Holding

The unit is an expansion of the existing undertaking and does not qualify as a "new industrial undertaking" for exemption from electricity duty.

Summary

Saurashtra Cement and Chemical Industries set up a new kiln in a new building on the same premises, using existing crushers, cranes, and other plant, and applied for exemption from electricity duty under the Bombay Electricity Duty Act, 1958. The statutory authority rejected the application, but the Gujarat High Court allowed the exemption, holding that the new unit was a separate industrial undertaking. The State of Gujarat appealed, arguing that the unit was merely an expansion of the existing business, which is excluded from the definition of a "new industrial undertaking" under Explanation I clause (ii)(c) of Section 3(2)(vii)(b). The Supreme Court examined the meaning of "new industrial undertaking" and "expansion", finding that the new kiln depended on the old plant and was not a self‑contained, viable unit. Consequently, the Court held that the unit constituted an expansion, not a new undertaking, and therefore was not entitled to the exemption. The High Court's order was set aside and the appeal was allowed.

Issues considered

Whether the unit established by Saurashtra Cement qualifies as a "new industrial undertaking" under Explanation I clause (ii)(c) of Section 3(2)(vii)(b) of the Bombay Electricity Duty Act, 1958.
Whether the use of existing plant and machinery in the new unit makes it an expansion of the existing business, thereby disqualifying it from exemption from electricity duty.

Legislation cited

Bombay Electricity Duty Act, 1958s. Explanation I clause (ii)(a), s. Explanation I clause (ii)(b), s. Explanation I clause (ii)(c), s. Section 3(1), s. Section 3(2)(vii)(b)

Subjects

electricity dutyexemptionnew industrial undertakingexpansionBombay Electricity Duty Actindustrial lawcement industrystatutory interpretation

Judgment

STATE OF GUJARAT AND ORS. A
v.
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES

JANUARY 29, 2003

B
[M.B. SHAH AND ARUN KUMAR, JJ.]

Bombay Electricity Duty Act, 1958-Section 3(2)(vii)(b) and clause (ii)(c}
of Explanation I to Section 3-Exemption from levy of electricity duty-
Entitlement of-Held: For claiming exemption the unit should be a new C
industrial unit-Further it should not be expansion of existing business or
undertaking-On facts new unit set up not totally independent of the assets of
the existing unit, thus not entitled to claim exemption from levy of electricity
duty-Hence order of High Court granting exemption set aside.

Words and Phrases: D

'New Industrial Undertaking '-Meaning of in the context of Section
3(2)(vii}(b} of the Bombay Electricity Duty Act, 1958.

'Expansion '-Meaning of in the context of Explanation I clause (ii)(c)
of section 3(2)(vii)(b) of the Bombay Electricity Duty Act, 1958. E
Respondent company is manufacturer of portland cement. It
installed a new kiln in a new building erected within the same premises
and made use of existing idle capacity of crushers, cranes, packing

-
•
machines, coal and raw mills. It filed an application for obtaining eligibility
certificate for exemption from levy of electricity duty. Authorities under
the Act rejected the application. However, High Court allowed th·e petition.
Hence the present appeal.
F

Appellant contended that existing plant and machinery are used in
the process of manufacture of cement in the so called new industrial unit G
which is expansion of the existing business or undertaking and in view of
the restrictive definition of a 'new industrial undertaking' contained in
clause (ii)(c) of Explanation I of Section 3(2)(viii)(b) of the Bombay
Electricity Duty Act, 1958, respondent is not entitled to exemption.

Respondent contended that use of existing plant and machinery in H
695

•
696 SUPREME COURT REPORTS [2003) I s.c.R:

A the new unit was only incidental and actually it is a case of setting up of
a new industrial undertaking which entitles respondent to exemption ...
from duty. ·· ·

Allowing the appeal, the Court

B ·HELD: 1. A 'new industrial undertaking' under sub-clause (ii)(c) of
Explanation I of Section 3(2)(viii)(b) of the Bombay Electricity Duty Act, )'-- ·
1958 will only qualify for the exemption from levy of electricity duty.- In
view of sub-clause, cases of expansion of existing units, irrespective of
extent of expansion, will not qualify for being called a new industrial
C undertaking within the Act, to be entitled for th«; benefit of exemption
from levy of electricity duty as a 'new industrial undertaking'. The
expansion may be substantial but that would not make any difference.
1700-E, F, G)

1.2. In the instant case, respondent is admittedly using its existing
D crushers, cranes, raw mills, packing machines and old cement mills to
complete the process of manufacture of cement in the new unit. The so
called new unit/undertaking is not totally independent of the assets of the
existing unit and cannot do without the assets of the existing unit to
complete the process of manufacture of cement on its own as a viable
unit. New unit is dependent on the existing assets. A physical identity
E with the old is preserved. 1700-F; 702-E, F)

1.3. Meaning of word 'expansion' "to become greater or bigger in
size, to spread out" is to be applied to the facts of the instant case.
Respondent company initially had a production capacity of 660 metric
tones which was subsequently increased to 1000 metric tonnes, then by
F setting up the alleged new unit, production capacity of the company is
more than double. But this unit is not self contained and is not an •
independently viable unit. Further respondent was having two kilns and

G
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 respondent, completely falls to the ground and thus, the respondent is
-
not entitled to exemption from electricity duty. Hence the order of High
Court is set aside. 1702-H; 703-B-D)

Textiles Machinery C01poratio11 ltd., Calcutta v. Commissioner of Income
H Tax, West Bengal, 119771 2 sec 368, relied on.
STATEOFGUJARATI'. SAURASHTRA CEMENT ANDCHEML INDUS [ARUN KUMAR,J.] 697

Bajaj Tempo Ltd., Bombay v. Commissioner of fncome Tax, Bombay A
Cit_v-111, Bombay, 119921 3 SCC 78, referred to.

CIVIL APPELLATE JURISDICTlON : Civil Appeal No. 3658 of
1994.

From the Judgment and Order dated 29.11.90 of the High Court of B
Gujarat in SCA No. 835178

S.K. Dholakia, Ms. Hemantika Wahi and Ms. Aruna Gupta for the
Appellants.

Bhaskar P. Gupta, Sanjay R. Hegde, Satya Mitra and Anil K. Mishra C
for the Respondent.

The Judgment of the Court was delivered by

ARUN KUMAR, J. This appeal is directed against a judgment dated D
29th November, 1990 of the Gujarat High Court allowing a Writ Petition
filed by the respondent seeking exemption from levy of electricity duty and
for quashing the orders of the authorities under the Bombay Electricity Duty
Act, 1958 (hereinafter referred to as 'Act') whereby exemption had been
denied to the respondent. The High Court held that the respondent had set up
a new industrial undertaking as contemplated under the Act and was entitled E
to exemption from electricity duty under Section 3 (2) (vii) (b) of the said
Act. The State Government has filed the present appeal again>! the said
judgment of the High Court.

Briefly the facts are that the respondent is engaged in manufacture of
portland cement. It installed a manufacturing plant in the year 1960 with a F
capacity of producing 660 metric 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 G
silos, lepol and nodulizers, coal mill and cement mill. This unit started
1nanufacturing cement on 24 June, 1971. The unit was using existing idle
capacity of ctushers, cranes, packing machines, coal mills, and raw mills.

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 H
698 SUPREME COURT REPORTS [2003] I S.C.R.

A 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
Act.

"Section 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
B 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
c consumed-

(i) to (vi) .................................................................................................. .

(vii) for motive power and lighting in respect of premises used by an
industrial undertaking for industrial purpose, until the expiry of the
D 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")
E 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 I st May, 1960, which does not generate energy for its own
use, five years from the commencement date or the date on
F 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
•
G 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 Gazettti, specify.

Explanation I.- For the purpose of clause (vii)-

H (i) "an industrial unde11aking" means an industrial undertaking
ST ATE OF GUJARAT,., SAURASHTRA CEMENT AND CHEM! INDUS. [ARUN KUMAR, J .] 699

which manufactures or produces for sale or use in the A
manufacture or production of other goods but does not include
an undertaking \Vhich 1nanufactures or produces any kind of
food and drinks, meant ?rdinarily for consumption on the
pren1 ises of the undertaking; and
(ii) "a ne\v industrial undertaking" means any such industrial B
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 fanned by transfer to a new business or undertaking
c
of a building, machinery or plant previously used in the
State for any industrial purpose, of such value in relation
to total investn1ents, as the State Government may, by
notification in the Official Gazette, specify; or
D
(c) is not an expansion of the existing business or undertaking
in the State."

)< 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 E
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 F
considered as a new industrial undertaking, particularly, in view of the fact
that the respondent was 1naking 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 G
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 H
700 SUPREME COURT REPORTS [2003) I S.C.R.

A 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
B expansion would certainly constitute new undertaking. The High Cou11 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.
C 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.

The learned counsel appearing for the appellant, State of Gujarat, laid
D emphasis on the relevant provisions of the statute particularly clause (ii) (c)
of Explanation I and submitted that in view of the restrictive definition of a
new industrial undertaking contained in the said provision, the respondent is
not entitled to exemption from payment of electricity duty. The crucial question
for consideration in this case is the meaning of the word 'new industrial
E undertaking' contained in clause (b) of Section 3 (2) (vii). Only if a unit can
be described as a new industrial undertaking, it will qualify for the exemption.
According to sub-clause (ii)(c) of Explanation I an industrial undertaking
should not be an expansion of the existing business or undertaking in the
State in order to be entitled to the benefit of exemption from levy of electricity
duty as a new industrial undertaking. Thus cases of expansion of existing
F units, irrespective of extent of expansion, will not qualify for being called a
new industrial undertaking within the Act. As per facts emerging on record,
the respondent is admittedly using its existing crushers, cranes, raw mills,
packing machines and old cement mills to complete the process of manufacture
of cement in the new ur:it. According to the learned counsel for the appellant
when the existing plant and machinery are used in the process of manufacture
G of cement in the so called new industrial unit, it is nothing but a case of
expansion of the existing business or undertaking. The expansion may be
substantial but that would not make any difference. Once it is a case of
expansion of existing unit, it will not be entitled to exemption from duty.

H The learned counsel appearing for the respondent, however, argued that
STATEOFGUJARAh SAURASHTRACEMENT ANDCHEML !NOUS. [ARUN KUMAR.J] 70]

the use of existing plant and machinery in the new unit was only incidental A
and actually it is a case of setting up of a new industrial undertaking \Vhich
entitles the respondent to exe1nption fro1n duty as envisaged under the Act.
Jn support of his argument, the learned counsel for the respondent relied
upon Textiles Machinery Corporation ltd., Calcutta v. Co111111issioner of
Income Tax, West Bengal, (1977] 2 SCC 368. This was a case under the
Income Tax Act The assesee sought exemption under Section 15C of the Act B
on the ground that it was a newly established industrial undertaking. The
statutory provision under the Income Tax Act is materially different from the
one under consideration in the present case. The exception carved out for
cases of expansion of existing business or undertaking in the State is not
there in Section 15C of the Income Tax Act. In the context of Section 15C C
of the Income Tax Act, this Court in Textiles Machinery Corporation Case
observed:

"That manufacture or production of articles yielding additional profit
attributable to the new outlay of capital in a separate and distinct unit
is the heart of the matter, to earn benefit from the exemption of tax D
liability under Section I 5C."

Crucial question for consideration before us is whether it is a case of
expansion of an existing unit? The case of expansion of an industrial
)
undertaking would qualify for exemption under Section 15C of the Income
Tax Act while in view of clause (ii)(c) of Explanation I contained in the E
Bombay Electricity Duty Act, 1958, an expansion of existing business
undertaking would not qualify for exemption from electricity duty. Para 18
of the judgment in Textile Machinery Corporation (supra) throws considerable
light on the controversy before us. Para 18 reads as below:

"18. The assessee continues to be the same for the purpose of F
assessment. It has its existing business already liable to tax. It produced
in the two concerned undertakings commodities different from those
which he has been manufacturing or producing in its existing business.
Manufacture or production of articles yielding additional profit
attributable to the new outlay of capital in a separate and distinct unit G
is the heart of the matter, to earn benefit from the exemption of tax
liability under Section I 5C. Sub-section (6) of the section also points
to the same effect, namely, production of articles. The answer, in
every particular case depends upon the peculiar facts and conditions
of the new industrial unde1taking on account of which the assessee
claims exemption under Section I 5C. No hard and fast rule can be H
702 SUPREME COURT REPORTS [2003] I S.C.R.

A laid down. Trade and industry do not run in earmarked channels and
particularly so in view of manifold scientific and technological
developments. There is great scope for expansion of trade and industry.
The fact that an assessee by establishment of a new industrial
undertaking expands his existing business, which he certainly does,
would not, on that score, deprive him of the benefit under Section
B 15C. Every new creation in business is some kind of expansion and
advancement. The true test is not whether the new industrial
uudertaking connotes expansion of the existing business of the assessee
but whether it is all the same a new and identifiable undertaking
separate and distinct from the existing business. No particular decision
c in one case can lay down an inexorable test to determine whether a
given case comes under Section 15C or not. In order that the new
undertaking can be said to be not formed out of the already existing
business, there must be a new emergence of a physically separate
industrial unit which may exist on its own as a viable unit. An
undertaking is formed out of the existing business if the physical
D identity with the old unit is preserved. This has not happened here in
the case of the two undertakings which are separate and distinct."

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
E 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
F complete the process of manufach1re of cepient on its own as a viable unit.
The nf<w unit 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
a new industrial unit contained in the Act, it cannot be said that the respondent
is entitled to exemption from electricity duty.

G To appreCiate the exception contained in Explanation I to clause (ii)(c)
of Section' 3 (2) (vii) (b),it is necessary to understand the meaning of the
word 'expansion'. The word 'expansion' is a noun derived from the word
'expand', which is a verb. The word 'expand' means. 'to become greater or
bigger in size, to spread out. As per the New Shorter Oxford Engli~~
H Dictionary, the word 'expand' means 1.v.t. 'spread or stretch (a thing) out 2~
ST ATE OF GUJARAT,. SAURASHTRA CEMENT ANDCHEMl INDUS [ARUN KUMAR.).] 703

Become extended; spread out, unfold. 3.v.t. Give full expression to 4.v.t. A
Widen the boundaries of, increase the area, scope etc .. of; enlarge, dilate
5. v .i. Beco1ne greater in area, bulk, capacity etc: becon1e larger; increase the
scope of one's activity or the scale of operations of so1nething; take in or go
into a new area of activity.

This meaning is to be applied to the facts on record. The respondent B
company when it initially started had a production capacity of 660 metric
tonnes which was subsequently increased to I 000 metric tonnes. In I 969-70
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 noi an
independently viable unit It is dependant on various items of plant and C
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 D
not entitled to exemption from electricity duty. The High Court failed to
apply the real test which emerges from the judgment of this Court in Textile
Machine1y Corporation (supra) which was affirmed in a subsequent decision
in Bajaj Tempo Ltd, Bombay v. Commissioner /Jf Income Tax, Bombay City-
111, Bombay, [1992] 3 SCC 78. Accordingly, this appeal is allowed. The
E
judgment of the High Court under appeal is set aside. The respondent is held
not entitled to exemption from electricity duty.

In the facts of the case there will be no order as to costs.

N.J. Appeal allowed.