1. The above appeals arise out of the order of the Commissioner of Central Excise, Mumbai who has confirmed duty demand of Rs. 7,59,39,106/- against M/s. Dhanesh Textile Ind.P.Ltd. by denying the benefit of Compounded Levy Scheme under Notification No. 36/98-CE as amended by Notification No. 32/2001-CE and imposed penalty of equal amount thereof in terms of Section 11AC of the Central Excise Act and a penalty of Rs. 10 lakhs on its Director under Rule 209A of the Central Excise Rules 1944 read with Section 38A of the Act and Rule 26 of the Rules. The benefit has been denied on the twin grounds that the appellant company has proprietary interest in M/s. Dhanesh Industries and M/s. Ruby Silk Mills who are primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics and therefore, the appellant company does not fall within the meaning "independent processor" as per Explanation II to the Notification which defines 'independent processor' as " a manufacturer who is engaged primarily in the processing of fabrics with the aid power ....... and who has no proprietary interest in any factory primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics" and for the reason that during the period May, 2001 to Feb.,2002 the appellant company cleared fabrics after carrying out "zero-zero" process without stentering, which was contrary to Clause 8(3) of Notification 32/2001-CE which provides that the independent textile processor shall not remove any unstentered textile fabrics from his factory. The period in dispute is 16.12.1998 to 28.2.2001 and the show cause notice is dated 13.8.2002.
2. We have heard both sides. The main contention of the appellant company is that it does not have proprietary interest either in Dhanesh Industries or Ruby Silk Mills, both of which are partnership firms, and that the fact that one Director of the Private Limited company viz.
Sukhdev Narang is a partner in Ruby Silk Mills and that he and his father were partners of M/s. Dhanesh Industries and that the 2 Directors of the appellant company viz.Miss Seema Mahadevia and Miss Anita Mahadevia were partners in Ruby Silk Mills is not sufficient to hold that the appellant company had proprietary interest in either of the two partnership firms. It is also pleaded that the absence of proprietary interest is established in view of the fact that there were only 12 looms installed in Ruby Silk Mills and all 12 looms had been leased to M/s.Sonika Textiles, while the show cause notice has proceeded on the erroneous basis that in Ruby Silk Mills, the number of looms exceeds 12. The second contention of the appellant company is that there has been no contravention of Clause 8(3) during the relevant period (May,01 to Feb,02) as they received fabrics which were already stentered, for the purpose of carrying out "zero-zero" process, and hence did not clear any unstentered fabrics in their factory. The further contention is that the demand is barred by limitation as the show cause notice has been issued beyond the normal period of limitation and there is nothing on record to establish wilful mis-statement or mis-declaration.
3. Replying to the above, the ld.SDR draws our attention to internal page 12 of the adjudication order regarding existence of proprietary interest of the appellant company in the two partnership firms, in as much as 2 Members of the Mahadevia family who are Directors in the appellant company also held 20% each partnership slake in Ruby Silk Mills; that Sukhdev Narang had interest in both the partnership firms; that he and his father held 50% share each in Dhanesh Industries; that Sukhdev Narang held 35% share in Ruby Silk Mills while his father held 15%; thus holding full control in Ruby Silk Mills and that Sukhdev Narang is fully controlling the appellant company as well as the partnership firms. Reliance is placed upon the decision of the Hon'ble Madras High Court in the case of Sivan Printing and Dyeing Factory v.CCE, [2000(126)ELT 618] to support the finding of proprietary interest.
As regards contravention of Clause 8(3) of the Notification, ld.SDR relies upon the statement of Mr. Ramdhani G. Prajapati, Folding Master of the appellant company explaining that for zero-zero process, the cloth was not required to be put in the Stentering machine.
4. We have carefully considered the rival submissions. Let us consider definition of the expression "Proprietor" and "Proprietary interest".
These words have been defined in the Concise Oxford English Dictionary as under:- Proprietary:- (1) Of, relating to, or characteristic of an owner or ownership, (2) Of a product marketed under registered trade name.
1. an owner or grantee of a proprietary colony; Proprietary 2. One who has the legal right or exclusive title to something whether in possession or not. Proprietary has been defined as one who has exclusive title to a thing, one who possesses the ownership of a thing in his own right - proprietor or owner".
Applying the above definitions, in order to hold that Dhanesh Textile Industries Pvt.Ltd. has a proprietary interest in the partnership firms, the limited company itself must have exclusive title to the aforesaid partnership firms. The appellant company does not own the partnership firms, nor is there sufficient evidence on record to establish that the company controls the partnership firms. There is no finding of financial flow back. Therefore, the appellant company cannot be held to have proprietary interest in either of the 2 partnership firms only for the reason that one of its Directors viz.Sukhdev Narang is also a partner in the two partnership firms and also looks after the business of Dhanesh Industries(partnership firm). The company is a legal entity in itself and is distinct from its Directors, unlike in a partnership firm which consists only of its partner. The decision of the Madras High Court in Sivan Printing and Dying Factory v. CCE, Madras [2000(126)E.L.T.618(Mad.) relied upon by the Commissioner in his order is distinguishable as that was a case of 2 partnership firms and every partner admittedly has a proprietary interest in a partnership and if any one of the partners of a firm is also a partner in another firm, he will have proprietary interest in both the partnerships.
However, this decision has no application to the facts of the present case as the appellant company is a limited company which is a separate legal entity and not a partnership firm. Mr. Sukhdeve Narang is only one of 4 Directors in the appellant company and has only a minority holding. The share holders of the appellant company are members of two families viz. Narang family and the Mahadevia family. The Mahadevia family holds 60% of the shares of the appellant company and it has no interest what so ever in Dhanesh Industries(partnership firm).
Therefore, merely because Mr. Sukhdev Narang is Director in the appellant company as well as a partner in Dhanesh Industries, it cannot be held that the appellant company has a proprietary interest in Dhanesh Industries.CCE, New Delhi v. Modi Alkalies & Chemicals Ltd [2004(171)E.L.T.155(S.C.)], the Apex Court has held that pervasive financial and management control are prima facie indicators of interdependence. In the present case, material on record is not conclusive of financial and management control by Mr. Sukhdev Narang over the partnership firms. In the case of Alembic Glass Industries Ltd. v. CCE&Cus [2002(143)E.L.T.244(S.C.)] it has been held that shareholders of a public limited company do not, by reason only of their shareholding, have an interest in the business of the company and that equally, the fact that two public limited companies have common Directors does not mean that the one company has an interest in the business of the other. The Apex Court distinguished its earlier order in Calcutta Chromotype Limited v. Collector [1998(99)E.L.T.202(S.C.) holding that "the principle that a company under the Companies Act, 1956 is a separate entity and that therefore, where the manufacturer and the buyer are two separate companies, they cannot than anything more be related persons within the meaning of Clause (c) of Sub-section (4) of Section 4 of the Act is not of universal application." 6. In the light of the above, we hold that Dhanesh Textile Industries Pvt.Ltd. does not have any proprietary interest in Dhanesh Industries.
7. As regards Ruby Silk Mills, although and the order proceeds on the basis that there were more than 12 looms only 12 looms had been leased to M/s. Sonika Textile, there is no basis for this finding and the appellant's categoric submission that there are only 12 looms in Ruby Silk Mills is, therefore, to be accepted. All 12 looms have been leased to one M/s. Sonika Textile which is a wholly independent proprietary firm having no connection either with Mr. Sukhdev Narang or Mahadevia family. Therefore, the appellant company cannot be said to have any proprietary interest in M/s. Ruby Silk Mills. The allegation that the partnership deeds of Dhanesh Industries and Ruby Silk Mills were not registered does not assume any sinister proportions for the reason that the appellant company and the partnership firms were all in existence much prior to the issue of Notification No. 36/98 dated 10.12.98 which is the first of the Notifications in dispute in this case and is, therefore, clear that neither the appellant company nor the partnership firms were created so as to fraudulently avail the benefit of the Notifications. Further, there is no provision in the Partnership Act for compulsory registration of a partnership deed. (Dhanesh Industries and Ruby Silk Mills have been in existence since 1984, whereas the appellant company commenced operation in 1995 that is prior to the issue of Notification 36/98, and the above factual position is admitted in the show cause notice itself.) 8. We therefore, hold that Dhanesh Textile Industries Pvt.Ltd. has no proprietary interest in either Dhanesh Industries or Ruby Silk Mills and is therefore, an "independent processor" within the meaning ascribed thereto under the relevant Notifications.
9. The second ground for denial of the benefit of the Notifications, is clearance of fabrics for zero-zero machine, without stentering. It is the case of the appellant company that zero-zero machine carries out a finishing process which is the last of the finishing process to be carried out on a fabric. This process has to be carried out only after the fabric has been stentered, and the fact that the fabrics were received by the appellant company for zero-zero processing had already been stentered is brought out clearly from affidavit of Shri R.M. Gupta of M/s. Rajesh Dyeing & Printing Works, Shri Sanjay Shivanarayan Gupta of M/s. Veena Processors and Mr. Dhirendra Chimanlal Shah of M/s. Amit Textile who sent fabrics in lots for the purpose of processing on the zero-zero machine. The statement of Shri R.G. Prajapati that for zero-zero process, the cloth is not required to be put in the stentering machine is therefore, to be seen in the light of the affidavits of the above mentioned 3 persons. There is no requirement in Clause 8(3) of Notification No. 32/2001 that the stentering has to be carried out by the independent textile processor. In this view of the matter, we hold that the appellant company has not contravened Clause 8(3) of Notification No. 32/01.
10. For the above reasons, we hold that the appellant company is an independent processor eligible to the benefit of exemption under Notifications in question, set aside the impugned order and allow the appeals.
11. Since the appeals are being allowed on merits, we do not deem it necessary to record any finding on the further argument that the demand is barred by limitation.