2013 (9) TMI 650 - AT - Central Excise

SSI Exemption - clubbing of turnover - Family members have several SSI units - common directors in private limited company and common partners in firm - Revenue was of the view that KI was the main unit having the required infrastructure for manufacturing and maintenance of accounts and all the other firms/companies were created for the purpose of showing them as independent manufacturing units which they were not to derive maximum benefit from SSI exemption notification - Held that - It was KMPL for whom goods were manufactured by all the units and KMPL did control the supply of raw materials, quality of raw materials, payment for raw materials and job charges and receipt of finished goods from them and sale thereof whereas no records/evidences have been put forth to show that it was KI in such a position - Revenue had not been able to make out a case that KI had to be treated as the manufacturer and the clearances of other units have to be clubbed and KI had to be held as liable to pay duty on all the goods manufactured by all the concerned units. Receipt of Raw Materials - It was the claim of the Revenue that all the units had a common head office, there was neither allegation nor finding that other units were nonexistent or were located in the same premises - Therefore the claim that all the raw materials were received in the premises of KI does not emerge from the facts. Costing Job Work Charges - There was no relationship between the two - If KI was supposed to be treated as the manufacturer and clubbing was to be done - department had to show that other units did not had the facility and were controlled by the two partners of KI i.e. Shri Chimanbhai Nanjibhai Hapani and Ms. Sonalben B. Hapani - Neither of the two partners were shown to be involved in determination of job work charges or in control of supply of raw materials. Accounting Methods - Quality of Goods Manufactured - Each unit had been identified as separate, separate registration certificates had been issued by the department -Just because accounting policy was determined and methods followed were same by all the units, clubbing cannot take place - ll units was controlled by Shri Manoj Kacha, it was submitted by the ld. counsel that Shri Manoj Kacha is an employee of KMPL and therefore quality control by him is natural and is in the fitness of things. The demand for duty from KI in respect of goods manufactured by all the units cannot be sustained and accordingly was set aside - the penalties imposed on various appellants cannot be sustained Decided in favor of Assesse.

Summary

Issues Involved:
1. Demand for differential duty and penalties.
2. Control and management of the business entities.
3. Purchase and receipt of raw materials.
4. Determination of job work charges.
5. Accounting methods.
6. Stock control of raw materials and finished goods.
7. Quality control of manufactured goods.
8. Common Provident Fund code number.
9. Office work and authorized signatories.
10. Storage of raw materials.
11. Financial transactions between units.
12. Claim for SSI award.

Issue-wise Detailed Analysis:

1. Demand for Differential Duty and Penalties:
The impugned order confirmed a total demand for differential duty of Rs. 8,50,48,810/- against M/s. Kich Industries (KI) with applicable interest and an equal amount as penalty. Additional penalties were imposed on members of the Hapani family and one Shri Vithalbhai N. Panelia under Rule 26. The period involved is August 2004 to February 2010, arising from four show cause notices.

2. Control and Management of the Business Entities:
The case involved seven business entities owned by Hapani family members or limited companies where family members are directors. The Commissioner concluded that KI was the main unit with the required infrastructure, and other firms/companies were created to show them as independent units to derive maximum benefit from SSI exemption notification.

3. Purchase and Receipt of Raw Materials:
It was found that Shri Nitesh Chimanbhai Hapani controlled the purchase of raw materials and consumables for all units. The appellants argued that KMPL, a marketing company, purchased raw materials and supplied them to manufacturing units, which then supplied finished goods back to KMPL. The department did not provide evidence to show that purchases were controlled by Shri Nitesh Chimanbhai Hapani individually for each unit.

4. Determination of Job Work Charges:
Shri Bharatbhai Chimanbhai Hapani determined job work charges. The appellants submitted that KMPL got goods manufactured on a job work basis, and after the amendment of valuation rules, they paid duty at the price KMPL sold the goods. The department did not show that other units lacked facilities or were controlled by KI's partners.

5. Accounting Methods:
The Commissioner observed that accounting methods for all units were controlled by KI. However, the appellants argued that each unit maintained separate accounts, and there was no combined accounting. The department did not allege combined accounting, and each unit had separate registration certificates.

6. Stock Control of Raw Materials and Finished Goods:
The Commissioner noted that KI and KMPL controlled the stock of raw materials and finished goods. The appellants countered that each unit had its own accounting of raw materials and finished goods, and no discrepancies were found during searches. No evidence showed that other units did not have machinery for production.

7. Quality Control of Manufactured Goods:
The observation that Shri Manoj Kacha controlled the quality of goods manufactured by all units was countered by the appellants, stating that he was an employee of KMPL, making quality control by him natural.

8. Common Provident Fund Code Number:
The Commissioner noted that KI and KMPL used the same PF code number. The appellants argued that this was a mistake, and they had informed the Provident Fund Commissioner.

9. Office Work and Authorized Signatories:
The office work of all units was done from KI's premises, but the appellants argued that this could not be a ground for clubbing value of clearances. Certain officials executed work for other units, but no evidence showed that KI and KMPL were the same.

10. Storage of Raw Materials:
KMPL stored raw materials in other units, which was natural since other units were job workers. The absence of a law requiring the principal to have storage and manufacturing facilities was noted.

11. Financial Transactions Between Units:
The appellants explained that financial transactions between units were natural business transactions and properly accounted for. The department did not show that these transfers were not reflected in the books of account.

12. Claim for SSI Award:
The appellants claimed the SSI award for the Kich Group, not as a single unit. The claim was correct since all units in the group were SSI units during the relevant time.

Conclusion:
The Revenue failed to prove that KI was the actual manufacturer and that clearances of other units should be clubbed with KI. The demand for duty from KI for goods manufactured by other units was not sustained, and penalties imposed on various appellants were set aside. All appeals were allowed with consequential relief to the appellants.