By TIOL News Service

NEW DELHI, AUG 12, 2015: THE appellant are manufacturers of aluminium sheets and foils [Ch. 76] chargeable to CE duty and for which the raw material is aluminium ingots. Since their manufacturing unit is located in Himachal Pradesh & falls in the areas specified under Notification No. 50/03-CE dated 10/6/03 and the product is also covered for exemption, on 23/3/10 they filed the necessary declaration claiming exemption under this Notification.

In terms of para 2 of the notification, the exemption is applicable to the following kinds of units namely:

Since there was a doubt as to whether the unit had commenced commercial production on or after 31/3/10, the unit was visited by the Jurisdictional Central Excise officers on 04/5/10, by headquarters preventive on 06/4/10 and by the officers of DGCEI on 17/5/10.

On scrutiny of the documents and the condition of the plant at the time of visit, it appeared to the officers that the manufacturing unit had not commenced commercial production on or before 31/3/10 inasmuch as at the time of visit, it appeared that installation/erection of the plant and machinery was under progress and had not been completed on or before the sunset date 31/3/10, the construction of furnace for melting and holding of aluminium ingots (raw material) was in progress, the casting machine which is necessary for production of Aluminium coils/sheets, was being assembled and there was no electricity connection. Although there was a DG set, the electricity produced by the DG set was being used for welding etc. and some of the important machinery was still lying in packed condition.

On 06/4/10, statement of Shri Dinesh Sharma, Supervisor of the unit was recorded, wherein he, while stating that the unit had started production on 30/3/10 and on that day 5.5 M.T. of aluminium coils had been produced with the help of DG set, stated that the same had not been sold as goods were not up to the mark and they had contacted their Chinese machinery supplier who had advised for re-arranging some of the machinery on the production line, and for this reason, they had removed the machinery, earlier installed and they were waiting for Chinese Engineers to re-install the machinery. On scrutiny of the records of the appellant, it appeared that cable plant had arrived in the factory on 26/6/10 and certain furnace parts had arrived on 19/3/10. It also found that while manufacture of aluminium sheets/coils is a continuous casting process which involves installation of certain critical machinery of the casting furnace, holding furnace, casting unit and rolling unit, the machinery placed inside the factory premises had either not been installed or was not in working condition.

It was also found that though the appellant had shown sale of 3.48 MT of aluminium sheets to M/s Shirdi Sales, follow up inquiry with M/s Shirdi Sales revealed that they were dealing in particle boards and medium density fibre board and Director of the Dealer firm in his statement dated 21/5/10 stated that they have not placed any orders for the Aluminium sheets but had been asked by the owner of the Appellant company to receive the said goods on the understanding that the appellant company would arrange for their subsequent sale.

Consequently, a SCN was issued proposing denial of the exemption.

The adjudicating authority upheld the allegations leveled in the SCN and the appeal filed against this order was rejected by the Commissioner(A) leading to the assessee filing an appeal before the CESTAT.

Subsequent to the denial of the benefit of the exemption notification, the Commissioner confirmed the duty demand of Rs. 15,27,002/- against the appellant alongwith interest and penalty. Nonetheless, the Commissioner confirmed this demand after adjusting the CENVAT credit admissible in respect of the inputs.

An appeal has been filed against this order too.

Both the appeals were heard together by the Tribunal.

The appellant inter alia submitted that there is no definition of the term "commercial production" in the exemption notification and, therefore, it should be construed in the sense it is understood in common parlance, that the commercial production is the status when the manufacturing unit is ready to produce the product for sale in the open market to its buyers as against which the production during trial production phase may not up to the required standard for sale, that in the present case, the appellant had sold 3.48 MT of aluminium sheets on 31/3/10 which shows that they had started producing marketable final products by this date and hence had commenced commercial production, that the District Industries Centre has also given a certificate that the appellant unit had commenced commercial production before 31/3/10 and the Commissioner (Appeals) in the impugned order has accepted that the District Industries Centre Certificate has evidentiary value, that there is no dispute about the genuineness of the certificate issued by District Industry Centre and hence this should be treated as evidence of the appellant having commenced commercial production on or before 31/3/10. Reliance is placed on the decision in Metal Extrusions - 2010-TIOL-1531-CESTAT-DEL and the Board's Circular No. 682/73/2002-CX dated 19/12/2002.

The AR supported the order of the lower authorities and submitted that the statements recorded and the evidence collected clearly indicated that the appellant is not entitled for the benefit of the exemption notification. He also pleaded that the Tribunal's judgment in the case of Metal Extrusions (supra) does not help the appellant as in that case the Tribunal has held that the commencement of commercial production is a question of fact which has to be ascertained by the actual production in the factory and the certificate of the Director of Industries has only certain evidentiary value and the same cannot override the statutory records.

The Bench after considering the submissions and taking note of the notification in question observed -

++ In our view it is only the date on which the commissioning process has been completed, the plant is in a position to produce the goods of the desired quality and as per its installed capacity and some production has been made, that plant can be said to have commenced commercial production, as it is at that stage only that the plant is in a position to start commercial production, that is, the production of the saleable goods as per its installed capacity. However, for this purpose, the quantum of production on the day of completion of commissioning process or immediately thereafter is not relevant as a manufacturer may not manufacture the full quantity as per its installed capacity for the want of sales orders. Thus, what is relevant for determining the day of commencement commercial production is exactly when the process of commissioning was completed and plant was ready to manufacture the goods of the desired quality as per installed capacity.

++ Though the appellant had intimated the Jurisdictional Central Excise officers about availment of this exemption under their letter dated 23/03/2010, their unit was not visited by the Jurisdictional Central Excise Officers during the last week of March, 2010, which was the crucial period for determining as to whether the plant was in position to commence commercial production or not.

++ If the plant had been visited by the Jurisdictional Central Excise officers on 31/03/2010 and got surveyed by a Chartered Engineer and his opinion on the point of commissioning taken, there would have been no scope for dispute on this point.

++ The certificate dated 15/07/2010 given by the Member Secretary, Single Window Clearance Agency, Kala Amb, H.P., is in the appellant's favour as it certifies that the commercial production had commenced on 31/03/2010. However, it is not clear from this certificate that this certificate had been given after actually visiting the plant on 31/03/2010 or only on the basis of the records.

++ The crucial question to be decided for determining as to whether or not the commercial production had commenced on or before 31/03/2010 is whether the statement of Dinesh Sharma is correct or whether the certificate given by the Board Secretary, Single Window Clearance Agency, Kala Amb, H.P., is correct.

The impugned order was set aside and the matter was remanded to the Adjudicating Authority.

The Bench also directed that in the course of denovo adjudication, the Adjudicating Authority must examine Dinesh Sharma, Supervisor of the appellant company and also the Member Secretary, Single Window Clearance Agency, Kala Amb, H.P., who had issued the certificate certifying that the unit had commenced production on 31/03/2010,as per the provisions of Section 9D(2) r/w Section 9D(1) of the CEA, 1944 and also permit the cross examination of both the persons by the appellant, if so desired.

And only then, decide the case, preferably, within 90 days of the receipt of this order.

The appeals were disposed of.

(See 2015-TIOL-1669-CESTAT-DEL)