Judgment:
1. This is an appeal against the order of the Collector of Central Excise, Madras, dated 7-10-1987. Brief facts of the case are that the appellant is the proprietor of M/s Scientific Compounds & Processes Pvt. Ltd. (hereinafter referred to as M/s SCP) and manufactures Scouring powder and also Acid Slurry. Another unit belonging to his relation under the name and style of M/s. S.N. Synthesis (hereinafter referred to as M/s. SNS) was also manufacturing Acid Slurry. The issue before the lower autority was regarding the classification of the Acid Slurry and Scouring Powder. The learned representative of the appellant, however, pleaded that so far as the classification of Acid Slurry and Scouring Powder is concerned, they accept the same and the issue that survives is regarding the demand of duty as a result of clubbing the production of Acid Slurry by the two units. Scouring Powder has been accepted as exempted from payment of duty by lower authority. The lower authority took note of the fact that the appellant and the proprietrix of M/s. SNS unit are son and mother. The findings of the lower authority in this regard are as under :- "But so far as the grant of exemption under Notification No. 83/83 to M/s. Scientific Compound Processes is concerned it is to be seen whether the transactions of both units will be by or on behalf of a manufacturer from one or more factories. In this case the production of Acid Slurry by both units is for the manufacture of scouring powder by both units in the same premises, i.e. 9 and 10, G.K. Industrial Estate under a single contractor and under a single brand name 'Sabena'. Therefore, it is clear that the production of Acid Slurry by M/s. S.N. Synthesis in different premises is on behalf of a manufacturer i.e. M/s. Scientific Compound Processes. Besides as per proviso to para 1 of Notification 83/83, the aggregate value of clearances of the specified goods from any factory by or on behalf of one or more manufacturers in any financial year shall not exceed Rs. 7.5 lakhs. Similarly the aggregate value of the clearances of a manufacturer has to be computed taking into consideration the total clearances effected from one or more factories in terms of para 1 of the aforesaid notification. Accordingly the production of Acid Slurry by M/s. S.N. Synthesis in different premises are to be clubbed with the production of Acid Slurry produced by the Scientific Compound Processes during the material period inasmuch as the entire production of M/s. S.N. Synthesis was cleared to the premises of M/s. Scientific Compound Processes where the Sabena was produced without the aid of power under a single contractor." The duty from the appellant was demanded for the period 1983-84 as the clearances of Acid Slurry during the said period exceeded the limit of Rs. 7.5 lakhs.
2. The learned representative of the appellant, Shri T.G. Raghunath, who is the father of the appellant, pleaded that the learned Collector in his order has recognised that M/s. SNS is a different proprietory concern from the appellant and after so recognising the two units, he has proceeded to club the clearances of the two units. He pleaded that there was no warrant for clubbing the production and clearances of Acid Slurry as that of one unit.
3. The learned Senior D.R. for the Department pleaded that the Acid Slurry was produced in one place only although ostensibly for the two units separately. He pleaded that this was an arrangement made to show the production of Acid Slurry within Rs. 7.5 lakhs by having two units.
In this connection he referred to para 18 of the impugned order. He has stated that the appellant has not filed any declaration in regard to the production in the two units as required in terms of Notification 83/83.
4. We observe that the issues that fall for consideration before us are whether the production of Acid Slurry in the two units could be taken to be as that of one unit and, if so, which of the two units i.e., M/s.
SCP or M/s. SNS has to be taken to be that unit. We observe that the lower authority, while taking note of the fact that the two units are separate proprietory concerns with separate registration etc. as a small scale industry, has clubbed the clearances of the two units by holding that the production was by one contractor. It is observed that M/s. SCP have their premises in 9 & 10 of G.K. Industrial Estate and they were manufacturing Sabena cleaning powder as also Acid Slurry and that they had entrusted the engagement of labour for production of Acid Slurry in their unit as also in the M/s. SNS unit to one contractor, Mr. B. Narayanan and the contractor was paid separately by the two units. It is seen from the narration of the facts in the show cause notice that the two sulphonation plants purchased by the two companies are supplied by common electric mains in the same premises at 9 & 10, G.K. Industrial Estate and the production of the Slurry by both the units was used in the manufacture of cleaning powder in the brand name of 'Sabena', which belonged to Shri T.G. Raghunath. While in the show cause notice it has been stated that M/s. SNS unit is a dummy concern created to evade Central Excise duty, the learned Collector has not held so but has ordered the clubbing of the clearances of Acid Slurry by the two units for the reason that the same was being manufactured by a common contractor. It is, however, seen from the record that the contractor only engaged the work force in both the units and would appear to be only the supplier of the labour or in other words the said contractor was only a labour contractor. It is nowhere on record that the said contractor was put incharge of the working of the two sulphonation plants and was responsible for the production of Acid Slurry in the two plants. No statement also has been recorded from the contractor about the nature of his functions. The lower authority has stated that the factory was operating at No. 1 & 2, G.K. Industrial Estate. It is observed that the two units have been registered separately as small scale industries and also separately for sales tax purposes. The learned Collector has not given any finding to show, as pointed out earlier, that the proprietrix of M/s. SNS unit was only a name-lender and in fact all the operations were being carried out by the appellant. In a case where the clearances of one unit are sought to be clubbed with that of another unit it is essential that evidence should be brought on record to show that all the manufacturing operations and other business transactions in regard to the product were being managed in fact by persons belonging to one particular unit while showing the owners of the other unit were merely name-lenders. In the case before us we do not find any evidence to this effect having been brought on record. In a similar case, where a number of partnership concerns had been set up with a view to take the benefit of exemption notification for each individual unit, this Tribunal in the case of Mehta Dye-Chem. Industries and Ors. v. Collector of Central Excise, Bombay, reported in 1987 (13) ECR 787 (Cegat SB-C), has held based on the evidence in that case that all the operations were being carried out by one set of partners of one concern while the others were not at all concerned with any one of such operations and in that case the Tribunal has held that the clearances of all the units will have to be clubbed as if that of one unit. No evidence of that nature has been placed before us in the present case. In a similar case this Bench, while giving the benefit of doubt in the case of Annapoorna Mills v.C.C.E., Coimbatore, in Excise Appeal No. E/157/88/MAS decided on 23-10-1989, has held as under : "In the present case, while an element of suspicion has been created, no evidence has been brought on record to show in any way that the operations of the two units could be considered as in tandem and that the clearances and management of the two units are in fact such that the operations of the two units can be treated as if that of a single unit. The suspicion regarding the storage of the materials of the two units at one place cannot take the place of proof that the business transactions of the two units including the manufacturing activity were in fact one operation. As stated earlier, no statement has been recorded from anybody to bring out the nature of the operation of the two units and inference has been sought to be drawn from some common features alone. As it is the two units were in existence before the Notification came into force and this has been accepted by the learned Collector and in this background it was necessary for the department to establish with evidence that in fact the operations of the two units were part of the same business event. While the operations of the appellants may be entirely colourable, we cannot say that the case against the appellants has been established beyond a reasonable doubt. We, therefore, give the benefit of doubt to the appellants and hold that the case against them has not been proved by the authorities with requisite evidence and set aside the order of the lower authority with consequential relief. We, therefore, allow the appeal in the above terms." In the present case in the facts and circumstances of the case, merely because a common labour contractor was supplying labour force to the two units or facility of common electricity meter or space has been provided, it cannot be considered as adequate reason to hold that the production in one unit could be considered as if that of the other unit. The operations in the two units, as held in the case referred to supra, may be colourable one and that cannot be taken to take the place of proof in the absence of any tangible evidence that the two units were actually being managed by the appellant and, therefore, the Acid Slurry being manufactured by the other unit should be taken as if by or on behalf of the appellant, more so, when the Collector has recognised the two units as separate proprietory concerns. In view of this we hold that the case against the appellant has not been proved beyond reasonable doubt and, therefore, we hold that the lower authority's order is not maintainable in law. We, therefore, set aside the impugned order and allow the appeal.