The government today clarified that area-based central excise exemption would only apply to units which undertake expansion by acquiring the adjoining plot with at least one common boundary with the existing plot and merge it with the existing plot or premises to make it one unit.

In February last year, the finance ministry had said that expansion of an eligible unit by acquiring an adjacent plot of land and installing new plant and machinery on such land was akin to expansion by way of installing new plant and machinery inside the existing plot or premises and that in such cases, the exemption should continue to be available for the residual period of exemption.

Following this, it received representations from the industry seeking further clarifications as to whether the term ‘adjacent’ used in the said clarification would also include a plot which is not immediately adjoining the existing plot but at some distance away from the existing plot.

“The matter has been examined. Installing of new plant and machinery in a plot which is away from the existing plot is not akin to the situation mentioned in para 5 of the said circular. Installation of plant and machinery on such a plot would tantamount to setting up another unit by the manufacturer, the eligibility of exemption of which is independent of the eligibility of exemption to the existing unit,” the central excise department said in a circular today.

Such area-based exemptions are provided in hilly regions of Uttarakhand and Himachal Pradesh. Certain goods are exempted from tax when cleared from a unit in these states.

Certain goods are also exempted when cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area.