ORDER
G.R. Sharma, Member (T)
1. By the impugned order the ld. Collector (Appeals) confirmed the order passed by the Asstt. Collector holding that the total value of clearances by M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. from one or more factories during the preceding financial year 1986-87 had exceeded 150 lakhs and the appellants claim of exemption under Notification No. 175/86 in respect of the same factory was not permissible, are correct in law and sustainable.
2. Briefly stated the facts of the case leading to the present appeal are that the appellants took over the factory of M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. on five years lease and started manufacturing motor vehicle parts w.e.f. 21-7-1987 claiming exemption as SSI unit under Notification No. 175/86 on the strength of SSI certificate No. 5055/87/CI/2910 for the factory premises which was owned by M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. prior to its being taken over by the appellants. The department alleged that since M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. were paying duty at full tariff rate in terms of para 3 of the exemption Notification No. 175 / 86. The appellants were not entitled to the benefit of the small scale exemption under this notification. The appellants contended that they were holding SSI certificate and had come into production from July, 1987, they were legally entitled to the exemption benefit under Notification No. 175/86 during the financial year 1987-88. It was also contended by the appellants that during the financial year 1986-87, the aggregate value of clearances of M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. for the unit taken over on lease was only Rs. 64,86,987.31 and thus it was within the limit of Rs. 1.5 crores and entitled to the benefit of the notification in terms of para 3 of the notification. After considering the submissions, the lower authorities held as indicated in the preceding paragraph and hence the appeal before us.
3. Shri R. Pal Singh, Id. Advocate appearing for the appellants submits that the appellants took over on lease the unit in the name of M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. sometime in the month of July 1987. He submits that for the purpose of availing the benefit of exemption Notification No. 175/86 it is the clearances of this unit alone which should determine the availability of the exemption. He submits that in para 3, the words are the factory and not the factories as alleged by one or more manufacturers. Ld. Consultant submits that reading the words of this para, it is clear that it pertains to a factory and not to all factories and therefore, even if the contention of the department is to be accepted then the clearances only of this factory during the preceding year should be taken into consideration. He submitted that the aggregate value of clearances of goods of this particular factory did not exceed Rs. 65 lakhs and thus the factory was on its own entitled to the benefit of Notification No. 175/86. Ld. Consultant cited and relied upon judgment of this Tribunal rendered in the case of Commissioner of Central Excise, Madurai v. Ganesh Agro Pack (P) Ltd. -1996 (84) E.L.T. 471. Ld. Counsel submitted that the Tribunal in this case held that merely because the respondent’s factory was included, during the period of lease to Polyspin Ltd., in the licence of Polyspin, it cannot be held to be ineligible for exemption, when the lease is terminated and run by the respondents. Ld. Counsel also referred to the clarification given by the Central Board of Excise & Customs on the question that if a factory has been running during any financial year by different persons how will eligibility be determined? The answer to this question was “in case where a factory was being run at different times by different manufacturers, then the general small scale exemption shall not be available if the value of clearances from the factory by one or more manufacturers had exceeded Rs. 1.5 crores during the preceding financial year”. Ld. Consultant submitted that this clarification pointed out to the ‘word’ which clearly mean that it pertains to one factory only. Ld. Consultant therefore, submitted that since the aggregate value of clearances of the unit taken over on lease by the appellants was the prime consideration for determining its eligibility for exemption, was less than Rs. 65 lakhs, therefore, the appellants were entitled to the benefit of exemption Notification No. 175/86 and they prayed that their appeal may be allowed.
4. Shri D.S. Negi, Id. DR appearing for the respondent Commissioner submits that para 3 of Notification No. 175/86 clearly stipulates that it is the aggregate value of clearances from one or more factories of the same manufacturer and that it was thus not confined to the aggregate value of clearances of one particular unit. Ld. DR submits that admitted position is that the aggregatevalue of clearances from all the factories of the same manufacturers in the instant case exceeded Rs. 1.5 crore during the preceding financial year and therefore, the unit taken over by the appellants was not eligible to the exemption under Notification No. 175/86 and SSI certificate even if obtained by the appellants in respect of this unit will not entitle them to the benefit as the benefit was available to the unit and not to the manufacturers. In the instant case ld. DR submits that it was the unit taken on lease during the period when it was not entitled to the benefit as SSI unit. The status of the unit will not change even if a SSI certificate was obtained by the appellants’ working as a lessee. Ld. DR reiterated the findings of the lower authorities.
5. Heard the submissions made by both sides. We note that the issue for determination is as to whether the benefit of exemption under Notification No. 175/86 will be admissible to the appellants or not. We note that the unit was not entitled to the benefit of exemption under Notification 175/86 inasmuch as the aggregate value of clearances during the preceding financial year of all the units owned by M/s. Daulat Ram Dharam Bir Auto Pvt. Ltd. had exceeded Rs. 1.5 crores. Therefore, the issue in a short compass revolves on this point as to whether it is the clearance of this particular unit or clearances of all units of the same manufacture put together which should determine the status of the unit during the succeeding year or it is the clearances of one unit (in the instant case the unit in dispute) during the preceding year. We note that para 3 of the notification in dispute stipulates that nothing contained in this notification shall apply if the aggregate value of clearances of all excisable goods for home consumption.
(a) by a manufacturer from one or more factories,
or
(b) from any factory by one or more manufacturers, had exceeded rupees 150 lakhs in the preceding year.
We note that the contention of the appellant was that in their case it is sub-para (b) which is applicable and which inter alia provides that it is the clearances of one factory only. On the contrary revenue has contended that it is the clearance value of the goods not from one factory but from one or more factories of the same manufacturers. If we look at the wording of sub-para (b) of para 3 it shows that sub-para (a) & sub-para (b) are to be read so as to come to a harmonious conclusion. Sub-para (a) of para 3 provides that if the aggregate value of clearances from one or more factories had exceeded Rs. 150 lakh during the preceding financial year then the concession under Notification 175/86 will not be available.
6. Thus this sub-para covers a situation where a particular manufacturer has more than one factory and then the sum total of aggregate clearances is to be taken. Sub-para (b) of this para 3 provides that if the aggregate value of clearances from any one factory by one or more manufacturers exceeds Rs. 150 lakhs for the preceding financial year then the concession under Notification 175/86 will not be admissible to the manufacturers. Sub-para (b) covers a situation where from one factory, there has been clearances by more than one manufacturer and if the sum total of all clearances by more than one manufacturer has exceeded Rs. 150 lakh. We note that the exemption will not be available if the aggregate value of clearances from the factory by more than one manufacturer exceeds Rs. 150 lakh. Thus sub-para (a) and sub-para (b) cover two distinct situations. In the instant case during the preceding year it was single manufacturer from whose factories the value of clearances exceeded Rs. 1.5 crore and therefore, during the succeeding year i.e. during the year, 1986-87, the unit will not be eligible for the benefit of exemption notification. We find support for this view from the Hon’ble Gujarat High Court judgment rendered in the case of Indica Laboratories Pvt. Ltd. v. Union of India as reported in 1990 (50) E.L.T. 210. In this case Hon’ble Gujarat High Court held that
13. Point No. 2 :- In order to appreciate the nature of the grievance centering round the impugned para of the notification, it is necessary to keep in view the background in which this notification came to be issued. The said notification is at Annexure-C to special civil application No. 1435 of 1988 and it is also annexed to other petitions. This notification is issued by the Central Government in exercise of the power under Rule 8(1) of the Central Excise Rules. Under the said rule, the Central Government is empowered to, from time to time, by notification in the Official Gazette, exempt, subject to such conditions as maybe specified in the notification any excisable goods from the whole or any part of duty leviable on such goods. It is obvious that under charging Section 3, once excisable goods are manufactured by a manufacturer, they attract duty as prescribed in the Schedules. In spite of the charging section being attracted qua concerned excisable goods, they can be given benefit of partial or full remission of duty by the Central Government. In exercise of that power, the said notification has come to be issued. The preamble of the notification states “exemption to first clearances of specified goods upto the value of rupees fifteen lakhs and concessional duty on subsequent clearances in the case of manufacturer having clearances not exceeding rupees one and a half crores in the preceding year”. Thus, the exemption laid down under the scheme of the relevant notification attaches to the first clearances of specified goods upto the value of Rs. 15 lakhs and subsequent clearances not exceeding 1.5 crores of rupees by a given factory. Para 1 of the notification makes it clear that the Central Government exempts the excisable goods of the description specified in the Annexure to the notification and falling under the Schedule to the Central Excise Tariff Act, 1985, being specified goods and cleared for home consumption on or after the 1-4 in any financial year by a manufacturer from one or more factories to the extent provided in clauses (a) and (b) of the first para. In the case of first clearances of the specified goods upto an aggregate value not exceeding Rs. 30 lakhs, in a case where taxes are not paid on inputs used in the manufacture of the specified goods, whole of duty leviable on specified goods upto aggregate value not exceeding Rs. 30 lakhs, is exempted. Sub-clause (b) of the first para provides that in the case of clearances of the specified goods of an aggregate value not exceeding Rs. 60 lakhs, immediately following the said clearances of the value specified in clause (a), concessional rate of duty is prescribed. Proviso to para 1 lays down that the aggregate value of clearances of the specified goods in terms of clauses (a) and (b) of this paragraph taken together shall not exceed Rs. 75 lakhs. Thus, benefit of exemption is made available to small factories at which goods are manufactured upto the quantities laid down in para 1 of the exemption notification.
Now follow paras 2 and 3 which are impugned by the learned counsel for the petitioners. They provide that the aggregate value of clearances of the specified goods from any factory by one or more manufacturers in any financial year under clauses (a) and (b) of para 1, shall not exceed Rs. 30 lakhs and Rs. 60 lakhs respectively. There is a proviso to para 2 which lays down that the aggregate value of clearances of the specified goods from any factory by one or more manufacturers in any financial year, in terms of clause (a) and clause (b) of para 1, taken together, shall not exceed Rs. 75 lakhs. Para 3 provides that nothing contained in this notification shall apply if the aggregate value of clearances of all excisable goods for home consumption, (a) by a manufacturer, from one or more factories, or (b) from any factory, by one or more manufacturers, had exceeded Rs. 150 lakhs in the preceding year. Thus, paras 2 and 3 bring about the concept of clubbing of manufactured goods for the purpose of earning exemption qua their clearances from a given factory. To illustrate working of these two paras read with para 1, we may take example of a manufacturer. A owning factory whose first clearance from that factory amounts to Rs. 30 lakhs. Then as per para 1(a)(ii) he will get total exemption of excise duty qua these specified goods cleared upto limit of Rs. 30 lakhs. But if in the very same factory, some other manufacturer B on hiring factory shift-wise or otherwise manufactures his own goods under his supervision and control and out of his own raw material and first clearance value of B’s manufactured goods exceeds Rs. 30 lakhs, then, but for para 2, both A and B would be entitled, as per para 1, to claim individual exemption on their respective first clearances of goods manufactured by them in the factory to the extent of Rs. 30 lakhs each but because of concept of clubbing brought in by para 2, the goods manufactured from the very same factory, by A and B will be clubbed and their first clearances of the respective goods would amount to Rs. 60 lakhs i.e. Rs. 30 lakhs each. Consequently, exemption from excise duty will be available upto total value of Rs. 30 lakhs only and the rest will attract duty. Similarly clubbing of further clearances of these manufacturers from the same factory would attract ceiling of Rs. 60 lakhs and would not entitle them to have concessional duty on their respective additional clearances up to Rs. 40 lakhs each. Even for the last year, eligibility criterion for the same factory being aggregate value of clearance of the excisable goods for home consumption as the rate of 150 lakhs of rupees would apply conjointly If more than one manufacturers like A and B manufacture from the same factory.
It is submitted by the learned Advocate for the petitioners that this is illegal and arbitrary in both ways. Firstly, clauses 2 and 3 cut across clause 1 and hence they are contradictory to one another and therefore, clauses 2 and 3 must make room for operation of parent para 1. Secondly, it was submitted that in any case, artificial classification has been made by the rule making authority between the sole manufacturers who manufacture their goods at the factory which is SSI unit on the one hand and other class of manufacturers who manufacture their own goods in such factory and also permit other manufacturers to manufacture latter’s goods in the same factory by utilising their infrastructures. That would include persons like loan licensees. That is the sole manufacturers manufacture their goods in the factory, their first clearances and subsequent clearances as provided by para 1 will get exempted from payment of duty, but only because they permit other manufacturers to utilise their plant and machinery, the rule making authority has evolved the principle of clubbing their manufactured goods and, therefore, the extent of exemption available to individual manufacturer gets whittled down or curtailed. There is no rational basis underlying such differential treatment to plurality of manufacturers utilising the same factory in given financial year for manufacturing their goods and, therefore, such classification evolved by clauses 2 and 3 is arbitrary and ultra vires Article 14 of the Constitution. Reliance was placed by the learned counsel for the petitioners on the Supreme Court decision in the case of Government of India v. Dhanlaxmi Paper Mill -1989 (39) E.L.T. 171. Exemption notification issued in that case under Rule 8(1) was brought in challenge on the ground that clause (a) of third proviso thereof providing for an earlier date as cut off date for restricting benefit of exemption was without any basis, arbitrary and ultra vires. Considering the scheme of that notification, the Supreme Court held that choice of date as cut off date for restricting benefit of exemption was arbitrary and ultra vires if such date has no rational relation to the object of notification. There cannot be any dispute on this well settled position.
However, we have to see whether the impugned clauses 2 and 3 introducing the system of clubbing the manufactured goods by different manufacturers from the same factory is in any way arbitrary or ultra vires. So far as the first aspect of the matter is concerned, it has to be stated to be rejected. It is true that para 1 lays down general scheme of exemption up to a particular limit of first clearance of specified goods of the same SSI unit and then lays down concessional rate of duty beyond basic clearances upto the ceiling provided therein. But that does not mean that this is an absolute provision. It has to be read conjointly with paras 2 and 3. There is nothing like parent provision, as wrongly assumed by the learned counsel for the petitioners. This is an exemption notification and exemption can be granted by the Central Government in certain cases subject to conditions which may be laid down in the notification. In the present case, absolute exemption has not .been granted by the Central Government but a hedged in concessional scheme of exemption has been promulgated. Thus, paras 2 and 3 have to be read as further conditions of exemption without limiting absolute exemption given in para 1. Therefore, paras 1, 2 and 3 have to be read together in a conjoint manner and once they are so read, there would not be any question of para 1 being cut across by paras 2 and 3 or latter getting ultra vires the so-called parent provision of para 1. Consequently, there is no substance in the first contention of the learned counsel for the petitioners on this aspect.
So far as infraction of Article 14. is concerned, we fail to appreciate how it can be said that wordings of notification-in question with paras 2 and 3 lay down any scheme of hostile discrimination against plurality of manufacturers manufacturing their goods from the same SSI unit. The preamble of the notification and the relevant clauses of the notification lay down a clear cut scheme of exemption-cum-concession. All the factories which are SSI units are uniformly covered by the sweep of the said notification and the exemption attaches to the clearances of the specified goods cleared from the factory gate of such factory in a given financial year and the extent of total exemption is upto Rs. 30 lakhs and concessional exemption is beyond 30 lakhs upto Rs. 60 lakhs, with limit of Rs. 75 lakhs in a given financial year. This is the basis or heart of the notification. If one manufacturer manufactures specified goods in one financial year alone from that factory and gets the said goods cleared, he gets full exemption and concession to the extent provided by para 1. But if more than one manufacturer utilise the said factory and infrastructures during the financial year and get their goods cleared through the factory gate in the same year, then, their goods will be clubbed for the purpose of deciding the question of total exemption upto the limit prescribed and concessional exemption upto further limit prescribed. The common thread which runs through all the paras of the notification is the scheme of exemption and concessional duty in connection with total quantity of first clearances and subsequently clearance of specified goods, ex-factory gate during the financial year. Once this common thread is kept in view, then paras 2 and 3 will fall in line with para 1. If paras 2 and 3 are not countenanced, unexpected and unwarranted result would follow. From the same factory gate, goods manufactured by manufacturer A in a financial year will get total exemption upto Rs. 30 lakhs as per para 1 and manufacturer B who also utilised the same infrastructure at some other time during the same financial year will get total benefit for Rs. 30 lakhs by way of first clearance of his own goods. Thus, total exemption limit would stand inflated to Rs. 60 lakhs instead of Rs. 30 lakhs, which is the total limit of full exemption envisaged by the exemption notification, so far as first clearances of concerned goods from the given factory for the financial year go. With a view to avoiding this unexpected and uncontemplated result, the aforesaid system of clubbing envisaged by paras 2 and 3 has been brought in. It works as a safety valve for avoiding such unexpected result and ensures that from the same factory, permissible extent to total goods by way of first clearances as contemplated by notification are allowed to be cleared without payment of duty and, thereafter subsequent total clearances of specified goods from the same factory in the same year would earn concessional rate of duty. Thus, paras 2 and 3 instead of being arbitrary and irrational, are in full consonance with the scheme of exemption envisaged by the notification in question and but for them, the nature of exemption would be rendered arbitrary and lopsided. Under these circumstances, it is not possible to agree with the submission of the learned counsel for the petitioners that impugned pares 2 and 3 of the notification are ultra vires Article 14 or that they hostilely discriminate against the plurality of manufacturers manufacturing from the same factory. The second point, therefore, fails and stands rejected.
7. We find that in the case of Bhavana Apparells v. C.C.E. as reported in 1989 (43) E.L.T. 642, this Tribunal while examining the applicability of Notification No. 150/71, dated 26-7-1971 on a similar issue held that:
“Taking into consideration the fact that till M/s. Bhavana Apparells commenced manufacture, the factory was one and even after the lease the alteration of the licensed premises was not approved and the further fact that the same machinery had been used by both, we are satisfied that the factory was one throughout the year, though the manufacturing activity may have been carried on by the two appellants during separate periods (as had been accepted by the lower authorities also)”.
8. We note that the appellants cited and relied upon the judgment of this Tribunal in the case of Ganesh Agro Pack (P) Ltd. In this judgment the Tribunal in addition to what was brought to our notice had observed :
“We are told that if value of clearances from the respondent’s shed effected from Polyspin Ltd. is taken into account, this is within 1.5 crore during the preceding financial year. If that be so, in such a factory, run by the respondents as also by Polyspin Ltd. value of clearances as per condition 3 of the notification is within the limit. Hence we find no reason to interfere with the order of the Collector (Appeals)”.
9. We find that the case is clearly distinguishable inasmuch as the aggregate value of clearances in the case cited was less than Rs. 1.5 crore during the preceding financial year as against the case before us in which the aggregate value of clearances was more than Rs. 1.5 crore during the preceding financial year.
10. Having regard to the facts brought out above and the case law cited and brought to our notice, we find that the unit taken on lease was not entitled to the benefit of exemption under Notification No. 175/86 as the unit during the relevant period was not entitled to SSI exemption. The Collector (Appeals) had allowed the benefit of exemption under Notification 175/86 and revenue had come up in appeal in this case. We find that in this judgment and in the case decided by the judgment, the aggregate value of clearances was less than Rs. 1.5 crore. Thus, the case is clearly distinguishable inasmuch as the aggregate value of clearances in the case before us during the preceding financial year was more than Rs. 1.5 crore. We therefore, uphold the impugned order and reject the appeal.
