1. These three appeals are taken up for decision by this common order, as they were notices in the impugned order before us.
(a) Appellant - M/s. Maniraj Industries, Chauliaganj, Cuttack (hereinafter referred to as Maniraj in short) is a partnership firm, having following partners, engaged in the manufacture of Biscuits falling under Chapter 19 of the Central Excise Tariff Act, 1985 :- (b) Appellant - M/s. Macborn Industries, Chauliaganja, Cuttack (hereinafter referred to as Macborn in short) is also a partnership firm having following partners, engaged in the manufacture of the said Biscuits : - (c) Appellant - M/s. Hindustan Confectionery, Aparna Nagar, Cuttack (hereinafter referred to as Hindustan in short) is a proprietorship firm, the proprietor being Shri Rabindra Kumar Sahu, S/o Shri Indramani Sahu and is engaged in the manufacture of Chocolates falling under Chapter 18 of the Cental Excise Tariff Act, 1985.
2. Based on an intelligence that these firms are under the common command and control of the family of Shri Indramani Sahu and have been created separately only to irregularly avail of the exemption/concessional rates of duty applicable to small-scale manufacturers under Notification No. 175/86-CE., dated 1-3-86 as amended from time to time; and there is a large scale suppression of production and removal thereof by the said firms, the officers of the DG(AE) in association with the officers of Collectorate (now Commissionerate) of Central Excise and Customs, Bhubaneswar, conducted a search in the above mentioned premises and recovered/seized several relevant records/documents. Statements of responsible persons associated with the above mentioned firms and its associates were recorded. Unaccounted stock of Biscuits worth Rs. 50,342/- and two delivery Vans fully loaded with Biscuits valued at Rs. 1,56,596/- were seized from the premises of M/s. Maniraj Industries. Also there was seizure of Biscuits valued at Rs. 87,935/- from M/s. Macborn Industries and after conducting detailed enquiries, a show cause notice was issued as it appeared that : - (i) The above three units are under the common command and control of Shri Indramani Sahu and the family members. These three units are also intimately inter-related in their internal working and there is no distinction between each other. The units are created only to give semblance of a legal cover of independent entities for the sole purpose of availing the benefit of concessional rates of duty under Notification No. 175/86-C.E., dated 1-3-86 by artificially splitting their aggregate value of clearances.
(ii) Maniraj and Macborn are systematically suppressing their actual production and removing the same without accountal and without payment of duty. Maniraj and Macborn had under valued their goods by not adding commission given to their distributors.
Accordingly, a show cause notice was issued to Maniraj, Macborn and Hindustan vide C. No. V (1905.11) 15/Adjn/llA/43/91/ 17411-16A, dated 30-5-91 asking them to show cause as to why :- (i) Maniraj shall not be required to pay an amount of Rs. 10,52,953.84 under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944, leviable on quantities of biscuits removed by them clandestinely during the period from 1988-89 to 1990-1991 (up to 4-12-90) as detailed in Annexure C.I to the show cause notice and elaborated in Para 7 read with Para 5 of statement of facts enclosed to the show cause notice.
(ii) Maniraj shall not be required to pay an amount of Rs. 1,34,232.58 under Section 11A of the Central Excise Act, 1944 read with Valuation Rules, 1975 leviable on the commission to distributors which shall have been included in the assessable value during the period 1986-87 to 4-12-90, but the facts of which was suppressed by them as elaborated at Para 9 of the statement of facts.
(iii) Goods valued at Rs. 1,56,597.25 and Rs. 50,342.42 seized on 5-12-90 from the premises of Maniraj shall not be confiscated under Rule 173Q ibid.
(iv) Macborn shall not be required to pay Central Excise duty amounting to Rs. 4,69,551.81 under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A on which is leviable the quantities of goods removed by them clandestinely during 1988-90 to 1990-91 (up to 4-12-90} as detailed in Annex. C-1 to the show cause notice and elaborated in Para 7 read with para 5 of the statement of facts enclosed to the show cause notice.
(v) Macborn shall not be required to pay an amount of Rs. 66,868.23 leviable on the commission to the distributors which should have been included in the assessable value under Section 4 of the Central Excise Act, 1944 read with Valuation Rules, 1975, and the facts of which was suppressed by them as discussed in Para 9 of the statement of facts enclosed to the show cause notice.
(vi) Goods valued at Rs. 87,935.43 seized from the premises of Macborn shall not be confiscated under Rule 173Q ibid.
(vii) Cash amounting to Rs. 1,40,000/- seized from Macborn shall not be confiscated under Section 121 of the Customs Act as made applicable to Central Excise matters by Notfn. No. 68/63, dated 4-5-63 (as amended) issued under Section 12 of the said Act.
(viii) The benefit of concessional rate of duty under Notfn. No. 175/86-C.E. as amended shall not be denied to Maniraj, Macborn and Hindustan.
(ix) Maniraj, Macborn and Hindustan should be required to pay an amount of Rs. 24,22,474.91 under Section 11A of the Central Excise Act, 1944 as detailed in Annex. C-2 to the show cause notice which has been short-paid/not paid as a result of suppression of material facts i.e mutual business interest, common budget/expenditure, common command and staffing etc., as discussed in Para 10 of statement of facts enclosed to the show cause notice.
(x) Penalty shall not be imposed on them under Rules 9(2), 52A, 173Q{1) and 226 of Central Excise Rules, 1944.
Land, Building, Plant and machinery used in connection with manufacture, production, storage, removal and disposal of such goods shall not be confiscate under Rule 173Q(2) ibid.
3. The Commissioner after hearing the parties and considering the replies passed the following orders : - "1.1 The benefit of concessional rate of duty under Notfn. No. 175/86-C.E. as amended is not allowable to M/s. Maniraj Industries, M/s. Macborn Industries and M/s. Hindustan Confectionery and consequently I confirm the demand of Central Excise duty of Rs. 24,04,777/- (Rs. Twenty-four lakhs four thousand seven hundred and seventy-seven only) (BED Rs. 22,90,264/- + SED Rs. 1,14,513/-) on M/s. Maniraj Industries, Cuttack under Section 11A of the Central Excise Act, 1944.
1.2 I confirm demand of Central Excise duty of Rs. 9,90,368.00 (Rs. Nine lakhs Ninety thousand three hundred and sixty-eight only) (BED Rs. 9,43,208.00 + SED Rs. 47,160.00) on M/s. Maniraj Industries in respect of goods removed clandestinely during the periods 1988-89,1989-90 and 1990-91 (up to 4-12-1990) under Rule 9(2) read with Section 11A of the Central Excise Act, 1944.
1.3 I drop the proposed demand of Rs. 1,30,232.58 (Rs. One lakh thirty thousand two hundred thirty-two and paise fifty-eight only) against M/s. Maniraj Industries in respect of the charge of non-inclusion of element of commission given to the distributors.
1.4 I order confiscation of goods valued at Rs. 1,56,597.25 found loaded into the Delivery Vans and goods valued at Rs. 50,342.42 which were the unaccounted for goods, under Rules 52A and 173Q ibid.
However, I find that the above seized goods totally valued at Rs. 2,06,939.97, were released provisionally to Shri Indramani Sahu, partner of M/s. Maniraj Industries on their request dated 6-12-1990, on execution of a B-11 Bond of a face value of Rs. 2,10,000.00 with cash security of Rs. 55,000.00. Since, the goods are not available for confiscation, I order appropriation of an amount of Rs. 21,729.00 (Rs. Twenty-one thousand seven hundred twenty-nine only) (BED Rs. 20,694.00 + SED Rs. 1,035.00) towards Central Excise duty and Rs. 33,271.00 (Rs, Thirty-three thousand two hundred seventy-one only) towards fine in lieu of confiscation of the goods, in terms of the B-ll bond executed by them.
1.5 I confirm demand of Central Excise duty of Rs. 4,58,022.00 (Rs. Four lakhs fifty-eight thousand twenty-two only) (BED Rs. 4,36,211.00 + SED Rs. 21,811) on M/s. Macborn Industries in respect of goods removed clandestinely during the period 1988-89 to 1990-91 (up to 4-12-1990), under Rule 9(2) read with Section 11A of the Central Excise Act, 1944.
1.6 I drop the proposed demand of Rs. 66,868.23 (Rs, Sixty-six thousand eight hundred sixty-eight and Fs. Twenty-three only) against M/s. Macborn Industries in respect of the charge of non-inclusion of element of commission given to the distributors.
1.7 I confiscate the goods valued at Rs. 87,935.43 seized on 5-12-1990 from M/s. Macborn Industries under Rule 173Q of Central Excise Rules, 1944. However, I find that the seized goods were released provisionally to them on execution of a B-11 bond for a face value of Rs. 87,935,43 with a cash security of Rs. 23,000.00 which was deposited at U.Co. Bank, Bhubaneswar vide TR-6 Challan No-NIL dated 11-12-1990. Since, the goods are not available for confiscation, I order for appropriation of an amount of Rs. 9,233.00 (Rs. Nine thousand two hundred thirty-three only) (BED Rs. 8,793.00 + SED Rs. 440.00) towards Central Excise duty and order appropriation of Rs. 13,767.00 (Rs. Thirteen thousand seven hundred sixty-seven only) towards fine in lieu of confiscation of the goods, in terms of the B-ll bond executed by M/s. Macborn Industries.
1.8 I order release of seized cash of Rs. 1,40,000.00 (Rs. One lakh forty thousand only) to M/s. Macborn Industries.
1.9 I impose a penalty of Rs. 10,00,000/- (Rs. Ten Lakhs only) on M/s. Maniraj Industries under Rules 9(2), 52A, 173Q and 226 of Central Excise Rules, 1944.
1.10 I impose a penalty of Rs. 50,000/- (Rs. Fifty thousand only) on M/s. Macborn Industries under Rules 9(2), 52A, 173Q and 226 of Central Excise Rules, 1944.
1.11 I impose a penalty of Rs. 1,000/- (Rs. One thousand only) on M/s. Hindustan Confectionery under Rules 9(2), 52A, 173Q and 226 of Central Excise Rules, 1944.
4. After hearing both sides and considering the submissions and the material on record, it is found : - (a) The Commissioner in Para 1.1 in Part-II of the findings of the impugned order has observed as follows : - ".....The case for clubbing of clearances of Maniraj, Macborn and Hindustan and the justifications for denying them the benefit of the duty exemption under Notfn. No. 175/86-C.E., dated 1-3-86 as amended have been delineated under Paras 10,2 to 10.15 of the instant Show Cause Notice..." And thereafter considering the individual duty demands made on Maniraj, Macborn and the constitution of the firms including M/s.
Hindustan has come to the conclusions that the charges contained in Para 10.3 of the Show Cause Notice as regards four delivery vans registered in the name of Shri Indramani Sahu of Maniraj and its common use and in absence of corroboration of not defraying the expenses thereto by Macborn, similarly the absence of an agreement between Maniraj and Macborn, would be conclusive to find that Shri Indramani Sahu was managing these units, as one combined concern. He has further come to a finding that nature and scope of the job to be undertaken by Maniraj was, what is in general trade commercial parlance understood as 'marketing', since the four distributors of Maniraj's products were the distributors of Macborn product and the payment of 4% commission agreed to Maniraj as a result of delivery van use was erratic and all products of Macborn were sold by Maniraj would lead to a conclusion that Shri Indramani Sahu of Maniraj Industries was in full control and command of the financial affairs relating to all the three units. In Para 2.12 of the order impugned before us he finds that financial transactions between the three firms were not on principal to principal basis. Thereafter, he concluded as follows :- "3.0 In the background of the above mutuality of financial interests between Maniraj/Macborn/Hindustan as discussed under Paras 2.2.1 to 2.2.11, other aspects in their relationship like common ownership (outlined in Para 2.1) unified command and control over personnel etc. though might be appearing to be innocuous when treated in isolation, assume critical significance to justify a case for clubbing when viewed jointly." "3.5 It is established from my discussions under Paras 2 and 3 that interlocking of the management, finances and other surrounding circumstances of the business of Maniraj, Macborn and Hindustan exist to establish identity of interests amongst Maniraj, Macborn and Hindustan and the intention of Sri Indramani Sahu of Maniraj Industries to run these firms as one unit. All these prove that the 3 units constitutes one financial entity and Sri Indramani Sahu exercises command and control over all the units. It was only with the illegal objective to avail the benefit of SSI exemption under Notfn. No. 175/86-C.E., that the units doned the garb of separate entity.
The discussions in Paras 2 and 3 establish that Maniraj was in control over the entire show and Macborn and Hindustan were created only with the objective of evading payment of appropriate duty and under the facts of the case, there is every legal justification to club their clearances. It is established that the three units i.e., Maniraj Industries, Macborn Industries and Hindustan Confectioneries belong to/owned by one single family i.e., the family of Shri Indramani Sahu; his three sons, wife and daughter-in-laws as outlined in Para 2.1. Shri Indramani Sahu, though, a partner of Maniraj, he exercised command and control over the activities of all the three units and since the identity of interest amongst the three firms to be run as one unit is established from the actions of Shri Indramani Sahu as well as the omission and commission of the units.
Accordingly, I find this to be an appropriate case for clubbing the clearances of the three units and fixing liability and responsibility for the same on Maniraj Industries and Shri Indramani Sahu." and thereafter gives a finding, that Maniraj, Macborn and Hindustan had relied upon large number of judicial decisions to claim that in the circumstances of their case, the aggregate value of clearances by these units do not merit clubbing, however, he holds that the ratio of those judgments were found to be totally inapplicable to the facts and circumstances of the case before him without discussions how. For the same reasons, he did not rely upon the Commissioner's Trade Notice No. 47/GL-37/92, dated 20-/-92 or and Order-in-Original No. 61(19) CE.-92-DC-12/97, dated 28-10-97 passed by the Deputy Commissioner (now Joint Commissioner, Central Excise) where the issue regarding clubbing of these three very units were to be and decided in their favour. He gives no reasons why the Public Notice issued by him is not being followed by him. He found that that order of the Deputy Commissioner does not justify non-existence of a case for clubbing of the three units and found as follows : "I find that the order to justify non-existence of a case for clubbing of the three units was, inter alia, found to be based on the following findings of the Deputy Commissioner.
3.7.1 There was no evidence on record that Macborn had enjoyed the transport facility without any payment.
3.7.2 Though the Show Cause Notice alleged about common ownership, command and control and financial interest yet the notice did not bring on record any documentary/corroborative evidences to prove the same.
3.7.3 Case of mutual financial transactions and flow back did not exist amongst the three units. As per the Order the most important aspect, viz. common funding and financial flow back was missing in the record because investigations were not carried out from that angle.
The above findings of the Adjudicating Authority is based on the relevant Show Cause Notices which were issued to Maniraj, Macborn and Hindustan. On my examination of those Show Cause Notices, I find the details of the results of the investigations which have been incorporated in the instant Show Cause Notice which is under adjudication before me, did not find any mention therein. Lack of incorporation of result of investigations to corroborate each of the above points which led the Deputy Commissioner for allowing the benefit, is not the case in the instant adjudication where all these elements are found to be present in full measure which have been discussed in the foregoing paras. In view of this, the findings of the Deputy Commissioner, which have been relied upon, are totally inapplicable to the facts and circumstances of the instant case." On analysis of evidences on record, the irrefutable conclusion which emerges is that M/s. Maniraj Industries existed since 1980. It engineered setting up of a shadow unit, viz., M/s. Macborn in 1988-89 only with the objective to avail of SSI exemption benefits, when it was found that the value of clearances by M/s. Maniraj exceeded the SSI exemption limit and the aggregate value of clearances would have rendered them ineligible to avail of benefit in the next financial year. That is the reason, a new partnership firm was floated by Shri Indramani Sahu of M/s. Maniraj Industries with his wife, daughter-in-law and one son as partners to provide a separate legal facade to the unit while financially and functionally the unit was an integral part of M/s. Maniraj Industries. On similar reasoning M/s. Hindustan, a proprietorship firm in the name of his son was also created. Accordingly, the clearances of M/s. Macborn and M/s. Hindustan need to be clubbed with that of M/s. Maniraj Industries.
4.1 In fine, it is established that in spite of the smoke screen created by way of separate legal existence of Maniraj/Macborn/Hindustan, by way of registering each of these as separate entities under the Partnership Act, obtaining separate licences for each under Central Excise Laws, separate registration for each with District Industries Center, separate status of each as assessees under Income-tax Act, Sales Tax Act, Factories Act, etc., it is established that Maniraj, Macborn and Hindustan have mutuality of interest in the business of each other and also the transactions between them are eminently characterized by extra commercial considerations. Thus, their transactions are not on a 'principal to principal' basis and therefore this is a case where the aggregate value of clearances of the excisable goods manufactured by all the three units are required to be clubbed together. For the periods 1988-89, 1989-90 and 1990-91 Macborn, Maniraj and Hindustan are not eligible for availing concessional rates of duty under Notification No. 175/86, dated 1-3-86 as amended because the aggregate value of their clearances was Rs. 1,63,56,021.19 p and Rs. 2,10,87,376.17 p for the years 1988-89 and 1989-90 respectively." And ordered that the amounts have to be recovered as determined by him.
(b) On the issue of clubbing of the units enjoying exemption under Notfn. No. 175/86-C.E., an order under Section STB under the Central Excise Act, has been issued. This was binding on all authorities including the Commissioner. This Order No. 213/14/92-CX.6 dated 29-5-92 reads as follows : - "Several representations and references have been received from the industry and departmental officers regarding the issue of clubbing of clearances of various firms to arrive at the aggregate value of clearances for the purposes of Notfn. No. 175/86. A similar issue had been earlier clarified in terms of Notification No. 176/77 by Board's F. No. 350/57-77-TRU, dated 20-1-78. The Board has examined the present issue keeping in view the above clarification. .
2. In exercise of the powers conferred under Section 37B of the Central Excises and Salt Act, 1944 (1 of 1944), for the purpose of ensuring uniformity of levy of duties of excise, the Central Board of Excise and Customs hereby orders that the general principles contained in clarification F. No. 350/57/77-TRU, dated 20-1-78, will be applicable to Notfn. No. 175/86 also.
3. The Board further directs that a copy of this order be sent to all Principal Collectors of Central Excise and Collectors of Central Excise for being observed and followed and for being made available as required to all other persons employed in the execution of Central Excises and Salt Act, 1944, and for issue of Trade Notices." Pursuant to this order, Trade Notice No. 47/GL-37/92, dated 20-7-92 was issued by the Commissioner which reads as follows :- "For information of Trade and Industry, the following clarifications are issued on the subject of clubbing of clearances of various firms to arrive at the aggregate value of clearances for the purpose of Notfn. No. 175/86.
(i) Different firms will be treated as different manufacturers for the purposes of the exemption limit. But, has got more than one factory, all these factories should of course be combined. Limited companies whether public or private are separate entities district from share holder composing it. Hence, each limited company is a manufacturer by itself and will be entitled to a separate exemption limit.
(ii) As mentioned above, if there are two firms with only some of the part- ners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption does not arise. If one firm or one individual owns several factories, the manufacturer being only one entity there is no question of distributing the exemption.
(in) If there are more than one mill under the control of one manufacturer, there is no question of choosing any "mill" for the purposes of exemption. The Central Excise department is concerned with a manufacturer which may be an individual; a firm, a limited company etc." These instructions and orders were based on the following advice of the Ministry of Law, Justice and Company Affairs (enclosed to the Section 375 order) : - "......The question whether different partnerships having common partners are treatable as separate manufacturers or the same manufacturer, would be a question of fact in each case to be determined on the basis of such factors among other, like composition of the partnership, existence of the factory, licence, nature of goods manufactured etc. Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners any A, B and C has got more than one factory, all these factories should of course, be combined.
Limited companies whether public or private, are separate entities distinct from the shareholders composing it. Hence, each limited company is a manufacturer by itself and will be entitled to a separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or one individual owns several factories, he or it gets exemption only in respect of one lot and the manufacturer being only one entity, there will be no question of distributing the exemption. Whether or not in the expression "by or on behalf of a manufacturer" the expression "from one or more factories", it added, the effect would be the same if the manufacturer is also the same. The expression "one or more factories" only further clarifies that whether the factory is one or more, it is the clearances by or on behalf of the same manufacturer which is to be taken into consideration for purposes of interpreting the exemption notification. The matter requires to be viewed accordingly. When the matter was examined by this Ministry in 1956, the views expressed were to the same effect (vide notes dated 28-7-56 at page 28/N file No. 21/31/58-CX.M.I. Para I).
In this view, since there are no common partners in the firms Maniraj, Macborn and Hindustan and there is material on record that they are different firms, Hindustan being a proprietary concern, the production of these three concerns cannot be clubbed, on the grounds as arrived at by the ld. Commissioner. We therefore set aside this order of clubbing which is not as per the binding order under Section STB. Clubbing of clearances under Notfn. No. 175/86-C.E., therefore cannot be upheld. (c) Since there was an order of Deputy Commissioner (now Joint Commissioner) in the same circumstances, we find that the appellants have a strong case in their favour on the grounds of limitation. No plea has been taken before us or evidence placed as regards this order having been taken in appeal by the Commissioner. This order, therefore, is final, is binding on the Revenue as far as the issue of clubbing is concerned. No further facts have been determined except erratic payment of 4% for delivery van charges, in the proceedings before us. The very fact that payments for vans have been effected at 4%, as claimed, therefore even if they were erratic as found by the evidence produced before the Commissioner, the fact of defraying the cost of van used for transportation, after clearance is established. There is no finding whether this erratic payment is not totaling up to 4% of the total cost or a share. We therefore, find a strong case in favour of the appellants on the grounds of limitations as regards the clubbing of clearances.
(d) We find that if the Commissioner came to a finding, that other units are a facade, a dummy and a smoke screen and have been created to only for the purposes of availing separate exemption limits under Notfn. No. 175/86. Then, we do not find, how, a demand of duty which has been confirmed and allegations of clandestine removals being made and arrived at separately as on these units, which in the light of findings of the Commissioner did not exist as separate principal units in their own rights could be effected. A unit is either existing or not existing. Following the Supreme Court decision, in the case of Gajanan Fabrics Distributors [1997 (92) E.L.T. 451 (S.C.)], we would set aside the order and remit the matter back for re-determination of the liability on clandestine clearances, if any, by any unit, to be arrived separately afresh. Since, we are setting aside the order on clubbing of clearances and remitting the order of the adjudicator for re-determining clandestine clearance, if any, we set aside penalties and orders of confiscation arrived at which are left open to be re-determined; in the remand proceedings now being ordered.