1.39 Query: Whether an injection moulding machine is a ‘continuous process plant’.
1. A company has a consumer durable manufacturing unit and a Plastics Division. In the Plastics Division, the company manufactures plastic moulded components basically for the consumer durable unit. This division has got injection moulding machines which convert plastic granules into injection moulded plastic parts.
2. The querist has informed that the moulding machines are designed to work 24 hours a day and the company operates these machines in three shifts. These machines are stopped only when there is a mould change, raw material change or for preventive maintenance. The moulding machines are also required to work for 24 hours a day since intermittent stoppages would affect the dimensional specifications of moulded components apart from other critical functional parameters thereby resulting in excessive raw material wastages, down time and loss of man hours.
3. The querist has further informed that throughout the world, moulding machines are operated on a 24 hour basis with shut-down generally done only for maintenance purposes.
4. The querist has sought the opinion of the Expert Advisory Committee as to whether the moulding machines can be classified as “continuous process plant” for the purpose of depreciation calculations under Schedule XIV of the Companies Act, 1956.
Opinion February 8, 1995
1. The Committee notes paragraphs 3 and 4 of Guidance Note on Some Important Issues arising from the Amendments to Schedule XIV to the Companies Act, 1956, issued by the Institute of Chartered Accountants of India, which are reproduced below:
“3. The expression ‘continuous process plant’ has been defined in the aforesaid Notification [No. G.S.R. 756(6) dated 16.12.1993, issued by the Ministry of Law, Justice and Company Affairs amending Schedule XIV to the Companies Act, 1956] as follows:
‘Continuous process plant’ means a plant which is required and designed to operate 24 hours a day.”
“4. The words “required and designed to operate 24 hours a day” are very significant and should be interpreted with reference to the inherent technical nature of the plant, i.e., the technical design of a continuous process plant, is such that there is a requirement to run it continuously for 24 hours a day. If not so run, there are significant shut-down and/or start-up costs. If such a plant is shut-down there may be significant spoilage of material-in-process/some damage to the plant itself/significant energy loss. It is, however, possible that due to various reasons, e.g., lack of demand, maintenance etc., such a plant may be shut down for some time. The shut down does not change the inherent technical nature of the plant. For instance, a blast furnace which is required and designed to operate 24 hours a day may be shut down due to various reasons; it would still be considered as a continuous process plant and the relevant rate as per Schedule XIV would be applicable.”
1. The Committee is of the view that whether a particular plant is designed and required to run 24 hours a day are questions of fact and have to be determined on the basis of the inherent technical nature of the plant as explained in the aforesaid Guidance Note. Another indication of inherent technical nature of the plant, as envisaged in the Guidance Note, is that in the event of lack of demand of the product, whether it is technically practicable to run all the available machines at less capacity utilisation for single or double shift or it is technically practicable to run only a few machines at full capacity 24 hours a day, and shut down rest of the machines. In the latter case, the machines would be considered as ‘continuous process plant’. The Committee is, therefore, of the opinion that whether a plastic moulding machine is a continuous process plant should be determined on the basis of the inherent technical nature of the plant as explained hereinbefore. _____________________
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