2025 (5) TMI 58 - AT - Central Excise

SSI exemption - clubbing of clearances - Eagle brand flasks were finally assembled and manufactured at the premises of the appellant - premises was shared by both the Appellant and M/s Shanti International a partnership firm - HELD THAT - It is a fact on record that the course of search of the appellant s premises no manufacturing activity was observed by the visiting team. The Appellant has been consistently stating that he is getting the goods manufactured by various small scale manufacturers in rural area which is exempted from levy of excise duty. The investigation has not brought any contrary evidence either. If the Eagle brand flasks are manufactured in rural areas then the said goods are eligible for the exemption provided under the above said notification. From the impugned order it is observed that the Ld. Adjudicating Authority refers to the statement of the Applicant that though he is not having any manufacturing unit he gets the goods manufactured by various job workers by supplying raw materials moulds etc. and that various parts of the flask likewise is manufactured by job workers and finally assembled at their premises 5/1 Height Road Liluah Howrah. Flasks along with packing boxes inner and outer covers with the brand name Eagle are sent to an address in village Bhattanagar in Anandpur Liluah for final manufacture of the Vacuum Flask . Thus we observe that the Ld. adjudicating authority in his findings accepts that the final products after packing the goods ready with the brand name of Eagle ready for sale emerges at the rural area namely village Bhattanagar in Anandpur Liluah - the clearance of finished goods bearing the brand name Eagle by the appellant are eligible for the SSI exemption as provided under the notification 8/2003 -CE dated 01.03.2003 as amended. Hence demand of duty from the appellant for manufacture and sale of branded goods of another person is not sustainable and accordingly the same is set aside. Clubbing of clearnces - HELD THAT - The Adjudicating Authority observes that both the units are operative from the same premises ; they were controlled by one single family; all the production activities were carried out in the premises of one unit and raw materials and packing materials were stored in the other premises and both the units have common office; accordingly the value of clearances of both the units are clubbed. Regarding the role of M/s Eagle Home Appliance Pvt. Ltd. the Adjudicating authority finds that they dealt with such excisable goods on which proper central excise duty was not discharged and hence were liable to confiscation. Accordingly they were liable to penalty under Rule 26 of the Central Excise Act 1944. Conclusion - The clearances of the appellant-company M/s. Exotic Industries (India) and that of M/s. Shanti International cannot be clubbed together for the purpose of demanding central excise duty from the appellant company. Accordingly the demand confirmed by clubbing the value of clearances of both the companies is set aside. The impugned order is set aside - appeal allowed.

The core legal questions considered in this judgment include:

1. Whether the appellant, engaged in the manufacture and sale of branded goods through job workers, is liable to pay Central Excise Duty despite claiming Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE dated 01.03.2003.

2. Whether the turnover of the appellant and the partnership firm M/s Shanti International, operating from the same premises and having common partners, can be clubbed for the purpose of quantifying Central Excise Duty liability.

3. Whether the appellant's activities constitute manufacture under the Central Excise Act, given that they do not have their own manufacturing unit and outsource production to job workers in rural areas.

4. Whether the penalty and interest imposed on the appellant and the brand owner M/s Eagle Home Appliances Pvt. Ltd. are sustainable in light of the findings on duty liability.

Issue 1: Liability for Central Excise Duty and Eligibility for SSI Exemption

The legal framework revolves around the Central Excise Act, 1944, and Notification No. 8/2003-CE dated 01.03.2003, which exempts branded goods manufactured in rural areas from excise duty. The relevant provision excludes goods bearing a brand name of another person from exemption except when manufactured in a rural area.

The Court examined the appellant's statement and investigation findings, which established that the appellant did not possess its own manufacturing unit but supplied raw materials, moulds, and dies to various job workers located in rural areas who manufactured parts of the 'Eagle' brand thermo flasks. These parts were then assembled and packed in a rural location (village Bhattanagar, Anandpur, Liluah), which qualifies as a rural area under the notification.

The Court noted that no manufacturing activity was observed at the appellant's premises during the search, and the appellant consistently maintained that it acted as a trader purchasing finished goods from rural job workers. The Revenue failed to produce contrary evidence disproving this assertion.

Applying the law to these facts, the Tribunal held that the exemption under Notification No. 8/2003-CE applies because the branded goods were manufactured in a rural area, and the appellant merely acted as a trader. The demand for excise duty on the appellant for manufacture and sale of branded goods was therefore unsustainable.

Competing arguments from the Revenue alleging that the appellant was engaged in manufacture and assembly at their premises were rejected due to lack of supporting evidence and the appellant's credible statements supported by investigation records.

Conclusion: The appellant is eligible for SSI exemption under Notification No. 8/2003-CE, and the demand for excise duty on this ground is set aside.

Issue 2: Clubbing of Turnover of Appellant and M/s Shanti International

The Revenue's contention was that both the appellant and M/s Shanti International operated from the same premises, were controlled by a single family, and shared production activities, warranting clubbing of their turnover to prevent fragmentation of business for evading excise duty.

The Court analyzed the relationship between the two entities and found that although they shared premises, the spaces were demarcated and separated by walls. Both had distinct VAT/CST registrations, Income Tax accounts, Central Excise registrations, separate books of accounts, and filed independent tax returns. There was no evidence of profit-sharing, common financial interest, or a single beneficiary controlling both firms.

The Tribunal relied on established precedents which hold that mere sharing of premises or common partners does not justify clubbing of turnover unless there is demonstrable control or financial integration. The cited judgments emphasized the requirement of a single entity or control for clubbing to be valid.

Applying these principles, the Tribunal concluded that the clearances of the appellant and M/s Shanti International could not be clubbed for excise duty demand purposes.

Conclusion: The demand confirmed by clubbing the turnover of both entities is set aside.

Issue 3: Nature of Manufacturing Activity and Liability

The appellant contended that they did not carry out any manufacturing activity themselves but outsourced production to job workers in rural areas, supplying raw materials and moulds. The Revenue alleged that the appellant effectively manufactured and assembled the goods at their premises.

The Court found that the final assembly and packing of the 'Eagle' brand flasks occurred at a rural location and that no manufacturing activity was conducted at the appellant's premises in the urban area. The appellant's role was limited to coordinating manufacture through job workers and trading the finished goods.

This factual finding was crucial in determining that the appellant did not manufacture the goods within the meaning of the Central Excise Act at their premises and was therefore entitled to exemption under the relevant notification.

Conclusion: The appellant's activities do not amount to manufacture at their premises, supporting their claim for exemption.

Issue 4: Penalty and Interest

Since the Tribunal set aside the demand for Central Excise Duty on both the grounds of eligibility for exemption and non-clubbing of turnover, the question of liability for interest and penalty did not arise.

The Tribunal accordingly set aside the penalty imposed on the appellant under Section 11AC of the Central Excise Act and the penalty on M/s Eagle Home Appliances Pvt. Ltd. under Rule 26 of the Central Excise Rules, 2002.

Conclusion: Penalties and interest confirmed in the impugned order are set aside.

Significant Holdings

"If the 'Eagle brand' flasks are manufactured in rural areas, then the said goods are eligible for the exemption provided under the above said notification."

"The clearances of the appellant company and that of M/s. Shanti International cannot be clubbed, as both have separate independent existence."

"The appellant do not have any manufacturing unit on their own... Both the units have separate VAT and Income Tax Registration Numbers... Both firms are maintaining separate Books of Account, Profit and Loss Account etc. and filing their own Income tax returns."

"The demand of duty from the appellant for manufacture and sale of branded goods of another person is not sustainable and accordingly, the same is set aside."

"As the demands confirmed are not sustained, the question of demanding interest and imposing penalty does not arise."

The Court ultimately allowed the appeals, setting aside the impugned order confirming Central Excise Duty, interest, and penalties. The core principles established include the recognition of SSI exemption for branded goods manufactured in rural areas even when coordinated by a trader without own manufacturing facilities, and the requirement of clear evidence of control or financial integration before clubbing turnover of separate entities for excise duty purposes.

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