MUNICIPAL COMMISSIONER, CHINCHWAD NEW TOWNSHIP MUNICIPAL COUNCILversusM/S. CENTURY ENKA LTD.

A    MUNICIPAL COMMISSIONER, CHINCHWAD NEW TOWNSHIP
                    MUNICIPAL COUNCIL
                             v.
                  M/S. CENTURY ENKA LTD.

                             SEPTEMBER 12, 1995
B
                [K. RAMASWAMY AND B.L. HANSARIA, JJ.]

          Municipalities :

C           Municipal Council-Octroi-Exemption from levy-Resolution regard-
    ing-Exemption to initially imported plant and machinery by new industrial
    Undertaking--Clalification appended to Resolution-lndustlies f onned by
    splitting up or reconstntction of business in existence would not be a new
    lndust!JScope of-Held : unit set up to effect substantial expansion of
    existing business was entitled to exemption.
D
           The appellant-Council passed a Resolution whereunder initially im-
    ported plant and machinery by a new Industrial Undertaking was ex-
    empted from the levy of octroi. However, clause (1) of the Clarification
    appended to the Resolution provided that an Industry formed by the
E   splitting up or the reconstruction of a business already in existence would
    not be a new industry. The respondent-Company set up a unit for manufac-
    turing polyester filament yarn to effect substantial expansion of the exist-
    ing business. Its claim for exemption under the aforesaid resolution was
    denied on the ground that the importation of plant was machinery for
    setting up of unit - being by existing undertakings, the same was not meant
F   for 'new industrial undertaking'. On a petition filed by the respondent-
    Company the High Court directed the Municipal Council to grant the
    exemption sought for.

          Dismissing the appeals filed by the Appellant-Council, this Court
G      HELD : It cannot be held that the unit set up by the respondent for
  manufacturing of polyester filament yarn has to be regarded as result of
  reconstruction of the business already in existence, merely because the
  same bad come into existence for effecting "substantial expansion" of the
  business in existence. If the new undertaking be separate and independent
H production units were to come in .existence in the sense of producing a
                                        540
   MUNICIPALCOMMNR. v. CENTURY ENKA LTD. (HANSARIA,J.] 541

distinct commercial tJroduct and the undertaking could be carried on               A
separately, the same Would not be treated as being formed by reconstruc-
tion of the old business. The unit set up by the respondent did meet these
requirements. Therefore, exemption could not have been denied by taking
a view that it was not a new industry because of what has been stated in
clause (i) of the Claritication. [543-F, 544-C-D]                                  B
      Commissioner of Income Tax v. Indian Aluminium Co. Ltd., 108 ITR
367; Commissioner of Income Tax v. Olient Paper Mills Ltd., 176 ITR 110
and Textile Machbwy C01poration Ltd. v. The Commissioner of Income Tax,
[1977) 2 SCR 762, relied on.

      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8257-60
                                                                                   c
of 1995.

     From the Judgment and Order dated 14/16.8.90 of the Bombay High
Court in W.P. Nos. 4190, 2216/83, S.C.A. No. 1312/78, and 1539 of 1978.
                                                                                   D
     K. Madhava Reddy, V.B. Joshi, Umesh Bhagwat, Alok Singh, for the
Appellant.

       Dr. A.M. Singhvi, Sunil Dogra, Ms. Monica Sharma, S.S. Shrof, S.
Ganesh, Ravinder Narain, Amrit Mitra and Rajan Narain, for the Respon-
dents.                                                                             E

      The Judgment of the Court was delivered by

      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                  F
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            G
           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 H
    542                   SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

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
B                 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
c   of M/s. Century Enka Ltd.) claim exemption under the aforesaid resolu-
    tion, which having been denied, the Bombay High Court was approached,
    by filing writ petitions seeking direction on the Municipal Council to grant
    exemption, as visualised by the resolution in question. The High Court
    granted the prayer. Hence these appeals.
D
         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 Under-
  taking". This stand was taken because of Clarification (i) appended to the
E 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,
F had clearly stated that apart from the aforesaid ground, "other contingen-
  cies set out in the explanation (sic clarific3tion) 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
G 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
H   the Clarification is also not satisfied, because of which exemption cannot
   MUNICIPALCOMMNR. v. CENTURYENKALTD.[HANSARIA,J.] 543

be claimed. We did not permitted this point to be raised for the first time A
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
                                                                                       B
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 respon-
dents that as to when an industrial undertaking can be said to have been
formed by reconstruction splitting up, has been a subject matter of con-
sideration by this Court itself in a number of decisions. The first in point
of time is by a three Judge Bench in Textile Machine1y C01poration Ltd. v.             c
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         D
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 pwi matelia with the languages of Section 15(C) which had come 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 commer-                E
cially 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 otd business.

       5. This being the legal position, it cannot be held that the unit No. 2         F
(supra) set up for manufacturing of polyester filament yarn has to be
regarded as result of reconstruction 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            G
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 manufac-
ture 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               H
    544                  SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A   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 decis-
B   sive in view of the aforesaid decision, which was followed in Commissioner
    of Income Tax v. Indian Aluminium Co. Ltd., 108 ITR 367 and Commis-
    sioner of Income Tax v. 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
C   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
D   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.

E   T.N.A.                                                  Appeals dismissed.