TMI Blog1994 (4) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... -1986 to 30-11-1989 and by M/s. Steel Treaters (Mysore) Pvt. Ltd. during the period from June, 1989 to July, 1989 are to be treated as goods actually manufactured and cleared by M/s. Vishnu Forge (Mysore) Pvt. Ltd. The learned Collector has also held that M/s. Vishnu Forge (Mysore) Pvt. Ltd. is ineligible for the duty exemption under Notification No. 175/86-C.E., dated 1-3-1988 as amended, the clearances effected by them through M/s. Metal Cutters (Mysore) Pvt. Ltd. during the period 1-8-1986 to 3-11-1989 through M/s. Steel Treaters during the period from June, 1989 to July, 1989 are chargeable to duty without extending the benefit under the said Notification. Consequently, the learned Collector has confirmed the duty de mand of Rs. 24,02,746.73 against M/s. Vishnu Forge (Mysore) Pvt. Ltd. He has imposed penalty of Rs. 2 lakhs on Vishnu Forge (Mysore) Pvt. Ltd. under Rule 173Q(1) of C.E Rules, 1944 and penalty of Rs. 20,000/- each on Metal Cutters (Mysore) Pvt. Ltd. and M/s. Steel Treaters (Mysore) Pvt. Ltd. under 209A of the Central Excises Rules, 1944. Aggrieved by the said order, the appellants have filed these three appeals which have been heard together for disposal as per law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Para 2 of his Order as follows : 2. The scrutiny of records and investigation revealed the following :- (i) that the 3 units viz., M/s. Vishnu Forge, M/s. Metal Cutters and M/s. Steel Treaters are located in the same premises on the land of about 10 acres which belongs to M/s. Vishnu Forge. There is no lease agreement whatsoever between M/s. Vishnu Forge and other 2 units and no rent is paid for the said land by M/s. Metal Cutters and M/s. Steel Treaters; (ii) of three units, M/s. Vishnu Forge is a medium scale limited company, while M/s. Metal Cutters and M/s. Steel Treaters are the small scale Private Units registered as such. All the 3 companies are having common Directors, viz., Shri M.S. Ramaiah, Shri M.R.S Ramaiah and Shri M.R. Jayaram, all residing at Gokul House, Bangalore-54. There is one more Director Shri R. Chandra Shekara Shetty residing at 94, 1st Main Road, 10th Cross, West of Chord Road, Rajajinagar, Bangalore. Shri M.S. Ramaiah, Shri M.R.S. Ramaiah and Shri M.R. Jayaram appear to be related persons as father and sons and Shri M.R.S. Ramaiah is the common Managing Director for all the 3 units ; (iii) the office and Managerial cadre offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred to Vishnu Forge for final operation. No documents were available in the transfer of goods from M/s. Metal Cutters to M/s. Vishnu Forge. 3. The investigating authorities recorded the statement given by Shri Anand, Accounts Manager, M/s. Vishnu Forge by his statement dated 31-8-1990 (2) Shri R. Subba Rao, Commercial Manager of M/s. Vishnu Forge. His statement was recorded on 31-8-1990 (3) Shri M.R.S. Ramaiah, Managing Director whose statement was recorded on 9-1-1991. 4. M/s. Vishnu Forge filed their reply to the show cause notice and their reply has been summarised in the impugned order which is noted below : (i) that the averment made in the show cause notice that M/s. Metal Cutters and M/s. Steel Treaters are related units floated and created by the assessee with an intention to wrongly avail the SSI exemption under notification 175/86-C.E., dated 1-3-1986 was totally incorrect and unfounded; that M/s. Vishnu Forge as well as the other two companies had been incorporated as Pvt. Ltd. Companies by different managements much before the issue of notification 175/86-C.E.; that originally the assessee-company was incorporated on 18-2-1974 as Bangalore Heavy Forging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered as separate Pvt. Ltd. Companies all the 3 units were being dealt with separate entities by Government Departments such as Sales Tax, Income-tax, Factories Act, ESI, Provident Fund and Professional Tax Authorities that all the 3 companies had separate electricity connections given by the K.E.B., that in view of those facts the charges in the show cause notice that all the 3 units are not independent entities since there were common Directors related to one another, was not sustainable; (vi) that as regards the averments made in the show cause notice that the other two units were situated on the same land as that of M/s. Vishnu Forge, absence of lease agreement for such an occupation, non-payment of rent, common security arrangement etc., it was submitted that even though individual job-wise or transaction wise settlement accounts was not being done the amount due for the services rendered, facilities extended and also for the payment made by the one company to the other two companies were debited/credited periodically to the accounts of the respective companies; and (vii) that the demand is barred by limitation as the extended period under the proviso to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g RT 12 returns to the department and the same were being assessed, that the statutory records were verified by the officers of the department and the Audit parties during their visit to the factory of the assessee, that even the annual stock taking was being conducted by the departmental officers who noticed no discrepancy in that regard, that therefore it was not open to the department to allege that the excisable goods cleared by the assessee were manufactured by M/s. Vishnu Forge, that consequently they were not liable to a penalty under Rule 209A of the Central Excise Rules, 1944. 6. The reply of M/s. Steel Treaters in Para 15 from (i) to (vi) of the impugned order is summarised which is noted below : (i) that the averment made in the show cause notice that M/s. Steel Treaters and M/s. Metal Cutters were the related units floated and created by M/s. Vishnu Forge with an intention to wrongly avail the SSI exemption under Notification No. 175/86-C.E., dated 1-3-1986 was totally incorrect and unfounded, in as much as all the three companies had been incorporated as private limited companies by different managements much before the issue of the Notification No. 175/86; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that even though individual job wise or transaction-wise settlement of accounts has not been done, the amount due for the services rendered facilities extended and also for the payments made by one company to the other two companies were debited/credited periodically to the accounts of the respective companies and at the end of the accounting year the same were reflected in the Balance Sheet of the respective companies; (vi) that since there was no suppression of facts or wilful mis-statement on the part of the assessee the demand was barred by limitation because the extended period under Section 11A of the Central Excises and Salt Act, 1944 was not applicable. 7. The further submissions of M/s. Vishnu Forge before the Collector has been summarised in Para 17 from (i) to (iv) of the impugned order is noted hereunder : (i) that the interim reply already submitted please be read as part of the final reply; (ii) that the certificates of incorporation of all the three companies were enclosed to their letter as Annexures A1, A2 and A3, respectively to counter the allegation made in the show cause notice that M/s. Metal Cutters and M/s. Steel Treaters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985 between M/s. Vishnu Forge and M/s. Metal Cutters and between M/s. Vishnu Forge and M/s. Steel Treaters, that in the MOU with M/s. Metal Cutters it was agreed that M/s. Vishnu Forge would let out the factory premises and also would provide administrative ser vices viz., utilisation of office building, telex, telephone facility, the services of managerial cadre officers and security services to the for mer without any cash payment in return, that as a compensation or consideration M/s. Metal Cutters had agreed to do free of cost the waste of cutting of steel pre-forging operations for M/s. Vishnu Forge and that for any facility and services over and above those covered by MOU, the cost of services were to be debited to the other company by raising debit bills or notes; that it was agreed that each company should maintain a running account in its ledger in respect of the other company showing the respective debits and credits and that at the end of each accounting year, the same would be reflected in the annual balance sheet of the companies, that a similar MOU was entered into between M/s. Vishnu Forge and M/s. Steel Treaters, whereby the latter was agreed to do the heat treatme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R on 22-10-1989 and if the averment that all the three companies are one entity, were to be true, then all the three companies would have been declared sick which is not so in the present case; (vi) that from the copies of the industrial licence and the Central Excise licence produced along with the letter as Annexures F and G, it could be seen that M/s. Vishnu Forge had no licence for the manufacture of DTH rock roller and allied drill bits and only M/s. Metal Cutters had the licence for the same and therefore the demand for differential duty of Rs. 13,80,386.13 from them on the said goods was unsustainable; (viii) that in the same manner the demand for duty of Rs. 2,76,810.13 was unsustainable, since it pertained to goods manufactured by M/s. Steel Treaters only; (ix) that the copy of the extract of page 14 of the RG I register for the pe riod 5-2-1989 to 27-5-1989 and the stock taking report for the year 1988 were being produced as Annexures H1 and H2 to support the con tention that the demand for duty was time barred as the departmental officers had visited the factories frequently and that reliance was placed on the decision of the Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively; (vii) that in support of the arguments that M/s. Metal Cutters and M/s. Vishnu Forge were independent entities reliance was placed on the decisions in : (a) Kanjal Electronics (P) Ltd. v. Collector of Central Excise - 1989 (43) E.L.T. 327 (b) Jagjivandas Co. v. Collector of Central Excise - 1985 (19) E.L.T. 441 (c) Shree Packaging Corporation v. Collector of Central Excise - 1987 (32) E.L.T. 94 (d) Bhagwandas Kanodia Others v. Collector of Central Excise - 1987 (32) E.L.T. 204 (e) Pimpri Gases v. Collector of Central Excise - 1990 (49) E.L.T. 474; (viii) that even though the raw materials belonging all the three units were stored commonly in the open yard near the factory of M/s. Metal Cutters, they were identifiable with batch Nos. and each company maintained separate accounts for the same; that as held in the case of Shree Packaging Corporation it would not be proper to draw a conclusion merely on the ground of storage in a common place that the firms were in reality one; (ix) that excepting on a few occasions requiring execution of orders for close die forgings, the tool room of M/s. Vishnu Forge was never utilised by M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised by M/s. Metal Cutters for close die forgings; that the post forging operations were ac tually carried out in the factory of M/s. Metal Cutters, that in view of the submissions the charge made in the show cause notice against M/s. Metal Cutters for invoking the provision of Rule 209A of the Central Excise Rules, 1944, was not maintainable. The Advocate finally requested for dropping the further proceedings against M/s. Metal Cutters in the interest of justice. 10. The submissions made by M/s. Steel Treaters before the learned Collector has been summarised in Para 21 from (i) to (xvii) which is noted below : (i) that the allegation in the show cause notice were not based on facts and records in that the investigation been done thoroughly by the department would have come to know about their existence as separate identity, and the manufacturing facility available with them; (ii) that the show cause notice was based only on the statements recorded from S/Shri Anand and Subha Rao and Sampangi Ramaiah, that the documentary evidence produced by them would clearly establish their identity as a sepa rate unit with the capacity and infrastructure for the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions : (a) Smt. Shyam Kumari Others - 1982 (10) E.L.T. 329 (CBE C); (b) G.D. Industrial Engineers v. Collector of Customs and Central Excise - 1983 (14) E.L.T. 1994; (c) Jagjivandas Co. v. Collector of Central Excise - 1985 (19) E.L.T. 441 (Tribunal) (d) Shree Packaging Corporation v. Collector of Central Excise - 1987 (32) E.L.T. 94 (Tribunal); (e) Bhagwandas Kanodia Others v. Collector of Central Excise - 1987 (32) E.L.T. 204 (T); (f) Shakti Engineering Works v. Collector of Central Excise - 1989 (40) E.L.T. 95 (Tribunal); (g) Pimpri Gases v. Collector of Central Excise - 1990 (49) E.L.T. 474 (Tribunal); (h) Diamond Engineering Trading Corporation v. Collector of Central Excise - 1989 (44) E.L.T. 92 (Tribunal); (xi) that further the CBEC, for ensuring uniformity in the levy of excise duty with regard to Notification No. 175/86-C.E. had laid down the general principal which was communicated in the Madurai Collectorate s Trade Notice No. 31/92, dated 9-7-1992; (xii) that the classification issued by the Board and the case laws cited by them when viewed against the facts and circumstances of the case made it clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt accounts for services rendered towards the rent and other facilities is collected on paper just to avail unintended benefit since the other two unit are totally dependent on M/s. Vishnu Forge as can be gathered from two orders and other documentary evidence. He has also held that transaction emanated from M/s. Vishnu Forge and it extended all the facilities to these two units as a special case, which is not normally seen in any commercial transaction. He has held that by virtue of their being sisters close family concerns in reality, these two units are being orchestrated by the common Managing Director with vital command from M/s. Vishnu Forge. He has held that commonly used facilities by all the three units such as office, accommodation, transport, telex, telephone storage or raw materials and security, may not be a course for treating three units as one entity but when viewed, in conjunction with the facts discussed then each of those common facilities are mistakable pointer to the camouflage. The learned Collector has applied the rulings rendered in the case of Balamurgan Balamurli v. Collector of Central Excise, Madras as reported in 1988 (38) E.L.T. 54 (Tribunal) and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollector. In that view of the matter, he argued that all the finding that the three units are one, on the basis of common directors and that they are related on account of some business arrangements, is un sustainable. He submitted that the learned Collector although had not accepted the MOU, but the fact remained that the department had not challenged the document, as a fabricated one. It is his submissions that even if MOU is not taken into consideration, even then, the various evidence produced on record would clearly disclose that the three units were independent ones. He pointed out to the findings of the learned Collector, wherein, the learned Collector had admitted that the process of each of the units were specific and different. He submitted that in between M/s. Metal Cutters and M/s. Steel Treaters, there was no MOU, and that there was no understanding to share each other s manufacturing process also. He pointed out that all the three units have separate type of work and they were having independent manufacturing pro cess. He pointed out that the quotation referred to by the Collector in his order was not relied in the show cause notice and that these materials which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The learned Collector has proceeded on the ground that the directors being related persons and that there is common Managing Director, that by itself is a ground for clubbing the clearances. He had held that by using common facilities are an unmistakable pointer to the camouflage. The main ground for holding all the units as one is the procurement orders which are passed by M/s. Vishnu Forge to two other units. Learned Collector has, however, held that the manufacturing facilities possessed by each of the three units are process-specific and different. From these findings, we have to infer as to whether the units can be clubbed for the purpose of denying the benefit of the notification in question. The ground on which the clearances can be clubbed is, discussed in the case of M/s. H. Guru Instruments (P) Ltd., Calcutta v. Collector of Central Excise, Calcutta as reported in [1987 (27) E.L.T. 269 (T) = 1987 (10) ECR 333 (CEGAT SB-B1)]. The Tribunal had held that clubbing can be done if manufacturer has a hired labour in the production or manufacture of goods. In the present case, there is no allegation that the other two units are hired labour of M/s. Vishnu Forge. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id findings as managerial control is different from money flow back, management control and profit sharing. A dummy unit is a unit, which is not in existence in reality but it is merely created on paper only. In other words, the physical existence of such a unit is not to be found in terms of investment of capital, machinery and labour. The units which creates such a dummy units, utilise the dummy unit for the purpose of tax evasion. Therefore, the Courts have clearly distin guished on facts each of the cases and have now settled the issue by holding that mere evidence of Directors being common or utilisation of telephone, labour or machinery by itself is not a ground to consider an unit as a dummy unit of the other. It has been held that even if a unit is in existence, but it is not totally controlled in terms of money flow back, profit sharing, management control, and it had been created with a view to evade taxes by a series of acts of omission and commission, by manipulation of accounts and records then in such eventuality, the clearances of a dummy unit can be clubbed. As rightly pointed out by the ld. Senior Advocate there is no definition of the term dummy unit , but what f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. 15. The ratio of the above ruling apply to the facts and circumstances of this case the ruling rendered in the case of Prima Controls (P) Ltd. Anr. v. Collector of Central Excise, Pune as reported in [1994 (72) E.L.T. 62 (T) = 1994 (50) ECR 188 (Tribunal)] is also applicable to the facts of the present case. The Tribunal in the Prima Controls case has relied on the ruling rendered in the case of Vivomed Labs. (P) Ltd. v Collector of Central Excise reported in 1991 (53) E.L.T. 152 (Tribunal). The decision rendered by the Tribunal in Vivomed Labs. (P) Ltd s case has been confirmed by the Hon ble Supreme Court of India. In Prima Controls case in Para 7, the Tribunal has held - A company is an independent juristic person with its own seal and it can sue and be sued. The Directors are mere servants and that the contributors towards the share capital, by their mere contributions do not become proprietors. Mere common hold by individuals does not make both the companies to be one and the same, it is not the case of the Revenue that M/s. Prima is a dummy unit floated on paper for the purpose of defrauding the revenue to take advantage of the exemption notifications. It is on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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