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

the respondent is engaged in manufacture of portland cement. It installed a manufacturing plant in the year 1960 with a capacity of producing 660 tones of clinker per day. The respondent added one more kiln in 1965 and increased its production capacity to 1000 metric tones. By August 1969 the respondent installed further machinery in a new building erected within the same premises to further increase its production capacity. The respondent installed a new kiln alongwith separate silos, lepol and nodulizers, coal mill and cement mill. This unit started manufacturing cement on 24 June, 1971. The unit was using existing idle capacity of crushers, cranes, packing machines, coal mills and raw mills3. According to the case of the respondent, the new kiln set up in 1969 was a new industrial undertaking as contemplated by Section 3(2)(vii)(b) of the Act and as such was entitled to exemption from levy of electricity duty. At this stage it will be appropriate to reproduce relevant provisions of the ActSection 3(1): Subject to the provisions of sub-sections (2) and (3) there shall be levied and paid to the State government on the units of energy consumed (excluding losses of energy sustained in transmission and transformation by a licensee before supply to a consumer), a duty (hereinafter referred to as electricity duty) at the rates specified in the Schedule to this Act(2) Electricity duty shall not be leviable on the units of energy consumed -(vii) for motive power and lighting in respect of premises used by an industrial undertaking for industrial purpose, until the expiry of the following period, that is to say :-(a) in the case of an industrial undertaking which generates energy for its own use, ten years from the date of the commencement of the Bombay Electricity Duty (Gujarat Second Amendment) Act, 1961 (hereinafter referred to as the commencement date) or the date of starting the generation of such energy, whichever is later;(b) in the case of a new industrial undertaking established on or after 1st May, 1960, which does not generate energy for its own use, five years from the commencement date or the date on which the industrial undertaking commences for the first time manufacture or production of goods, whichever is later:Provided that no industrial undertaking shall be entitled to exemption from payment of electricity duty under this clause, unless it has obtained a certificate regarding eligibility for such exemption in prescribed form by making an application therefore in prescribed form and within prescribed period to such officer as the State Government may, by notification in the Official Gazette, specifyExplanation 1 - For the purpose of clause (vii) -(i) an industrial undertaking means an industrial undertaking which manufactures or produces for sale or use in the manufacture or production of other goods but does not include an undertaking which manufactures or produces any kind of food and drinks, meant ordinarily for consumption on the premises of the undertaking; and(ii) a new industrial undertaking means any such industrial undertaking which -(a) is not formed by the splitting up or the reconstruction a business or undertaking already in existence in the State; or(b) is not formed by transfer to a new business or undertaking of a building, machinery or plant previously used in the State for any industrial purpose, of such value in relation to total investments, as the State Government may, by notification in the Official Gazette, specify; or(c) is not an expansion of the existing business or undertaking in the State4. The respondent made an application on August 4, 1971 as envisaged under Section 3(2)(vii)(b) read with Rule 11 of the Bombay Electricity Duty (Gujarat) Rules, 1968 for obtaining eligibility certificate for exemption from levy of electricity duty. The Collector of Electricity Duty rejected the said application on 16th September, 1971. As per the procedure prescribed under the Act, the respondent sought a reference to the statutory authority. The reference was answered by the Collector of Electricity Duty vide order dated 29th August, 1975 rejecting the claim of the respondent. It was held by the Collector that installation of new unit and other machinery could not be considered as a new industrial undertaking, particularly, in view of the fact that the respondent was making use of the existing mills, crushers, belts, cranes, packing plants etc. The Collector also relied on statement made by the respondent in its application under Rule 11 to the effect that it had made a substantial expansion of the existing undertaking. The respondent filed an appeal against the said order of the Collector. The Joint Secretary to the Industry, Mines & Power Department, Government of Gujarat, disposed of the statutory appeal vide order dated 22nd March, 1978. The appeal was dismissed and the findings recorded by the Collector were affirmed. The respondent challenged these decisions by way of a writ petition filed in the Gujarat High Court. The High Court took the view that use of the existing plant and machinery by the respondent in the new industrial unit is only incidental. According to the High Court, in the facts and circumstances of the case, it amounted to establishment of a new industrial undertaking and the respondent was entitled to exemption from electricity duty. It was observed by the High Court that if expansion is by way of a totally new factory or new organization, management, establishment, assets and machinery, such expansion would certainly constitute new undertaking. The High Court made reference to the object behind the exemption from duty. The object was to encourage industrial activity in the new State of Gujarat. The High Court noted the fact that in the beginning and towards the end of the process of manufacture of cement, the respondent was making use of old machinery. Yet it was of the view that this was not decisive of the matter. The High Court accordingly set aside the findings of fact recorded by both the statutory authorities and granted relief to the respondent by holding that the respondent was entitled to exemption from electricity duty

Reasoning:
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