2004 (11) TMI 352 - AT - Central Excise

Demand - Dummy unit - SSI Exemption - Related person - Clubbing of clearances - conversion of raw materials into Ciprofloxicin in base and pure form and Ibuprofen - HELD THAT - 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 1997 (5) TMI 50 - SUPREME COURT 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. We find that the show cause notice has not at all been issued to Herren who according to the Adjudicating Authority own the Appellant unit also. We also want to make it clear that the fact that two units are related as per Central Excise Act ipso facto does not lead to the conclusion that their clearances should be clubbed for SSI exemption. The concept of Related Person is only for Valuation and not for clubbing the clearances. Two units may be related and yet each can enjoy SSI exemption and the fact of being related is not a bar to availing of SSI exemption provided all conditions of the relevant notifications are satisfied. In the light of the Supreme Court ruling and our findings the OIO cannot be sustained. Thus we allow the appeal.

Summary

Issues involved:
The judgment involves the determination of whether M/s. Kiran Biscuits and Foods Ltd. is a dummy unit of M/s. Herren Drugs and Pharmaceuticals, leading to duty demand and penalties under various sections of the Central Excise Act, 1944.

Adjudication of the case:
The Central Excise Officers conducted investigations and found incriminating documents at M/s. Kiran, alleging duty escapement of Rs. 34,85,396. The adjudicating authority concluded that M/s. Kiran is a dummy unit of M/s. Herren based on various factors such as seized registers, financial transactions, shared infrastructure, common management, and deputation of workers.

Legal arguments:
The appellant's advocate argued that M/s. Kiran and M/s. Herren are separate legal entities, and clubbing clearances for SSI exemption should only occur if what is manufactured by one is considered as not manufactured by the other. Citing relevant case laws, the advocate contended that duty should have been demanded from M/s. Herren if they were found to be the actual manufacturer.

Judicial analysis and decision:
The Tribunal noted that no show cause notice was issued to M/s. Herren despite the finding that M/s. Kiran was a dummy unit. Referring to a Supreme Court case, the Tribunal emphasized that duty should be demanded from the actual manufacturer, not a dummy unit. The concept of "Related Person" is for valuation purposes, not for clubbing clearances. Therefore, the Tribunal held that the duty demand on M/s. Kiran was incorrect, and duty should have been demanded from M/s. Herren. Consequently, the Tribunal allowed the appeal, overturning the original order.