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2015 (11) TMI 1162 - MADRAS HIGH COURT

2015 (11) TMI 1162 - MADRAS HIGH COURT - 2015 (325) E.L.T. 726 (Mad.) - SSI Exemption - Valuation - clubbing of clearances - inclusion of value of clearances - Dummy units - Non Speaking order - Held that:- If there is an element of independent existence of a unit, the Department has to issue Show Cause Notice to such unit to sustain the plea for the purpose of clubbing the clearances. In the instant case, though there is material to that effect, no notice has been issued and the Tribunal remand .....

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According to him, the issue is only regarding the clubbing of clearances which could be agitated on merits before the authority as and when Show Cause Notice is issued in terms of the orders of the Tribunal.

The authority concerned is directed to issue show cause notice to allthe parties, afford them an opportunity of hearing and pass appropriate orders afresh, on merits and in accordance with law. - Matter remanded back. - C.M.A. No: 1865 of 2010 - Dated:- 23-7-2015 - Mr. R. Sudhak .....

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assessee while clubbing the value of the clearances of the said dummy units with that of the assessee / 1st respondent against whom admittedly proceedings commenced with issuance of show cause notice only ? and 2. Whether or not the order of the Tribunal in remitting the matter is a non-speaking order, as it has not at all discussed the reasoning assigned by the original authority for not issuing separate show cause notices to the dummy units and whether the failure on the part of the CESTAT in .....

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of M/s. Core Tech Glass Composites Pvt. Ltd. (CTGC) and M/s. Glass Composites Company (GCC). The case was first adjudicated ex-parte and by an order of the Tribunal it was remanded and was re-adjudicated. Thus, the Order-in-Original was passed by the Commissioner on 14.02.2007 rejecting the stand taken by the assessee and held that M/s. Core Tech Glass Composites Pvt. Ltd. and M/s. Glass Composites Company are mere paper creations i.e. Dummy manufacturing units of the respondent assessee and hen .....

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ndustries under Section 11A(2) of the Central Excise Act, 1944, along with appropriate interest in terms of Section 11AB of Central Excise Act, 1944. 2. I confirm and demand an amount of ₹ 1,54,396/- (Rupees One lakh, fifty four thousand, three hundred and ninety six only) from M/s.Urbane Industries being the duty payable on capital goods removed from their factory under the provisions of Rule 57U of the erstwhile Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, .....

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t.17.2.2001 and adjust the same towards the duty determined under Sl. No. 2 above. 5. I impose a penalty of ₹ 51,29,017/- (Rupees Fifty one lakhs, twenty nine thousand and seventeen only) on M/s. Urbane Industries under the provisions of Section 11 AC of the Central Excise Act, 1944. 6. I impose a penalty of ₹ 1,54,396/- (Rupees One lakh, fifty four thousand, three hundred and ninety six only) on M/s.Urbane Industries under the provisions of the Rule 57 U of the erstwhile Central Exc .....

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l. 4. Heard the learned counsel appearing for the parties on either side and perused the materials made available on record. 5. The first question of law may not really arise if the second question of law is answered and hence, we proceed to consider the second question of law first. 6. For better understanding of the case, the findings of the original authority in so far as the nature of business activities of the two units which is sought to be clubbed with the respondent assessee has been cul .....

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im. Shri.R.Krishna Mohan, Managing Partner of M/s.UI, in his statement recorded on 1.3.2001, [Annexure A to SVN Sl. No.39 - Q/A No.7], specifically admitted that GCC was floated by him to get more orders from ICF, Chennai; that the policy of ICF, Chennai is to have vendors at different locations to avoid hold-up of supply of items; that the shed at No. 263, Sidco Industrial Etate, Chennai 98, was used by him as address for communication. Further, Shri M.Suresh, in his statement recorded on 12.9. .....

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ollowed by their customer in the context of procurement of materials. Whereas, the clearances shown during 1998-99 was factually manufactured and cleared by M/s. UI under the direct management of Shri R.Krishna Mohan, since GCC had no infrastructure whatsoever, to engage themselves in manufacture of the said goods. 17.1 Now coming to the status of CTGC, as seen from records, this unit is situated at No. 9, SIDCO Industrial Estate, Chennai 98. M/s. UI have in their submissions, claimed that CTGC .....

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es, No.48, SIDCO Industrial Estate, Chennai 98, the premises used by CTGC has been leased to M/s. UI against specific considerations. [Annexure A to the SCN - Sl. No.18]. Shri.C. Vijaya Kumar, of CTGC had confirmed that no advance deposits or monthly rental payments have been made by them to M/s.UI [Mahazar dt.26.9.2000 - Annexure A to the SCN - Sl. No. 19] Shri. R. Krishna Mohan, in his statement recorded on 26.9.2000, had stated that no rentals or advance has been collected from CTGC on accoun .....

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CN - Sl. No. 39 Q/A 8]. 7. Though it is said that both CTGC and GCC are only paper units, in view of the statements made and the findings rendered, atleast in so far as CTGC is concerned, there are materials to show that the unit was functioning. The assessee claims that it is an independent private limited company in which Smt. R. Sasikala, wife of Shri.Krishna Mohan, and her brother Shri. Vijaya Kumar are Directors and it is a separate legal entity. 8. A cursory look into the following decisio .....

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Ltd vs. Collector of Central Excise, New Delhi, the Tribunal held that, 4. We have carefully considered the submissions made by both the sides, and have perused the record, and the findings and citations relied before us. The department had proceeded on the basis of the annual report of M/s.Alpha Toyo Ltd. It is noted therefrom about the interest free loans given by them to other four units and have come to the conclusion that they are related persons and that the four units are dummy ones, and .....

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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 unit which creates such a dummy unit, utilise the dummy unit for the purpose of tax evasion. Therefore, the courts have clearly distinguished 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 .....

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t, but what flows from the judgments cited by him is that a dummy unit is a unit, created by the main unit with a view to evade taxes and that the first main unit totally controls its activity in terms of profit sharing, management control, decision making, and acts of such nature. The dummy unit would be a mere facade one and in reality it is one and the same with the main unit. In this particular case, there is no such evidence at all, to show that such an arrangement is in existence. The mer .....

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t control or money flow back to the main unit. Each unit is having independent bank transactions, loans, sales, purchase & tax registrations. Therefore, on the facts and circumstances of this case, the ground taken by the department is not sustainable. The concept of related persons, as envisaged under Section 4 of the Central Excises and Salt Act, 1944, is for the purpose of valuation. This is a independent concept by itself. It has no relationship with the concept of dummy units and units .....

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g the ratio of these rulings, we have to hold that the mere fact of management control or of grant of interest free loans is not sufficient to hold the four units as dummy units of M/s. Alpha Toyo Ltd., in the absence of any money flow back, profit sharing and total control on other four units by M/s. Alpha Toyo Ltd. In the result the appellants succeed in all these appeals. The impugned order is set aside and appeals allowed. 9. In the case of Ogesh Industries vs. Collector of Central Excise, K .....

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bservation of the Dy. Collector that the officers on a visit, found no machines, no raw materials or other evidence to establish that no manufacture could be undertaken therein. He submitted that the attendance records would show that there were workers working in the factory of M/s. Gore Industries. He stated that the work of pressing the sheets in the form of locks was done by hand. Other operations were got done on job work basis from M/s. Ogesh as well as from other concerns, referred in the .....

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o be issued to M/s.Gore Industries. Thereafter the adjudicating authority could go into the question whether the two units were really independent or whether one was a dummy unit of another. But he could not pre-determine the issue and limit the show cause notice only to that unit which he considered to be the only real unit. As per the statements of S/Shri Raizada and Verma, the partners in the two units, there was movement of goods in process from M/s. Gore Industries to M/s.Ogesh Industries f .....

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ove submission. In the case of Ogesh Industries cited supra, it has been held that when a demand is raised by clubbing of the value of clearances of two units, and show cause notice has been issued only to one unit and not to the other, when the separate existence of both Units was projected, the notice is bad in law and the proceedings have been set aside by the Tribunal on this basis. The above decision has been followed in the case of M/s. Dawn Fire Works Factory and Others and both these dec .....

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clearances of excisable goods effected by the appellants and all the units of M/s.Shree Baidyanath Ayurved Bhawan taken together exceeds the ceiling limit on value of clearances prescribed in the SSI exemption Notifications. Therefore, the ratio of the above cited decisions is applicable on all fours to the present case and following the same, we set aside the impugned order as bad in law on this preliminary point alone without going into the merits of the case. 11. In the decision reported in K .....

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ble for SSI exemption and as a consequence the demands have been raised to club the clearances of both Meera Industries and Rama Industries and demands the same from Meera Industries. On perusal of the entire records we notice from the paper book that both the units were independently functioning. Rama Industries was in existence from 1990 and the Department had acknowledged the RT 12 returns, and even had inspected the premises of both the units which were located separately. Both the units had .....

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ent brand names. Further we notice from the records that Rama Industries was issued with a letter dated 20-8-90 by Superintendent of Central Excise, Range III C. Madras-III Division directing them to file the details pertaining to SSI certificate and details regarding the same, brand name certificate, xerox copies of invoices for the goods received from Ambala (Mixie Parts), turn over details for the financial year 1989-90. The Rama Industries by their letter dated 3-9-90 furnished all the detai .....

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ration dated 7-11-94 issued by Superintendent of Central Excise, Range III C Madras - III Division to Rama Industries have also been produced showing the details of items manufactured by them. A separate certificate issued by the Department of Industries and Commerce registering both the units as SSI Units have also been produced. Form A.R. 4 for export under QBAL and application for removal of excisable goods for export by Meera Industries and Rama Industries which has been attested by the Su .....

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as also been produced to show the existence of functioning of two separate units. Various notices received from the Deputy Commercial Tax Officer has also been produced. Rama Industries has also compounded the offences and compounding order passed by Deputy Commercial Tax Officer have also been produced. Correspondences between Rama Industries and Bureau of Indian Standards and a certificate from the Department of Commercial Tax has also been produced to show the existence of individual units. T .....

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located with separate lease deed and unit has been manufacturing different items namely LPG domestic gas stoves while Meera Industries had been manufacturing domestic pressure cookers and pans. The item being different the brand name is also different and the evidence on record here shows that Meera Industries could not have used the brand name of Rama Industries as the product of the Rama Industries is different. Be that as it may it is fundamental principles of natural justice that when these .....

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sioner in the impugned order has proceeded to hold besides holding that Rama Industries is only on paper and a deemed unit and has also held flow back of funds between both the units. There is a clear contradiction in the finding of the Commissioner. Therefore, all the more it was incumbent for the department to have issued show cause notice to Rama Industries which had an independent existence with separate partners. None issue of show cause notice to Rama Industries and also for the reasons th .....

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t had been receiving RT 12 returns and Rama Industries was maintaining separate registration under various legislation and their registration have been checked by the Inspectors, Superintendents and Assistant Commissioners of Central Excise. Therefore it follows that the department had full knowledge of the existence of Rama Industries and in that view of the matter, suppression of facts for invoking larger period is not sustainable and the demands are time-barred and requires to be set aside on .....

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