2013 (11) TMI 1019 - AT - Central Excise

Clubbing of clearances for the purpose of SSI Exemption - Company controlled by family members - Dummy units - Assessee contended that each of the units is an independent entity and there is no justification for treating them as the units owned by one person Held that - The question of identifying the main unit and the dummy unit and demanding duty only from the main unit arises only in that situation when on investigation, only one unit is found to be actually functioning and other units are found to be just non-functional fake units established just to show bogus production and clearances in their name Following Income Tax Commissioner, Madras Vs. Meenakshi Mills, Madurai 1966 (9) TMI 34 - SUPREME Court and CCE Vs. Modi Alkalies & Chemicals Ltd. 2004 (8) TMI 108 - SUPREME COURT OF INDIA - when on lifting the corporate veil it is found that only one person/company has extraordinary interest and pervasive control over the financial matters and management of other companies, their clearances have to be clubbed for determining their eligibility for the SSI Exemption Notification No. 1/93-CE. the evidence on record is sufficient to establish that it is BSL, Delhi controlled by Sh. H.R. Shiv and his family members, which had pervasive financial and management control over ESIL, LHIL, NIPL, SGBL & FSIL and only to wrongly avail the SSI Exemption, the manufacturing activities had been split up into several companies. Therefore, ESIL, LHIL, NIPL, SGBL & FSIL have to be treated as the units owned by BSL, Delhi and for determining their eligibility for SSI Exemption, their clearances during the preceding financial year have to be clubbed and if this is done, none of them would be eligible for SSI Exemption. - The duty demands have, therefore, been correctly confirmed and penalty under section 11AC has been correctly imposed on each of the six Appellant companies Imposition of Penalty u/s 11AC - Imposition of Penalty under Rule 209A of Central Excise Rules 1944/ Rule 26 of Central Excise Rules, 2001 Held that - Sh. H.R.Shiv, his son Sh. Neeraj Hans have dealt with the goods which they knew or had reason to believe, were liable for confiscation, penalty on then under Rule 209A of Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001, has been correctly imposed Decided against Assessee.

Summary

Issues Involved:
1. Eligibility for SSI Exemption.
2. Clubbing of clearances of multiple companies.
3. Financial and managerial control by a common entity.
4. Evidence supporting control and interdependence.
5. Imposition of duty demands and penalties.

Detailed Analysis:

1. Eligibility for SSI Exemption:
The primary issue was whether the six companies were eligible for SSI exemption individually. The department alleged that all these units were owned by M/s. BSL, controlled by Sh. H.R. Shiv and his family, thereby necessitating the clubbing of their clearances. The companies in question were BSL, ESIL, LHIL, NIPL, SGBL, and FSIL, with overlapping directorship and shareholding by Sh. H.R. Shiv and his family.

2. Clubbing of Clearances of Multiple Companies:
The department argued that the clearances of these companies should be clubbed for determining eligibility for SSI exemption. They relied on facts such as substantial shareholding by Sh. H.R. Shiv and his family, mutuality of interest between BSL and the other companies, and instances of financial and managerial control by BSL over the other companies. The appellants contested this, citing the Board's Circular No. 6/92 which states that limited companies have distinct identities and should be individually eligible for SSI exemption.

3. Financial and Managerial Control by a Common Entity:
The department presented evidence showing that BSL, controlled by Sh. H.R. Shiv, exercised pervasive financial and managerial control over the other companies. This included common directors, shared resources, and significant inter-company transactions. The appellants argued that each company was independently managed, had separate registrations, and maintained separate financial records.

4. Evidence Supporting Control and Interdependence:
Several pieces of evidence were cited, including:
- Statements from employees indicating centralized control by BSL.
- Instances of shared staff and resources among the companies.
- Financial transactions showing interdependence, such as payments made by one company on behalf of another.
- Documents indicating that BSL managed the accounts and production plans for the other companies.

5. Imposition of Duty Demands and Penalties:
Based on the findings, the duty demands were confirmed against each company, along with interest and penalties under Section 11AC of the Central Excise Rules. Penalties were also imposed on Sh. H.R. Shiv and Sh. Neerav Hans under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001.

Conclusion:
The Tribunal upheld the department's view that the clearances of the six companies should be clubbed for the purpose of SSI exemption, thereby rendering them ineligible for the exemption. The evidence demonstrated that BSL, controlled by Sh. H.R. Shiv and his family, had pervasive financial and managerial control over the other companies. Consequently, the duty demands and penalties were confirmed, and the appeals were dismissed.