M/S Virgo Aluminium Ltd vs Cce, Chandigarh

[Arising out of the Order-in-Appeal No. 453/CE/CHD-I/2011 dated 25/11/2011 passed by The Commissioner (Appeals), Central Excise, Chandigarh.]

For Approval and signature :

Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri Ashok Jindal, Member (Judicial)

1. Whether Press Reporters may be allowed to see :

the Order for publication as per Rule 27 of the

CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of :

the CESTAT (Procedure) Rules, 1982 for

publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair :

copy of the order?

4. Whether order is to be circulated to the :

Department Authorities?

M/s Virgo Aluminium Ltd. Appellant

Versus

CCE, Chandigarh Respondent

Appearance

Shri Sudhir Malhotra, Advocate  for the Appellant.

Shri Yashpal Sharma, Authorized Representative (DR)  for the Respondent.

CORAM : Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri Ashok Jindal, Member (Judicial)

Final Order No. 51994-51995/2015 Dated : 24/06/2015

Per. Rakesh Kumar :-

The facts leading to filing of these appeals are, in brief, as under.

1.1 The appellant are manufacturers of aluminium sheets and foils chargeable to Central Excise duty under Chapter 76 of the Central Excise Tariff. The raw material for these finished products of the appellant is aluminium ingots. They have their manufacturing unit in Village Rampur Jattan, Nahan Road, Kala AMB, Distt. Sirmour, Himachal Pradesh. Since, their manufacturing unit is located in the areas specified under Notification No. 50/03-CE dated 10/6/03 and the product being manufactured by them is also covered for exemption under this notification, on 23/3/10 they filed the necessary declaration under this Notification No. 50/03-CE dated 10/6/03.

1.2 The exemption under Notification No. 50/03-CE in terms of its para 2 is applicable to the following kinds of units namely :

(a) new industrial units set up in the areas mentioned in Annexure II and III, which have commenced commercial production on or after 07/1/03 but not later than 31st day of March, 2010

(b) industrial units existing before 07/1/03 in areas mentioned in Annexure II, but which have undertaken substantial expansion by the way of increase in installed capacity by not less than 25% on or after 07/1/03, and have commenced commercial production from such expanded capacity not later than 31/3/10.

1.3 The appellant claim to be the unit covered by Clause (a) of para 2 of the notification which was a new unit set up after 07/1/03 and which according to the appellant had commenced commercial production on or before 31/3/10. 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 Directorate General Central Excise Intelligence on 17/5/10. On scrutiny of the documents and the condition of the plant at the time of visit, it appeared that the manufacturing unit had not commenced commercial production on or before 31/3/10, in as much 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.

Though 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.

1.4 It was 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.

1.5 It is in view of the above investigation that a show cause notice was issued to the appellant company for denial of the exemption. The show cause notice was adjudicated by the Deputy Commissioner vide order-in-original dated 05/9/11 by which after hearing the appellant, he held that they are not eligible for exemption under Notification No. 50/03-CE dated 10/6/03 or for Notification No. 49/03-CE dated 10/6/03.

1.6 On appeal being filed to Commissioner (Appeals) against this order of the Deputy Commissioner, the Commissioner (Appeals) vide order-in-appeal dated 7/12/11 dismissed the appeal against which the appeal No. E/576/2012 has been filed.

1.7 Subsequent to the denial of the benefit of the exemption notification, the Commissioner after issue of show cause notice vide order-in-original dated 21/2/14 confirmed the duty demand of Rs. 15,27,002/- against the appellant alongwith interest thereon under Section 11AB and imposed penalty of equal amount on them under Section 11AC. The Commissioner confirmed this demand after adjusting the Cenvat credit in respect of the inputs. Against this order of the Commissioner, the appeal No. 52979/2014 has been filed.

2. Heard both the sides.

3. Shri Sudhir Malhotra, Advocate, the learned Counsel for the appellant, pleaded that the appellant had filed the required declaration for availing the exemption under Notification No. 50/03-CE on 23/3/10 with the Jurisdictional Central Excise Authorities, that for eligibility for exemption under Notification No. 50/03-CE, the new unit set up on or after 07/1/03 should have commenced commercial production on or before 31/3/10, 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 Centres Certificate has evidentionary 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, that the Tribunal in the case of CCE, J&K, Jammu vs. GEES Industries reported in 2014 (309) E.L.T.

558 (Tri.  Del.) and in the case of CCE, Jammu vs. Metal Extrusions reported in 2010 (257) E.L.T. 564 (Tri.  Del.) has held that certificate issued by the General Manager, District Industry Centre is sufficient to satisfy the condition of 25% increase in regular employment by the manufacturer on making the additional investment in plant, that the Boards Circular No. 682/73/2002.CX dated 19/12/2002 also advises the field formations to consult the Department of Industry of the State Government with regard to the date of commencement of commercial production for availing Notification No. 56/02-CE, as this exemption notification is also applicable to the new industrial units which have commenced commercial production on or after 14/6/02 or to the existing industrial units which have undertaken substantial expansion by the way of increase in installed capacity by not less than 25% or on or after 14/6/02, that when in the present case, the District Industry Centre has given a certificate that the appellant unit had commenced commercial production prior to 31/3/10, this certificate should be accepted and that in view of the above submissions, the impugned orders are not correct.

4. Shri Yashpal Sharma, the learned DR, defended the impugned orders and pleaded that  at the time of officers visit to the unit on 05/4/10 and 06/4/10 and subsequently on 17/5/10, from the condition of the factory it was clear that it was not in a position to start production in as much as the installation/erection of the plant and machinery had not been completed, the construction of the furnace for melting and holding aluminium ingots was in progress and the casting machine was being assembled, that there was no electricity connection and though there was a DG set, the electricity produced by the DG set was being used for welding etc., that some of the important machinery was still lying in packed condition, that manufacturing of aluminium sheets/coils from aluminium ingots is a continuous casting process and requires installation of critical machinery of casting furnace, holding furnace, casting unit and rolling unit, but these machines had either not been installed even by 1st week of April or the same were not in working condition, that Shri Dinesh Sharma, Supervisor of the appellant unit in his statement dated 06/4/10 has stated that though the unit had manufactured 5.5 MT of aluminium sheets on 30/3/10 with the help of DG set, the goods produced were not up to the mark and for this reason the appellant have contacted the Chinese machinery supplier who has advised for need to re-arrange the machinery on the production line, that this shows the functioning of the plant on 30/3/10 and 31/3/10 was only on trial basis, more so, when according to the admission of Shri Dinesh Sharma of the appellant company, the goods produced were not up to the mark, that even the sale of 3.48 MT, claimed to have been made by the appellant on 31/3/10 to M/s Shirdi Sales is a bogus sale, as inquiry with M/s Shirdi Sales revealed that they are only a dealer of particle board and medium density fibre board and they had not placed any order for the aluminium sheets with the appellant company and that they had been advised by the appellant company to receive the said goods for which they (the appellant) would arrange for the buyer, and that when the appellants claim regarding sale of 3.48 MT of aluminium sheets on 31/3/10 is a bogus claim, the appellant cannot be treated as having commenced commercial production on or before 31/3/10 by producing saleable goods.

Shri Yashpal Sharma also cited the judgment of Honble Delhi High Court in the case of Mangalam Cement C. Ltd. vs. Assistant Collector of Central Excise & Customs reported in 1992 (61) E.L.T. 444 (Del.) relied upon by the Commissioner (Appeals) wherein it has been held that whenever any factory is in process of being set up, it has a trial run and it has to be seen as to whether the machinery which has been installed is working in good order and has been supplied according to the specifications and that whether the production is in the nature of trial production or commercial production is a question of fact which must be decided after taking into account the circumstances and facts and in the present case, the circumstances of the case do not indicate that the appellant had commenced commercial production i.e. the production of saleable goods, on or before 31/3/10. He also pleaded that the Tribunals judgment in the case of CCE, Jammu vs. Metal Extrusions (supra) does not help the appellant as in this 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 evidentionary value and the same cannot override the statutory records.

He, therefore, pleaded that there is no infirmity in the impugned orders.

5. We have considered the submissions of both the sides and perused the records.

6. The appellant manufacture aluminium sheets/coils and have claimed for duty exemption under Notification No. 50/03-CE dated 10/6/03. The only point of dispute is as to whether the appellant are eligible for this exemption in terms of the conditions specified in para 2 of the notification. Para 2 of the notification reads as under :-

The exemption contained in this notification shall apply only to the following kinds of units namely 

(a) new industrial units set up in the areas mentioned in Annexure II and Annexure III which have commenced commercial production on or after 7/1/03 but not later than 31/3/10;

(b) industrial units existing before 07/1/03 in areas mentioned in Annexure II, which have undertaken substantial expansion by the way of increase in installed capacity by not less than 25% on or after 07/1/03, but have commenced commercial production from such expanded capacity, not later than 31/3/10.

7. The appellant claim to be covered by para 2 (a) of the exemption notification i.e. they claim to be a new unit set up after 07/1/03 which had commenced commercial production on or before 31/3/10. This claim of the appellant is disputed by the Department.

7.1 The appellant in support of their claim for having commenced commercial production on or before 31/3/10 rely upon 

(a) certificate produced by District Industry Centre certifying that the appellant unit had started commercial production before 31/3/10 ; and

(b) sale of 3.48 MT of aluminium sheets by the appellant on 31/3/10 to M/s Shirdi Sales.

It is on this basis that the appellant claim that they had commenced commercial production on or before 31/3/10.

7.2 There is no dispute that the appellant had intimated the Jurisdictional Central Excise Authorities for availing this exemption under their declaration dated 23/3/10. While during last week of March, 2010, the appellants unit was not visited by any Jurisdictional Central Excise Authorities, their unit was visited in 1st and 2nd week of April, 2010 and 3rd week of May 2010 i.e. on 05/4/10, 06/4/10 and 17/5/10. The Department in support of its allegation that as on 31/3/10, the appellant unit had not commenced commercial production and was not even in a position to do so, relies upon the following evidence 

(1) on the date of visit to the unit on 05/4/10, 06/4/10 and 17/5/10 there was no power connection and instead, there was only one DG set which was being used only for operating grams welding activity etc.

(2) on the date of visit on 05/4/10 and 06/4/10 some of the important machinery was still lying in packed condition, construction of furnace for melting and holding aluminium ingots was in progress and casting machine was being assembled

(3) as per the statement dated 06/4/10 of Shri Dinesh Sharma, Supervisor of the appellant company though the factory had manufactured 5.5 MT of aluminium coil with the help of DG set on 30/3/10, the quality of the same was not up to the mark and the same had not to be sold and for this reason, the appellant had contacted the Chinese machinery supplier who had advised that some re-arrangement of the machinery on the production line is required and that for this reason, they had removed the machinery and were waiting for the Chinese Engineers to install the machinery, and

(4) manufacture of aluminium sheets/coils is a continuous casting process and involves installation of critical machinery of casting furnace, holding furnace, rolling unit etc. which was either installed or was not in working condition.

(5) The claim of having cleared and sold 3.48 MT of aluminium sheets on 31/3/10 to M/s Shirdi Sales was found to be false as M/s Shirdi Sales was found to be a dealer in particle board and medium density fibre board and its Director Shri Sanjay Bajaj in his statement dated 21/5/10 stated that they had not placed any orders for the said goods but they had been advised by the owner of the appellant company to receive the said goods for which they (the appellant company) would arrange some buyers.

(6) Beside this, some photographs taken by the Investigating Officers on 17/5/10 have also been placed on record, which according to the Department show that even as on 17/5/10 the factory of the appellant unit was not in a position to commenced commercial production.

7.3 The appellant, on the other hand, heavily rely on certificate dated 15/7/2010 issued by Member, Secretary Single Window Clearance Agency, Kala and HP certifying that the commenced products had commenced on 31/3/10.

8. In terms of para 2 (a) of the exemption notification, the benefit of this notification to the new units set up on or after 07/1/03 would be available only if they had commenced commercial production on or before 31/3/10. Though the term commercial production is not defined in this notification, in our view, this term should be construed in contradistinction with the term trial production, as trial production is followed by the commercial production. Trial production is the production during the process of commissioning of a plant. The commissioning of a manufacturing plant starts after completion of the erection and installation. During commissioning the machinery is run on trial/test basis and if the production is not of the desired quantity or the desired quality, the necessary arrangements are made and the defective parts, if any, found are replaced. The running of a plant during its commissioning only a trial run to make the necessary adjustments in the machinery and calibrate the same to optimise its production. 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.

9. The point of dispute in the present case is as to whether the appellants plant had commenced commercial production in the sense that the commissioning of the plant was completed and plant was ready to manufacture the goods of the desired quality as per the installed capacity. For being eligible for the exemption notification, it is necessary that the commencing of the commercial production should have been taken place on or before 31/03/2010. 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. In this regard, the certificate dated 15/07/2010 given by the Member Secretary, Single Window Clearance Agency, Kala Amb, H.P., is in the appellants 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.

10. The Jurisdictional Central Excise officers instead of visiting the appellants unit on 31/03/2010 visited only on 06/04/2010 and on the basis of the condition of the plant on that date have alleged that the commercial production had not been commenced on or before 31/03/2010. In this regard, the Department also heavily relies upon the statement of Shri Dinesh Sharma, Supervisor of the unit stating that though the production had been started on 30/03/2010 and on that day, 5.5 MT of Aluminium Coils had been produced, by operating the machines by the electricity generated by DG sets, but the goods produced were not upto the mark and that for this reason, they had contacted the Chinese machinery suppliers, who has advised for re-arranging some of the machines on the production line. When the Department relies upon the statement of Shri Dinesh Sharma for alleging that as on 31/03/2010, the plant was not in a position to commence commercial production, in our view, his cross-examination, should have been allowed, as the statement given by a person under Section 14 of the Central Excise Act, 1944, can be acted upon only when it is true and for ascertaining its truth, the cross examination of the deponent would be necessary. In our view, this is the requirement of the provision of Section 9 D(2) readwith Section 9 D(1) of the Central Excise Act, which have been interpreted by the Honble Delhi High Court in the case of J&K Cigarettes vs. CCE reported in 2009 (242) E.L.T. 189 (Del.) and by Honble Allahabad High Court in the case of CCE, Allahabad vs. Govind Mills Ltd. reported in 2013 (294) E.L.T. 361 (Allahabad). Same view has been expressed by Honble Delhi High Court in case of Basudev Garg vs. Commissioner of Customs reported in 2013 (294) E.L.T. 353 (Del.) with regard to provisions of Section 9D of Central Excise Act, 1944.

11. As regards the allegation that sale of 3.48 MT of Aluminium Coils had been shown to M/s Shirdi Sales on 31/03/2010, who were only a dealer in Particle Boards and whose Director, Shri Sanjay Bajaj on inquiry had stated that they had not placed any orders for these goods, the statement dated 31/05/2010 of the Director, Shri Sanjay Bajaj stating that he had not placed any orders for Aluminium Sheets is not an evidence in support of the allegation that the goods produced on 30/03/2010 were not of the desired quality and were of non-saleable and sub-standard quality. 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 Shri Dinesh Sharma is correct or whether the certificate given by the Board Secretary, Single Window Clearance Agency, Kala Amb, H.P., is correct. For this purpose, in our view, Shri Dinesh Sharma and the person issuing the certificate regarding commencement of the commercial production on 31/03/2010 have to be examined as per the provisions of Section 9D (2) readwith Section 9D (1) of the Central Excise Act, 1944, which has not been done.

12. In view of the above discussion, the impugned order is set aside. The matter is remanded to the original Adjudicating Authority for denovo adjudication. In course of denovo adjudication, the Adjudicating Authority must examine Shri 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 and also permit the cross examination of both the persons by the appellant, if so desired by them, and only after examining these persons and permitting their cross examination, if asked for by the appellant and considering other evidence on record, the Adjudicating Authority must decide the question as to whether or not the unit had commenced commercial production on or before 31/03/2010 in accordance with law, preferably, within 90 days of the receipt of this order.

13. The appeals stand disposed of as above.

(Pronounced in open court on 24/06/2015.)

(Rakesh Kumar)

Member (Technical)

(Ashok Jindal)

Member (Judicial)

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