Judgment:
S.S. Kang
Heard both sides.
2. The appellants filed these appeals against common adjudication order.
3. The brief facts of the case are that M/s. Bullows India Pvt. Ltd. and M/s. Bullows Paint and Equipment Pvt. Ltd. are engaged in the manufacture of excisable goods and were availing the benefit of Small Scale Exemption Notification No. 175/86-CE and subsequently Notification No.1/93-CE. Show cause notice was issued on the ground that M/s. Bullows Paint and Equipment Pvt. Ltd. is wholly a subsidiary company of M/s. Bullows India Pvt. Ltd., therefore the clearances of both the private limited companies are to be clubbed and a demand of Rs.22,17,719/- is raised. The adjudicating authority confirmed the demand on the ground that M/s. Bullows India Pvt. Ltd. set up the subsidiary company M/s. Bullows Paint and Equipment Pvt. Ltd. contributing the entire share capital of Rs.10 lakhs. The holding company exercised total managerial, financial, administrative and supervisory control over the subsidiary company. The adjudicating authority held that the finances of both the companies are intertwined or not distinguishable and this would indicate financial flow back between the assessee company to each other.
4. The contention of the appellants is that both the companies are private limited companies and there is no evidence on record to show that there is any financial flow back between both the private limited companies. The appellants relied upon the balance sheets of both the companies to submit that in the balance sheets which are statutory under the Companies Act, there is no evidence of financial flow back, therefore the clearances of both the private limited companies cannot be clubbed in absence of financial flow back or mutuality of interest. The appellants relied upon the decision of the Honble Gujarat High Court in the case of CCE, Surat-II vs. Catalco Chemicals (P) Ltd. reported in 2012 (277) ELT 56 (Guj.).
5. The contention of the Revenue is that M/s. Bullows Paint and Equipment Pvt. Ltd. is wholly a subsidiary of M/s. Bullows India Pvt. Ltd. and the entire share capital of Rs.10 lakhs is provided by M/s. Bullows India Pvt. Ltd., hence there is a mutuality of interest. The chairman and director of the company being common, the holding company controlled the affair of the subsidiary company and the total dependence of the subsidiary company on the holding company shows mutuality of interest. The Revenue relied upon the decision of the Hon’ble Supreme Court in the case of CCE, Bangalore vs. Gammon Far Chems Ltd. reported in 2003 (152) ELT 28 (SC).
6. We find that the Revenue relied upon the decision of the Hon’ble Supreme Court in Gammon Far Chems Ltd. (supra). The issue before the Hon’ble Supreme Court was the interpretation of the provisions of Notification 85/85-CE. The Hon’ble Gujarat High Court in the case of Catalco Chemicals (P) Ltd. (supra), after taking into consideration the decision of the Hon’ble Supreme Court in the case of gammon Far Chems Ltd. and the provisions of the earlier Notification No.85/85-CE and the provisions of Notification No.175/86-CE and Notification No.1/93-CE, held as under:-
“7. Having thus heard learned counsel for the parties, we record that?undisputedly case of the present assessee was covered by SSI exemption Notification No. 175/86 and Notification No. 1/93 and not under Notification No. 85/85. Notification No. 85/85 provided for exemption to small scale industries and assessee claiming benefit thereof should fulfill two conditions in negative form. In clause (2) of the said Notification, it is stated that :
“(2) Nothing contained in this notification shall apply if the aggregate value of clearances of all excisable goods for home consumption -
(a) by or on behalf of a manufacturer, from one or more factories, or
(b) from any factory, by or on behalf of one or more manufacturers, had exceeded rupees seventy-five lakhs in the preceding financial year.”
In comparison to above provisions made in Notification No. 85/85, Notification No. 175/86 provided the following negative conditions :
“(3) Nothing contained in this notification shall apply if the aggregate value of clearances of all excisable goods for home consumption -
(a) by a manufacturer, from one or more factories, or
(b) from any factory, by one or more manufacturers, had exceeded rupees one hundred and fifty lakhs in the preceding financial year.”
Similarly, Notification No. 1/93 provided one of the following as negative condition :
“(2) The aggregate value of clearances of the specified goods for home consumption in a financial year -
(a) by a manufacturer, from one or more factories, or
(b) from a factory, by one or more manufacturers,
(i) under sub-clause (a) of clause (1) and clause (2) of paragraph 1 taken together shall not exceed rupees thirty lakhs;
(ii) under sub-clauses (b) and (c) of clause (1) shall not exceed rupees twenty lakhs and twenty-five lakhs respectively; and
(iii) under clause (2), shall not exceed rupees ten lakhs.”
8. Comparing in all three notifications, we find that in Notification No. 85/85, condition 2(a) reproduced here-in-above envisaged including in the assessee’s aggregate value of clearances all excisable goods for home consumption by or on behalf of a manufacturer. This concept of including aggregate value of clearances on behalf of manufacturer is not found in subsequent Notification No. 175/86 and Notification No. 1/93. It was in this background that the Bangalore Bench of the Tribunal in case of Nutrine Sweets Pvt. Ltd. (supra) was of the opinion that merely because a company is a subsidiary company of another, clearances by both companies cannot be clubbed for the purpose of ascertaining SSI limits. To our mind this was correct assessment of the position.
9. The Apex Court in case of Gammon Far Chems Ltd. (supra) interpreted the above-noted clause (2) of Notification No. 85/85 and upheld the Revenue’s stand with respect of clubbing of clearances by subsidiary with that of principal.
10. We may notice that even in absence of any clause as contained in Notification No. 85/85, if there was neutrality of interest between the two units, clubbing of clearances may still be open for the Revenue. In case of Electro Mechanical Engg. Corpn. (supra), the Apex Court in background of Notification No. 1/93 upheld the decision of the Tribunal which had come to factual finding that there was no evidence on record to prove that there was mutuality of business interest or there was flow-back of funds from one unit to another and that therefore, clubbing of clearances could not be done under Notification No. 1/93.
11. Upshot of the above discussion would be that as held by Bangalore Bench of the Tribunal in case of Nutrine Sweets Pvt. Ltd. (supra), since our case concerns Notification No. 175/86 and Notification No. 1/93, by mere fact that assessee was a subsidiary of another company, clubbing of clearances was not permissible. We hasten to add that such clubbing may still be open if the department had established that there was mutuality of interest or flowback of funds. However, in the present case even in show cause notice, no such allegations have been made. From the starting, entire case of department revolves around clubbing on account of assessee being a subsidiary of another company. In absence of any notice to the assessee, it would now not be open for the department to pursue such line of reasonings.
12. In the result, Tax Appeal is dismissed.”
7. We find that in the present case the issue is whether the appellants are entitled for the benefit of Notification 175/86-CE and subsequently Notification 1/93-CE, therefore the ratio of the above decision of the Hon’ble Gujarat High Court is fully applicable on the facts of the present case. The Hon’ble High Court held that the Revenue has to establish that there was mutuality of interest or financial flow back of the funds and in such cases the clearances of the holding and subsidiary private limited companies can be clubbed. In the present case we find that even in the show cause notice there were no such allegations. In the show cause notice the only allegation is that the holding company has share capital in the subsidiary company. There is no evidence regarding financial flow back on record. In these circumstances and respectfully following the decision of the Hon’ble Gujarat High Court, the impugned order is set aside and the appeals are allowed. The cross objections filed by the Revenue are disposed of accordingly.