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PETITIONER: MUNICIPAL COMMISSIONER,CHINCHWAD NEW TOWNSHIP MUNICIPAL COUN

       Vs.

RESPONDENT: M/S CENTURY ENKA LTD.

DATE OF JUDGMENT12/09/1995

BENCH: HANSARIA B.L. (J) BENCH: HANSARIA B.L. (J) RAMASWAMY, K.

CITATION:  1996 AIR  187            1995 SCC  (6) 152  JT 1995 (6)   542        1995 SCALE  (5)359

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T HANSARIA. J.      These appeals  by special  leave raise  the question of exemption from  octroi, inter  alia, on  initially  imported plant  and   machinery,  pursuant  to  Resolution  No.63  of Chinchwad New  Township Municipal  Council  adopted  in  its meeting held  on 4.7.1970.  That Resolution reading as below permits exemption :-           "(i)n the  first two  years of  new      Industrial    undertaking,     initially      imported plant  and machinery (including      spare and  substitute parts) required in      the  beginning  and  building  materials      (i.e.) Iron, Steel, Cement or bricks are      necessary for erection of the premises.           Clarification: New  Industry  means           an Industry which is:      (i)    Not formed by the splitting up or      the reconstruction of a business already      in existence:      (ii)    Not  formed by transfer to a new      business of  a  building,  machinery  or      plant previously  used for  any  purpose      and      (iii)    Which  begins or  has begun  to      manufacture or  produce goods within the      Municipal area  for the first time on or      after the  date  on  which  the  Council      levies the  tax under  these rules or at      any time  within a  period  of  5  years      immediately proceeding such levy."      The respondents  (though two  in number, we would refer to the facts of M/s Century Enka Ltd.) claim exemption under the aforesaid  resolution, which  having  been  denied,  the Bombay High  Court was  approached, by filing writ petitions

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seeking  direction   on  the   Municipal  Council  to  grant exemption, as  visualised by the resolution in question. The High Court granted the prayer. Hense these appeals. 2.   The only  ground on  which exemption  was sought  to be denied to  the respondents in the proceeding before the High Court was  that the  importation of  plant and machinery for setting up  of the units being by existing undertakings, the same was  not meant  for "new  industrial undertaking". This stand was taken because of Clarification (i) appended to the resolution, according  to which,  an industry would not be a "new industry"  which is  formed  by  splitting  up  or  re- construction of  a business  already in existence. A perusal of the  impugned judgment of the High Court makes this stand on behalf of the appellants abundantly clear inasmuch as the counsel appearing for the appellants in the High Court, Shri C.J.  Sawant,   had  clearly  stated  that  apart  from  the aforesaid  ground,  "other  contingencies  set  out  in  the explanation (sic  clarification) are  not applicable in case of unit  No.2  (meaning  the  second  unit  set  up  by  the respondent-company in  whose name new industrial licence had been obtained and plant and machinery had been imported) and in case  it is  found  that  unit  No.2  is  not  formed  by reconstruction of  business already  in existence,  then the petitioner company would be entitled to exemption in respect of payment of octroi duty". 3.   We have  highlighted the  aforesaid aspect  because the learned counsel  for the  appellant sought to contend before us that  clause (iii)  of  the  Clarification  is  also  not satisfied, because  of which exemption cannot be claimed. We did not  permit this  point to  be raised for the first time before us  - the  same being  not a pure question of law but one basically founded on fact of manufacturing for the first time. 4.   We would,  therefore, confine  our consideration to the question  as   to  whether   respondents  were  entitled  to exemption or  not because  of what has been stated in clause (i) of  the Clarification.  In so  far  as  this  aspect  is concerned, it  is brought  to our  notice by learned counsel for  the   respondents  that   as  to   when  an  industrial undertaking  can   be  said   to   have   been   formed   by reconstruction splitting  up, has  been a  subject matter of consideration by this Court itself in a number of decisions. The first  in point  of time  is by  a three  Judge Bench in Textile Machinery  Corporation Ltd.  vs. The Commissioner of Income Tax.  1977 (2)  SCR 762.  There, the Court was seized with the  question whether exemption from income-tax granted by section  15C of  the Indian  Income Tax  Act,  1922,  was available to  the appellant.  The section as it stood at the material  time,   granted  exemption,  inter  alia,  to  any industrial undertaking which "is not formed by the splitting up,  or   the  reconstruction   of,  business   already   in existence........" It  would thus  be seen that the language of Clarification  (i) of Resolution No.63 is in pari materia with the  languages of  Section 15 (C) which had come up for interpretation in  the aforesaid case. The Bench opined that once  the   new  industrial   undertaking  is  separate  and independent  production   unit  in   the  sense   that   the commodities   produced   or   the   results   achieved   are commercially tangible  products and  the undertaking carried on separately  without complete  absorption and  loosing its identity in  the old  business, it  is not  to be treated as being formed by reconstruction of the old business. 5.   This being  the legal  position, it cannot be held that the unit  No.2 (supra) set up for manufacturing of polyester filament yarn has to be regarded as result of reconstruction

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of the  business already  in existence,  merely because  the same had  come into  existence  for  effecting  "substantial expansion" of  the business  in existence. That the unit had come into  existence because  of the  result of  substantial expansion is brought home to us by referring, inter alia, to a communication  of the  Government of India in the Ministry of Industry  bearing No.  CIL 326  (76) dated  28th  August, 1976, which is addressed to the respondent company and deals with  the  subject  of  application  for  the  grant  of  an industrial licence  for the  manufacture of the commodity in question. In  this connection  it is also urged by referring to another  communication of  the Ministry  dated 29.11.1975 that the  company proposed  to  manufacture  360  tonnes  of polyester filament  yarn per  annum, by  slicing its overall capacity of  720 tonnes  sanctioned for manufacture of nylon filament yarn. 6.   So, we  are satisfied that unit No.2 had been set up to effect substantial expansion of the existing business. That, however, is not decissive in view of the aforesaid decision, which was  followed in Commissioner of Income Tax vs. Indian Aluminium Co.  Ltd., 108  ITR 367 and Commissioner of Income Tax vs.  Orient Paper  Mills Ltd., 176 ITR 110. We have said so,  because  according  to  these  decisions,  if  the  new undertaking be  separate and  independent  production  units were to  come in  existence in  the  sense  of  producing  a distinct commercial  product and  the undertaking  could  be carried on  separately, the  same would  not be  treated  as being formed by reconstruction of the old business. From the material on record, we are satisfied that unit No.2 did meet these requirements,  and so,  exemption could  not have been denied, by  taking a  view that  unit No.2  was  not  a  new industry, because  of what  has been stated in clause (i) of the Clarification. 7.   No other  point being  available to  the appellant,  we uphold the  impugned judgment  and dismiss  the appeals. We, however,  leave   the  parties   to  bear  their  own  costs throughout.