| SooperKanoon Citation | sooperkanoon.com/21140 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai |
| Decided On | Feb-27-2001 |
| Judge | A T V.K., P Chacko |
| Reported in | (2001)(96)LC52Tri(Mum.)bai |
| Appellant | Cce |
| Respondent | Niton Industries and ors. |
2. The impugned order had been passed in adjudication of the show-cause notice (SCN) dated 5.1.1988 issued by the Collector to the aforenamed three units and two individuals, namely Sh. V.R. Sharif and Sh. P.V.Jain. The gist of the allegations raised in the SCN was that M/s. Niton Industries had created the facade of two other units viz. M/s. Inventa Value Industries (Bombay) Private Ltd. and M/s. Niton Value Industries Private Ltd. with intent to evade payment of Central Excise duty on their product viz. industrial valves by unduly availing the benefits of SSI Exemption Notifications [Notification No. 105/80-CE dated 1.3.1980 as amended by Notification No. 77/83-CE dated 1.3.1983 as amended by Notification No. 77/85-CE dated 1.3.1985 as amended by Notification No.175/86-CE dated 1.3.1986 as amended by Notification No. 216/86-CE dated 2.4.1986] and had manufactured and cleared from their factory premises, without payment of duty and in contravention of Central Excise Rules, valves totally valued at Rs. 4,76,10,750.12 in excess of the exemption limits prescribed under the Notifications, during 1982-83,1983-84,1984-85,1985-86,1986-87 and 1987-88 (upto 1.11.1987).
The SCN, by invoking the extended period of limitation under the proviso to Section 11-A(1) of the Central Excises and Salt Act, 1944, proposed to recover Rs. 29,15,587.55 as duty of excise on the above excess clearance value as determined by clubbing of clearances of the three manufacturing units. It further proposed to confiscate the 154 valves which had been seized from the premises on 1.11.1987 by the Central Excise Officers, who had found that the goods had not been accounted for in RG-1 register. Land, building, plant, machinery etc.
were also proposed to be confiscated under Rule 173Q(2)(i) and (ii).
There were, also, proposals for imposition of penalties on the units under Rules 173Q/52A/226 and on S/Shri V.R. Shariff and P.V. Jain under Rule 209A. After considering the parties' replies to the SCN and hearing them, the Commissioner passed the impugned order, whereby all proceedings were dropped except in relation to 78 (out of 154) valves manufactured by M/s. Niton Industries. Confiscation was ordered of the 78 valves which had been found to be in fully manufactured condition but not accounted for in RG-1. Since the goods [which had been provisionally released to the party on execution of a B-ll bond and production of a Bank guarantee] were not produced by the party in terms of the bond executed by them, an amount of Rs. 10,000/- was appropriated from the bank guarantee towards redemption fine in lieu of confiscation. M/s. Niton Industries were also directed to pay duty at the appropriate rate on the 78 valves. The Commissioner also imposed on them a penalty of Rs. 5000/- under Rules 173Q/226.
3. We have carefully examined the records of the case. We note that the department's case against the parties is founded principally on the following observations and findings of its officers: (a) M/s. Niton Industries [hereinafter referred to as 'Niton Firm'], M/s. Inventa Valve Industries (Bombay) Private Limited [hereinafter referred to as 'Inventa Co.'] and M/s. Niton Valve Industries Private Limited [hereinafter referred to as 'Niton Co.'] were proximately situated (at gala Nos. C-138, C-139 and B-8 respectively) in the same Industrial Estate and had a common office at gala No. C-138 and were all engaged in the manufacture of valves; (b) All the three units were under a common management. Shri V.R. Sharif was partner of Niton Firm as well as Director of both Inventa Co. and Niton Co. Smt. S.P. Jain's role in the management was quite similar. Her husband, Sh. P.V. Jain was Director of both the companies, Sh. V.R. Shariff's wife, Smt. N.V. Sharif was also Director of both the companies; (c) All the machinery required for complete manufacture of valves were not installed in any one of the units and whatever machinery installed in any of the units was shared by all the three units.
Niton Firm's work of shaping i.e. T-slotting of spindle (as essential part of valves) was done on the shaping machine of Inventa Co. while the welding work of Inventa Co. was done on the welding machine of Niton Firm; (d) The workers/staff of each unit worked for all the units and a common staff register was maintained by the three units; (e) The three units had a common storage of their raw materials and each unit's requisition slips for raw materials were issued in the name of Niton Firm; (f) The components of valves manufactured in the three units were conveniently interchanged without maintaining any record for the purpose and the units maintained a common "Serial number register" for the valves manufactured by them; (g) The brand name 'NITON' was common for Niton Firm and Niton Co; (h) There were interest-free loan transactions between the units; (i) The units had a common Drawing & Designing Department looked after by Sh. V.R. Sharif along with a Draftsman; (j) The PBX Board for the telephone lines to the units was installed at gala C-138 of Niton Firm and the same was handled for all the units by an operator who was on the muster roll of Inventa Co. and received salary from the company; (k) Niton firm manufactured certain quantity of valves against order procured in the name of Niton Co., (l) The 78 valves seized from gala No. B-8 of Niton Co. had been manufactured by Niton Firm and the same were not accounted for in the latter's RG-1; (m) The 76 valves (packed in wooden cases) seized from the 2nd wing of the Industrial Estate had been manufactured by Niton Co., which was not under control and had not kept any records; (n) Niton Firm and Inventa Co. were holding Central Excise and paying duty on their product at concessional rate of duty under Notification No. ' 175/86-CE (as amended). Their RG-ls showed NIL stock of fully manufactured valves at the time of the officer's visit (1.11.1987); (o) Niton Firm floated the two other units with intent to evade payment of duty by remaining within exemption limits prescribed under SSI exemption notifications.
4.1. In their respective replies to the SCN, the parties denied the department's allegations and charged that the department was out to deny them the rightful exemptions under the relevant Notifications.
Niton Firm, in their reply, submitted that the firm was established in 1978 only and hence could not have floated the Inventa Co. which had been established as far back as in 1973-74. The Niton Co. started their manufacturing activity only in March/April 1987 and, therefore, the question of their floating the said company for availing exemption for the period 1982-83 to 1986-87 did not arise; Niton Firm further pointed out that their two partners held only less than 20% of the share capital of the Niton Co. The partners, as also the directors of the two companies, belonged to two different communities and families and therefore there was no question of all of them being related persons.
They contended that, even otherwise, existence of common partners/directors in the three units was no ground for clubbing of clearance values of their product for purposes of the Notifications.
The units were separate impersonal bodies and independent legal entities, which were, in their own right, entitled to the benefits of the Exemption Notifications, based on their respective clearance values of the excisable goods. Each of the units had its own registration with the Registrar of Companies/Firms, Sales Tax registration, SSI registration, Shop & Establishment registration, Factory registration, Bank account & finance, Income Tax account, Provident Fund account, Employees State Insurance Scheme account and Worker's union.
(a) that there was no question of common storage of raw materials, with Niton Co, upto January 1987 since the company took possession of gala No. B-8 only in January, 1987; (b) that the raw materials issued to the different units were correctly accounted for; (c) that the requisite machinery for manufacture of valves was installed in each unit; however, certain processes, for which it was not economical to install machinery in any particular unit, used to be got done by another unit on job work basis; Niton Firm paid job work charges to Inventa Co. for all the job work done by the latter from 1982-83 to 1987; (d) that each unit had independent workers and staff as evidenced by separate muster rolls; a common "staff memoranda register" was maintained only to enable the partner/director sitting in gala C-138 to keep watch on the attendance of staff members; (e) that the valves manufactured in the three units were separately accounted for in their respective records; a common "serial number register" for valves was maintained only for the (f) that the components of valves required by the units were separately purchased and machined by the respective units; there was no interchange of the components between the units as alleged by the department; (g) that "NITON" was not the Niton Firm's registered trade mark/brand name and they had not objected against its use by Niton Co.
(h) that the three units had independent financial arrangements with separate banks; only at times, in emergency, any one unit took temporary loans without interest from other units; (i) that it was for the sake of convenience of both the units that the PBX Board was installed in the premises of Niton Firm and operated by the Inventa Co.'s operator; (j) that, out of the 154 valves seized by the officers, the 78 valves seized from gala No. B-8 of Niton Co. had been manufactured by Niton Firm and accounted for in the latter's private records; the valves were not entered in RG-1 as some of them were yet to be properly tested; (k) that the remaining 76 valves were not manufactured by Niton Firm and hence not entered in their RG-1; they were manufactured by Niton Co.; it was under coercion that Niton Firm had to get the 76 valves (along with the 78) released provisionally on execution of bond and payment of duty; the duty so paid was subsequently recovered from Niton Co. Niton Firm, in their reply to the SCN, also submitted that the 78 valves, provisionally released and sold away with department's permission, were not available for confiscation. They further contended that the goods were not liable to be confiscated for the reason that the alleged offence of non-accountal in RG-1 was merely of technical nature and that no mala fide intention could be attributed to the firm. Niton Firm also resisted penalty on like grounds.
4.3. Niton firm contended that they, being L-4 Licence-holder, were entitled to avail exemption on the basis of their own clearance values of excisable goods and such benefit was not deniable to them as long as the Department did not prove that they had created the other two companies as dummy or fictitious units and that there was a flow of finances from them to the two companies and a flow-back of profits from the latter to the former. Factors such as common storage of raw materials, sharing of services of some workers, occasional use of some machine of one unit by another unit, temporary interest-free loan transactions between the units, maintenance of common records, sharing of unregistered brand name etc. did not affect the independent status of the units and their right to claim exemption under the Notifications without clubbing of clearance values.
4.4. They also challenged the demand of duty on the ground of time-bar.
According to them, the extended period of limitation was not invocable in their case since they had not suppressed or wilfully mis-stated anything inasmuch as:-(i) they had filed declaration for the period 1982-83 to 1985-86 and such declarations were accepted by the Range; (ii) they had obtained L-4 licence and paid duty during August 1985 to October 1987 (iii) their RT-12 returns were finalised; (iv) they had produced Shop & Establishment registration and were enjoying exemption under Notification No. 46/81; and (v) their records were audited by Central Audit parties.
4.5. Niton Firm also cited case law in support of the various submissions they made in their reply to the SCN.4.6. Niton Co. and Inventa Co. also contested the SCN in more or less similar lines. Niton Company submitted, inter alia, that they had manufactured the 76 valves (seized from the C-2 Wing) and the same were not required to be entered in RG-1 or other record as they were not under Central Excise control on account of their annual clearance values of goods having been below Rs. 10 lacs. For this reason, they contended, there was no justification for confiscation of the 76 valves or for imposition of penalty on them.
5. We have carefully examined the impugned order, grounds of the appeals and the connected records. We have also heard both sides. Ld.
SDR, Sh. R.K. Sharma for the Revenue and Ld. Advocate Sh. A.R. Madhav Rao for the respondents reiterated the pleadings contained respectively in the SCN and the replies thereto. Ld. SDR submitted that the order of Ld. Collector did not reflect due consideration of all the facts mentioned in the SCN. He urged for setting aside that order on the grounds raised in the appeals. Ld. Advocate, on the other hand, contested each of the grounds on the strength of case law and prayed for rejecting the appeals.
6. We have carefully examined the submissions and arguments of the two sides. We note that the Ld. Collector felt that "before I embark upon analysing various aspects of this case, I must deal with some of the Tribunal/Court pronouncements on this very subject...". Ld. Collector did deal with a few decisions rendered by the Tribunal in cases involving the question of clubbability of clearances. But he did not embark upon any analysis of the various aspects of the case on hand. He just held that "the inter-relations in the three units as cited in the SCN are not strong enough to be conclusive evidence against the assessees as held in very many judicial pronouncements" and that "financial transactions between one unit and other cannot be termed as mutuality of interest". And he rejected the Department's plea for clubbing the three units and ordered dropping of all proceedings against them save those in relation to the 78 valves admittedly manufactured (but not accounted for in RG-1) by Niton Firm. We have not been able to persuade ourselves to accept the impugned order as a reasoned order on the main issue. At the same time, we are not inclined to remand the matter to the adjudicating authority, having regard to the fact that the dispute is more than a decade old. We would rather dispose of the case on merits in the interest of justice.
7.1. We note that, in the SCN, the department had enumerated their investigatory findings on various aspects of the manufactural activities of the respondents and the parties, in their replies, sought to meet such findings with their explanatory submissions. We have mentioned the gists of the department's findings and the parties' counter thereto in paragraphs (3) and (4) of this order. The adjudicating authority, apparently, accepted the parties' submissions in toto and held that the inter-relations in the three units were not strong enough to be conclusive evidence against them. The 'inter-relations' as observed by the department were manifold, which were segregable with reference to management, machinery, labour, raw material, finished product, finance and the like. With regard to the financial inter-relations, Ld. Collector recorded a specific finding that the financial transactions between the units could not be termed as mutuality of interest. This specific finding has not been challenged by the Revenue in the present appeals, nor is there any grievance about the Collector's acceptance of what the parties in their counter to the SCN, submitted/explained/clarified vis-a-vis the department's findings against them on other counts viz. common management, common employment of workers/staff, common storage of raw materials, sharing of telephone facility, manufacture by one unit against orders procured in the name of another, use of common brand name on product and common drawing & designing. We find that the challenge in these appeals lies within a narrow compass inasmuch as it rests only on two grounds viz. (i) The plant and machinery of the three units were utilized commonly by all of them and no single unit had the complete plant and machinery for manufacturing valves; the ratio of the Tribunal's decision in the case of Jagjivandas & Co. was applicable; (ii) All the three units maintained a common 'Serial Number Register' for allotting serial numbers to the valves manufactured by them and therefore they were known in the market as one manufacturer.
7.2. With regard to the plant/machinery-related ground raised in the appeals, we note that it was submitted by Niton Firm, while responding to the SCN, that the requisite machinery for manufacture of valves had been installed in each unit. They submitted that some processes for which it was not economical to install machinery in any one unit were got done by another unit or outside parties on job work basis. It was further explained that Niton Firm had been getting some processes done by Inventa Co. and a number of outside parties on job work basis and that they had paid the labour charges to Inventa Co. for all the job works done by the latter from 1982-83 to 1987. These submissions of the party have not been controverted before us. Further, we have examined the documentary evidence brought on record by the respondents to prove the above job work transactions between Niton Firm and Inventa Co. The evidence includes copies of invoices [vide particulars infra] issued from time to time by Inventa Co. to Niton Firm for labour charges.------------------------------------------------------------------------------Invoice No. & date Description Amount (Rs.)------------------------------------------------------------------------------117/17.3.83 Machining/labour charges 38,000/-144/29.6.83 -do- 2,400/-153/18.9.83 -do- 22,800/-154/24.9.83 -do- 28,500/-179/30.12.83 -do- 45,500/-135/20.7.85 -do- 31,500/-137/25.7.85 -do- 14,700/-138/28.7.85 -do- 8,700/-189/85 Machining and threading charges 7,950/-31.12.85 Niton Firm's evidence further included copies of Profit & Loss Account for different accounting periods, which show, inter alia, "machining and labour charges" on the debit side as follows:------------------------------------------------------------------------------Accounting period Amount------------------------------------------------------------------------------Year ended 30th June 1982 Rs. 3,65,731/75 " " " 1983 Rs. 3,94,763/95 " " " 1984 Rs. 6,27,571/45 " " " 1985 Rs. 9,22,803/65 " " " 1986 Rs. 4,78,774/50 The evidence of Inventa Co. 's invoices and Niton Firm's Profit and Loss Accounts has also gone uncontested and the same lends cogent support to the contention of the firm that processes such as machining used to be got done by job-workers and that Inventa Co. was one of the parties who did job-work for, and received labour charges from, them.
We have also perused the copies of Inventa Co. 's Profit and Loss Accounts for the years 1982, 1983, 1984, 1985, 1986 and 1987 produced by the respondents. These documents also show labour charges as having been incurred by Inventa Co. during the said period. The evidence of these documents also has not been sought to be impeached by the appellant. The preponderance of evidence in relation to utilisation of capital goods by the three units does not seem to support the Revenue's plea of "common utilisation of plant and machinery". On the other hand, the respondents, with their plea of job-work, have been able to make good any shortage of machinery in any of the manufacturing units. The respondent's case appears to be well-supported by the ratio of the Tribunal's decision in the case of Surface Graphics Pvt. Ltd. v.Commissioner cited by Ld. Advocate. In that case, the department had sought to deny the benefits of Notification No.175/86-CE by clubbing the clearance values of excisable goods (printed cartons) manufactured by one partnership firm and two companies. One of the grounds for such clubbing was lack of printing machinery in the premises of the firm for printing cartons. On the facts and evidence, the Tribunal found that the firm's printing work used to be got done on job-work basis by one of the two companies as also by outside parties.
The Tribunal, further, held to the effect that, in view of the printing work of the firm having been got done by job-workers, lack of printing machine with the firm could not by itself lead to clubbing.
7.3. The Revenue has relied on the Tribunal's observation in Jagjivandas & Co. (supra) to the effect that frequent use, by one unit, of some machinery belonging to another (where the two units were sought to be clubbed together for denial of benefit of SSI Exemption Notification) might raise a strong inference against the assessee. In the instant case, we have not found evidence of any frequent use of the kind considered by the Tribunal in the case of Jagjivandas & Co.
Moreover, the factual situation, in the instant case, of one unit having got some of the processes done on the machinery of another unit on job work basis would materially distinguish this case from the case of Jagjivandas & Co.
7.4. What remains to be considered is whether the maintenance, by the three units, of a common "Serial Number Register" for valves manufactured by them could be a valid ground for the department to club the clearances of the units for charging duty. The respondent's defence in this context is that their clearances were not liable to be clubbed on the said ground inasmuch as the mere maintenance of such a register did not disturb their status as independent legal entities. Ld.
Advocate has cited the Tribunal's decision in Collector v. Standard Watch Co. Pvt. Ltd. in support of this defence of the respondents. In that case, two companies manufacturing wall clocks and table clocks were maintaining a common register for stock, production and clearance. The Revenue pleaded for clubbing of the two units on the ground of maintenance of common register as well as on other grounds.
The Tribunal rejected the plea, following the ratio of the decision of Rajasthan High Court in the case of Renu Tandon v. Union of India .
7.5. In Renu Tandon's case, the Hon'ble High Court adopted "mutuality of interest" as the decisive test for determining whether the clearance values of goods of two manufacturing units were liable to be clubbed together for purposes of SSI Exemption Notifications. According to that test, "there must be clear and specific evidence that there is mutuality of business interest between the two units and that both have interest in the business of each other or they have common funding and financial flow-back". In the cases of Indian Metal Industries v.Commissioner 1999 (31) RLT 297 and Primlaks Waffles Pvt. Ltd. v.Commissioner cited by Ld. Advocate, this Tribunal applied the same test and allowed the benefits of SSI exemption to the assessees in those cases after finding that the Revenue could not establish 'mutuality of interest' for the purpose of clubbing of clearances. In the instant appeals, as already noted, there is no challenge to the adjudicating authority's finding that there is no mutuality of interest between the three units. The status of the three units as separate legal entities with independent coverage under various statutes in relation to matters such as sales tax, in-come tax, banking, provident fund, employees State Insurance, Worker's union etc.
appears to have been accepted by the Revenue inasmuch as there is no challenge on any of these counts against the Collector's order. There was even no allegation in the SCN that any of the units were dummy or fictitious. The department's allegation was that Niton Firm had floated the other two units with intent to evade duty by availing exemption in terms of SSI Exemption Notifications. The evasion of duty was alleged for the period, 1982-83 to 1.11.1987. When Niton Firm was set up in 1987, Inventa Co. was already in existence, having been established in 1973-74. Niton Co. started their manufacturing activity in 1987 only.
These facts have not been disputed by the department. It would, therefore, appear that neither of the companies had any semblance of dummy unit of Niton Firm for the above period of dispute. Taking into account, all the above facts and circumstances, we hold that the values of clearances of the three units for the period of dispute were not liable to be clubbed and that each of them was entitled to the benefits of the SSI Exemption Notifications, based on its own clearance value of goods.