2004 (3) TMI 783 - AT - Central Excise

Summary

Issues Involved:
1. Clubbing of clearances of two units (M/s. MMSC and M/s. MPPP).
2. Invocation of the extended period of limitation under Section 11A(1) of the Central Excise Act.
3. Imposition of penalties under Section 11AC and Rule 173Q on M/s. MMSC.
4. Imposition of penalty under Rule 209A on M/s. MPPP.

Detailed Analysis:

1. Clubbing of Clearances:
The primary issue was whether the clearances of M/s. MMSC and M/s. MPPP should be clubbed for the purpose of excise duty. The department argued that M/s. MPPP was created to avail the benefit of the Small Scale Industries (SSI) Exemption Notification No. 1/93, and that there was centralized production with clearances bifurcated among the two units. Statements from supervisors and the proprietor indicated that semi-finished products were moved between the units for further processing and final clearance. However, the appellants contended that both units were separate legal entities with independent registrations, balance sheets, and tax assessments. They argued that the pattern of operations remained consistent before and after the imposition of excise duty.

2. Invocation of Extended Period of Limitation:
The appellants challenged the invocation of the extended period of limitation, arguing that there was no suppression of facts as the existence and activities of both units were known to the department. They cited case laws emphasizing the need for specific allegations of fraud or suppression for invoking the extended period. The department, however, maintained that the appellants had withheld information about the centralized production and the flow of funds between the units, justifying the invocation of the extended period.

3. Imposition of Penalties on M/s. MMSC:
The adjudicating authority imposed penalties under Section 11AC and Rule 173Q on M/s. MMSC. The appellants argued that Section 11AC, introduced with effect from 28-9-96, could not be applied retrospectively to the period in question (1-4-94 to 16-2-96). The Tribunal upheld this argument, setting aside the penalty under Section 11AC while maintaining the penalty under Rule 173Q.

4. Imposition of Penalty on M/s. MPPP:
The penalty of Rs. 1,00,000/- was imposed on M/s. MPPP under Rule 209A. The appellants contended that there was no allegation in the show cause notice of M/s. MPPP acquiring or dealing with excisable goods liable for confiscation. The Tribunal agreed, noting that the main appellant, M/s. MMSC, was not penalized under Rule 209A, and hence, the penalty on M/s. MPPP was set aside.

Separate Judgments:

Order by Member (Technical):
The Member (Technical) concluded that the two units were essentially one for excise purposes due to centralized production and financial interdependence. The longer period of limitation was justified due to suppression of facts. However, the penalty under Section 11AC was set aside as it could not be applied retrospectively.

Order by Member (Judicial):
The Member (Judicial) disagreed, noting that the units were established long before the excise duty was imposed and operated independently. The extended period of limitation was not applicable as the units were registered and filing returns with the department. Both appeals were allowed, setting aside the demand and penalties.

Third Member Decision:
The Third Member agreed with the Member (Judicial), emphasizing the independent functioning of both units and the lack of evidence for financial interdependence or dummy status. The demands and penalties were set aside, and both appeals were allowed.

Final Order:
In light of the majority view, both appeals were allowed with consequential relief.