2023 (2) TMI 1265 - AT - Central Excise

Valuation - Independent manufacturers or job-workers - Redetermination of value of Tin Containers manufactured on job work basis in terms of Central Excise Valuation Rules 2000 - clubbing of value of Tin Containers manufactured in CGI with those of manufactured and cleared under the invoices of M/s. B.V. Industries M/s. Golden Industries and M/s. Kishore Industries on job work basis for various Principals - levy of interest and penalty - Extended period of limitation. HELD THAT - In the manufacture of Tin Containers cost of raw-material accounts for more than 90% and job work charges come to only around 10%. The principals are purchasing the Tin Sheets which are supplied to the Noticees at their cost and reportedly exercising control over the raw-material usage and quality of Tin Containers. Principals are the only buyers of these containers and it is not in dispute that only payment of coolie charges or conversion cost was being paid to these job workers. In the instant case the principal is the actual consumer and even assuming that the goods viz. Tin Sheets are consumed by CGI in the production or manufacture of tin cans we find that the Show Cause Notice has not prudently determined the Cost of Production as per accepted Cost Accounting practices in vogue by duly accounting for cost of other raw-materials used in the manufacture like lid handles etc. cost of overheads and the wastage but simply applied unconventional methods in arriving at the COP as revealed in the Annexures to the Show Cause Notice. Further the application of SSI exemption to arrive at the net duty liability in Annexure D of the Show Cause Notice adopting unscientific methods basing on the average assessable value per day in not legal and proper and cannot be sustained. The Show Cause Notice dated 14.03.2012 proposes to club the value of clearances of C.G. Industries with that of Golden Industries B.V. Industries and Kishore Industries and also to re-determine the value of clearances in terms of provisions of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 - in the instant case tin sheets are supplied by various principals like M/s. Kaleesuwari Refineries Pvt. Ltd. and other principals to M/s. CG Industries for conversion in to Tin Containers which are used as primary packing materials for the oil manufactured and cleared by the principals. It appears that M/s. Golden Industries owned by Smt. Vasuki wife of Mr. Bose had commenced business in 2006 and was filing VAT and IT returns till September 2009 and later got shifted to Chennai - the clearances of M/s. Kishore Industries owned by Shri Satish Kumar brother-in-law of Bose was sought to be clubbed with the clearances of M/s. CG Industries by alleging that the said entity was a dummy/ non-existent unit for a part of the disputed period. In case of clubbing of clearances of different units to deny the SSI exemption benefit there should be concrete evidence of mutuality of interest financial flow among the units. The decision in the case of Commissioner of Central Excise Chennai IV Vs. B.K. Office Needs (P) Ltd. 2015 (4) TMI 241 - CESTAT CHENNAI was relied wherein it was held that mere common partners common staff common managerial control is not enough to hold that there is flow back of funds and mutuality of interest so as to club the clearances. The Tribunal in the case of Associated Engineering Projects Vs. Commissioner of Central Excise Service Tax Meerut-I 2018 (9) TMI 375 - CESTAT ALLAHABAD while considering the issue of clubbing of clearances held that merely because the units are run by some family members and books of accounts maintained by accountant in one common office it cannot be held that there is mutuality of interest or financial flow back. In absence of such evidence the clearances cannot be clubbed. The Impugned order has confirmed that all the clearances of specified goods had been manufactured in the premises of the main Noticee (CGI) basing on the fact that there is no evidence of movement of raw materials to the premises of M/s. Golden Industries M/s. B.V. Industries and sub-contractors and for movement of finished goods to the principals back; that denial of the manufacture of the specified goods by the sub-contractors; that there was progressive consumption of electricity by the main Noticee; that the management of entire affairs of M/s Golden Industries by CGI and floating of Kishore Industries in the premises of the Noticee and non-existence of M/s BV Industries. The impugned order has failed to discuss whether manufacturing was carried in the premises of the main Noticee by its employees or by its sub-contractors. The reason for not conducting stock verification at C.G. Industries to ascertain whether Tin Sheets pertaining to other concerns were stocked there or not and whether finished goods got manufactured in the names of other concerns is inexplicable. No enquiries were conducted with the employees whether they are the sub-contractors or employees of other concerns. It is recorded that there are no production records available and so the investigation is compelled to compute the number of Tin Containers and the value of these on the basis of the quantum of Tin Sheets supplied by the principals and the amount of coolie bills settled. Further the impugned order has failed to consider that Mr. K. Bose Proprietor and as Karta of HUF have two PAN cards and Income Tax returns being filed separately. Though from the various statements recorded from persons concerned as to production of Tin Containers accepting that Mr. Bose is exercising pervasive control on the management of affairs of the Noticees for most part of the disputed period the evidence unearthed is not sufficient enough to conclusively justify to club the clearances of all these four units. There is evidence that on certain occasions M/s. B.V. Industries and M/s. Golden Industries purchased Tin Sheets on their own account and effected sales of these containers to the principals. It is on record that manufacture of Tin Containers can be carried out without the aid of power and also through sub-contractors. The Ld. Advocate has put forth that there is no bar from the principals or otherwise for manufacture of Tin Containers through sub-contractors. In the instant case without establishing financial flow back and mutuality of interest between the various units clubbing of value of clearances of various units has been resorted to by revenue which is not just and fair. Moreover the re-determined value of clearances of CG Industries owned by a HUF which is a distinct and separate legal entity and which is engaged in Job Work for various principals is sought to be clubbed with others without complete justification. If the so called re-determined value of clearances of CG Industries is ignored then the value of clearances of the other units are below the threshold limit as per Notification No. 08/2003 as discussed above - the job work of CGI Industries cannot be clubbed with that of other entities. Not enough evidence exist to call these units as dummy units or created fictitiously to justify the clubbing of job work of all these units. Extended period of limitation - HELD THAT - There is no need to discuss about invokability of extended period in this case. The demand raised pertains to the period from 2007-2008 to 2011-2012 whereas the Show Cause Notice was issued on 14.03.2012 - there was not enough evidence unearthed for clubbing of clearances and also for raising of demand of demand of excise duty. Imposition of penalties on the principals viz. M/s. Kaleesuwari Refinery Pvt. Ltd. M/s. Arun Oil Trade and M/s. GMS Traders - HELD THAT - The Original Adjudicating Authority has held in the impugned Order-in-Original No. 07/2013-CE dated 30.04.2013 that the value of their materials had far exceeded the value limits of the clearance of the specified goods prescribed in the SSI exemption Notification and these principals were under the excise control and the raw-materials supplied and their utilization for conversion into Tin Containers the quality of manufactured Tin Containers and there is some sort of agreement which may not be in writing for payment of piece rate of conversion charges between the principals and the Noticees make them liable for penalty under Rule 26 of the Central Excise Rules 2002. The modus operandi adopted by the Noticees is fully supported by the principals. However we find except M/s. Kaleesuwari Refinery Pvt. Ltd. who have came on appeal vide Appeal No. E/41709/2013 and other principals viz. M/s. Arun Oil Trade and M/s. GMS Traders are not in appeal. In view of the above the penalty imposed on M/s. Kaleesuwari Refinery Pvt. Ltd. is upheld. Appeals disposed off.

Summary

Issues Involved:

1. Whether M/s. C.G. Industries, M/s. Golden Industries, and M/s. B.V. Industries are independent manufacturers or job workers for the principals.
2. Whether the clubbing of clearances of Golden Industries, B.V. Industries, and Kishore Industries with C.G. Industries is justified.
3. Whether the valuation of Tin Containers manufactured on a job work basis is legally justified.

Issue-wise Analysis:

1. Independent Manufacturers or Job Workers:

The Noticees received Tin Plates as consignees, with payment made by the principals. They converted Tin Sheets into Tin Containers for coolie charges, clearing them under delivery challans and coolie bills without including the value of Tin Sheets or excise duty. The Central Excise Valuation Rules, 2000, and Board Circular No. 56/56/1994-CX define job workers and raw material suppliers. The relationship between job workers and raw-material suppliers must be examined to determine if the job worker is an independent entity or a dummy. The Noticees did not bear the cost of raw materials, indicating they were job workers and the principals were manufacturers. The Show Cause Notice failed to properly examine the relationship parameters, and the impugned order did not discuss the exemptions under Notification No. 36/2001. The valuation method under Rule 8 was improperly applied.

2. Clubbing of Clearances:

The Show Cause Notice proposed clubbing clearances of C.G. Industries with Golden Industries, B.V. Industries, and Kishore Industries. Notification No. 8/2003 provides SSI exemption if aggregate clearances do not exceed specified limits. The Noticees filed separate VAT and IT returns, and Golden Industries existed before C.G. Industries. The investigation did not conduct stock verification or quantify production based on records, adopting questionable methods. Judicial precedents require concrete evidence of mutuality of interest and financial flowback for clubbing clearances. The impugned order failed to establish such evidence, making the clubbing unjustified.

3. Valuation of Tin Containers:

The Show Cause Notice determined the assessable value using unconventional methods, not adhering to accepted Cost Accounting practices. The SSI exemption application was based on unscientific methods. CGI, if considered the manufacturer, was eligible for CENVAT Credit, which was not accounted for. The valuation method under Rule 8 was improperly applied as the principal, not the job worker, consumed the goods. The re-determined value of clearances was based on unrealistic computations.

Conclusion:

The appeals by Mr. K. Bose Karta of M/s. C.G. Industries, Mrs. B. Vasuki, Proprietrix of M/s. Golden Industries, and Mr. K. Bose, Proprietor of M/s. B.V. Industries are allowed, setting aside the demand and penalties. The appeal by M/s. Kaleesuwari Refinery Private Ltd. against the penalty is rejected. The impugned order failed to establish sufficient evidence for clubbing clearances and re-determining values, making the demand and penalties unsustainable.