TMI Blog2003 (6) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... - -do- Rex Arts Castors Pvt. Ltd. Nil 5,00,000/- -do- Rex Arts Nil 5,00,000/- -do- 2. Four appeals (Appeals E/1405 to 1408/00) have been filed by the Department against the common order by the Commissioner of Central Excise (Appeals), Mumbai, made in Order-in-Appeal Nos. GKP(2340)31-M-IV/2000 (43 M-IV/98), GKP(2341) 32-M-IV/2000 (44-M-IV/98), GKP(2342)33-M-IV (45-M-IV/98) and GKP(2343)34/M-IV/2000 (46-M-IV/99), dated 20th January, 2000 allowing appeals of the assessee made against Order-in-original No. K-III 752-771/98, dated 9-11-1998 passed by the Assistant Commissioner of Central Excise, Div. K-III, Mumbai-IV, in and by which he denied the exemption claimed by the assessee under Notification 1/93 (SSI Exemption). 3. A show cause notice dated 6-12-1991 was issued calling upon the appellant assessees as to why duty should not be demanded from them denying exemption under Notification 175/86, and penalty should not be imposed on each of them. Detailed replies were given by the appellant assessees. After hearing the parties, the adjudicating authority confirmed the demand, denying the exemption under Notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Sr. No. (i) above. SSI exemption was also proposed to be denied to RCPL also on the ground that value of clearances would exceed the eligibility criteria of Rs. 2 crores, specified u/n 175/86-C.E., as value of clearances of all the aforesaid units, in view of their manufacture under the brand name REXELLO , owned by RCPL, has to be clubbed together. The SCN demanded duty from all the aforesaid assessees and also proposed to penal action on the assessees and their Partners/Directors. 5. The allegations against various appellants and their replies are extracted below :- (a) The allegations as stated against RCPL in Para 32 (IV) of the Order-In-Original dated 18-4-1994 are as under : Paras 2, 1, 1 of the Show Cause Notice refers to the statement of Shri Gulam Hassan Mohamadali Merchant, Director of M/s. RCPL recorded on 4-8-1988. In this, an admission has been made that M/s. RCPL had not received any royalty amount from any of the 5 companies ......... . It has, therefore, to be inferred that the formal agreements entered into, permitting the 5 other units to use the brand name of M/s. Rexello owned by M/s. RCPL was a sham and a colourable device to show separate entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4.2, the Department itself admits that the said different companies were producing and selling their goods. The allegations as stated against RCPL in Para 32(VI) of the Order-in-Original dated 18-4-1994 are as under : It has been cited at length in the Show Cause Notice that orders for the products made by any of the six companies were being received by M/s. RCPL. Instances have been cited specifically in Paragraphs 6, 7.2, 9.7, 9.8, 10.1, 10.5, 10.7, 10.7.3 and 10.10. The sum and substance of this citation is that M/s. RCPL was acting as a focal point in receiving orders from the customers and stockists. The requirements of the clients were being distributed to the various manufacturing units as per the convenience of M/s. RCPL and thus, it was not that there were six different companies but that M/s. RCPL had five additional manufacturing partners. M/s. RCPL, in Reply to the Show Cause Notice in Paragraph 16.12 has submitted as in under :- With reference to Paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/bill Collector in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cause Notice in Para 18.6 as submitted as under :- With reference to Para 7.7, we may point out that the letter in question does not indicate any mala fide intention to evade Central Excise Duty. It is very clear from this letter that our intention was to pass on maximum benefit to our client. The allegations as stated against RCPL in Para 36 of the Order-in-Original dated 18-4-1994 are as under : In Paragraph 9.7 of the Show Cause Notice is the statement of the stockists who placed orders on plain paper on which the name of the company was not mentioned. M/s. RCPL used to collect these orders and confirmation was given by any of the six units. The supplies were sent from a single godown that was of M/s. RCPL. Similar admission was made by another dealer as disclosed in Paragraph 9.9 of the Show Cause Notice. The RCPL in Reply to the Show Cause Notice in Paras 16.9, 16.12 and 21.1 submitted as under :- 16.9 With reference to Para 5.8, we invite attention to our submissions made against Paras 3.4.1 to 3.4.14 and deny that any financial assistance was given to M/s. R.A. Regarding monitoring of orders received from customers, we may clarify that due to our common brand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice in Para 18.12 submitted as under :- With reference to Paras 3.4.5 to 3.4.9 the details of our accounts appearing in the records of M/s. RCPL and the entries therein are admitted facts. We further submit that the advances received by M/s. RCPL for the goods manufactured by us were being transferred to us and whenever payments were made by M/s. RCPL on our behalf those payments were made to help us by M/s. RCPL; Since we had a running business dealing with M/s. RCPL, such advance payments made were being adjusted subsequently . Further allegations as stated against RCPL in Para 36 of the Order-in-Original dated 18-4-1994 are as under : Not only was the supply distributed, but also that the security deposits received from the authorised dealers were transferred freely between units without prior approval of or request from the concerned dealers. The RCPL in Reply to the Show Cause Notice in Para 14.7 submitted as under :- With reference to Para 3.4.9, we submit that the advances received by us were never used for our own operations but were transferred to concerned companies who were to manufacture the goods required by the customers giving those advances. It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra, the differential amount of Rs. 1,875/- was refunded by M/s. RBE to M/s. Mahindra Mahindra. (e) The RBE in their reply to the show cause notice in Para 9.19 submitted as under :- With reference to Para 10.7.3 we confirm that the order received from M/s. Mahindra Mahindra was executed by us. The goods were manufactured as per their drawings and no samples were sent but the goods were supplied after inspection done by the representative of M/s. Mahindra Mahindra. The amount received by M/s. RCPL (Rs. 37,375/-) initially was later transferred to us and the difference of Rs. 1,875/- being the excess amount was refunded to M/s. Mahindra Mahindra, as also admitted by the Department in the Para. This shows that we were doing our business independently. The allegations as stated against RCPL in Para 38 of the Order-in-Original dated 18-4-1994 are as under : Two vital points have already been discussed above. The first was that the other five units were permitted the use of their brand name Rexello by M/s. RCPL. Although agreements had been entered into and the fields of % subject to a minimum of Rs. 15,000.00 per year had been prescribed, no consideration has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lvements resulted in flow back of the profit to our account. Regarding other assistance given, such assistance mentioned in the agreements with the units were only rendered. The allegations as stated against RCPL in Para 40 of the Order-in-Original dated 18-4-1994 are as under : Para 2.1.12 shows that M/s. Rex Arts (RA) did not have any machines of their own. The premises in which they were situated belonged to M/s. RCPL. The machinery and the premises were shown to have been hired from M/s. RCPL by M/s. RA but the agreement did not contain any provisions regarding rent of machines. The RCPL in their reply to the show cause notice in Paragraphs 12.2, 13.12 and 16.2 submitted as under :- 12.2 With reference to Paras 1.2, 1.8 and 1.9 which are concerned with us we would like to submit that since the facts are admitted there is no need to give any submissions on these paragraphs. With reference to Para 1.5 giving details of M/s. RA. We will like to mention here that the machinery detailed in this para belong to us but M/s. RA have been allowed to make use of them as the machinery was already in gala when the same was rented out to them. 13.12 With reference to Paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Order-in-Original dated 18-4-1994 are as under : In Paragraph 3.4.5 of the show cause notice, details of accounts of M/s. RA in the ledger of M/s. RCPL is shown. A debit entry is made towards rent of Rs. 18,000/- payable but there is no contra-entry witnessing the payment by M/s. RA on the debit side. The RA in their reply to the show cause notice in Paragraph 7 b-2nd. Paras 7c and 18.12 submitted as under :- It is not true that we were floated by M/s. RCPL. We have paid rent of Rs. 1,500/- per month for the premises and for use of machinery which cannot be said nominal. The allegations that we were not capable of manufacturing the goods for which we received the payments or raised the invoices has been made without taking into consideration that we could get the goods manufactured on job-work basis from other manufacturers and therefore the question of our capacity to manufacture does not arise. The Department has not made proper investigation into this aspect as a result of which a wrong conclusion has been drawn. 7C It is not true that M/s. RCPL was giving financial assistance to us. However the Department has failed to appreciate that such involvements were offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .11 and 3.4.12, we submit that the amounts mentioned in this Para were not taken as loan by us but were usual advance received during the course of normal business, therefore there was no question of payment of any interest on these amounts. Moreover in business with nearest relatives usually any amount advanced are treated as personal loan for which no interest is charged. 14.9 With reference to Para 3.4.13, we agree that the payments made to them were purely in the course of business. However it is very strange that the Department makes it convenient to decide what is prudent and what is not for a manufacturing concern of our size, without having a first hand knowledge of business. The RCPL in their reply to the show cause notice in Paragraph 12.6 submitted as under :- 12.6 With reference to 3.4.14, we deny that ours and all other companies were running like one business. (g) The RRW in their reply to the show cause notice in Paragraph 23.6 submitted as under :- 23.6 With reference to Paras 3.4.13 and 3.4.14 we deny that ours and all other companies were running like one business as alleged in the Para and without prejudice we agree with the findings, but with onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty on our part. Regarding supplying the final goods manufactured out of such parts by M/s. RRW to their customers we deny that these goods were supplied by M/s. RRW at our directions. M/s. RRW probably supplied the said goods as per the orders received by them from their customers. (j) The RACPL in their reply to the show cause notice in Paragraph 12.16 submitted as under :- 12.16 The allegation in Para 8.2 that we were manufacturing the branded goods of M/s. RCPL are denied. We are manufacturing our own goods independently. Regarding our goods being sent to M/s. RBE without any documents. We submit that as we are situated in the same industrial estate and as the records were prepared and maintained by Shri M.H. Merchant who was sitting in the premises of M/s. RBE, he or in his absence Shri S.G. Warang or Smt. Mable sitting in the same premises were intimated verbally so that they can prepare the necessary documents and the goods were sent to the premises of M/s. RBE as the goods of all the companies could be transported for onward journey by hiring a common tempo/truck. (k) The RBE in their reply to the show cause notice in Paragraph 9.13 submitted as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by canceling the address of 23/D, Mahal Industrial Estate and writing/typing the new address. However at times it was left out to cancel the old address. (n) The allegations as stated against RCPL in Para 45 of the Order-in-Original dated 18-4-1994 are as under :- Paragraph 5 speaks of the relationship of M/s. R.A. with M/s. RCPL and the other group companies. It has already been brought out above that M/s. RA did not have any premises or machinery and that the claim that these two facilities were taken on hire from M/s. RCPL was false as no valuable consideration had flown from M/s. R.A. to M/s. RCPL. The Show Cause Notice cites the statement of Shri M.G. Shinde, a worker with the group for over 12 years which prove that M/s. R.A. did not have any manufacturing facility up to August, 1988. This shows that the production of various articles shown on paper by M/s. RA was actually the manufacture of M/s. RCPL Shri M.H. Merchant in his statement dated 4-8-1988 virtually admitted that these goods were shown as manufactured by M/s. RA and were cleared under the gate passes of M/s. RA. The RCPL in their reply to the show cause notice in Paragraph 12.2, 16.1 to 16.13 and 13.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re accepted as such to be true and correct without verifications by the department it is submitted that in that case the fault if any lies with the Department and hence the charge of suppression of any fact caused by us cannot survive. 16.3 with reference to Para 5.3. We deny that the raw materials purchase by M/s. RA were actually delivered to us. 16.4 With reference to Para 5.4. We submit that in view of the several Judgments of the authorities such as Supreme Court, High Courts, CEGAT and Quasi judicial authorities like Collector, it is now well settled law that common office equipments etc. cannot be considered as grounds to clubbing the units of any group. 16.5 With reference to Para 5.5. we submit that M/s. RA have their own premises at 48, Nishanpada Rd. Bombay 400009, which has been declared by us in our application made for Exhibit H permission under Rule 57F(2) as Exhibit H and enclosed. 16.6 with reference to Paras 5.6. and 5.7, we submit that the very fact that we had entered into an Agreement with M/s. RA proves the case that ourselves and M/s. RA are two separate legal entities. The authorities such as CEGAT have held that giving the technical know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant manufacturers and causing inconvenience to them. 16.10 With reference to Para 5.9.1 we deny the allegations made in this para that we manufactured the goods and supplied the same in the name of M/s. RA. 16.11 With reference to Para 5.9.3, we have already given above, the explanation as to why the orders were received by us and distributed among other units as per the requirements of the customers. 16.12 With reference to Paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/bill collector in order to help the customer, would collect the orders and had them over to the respective concerned manufacturing unit. It is not true that we were deciding about the orders and that we were manufacturing the goods and were clearing them in the name of M/s. RA. 16.13 With reference to Paras 5.9.6, we deny to have floated M/s. RA as dummy unit. As submitted in Para 11(vii) above, wherein we have quoted the judicial pronouncements, each of us to whom the Show Cause Notice in question has been issued alleging that all other units are our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . RA and RBE it is submitted that the allegations that RA and RBE were floated by RCPL did not sustain in law as well as in view of the fact that enough evidence has been produced before the Hon ble Collector to show that they were existing independently even before the issue of the Notification No. 175/86, dated 1-3-1986. (q) The allegations as stated against RCPL in Para 47 of the Order-in-Original dated 18-4-1994 are as under :- Whereas M/s. R.A. was not manufacturing some products, and whereas M/s. RCPL were manufacturing those products for the sake of sustaining the facade, is had been to be shown that there was manufacturing activity in M/s. R.A. This was done by creating challans under Rule 57F(2) showing movement of semi-finished components between the two units. However, the premises shown in the challans as belonging to M/s. R.A. were actually godown premises where, as per the panchanama, as well as the admission of the various persons, no machinery ever existed. When Shri M.H. Merchant was asked to explain this phenomenon he was unable to do it. (r) The RCPL in their reply to the show cause notice in Paragraph 13.14 submitted as under :- 13.14 With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 5.9.3 which clearly shows that goods were cleared from their factory under delivery challans purported to be issued by M/s. R.A. The RA in their reply to the show cause notice in Paragraph 7(a), 18.9 and 18.24 submitted as under :- 7(a) We i.e. M/s. RA were established even before M/s. RCPL was conceived and thought of in 1940 s at 48, Nishanpada Road, Bombay 400009, holding Bombay Municipal Licence and Permit, manufacturing wooden baby furniture. Toys etc. As the above premises were situated in the Non-conforming zone specified by the BMC, we shifted some of our activities to 2nd floor, 23D, Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Bombay 400093; after obtaining N.O.C. from D.O.I and getting electrical connection from B.S.E.S. this premises belonged to Rexello Industries. However we continued our activities also at 48, Nishanpada Road. We restricted our activities only to labour work and got our stationary printed with the address as 23/D, Mahal Industrial Estate later when we acquired the rented premises at 114, Mittal Industrial Estate, the activities at 23/D, Mahal Industrial Estate, was stopped some time in 1983-84. After shifting to the above rented p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our address as our printed stationary was not received then. (v) The further allegations as stated against RACPL in Para 50 of the Order-in-Original dated 18-4-1994 are as under :- Paragraph 7 speaks of M/s.Rex Rubber Works (R.R.W.). They were manufacturing moulded products from 1984 onwards and were shown to be manufacturing castor Wheels and Trolley wheels etc. from March 1988. The evidence disclosed in this paragraph and the Sub-paragraph says that M/s. RCPL used to received the orders, diverts the orders to M/s. RRW used to receive component parts from M/s. RCPL at a substantially lower price and the manufactured goods used to be sold to customers of M/s. RCPL without payment of Central Excise duty. The RCPL in their reply to the show cause notice in Paragraphs 18.7 and 18.8 submitted as under :- 18.7 with reference to Para 7.8, we submit that, the said goods were manufactured by M/s. RRW as the orders were given away to them since those goods were being manufactured by them only. 18.8 With reference to Para 7.9, we submit that the department has not considered the fact about incidence of Central Excise Duty paid by us on the components and the Central Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are maintained by a common person viz. Shri M.H. Merchant. The reason for this is obvious which is Shri M.H. Merchant is a common persons being partner/director/ signatory of these concerns and had undertaken the responsibility of maintaining the records of these companies which were situated in the same industrial estate i.e. Mittal Industrial Estate. For convenience sake, he is attending to this work in the premises of M/s. RBE as these premises are suitable for him. However, as mentioned above, it has been held by various authorities that common partner/director/premises and common staff cannot be the ground to club the units. (z) The RBE in their reply to the show cause notice in Paragraph 9.12 submitted as under :- 9.12 Para 8.1 alleged that our records and the records of other units viz. M/s. RACPL, M/s. RA, and M/s. RBE were maintained, prepared and kept at the premises of M/s. RBE i.e. in a common premise and are maintained by a common person viz. Shri M.H. Merchant. The reason for this is obvious which is Shri M.H. Merchant is a common persons being partner/director/signatory of these concerns and had undertaken the responsibility of maintaining the records of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks had placed an order with M/s. RCPL. The clients were informed by M/s. RCPL verbally to shift the order to M/s. RACPL and to acknowledge the same. When the goods were in despatch, the warranty was given by M/s. R.A. and not by the manufacturer, viz. M/s. RACPL. The RCPL in their reply to the show cause notice in Paragraph 21.6 submitted as under :- 21.6 With reference to Paras 10.7.1, 10.7.2, we repeat our submissions made above in Para 8.82, regarding warranty is of M/s. REXELLO CASTORS PVT. LTD. which is the group of all the units manufacturing goods of brand name Rexello . As this brand name is basically owned by us and in order to ensure the quality of the goods of the brand, the warranty is given by us and in case of any defective goods, those are repaired/replaced by the concerned unit who has manufactured the goods are cleared on payment of duty which is borne by that unit and not borne by us or thrust upon the customers. Although we give warranty. We only inspect the goods if any complaint is received and ask the concerned unit to do the rectification if possible or to replace the same, and all this is done only to maintain the prestige of the goods manufactured wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that use of common premises, common address, common telephone, financing without interest, keeping common Manager, joint storage of salable goods, supply of raw material by common supplier or common purchase of raw materials are no grounds for treating units having separate legal entities as one manufacturer, when the profit of one unit do not flow back to another, but are to be treated as independent units. (ee) The further allegation as stated against RCPL in Para 58 of the Order-in-Original dated 18-4-1994 are as under :- Para 15 of the Show Cause Notice summarizes the various methods by which the unity among the six units was evident. The content of this Paragraphs show that, the six units were separately shown only for the sake of record and were created facades for the outside world including the Government Departments like Central Excise. The RCPL in their reply to the show cause notice in Paragraphs 18.1, 18.6 and 21.10 submitted as under :- 18.1 With reference to Para 7.2., we submit that there was nothing wrong if we give advice to out clients so that their burden of payment of duty is lessened. Regarding the wordings in the last four sentences in this pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 313 where he specifically states that they have shown as outstanding which have been reflected in Paragraph 13.2 of the reply of RCPL. As far as advertisement expenses incurred by RCPL is concerned, this has been properly replied in Paragraph 14.3 of the reply in which they have stated that it was done in their interest so that their brand names become popular and they would get more royalty. This has been admitted to by the Department in its show cause notice at Paragraph 3.4.2. The entire basis of the show cause notice does not show specifically that there has been any financial flow back to the appellant, RCPL, from other units. In the absence of the same, it will be difficult for us to hold that there has been any clubbing. In one of the cases decided by the Tribunal that just because there are common directors related to each other in limited companies which are separate legal entities have any significance in clubbing the value of clearances. That is the decision given by the Tribunal in Padma Packages (P) Ltd. v. CCE, Coimbatore, 1997 (90) E.L.T. 175. As far as the other charges viz. the ownership of various appellants is concerned, the chart, which is extracted below, cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits. 8. Hence the impugned order is set aside and the appeals of the assessees allowed with consequential relief. 9. As far as the Department s appeals are concerned, the show cause notice alleged that Rexello Art Castors Pvt. Ltd. and other 3 units (Respondents in Appeals 1405 to 1408/00) had hence floated by Rexello Castors Pvt. Ltd., Appellants in Appeal 4601/95 with an intention to avail exemption under Notification 1/93. These units were alleged to have been manufacturing excisable goods of Rexello Castors Pvt. Ltd. who accepted purchase orders and transferred to these respondents - dummy units. In Paragraph 10 of the Order-in-Appeal, it is stated that these respondents have been filing necessary returns, classification lists. RT12 returns and observing other formalities in law. The Appellate Authority following the Government of India letter No. 350/57/77-TRU., dated 20-1-1978 extracted at Paragraph 17 of its order. The grounds of appeal filed by the department simply state that the goods were supplied by RBE and payments were received by Rexello Castors Pvt. Ltd.; no royalty regarding brand usage was given by the units to Rexello Castors Pvt. Ltd.; financial transact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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