TMI Blog2018 (10) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... are treated as separate units/ entities for proceeding each of them separately the entire basis for proceedings get vitiated. The entire case of revenue in the show cause notice and the impugned order is based on the fact to show that all the four units are interconnected units and hence related to each other in terms of Section 4(3)(b) of the Central Excise Act, 1944. And since they are related there clearances has been sought to be clubbed. The approach of the revenue in the entire matter reflects the poor appreciation of law. The concept of related person as have been incorporated in the Section 4 and Valuation Rules, is for the purpose of determination of the correct assessable value in cases where the goods are being cleared though the related person. The admittance of relationship between the two units for the purpose of said section goes to signify the existence of two separate entities which may have some relationship impacting the transaction value between the two. It is now settled by various judicial pronouncements that to club the clearances of the two separate entities one should be shown to be the dummy of the other. Since department has failed two discharge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso of the Central Excise Act, 1944. 5) I also demand interest at the rate as applicable from time to time on the amount proposed to be demanded as above, from M/s Spick N Span/ M/s Stewools/ M/s Handy Wires Pvt Ltd / M/s Handy Products under the provisions of Section 11AB of the Central Excise Act, 1944. 6) I impose a penalty of 1) ₹ 52,68,971/- on M/s Spick N Span 2) ₹ 2,53,946/- on M/s Stewools 3) ₹ 4,83,791/- on M/s Handy Wires Pvt Ltd and 4) ₹ 32,01,401/- on M/s Handy Products under the provisions of Section 11AC of the Central Excise Act, 1944., which shall stand reduced to 25% in terms of the proviso to Section 11AC of the Central Excise Act, 1944 if the amount of duty determined along with interest and 25% of the penalty is paid within thirty days of the communication of this order. 7) I impose a penalty of 1) ₹ 25,000/- (Rs Twenty Five Thousand only) on M/s Spick N Span 2) ₹ 15,000/- (Rs. Fifteen Thousand only) on M/s Stewools 3) ₹ 15,000/- (Rs Fifteen Thousand only) on M/s Handy Wires Pvt Ltd and 4) ₹ 15,000/- (Rs Fifteen Thousand only) on M/s Handy Products under the provisions of Rule 25 of the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oongaji, Mrs D J Doongaji, Mrs S H Sethna Shri Shriraj K Doongaji (45%), Mr Jehangir Doongaji (45%), Smt Najoo Khurhedji Doongaji (10%) Smt Annahita Shiraz (12.07%), Mr J K Doongaji (25.36%), Mrs S H Sethna (9%) Note- Shri Jehangir Doongaji is brother of Shri Shiraj K Doongaji Smt Najoo Khurshedji Doongaji is Mother of Shri Shiraj K Doongaji. Smt Annahita Shiraz is wife of Shri Shiraj K Doongaji. 2.2 In view of the close relationship between the Directors and Partners in the four company s the units department found them to be covered by the definition of the Inter Connected Undertakings as under Section 2(g) of Monopolies and Restricted Trade Practices Act, 1969. 2.3 Further from the 3CD submitted by the party s under section 40-A(2)(b) of the Income Tax Act, 1962, it was observed that all the four units have interest directly or indirectly in the business of each other. 2.4 Thus in view of the definition of relative as contained in the clause (41) of Section 2 of the Companies Act, 1956 (1 of 1956) and the above mentioned facts, revenue held the view that four units are related person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem has been much below the prescribed threshold limit for denying the exemption. iii. In the present case the out of four companies whose clearance is sought to be clubbed three are limited company and one partnership firm. Such an approach is contrary to the clarification given by the CBEC vide Circular No 6/92 dated 29.05.1992. They rely on the decision of tribunal in case of NMS Babu [2006 (198) ELT 528 (T) to buttress their argument. iv. Commissioner has sought to apply the concept of related person to club the clearance of the separate units/ entities. Such an approach is not justified in view of the decision of tribunal in case of Kiran Biscuits [2005 (179) ELT 566 (T)] v. It is not even the case of the department that any of the entity/ unit is a dummy unit. In fact four independent show cause notices have been issued individually to each of the entity/ unit, without making other entity/ unit even a co noticee. Mere commonness of the directors will make one unit subsidiary of other. [Prima Control Pvt Ltd Vs CCE Pune 1994 (72) ELT 62 (T), Padma Packages (P) Ltd vs CCE 1997 (90) ELT 175 (T)] vi. Reliance placed by the commissioner on Section 40-A(2)(b) of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37) ELT 128 (T)], Shiva Exim Enterprises [2015 (322) ELT (A 32) SC], Jindal Steel Fabricators vs CCE [2005 (180) ELT 238 (T)]. v. They also rely on the Board Circular No 6/92 dated 29/05/1992 in their support. vi. Since no fact has been suppressed by them extended period of limitation as per proviso to section 11A(1) cannot be invoked in this case. {Gufic Pvt Ltd Vs Collector [1996 (85) ELT 67 (T)], Arihant Arts [2004 (173) ELT 194 (T-MUM)] and Pushpam Pharmaceutical Co [1995 (78) ELT 40 (SC)]. vii. Commissioner (Appeal) has vide his order No SR/310/NGP/2011 dated 31.03.2011, in the case of M/s Spick N Span Wools Pvt Ltd has held 21. Keeping in view the above facts, the application of Section 4(3)9b) of the Central Excise Act, 1944 in the present circumstances by the lower authority is unwarranted. Based on the judicial pronouncements discussed above and the Board s circular clinching the issue in favour of appellant, I hold that the impugned order is not sustainable and hence liable to be set aside. 4.3 Learned Authorized Representative reiterated the findings of Commissioner and specifically referred to para 64, to 68 of the order of Commissioner. He specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Collector had confirmed, in the sum of ₹ 11,84,708.51, the demand made in the show cause notices upon all seven units and their partners or Directors. Having regard to his conclusion that all units other than Gajanan Weaving Mills were fictitious units, the sequitur, one would have assumed could only be that it was Gajanan Weaving Mills which was the assessee and liable to satisfy the demand. By confirming the demand upon all the seven units the Collector appears, however, to have treated them all as assessees and, implicitly recognised their independent existence. 5.2 In case of Rao Industries, relied upon by the Appellants this tribunal has held- 7 . On a very careful consideration of the entire issue, we find that there is a fundamental flaw in the show cause notice as well as in the Impugned order when there is a clubbing of clearances and a proposal to deny, SSI exemption on the ground that the clearances exceeds maximum value allowed. There should always be a correct identification of the real unit or the dummy unit. This has not been done. Both the Order-in-Original as well as the Order-in-Appeal had demanded the duty on both the partnership units an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and exempt from licensing; and (iv) M/s. Stelex came into being as a proprietary concern of Shri M.M. Majithia in Sept. 1993. It was sold to Krishna Textile Works who used the same till Shri Majithia took over the same on monthly basis from 1-7- 1997 to 31-10-1997. 3. The period of demand is from 1993-94 to October, 1997. The units were visited by the officers of the excise department on 15th October, 1997 and pursuant to the enquiries made and statements recorded of the supervisors and Shri Majithia, a case was made out and accordingly a show cause notice dated 7-4-1998 was issued. The notice proposed that M/s. Sotex was the main unit and that other units were only name sake and were declared to be separate unit on papers. The notice relied upon: (i) common procurement of raw material; (ii) some workers being common; (iii) main raw material viz. SS coils being slitter at M/s. Sotex or at Precision Slitters, Amod. 4. Accordingly, a demand of ₹ 1,45,29,754/- for the period 1993-94 to October, 1997 was raised. Extended period of limitation was invoked and it was proposed to levy penalty as well. 5. All units manufacture b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are interconnected units and hence related to each other in terms of Section 4(3)(b) of the Central Excise Act, 1944. And since they are related there clearances has been sought to be clubbed. The approach of the revenue in the entire matter reflects the poor appreciation of law. The concept of related person as have been incorporated in the Section 4 and Valuation Rules, is for the purpose of determination of the correct assessable value in cases where the goods are being cleared though the related person. The admittance of relationship between the two units for the purpose of said section goes to signify the existence of two separate entities which may have some relationship impacting the transaction value between the two. The application of said provision cannot be for holding that one unit is dummy of other, for the purpose of clubbing the clearance of the said two units. It is now settled by various judicial pronouncements that two club the clearances of the two separate entities one should be shown to be the dummy of the other. Since department has failed two discharge the said burden the clubbing of the clearances as proposed by the revenue in the present case cannot be uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il : Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in Rule 8. From the above Rule 9 it is very clear that only in cases where goods are sold through the person as specified under clause (ii), (iii) or (iv) of clause (b) of Section 4 the transaction value at which the goods are sold by the said person shall apply and not the sale price at which goods are sold to these three categories of person are made. Provision of Rule 9 also shows that merely buyers is interconnected undertaking that alone is not sufficient for holding as related person. We have gone through the Board Clarification referred by the ld. Counsel in Circular No. MF/DR/F/354/81/2020-TRU, dated 30-6-2000 is reproduced below. F. No. 354/81/2000-TRU Subject : Central Excise - Section 4 - Transaction Value - Regarding. I am directed to say, that as you aware, Section 4 of the Central Excise Act, as substituted by Section 94 of the Finance Act, 2000 (No. 10 of 2000), would come into force from the 1st day of July, 2000. For the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, (a) if one body corporate manages the other body corporate, or (b) if one body corporate is a subsidiary of the other body corporate, or (c) if the bodies corporate are under the same management, or (d) if one body corporate exercise control over the other body corporate in any other manner; (iv) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firms, (a) hold, directly or indirectly, not less than fifty per cent of the shares, whether preference or equity, of the body corporate, or (b) exercise control, directly or indirectly, whether as director or otherwise, over the body corporate. (v) if one is owned by a body corporate and the other is owned by firm having bodies corporate as its partners, if such bodies are under the same management. (vi) If the undertakings are owned or controlled by the same person or (by the same group). (vii) If one is connected with the other either directly or through any number of undertakings within the meaning of one or more foregoing sub-clauses. Explanation I. - For the purpose of this Act, (two bodies corporate), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner while adjudicating the show cause notice has failed to record specific finding regarding the dummy character of any of these two firms. He has likewise confirmed the duty against both of them and had made them liable to pay individually or severally. Therefore, not only the show cause notice issued but also the impugned order are bad in law. It is well settled in a case of clubbing of clearances of two units, it has to be alleged and proved by the Department that which one was only a dummy and non-existent unit and which was the principal/main unit. The duty liability can be fastened, in such a case, only on the principal/main unit and not on the so called dummy or non-existent unit. In this view, we stand fortified by the ratio of law laid down in Gajanan Fabrics Distributors (supra) wherein it has been so observed. 11. The ratio of law laid down in H.T. Bhavnani Chemicals P. Ltd. (supra), Quality Steel Industries (supra) and Mohanlal Maganlal Bhavsar (Deceased) through LRS and Others (supra) referred by the SDR, is not attracted to the facts and circumstances of the present case detailed above. In the first case, there was flowback of finance from one unit to anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management structure and responsibilities agreed upon. In fact, management remains entirely separated from ownership in professionally managed business. Therefore, this finding of the Commissioner is not sustainable at all. Even otherwise, a finding that Mrs. Rita Dutta is the manufacturer in both the units is not viable at all in the facts of this case. Such a finding takes away the legitimate rights of others and is not warranted by the ownership pattern. In M/s. Superior Pet Pvt. Ltd. Mrs. Rita Dutta s share holding is only over 18%. The company cannot be held to belong to such a person. The principle involved in lifting corporate veil is clear. An identifiable person should be found to enjoy the benefits not due to him upon lifting of corporate veil. The reality should be different from what is covered by the veil. There is no finding that Mrs. Rita Dutta is the beneficiary of the corporate arrangement and that the tax evasion facilitated by this corporate facade benefited her. It is also on record that either entity is not a dummy. Both have separate capital, premises, machinery and labour. Both are carrying out separate operations. The commonality of share holders and Partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 983 (13) ELT 1546 (SC)]. With due respect to learned Collector, this ratio is totally inapplicable as the case dealt about smuggling activity and Customs evasion, which is not the case here. 9.2 In case of Kiran Biscuits supra, Bangalore Bench has in identical case held as follows: 4. On a very careful consideration of the matter, we find that the Revenue while holding that M/s. Kiran is a dummy of M/s. Herren has not at all issued any show cause notice to M/s. Herren. This is fatal to the entire case as Hon ble SC in the Gajanan Fabrics and Distributors case has held that the Collector recording the findings and the same upheld by the Tribunal that all seven units except Gajanan Weaving Mills were only a corporate facade although registered with various authorities with a view to camouflage their actual identity and thereby avail of the exemption which otherwise would be inadmissible and yet confirming the duty demand upon all seven units and their partners or Directors is not correct and the demand ought to have been confirmed only against Gajanan Weaving Mills who were the assessee and liable in the present case also. The Commissioner after coming to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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