TMI Blog2018 (2) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... ons etc, merely on the basis of some common shareholding and management clubbing of clearance by holding them as dummy units cannot be upheld. In these circumstances, the charge for clubbing the clearances of Sweta and Indostraits with SCGM and LRC cannot be sustained. The two units were commercially interacting with each other as in they were buying and selling material to each other. Therefore a few transactions do not by any manner indicate that there was a common pool of funds. It can be seen that the SCGM and LRC came into existence as totally different units. SCGM came into existence in1982 while LRC was formed in 1966. The original shareholding pattern was very different at the time of formation. Later by resignation and induction of partners the shareholding pattern evolved to present state - It is apparent that the SCGM and LRC have separate identities right from the inception. Various licences have been procured at different times. Thus independent development of the two cannot be doubted. Tribunal in the case of Electro Mechanical Engg Corpn [2002 (5) TMI 186 - CEGAT, NEW DELHI] has in almost identical circumstances held that clearances cannot be clubbed. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that in view of decision of Tribunal in the case of Shivkripa Ispat Pvt. Ltd. - 2010 (262) ELT 477 the appeal in case of Mrs. P.S. Rajishankar abates. 2. Ld. Counsel argued that it has been held in the impugned order that the four companies are dummy company. They are a facade created for circumventing the small scale notifications and therefore the aggregate value of clearance of all four companies were clubbed and demand was raised from Silicon Carbide Grinding Mills Pvt. Ltd. (SCGM for short) being the oldest company manufacturing excisable goods. 2.1 Ld. Counsel further argued that all four entities were incorporated independently on different times and he submitted the following chart regarding history of each of these entities:- Silicone Carbide Grinding Mills Pvt. Ltd [i.e. Silicon] Lignin Research Center [i.e. LRC] Sweta Electric (P) Ltd [i.e. Sweta] Indostaits (Pvt.) Ltd. [i.e. Indostraits] - The Private Limited Company was formed in 1982 for manufacturing of excisable goods with original Directors being Shri. S.V.Jayshankar; Shri.P.S.Vijayshankar; Smt.Reshmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere registered as private company with the Registrar of Companies under the provision of Companies Act, 1956. All four units have different factory plots, manufacturing premises with separate storage plant and facility and with independent work force and power and infrastructure for the products manufactured by them. All four units are duly registered with various authorities as can be seen from the table below. Name of Appellant Silicone Carbide Grinding Mills Pvt. Ltd [i.e. Silicon] Lignin Research Center [i.e. LRC] Sweta Electric (P) Ltd [i.e. Sweta] Indostaits (Pvt.) Ltd. [i.e. Indostraits] A) Nature of concern Pvt. Ltd.Co. Partnership Pvt. Ltd.Co. Pvt. Ltd.Co. B) Factory Address Plot No. W-11, MIDC, TTC, Pawne Village, Dist.Thane. Plot No.D/9-4, Kukshet Village, MIDC Indl. Area, TTC, Turbhe, Dist. Thane. Plot No.D/9-3, Kukshet Village, MIDC, TTC, Turbhe, Dist. Thane. Plot No.5, B-29 to 33, Cuncolim Indl. Estate, Cuncolim, Salce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P)No. of employees /staff Workers-14 Admn.staff-4 Chemist-2 Workers- 17 Admn.Staff-8 Chemist-5 Workers-5 Admn.staff-3 Workers-2. Admn.Staff-2. R) List of plant and machinery at Factory Exhibit-A-3 (Pg.4 To Paper Book) Exhibit-A-1 (Pg.1 2 To Paper Book) Exhibit-A-2 (Pg.3 To Paper Book) Exhibit-A-4 (Pg.4 To Paper Book) 3.3 He argued that the Commissioner has wrongly relied on the CBEC circular and the decision of Hon'ble apex court in the case of Calcutta Chromotype Ltd. 1998 (99) ELT 202 (SC) relating to valuation of goods under Section 4 and the term related person for the purpose of clubbing the clearance of these units. He argued that the law relating to the valuation of related persons has no application in the instant case. He argued that the impugned order relies on certain financial transactions between SCGM and Lignin Research Centre (LRC for short). However, no evidence regarding transaction between SCGM and Sweta Electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further argued that there is no allegation regarding any transaction between SCGM and Indostraits, or for that matter between SCGM and and Sweta. All the transactions financial transactions relied upon by revenue as evidence pertain to transactions between LRC and SCGM. He argued that the transaction between LRC and SCGM cannot be used as evidence to assert that Indostraits and Sweta are dummy units. He pointed that the overall magnitude of transaction between the said companies worked out to approx. 0.5% of the sale of the company. He argued that such a small fraction cannot be a factor in alleging that there was a free flow of finance between the four companies. He further relied on the grounds of appeal where individual allegations have been dealt with. 3.7 The appellants had denied the allegation that the Indostrait and Sweta are undercharging on job charges and argued that the said allegations of was contrary to the allegations made in the Show Cause Notice that the profits were transferred from LRC Silicon to Indostraits by way of commission and profits are transferred from LRC Silicon to Sweta by way of warehousing. He argued that the allegation that LRC and Silicon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Apex Court has upheld the clubbing of clearance on the basis of common control of production, income, expenditure and sales among units and definite inter-flow of finances of non-commercial character. 4.2 Ld. AR relied on the certain instances of transactions between SCGM and LRC wherein advances have been transferred from LRC to SCGM and vice versa. He pointed that these advances were given interest free to each other year after year. He pointed that this amounts to common pooling of funds used by these units. He further pointed that LRC an SCGM were paying 1,20,000/- towards warehousing charges to Sweta. He argued that none of these units ever keep raw materials with Sweta. He further pointed that no documentary evidence has been submitted for the said payments. 4.3 Ld. AR argued that the shareholding of all these units were closely held. In support of this contention he produced the following chart... Name of the concern and its share capital Share Holding Designation Relationship with Shri S.V.Jaysankar M/s. Silicon Carbide Grinding Mills (P.Ltd.) Authorised Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri Mugugan. xi) ₹ 19340/- paid by M/s. LRC on behalf of M/s. Indostraits as Salary. xii) ₹ 62,675/- paid by M/s. Silicon to Shri Jagdish as salary on behalf of M/s. Indostraits. xiii) ₹ 62,344/- paid by M/s. Silicon towards salary to Shri Jagdish on behalf of M/s. Indostraits. xiv) ₹ 70,341/- paid by M/s. Silicon towards Salary to Shri Jagdish on behalf of M/s., Indostraits. 4.4 Ld. AR relied on the following event as evidence of common pool of funds. He argued thatin October,2002, M/s. Silicon placed order for import of Naphthalene liquid from foreign supplier and requested Indian Bank, Dadar for opening Letter of Credit in favour of M/s. Silicon for US $ 32,000/-. The L/C was opened. Records revealed that M/s. Silicon did not have sufficient fund (margin) for the said L/C (as on 07.11.2002, the balance in current A/c No. ₹ 4940/- ) hence on 07.11.2002 an amount of ₹ 15,00,000/- was transferred from M/s. LRCs account to M/s. Silicons Indian Bank Account, Dadar for said L/C and said transferred money was used fror said L/C margin. However, on 07.01.2003 (after gap of 02 months) from the date of transfer of money from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-01 01. Material transferred by Lignin to M/s. Silicon on loan basis Rs.3,54,198/- 02. Material transferred by Silicon to Lignin on loan Rs.1,43,905/- 2001-02 01. Material transferred to Silicon by Lignin : Rs.1,00,253/- 2001-02 01. Material given on loan basis to Sweta by Lignin: Rs.1,27,489/- 02. Material given to Sweta on loan basis by Lignin: Rs. 90,500/- 4.8 Inter - relationship and interdependence among units: Ld AR argued that he charges recovered for job work have been grossly undervalued. It has been observed that the charges recovered on account of job work are much less than the cost actually incurred for the said processing. Referring to the Costing note pad, he claimed that in the year 2000 itself, the cost of processing GV Liquid was around ₹ 2.50 Per Kg. As against which M/s. Silicon have been charging ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplete process of production. He further pointed that LRC and SCGM were paying warehousing charges to Sweta for the raw material sent by them to Sweta for job work. Thus the job charges were excluding the warehousing cost. 5.2 From the above discussion it is apparent that while there were noteworthy transaction between SCGM and LRC, no significant transaction in respect of Sweta and Indostraits has been pointed out in the show-cause notice or in the impugned order. The only evidence in respect of Sweta and Indostraits relates to common office premises, common control of Shri S.V. Jayshankar. In absence of any evidence of common pool of funds, free movement of material, common manufacturing operations etc, merely on the basis of some common shareholding and management clubbing of clearance by holding them as dummy units cannot be upheld. In these circumstances, the charge for clubbing the clearances of Sweta and Indostraits with SCGM and LRC cannot be sustained. 5.3 Now we examine the evidence in respect of clubbing of SCGM and LRC. Shareholding of SCGM and LRC is as under:- Name of the concern and its share capital Share Holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance given by M/s. Silicon to M/s. LRC: Rs.6,68,954.00 2000-01 01. Temporary advance given by M/s. LRC to M/s. Silicon : Rs.3,59,766.00- 2000-01 02. Temporary advance given from M/s. Silicon to M/s. LRC: Rs.3,81,233.00- 2001-02 03. Temporary advance given from M/s. Silicon to M/s. LRC : Rs.2,55,000.00- 04. Excess Credit in Silicon s debtor a/c transferred to M/s. LRC s creditors A/c.: Rs.9,60,467.00(00-01) 2001-02 01. Temporary advance given by M/s. LRC to M/s. Silicon: Rs.10,50,085.26- 2001-02 02. Temporary advance given by M/s. Silicon to M/s. LRC: Rs.5,15,793.00 - 03. Temporary advance given by M/s. LRC to M/s. Silicon: Rs.1,75,000.00- 2001- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparent that the two units were commercially interacting with each other as in they were buying and selling material to each other. Therefore a few transactions do not by any manner indicate that there was a common pool of funds. In case of Bright Gems Company - 2004(173)ELT 173 tribunal in similar circumstances has observed as follows: 4. We have heard both sides. It is submitted by learned Counsel for the appellants that the findings of the Commissioner are not enough to sustain the Department s allegation of mutuality of interest between the two firms. We have also heard learned DR on this aspect. The Commissioner found mutuality of interest between the two manufacturing units on the basis of the fact that one of them lent a loan without claim of interest to the other. The fact found is that Bright Gems gave a loan free of interest to Expo Gems . However, there is no finding that Expo Gems did likewise earlier or later. That one unit lent loan without interest to the other would not ipso facto give rise to mutuality of interest between the units. Common partners or common employees are also not conclusive criteria for such mutuality. Thus mutuality of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The material was cleared by LRC without payment of customs duty by using advance licences. Ld. Counsel has explained the issue and the same also appears in grounds of appeal. The explanation is that the said transactions was a pure commercial transaction. He explained the imported naphthalene liquid was required for manufacture of export products. Since SCGM did not have pending export order it sold the material to LRC on high sea sale basis and the same was cleared by LRC on the advance licence to the export order. The facts mentioned in defence have not been challenged by the revenue as false or incorrect. 5.6 It has also been pointed out by revenue that whenever there is shortage of raw material to the one unit, materials are transferred to it from the other unit without the cover of any invoice/challan/document. Shri T.K.Maji, Shri S.K.Shrivastav and Shri Satish Jaysankar have in their statements confirmed that the management has given standing instruction to all the concerned/production staff and key personnel that in any emergency shortage of material to execute the dispatches as planned LRC may get material from Silicon or vice versa. However the following instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Limited Co was formed in an around 1942 for trading and commission agent by Director Shri. P.S.Shankar; Shri. V.K.Menon, Shri. P.S. Krishnan and Shri. A.Madan. -- Shri. Menon and Shri. Madan expired and new Directors Shri. P.S. Vijayshankar, Shri. S.V. Jayshankar and Smt. P.S.Raji Shankar were inducted. -- Shri. P.S.Shankar and Shri. P.S.Vijayshankar also expired and Smt. Girija Jayshankar was inducted as Director. -- In an around 2000, the company procured factory premises at Go a, installed plant machinery for manufacturing various chemical products at Goa. It can be seen that the SCGM and LRC came into existence as totally different units. SCGM came into existence in1982 while LRC was formed in 1966. The original shareholding pattern was very different at the time of formation. Later by resignation and induction of partners the shareholding pattern evolved to present state. Ld Counsel has relied on the following facts Name of Appellant Silicone Carbide Grinding Mills Pvt. Ltd [i.e. Silicon] Lignin Research Center [i.e. LRC] Sweta Electric (P) Ltd [i.e. Sweta] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) ESIC Regn No. 31-38208-34 31-24770-34 34-1138-34 NA M) PF Regn. No. MH/35553 MH/38460 MH/115392 NA N) Municipal Cess Regn NMMC/CEG/04/0096 NMMC/CEG/02/00033 NMMC/CEG/01362 NA O) Electric Consumer / Meter no. 119022088 149020870 149024840 RUL/33/D/55; RUL/33/D/ 56 ; RUL/33/D/57 P)No. of employees /staff Workers-14 Admn.staff-4 Chemist-2 Workers- 17 Admn.Staff-8 Chemist-5 Workers-5 Admn.staff-3 Workers-2. Admn.Staff-2. It is apparent that the SCGM and LRC have separate identities right from the inception. Various licences have been procured at different times. Thus independent development of the two cannot be doubted. 5.8 We find that tribunal in the case of Electro Mechanical Engg Corpn - 2003(152) ELT 194 has in almost identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises, telephone, common electric generator and cutting/mixing machines are not enough for clubbing the clearances of the units in the absence of evidence of financial flow back from one unit to another. 8. On the strength of proximity of relationship or the situation of the units or because there were some common employees, the value of clearance of two units cannot be clubbed unless there is evidence to prove that there was mutuality of the business interest and the units were having financial flow back. In this context, reference may be made to the case of Renu Tandon v. UOI, 1993 (66) E.L.T. 375 (Raj.), wherein it has been so ruled by the Rajasthan High Court. The Tribunal has also in the case of SKN Gas Appliances v. CCE, New Delhi, 2000 (120) E.L.T. 732 (T), has taken the view that sale of plant and machinery by one unit to another, use of telephone of one unit by another, the situation of Head Office of both the units in the same premises, some of the employees being common, were insufficient to hold that one unit was merely fecade of the other. Similarly, in the case of Rang Udyog v. CCE, Ahmedabad, 1996 (83) E.L.T. 648 (T), it has been observed that the alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of excise the Central Board of Excise Customs has ordered that the following general principles will be applicable to Notification No. 175/86-CE :- (i) -- (ii) Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners say A, B C, has got more than one factory, all these factories should of course be combined. Limited companies whether public or private are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. Thus at the material time there was a view of revenue that each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. In such circumstances the bonafides of the appellants cannot be doubted. Thus invocation of larger period of limitation is not justified. 6 It is seen that the impugned order holds the goods cleared during the previous five years liable to confiscation and imposes redemption fine. Since on merits the case is not established there can be no confiscation. Moreover in absence of goods and in absence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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