Judgment:
1. The revenue, being aggrieved with the order passed by the Commissioner (Appeals), has preferred the present appeal.
2. As per facts on record, proceedings were initiated against one M/s.
Switching Electronics, a proprietary SSI unit registered with the Central Excise department by way of issuance of show cause notice dated 13-8-92 demanding duty of Rs. 7,35,994.63, by clubbing the clearance value of another unit in the name and style of M/s. Mangalam Electronics situated in the same premises and owned by Shri Manoj Kumar Agarwal, younger brother of proprietor of M/s. Switching Electronics.
On adjudication, Jt. Commissioner confirmed the demand and also imposed penalties. However, on appeal there against, the Commissioner (Appeals) held in favour of the respondents. Hence the present appeal.
3. After hearing both sides, we find that the challenge in the present appeal is on the issue of clubbing of two units. The revenue's ground is that both the units are situated in the same premises and are manufacturing identical products and are sharing common store room, common office premises, common brand name, etc. In some cases inspection-cum-guarantee cards of both the units were sent by the same person and proprietors of both the units are real brothers and are residing in the same residential premises. Their buyers are common and appointment of dealers, pricing, marketing, etc. is handled by Shri A.K. Agarwal, proprietor of M/s. Switching Electronics. The revenue has also referred to some instances where traveling charges of the Marketing Manager of one unit was paid by the another unit.
4. On the other hand, the Commissioner (Appeals) has granted benefit to the assessees by observing that there is no financial flow back between the two units and by taking note of various decisions of the Tribunal laying down that common funding, office space and sharing of the premises, etc. is no ground for clubbing the clearances of both the units. For better appreciation, we reproduce the relevant paragraph: After going through the records I find that the allegation is on bifurcation of SE, the factory of the first appellant into SE and ME in order to camouflage the clearance value of SE so that benefit of Notfn. No. 175/86-CE may be achieved. In this regard the department searched premises, obtained statements from different persons, gathered contents of seized records and found out a great number of points to form the basis of the clubbing of the clearance values of SE and ME to make the resultant clearance value of SE. The points are mainly of location in a common address, common store room, common storage of records, technical guidance by Shri A.K. Agarwal, buyers approaching Shri A.K. Agarwal on affairs related to ME, common personnel in some cases, machineries of complimentary nature, consideration free loan of Rs. 30,000/- given to ME by Shri A.K. Agarwal, common serial numbering machine, two proprietors are brothers etc., but not any point about common funding or financial flow back. From the case laws cited by the appellants before the adjudicating authority as well as before me, I find that it has been consistently held by different higher for a from the Apex Court to the CEGAT, that in absence of common funding and financial flow back, two or more units cannot be treated as one unit and their clearances cannot be clubbed. Even, in the decision of Indian Metal Industries v. CCE , the Tribunal has held that even if funding is common, the financial flow back is essential for reaching such conclusion. The points, which the department has made the basis of clubbing in the present cases, have not been considered in any of the judgments cited supra as basis for clubbing. I find that the lower authority did not discuss a single decision cited by the appellants before him, in his order, to establish the distinction. Rather, I find that the cited cases have similar circumstances and situation. On the contrary, the two cases chosen by him in his order, have distinct circumstances. Further, I do not find any point in the bifurcation of SE which started its continuous production two years after ME had started. If both had machineries of complementary nature, how could ME produce its goods two years ago? Even after the search when the appellants applied to the department for registration, they were accorded with separate registrations. Their ground plans and machineries were accepted without any objection. From the above discussion and on the face of judgments cited, I do not find a single point out of the big list given by the department, which can suggest that the two units are one and single and their values of clearances should be clubbed.
As is clear from the above observations of the Commissioner (Appeals), M/s. Switching Electronics was started after two years of coming into existence of other unit M/s. Mangalam Electronics. In such a case, the revenue's allegation of bifurcation of unit cannot be upheld. The appellate authority has further held that financial flow back is essential for reaching at a conclusion of clubbing of clearances of two units, which evidence is absent in the present case. We note that revenue in their memo of appeal has not produced any evidence on record to rebut the above finding of the appellate authority. Hon'ble Supreme Court in the case of Modi Alkalies & Chemicals Ltd. has held that pervasive financial and management control are indicators of interdependence of the two units on each other. Admittedly, in the present case both the units are registered separately with the Central Excise, Income Tax, Sales Tax, as SSI unit, trade licence, etc. The units are separated by a partition in between. As such, in our view the appellate authority has rightly held that the production of units cannot be clubbed. We do not find any merits in the revenue's case. The appeal filed is accordingly rejected.