TMI Blog2023 (2) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than 90% and job work charges come to only around 10%. The principals are purchasing the Tin Sheets which are supplied to the Noticees at their cost and reportedly exercising control over the raw-material usage and quality of Tin Containers. Principals are the only buyers of these containers and it is not in dispute that only payment of coolie charges or conversion cost was being paid to these job workers. In the instant case, the principal is the actual consumer and even assuming that the goods viz. Tin Sheets are consumed by CGI in the production or manufacture of tin cans, we find that the Show Cause Notice has not prudently determined the Cost of Production as per accepted Cost Accounting practices in vogue by duly accounting for cost of other raw-materials used in the manufacture like lid, handles, etc., cost of overheads and the wastage, but simply applied unconventional methods in arriving at the COP as revealed in the Annexures to the Show Cause Notice. Further, the application of SSI exemption to arrive at the net duty liability in Annexure D of the Show Cause Notice, adopting unscientific methods basing on the average assessable value per day in not legal and prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries and sub-contractors and for movement of finished goods to the principals back; that denial of the manufacture of the specified goods by the sub-contractors; that there was progressive consumption of electricity by the main Noticee; that the management of entire affairs of M/s Golden Industries by CGI and floating of Kishore Industries in the premises of the Noticee and non-existence of M/s BV Industries. The impugned order has failed to discuss whether manufacturing was carried in the premises of the main Noticee by its employees or by its sub-contractors. The reason for not conducting stock verification at C.G. Industries to ascertain whether Tin Sheets pertaining to other concerns were stocked there or not and whether finished goods got manufactured in the names of other concerns is inexplicable. No enquiries were conducted with the employees whether they are the sub-contractors or employees of other concerns. It is recorded that there are no production records available and so the investigation is compelled to compute the number of Tin Containers and the value of these on the basis of the quantum of Tin Sheets supplied by the principals and the amount of coolie bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade and M/s. GMS Traders - HELD THAT:- The Original Adjudicating Authority has held in the impugned Order-in-Original No. 07/2013-CE dated 30.04.2013 that the value of their materials had far exceeded the value limits of the clearance of the specified goods prescribed in the SSI exemption Notification and these principals were under the excise control and the raw-materials supplied and their utilization for conversion into Tin Containers, the quality of manufactured Tin Containers and there is some sort of agreement which may not be in writing for payment of piece rate of conversion charges between the principals and the Noticees, make them liable for penalty under Rule 26 of the Central Excise Rules, 2002. The modus operandi adopted by the Noticees is fully supported by the principals. However, we find except M/s. Kaleesuwari Refinery Pvt. Ltd. who have came on appeal vide Appeal No. E/41709/2013 and other principals viz., M/s. Arun Oil Trade and M/s. GMS Traders are not in appeal. In view of the above, the penalty imposed on M/s. Kaleesuwari Refinery Pvt. Ltd. is upheld. Appeals disposed off. - HON BLE MS. SULEKHA BEEVI C. S. , MEMBER ( JUDICIAL ) And HON BLE MR. VASA SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of Tin Sheets to M/s. Kishore Industries, M/s. Golden Industries and M/s. B.V Industries were also found. All these invoices for supply of Tin Sheets were found to have been issued by M/s. Tata Steel Limited., through their Marketing Agent/Consignment Agents at Chennai viz M/s. Tin Plate Company of India Limited. Investigations revealed that the Noticee had undertaken the job work of converting the tin sheets, supplied by the principals, into Tin Containers as per specifications prescribed by the latter. For such conversion they had collected kuli charges from their Principals. However, the department entertained the view that the process of conversion, bringing a new product into existence, which is different in character, identity and nomenclature than the raw materials, amounted to manufacture and CGI was to be treated as a manufacturer of Tin Containers falling under Chapter 73 of CETA, 1985 and was liable to pay revised excise duty, provided the aggregate value of clearances exceeded the exemption limit prescribed under Notification No. 8/2003-CE dated 01.03.2003 as amended. Further, Department was of the view that CGI also indulged in the manufacture of Tin Containers from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with his wife Smt. B. Vasuki as a sole proprietrix. When the production of Tin Containers in the Noticee s premises was very high, the production was stopped in Golden Industries but Tin Containers had been manufactured out of the Tin Sheets procured in the name of Golden Industries and cleared to various outside customers on Golden Industries Invoices. v. Further, Shri K. Bose, Proprietor of the noticee had started a new proprietary firm BV lndustries at the address 1/28, A.A. Road, Rajaji Nagar, Virudhunagar and obtained sales Tax Registration Certificate (Tin No. 33515741435). This address was found to be the address of his own residence. B.V. lndustries has no separate factory premises and the Tin Containers manufactured out of Tin Sheets purchased in this unit s name were sold on outright sale basis to his customers. vi. Similarly, Shri K. Bose, Proprietor of the Noticee had started a new proprietary firm Kishore Industries giving the address 2/391A, Vijayapuram, Chithalapakkam, Chennai-73 with his brother-in-law (Shri S. Sathishkumar) as the proprietor of the firm and obtained sales Tax Registration Certificate (Tin No. 33210945338). This address is nothing but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en Industries, M/s. B.V. Industries and M/s. Kishore Industries. 5. Aggrieved by the above Order, the Noticees are on appeal before this forum. 6.1 Shri. N. Viswanathan representing all the Noticees has submitted that the issues involved in these appeals are related to denial of SSI exemption Notification and clubbing the value of clearances of the Noticees job working units along with one other unit by name Kishore Industries belonging to the brother-in-law of one of the Noticees Mr. K. Bose. 6.2 The Ld. Advocate submitted that these small-scale coolie units undertaking job work were engaged by three major oil companies namely Kaleesuwari Refinery P Ltd., and its group companies viz. GMS Traders, Arun Oil Trade both from Sivakasi and SSD Oil Mill Company Ltd., Chennai for the manufacture of metal tins on job work basis used for packing of oils, manufactured by these oil companies. The admitted fact as revealed in the Show Cause Notice is that these oil companies procured Tin Sheets from the reputed manufacturers on payment of appropriate duty of excise and supplied the same to the Noticees to undertake the manufacture of the tins on their behalf on payment of coolie of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 even while quantifying the manufacture and clearance of the said unit from 2006 onwards for clubbing with CG Industries. The Ld. Advocate referred to Paragraph 15.2 of the notice wherein it was recorded that assuming that Golden Industries had been manufacturing Tin Containers in the premises located at Virdhunagar the entire activities of the firm were controlled and managed by Bose as his wife did not know the activities of the firm as admitted to consequently claim that Bose can be considered as manufacturer manufacturing Tin Containers in more than one factory for the purpose of clubbing. 6.5 As regards M/S. B.V. Industries [BVI] of which Mr. Bose is the proprietor it was submitted that the said unit was started on 21.06.2006 by obtaining a registration at the residential house of Bose at 1/28 AA Nagar, Rajaji Road, Virudhunagar to be later moved to the address at Chennai without change of the address or the registration and had used the invoices pre-printed with Virudhunagar address. In support of this, a copy of the lease agreement dated 19.02.2008 was submitted which the adjudicating authority had rejected as an afterthought. The advocate stated that this unit whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in containers in more than one factory or CGI as the unit manufacturing tin containers in the name of the different manufacturers in terms of Paragraphs 2 [v] and 2 [vi] of Notification No. 8/2003-CE dated 01.03.2003 as amended. The Ld. Advocate argued that the invocation of Paragraphs 2 [v] and [vi] in the notice evidences to the fact of existence of different manufacturers and different factories which the notice wanted to club as clearances from different factories by a manufacturer or from a factory by different manufacturers and never proposed as goods only manufactured by Bose the 1st Noticee from his factory only. Such an allegation or proposal according to the advocate was also not possible since the admitted facts on record showed that GI was in existence much before the existence of CGI and KI was claimed to be owned by one Satish who also took out registration and later claimed to have moved out to a new premises and continued to carry on the business leaving no room for treating the said units as dummy or camaflouge. It is therefore the submission of the advocate that in the above admitted position when each of the unit existed separately, even if for the sake of argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that its affairs are managed by Mr. Bose the husband of the proprietrix and that she has no knowledge or control over the unit expose the height of prejudice and improper application of law contrary to the settled positions of law. Reasoning recorded in Paragraph 28 of the impugned order to club the clearances of KI on CGI for the only reason it was floated by the K. Bose and functioned at the premises of CGI for a short period of eleven months even when the statement of Sathishkumar claimed that he started the unit and obtained VAT registration and commenced production in January 2009 do not approve of the said finding. Similarly, the refusal to accept the documentary evidence produced in the form of lease deed for the existence of Golden Industries and BV Industries on the pretext that it was introduced at the later stage is not legally acceptable. Again, the finding of the respondent to deny the claim of the 1st Noticee that as the Karta of the HUF owning M/s. C.G. Industries and in his capacity as the proprietor of M/s. B.V. Industries are separate entities eligible for the small-scale exemption independently is contrary to the Section 2(31) of the Income Tax Act and the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of clearances of the 1st Noticee have their own PAN, filed Income Tax and VAT Returns, Electricity charges as shown in the Show Cause Notice itself besides some of the units having been functioning before CGI which clearly evidenced to their independent existence as separate legal entities and hence clubbing the value of clearances of M/s. B.V. Industries, M/s. Golden Industries and M/s. Kishore Industries is not legal or correct. In support of this contention the advocate relied on the decisions in the cases of (a) Associated Engineering Projects Vs. Commissioner of Central Excise [2019 (370) ELT 756] and (b) Commissioner of Central Excise Vs. S.C. Patel [2011 (264) ELT 414]. 6.13 The advocate adverting to the tacit view recorded in the show cause notice that all the units except for BVI had supplied their products only to the three customers namely the three major oil companies to hold that they are dummy units to warrant the clubbing of their value of clearances is also not correct by citing the decision of the Hon ble Tribunal in the case of Balsara Hygiene Products Ltd. Vs. Commissioner of Central Excise [2012 (278) ELT 526] which was affirmed by the Apex Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation and without considering the much-needed financial investigation even though the three oil companies admitted to engaging Mr. K. Bose in their capacity as a principal. The advocate further submitted that the Adjudicating Authority herself admitted to the non-ascertaining of the weekly or monthly production of the units in the impugned order but had supported the case of the revenue by approving and confirming the demand based on the statement obtained from Mr. Bose concerning a day s production only and that too pertaining to the end of the period of demand namely on 23/24.5.2011 and on the presumed figures adopted by the investigation based on the possible number of tin sheets that were used, by relying upon a customs judgment relating to pre-ponderance of probability and onus of proof has no application whatsoever to the case of the Noticees. The whole case was made out by the revenue on conjectures and surmises as to the purchase of the other raw materials required, the consumption of electricity and the non-production of the proof for the transportation of the alleged manufactured goods from the Noticee end to customers end by merely placing reliance on the so-called v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocate pointing to the admission made in the notice that it is possible to manufacture the tins by hand operated machines also there is every possibility of the other units manufacturing the tins on job work basis at their respective places or by engaging the contractors which cannot be ruled out in the absence of any admissible and justifiable evidences brought on record that these goods were only manufactured by the principal manufacturer to be clubbed for the purpose of denial of the SSI exemption since the said proposal is based on a presumption in the light of the admitted fact that most of the units were in existence at different points of time. 6.18 The Ld. Advocate also submitted that the impugned order omitted to consider that for the manufacture of the Tin Containers requires the use of tin sheets, handle, copper wire, oil, lead, plastic rope, solutions, lid . However, there is nothing on record to even to suggest, that the said raw materials viz., handle, copper wire, oil, lead, plastic rope, solutions, lid were indeed procured and used by the Noticees at their factory for manufacture of impugned Tin Containers. The Ld. Adjudicating Authority even though takes note of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions on merits referring to the quantification of the duty demand submitted that the same is erroneous and incorrect besides contending that the invocation of the extended period under Section 11A(4) of the Central Excise Act to the admitted facts of this case is not proper or correct. 6.22 The Ld. Advocate concluded that since the revenue had not established their case for the proposed clubbing, the impugned order sustaining the demand with interest and the penalty on CGI needs to be set aside. 6.23 As regards the order imposing the penalty under Rule 26 of the Central Excise Rules on the 2nd and 3rd Noticee it is the contention of the advocate that the same is also not sustainable both on merits and on the ground that the allegation made in Show Cause Notice does not meet the express provisions contained in Rule 26 ibid. 6.24 He accordingly prayed for allowing the appeals by setting aside the common order with consequential benefits. 7. The Ld. Authorised Representative Shri R. Rajaraman representing the Department reiterated the findings of the lower Adjudicating Authority. He has submitted that the investigation has conclusively proved that the Noticee viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of supervision of the process of manufacture to ensure the quality of the Tin Containers manufactured. 10.2 Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 also refers to the job worker as a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. The Board Circular No. 56/56/1994-CX dated 14.09.1994 has considered the terms raw material supplier and job worker . Raw material supplier includes a person who supplies raw material to a job worker to manufacture a product or to undertake any process incidental or ancillary to the completion of a manufactured product or to do anything which is specified under the Central Excise and Salt Act, 1944, in relation to any goods, as amounting to manufacture. Job Worker includes a person or a manufacturer who manufactures a product or undertakes any process incidental or ancillary to the completion of a manufactured product or does anything which is specified under the said Act, in relation to any goods, as amounting to manufacture from the raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 10.3 It is the contention of the Ld. counsel for the Noticees that when the show cause notice had alleged that the Noticees only carried out job work for the principals by accepting the supply of materials and charging only the coolie charges as brought out in the allegations contained in Para 11 of the notice and when the whole benefit of the exemption was availed only by the suppliers of the raw materials it was incumbent on the part of the revenue to have treated the said suppliers / principals who have supplied Tin Sheets as the manufacturers of these goods as per Board's Circular No. 56/56/1994-CX dated 14.09.1994. 10.4 In the instant case, we are of the opinion that the Show Cause Notice has not properly examined the parameters set out in the referred Circular in determining whether the relationship between the Noticees and the various Principals who are suppliers of Tin Sheets, was on Principal-to-Principal basis or not, to arrive at the conclusion whether the Noticees are the manufacturers or mere job workers. There was an apparent failure to correctly interpret the implications of above circular, issued in the light of the judgement of the CEGAT in Kerala Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er day in not legal and proper and cannot be sustained. In this regard, it if further observed that CGI even assuming that it is the manufacturer, is otherwise eligible to avail the CENVAT Credit of inputs/raw-materials utilised in the manufacture of tins for which records are not maintained by CGI as the same are available only with the principals responsible for supplying the Tin Sheets. The above issue of eligibility of CENVAT Credit has been discussed in the impugned order but not considered by the Adjudicating Authority. 11.1 The Show Cause Notice dated 14.03.2012 proposes to club the value of clearances of C.G. Industries with that of Golden Industries, B.V. Industries and Kishore Industries and also to re-determine the value of clearances in terms of provisions of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. We find that in the instant case tin sheets are supplied by various principals like M/s. Kaleesuwari Refineries Pvt. Ltd. and other principals to M/s. CG Industries for conversion in to Tin Containers which are used as primary packing materials for the oil manufactured and cleared by the principals. It appears that M/s. Golden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregate value of clearances does not exceed Rs.4 crores (at the material period of time) in the preceding financial year. The Show Cause Notice alleges that CGI, the Noticee is the manufacturer carrying out clearances from various other units such as M/s. Golden Industries, M/s. Kishore Industries and M/s. B.V Industries. 11.3 As per Annexure C4 (i) to (iv) of the Show Cause Notice, it is seen that the value adopted for computation of duty payable in respect of Golden Industries, B.V. Industries and Kishore Industries for the period 2007-2008 to 2010-2011 was either the invoice value for job charges or the value of income reflected in the Income Tax returns, whichever is higher. The total value of income for the said 3 units for each year has been arrived at in Annexure C(iv). The assessable value for computation of duty in Annexure C5, has been arrived at by summing up 110% of Cost of Production of Tin Containers supplied by CG Industries to various principals plus the value arrived at in C(iv) above. The duty liability has been arrived at in Annexure D which is based on the presumption of average assessable value per day which has been extrapolated to arrive at after the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p or Company could be clubbed with the HUF income since its assessment is separate under the Income Tax law. Further, the Show Cause Notice had not alleged that the business of other entities was sourced with the funds of the HUF which owns M/s. C.G. Industries. We further find that apart from the related persons being owners in the above three business concerns, no financial flow back of funds was alleged between the units. We find that in the case of Commissioner of Central Excise Vs. Suchita Steels (India) Ltd. [2015(327) ELT 378] Tribunal held as follows : 8. When department recognise Suchita Steels was a different concern formed from the year 1992 it was not brought out that the fund of HUF was invested either in Suchita Steels, Mohali from 1992 or Suchita Steels, Mohali from 1998. Therefore, there was absence of investment by the Karta therein on behalf of the HUF. That brought out distinction to this case. So also there was no investment of the fund by Mohali Chandigarh for day-today carrying on the business by two Mohali units except that there was sharing of infrastructure and using of common utilities as well as availing service of manpower. There is nothing on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate professional tax registration, separate electricity meters etc. While examining this case on legal frame, I find that the law is well settled by the Apex Court which is that in cases where there are allegations of clubbing of clearances, mutuality of interest and financial flow back is required to be established. As such, by relying upon the various decisions of the Tribunal laying down that where one unit owned by same person in his individual capacity and the other unit as karta of HUF, their clearances could not be clubbed. Inasmuch as in the instant case, the revenue has not come up in any evidence to show that the two units were not having independent existence, the clubbing of clearances is not appropriate. 12.3 The Hon ble High Court of Rajasthan, at Jaipur Bench in the case of Renu Tandon (supra) held that value of clearances of two units cannot be clubbed together and the two units cannot be treated as one unit merely because of proximity of relationship or the situation of the two factories or because there are some common employees. There should be clear evidence of mutuality of interest and have common funding and financial flow back. The above judgeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f proprietors and employees was not enough. Also use of common electricity connection, accountant, store room for raw materials could not be reason for clubbing of clearances. 12.7 In the case of case of Commissioner of Central Excise Vs. S.C. Patel [2011 (264) ELT 414 (Tri.- Ahmd.)] SSI Exemption it was held that Clearances of units having proximity, common passage and storage of raw materials, and inter-relationships between their partners with no evidence of flow back between units, both units having separate income/sales tax, import and export code numbers, bank accounts etc. cannot be clubbed. 12.8 The Tribunal in the case of Commissioner of Central Excise Vs. Balsara Hygiene Products Ltd. [2012 (278) ELT 526 (Tri.- Ahmd.)] which was later affirmed by the Hon ble Supreme Court held that mere fact of management control or grant of interest free loan not sufficient to hold the units as a dummy unit in absence of any money flow back and/or profit sharing and total control on another unit and there is no reason for said units to be considered as dummy unit and that Clubbing of two units cannot be made on the premise that assessee sold/cleared their entire production to oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of coolie bills settled. Further, the impugned order has failed to consider that Mr. K. Bose, Proprietor and as Karta of HUF have two PAN cards and Income Tax returns being filed separately. Similar is the case with M/s. Golden Industries and M/s. Kishore Industries who have Sales Tax registration, making of separate financial statements, filing Income Tax return, etc. Further, the impugned order failed to take the expenditure reflected in the financial records of the other alleged dummy units viz. M/s. Golden Industries, B.V. Industries and Kishore Industries to ascertain whether any expenses towards sub-contracting were incurred by them when only their income have been clubbed with the income of CGI by taking into reckoning the coolie charges reported in the VAT returns of the so-called dummy units. Further, having alleged that Coolie charges included freight element, for the transportation of manufactured tins, no relevant documentary evidence was brought on record to support such outward transportation. Though from the various statements recorded from persons concerned as to production of Tin Containers accepting that Mr. Bose is exercising pervasive control on the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. C.G. Industries cannot be sustained and so, ordered to be set aside. 16. However, regarding imposition of penalties on the principals viz., M/s. Kaleesuwari Refinery Pvt. Ltd., M/s. Arun Oil Trade and M/s. GMS Traders who have purchased the Tin Sheets and supplied to the Noticees for the conversion into Tin Containers which are used for packing of the oil manufactured, it is evident that the units were under the excise control and they were aware of the excise rules and procedures including the liability to pay excise duty on any manufactured goods. The Original Adjudicating Authority has held in the impugned Order-in-Original No. 07/2013-CE dated 30.04.2013 that the value of their materials had far exceeded the value limits of the clearance of the specified goods prescribed in the SSI exemption Notification and these principals were under the excise control and the raw-materials supplied and their utilization for conversion into Tin Containers, the quality of manufactured Tin Containers and there is some sort of agreement which may not be in writing for payment of piece rate of conversion charges between the principals and the Noticees, make them liable for penalty under ..... 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