2006 (9) TMI 28 - AT - Central Excise

Cenvat/Modvat Alleged that transfer of the power generating units from Sangam spinners to Sangam power Common premises but maintain separate books of accounts and separate excise registration prove that they are separate entities.

Summary

Issues:

1. Allegation of transfer of power generating unit from one entity to another.
2. Denial of Modvat credit and imposition of penalties based on the alleged transfer.
3. Contention regarding separate legal entities within the same company.
4. Interpretation of separate accounts and excise registrations as proof of separate entities.
5. Reversal of Modvat credit and penalties imposed on the appellant.

Issue 1: Allegation of transfer of power generating unit

The case involved an allegation of the transfer of a power generating unit from one entity to another within the same company. The appellant, M/s. Sangam (India) Ltd., had a spinning division that imported an electricity generating set for captive power supply. The central issue was whether there was a transfer of the power generating unit from Sangam Spinners to Sangam Power, leading to the reversal of Modvat credit and imposition of penalties.

Issue 2: Denial of Modvat credit and imposition of penalties

The Commissioner held that there was a transfer of capital goods and their spares and fuels from Sangam Spinners to Sangam Powers, leading to the denial of over Rs. 4 crores of Modvat credit. Additionally, penalties were imposed on M/s. Sangam Spinners and an individual associated with the company. The appeals were filed against these orders challenging the denial of credit and imposition of penalties.

Issue 3: Contention regarding separate legal entities

The appellant contended that Sangam (India) Ltd. was the only legal entity, and entities like Sangam Spinners and Sangam Powers were merely divisions of the same company. They argued that the separate accounting for different activities was for management purposes and did not change the legal rights and liabilities of the company. The main argument was that there was no transfer of equipment as alleged.

Issue 4: Interpretation of separate accounts and excise registrations

The Tribunal analyzed the balance sheet and relevant records to determine the legal entity and rights and liabilities of the company. They noted that separate excise registrations for different products did not necessarily indicate separate manufacturers. The practice of separate internal accounting for management control and appraisal was considered common and did not establish separate legal entities.

Issue 5: Reversal of Modvat credit and penalties

After considering the evidence and arguments, the Tribunal found that there was no merit in the revenue's contentions regarding the transfer of the power unit. They concluded that the denial of credit and imposition of penalties were not sustainable. As a result, the appeals were allowed, and consequential relief was granted to the appellant, setting aside the denial of credit and penalties imposed.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the unity of the legal entity and dismissing the allegations of transfer of the power generating unit between different divisions within the company.