAX), NEW DELHI, Lakhani Footwear (P.) Ltd., In re* (2016) 68 taxmann.com 277 (AAR - New Delhi), it has been held that even if factory license, ESI, PF Code and series of invoice, for new plant, are taken separately, the area-based exemption under Notification 50/2003-C.E., will be allowed to the substantial expansion by installing new plant in existing plot/premises.

In the said case, the assessee who was operating at Haridwar was availing the area based excise duty exemption under Notification No. 50/2003-C.E., dated 10-6-2003. To effect substantial expansion in the existing location, the assessee proposes to install more than 25 per cent additional plant and machinery and constructed new building; thus the substantial expansion would amount to 25 per cent.

Further for this Haridwar Plant-II, assessee will obtain separate factory license and E.S.I., PF Code and assessee proposes to separate existing works with the proposed Haridwar Plant-II by putting a wall in between the two.

The assessee contended that the expansion and installation of the plant and machinery is taking place in the same Khasra No. 72 & 74 for which ten year exemption has already been granted and is being availed. When even extending to adjacent plot of land is allowed, there is no reason why similar expansion within the same Khasra No. cannot be permitted. Hence, exemption must be granted.

However, the Revenue argued that since that the assessee proposes to divide existing plot into two parts by putting a wall; after completion of Civil work at the proposed vacant space, they will name it as "Haridwar Plant-II"; the assessee also proposes to take a separate factory license, ESI No. and P.F. Codes, it appears that the said "Haridwar Plant-II" cannot be termed as "expansion" of the existing unit and will be an altogether different entity from the existing unit, which is availing area based exemption under Notification No. 50/2003-CE, dated 10.6.2003 ;

Nonetheless, the authority for advance rulings held that in such a case, attention needs to focused on the intention of the government.

The intention of the Government is basically, the development of States like Uttarakhand and to generate additional employment opportunities. In view of this policy decision, Notification No. 50/2003-CE has been issued by the Government inter alia exempting goods manufactured and cleared in the specified area in Uttarakhand State from whole of the duty of excise or additional duty of excise. Therefore, it would be retrograde step and not in consonance with the policy of the Government, not to allow existing unit to grow in the existing plot of land, by installation of new plants and machineries.

Hence, the benefit of Notification No. 50/2003-CE, dated 10.6.2003 will be available to goods manufactured from the unit i.e. Plant-II Haridwar established from expansion of the existing unit.