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2018 (8) TMI 686

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..... d penalty was imposed by clubbing the clearances of the appellant for the purpose of SSI exemption. 2. The matter was listed almost 15 times but no one appeared on behalf of the appellant and consequently the appeals are being decided on the basis of the grounds of appeal and no further adjournment has been given. 3. A perusal of the impugned order shows that the appellant M/s Pharma Chem Services is a sole proprietor concern owned by Mrs. Reema Madhavan and M/s Sanj Pharma Engineering Pvt. Ltd. is a private limited company whose 99% shares are owned by Mrs. Reema Madhavan. The impugned order also observed that M/s Sanj Pharm Engineering Pvt. Ltd. had loaned money to M/s Pharma Chem Services in the year 1999-00 for development and construction of a factory premises of M/s Pharma Chem Services. The said amount was paid back in the year 2001-02. It has also been observed that Shri Sameer Nair, son of Mrs. Reema Madhavan was holding Power of Attorney of his mother and was looking after day to day affairs of both the units. It has been argued in the grounds of appeal that impugned order is vague inasmuch as it does not mention on whom the duty liability has been fastened. Relianc .....

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..... manufacturing units are being controlled by same person. The appellants have countered this contention of the Revenue with the decision of Tribunal in the case of Studioline (supra). 5.1 We find that crucial fact for consideration is that whether the appellant M/s Pharma Chem Services and M/s Sanj Pharma Engineering Pvt. Ltd are one or different entities. 5.2 Revenue has argued that they are a single entity for the reason that the appellant M/s Pharma Chem Services is fully owned by appellant Mrs. Reema Madhavan and M/s Sanj Pharma Engineering Pvt. Ltd is owned to the extent of 99% by appellant Mrs. Reema Madhavan. Revenue has also argued that appellant M/s Pharma Chem Services was fully funded by appellant M/s Sanj Pharma Engineering Pvt. Ltd by way of loan, although he same was repaid back. In these circumstances, whether two legal entitles can be considered as one or not is a question, which needs to be decided. The Hon'ble Apex Court in the case of Calcutta Chromotype (supra) has observed as follows: - 12. The principle that a company under the Companies Act, 1956 is a separate entity and, therefore, where the manufacturer and the buyer are two separate compani .....

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..... id: While it is firmly established ever since Salomon v. A. Salomon Co. Ltd. [(1897) AC 22 HL] was decided that a company has an independent and legal personality distinct from the individuals who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognised for who they are in certain exceptional circumstances. Pennington in his Company Law (4th Ed.) states: Four inroads have been made by the law on the principle of separate legal personality of companies. By far the most extensive of these has been made by legislation imposing taxation. The Government, naturally enough, does not willingly suffer schemes for the avoidance of taxation which depend for their success on the employment of the principle of separate legal personality, and in fact legislation has gone so far that in certain circumstances taxation can be heavier if companies are employed by the taxpayer in an attempt to minimise his tax liability than if he uses other means to give effect to his wishes. Taxation of companies is a complex subject, and is outside the scope of this book. The reader who wishes to pursue t .....

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..... duct, the involvement of the element of the public interest, the effect on parties who may be affected etc. 14. In M/s. Mcdowel and Company Ltd. v. Commercial Tax Officer [(1985) 154 ITR 148], this Court examined the concept of tax avoidance or rather the legitimacy of the art of dodging tax without breaking the law. This Court stressed upon the need to make a departure from the Westminster principle based upon the observations of Lord Tomlin in the case of IRC v. Duke of Westminster [(1936) AC 1] that every assessee is entitled to arrange his affairs as to not attract taxes. The Court said that tax planning may be legitimate provided it is within the framework of law. Colourable devices, however, cannot be part of tax planning. Dubious methods resorting to artifice or subterfuge to avoid payment of taxes on what really is income can today no longer be applauded and legitimised as a splendid work by a wise man but has to be condemned and punished with severest of penalties. If we examine the thrust of all the decisions, there is no bar on the authorities to lift the veil of a company, whether a manufacturer or a buyer, to see it was not wearing that mask of not being treate .....

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..... the normal price on which the goods are sold shall be deemed to be the value provided (l) the buyer is not a related person and (2) the price is the sole consideration. It is a deeming provision and the two conditions have to be satisfied for the case is to fall under clause (a) of Section 4(1) keeping in view as to who is the related person within the meaning of clause (c) of Section 4(4) of the Act. Again if the price is not the sole consideration, then again clause (a) of Section 4(1) will not be applicable to arrive at the value of the excisable goods for the purpose of levy of duty of excise. It is seen that the decision in the case of Calcutta Chromotype (supra) has been given with reference to the concept of related person. It clearly recognizes that such artificial creation of legal entity for the purpose of tax avoidance or rather the legitimacy of the art of dodging tax without breaking the law. In that context, it made a departure from the Westminster principle. The Hon'ble Apex Court observed that tax planning may be legitimate provided it is within the framework of law. Colourable devices, however, cannot be part of tax planning. Dubious methods resorting to a .....

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..... ue is as to whether in the above background, when the two manufacturers, one a proprietary unit and the other a private limited company, located at two different far-off places are complete units in themselves for the manufacture of final products, whether their clearances are required to be clubbed for the purposes of SSI Exemption or not. For deciding the said issue it has to be kept in mind that small scale exemption limit in terms of various SSI Notifications is available to different factories and different manufacturers independently unless the Revenue is able to establish that the two units are not fully complete independent units and do not have the complete machinery for the manufacture of their final product and one unit is a dummy unit of another and the goods of one company are being cleared by using name of such dummy unit. 4. On going through the impugned orders I find that the main reason for Commissioner (Appeals) to decide the issue against the assessee is that M/s Sanj Pharma Engineering Pvt. Ltd. has loaned money to M/s Pharma Chem Services for the construction and development of the factory. It is also a fact that the said money was paid back by M/s Pharma Ch .....

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..... at 2016 (344) ELT 965 (Tri.-All) wherein the clearances from two factories situated adjacent to each other were not held liable to be clubbed even though there were common directors who held shares in both the companies, the two had a common supervisory structure and there was free flow of Acetic Acid from one company to another. The Tribunal observed that there is no ban on the existence of more than one unit in a compound and likewise commonality of directors with stakes in various units is not conclusive proof of mutuality of interest, supply of goods from one to another and occasional financial accommodation are now usual features business activities nor can common supervisory system be designated as out of the ordinary. For arriving at the above finding Tribunal has taken into account the precedents decisions and held that unless one factory is incomplete and used as a camouflage to clear the goods being actually manufactured by the other factory, there can be no clubbing of clearances. Further the fact that one unit is a proprietary unit and the other is a private limited company are also relevant factors. The grant of loan by the private limited company to one of its sha .....

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