2000 (8) TMI 1108 - AT - Central Excise

Summary

Issues:
Confirmation of duty demand against M/s. Samarath Engineering Co. Pvt. Ltd., imposition of penalties on M/s. SECO and M/s. Xenon, challenge to penalty imposition by M/s. Xenon as a dummy unit, legal facade created by M/s. SECO, clubbing of clearances for small scale exemption, justification for penalties, evidence of units being the same, imposition of heavy penalties without valid explanation.

Confirmation of Duty Demand and Imposition of Penalties:
The Commissioner confirmed a duty demand against M/s. Samarath Engineering Co. Pvt. Ltd. (M/s. SECO) and imposed penalties under Rule 173Q of Central Excise Rules, 1944. Additionally, penalties of &8377; 2,000 each were imposed on both M/s. SECO and M/s. Xenon under Rule 9(2) and Rule 226. The Commissioner found M/s. SECO and M/s. Xenon to be one and the same in the eyes of the law, leading to the clubbing of clearances for the purpose of small scale exemption notification.

Challenge to Penalty Imposition by M/s. Xenon:
The advocate for M/s. Xenon argued that M/s. SECO had settled the dispute under the provisions of K.V.S.S., leaving only the appeal by M/s. Xenon against the penalty imposition. It was contended that M/s. Xenon was considered a dummy unit of M/s. SECO, and penalties should not be imposed on a dummy unit as per legal precedent. The Commissioner's order was criticized for being self-contradictory in not recognizing the existence of M/s. Xenon while imposing penalties on them.

Legal Facade and Clubbing of Clearances:
The Commissioner's findings indicated that M/s. Xenon was a dummy unit of M/s. SECO, with evidence supporting their connection. The internal pages of the order highlighted this relationship, leading to the clubbing of clearances made by both units. The advocate cited legal decisions to support the argument that penalties should not be imposed on a dummy unit once its status is established.

Imposition of Heavy Penalties Without Justification:
The Tribunal agreed with the advocate's position that penalties should not be imposed on M/s. Xenon, which was held to be a dummy of M/s. SECO. The Commissioner's heavy penalty of &8377; 1 crore on M/s. Xenon for an alleged duty evasion of &8377; 16 lakh was deemed unjustified, especially considering the total penalties amounting to &8377; 3.50 crore for both units. The lack of a valid explanation for such high penalties led to the appeal being allowed by setting aside the penalty portion of the impugned order.

Conclusion:
The Tribunal, based on settled legal principles, found no legal basis for imposing penalties on M/s. Xenon, recognized as a dummy unit of M/s. SECO. The appeal by M/s. Xenon was allowed, setting aside the penalties imposed, without providing a finding on the case's merits due to the resolution of the legal issue.