2014 (6) TMI 270 - AT - Central Excise

SSI Exemption - Job-work Exemption - benefit of notification 83/94 - manufacture of Sand Cores - Penalty u/s 11AC - Held that - regarding demand based on statement, there is no retraction, it is based upon panchnama Even during hearing, nobody has disputed the fact that there was no factory of appellant No. 2/3. This case law is of no help to the appellants in the present case. The fifth case law quoted by ld. Advocate is CCE, Mumbai-V v. Panetrical Engineering Pvt. Ltd. reported in 2006 (3) TMI 170 - HIGH COURT OF JUDICATURE AT BOMBAY . In this case Bombay High Court has held that whether unit can be treated as manufacturing unit/job worker without having any manufacturing activity and/or any machineries and/or any labourers is a question of fact and there is no question of law involved in this case. In our case undisputedly there is no factory and hence benefit of notification 83/94 cannot be extended to goods produced by appellant No. 1. Appellant Nos. 2 & 3 had no factory and goods were manufactured from raw-material stage and sent to purchasers directly, claiming the goods to be job worked goods, we have no hesitation in our mind that proviso to Section 11A is invokable. Interest under Section 11AB and penalty under 11AC are also upheld for the same reasons - Decided against assessee.

Issues Involved:
1. Duty evasion by M/s. Shree Krishna Industries.
2. Eligibility for exemption under Notification 83/94-C.E.
3. Existence and functionality of Appellant No. 2 and 3 as manufacturing units.
4. Applicability of proviso to Section 11A, interest under Section 11AB, and penalty under Section 11AC.

Issue-wise Detailed Analysis:

1. Duty Evasion by M/s. Shree Krishna Industries:
The case originated from intelligence reports indicating that M/s. Shree Krishna Industries (Appellant No. 1) was evading duty. The Central Excise Officer found that Appellant No. 1 was manufacturing sand cores and selling them to M/s. Nagpur Alloy & Castings Ltd. Initially, Appellant No. 1 manufactured on their own account but later started job work for Appellant No. 2 and 3. However, Appellant No. 2 and 3 were found to be dummy units without any real industrial activity or infrastructure, existing only on paper.

2. Eligibility for Exemption under Notification 83/94-C.E.:
Appellant No. 1 claimed exemption under Notification 83/94-C.E., which exempts excisable goods manufactured on a job work basis under specific conditions. The notification requires that the processed goods be used in the factory of the supplier in the manufacture of specified goods. Since Appellant No. 2 and 3 did not have any factory or manufacturing setup, the exemption was deemed inapplicable. The Tribunal concluded that the benefit of the notification is not available if no factory exists for further processing.

3. Existence and Functionality of Appellant No. 2 and 3 as Manufacturing Units:
Investigations revealed that Appellant No. 2 and 3 did not have any factory, machinery, or labor to carry out manufacturing activities. The only process claimed by Appellant No. 2 and 3 was cleaning excess sand, which was not substantiated by evidence. The Tribunal found that sand cores were fully manufactured by Appellant No. 1 and transported directly to the purchaser, with no intermediate processing by Appellant No. 2 or 3. This finding was based on the absence of any labor or infrastructure at Appellant No. 2 and 3's premises.

4. Applicability of Proviso to Section 11A, Interest under Section 11AB, and Penalty under Section 11AC:
The Tribunal upheld the invocation of the proviso to Section 11A, which deals with the recovery of duties not levied or paid, along with interest under Section 11AB and penalties under Section 11AC. The Tribunal reasoned that Appellant No. 1 was aware of the non-existence of factories for Appellant No. 2 and 3 and created dummy units to evade duty. Consequently, Appellant No. 1 was held liable to pay excise duty on the sand cores. Penalties were also upheld against Appellant No. 2 and 3 for their role in the fraudulent scheme.

Conclusion:
The Tribunal dismissed all three appeals, concluding that Appellant No. 1 could not claim the benefit of Notification 83/94-C.E. due to the non-existence of factories for Appellant No. 2 and 3. The Tribunal upheld the duty demand, interest, and penalties, emphasizing that the entire manufacturing process was carried out by Appellant No. 1, making them the liable party for excise duty. The judgment reinforced the principle that exemptions cannot be claimed through the creation of dummy units without any manufacturing activity.

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