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J.K Synthetics Ltd. v. Collector Of C. Ex.
Factual and Procedural Background
This appeal challenges the Collector (Appeals) order dated 28-2-1989 confirming the Assistant Collector's rejection of the appellants' application for one consolidated L-4 excise licence. The appellant is J.K. Synthetics Ltd., a company registered under the Companies Act, 1956, which operates a factory complex at Jaykaynagar, Kota consisting of several sub-divisions manufacturing polyester staple fibre, acrylic staple fibre, polyester filament yarn and nylon filament yarn.
Initially the appellant held seven separate L-4 licences (some issued in the name of J.K. Synthetics Ltd., others in the name of "M/s J.K. Staple and Tows, Kota (Prop: M/s J.K. Synthetics Ltd.)"). On 1 July 1985 the appellant requested one consolidated licence; the Superintendent of Central Excise rejected that request on 5 Aug 1985. The appellant applied to the Assistant Collector on 28 Aug 1985. The Superintendent on 7 Nov 1985 accepted the request and permitted maintenance of one licence, but by letter of 30 Dec 1985 asked the appellant to maintain status quo until further orders.
After Notification No. 244/86-C.E. (3 Apr 1986) amended AL-4 and related rules, the appellant submitted an amended AL-4 on 21 July 1986; the Superintendent returned it on 29 July 1986 stating the appellant was not eligible. The appellant renewed its request to the Assistant Collector on 30 Apr 1987, but the Assistant Collector rejected consolidation by order dated 11 Nov 1987. The Collector (Appeals) affirmed that rejection on 28 Feb 1989, leading to the present appeal. The tribunal heard counsel and examined records.
Legal Issues Presented
- Whether a person manufacturing different excisable goods in different divisions or sub-divisions within a single factory complex is entitled to one consolidated L-4 licence for the entire factory complex.
- Whether the existence of distinct licence names or a division described as "M/s J.K. Staple & Tows" (noted as a division/prop of J.K. Synthetics Ltd.) or findings of separate premises preclude consolidation into one licence.
- How the form of the licence (AL-4 and L-4) and the statutory definition of "factory" under Section 2(e) of the Central Excises & Salt Act, 1944 apply to the question of consolidation.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court's reasoning proceeds from factual findings in the record and from the form and statutory scheme governing excise licences:
- Identification of licences and legal status: The court recorded the seven L-4 licences held by the appellant, noting licences at serial nos. 1–3 were issued in the name of J.K. Synthetics Ltd. (for nylon/polyester and tyre cord) while licences at serial nos. 4–7 were in the name of "M/s J.K. Staple & Tows, Kota (Prop: M/s J.K. Synthetics Ltd.)" (for polyester staple fibre / acrylic staple fibre). The court emphasized that there is only one legal entity—J.K. Synthetics Ltd.—and that J.K. Staple & Tows is a division of that company. The Superintendent had earlier held both units form part of the same factory (order dated 7-11-1985).
- On the question of premises, the Assistant Collector had found the two units occupied separate premises and manufactured different excisable goods. The court disagreed with the Assistant Collector's treatment of the units as separate entities and found that the Collector (Appeals) erred in concluding there was no denial by the appellants on this point (the tribunal noted that ground 6 of appellant's grounds to the Collector (Appeals) contested that finding).
- Examination of physical layout: The tribunal reviewed the approved ground plan submitted to the department and found both units fall within the same premises, enclosed by a single boundary wall around the land allotted to the appellant in the industrial area.
- Interpretation of the licence forms and statutory definition: The court analyzed the application form AL-4 and licence form L-4. The licence L-4 authorises manufacture "in the situation and description of premises as described in the application for licence"; AL-4 requires particulars of the premises, including a brief description with boundaries and description of each main division or sub-division of the factory. From this form-based requirement, the court inferred that the statutory and regulatory scheme contemplates one licence in respect of one factory complex that may contain main divisions or sub-divisions.
- Statutory support: The court referred to the definition of "factory" in Section 2(e) of the Central Excises & Salt Act, 1944, which includes "any premises, including the precincts thereof, wherein or in any part of which excisable goods ... are manufactured." This definition supported the view that a single complex within common boundaries can be treated as one factory for licence purposes.
- Conclusion of entitlement: Combining the factual finding (single legal entity, common boundary and common factory complex), the form-based interpretation of AL-4/L-4, and the statutory definition of "factory," the court concluded the appellant is entitled to one consolidated licence for manufacture of its goods within the factory complex.
Holding and Implications
THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL IS ALLOWED.
Direct effect on the parties: The Assistant Collector's rejection (and the Collector (Appeals)'s affirmation) of the application for consolidation is quashed; the appellant is entitled to obtain one consolidated L-4 licence for the manufacture of the specified goods within its factory complex as described in its application.
Broader implications: The opinion reasons from the statutory definition of "factory" and the content of the AL-4/L-4 forms to permit consolidation where different divisions/sub-divisions operating within common boundaries and under one legal entity apply for a single licence. The opinion itself does not state that it establishes a new precedent beyond the resolution of this appeal.
[Order per : Jyoti Balasundaram, Member (J)]. - This appeal arises against the order dated 28-2-1989 of the Collector (Appeals) confirming the order of the Assistant Collector, rejecting the application of the appellants for one consolidated licence in the following background :-
2. The appellant which is a company registered under the Companies Act 1956 has a factory complex at Jaykaynagar, Kota. In this factory complex, which consists of several sub-divisions, the appellant inter alia manufactures polyester staple fibre, acrylic staple fibre, polyester filament yarn and nylon filament yarn. One of the divisions of the factory complex is J.K. Staple and Tows which is a part of J.K. Synthetics Ltd., which is the legal entity. The appellant, applied for licences in Form AL-4 for the manufacture of the aforesaid products. 3 licences have been issued in the name of J.K. Synthetics Ltd. for the manufacture of nylon/polyester and tyre cord. 4 licences have been issued in the name of “M/s J.K. Staple and Tows, Kota (Prop: M/s J.K. Synthetics Ltd. Kota)” for the manufacture of polyester staple fibre/acrylic staple fibre. Since the appellant had been issued 7 L-4 licences for the manufacture of the aforesaid products and since all the aforesaid products were being manufactured within the same factory complex in various sub-divisions, the appellant considered it expedient and proper as well as more convenient operationally and administratively, to apply to the excise authorities to issue one consolidated licence in Form L-4 in respect of the products manufactured by it within its aforesaid factory complex.
3. On 1st July 1985, the appellant wrote to the Superintendent of Central Excise, Kota that since all the units in which the aforesaid goods were being manufactured were under the proprietorship of the appellant and since the appellant was having a common connection at its 132KVA sub-station from which power was being supplied to all its units and since utility services etc. were common to all the units, the appellant may be granted one consolidated licence to manufacture the aforesaid goods. By letter dated 5th August, 1985 the Superintendent of Central Excise, Kota rejected the request of the appellant. On receipt of the aforesaid letter of rejection, the appellant by its letter dated 28th August, 1985 addressed to the Assistant Collector of Central Excise, Kota, requested the said Assistant Collector to grant the appellant one consolidated licence in respect of its aforesaid factory complex for the manufacture of the said goods. The Superintendent of Central Excise issued an order on 7th November, 1985 accepting the request of the appellant and permitted the appellants to maintain one licence for the manufacture of the aforesaid goods at its aforesaid complex. The appellants received a letter dated 30th December, 1985 from the same Superintendent who had passed the order dated 7th November, 1985 in which the Superintendent requested the appellant to maintain status-quo in respect of the Central Excise licences till further orders.
4. In the mean time the Central Government issued Notification No. 244/86-C.E., dated 3rd April, 1986. By this notification certain amendments were made in Rules 174, 176, 178 and 181 of the Rules, as well as in certain forms set out in Appendix I to the Rules. One of the forms that was amended was the form AL-4 i.e. the form of the application for licence under Rule 176 of the Rules to manufacture goods. The appellant by its letter dated 21st July, 1986 addressed to the Superintendent of Central Excise, Kota once again requested the said Superintendent to issue to the appellant one consolidated licence for the manufacture of goods at its factory premises. Alongwith the letter the appellant submitted an application in the amended form AL-4 for the issuance of one licence to manufacture goods at its aforesaid factory complex. The Superintendent of Central Excise by letter dated 29th July, 1986 returned the application in form AL-4 to the appellant, stating that the appellant was not eligible to obtain one licence.
5. By letter dated 30th April, 1987, the appellant once again requested the Assistant Collector to grant it permission to obtain one licence for the manufacture of all the aforesaid goods, and by order dated 11th November, 1987 the Assistant Collector rejected the request of the appellant for consolidation of its excise licences. This was upheld by the Collector (Appeals) in the impugned order. Hence this appeal.
6. We have heard Shri Ravinder Narain, learned advocate and Shri G. Bhushan, learned SDR and gone through the records.
7. Prior to the application for one consolidated L-4 licence, the appellants held the following licences :-
| 1. | L-4 No. | 1/Synthetic fibre & yarn including textured yarn dated 25-9-1976. |
| 2. | L-4 No. | 1/Plastic material (polyester, Polymer polyamide Chips/76 dated 25-9-1976. |
| 3. | L-4 No. | 1/UNP/TC/Fab. (N)/83 dated 26-8-1983. |
| 4. | L-4 Nos. | 1/Synthetic yarn and fibre polyester fibre and tows/81/Acrylic Fibre/Tows/Tops dated 23-11-71/30-3-1979. |
| 5. | L-4 No. | 8/Synthetic Spun Yarn dated 14-7-1976. |
| 6. | L-4 No. | 1/Methanol/U-II/85 dated 26-3-1985. |
| 7. | L-4 No. | 10/Liq. Nitrogen/T.I. 68/76 dated 5-7-1976. |
There is no dispute that the licences against Sl. No. 1 to 3 have been issued in the name of J.K. Synthetics Limited, Kota for Nylon/polyester and Tyre Cord Plants whereas the licences against Sl. No. 4 to 7 have been issued in the name of M/s. J.K. Staple and Tows, Kota (Prop: M/s. J.K. Synthetics Limited, Kota) for Polyester staple fibre/Acrylic Staple fibre Plants. The Superintendent of Central Excise has also held that both the J.K. Synthetic Ltd., Kota synthetic fibre & yarn unit & the J.K. Staple & Tow synthetic fibre & yarn unit are known as & form part of the same factory (vide his order dated 7-11-1985). There is only one legal entity - i.e. M/s. J.K. Synthetics Ltd., Kota (artificial legal person incorporated under the Indian Companies Act, 1956) and M/s. J.K. Staples & Tows is only the synthetic staple fibre division of the public limited Co. - hence the Asst. Collector has erred in treating them as two separate entities.
8. Regarding the contention of separate premises, the Asst. Collector has given a finding that - M/s. J.K. Staples & Tows and M/s. J.K. Synthetics Ltd., Kota have separate premises situated at different places and manufacturing different excisable goods. The lower appellate authority has wrongly held that there is no denial by the appellants on this aspect - the Collector (Appeals) has erred in this conclusion as ground 6 of the grounds of appeal to the Collector (Appeals) clearly mentions to the contrary.
9. We have perused the approved ground plan submitted by the appellants to the Department. The two units fall within the same premises within one boundary wall encircling the entire area of land allotted to the appellant in the industrial area. The form of licence L-4 is an authorisation to manufacture excisable goods “in the situation and description of premises as described in the application for licence”. In the application, in form AL-4, a declaration is required to be made of the particulars of the premises where the manufacture of goods is to take place. Para 2 of the application reads as follows :-
“I/we hereby declare particulars in the schedule of the premises where I/we carry on business for manufacture of such goods”
Para II of the schedule contains the description of the premises which is required to be given in the following terms :
1. Brief description (with boundaries) of the premises intended to be used as a factory.........
2. Description of each main division or sub-division of the factory .......
3. Store room and other place of storage ........
Thus as it is clear from the form for the licence in form L-4, the description of premises where excisable goods are manufactured is as given in the application AL-4 for the grant of the licence. The description in the application AL-4 refers to a factory and main division or sub-division of factory where goods are manufactured. Thus it is apparent that what is contemplated is one licence in respect of one factory complex having main divisions or sub-divisions. The appellant is entitled to obtain one consolidated licence for the manufacture of its goods within its aforesaid factory complex, as the object behind the grant of a consolidated licence is that any person manufacturing different excisable goods within one factory area is entitled to obtain one licence in respect of the goods instead of different licences for different commodities, as “factory” has been defined in Section 2(e) of the Central Excises & Salt Act, 1944 as any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.
10. In the light of the above discussion the impugned order is set aside and the appeal allowed.
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