CE - Hill Area Exemption - what is the meaning of substantial expansion ?
AS Per Notification No. 50/2003-CE dated 10.06.2003, exemption is available to new units or units which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty five per cent, on or after the 7th day of January, 2003.
CBEC in Circular No. 772/5 /2004-CX, dated 21.1.2004 clarified that "Increase in installed capacity of an existing unit by not less than 25% should be the result of installation of additional plant and machinery. Any increase in the installed capacity by means other than installation of additional plant and machinery would not qualify for the benefit of exemption under "substantial expansion".
Some assesses had replaced their furnaces with higher capacity furnaces and claimed the exemption. The Department was of the view that "substantial expansion of an existing unit" means substantial addition of machinery and not merely by substantial expansion of production of a unit. The department, therefore, was of the view that since the assessee has simply replaced old furnace of 4 MT capacity with a new furnace of 6 MT capacity and there are no additions in the plant and machinery, the same cannot be considered as substantial expansion.
The Tribunal was of the view that the addition/expansion of machinery which results in at least 25% increase in installed capacity is enough and expansion or addition can be by the way of replacing existing machinery with machinery with higher production capacity. ()
The Commissioner took the matter to the High Court and the Uttarakhand High Court last week upheld the CESTAT order and dismissed the revenue Appeal holding, in the event, in replacement of existing plant and machinery, new plant and machinery have been installed and, by reason thereof, the erstwhile installed capacity is increased by more than 25 per cent thereof, such expansion effort will come within the four corners of the Notification dated 10th June, 2003.