How far should the workshop be from mine?

EXPERT EYE

The Supreme Court has brought finality to an old controversy about the concept of 'precincts of mines', which had been causing confusion in the realm of Cenvat credit. The issue is how to give effect to the benefit of an exemption in respect of workshop situated within the precincts of mines.

An old notification (No.182/87 C.E.) and its successor notification (No.63/95 C.E.) give the benefit of exemption to goods manufactured in a mine. The explanation to the notification stated that the mines will have the same meaning as assigned to it in the Clause (j) of the Section 2 of the Mines Act, 1952. This Clause (j) states that mine includes "all workshop situated within the precincts of a mine and under the same management and used solely for the purpose connected with that mine or a number of mines under the same management".

The controversy is, therefore, only about what is the exact meaning of the phrase 'precincts of a mine'. How far should the workshop be from the mine? Sometimes a workshop for a mine can be situated within, say, 4 km of the mine or it can even be 50 km away. The distance usually depends on the convenience of the mine, the nearness of the markets where the spare parts are available and also the availability of motorable roads. The distance, therefore, should not be an issue but unfortunately there have been very similar judgements by tribunals in the past.

The earlier judgement was in the case of Central Coalfield Ltd vs CCE [2001(137)ELT752(T)], where the workshops were situated at various distances ranging from 4 to 50 km from different mines for which they were doing repair work. Since there was no dispute that they were under the same management, the tribunal upheld the view that the distance of even 50 km should not be any hindrance to considering the workshops as being situated within the precincts of the mines. So the benefit of the exemption was admissible.

An opposite judgement on the subject was in the case of Western Coalfields Ltd vs Commissioner of Central Excise, Nagpur [2003 (161) ELT 768 (T)]. In this case, the workshop was situated at a distance of 6 km from the mine. The tribunal did not accept the previous judgement in the case of Central Coalfield, but decided that even 6 km cannot be said to be within the precincts of mines. This judgement simply ignores the other judgements without giving any pertinent reason. It is quite an illogical decision.

A similar issue went to the Supreme Court in the case of South Eastern Coalfields Ltd vs CCE and the judgement given in August 2006 has been reported in 2006(200)ELT357(SC). The Supreme Court has gone into several dictionaries and has come to the conclusion that the word 'precincts' does not have a single meaning but has several meanings. When one word has several meanings and, therefore, the meaning is not clear in a particular context, the best way to interpret the word is not to go by the literal and grammatical meaning but by the purpose for which the word has been used. The Supreme Court has held that looking at the word from this angle, the broader meaning and not a narrower meaning has to be accepted. In other words, we have to interpret the word 'precincts' in the exemption notification to mean the surrounding region or area. This is because the purpose of the exemption notification is to grant exemption from excise duty to goods manufactured in a mine so as to encourage the mining industry.

The conclusion is that the concept of 'precincts of a mine' should not be limited to a certain number of kilometres within which the workshop has to be situated. This judgement of the Supreme Court now should prevent the tribunals from giving varied judgements on the same issue.