1999 (10) TMI 736 - AT - Central Excise

Issues Involved:
1. Clubbing of clearances of multiple manufacturing units.
2. Eligibility for Small Scale Industry (SSI) exemption benefits.
3. Allegations of artificial fragmentation of units.
4. Common ownership, management, and infrastructure.
5. Financial inter-relationship and flow-back of profits.
6. Common procurement of raw materials and selling arrangements.
7. Under-valuation of goods.
8. Invocation of extended period of limitation.
9. Imposition of penalties.

Detailed Analysis:

1. Clubbing of Clearances of Multiple Manufacturing Units:
The Commissioner of Central Excise, Calcutta-II, confirmed the demand of duty and imposed penalties on the appellants by holding that the appellants adopted a dubious method of artificially fragmenting the manufacturing units to wrongfully avail SSI exemption benefits. The units were found to be closely interlocked financially and in production control, essentially functioning as a single entity, thus not entitled to separate SSI exemptions.

2. Eligibility for SSI Exemption Benefits:
The units were alleged to have fragmented intentionally to avail benefits under Notification Nos. 175/86-C.E. and 1/93-C.E. The Commissioner noted that SSI exemptions existed prior to 1986, and the fragmentation could have been done to avail these earlier exemptions. The appellants' argument that units set up before 1986 could not have been fragmented to avail the 1986 notification was dismissed, as prior SSI exemptions were also available.

3. Allegations of Artificial Fragmentation of Units:
The adjudicating authority found that the units did not have separate infrastructure and were managed by a single family, indicating that the fragmentation was artificial. The units shared common premises, management, and financial resources, reinforcing the conclusion of artificial fragmentation.

4. Common Ownership, Management, and Infrastructure:
The units were located at the same address, had a common head office, and were managed by family members of the same Hindu Undivided Family (HUF). The Commissioner noted that the units lacked independent infrastructure and were managed as a single entity by the HUF, primarily by Shri Sreeram Bhuwalka.

5. Financial Inter-relationship and Flow-back of Profits:
The Commissioner observed financial transactions among the units, including interest-free loans and shared financial resources. The appellants failed to provide evidence of independent financial resources, leading to the conclusion of financial inter-mixing and flow-back of profits.

6. Common Procurement of Raw Materials and Selling Arrangements:
The units shared common procurement of raw materials and selling arrangements, managed by M/s. Harchandrai Sreeram, a servicing company owned by Shri Sreeram Bhuwalka. The Commissioner noted that the servicing company dictated terms, including fixing sales prices, indicating centralized control over the units.

7. Under-valuation of Goods:
The Commissioner found that M/s. Ruby Rubber Industries procured orders and showed on paper that goods were purchased from other units at discounted rates, while the actual goods were cleared under their invoices. This under-valuation was deemed artificial, and the price at which M/s. Ruby Rubber Industries sold the goods was taken as the assessable value.

8. Invocation of Extended Period of Limitation:
The Commissioner invoked the extended period of limitation, noting that the appellants did not disclose the true nature of their operations to the Central Excise authorities. The appellants' argument that the Department had prior knowledge based on a 1983 seizure was rejected, as the letter returning seized documents did not indicate awareness of the units' inter-relationship.

9. Imposition of Penalties:
Penalties were imposed on the main appellant firm and other appellants under Rule 209A. The Commissioner upheld the penalties, finding that the units were working in connivance to avail SSI exemptions fraudulently.

Conclusion:
The Tribunal upheld the Commissioner's order, confirming the clubbing of clearances, denial of SSI exemptions, and imposition of penalties. The units were found to be artificially fragmented, managed centrally by a single family, and involved in financial inter-mixing, justifying the clubbing of clearances and the extended period of limitation. The appeals were rejected in their entirety.

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