TMI Blog1997 (2) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... ORBESONS Rs. 4,93,641.50 ARCA Rs. 25,527.12 JNMSS Rs. 25,930.50 He also imposed penalty of Rs. 5 lakhs on JMM under Rule 173Q of the Central Excise Rules, 1944 (for short, the Rules). 2. The order was passed on the basis of a show cause notice dated 28-9-1987 issued to the appellants and two other concerns, namely, M/s. Cambridge Instruments (I) Private Ltd. (for short, CAMBRIDGE) and M/s. Spirex Marshall Ltd. (for short, SPIREX) as also the Directors of the various concerns. The dates of incorporation of the seven concerns, and their activities are summarised as follows :- Concerns Date of incorporation Activity JNM 1. 1958 Manufacturer of plant, machinery,precision instruments and appliances. 2. SPIREX 1959 Manufacturer of steam recovery equipment. 3. CAMBRIDGE 1962 Manufacturer of electronic equipment. 4. JNMSS 1981 Trading activity. 5. KROHNE 20-6-1984 Manufacturer of flow density and level instruments. 6. FORBESONS l8-10-1985 Manufacturer of electronic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and without observing excise formalities during the period 1985-1987. (b) Manufacture of excisable goods at ARCA was also without observing central excise formalities and without payment of excise duty. (c) The seven units are controlled and managed by one person or the same group of persons and since their clearances are required to be clubbed, none of them is a SSI unit entitled to the benefit of exemption, but such exemption was wrongly availed by KROHNE, FORBESONS and ARCA. (d) There was a single manufacturer of excisable goods in different factories and the clearances are required to be clubbed. (e) Excisable goods of KROHNE, FORBESONS and a part of the goods of JNM were sold entirely to JNMSS who sell the same at a margin of over 30% and the price structure of JNMSS was decided by the common costing department based on norms fixed by the common management. JNMSS is a favoured buyer. (f) JNM exercises administrative and financial control over all the units. The Directors are more or less the same. JNMSS is related person. Excise duty has to be paid on the prices charged by JNMSS to buyers. (g) The six concerns were created with the intention of evading excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devices have been used so as to project the units as separate and independent manufacturing units though in reality they are a single entity under common administrative and financial control . The clearances of all the units have to be clubbed and if so, SSI exemption would not be available, excise duty would be payable. (u) The units are inter-related and related . In particular, JNMSS is related to the other units. Hence the assessable value should be based on the prices charged by JNMSS to customers. (v) There has been deliberate failure to observe excise formalities, misdeclaration of value, wrongful claim to SSI exemption and wilful suppression of correct information and true state of affairs. (w) The transactions between the units were only paper transactions brought about with the intention of making the excise department believe that each unit is a separate entity. 5. The contentions raised in the replies to the show cause notice can be summarised as follows : The seven concerns are all separate and independent concerns, separately incorporated. There is foreign equity participation in three of them. The six manufacturing concerns manufacture different products. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentions raised by the various concerns and confirming the demand proposed in the show cause notice. However, he apportioned the amount of demand among the five appellants. Penalty of Rs. 5 lakhs was imposed on JNM, the persons connected with whom were alleged to have adopted various colourable devices with intent to evade duty. 7. Learned Counsel appearing for JNM contended that the finding that JNMSS is related to JNM or the other concerns or that there is any relationship between them is not sustainable since the requirements of Section 4(4)(c) of the Act are not established and the decision to club the clearances of all the manufacturing concerns is erroneous as it has not been established that this is a case of single manufacturer manufacturing excisable goods in more than one factory as required by the SSI exemption notifications. According to him, the concept of a group of companies has no relevance to the principle of clubbing. He contended that the transactions coverd by debit notes are neither mere facade or paper transactions nor do they evidence any flow back as held by the Collector. On the other hand, according to him, debit notes have been accepted and settled and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y company, a relative and a distributor of the assessee and any sub-distributor of such distributor. The expressions holding company , subsidiary company and relative have the same meanings as in the Companies Act, 1956. There is no case that any one of the seven concerns in this case is a holding company vis-a-vis any of the or all the remaining concerns. There is also no evidence to show that JNM or the three concerns having a composite excise licence on the one hand and the other four concerns or any of them on the other hand have mutual interest, directly or indirectly, in the business of each other. Even if JNMSS is regarded as distributor, it is not a relative (as defined in the Companies Act, 1956) of JNM or any of the other concerns. All these concerns are legal persons but the expression relative has personal connotation. Assuming that these concerns have some connection with each other, but that is not sufficient to regard them as related persons within the meaning of the expression as defined in Section 4(4)(c) of the Act. In this view it is unnecessary to consider if such relationship would warrant clubbing of clearances of all these concerns for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st look to the reality behind the facade or appearance. 10. Various indicia have been considered in several decisions. In Shree Packaging Corporation v. Collector of Central Excise, Hyderabad - 1987 (32) E.L.T. 94, it was indicated that common funding and financial flow back are important and mere circumstance of common storage but with evidence of separate accounting of receipts and utilization by two firms functioning in adjacent premises and stray usage of an employee of one firm by the other in the context of partners being related is not sufficient to warrant clubbing. In Bhagwan Das Kanodia Others v. Collector of Central Excise, Bombay - 1987 (32) E.L.T. 204 (Tribunal) the allegation was that sixteen powerlooms belonging to four individuals (four each) were being operated by a consortium of these individuals based on evidence in the shape of common purchase of yarn, pooling of some resources but with separation of benefits and liabilities periodically and adjustment of accounts. It was observed that something more was necessary, for example, the existence of a person or a body of persons, who, in reality, owned, directed and controlled the production in the four units whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise, Patna - 1995 (77) E.L.T 130 (Tribunal) it was held that common use of premises for certain purposes without payment of rent, of telephone staff, of telephone without any charge, common use of some workers are not sufficient to warrant clubbing since there was separate management and separate financial control and funding. In Supreme Engineering Works v. Collector of Central Excise, Pune - 1996 (82) E.L.T. 102 (Tribunal) dealing with a partnership of two brothers, another firm with the wives as partners and a company two of the four directors of which were the brothers, it was held that circumstances of sales among the units at price lower than price to outsiders, manipulation of accounts, common control of production and sales and special financial relationship not on principal to principal basis warranted clubbing of clearances inspite of the units having separate indentities, separate SSI registration, S.T. registration and separate income tax assessment. 11. What we understand from the above decisions is that regard must be had to all the circumstances established in a given case but emphasis must be on common control of production and sales or on management c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign equity participation, without anything more would have some significance, in the facts of the case, we do not attach any significance to the fact that KROHNE and ARCA have foreign equity participation since SPIREX registered along with JNM and CAMBRIDGE as a single factory and operating under a single licence also has foreign equity participation. From the admitted and proved facts, it is seen that the four companies have close situational and functional connection with one or more of the three companies covered by a single factory registration and single central excise licence. The three companies were incorporated in 1958, 1959 and 1962 respectively. The fourth company incorporated was KROHNE in 1984. Manufacture commenced in KROHNE on 1-6-1985. The declaration submitted on 22-7-1985 by KROHNE claimed exemption under SSI Notification No. 77/85. Application was also submitted by KROHNE under Rule 56B of the Rules for permission to remove goods to JNM for processing. The total value of clearances of the first three companies exceeded the limit of Rs. 75 lakhs in the year 1984-85. The incorporation of the fourth company in 1984 and commencement of manufacture in its name in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the departments of all the units. KROHNE and FORBESONS had obtained permission under Rule 56B of the Rules to send goods to JNM for processing. Payments towards PF, EPF, ESI, property tax, and security, audit fees for statutory audit in respect of all the units are made by JNM, though it is stated debit bills are raised in respect thereof by JNM against the other units. Expenses of various units on account of power supply, expenses of car, petrol charges, hospital charges, travel expenses etc. are met by JNM, though in this regard also, according to appellants, debit bills are raised. It is also contended that in regard to supply of raw materials, salaries and common services, debit bills are raised. We asked learned Counsel if there is any evidence to show settlement or adjustment of debit bills periodically or at any time but our attention has not been invited to any such evidence. These circumstances clearly establish common funding and financial flow back to a substantial extent. The circumstances such as separate licence, registration for sales tax, separate income tax assessment do not have much relevance in this context since if the intention is to evade duty by securing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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