| SooperKanoon Citation | sooperkanoon.com/16295 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Jul-27-1999 |
| Reported in | (2000)LC841Tri(Delhi) |
| Appellant | L.R. Industries |
| Respondent | Collector of Central Excise |
2. The issue relates to clubbing of the production of three units viz., (a) M/s. Supreme Washers (P) Ltd., (b) M/s. L.D. Industries and (c) L.R. Industries (P) Ltd. By the impugned Order-in-Original passed by the Collector of Central Excise, Pune dated 22-4-1991, duty demand of Rs. 14,92,190.99 was confirmed against appellants M/s. Supreme Washers (P) Ltd. Penalties of Rs. 3 lakhs, one lakh and Rs. 50,000/- were also imposed on M/s. Supreme Washers (P) Ltd., M/s. L.D. Industries (P) Ltd. and Shri Shyamsundar Raheja respectively.
3. Brief facts are : Preventive Officers of Central Excise, Pune visited the factory premises of M/s. L.D. Industries and M/s. L.R.Industries situated at 66/65, Lonawala Co-operative Industrial Estate on receipt of information that the said two units were in fact only one unit and they were availing the benefits of tax exemption for Small Scale Industries which they were not entitled to. During the visits to their premises on 14-12-1988 and 22-12-1988, certain documents and unaccounted goods were seized under Panchanama and statements of the partners of the two units and Employees were recorded Under Section 14 of the Central Excise Act, 1944. After further investigation, a show cause notice was issued to the present appellants, among others, alleging that the three units had mutuality of interest among themselves by way of common overall control of the three units by Shri S.L. Raheja, common procurement of raw material by virtue of which the three units got the raw materials at lower price with 90 to 120 days' credit facility instead of normal credit facility of 30 days available to other persons, common stock accounting and planning, interdependence in manufacturing operations, common stock of raw-materials and semi-finished goods, common use of machinery between the three units, common marketing arrangements and free flow of finance between the three units. After considering the parties' reply to the show cause notice denying the allegations, and after providing personal hearing to the parties, the Collector by the impugned order held that factors such as the sharing of the common Head Office facilities in the premises, common telephones etc., would not by themselves be determinative for clubbing. However, he found that common raw-material procurement was co-ordinated by Shri S.L. Raheja for all the three units though payments were received from the three units separately. Inasmuch as the co-ordination of interest between the three units was being conducted by Shri S.L. Raheja of M/s. Supreme Washers for the other two units viz., M/s. L.D. Industries and M/s. L.R. Industries, this led to financial gains for both L.D. Industries and L.R. Industries. This showed that M/s. Supreme Washers had control over the procurement of principal raw-material viz., Wire Rods for both L.D. Industries and L.R. Industries. Collector also found that if each of the units were to act independently, they would not have been able to procure the raw-materials at such a low rate. He, therefore, held that there was indirect mutuality of interest involving flow of funds among the three units. Collector also found that though in reply to the show cause notice, the three units had stated that no heat treatment or any other manufacturing work is being carried out by L.D. Industries for M/s.
Supreme Washers as alleged in the show cause notice, and material to this effect would be produced at the time of personal hearing, no such evidence had been produced. Collector referred to page 28 of the appellants' reply to the show cause notice dated 12-4-1991 in which though they had claimed that they would be producing evidence to deny the charge of heat treatment and other manufacturing activities were not being carried out by L.D. Industries for and on behalf of M/s.
Supreme Washers, no such evidence was produced. As against the said claim of the appellants, the Collector relied on the statement dated 30-1-1989 given by Shri Ramesh Dhakre stating that heat treatment of goods made by Supreme Washers was done by M/s. L.D. Industries and invoices were not issued to M/s. L.D. Industries nor any payment was made to them. The Collector observed that no independent unit would undertake heat treatment work on the product of another unit without charging any money. The charges relating to heat treatment was therefore a flow back of monetary benefit from M/s. L.D. Industries to M/s. Supreme Washers, according to the Collector. He further found that one machine of M/s. Supreme Washers had been kept at the premises of M/s. L.D. Industries. There was no evidence to show that the said placing of machine was a purely innocent arrangement. Collector also found that the appellants had not given any explanation for the stock of manufactured goods belonging to M/s. Supreme Washers lying in the premises of M/s. L.D. Industries. He relied on the statement given by Shri S.L. Raheja on 6-2-1989 admitting that the product manufactured at the premises of M/s. Supreme Washers was delivered in loose condition without any Central Excise documents. Collector also found that there was substantial flow of funds from M/s. L.D. Industries to M/s. Supreme Washers as evidenced from Bank records and account books. Shri Shyamal Raheja, who was the Director of M/s. Supreme Washers and also partner of M/s. L.R. Industries in his statement dated 9-6-1989 had admitted that M/s. L.R. Industries and M/s. L.D. Industries were the shareholders of M/s. Supreme Washers and therefore, they gave loan to M/s. Supreme Washers. Shri S.L. Raheja had also stated that interest was being charged only for long term loans and temporary loans are arranged mutually depending upon the liquidity position. Collector had also found evidence of mutuality of interest between the three units inasmuch as the stocks of finished goods were being monitored at the head office in one single document for all the three units. These documents had not been denied by any of the appellants. Shri S.L.
Raheja had also admitted the position that all the three units were maintaining combined accounts showing stock of both raw-materials and finished goods. Further, the three units had also been adopt-ing common strategy for marketing. Having regard to these factors, the Collector held that there was strong mutuality of interest between the three units, especially between M/s. Supreme Washers and M/s. L.D. Industries which would not have existed if the units were dealing with each other on principal to principal basis. Accordingly, the Collector held that the production and clearances of all the three units would be liable to be clubbed for purposes of computing their duty liability and for purpose of their claim for the benefits of Notification No.175/86. He also held that there was sufficient justification in the circumstances of the case for invoking extended period of limitation under proviso to Section 11A(1) of Central Excise Act.
4. Ld. Counsel appearing for the appellants had raised two legal points in support of the appeal filed by the appellants. He submitted that the show cause notice dated 28-8-1989 issued to the appellants had relied on the very same evidence which was relied on by the Additional Collector in an earlier adjudication order dated 13-6-1989, in which, it was held that the production of only M/s. L.D. Industries and M/s.
L.R. Industries were to be clubbed and that only M/s. L.D. Industries was existing. Ld. Counsel submitted that the said decision of the Addl.
Collector had also indicated, on the very same sets of facts and evidence, that M/s. Supreme Washers (P) Ltd. was independent of M/s.
L.D. Industries. In such a situation, the Department could not issue a further show cause notice within a period of two months from the date of previous order of the Addl. Collector alleging that M/s. L.D.Industries did not exist independently. Ld. Counsel submitted that the principle of constructive res judicata would apply. He relied on the decision of the Tribunal in Hind Lamp Ltd. v. C.C.E., Kanpur reported in 1987 (28) E.L.T. 429.
5. On the question whether M/s. L.R. Industries and M/s. L.D.Industries were dummy units created by M/s. Supreme Washers (P) Ltd. and whether there was mutuality of interest between the three units and therefore their production should be clubbed, ld. Counsel submitted that mutuality of interest was relevant only for purpose of valuation of excisable goods. He submitted that once it is accepted that there was mutuality of interest between the two manufacturers, it automatically proves that there were two manufacturers. In such a situation, it cannot be held that the unit whose production is proposed to be clubbed with another unit, is a dummy unit. In the show cause notice, it had been alleged that M/s. Supreme Washers (P) Ltd. had created M/s. L.D. Industries and M/s. L.R. Industries as dummy units and the Collector had in the impugned order come to the conclusion that the evidence on record showed mutuality of interest between the three units. Ld. Counsel submitted that the conclusion of mutuality of interest between the three units cannot sustain especially when the show cause notice did not allege any mutuality of interest between the three units. He further submitted that the concept of related person was alien to the concept of dummy units and this position had been settled by the various decisions of the Tribunal such as (i) Alfa Toyo Ltd. v. C.C.E. [1994 (71) E.L.T. 689], (ii) Prima Controls Pvt. Ltd. v.C.C.E.Binod Kumar Maheswari v. C.C.E.[1995 (11) R.L.T 276] and (iv) Karnataka Gears Pvt. Ltd. v. C.C.E.[1998 (29) R.L.T 543] .
6. Apart from trie above legal submissions, ld. Counsel submitted that the Collector had wrongly held that there existed between the three units a system of common raw-material procurement, free facility of heat treatment for other two units provided by M/s. L.D. Industries, availability of machinery belonging to M/s. Supreme Washers (P) Ltd. to M/s. L.D. Industries, free transfer of funds ihter-se between the units and common marketing strategy. Ld. Counsel submitted that the said findings were not supported by any reliable evidence and in any case having regard to the above legal submissions, the impugned order cannot be sustained.
7. Ld. JDR, Shri K. Shiv Kumar reiterated the reasoning and the findings of the Collector in the impugned order which have been referred to earlier.
8. We have considered the submissions made by both the sides. On the question of constructive res judicata, we find that the appellants have urged that the evidence relied on by the Department for issuing the show cause notice dated 28-8-1989 was the very same evidence relied on by the Additional Collector of Central Excise in his adjudication order dated 13-6-1989 in which it was held that production of M/s. L.D.Industries and L.R. Industries were to be clubbed. He had also given a finding that only L.D. Industries was in existence. Reliance has been placed by the appellants, in this connection on the Tribunal's decision in Hind Lamp Ltd. v. C.C.E., Kanpur [1987 (28) E.L.T. 429]. From a perusal of the aforesaid order of the Additional Collector it is seen that the Additional Collector had not taken any action against the other sister unit, M/s. Supreme Washers Pvt. Ltd. Instead, his examination was confined to the question whether the two firms, namely, M/s. L.D. Industries and M/s. L.R. Industries were partnership firms divided in such a way as to defeat the provisions of Notification No.175/86, dated 1-3-1986 in order to avail independent SSI benefits concessions. It was held that the said two units were a single composite unit having common raw-material procurement, management and planning, common manufacturing facilities, common marketing network and strategy, common furnace and common stocks of finished goods. In Hind Lamp Ltd. (supra), the Tribunal had held that though the plea of res judicata will not be applicable in taxation matters to the extent that financial assessment of one year does not apply to the next year, it will apply when the question decided by the High Court relates not to the assessment of any one year or any assessment of goods in respect of a particular price list, but it relates to the question of value of goods relevant to continuing assessment. Further, in J.K. Synthetics v.U.O.I. [1981 (8) E.L.T. 328] it was held that the Income-tax authorities cannot change their views capriciously from a finding arrived at in an earlier order. There should be either fresh facts or a change of law or at least a suggestion that while arriving at the conclusion of the earlier order certain material facts or provisions had not been considered and that if they had been considered, a different view might have been taken. In the absence of any such material, there can be no departure from the view taken in a similar order. The Hon'ble High Court had held that the rule is based both on the principle that there should be a finality to litigation even in Income-tax matters as well as on principles of natural justice. It was further held that it was not open to tax authorities to take a different view without any valid reason and to start levying excise duty on the basis of very same facts when on the very same item, no duty had been levied in the previous orders.
9. We find that in the instant case, it is not in dispute that by a previous order the Additional Collector had held that the production of both L.R. Industries and L.D. Industries are to be clubbed. The said order had become final since no appeal has been filed against the said order. In the show cause notice adjudicated in the impugned order, production of Supreme Washers Ltd. is sought to be clubbed with the production of L.D. Industries and L.R. Industries. The basis for such clubbing is mutuality of interest between the three units including L.R. Industries. On the basis of factors like common raw-material procurement, heat treatment facility extended by L.D. Industries for Supreme Washers, machinery of Supreme Washers installed in the premises belonging to L.D. Industries and L.R. Industries, fund transfer between the three units and common marketing strategy and common, stock monitoring, the Collector held that the demand of duty from M/s.
Supreme Washers Pvt. Ltd. was sustainable. We find that the earlier decision given by the Additional Collector, though apparently relying on the same evidence on which the impugned order has also relied on, had not considered the question of clubbing of all the three units, namely M/s. Supreme Washers, M/s. L.D. Industries and M/s. L.R.Industries. The earlier order had addressed the question of clubbing only in relation to clearances of L.D. Industries and L.R. Industries.
It had not considered the aspect of inter-se relationship between the three units considered in the impugned order under consideration but only two units namely, L.D. Industries and L.R. Industries. We do not find that the earlier proceedings culminating in the order of adjudication by the Additional Collector has dealt with the issues arising between the same parties or between the parties under whom they make any claim as provided in Section 11 of the Civil Procedure Code.
In the earlier proceedings, no action has admittedly been taken against M/s. Supreme Washers Pvt. Ltd. and the inter-se relationship between M/s. Supreme Washers Pvt. Ltd. and the two other units, was also not the subject matter of the dispute before the Additional Collector.
Since the issue considered in the earlier order was not the same as the one which arose for consideration in the impugned order, we are of the view that the plea of constructive res judicata does not apply in the present case. The case law relied on by the appellants are therefore, not applicable to the facts of the present case.
10. As regards the question of mutuality of interest for purposes of clubbing the clearances of two or more units and thereby denying the benefit of Notification No. 175/86, while we agree that the concept of related person as defined for purposes of Section 4 may not be applicable, it cannot also be denied that when the question for consideration is whether one manufacturer is engaged in the production and clearances of excisable goods for and on behalf of the another, mutuality of interest between the two becomes a relevant consideration.
Mutuality of interest is established only on a cumulative basis, taking into account the inter-se relationship between the parties and on the basis of extra commercial relationship if any, between them Financial flow back from one party to the other is an important indicator of mutuality of interest. The Collector in paragraphs 3 and 4 of the impugned order has relied on the statement given by the Director of Supreme Washers Ltd. stating that both L.R. Industries and L.D.Industries were share holders of M/s. Supreme Washers and they were giving loans to Supreme Washers even though the said loans were on a temporary basis. He had further stated interest on such loans was charged only on long term loans at the end of the year and temporary loans were arranged depending upon the liquidity position. The arrangement for advance of loans between the parties (even in the absence of charging of interest for short term advances) cannot by itself, tilt the balance in favour of clubbing. The Collector had however found that apart from money flow, indications like common procurement of raw-material, free heat treatment facility extended to M/s. Supreme Washers by L.D. Industries, presence of machinery belonging to Supreme Washers with L.D. Industries and L.R. Industries and common marketing facility establishes mutuality of interest between the parties. Apart from all this, Shri Shyam Sunder Raheja, Director of Supreme Washers being a partner of L.R. Industries further shared mutuality of interest between the units. We find that these findings have not been rebutted by the appellants. The case law cited by the appellants are no doubt relevant for weighing the individual factors but not for considering the question of clubbing in totality. As stated above, for arriving at a decision relating to clubbing of clearances of one or more units, it will be the cumulative effect of all the factors and circumstances which have to be taken into account.
11. On a careful examination of the facts and case law we are satisfied that the factors taken into account by the Collector in paragraph 3 of the impugned order when put together, establishes mutuality of interest between the units. We, therefore, find no reason to interfere with the findings and penalty imposed under the impugned order. The same are as a result confirmed and the present appeals are dismissed.