2013 (4) TMI 57 - AT - Central Excise

SSI Exemption - dummy units - clubbing of clearance - allegation that two units are controlled by members of the same family. - The allegation against the entity and its M.D. is that a dummy company DSW has been floated for the purpose of tax evasion by showing part of the production in the name of DSW while both are controlled by one person. If the clearances of both entities are clubbed together during each year from 2005-2006 to 2009-2010 during each year DSD would not be eligible for SSI exemption. It is also alleged that in terms of appraisal report of income tax department in respect of these two entities on the basis of income disclosed during survey operation, during each of these years they had huge volume of unaccounted sales of excisable goods which had been cleared without payment of duty. Held that the evidence and report submitted by income tax department shows that both the units were being controlled by single person, therefore, have to be treated as the factories owned by the same person for the purpose of determining their eligibility for SSI exemption. Therefore this is not the case for total waiver and it is directed to the entity to deposit an amount within a period of eight weeks from the date of this order. - stay granted partly.

Summary

Issues Involved:
1. Clubbing of clearances of DSD and DSW for determining SSI exemption eligibility.
2. Recovery of short-paid duty and imposition of interest and penalties.
3. Legitimacy of the revised balance sheets and the evidence from the Income Tax Department.
4. Denial of cross-examination of witnesses.
5. Invocation of the extended limitation period under Section 11A (1).

Detailed Analysis:

1. Clubbing of Clearances for SSI Exemption:
The primary issue was whether the clearances of M/s D S Doors (I) Ltd. (DSD) and M/s D.S Woodtech Ltd. (DSW) should be clubbed for determining the eligibility for SSI exemption under Notification No. 8/03-CE. The tribunal found that both companies were controlled by members of the same family and were essentially run as a single unit by Shri D.S. Sharma. Evidence included statements from employees and the absence of a polishing facility at DSW, indicating that DSW was not operating independently but as an extension of DSD. The tribunal concluded that the clearances of both units should be clubbed, making them ineligible for SSI exemption.

2. Recovery of Short-Paid Duty and Imposition of Interest and Penalties:
The Commissioner confirmed a duty demand of Rs. 3,30,81,801/- against DSD, along with interest and penalties under Section 11AC of the Central Excise Act, 1944. Penalties were also imposed on Shri D.S. Sharma and Shri Dinesh Jangir under Rule 26 (1) of the Central Excise Rules, 2002. The tribunal upheld the duty demand and penalties, directing DSD to deposit Rs. 2,75,00,000/- within eight weeks, with the balance amount and penalties stayed until the disposal of the appeals.

3. Legitimacy of Revised Balance Sheets and Evidence from Income Tax Department:
DSD and DSW argued that the revised balance sheets showing higher sales were filed to "buy peace" with the Income Tax Department and should not be used as a basis for central excise duty demands. However, the tribunal found that the appraisal report from the Income Tax Department indicated gross underreporting of production and sales, supporting the allegations of unaccounted sales of excisable goods.

4. Denial of Cross-Examination of Witnesses:
The appellants contended that the cross-examination of witnesses whose statements were relied upon was not allowed. The tribunal did not find this argument compelling, noting that the evidence on record, including statements and documentary evidence, sufficiently indicated that DSW was a dummy unit for tax evasion.

5. Invocation of Extended Limitation Period:
The appellants argued that the longer limitation period under the proviso to Section 11A (1) could not be invoked as all facts were known to the department. The tribunal, however, found that the evidence of unaccounted sales and the operation of DSW as a dummy unit justified the invocation of the extended limitation period.

In conclusion, the tribunal found substantial evidence supporting the allegations of tax evasion through the operation of DSW as a dummy unit. It directed a significant pre-deposit from DSD while staying the recovery of the balance amount and penalties until the final disposal of the appeals.