The Hindu Business Line : The pain be mine, but thine shall be the praise

IAGO'S problem, in Othello, was about a thought that gnawed `like a poisonous mineral'. For UltraTech CemCo, however, the problem was about a taxman who was gnawing at the company's mine and refusing to grant excise relief.

The poison that stood between a win and a loss in this case before the Bangalore tribunal was a simple question: Do mines come within the definition of `factory'?

"It is well known that limestone is an important raw material for the manufacture of cement," narrates the text of tribunal member T. K. Jayaraman's ruling. "Limestone is extracted from mines. In order to extract limestone from the mines, capital goods are required.

"Normally, the mines are situated away from the cement factories. In certain cases they are contiguous, and connected by private/public road to the cement factory. The common issue before us is whether the capital goods used in the mines are entitled for Cenvat credit under the relevant Rules."

The credit would be available if mines are treated as factory. That's the story, in short.

At the tribunal, UltraTech submitted that Section 2(e) of the Central Excise Act defined `factory' as "any premises including precincts thereof, wherein or in any part of it excisable goods other than salt are manufactured or wherein or in any part of which any manufacturing process connected with the production of goods is carried on or is ordinarily carried on".

Accordingly, the company's mines were definitely within the definition of `factory', it was argued.

"The definition of factory can be divided into two parts. The first part includes any place including the precincts thereof where any excisable goods are manufactured. The second part covers the premises wherein or in any part of which any manufacturing process connected with the production of goods is being carried," explained the company's advocate V. Sridharan.

He cited a 1978 decision of the Delhi High Court that the meaning of `factory' is not restricted to the part in which the excisable goods are manufactured, but includes the whole of the premises in the part of which the excisable goods are manufactured.

An apex court case that the company found shelter in was that of Grouer and Weil (I) Ltd, where it was held that premises means a piece of land including its buildings or buildings together with its grounds or appurtenances, and that precincts mean the areas surrounding a place.

Sridharan also pointed out that CBEC's Manual of Supplementary Instructions spoke of single registration in respect of separate premises, such as where the premises are actually part of the same factory, with interlinked processes, but are segregated by public road, canal or railway line.

"That apart, the company had filed with the Department "a revised ground plan after including the mines area".

To emphasise that mines are part of factory, the company had these reasons to offer: one, limestone mined and crushed in the mines is the basic raw material for the manufacture of cement; two, mines and factory are situated adjacent to each other, and on a continuous stretch of land; three, there is no public road, canal, or railway line separating the factory from the mines; four, UltraTech owned the mines and the factory; and five, employees in the mines are the company's.

The tribunal studied the details about the location of mines and observed that Ultra Tech's mines are connected to the factory by a private road. "Whether the mines should be treated as part of the cement factory has been examined in depth by the Hon'ble Supreme Court in the case of CCE vs JK Udaipur Udyog Ltd," observed Jayaraman.

That case was discussed in these columns about a year ago (`Explosive fizzled out as the fuse was too long', Business Line, September 11, 2004). There, limestone was brought from the mines to the factory by a ropeway; and the company had argued that the mining area is an extension of the factory area.

"It is difficult to accept the submission made. Ropeway is merely a device or mechanism for transporting limestone. Merely because a ropeway connects the factory with the mines, the mine itself will not become a part of the factory where cement is produced," the apex court had opined.

"On that logic, even if the mine is situate hundreds of miles away but is connected with the factory by a railway line for transporting mineral or raw material, the said mine will become a part of the factory of production," extrapolated the court.

A mine from where the raw material is extracted and is situated at some distance, but no manufacturing process is carried on, cannot qualify to be a factory, ruled the Supreme Court in the Udaipur Udyog case.

The tribunal was of the view that the above observations squarely apply to the present case. "Just because a road connects the cement factory to mines and also the fact that a single registration is given covering the factory and the mines, we cannot hold that the mine is a part of the factory coming within the ambit of Section 2(e) of the CE Act, 1944," said the tribunal.

Would it have made any difference if the mines were contiguous to the factory? No, they cannot be held to be the precincts of the factory, said the tribunal. Also of relevance was the fact that no excisable product was produced in the mines. Moreover, the mines area belongs to the State Government and the cement factories have only taken them on lease for extraction of lime stone, pointed out Jayaraman.

"Mines cannot be considered as part of the factory," he ruled ultimately.

That brings to mind a line from one of the Bard's sonnets, "The pain be mine, but thine shall be the praise."

Wonder what the decision would have been if the mine were connected by a tunnel!

Tailpiece

"When the auditor SMS-ed me TX, I thought he was thanking me... "

"How unusual!"

"No, he meant tax!"

Detaxification@TheHindu.co.in

D. Murali

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