Mangalam Cement Co. Ltd. vs Assistant Collector Of C. Ex. & ...
1989 Latest Caselaw 278 Del

JUDGMENT

B.N. Kirpal, J.

1. Petitioner No. 1 is a company which manufactures cement and the short question which arises for consideration in this petition is as to when did it start its production.

2. Briefly stated, the facts are that vide a Notification dated 29th April, 1987 the Central Government, in exercise of its powers contained in Rule 8(1) of the Central Excise Rules, exempted certain category of cement which was "manufactured in a factory which has commenced production during the period commencing of the first day of January, 1982 and ending with 31st March, 1986 ......", from so much of the duty of excise leviable thereon which was in excess of the amount calculated at the rate of Rs. 205/- per tonne.

3. The case of the petitioner is that the word "production" means commercial production, and if any cement had been produced during trial runs that would not be taken into consideration in seeing as to whether the Notification in question would be applicable or not. According to the petitioner it commenced commercial production with effect from 1st January, 1982 and in this connection, reliance is placed by the petitioner on a letter dated 8-12-1983 of the Joint Cement Controller, who has stated that for fixing the levy quota of cement the date of commencement of commercial production of the petitioner would be adopted as 2nd January 1982. According to the petitioner its licensed capacity is about 5 lakh metric tonne per annum, and prior to 1st January, 1982 it had manufactured only 1,66,585 metric tonnes.

4. The petitioner did not get the exemption which it had sought for before the excise authorities and an appeal was filed before the Collector (Appeals). Vide an order dated 3rd October, 1988 the Collector of Central Excise (Appeals) came to the conclusion that the word "production" in the aforesaid Notification did not mean commercial production, and as the petitioner had commenced production on 28-2-1981 and had maintained prescribed Central Excise record, therefore, the petitioner must be regarded as having commenced production prior to 1st January, 1982.

5. In the writ petition the aforesaid conclusion arrived at by the excise authorities is in challenge.

6. The first question which has to be considered is whether the word "production" in the Notification dated 29th April, 1987 means commercial production or any production. It appears to me that the word "production" occurring in the said Notification must be regarded as meaning commercial production. The Notification was issued with a view to give relief to newly constructed or erected cement factories. It is not possible to ignore the fact that whenever any factory is in the process of or has been set up it has trial runs. 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. In this process an end product comes into existence, which obviously, may be disposed of by the manufacturer. It will, however, be a question of fact, which must be deduced from after taking all the circumstances into consideration, as to whether the production is in the nature of a trial production or a commercial production. If the contention of the Revenue is correct, then even if one tonne of cement had been produced prior to 1st January, 1982, a factory would not be entitled to exemption which had been granted by the aforesaid Notification. This certainly could not have been the intention of issuing the Notification. In order that the full effect is given to the Notification the word "production" has to be regarded as commercial production.

7. This leads me to the second question as to whether the petitioner commenced commercial production after 1st January, 1982 or not. This is essentially a question of fact, which the Writ Court would ordinarily not decide. Nevertheless, on the admitted facts as available on the record of this case, I am unable to come to the conclusion that the commercial production did not commence prior to 1st January, 1982.

8. According to the averments made in paragraph 3(a) of the writ petition it is stated that the factory of the petitioner was established "during the year 1980-81 and the actual commercial production commenced only after 1-1-1982". It is pertinent to note that in the writ petition it is not stated as to what transpired during the period 1981-82, or in the calendar year 1981. However, it is not in dispute that from 28-1-1981 to 31-12-1982 the petitioners manufactured and sold cement to the extent of 1,66,585 metric tonnes. The cement was obviously produced after the factory had been set up because, as stated in paragraph 3(a) of the writ petition, the factory had been established "during the year 1980-81".

9. It was strenuously contended that the production of 1,66,585 metric tonnes of cement can only be regarded as cement produced during the trial runs. The submission is that the installed capacity of the unit in 5 lakh metric tonnes and the production of 1,66,585 metric tonnes shows that it was only a trial production. I am unable to accept this contention. There may be various factors why a until which has been newly set up may not be in a position to achieve the installed capacity. It is not unknown that a newly installed unit takes one or, may be, more years before it can achieve the rated capacity. In any case, the facts on the record of the present case clearly belie the contention of the petitioner. Even according to the petitioner it had started commercial production after 1st January, 1982. In fact, the letter relied upon by the petitioner, received from the Joint Controller of Cement, is to the effect that it commenced production w.e.f. 2nd January, 1982. Interestingly enough in the period 1st January, 1982 to 31st October, 1982 if manufactured about 1,78,560.050 metric tonnes of cement. By comparing the 10 months period of 1981, namely for the period of 28-2-1981 to 31-12-1981 with the above 10 months period of 1982, it is clear that there is no wide divergence in the production of cement. According to the respondents, as per the affidavit filed in Court, the commercial production of the petitioner had commenced in the year 1981. The comparison of the two figures, namely, production for the 10 months period of 1981 with the production of 10 months in 1982 shows that the conclusion arrived at by the respondents is not in any way unreasonable. Furthermore, the petitioner has maintained excise register and had paid excise duty on the cement production in the year 1981 which cement has, admittedly, been sold in the market. The quality of the produce of the petitioner in the year 1981 is not stated to be of an inferior quality to the one which has produced in 1982. The produce being the same, the quality and the quantum which was produced also being the same, it is not possible for me to come to the conclusion that the commercial production commenced only in 1982 and not in 1981.

10. Before concluding I might notice a decision of the Bombay High Court in the case of Commissioner of Income-tax v. Hindustan Antibiotics (93 I.T.R. 548) which has been relied upon by the learned counsel for the petitioner. Dealing with the provisions of Section 15C of the Income-tax Act, 1922, the Bombay High Court came to the conclusion that articles are said to be produced only when there is a commercial production and not when there is a trial production. There can be no dispute with this proposition. I had already held that the word "production" in the Notification in question means the commercial production and not trial production, but the decision of the Bombay High Court can be of no assistance to the petitioner on the facts of the present case. The extent of production in the year 1981 of the petitioner leaves no manner of doubt that the petitioner had commenced commercial production in the year 1981, and therefore, was not entitled to the benefit of the aforesaid Notification.

11. No other contention has been raised before me.

12. I, therefore, do not find any merit in this writ petition. The writ petitions dismissed. There will, however, be no orders as to costs.