2011 (7) TMI 448 - AT - Central Excise

Manufacture and removal in the name of dummy unit - clandestine removal - held that - All these evidences clearly indicate that M/s. Satish Industries did not have any independent existence but was only a part of the assessee, and the production and sale of Pine Oil shown in the name of M/s. Satish Industries was actually the production and sale of the assessee - dropping the proceedings against the respondent is not sustainable. - The same is set aside. - The duty demand against the respondent in the show cause notice is confirmed along with interest and penalty of equal amount is imposed on them under Section 11 AC of the Central Excise Act, 1944.- Decided against the assessee.

Summary

Issues Involved:
1. Whether M/s. Satish Industries was a dummy unit created by the respondent to evade central excise duty.
2. Whether the clearances made in the name of M/s. Satish Industries should be clubbed with the clearances made by the respondent for determining eligibility for SSI exemption.
3. Demand of allegedly short-paid central excise duty.
4. Imposition of penalty on the respondent.

Detailed Analysis:

1. Dummy Unit Allegation:
The central issue was whether M/s. Satish Industries was a non-functional dummy unit created by the respondent to evade central excise duty. The investigation revealed that M/s. Satish Industries had a crude Bhatti which was non-functional and incapable of producing pine oil with the specified terpineol content. Statements from employees indicated that the unit was not operational, and the workers of M/s. Satish Industries were actually working for the respondent. Moreover, water supply and other resources were shared between the two units, suggesting a lack of independent existence for M/s. Satish Industries.

2. Clubbing of Clearances:
The inquiry found that the goods sold under the name of M/s. Satish Industries were actually manufactured by the respondent. The equipment in M/s. Satish Industries was not capable of producing pine oil with the required terpineol content, which could only be manufactured by the respondent. The Commissioner initially dropped the proceedings, but the Central Board of Excise & Customs reviewed and found the order improper, leading to the appeal.

3. Demand of Short-Paid Duty:
The show cause notice demanded Rs. 71,31,281/- for the period 1997-98 to 2001-2002 under the proviso to Section 11 A (1) of the Central Excise Act, 1944, along with interest under Section 11 AB. The Tribunal found that the respondent evaded duty by showing production under M/s. Satish Industries to stay within the SSI exemption limit.

4. Imposition of Penalty:
The Tribunal imposed a penalty under Rule 173 Q (1) of the Central Excise Rules, 1944 / Rule 25 of Central Excise Rules, 2001/2002 read with Section 11 AC of the Central Excise Act, 1944. The penalty was equal to the amount of duty evaded.

Conclusion:
The Tribunal concluded that M/s. Satish Industries was a dummy unit used by the respondent to evade central excise duty. The clearances made in the name of M/s. Satish Industries were to be clubbed with those of the respondent. The demand for short-paid duty was confirmed along with interest, and an equivalent penalty was imposed on the respondent. The appeal by the Revenue was allowed, and the earlier order dropping the proceedings was set aside.