By TIOL News Service

AHMEDABAD, JAN 02, 2015: WHAT is the meaning of 'his factory' ? Is it the factory in which an exemption notification availed by a manufacturer or does it include all the factories of the corporate house?

Sl. No. 6 of Notification No.30/2004-CE dated 9.7.2004 is the subject of dispute in these appeals. The Sl. No.6 reads as:

The questions to be decided are:

(i) Whether the appellants are eligible to the benefit of exemption under Sr.No.6 of the Notification No.30 /2004-CE, dt.09.07.2004 , as amended, when the appellants are having more than one factories and also have the facilities of manufacturing POY in a factory other than the factory of the appellants where the benefit of Notification No.30 /2004-CE, dt.09.07.2004 is being availed?

(ii) Whether extended period is invokable in these proceedings in view of facts & circumstances available on record?

(iii) Whether penalties are required to be imposed upon the appellants in these proceedings?

From the Notification, it can be seen that all filament yarns procured from outside when subjected to any process (including texturising) by a manufacturer were exempted if the manufacturer does not have facility "in his factory for manufacturing the filament yarn of Chapter 54.

In the absence of any definition of words "his factory", used in this notification, a clear picture is not emerging whether the words "his factory" mean the same factory where exempted processes are undertaken or will also include all the factories owned by the manufacturer because the words like "in the same factory" or "his factory/factories" or "manufacturer not having the proprietary rights in any other factory" etc have been used by legislative in other exemption notifications. The appellant s advocate in his arguments, inter alia, also relied upon Sr.No.10 of the same exemption notification to argue that similar words 'his factory' have been used in Sr.No.10 but no demands are raised by the Revenue with respect to processes like carding, combining etc done by those manufacturers having facilities for producing goods of headings 55.01, 55.02, 55.03 & 55.04.

It is observed from the case records that following expressions have been used in the description column of Table to Notification No.30/2004-CE as amended, against Sr.No.6

(a) 'Yarns procured from outside'

(b) 'Subjected to any process by the manufacturer'

(c) 'Who does not have the facilities in his factory for the manufacture of filament yarns of Chapter 54'

All the above three expressions used in Notification No.30/2004-CE have been interpreted differently by the Revenue and the appellants.

According to Revenue, the yarns should be purchased by the manufacturer from outside. Further, revenue is also of the view that the word manufacturer used in Notification No.30/2004-CE should be interpreted as a legal entity and that the words 'in his factory' should include all the factories of the manufacturer as a legal entity.

Appellants on the other hand argued that words 'procured from outside' used in the notification means that the yarn should have been obtained (whether purchased or not) from outside and the word manufacture should be the same factory/assessee to whom demand is issued. That accordingly the expression in 'his factory' should be treated as 'the same factory'.

The Tribunal observed,

Under the Central Excise Taxation duty of Central Excise is levied on the 'act of manufacture' as defined in Section 2(f) of the Central Excise Act 1944 and the person who carries out the 'act of manufacture' is the manufacturer. A 'manufacturer' who is liable to pay duty becomes an 'assessee' by virtue of Rule-2(c) and has to take out a Registration as per the provisions of Rule 9 of the Central Excise Rules 2002. From the above basic elements of Central Excise law a manufacturer is the person who carries out the act of manufacture.

In the present proceedings the 'act of manufacture' is being undertaken by the appellants factory to whom demand show cause notices are issued and each factory will make the person carrying out the activity of manufacture as the 'manufacturer'. There is nothing in the definition of Section-2(f) to indicate that a legal entity only has to be considered as a 'manufacturer'. Rather each 'assessee' has to be treated as a manufacturer and not the entire group of companies as claimed by the Revenue. In the present proceedings also even the demands have been issued by the Revenue to the individual assessee carrying out the exempted processes and not to the head offices of the group companies as a legal entity. Therefore, we are of the considered view that the word 'manufacturer' used in Sr.No.6 of the Notification No.30/2004-CE has to be interpreted as a unit where the 'act of manufacture' is being undertaken which is the individual factory and not all the factories of a group of companies

From the above analysis when the definitions of 'manufacture', 'manufacturer' and 'factory'; as given in Section 2(f) and Section 2(e) of the Central Excise Act 1944; are collectively read then in our mind the expression in his factory' will mean the factory of the 'manufacturer' and that factory will mean 'the same factory' where manufacturing activity is being undertaken and the word 'manufacturer' will not mean a legal entity or all group companies taken together. If any contrary interpretation is made then demands under Section 11A of the Central Excise Act 1944 could be raised against any of the registered units of a group of companies undertaking manufacturing activities at different locations.

The above view taken is also fortified by the following facts available on record.

(a) Before exemption under Notification No.30/2004-CE texurised yarn (including draw twisted and draw wound yarn) of polyesters; manufactured by 'independent texturiser', who does not have the facilities 'in his factory' for producing POY; was exempted from duty in excess of Rs.2.50 per kg under Notification No.6/2000CE, dt.1.3.2000 as amended (Sr.No.114).

(b) The words used in this notification were 'independent texturiser' and 'in his factory'.

(c) Both the words were singular and meant one person doing the act of texturising in his factory.

(d) Appellants were availing the benefit of this exemption and no objection was ever raised by Revenue that if appellants had more than one factory, having facilities of producing POY elsewhere, then exemption under Notification No.6/2000-CE will not be admissible.

(e) Further the words 'independent texturiser' was not defined in Notification No.6/2000-CE but the words 'independent processor' was defined as an Explanation in Sr.No.89 of the same notification, as "independent processor" means a manufacturer who is engaged exclusively in the processing of fabrics with the aid of power and who has no proprietary interest in any factory engaged in the spinning of yarn of wool or weaving of woolen fabrics.

(f) From the above expression "No proprietary interest in any factory engaged in .....," used in Sr.No.89 of Notification No.6/2000-CE, it is clear that legislature has the vision and skill to express as to what could be the intention of the words "his factory". If the intention of legislature to interpret the words 'in his factory' was also to include any other factory of the appellants, then legislature in the notifications has used the words like 'in any factory/factories' of the assessee' or 'no proprietary interest in any other factory' or 'one or more factories' etc.

(g) A view that the words "in his factory" means the same factory also gets fortified by Para 4.8.1 of DOF No.334/3/2004-TRU, dt.8.7.2004 issued by JS(TRU), Ministry of Finance, which uses the word 'unit' which can be only the manufacturing unit or a factory and not the all inclusive 'legal entity' of a group of companies as claimed by the Revenue.

The Tribunal also held the demands to be time barred.

The Tribunal did not express any on the admissibility of CENVAT Credit on duty paid on POY as on merits it is held that appellants are eligible to exemption under Notification No.30/2004-CE dt.9.7.2004 as amended.

Tribunal also held that there is no justification in imposing any penalties upon the appellants as on merits and time bar the issue has been decided in favour of the appellants.

(See 2015-TIOL-18-CESTAT-AHM)