Per: Chittaranjan Satapathy
Heard both sides.
2. The brief facts of the case as recorded by the original authority are as follows:-
“M/s. Sri Lakshmi Industries, D.No. 25/20, Konar thoppu, Irvathanallur (for short SLI) is engaged in manufacturing RTS Grills falling under tariff heading No. 7308.40 and other EB line materials. Shri M. Gunasekaran is the proprietor of M/s. SLI. M/s. Sri Ganga Engineering (for short SGE), 25/20, Konar thoppu, Irvathanallur is an SSIs unit situated adjacent to M/s. SLI, whose proprietrix is Smt. G. Ganga, W/o. Shri M. Gunasekaran (proprietor of M/s. SLI).
2. Based on intelligence that M/s. SGE did not have facility to manufacture and were clearing the goods manufactured by M/s. SLI, in the name of M/s. SGE as if manufactured by them, the Central Excise officers attached to HPU visited the above units on 7.3.96.
3. During the visit, the officers noticed that the units are situated in adjacent places and both units were having power connection and machineries for manufacture of RTS Grills and other EB line materials. However, the officers noticed that M/s. SGE obtained power connection only on 13.9.95 though the unit was started in 1994. As no documents were available the officers visited their common office situated at 247-A Good shed street, Madurai-1 and scrutinized the records. Scrutiny of records revealed that though M/s. SGE obtained power connection only on 13.9.95 and installed welding machinery on 18.6.95, clearances were found to have been effected in the name of M/s. SGE from 8.2.95 onwards. Hence, the officers collected the available documents in their office under letter dated 7.3.96 of M/s. SLI for further verification.
4. In his statement dated 8.3.96 Shri M.Gunasekaran, Proprietor of M/s. SLI, interalia, stated that he was running M/s. SLI at 25/20, Konar thoppu, Irvathanallur, Madurai form 1993; that SLI was engaged in the manufacture of EB line materials and RTS Grills, against purchase orders obtained from Electricity Board; that on crossing the thirty lakhs value during 95-96 he had taken Central Excise RC No. 5/95; that adjacent to SLI at door No. 25/20. M/s. SGE were engaged in the manufacture of EB line materials and RTS Grills; that SLI was having power connection vide SC No. 451; the SGE was owned by his wife Smt. G. Ganga; that SGE commenced activities in 1994; that as per power connection card SC No.515 of SGE were manufactured by ARC welding process with Welding Plant and Labourers of SLI in the factory premises of SLI; that similarly the TRS Grills cleared through Bill Nos. 4/5.5.95, 5/5.5.95, A.6/28.5.95, 7/3.6.95, 9/12.6.95, 4/5.5.95, 10/15.6.95, 11/1.7.95, 13/6.7.95, 14/11.7.95 of SGE were also manufactured in the factory of SLI; that the value of the goods manufactured in SLI as per the above bills was Rs. 4,44,500/- during 94-95 and Rs. 14,750/- during the current year; that as SGE did not have power supply till 12.9.95, the above said RTS Grills were manufactured in SLI; that he agreed to make payment of Central Excise duty due on the above said RTS Grills shortly; 1994-95 was Rs. 28,69,210/- and the value of clearances during 1995-96 was Rs.1,04,80,455/- (as on that date): that including the value of RTS Grills cleared under the above stated bills, the total value of clearances of SLI came to Rs. 1,19,55,205/-.
5. In her statements dated 11.3.96 Smt. G. Ganga, Proprietrix of SGE interalia stated that Central excise R.C.No. of SGE was 6/95 - 27.9.95; that she did not know anything about the manufacturing activities and other affairs of the company; that Shri L.Venkatasubramanian, Manager of SGE was looking after the entire affairs of SGE since its inception; that she did not know as to how manufacturing activities were carried out prior to 13.9.95 and Shri L.Venkatasubramanian, Manager would only know such details; that she had given power of Attorney to Shri L. Venkatasubramanian already for looking after the entire activities; that any statement given by him would be binding on her.
6. Shri L. Venkatasubramanian, Manager of M/s. SGE in his statement dated 14.3.96 interalia stated that he was looking after all affairs of the company; that goods were manufactured by engaging contract labourers; that Shri Palanichamy Konar was the owner of the factory; premises; that power connection was obtained to the company on 13.9.95 under S.No. 515 from L.B and prior to that no power supply was made to SGE; that welding plant and power press were the machineries used in production; that power press was purchased from M/s. N.S. Mechanical Works, Ludhiana vide Invoice No. 24 dated 26.10.95; Welding Plant was purchased form M/s. Asian Engineering Company, Madurai vide Bill No. 4516 dated 22.5.95; that prior to power connection obtained by SGE on 13.9.95, RTS Grills were are welded and manufactured by using the power from SLI in their premises; that he had gone through the statement dated 11.3.96 of Shri M. Gunasekaran, he fully endorse his statement and admit the fact; that for manufacture of L.T.3 phase channel cross arm and back clamps they used Hammer, screw and cutter by using human labour; that he was not aware whether purchase of the above tools were accounted in the books of accounts; that the documents submitted by Shri. M. Sukumar, Manager of SLI and brother-in-law of his proprietrix to the officers on 7.3.96 were the real books of accounts of SGE; that for manufacture of RTS Grills in SLI, no consideration was made to them as SLI was owned by the husband of his proprietrix.
7. The Assistant Engineer, Distribution, TNEB, Viraganur, vide his letter dated 13.3.96 stated that power supply was effected for SC No. 515, Iravathanallur in the name of Smt. G.Ganga on 13.9.95.
8. In response to the summons dated 12.6.96, M/s. SGE submitted the photo copies of Day book, Ledger for 94-95 and Rent Agreement vide their letter dated Nil.
9. The documents recovered and depositions made revealed that:-
i) M/s. SLI were engaged in the manufacture of RTS Grills (falling under tariff heading No. 7308.40) and other EB line materials and cleared their goods by; availing concessional rate of duty under Notification No. 1/93 since 1993.
ii) M/s. SGE was started in the adjacent place of SLI in 1994-95 by Smt. G. Ganga, W/o. Shri M. Gunasekaran, the proprietor of M/s. SLI for manufacture of EB line materials.
iii) Though M/s. SGE was started in the year 1994-95 they obtained power connection only on 13.9.95.
iv) M/s. SLI and SGE obtained purchase orders from C.E.(Dist.) TNEB for supply of RTS Grills and other EB line materials.
v) M/s. SGE purchased Air Cooled Welding Transformer only on 18.6.95 and Induction Motor only on 4.8.95
vi) For manufacture of RTS Grills welding is an essential process for which welding machine and power are required.
vii) However M/s. SGE purchased welding machine and motor only on 18.6.95 and 4.8.95 and obtained power connection only on 13.9.95.
viii) While SLI had purchased welding rods, M/s. SGE did not purchase any welding rods for use in the welding process.
ix) However RTS Grills were found to have been supplied to TNEB in the name of SGE from 8.2.95 without payment of duty.
x) Shri M. Gunasekaran, the proprietor of M/s. SLI in his statement dated 8.3.96 admitted the fact that the RTS Grills cleared vide Bills No. 5/8.2.95, 6/12/2/95, 4/5.5.95, 5/5.5.95, 6/28.5.95, 7/3.6.95, 9/12.6.95, 10/15.6.95, 11/1.7.95, 13/6.7.95 and 14/11.7.95 of SGE were manufactured by ARC welding process with welding plant and labourers of SLI in the factory premises of SLI. Further he agreed to discharge the Central Excise duty liability on the above value of RTS Grills cleared in the name of SGE.
xi) Smt. G. Ganga, Proprietrix of SGE in her statements dated 11.3.96 and 16.7.97 stated that she did not know any thing about the manufacturing activities of SGE and his authorized manager Shri L. Venkatasubramanian was only looking after entire manufacturing and other affairs of the company.
xii) Shri L. Venkatasubramanian, the Authorised Manager of SGE in his statement dated 14.3.96 admitted the fact that RTS Grills cleared in the name of SGE prior to 13.9.95, were arc welded and manufactured in the premises of SLI.
10. From the above it is revealed that SGE did not have power connection and welding facility for manufacture of RTS Grills during the period 8.2.95 to 11.7.95. However in the name of SGE RTS Grills valued Rs. 19,19,250/- were cleared to TNEB during the above period. Hence, it is evident that the RTS Grills cleared in the name of SGE were not manufactured at SGE. Shri M. Gunasekaran, Proprietor of SLI has accepted that the RTS Grills cleared in the name of SGE during the above period were manufactured by ARC welding process with welding plant and labourers of SLI in the factory premises of SLI. He also agreed to discharge the Central Excise duty liability on the above value of RTS Grills cleared in the name of SGE. Further Shri L. Venkatasubramanian, authorized Manager of SGE has corroborated the version of Shri M. Gunasekaran. Therefore it appears from the above that the RTS Grills cleared in the name of SGE valued R. 19,19,250/- during 8.2.95 to 11.7.95 were in fact manufactured and cleared by SLI clandestinely without following Central Excise procedures and without payment of duty.
11. From the above it appears that SLI have contravened the following provisions of Central Excise Rules, 1944:-
i) Rule 9(1) in as much a sthey manufactured and cleared RTS Grills during the above said period without following Central excise procedures and without payment of duty.
ii) Rule 52A in as much as they cleared the goods without proper invoices of SLI.
iii) Rule 173F and 173G in as much as they failed to determine the duty due on the above said RTS Grills and failed to pay the duty as prescribed.
iv) Rule 226 in as much as they did not maintain prescribed production accounts properly and correctly.
12. It also appears that proviso to section 11A(1) of Central Excise Act, 1944 is invokable to demand duty of Rs. 2,36,898/- on the above said RTS Grills valued Rs. 19,19,250/- cleared during 8.2.95 to 11.7.95 (As per Annexure I and II) form SLT in as much as SLI had willfully suppressed the fact of manufacture and clearance of RTS Grills and also contravened the above said provisions of Central Excise Rules, 1944, with intent to evade payment of duty.
13. Further it also appears from para 11 and 12 supra, SLI are liable for penal action under Section 11AC of the Central Excise Act, 1944, for the contravention of rules mentioned with intention to evade payment of duty.
14. It further appears that SGE having abetted in the commission of offence by knowingly concerning themselves in the receipt of unaccounted ad not duty paid RTS Grills, rendered themselves liable for penal action under Rule 209A of Central Excise Rules, 1944.
15. Based on the facts and findings discussed above, a notice was issued to SLI demanding duty of RS. 2,36,898/- towards the duty liability on the RTS Grills manufactured in SLI and cleared in the name of SGE during 8.2.95 to 11.7.95 for imposing penalty on them under Section 11AC, for contravention of the provisions of Central Excise Rules.44.”
3. After taking into account the detailed submissions and the oral arguments, the original authority confirmed a demand of Rs.2,36,898/- and has imposed a penalty of Rs. one lakh on M/s. SLI. As regards Shri Ganga Engineering, the other notice, the original authority did not impose any penalty.
4. On appeal by Shri SLI, the lower appellate authority has upheld the order of the original authority and has rejected the appeal filed by the appellants before him with the following observation:-
“I have given my careful consideration to the facts and circumstances of the case and the submissions made during the course of personal hearing. The allegation in this issue is that M/s. SGE during the material period. I find from the records that M/s. SGE obtained power connection only on 13.9.95 though the unit was started in 1994. They installed welding machinery on 18.6.95. Clearances were found to have been effected in the name of M/s. SGE form 8.2.95 onwards. Shri M. Gunasekaran, Proprietor of M/s. SLI in his statement dated 8.3.96 has stated that the value of the goods manufactured in M/s. SLI and cleared in the name of M/s. SGE during the year 1994-95 was Rs.4,44,500/- and Rs. 14,750 for 1995-96. He agreed to discharge the duty liability on the same. For the manufacture of RTS Grills welding is an essential process for which welding machine and power are required. However, M/s. SGE purchased welding machine and motor only on 18.6.95 and 4.8.95. They obtained power connection only on 13.9.95. Smt. G. Ganga, Proprietrix of SGE in her statement dated 11.3.96 and 16.7.97 stated that she did not know any thing about the manufacturing activities of SGE and his authorized manager Shri. L.Venkatasubramanian was only looking after entire manufacturing and other affairs of the company. Shri L. Venkatasubramanian, the authorized Manager of SGE in his statement dated 14.3.96 admitted the fact that RTS Grills cleared in the name of SGE prior to 13.9.95 were arc welded and manufactured in the premises of SLI. The Proprietor of M/s. SLI has accepted that the RTS Grills cleared in the name of SGE during the period 8.2.95 to 11.7.95 were manufactured by ARC welding process with welding plant and labourers of SLI in the factory premises of SLI. The lower authority after a detailed examination of the facts has rightly demanded the duty by clubbing the clearances of the two units correctly. I do not find any fault in the order and the same is upheld.”
5. The present appeal has been filed by M/s. SLI, challenging the order passed by the authorities below. Shri M.N. Bharathi, Ld. Advocate, appearing for the appellants states that M/s. SLI and M/s. SGE are two independent units. He also challenges the impugned orders passed by the authorities below on the ground that separate show cause notices have not been issued to both the units and hence clubbing of clearances cannot be done as has been held in a number of cases. In this connection, he cites the decision of the Tribunal in the case of Ogesh Industries Vs. CCE, Kanpur - 1997 (94) ELT 88 (Tri.), under which it was held that when show cause notice has been issued to only one unit, non-issuance of show cause notice to the other unit amounts to violation of principles of natural justice. He states that a similar decision was taken by the Tribunal in the case of Ramsay Pharma (P) Ltd. Vs. CCE, Allahabad - 2001 (127) ELT 789 (Tri.-Del.). He further states that for clubbing of clearances of two units, the department is required to show evidence of common funding and financial flow-back. In this regard, he cites a decision of the Hon’ble Rajasthan High Court in the case of Renu Tandon Vs. UOI - 1993 (66) ELT 375 (Raj.) and CCE, Jaipur Vs. Electro Mechanical Engg. Corporation - 2008 (229) ELT 321 (S.C.). The Ld. Advocate has also made further written submissions on 16.11.09, subsequent to hearing of the case. In the written submissions, several other case laws have been cited to the same effect that when clubbing of clearances of two units are proposed to be clubbed, show cause notices are required to be issued to both the units. Several other decisions have been cited to the effect that small scale exemption can be claimed at any time and it is also pleaded that the entire demand is time barred.
6. Ms. Indira Sisupal, Ld. DR, appears for the department. She states that the impugned show cause notice was issued to both SLI and SGE. She points out that the show cause notice proposes clubbing of clearances of both the units and while demanding duty from SLI both the units have been asked to show cause why penalty should not be imposed on both of them. She argues that once a show cause notice has been issued and addressed jointly to both the units including the dummy unit SGE, and both the units have actually participated in the proceedings before the lower authorities, the appellants cannot say that the dummy unit has not been issued any show cause notice. She refers to the evidence on record and states that the dummy unit did not have the power connection to manufacture the impugned goods at the material time, the proprietrix of the dummy unit has given a statement that she was not aware of any manufacturing activity and the manager of her husband’s unit was aware of the operations. She states that in view of the evidence on record including the statement of the appellants, the impugned orders passed by the authorities below are required to be upheld.
7. We have carefully considered the submissions from both sides as well as the case records. The main objection raised by the Ld. Advocate on behalf of the appellants in this case is that both the units should have been issued show cause notices proposing clubbing of clearances and denying the small scale exemption. Hence, according to the Ld. Advocate, the show cause notice is not valid and the demand confirmed pursuant to the same is not valid. He states that the show cause notice issued merely proposes penal action against SGE and there is no notice to the said unit for clubbing of its clearances with that of SLI or for denial of small scale exemption.
8. It is a fact that the case laws cited by the Ld. Advocate such as Ogesh Industries (supra), Ramsay Pharma (P) Ltd (supra) and similar others hold the view that when clearances of two units have to be clubbed, both units must be put on notice. In the present cases, a joint notice has been issued to both the units. The said notice contains a proposal to club the clearances of the dummy unit SGE with that of SLI, and there are proposals for penalizing both the units.
9. SGE participated in the proceedings before the original authority pursuant to the joint show cause notice to both the units. The original authority came to the conclusion that SGE was the dummy unit and he took a decision not to penalize the said unit taking into account of the fact that the proprietrix of the said unit was in no way concerned with the manufacture and clearance of the impugned goods done by SLI in which her husband was the proprietor. Since no penalty was imposed on SGE, the unit had no necessity to file any appeal before the lower appellate authority or before the Tribunal. In other words, SGE has no grievance in regard to the joint show cause notice issued to both the units. It is SLI which is agitating before us that no separate show cause notice was issued to SGE and on that basis they are seeking to quash the demand confirmed against SLI.
10. In this regard, we find that in a similar case vide Modern Engineering Plastics Pvt. Ltd. Vs. CCE, Trichy 2009 (243) ELT 289 (Tri.-Chen.), this Bench has upheld the clubbing of clearances and application of extended period of limitation. We also find that in the case of Bakelite Hylam Ltd., Bombay and another Vs. CC, Bombay and another -1986 (25) ELT 240, the Tribunal had held that though the show cause notice was not addressed to the assessees by name, even then it was not as if the assessee was not able to present its case and show cause. In the case of CCE, Meerut Vs. Star Paper Mills Ltd. -1986 (26) ELT 81, it was held that if the contents of the notice makes the respondent aware and conscious of the position, the respondents cannot be permitted to raise the technical argument to defeat a just demand. The Tribunal rejected the argument in that case that the show cause notice was not a valid notice. A similar view has been taken by the Hon ble Bombay High Court in the case of Devidayal Rolling and Refineries Pvt. Ltd. Vs. A.V. Borkar Supdt., CCE, Bombay -1983 (12) ELT 338 (Bom.).
11. We also find that in the case of CCE, Coimbatore Vs. V. Madhu @ C.V. Maadhesh - 2002 (146) ELT 252 (S.C.), the Hon’ble Supreme Court held as follows:-
“6. Inasmuch as a show cause notice has been issued to both M/s.Komalagowre Textiles and M/s. Selvaganapathy Textiles, we fail to understand as to how any prejudice is caused to either of the parties. At the stage of issuance of show cause notice, particularly when the view of the Department is that one firm is a fictitious business firm or a dummy of the other, it would be easier and more appropriate to examine the matter together. Therefore, it was not necessary to split up the show cause notice in respect of M/s. Komalagowre Textiles and M/s. Selvaganapathy Textiles. However, if appropriate objections are raised before the authorities concerned, the same may be examined and, if necessary, separate proceedings may be held in regard to M/s.Komalagowre Textiles and M/s. Selvaganapathy Textiles.
7. When the stand of the Department is that one firm is a fictitious business firm or a dummy of the other, it was not proper for the High Court to have interfered at the stage of issue of show cause notice. Liability to pay duty would depend upon the finding of facts which can be arrived at after adjudication is complete. Therefore, the show cause notice for the period 1.4.99 to 31.3.2000 could not have been quashed by the Division Bench.
Viewed in the light of the Hon’ble Supreme Court decision cited above, the show cause notice issued jointly to both the units in this case does not appear to suffer from any infirmity. At the stage of issuing the show cause notice, it was the department s view that SGE was a fictitious dummy unit, the proposal to club the clearances of both the units was contained in the joint notice and both the units were put on notice and both the units subsequently represented their cases before the adjudicating authority. As held by the Hon’ble Supreme Court in the case cited above, it was more appropriate to examine the matter together in this case which has been done by the department. There was a proposal to penalize SGE which has been dropped by the adjudicating authority and the said unit has no grievance. The objection raised by the appellants herein ie., SLI that SGE was not separately asked in the show cause notice why the clearances shown in SGE s name should not be clubbed with that of SLI is at the most a mere technical objection and in any case there is no prejudice caused to SLI since they were specifically put on notice regarding clubbing of the clearances.
12. Moreover, the statements recorded and the investigation carried out including the non-availability of electricity connection at the material time leaves one with no doubt that SGE had no manufacturing facility, its proprietrix knew nothing about the manufacturing activities and the entire manufacturing was done by SLI and only clearances were shown in the name of SGE to avail small scale exemption after the exemption limit was crossed by SLI. Hence, in our view, the appellants have no case on merits against the clubbing of clearances ordered by the authorities below nor do they have a case on technical grounds in the light of the decision of the Hon ble Supreme Court and the decisions of the Tribunal cited above approving issue of a joint show cause notice.
13. Considering the facts and circumstances of the case and the clear evidence showing the fact of evasion of duty, the penalty imposed is also justified. For the same reasons, the application of extended period of limitation is also warranted. As regards the demand of duty, we find that SLI had already crossed the full exemption limit under the small scale exemption and hence the demand of duty on the balance quantity arrived after clubbing of the clearances at normal rates is fully justified.
14. The appeal is dismissed.