2008 (7) TMI 158 - AT - Central Excise

Clubbing of clearances - Two units having common office use same brand name, have same partners, have manufacturing premises in same block units are held to be dummy unit Circular dated 29-5-92 according to which each Limited Company is a manufacturer by itself and will be entitled to a separate exemption limit, will not apply to this case - hold that the clubbing of clearances is justified but confiscation of the land, building is set aside, as it is not a case of repeat offence

Summary

Issues:
Clubbing of clearances of two appellants, Confiscation of land, building, and machinery, Applicability of Board's Circular dated 29-5-1992, Existence of M/s. Harnik Nutrients Pvt. Ltd. as a dummy unit, Duty demand against both units, Interconnection and interdependence of the two units.

Clubbing of Clearances:
The Tribunal initially upheld the clubbing of clearances of two appellants but set aside the confiscation of land, building, and machinery. On appeal to the High Court, the order was set aside, remanding the matter for fresh hearing. Various judgments of the Apex Court were cited. The Tribunal, upon rehearing, considered the applicability of case laws and the Board's Circular No. 6/92. It was noted that M/s. Harnik Nutrients Pvt. Ltd. was found to be a dummy unit created solely for availing S.S.I. exemption illegally. The Tribunal concluded that the clubbing of clearances was justified due to the interconnection and interdependence of the two units.

Applicability of Board's Circular:
The Tribunal deliberated on the applicability of the Board's Circular dated 29-5-1992, emphasizing that it would not apply in cases where a company is a dummy unit. The Circular states that Limited Companies are separate entities, but in this case, M/s. Harnik Nutrients Pvt. Ltd. was deemed a sham unit. The Tribunal highlighted the commonalities between the two units, indicating financial flow-back and mutual interests, leading to the conclusion that the Circular did not apply.

Existence of Dummy Unit:
The Tribunal found M/s. Harnik Nutrients Pvt. Ltd. to be a dummy unit, created to exploit S.S.I. exemption benefits illegally. Various factors supported this finding, such as shared production activities, common office space, and financial control by M/s. Harnik Food Industries. The Tribunal emphasized that the unit was not a genuine separate entity as portrayed.

Duty Demand and Units' Treatment:
The Tribunal addressed the duty demand issue, noting that the Commissioner erred in demanding duty from both units. As M/s. Harnik Nutrients Pvt. Ltd. was determined to be a dummy unit, duty should have been demanded solely from M/s. Harnik Food Industries, the actual manufacturer. The Tribunal corrected the Commissioner's order in this regard.

Interconnection and Interdependence:
The Tribunal analyzed the interconnection and interdependence of the two units, highlighting evidence such as common branding, shared marketing, and financial ties. Citing precedents, the Tribunal emphasized the significance of financial flow-back and mutual interests in determining the relationship between the units. The Tribunal concluded that the clubbing of clearances was appropriate based on these interconnections.

Conclusion:
Ultimately, the Tribunal upheld the clubbing of clearances but modified the duty demand to be payable by M/s. Harnik Food Industries only, considering it the actual manufacturer. The confiscation of land, building, and machinery was set aside as disproportionate. The Tribunal rejected the appeal, affirming the Commissioner's order with the specified modifications.