Case: State Of Gujarat  Vs. Saurashtra Cement &amp; Chemical Industries

production of articles yielding additional profit attributable to the new outlay of capital in a separate and distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability under Section 15C. 7. Crucial question for consideration before us is whether it is a case of expansion of an existing unit? The case of expansion of an industrial undertaking would qualify for exemption under Section 15C of the Income Tax Act while in view of clause (ii)(c) of Explanation 1 contained in the Bombay Electricity Duty Act, 1958, an expansion of existing business undertaking would not qualify for exemption from electricity duty. Para 18 of the judgment in Textile Machinery Corporation (supra) throws considerable light on the controversy before us. Para 18 reads as below: 18. The assessee continues to be the same for the purpose of assessment. It has its existing business already liable to tax. It produced in the two concerned undertakings commodities different from those which he has been manufacturing or producing in its existing business. Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separate and distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability under Section 15C. Sub-section (6) of the section also points to the same effect, namely, production of articles. The answer, in every particular case depends upon the peculiar facts and conditions of the new industrial undertaking on account of which the assessee claims exemption under Section 15C. No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. The fact that an assessee by establishment of a new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit under Section 15C. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under Section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct. 8. It will be seen from the facts on record in the present case that the so called new unit/undertaking is not totally independent of the assets of the existing unit. Admittedly certain assets to which reference has already been made, are being utilized in the manufacturing activity carried on by the new unit. It cannot be said that the new unit is completely independent or that the new unit could do without the assets of the existing unit. If use of the old plant and machinery etc. was necessary to complete the manufacturing process in the new unit, the new unit is not totally independent nor it is able to complete the process of manufacture of cement on its own as a viable unit. The new units is dependent on the existing assets. A physical identity with the old unit is preserved. In view of the exception carved out in the definition of new industrial unit contained in the Act, it cannot be said that the respondent is entitled to exemption from electricity duty. 9. To appreciate the exception contained in Explanation 1 to clause (ii)(c) of Section 3(2)(vii)(b), it is necessary to understand the meaning of the word expansion. The word expansion is a noun derived from the word expand, which is a verb. The word expand means to become greater or bigger in size, to spread out. As per the New Shorter Oxford English Dictionary, the word expand means 1.v.t. spread or stretch (a thing) out 2. Become extended; spread out, unfold. 3.v.t. Give full expansion to 4.v.t. Widen the boundaries of, increase the area, scope etc. of; enlarge, dilate 5.v.t. Become greater in area, bulk, capacity etc; become larger; increase the scope of ones activity or the scale or operations of something; take in or go into a new area of activity. 10. This meaning is to be applied to the facts on record. The respondent company when it initially started had a production capacity of 660 metric tonnes which was subsequently increased to 1000 metric tonnes. In 1969-70 by setting up the alleged new unit, production capacity of the company more than doubled. But as already seen this unit is not self contained. It is not an independently viable unit. It is dependent on various items of plant and machinery and mills of the existing unit. Further respondent was having two kilns and third is added. This leads to the inevitable conclusion that the new unit is an expansion of an existing undertaking in the State. Once it is held to be a case of expansion, the claim for exemption from electricity duty, set up by the respondent, completely falls to the ground. In the facts and circumstances of the case we are clearly of the view that the respondent is not entitled to exemption from electricity duty. The High Court failed to apply the real test which emerges from the judgment of this Court in Textile Machinery Corporation (supra) which was affirmed in a subsequent decision in Bajaj Tempo Ltd. Bombay vs. Commission of Income Tax, Bombay City-III, Bombay (1992 (3) SCC 78 ).

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. It will be seen from the facts on record in the present case that the so called new unit/undertaking is not totally independent of the assets of the existing unit. Admittedly certain assets to which reference has already been made, are being utilized in the manufacturing activity carried on by the new unit. It cannot be said that the new unit is completely independent or that the new unit could do without the assets of the existing unit. If use of the old plant and machinery etc. was necessary to complete the manufacturing process in the new unit, the new unit is not totally independent nor it is able to complete the process of manufacture of cement on its own as a viable unit. The new units is dependent on the existing assets. A physical identity with the old unit is preserved. In view of the exception carved out in the definition of new industrial unit contained in the Act, it cannot be said that the respondent is entitled to exemption from electricity dutyThe respondent company when it initially started had a production capacity of 660 metric tonnes which was subsequently increased to 1000 metric tonnes. In 1969-70 by setting up the alleged new unit, production capacity of the company more than doubled. But as already seen this unit is not self contained. It is not an independently viable unit. It is dependent on various items of plant and machinery and mills of the existing unit. Further respondent was having two kilns and third is added. This leads to the inevitable conclusion that the new unit is an expansion of an existing undertaking in the State. Once it is held to be a case of expansion, the claim for exemption from electricity duty, set up by the respondent, completely falls to the ground. In the facts and circumstances of the case we are clearly of the view that the respondent is not entitled to exemption from electricity duty