ORDER
G. Sankaran, Sr. Vice President
1. This appeal is against Order No.l/82/TI-29A dated the 23rd November, 1982, passed by the Additional Collector of Central Excise, Indore, whereby he held that the benefit of duty concession in terms of Central Excise Notification No. 56/78 dated 1-3-1978 was not admissible in respect of two air conditioners installed by the appellants, one in the pump maintenance (burn-out) Section and the other in the instrument shop, on the ground that these two places were used for purposes other than for the manufacture of goods. The Additional Collector, therefore, called upon the appellants to pay the differential duty on the two air conditioners in terms of the show cause notice dated 22-12-1979 issued by the Superintendent of Central Excise, Ujjain.
2. We have heard Shri Vivek Gambhir, Advocate, for the appellants and Shri K.C. Sachar, Departmental Representative, for the respondent and have read the record.
3. Central Excise Notification No. .56/78 issued under Central Excise Rule 8(1) fixes a concessional rate of duty for room air conditioners falling under Item No. 29A(2) of Central Excise Tariff Schedule subject to the conditians set out in the notification. One of the conditions is that the Collector of Central Excise is satisfied that the air conditioners are required for use in any of the establishments specified in the Schedule to the notification. Serial No. 12 of the Schedule reads : “Any factory”, “Factory” has been defined for this purpose as “any premises including the precincts thereof where any goods are manufactured or are stored, but does not include any premises which are used for other purposes”.
4. The case for the department, as briefly noted already, is that the two air conditioners in question were used in two places in the factory which were not engaged in the manufacture of any goods. The two places were the instrument shop and the pump maintenance or burn-out Section of the factory. The case of the appellants is that for the efficient and uninterrupted sophisticated continuous process employed for them for the manufacture of nylon and polyester yarn, various electronic instruments are required to control temperature and other parameters. These instruments can work accurately only at specified temperatures and in a dust free atmosphere. If such conditions are not present the final products would not be of the desired quality. Similarly, the air conditioner installed in the pump maintenance or burn-out Section is required to control variations in the speed of the metering pump which control the flow of the raw material in process. The Additional Collector has held that the notification envisages duty concession only in respect of air conditioners installed in those places of the factory where goods are manufactured or are stored. He has held that the two places referred to earlier could not be considered to be such places though the air conditioners installed in those places might help to control certain instruments. No manufacturing activity as taking place in either of the two places. It is on this basis that the Additional Collector has denied the benefit of the duty concession.
5. It is urged before us for the appellants and it is also apparent from the record that the appellants had applied for and obtained permission from the Central Excise authorities to avail themselves of the duty concession under Notification No. 56/78 dated 1-3-1978 which inter alia lays down that the procedure laid down in Chapter X of the Central Excise Rules should be followed. By a letter dated 23-10-1978 enclosing an application in the prescribed form AL6, the appellants had sought concession in respect of 3 air conditioners required to be installed in the testing room (instrument shop) and the spinning department. A ground plan had also been enclosed with the application in which the proposed location of the air conditioners had been marked. The purpose for which the air conditioners were required was also set out in the annexures to the letter; one each to be installed in the instrument shop, the spinnerette checking room and the pump assembly room of burn-out Section. A copy of the ground plan drawing No. 09/D-271 filed by the appellants shows that the plan was verified by the Central Excise Inspector. The Central Excise authorities were apparently satisfied with the documentation and granted the appellants the requisite permission to procure the air conditioners in terms of the said notification. The three air conditioners were, as seen from the Additional Collector’s order, brought by the appellants, on clearance at the concessional rate of duty, under bond, from M/s. Voltas Ltd., Thane, under Gate Pass (GP I No. 2321) dated 2-1-1979. There is no dispute about the air conditioner installed in the spinnerette Section. On 22-12-1979, the Superintendent of Central Excise, Ujjain, issued a show cause notice to the appellants in respect of the other two air conditioners alleging contravention of Central Excise Rule 192 read with Rule 196 and demanding payment of differential duty. The Additional Collector, in due course, confirmed this demand.
6. Central Excise Rule 192 provides that where the Central Government has, by notification under Rule 8, sanctioned the remission of duty on excisable goods, used in a specified industrial process, any person wishing to obtain remission of duty on such goods shall make an application to the Collector in the proper form stating the estimated annual quantity of the excisable goods required, the purpose for and the manner in which it is intended to use them and declaring that the goods will be used for such purpose and in such manner. On due satisfaction, the Collector is enjoined to grant the application whereupon the applicant shall enter into a bond with surety or security. Rule 196 provides inter alia that if any excisable goods obtained under Rule 192 are not duly accounted for as having been used for the purpose and in the manner stated in the application, the applicant shall, on demand by the proper officer, immediately pay the duty leviable on such goods. The Collector may also, at any time, withdraw the concession if a breach of the rules is committed.
7. It is Shri Sachar’s contention that since the two air conditioners in question had been installed in places which were not engaged in the manufacture or storage of goods, the notification would not apply and duty was correctly demanded.
8. We are unable to accept the above contention. The appellants had clearly set out in their application their requirements, the purpose for which the air conditioners were required and the location where they were to be installed. It is not the department’s case that they had mis-declared these particulars in the application or that the air conditioners had been put to use other than in the manner specified in the application. In fact, the show cause notice alleges violation and contravention of Rule 192 read with Rule 196 not on the ground of mis-declaration or any of the aforesaid reasons but on the ground that the places where the air conditioners were installed were such that the notification in question was not applicable in the case of the appellants. On the facts and in the circumstances of the case, we are satisfied that since the appellants had disclosed all the material particulars in their application and had installed the air conditioners in the places shown jn the ground plan, they cannot be said to have violated the provisions of Rule 192. If the department had any reservations in the matter, they could have denied permission under Rule 192 of course giving valid reasons therefor. Once the permission was given and the appellants had acted upon such permission without going out of the parameters set out by the application read with the permission, it cannot be held that they had violated Rule 192. Therefore, the demand for duty could not be sustained under Rule 192 and must be struck down on that score itself.
9. However, Shri Sachar submits that for the purpose of Notification No. 56/78, “Factory” has been given a restricted meaning and that it does not cover repair or maintenance activities unconnected with the actual manufacture of the goods. On the other hand, the contention of Shri Vivek Gambhir, counsel for the appellants, is that the nature of the activities carried on in the places where the two air conditioners were installed was such that those activities were integral to the manufacturing process and in the absence of these air conditioners the end-product would have been below the required quality.
10. We are of the opinion that the definition of “Factory” in Notification No. 56/78 should not be read in the narrow or restricted sense as the department would have us do. The definition of “Factory”, in our view, must be read as including those parts or places in the factory wherein any activity connected directly or indirectly (incidental or ancillary processes) with the manufacture of goods is carried on. An instrument workshop or a pump maintenance room would fall in this category whereas the portion of the factory used as for e.g. for administrative purposes, may be out of such category. Viewed in this light, we are of the opinion that, even on merits, it cannot be said that the air conditioners installed by the appellants in the instrument workshop and the pump maintenance Section were not eligible for duty concession in terms of the notification.
11. Shri Sachar has cited the Supreme Court’s judgment in the case of Regional Director, Employees’ State Insurance Corporation v. Ram Chander, 1987 (32) E.L.T. 231 (S.C.) in support of his contention that manufacturing activity could extend to even finishing activities but not beyond as in the present case. In this judgment, the Supreme Court has held that the process of ironing, with the aid of power, of stitched clothes was an incidental or ancillary process in the manufacture of stitched clothes though it was intended to give a finishing touch in order to render the goods marketable. This decision was rendered in the context of the words used in the Employees’ State Insurance Act, 1948, especially the words “and premises including the precincts thereof … and any part of which manufacturing process is being carried on with the aid of power or is ordinarily so carried on”. As we have seen, the definition of “Factory” for the purpose of Notification No. 56/78 is not similarly worded. The contention of the appellants that the activities in the two places in the factory where the two air-conditioners were installed were an integral and essential part of the manufacturing process leading to nylon and polyester yarn has not been satisfactorily rebutted or controverted by the Collector except to say, without any basis disclosed therefor, that these activities were not connected with the manufacturing activities. The counsel for the appellants had cited the Andhra Pradesh High Court’s judgment in V.R. Industries Tea Packing Unit (Duncans) v. Superintendent of Central Excise, vijayawada, 1988 (33) ELT 260 (A.P.). The issue involved in that case was whether the process of preparing packaged tea exigible to duty under Item No. 3(2) of the Central Excise Tariff Schedule could be considered as manufacture. The contention for the petitioner was that packing of loose tea could not be considered as manufacture. We have perused this judgment and we do not think that this judgment has relevance to the present case.
12. In the result, we set aside the impugned order and allow the appeal.