1994 (4) TMI 352 - AT - Central Excise

Summary

Issues Involved:

1. Clubbing of clearances of three units.
2. Eligibility for duty exemption under Notification No. 175/86.
3. Alleged contravention of Central Excise Rules and evasion of duty.
4. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Clubbing of Clearances of Three Units:

The primary issue was whether the clearances of M/s. Vishnu Forge (Mysore) Pvt. Ltd., M/s. Metal Cutters (Mysore) Pvt. Ltd., and M/s. Steel Treaters (Mysore) Pvt. Ltd. should be clubbed. The Collector of Central Excise, Bangalore, held that the clearances of the three units should be clubbed because M/s. Metal Cutters and M/s. Steel Treaters were created by M/s. Vishnu Forge to wrongly avail the exemption for small-scale units under Notification No. 175/86. The Collector noted that all three units were located on the same premises, had common directors, and shared various facilities without formal agreements or payments. However, the Tribunal found that merely having common directors and using shared facilities was not sufficient to club the clearances unless it was shown that the units were dummy units or there was financial flow back and common profit sharing.

2. Eligibility for Duty Exemption under Notification No. 175/86:

The Collector's order denied the duty exemption under Notification No. 175/86 to M/s. Vishnu Forge, arguing that the goods cleared through M/s. Metal Cutters and M/s. Steel Treaters should be considered as cleared by M/s. Vishnu Forge. The Tribunal, however, emphasized that each unit was independently incorporated, maintained separate records, and had distinct manufacturing processes. The Tribunal concluded that the clearances could not be clubbed merely based on common directors and shared facilities, thus upholding the eligibility of the units for the duty exemption.

3. Alleged Contravention of Central Excise Rules and Evasion of Duty:

The common Show Cause Notice alleged that M/s. Vishnu Forge contravened several provisions of the Central Excise Rules by manufacturing and clearing excisable goods without payment of duty and following proper procedures. The Collector's investigation revealed that the three units shared premises, directors, and facilities, suggesting that M/s. Metal Cutters and M/s. Steel Treaters were not the actual manufacturers. However, the Tribunal found that there was no evidence of financial flow back or common profit sharing, and the units were independently registered and operated. Therefore, the Tribunal did not support the Collector's conclusion of duty evasion based on the shared facilities and common directors alone.

4. Imposition of Penalties:

The Collector imposed penalties of Rs. 2 lakhs on M/s. Vishnu Forge and Rs. 20,000 each on M/s. Metal Cutters and M/s. Steel Treaters. The Tribunal agreed that penalties were justified for procedural violations but found the penalty on M/s. Vishnu Forge excessive. The Tribunal reduced the penalty on M/s. Vishnu Forge to Rs. 20,000, maintaining the penalties on M/s. Metal Cutters and M/s. Steel Treaters.

Conclusion:

The Tribunal concluded that the clearances of the three units could not be clubbed merely based on common directors and shared facilities. The units were independently incorporated, maintained separate records, and had distinct manufacturing processes. The eligibility for duty exemption under Notification No. 175/86 was upheld for each unit. The penalties for procedural violations were justified but reduced in the case of M/s. Vishnu Forge. The appeals were allowed on these terms.