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2012 (11) TMI 690 - HC - Central ExciseSSI Exemption - fictitious company / dubious company - Imposition of Penalty - aggregate value of the clearances of M/s SECO and M/s Xenon - Whether penalty can be imposed upon dubious company whose existence cannot be denied because of the reason that the said dubious company in fact existed and obtained the excise certificate - held that - Once it is held that one was the original company and another was the dubious company, further finding is recorded in this case that the other company in fact did not indulge in the manufacture and the clearance of the goods, and therefore, the Revenue gave show cause notice to both the companies giving them opportunity so that they can show that they separately did the transactions under consideration. Word independent existence does not denote the physical existence of the fictitious company, but, it denotes the existence of independent transaction by the company, which cannot be accepted in a case when it is found by the Revenue that the said company is a fictitious company of other original company who did the transactions. Tribunal was right in holding that the penalty could not have been imposed upon the fictitious company which, in fact did not do any transaction and all the transactions were done by the original company and rightly interpreted the judgment of GAJANAN FABRICS DISTRIBUTORS Versus COLLECTOR OF CENTRAL EXCISE, PUNE 1997 (5) TMI 50 - SUPREME COURT OF INDIA and the question referred above raised before us are answered that in the facts of this case, no penalty could have been imposed upon the respondent M/s Xenon company - Tax Case is answered and disposed of accordingly.
Issues:
1. Interpretation of provisions under Section 35H(1) of the Central Excise Act, 1944 regarding liability to pay duty and penalties. 2. Determining liability when one company is declared a dubious company of another in terms of transactions and duty obligations. 3. Whether penalties can be imposed on a declared dubious company that did not conduct any transactions. Analysis: 1. The case involved a Tax Case under Section 35H(1) of the Central Excise Act, 1944, addressing grounds of reference related to M/s Xenon allegedly camouflaging their identity to irregularly avail SSI exemption and evade duty payment. The Commissioner confirmed duty demands and penalties on M/S SECO and the assessee, M/s Xenon. The CEGAT Kolkata disposed of M/S SECO's appeal, while allowing the assessee's appeal regarding penalties. The issue revolved around liability under Rule 9 and Rule 173F of CER'1944 for contravening provisions and clubbing clearances for duty liability determination. 2. The judgment analyzed whether a company declared dubious of another could be held liable for penalties. The court considered the factual findings that M/s SECO and M/s Xenon's transactions were clubbed together due to improper availing of exemptions. Despite being a declared dubious company, M/s Xenon did not conduct any transactions, leading to the conclusion that penalties could not be imposed on a company that did not engage in the transactions, as the liability rested with the original company, M/s SECO. 3. The court referred to the Gajanan Fabrics Distributors case to establish that penalties cannot be imposed on a dubious company that did not undertake transactions, as the liability is based on actual transactions. The judgment highlighted the importance of independent existence in liability determination, emphasizing that penalties should align with the entity responsible for the transactions. By interpreting precedents and factual findings, the court concluded that penalties could not be imposed on M/s Xenon, the declared dubious company, as it did not engage in the transactions attributed to M/s SECO, the original company. In conclusion, the court's detailed analysis focused on upholding the principles of liability based on actual transactions, clarifying that penalties should align with the entity conducting the transactions. The judgment emphasized the importance of factual findings and proper interpretation of legal provisions to determine duty obligations and penalties accurately.
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