2016 (5) TMI 780 - AT - Central Excise

Demand of duty and imposition of penalties - under Notification No. 175/86 CE dt 01.03.86 - Clubbing of clearances of appellant with other company - Appellant contended that they have separate factory with machinery and set up and there is no mutuality of interest between them and M/s NTB International and the facts relied upon for confirmation of demands in previous period no more exists - Held that - once the Appellant concern is alleged to be dummy concern/ fragment of M/s NTB International in that case the demand should not have been proposed against the appellant as in the eyes of the revenue the Appellant has got no independent existence. Thus it is found that the impugned orders suffers from serious infirmity on this count. Once the independent existence of a concern is denied and is held to be dummy concern, in that case the duty could not have been demanded from Appellant which is illegal. In the instant appeals, in the remand proceedings the demand has again been confirmed against the Appellant whose independent existence has been denied by the revenue. This confirmation of demand against the Appellant itself recognizes their independent existence and thus the demand made by holding the same to be part of M/s NTB international is illegal and not sustainable. While remanding the earlier show cause notice the Tribunal had directed the adjudicating authority to examine the basis of clubbing for an earlier period. However the adjudicating authority without examining the basis of clearances again confirmed the demand which shows that no fresh enquiries were made to determine as to how the Appellant is connected with M/s NTB and whether the facts show the mutuality of interest between the two. Since the demand was confirmed without examining the actual facts which can lead to clubbing of Appellant with M/s NTB international, we hold that on account of this count also, the demand is not sustainable. As the Appellant is a partnership firm and M/s NTB international is a Private Ltd. Company and therefore they cannot be clubbed. The adjudicating authority has not considered any of these aspects and confirmed the demand against the Appellant firm by clubbing it with M/s NTB International which is illegal. Therefore, on this ground also the demand against the Appellant is not sustainable. Therefore, demand against the appellant are not sustainable and are set aside. Also since the demand itself is not sustainable, we hold that the revenue s appeal towards imposition of penalty against M/s Polybelt is also not sustainable. - Decided in favour of appellant with consequential relief

Summary

Issues Involved:
1. Classification of Nylon sandwich Power Transmission Belt.
2. Eligibility for SSI Exemption under Notification No. 175/86 CE.
3. Clubbing of clearances of M/s Polybelt Technologies India with M/s NTB International.
4. Validity of demands and penalties imposed on M/s Polybelt Technologies India.
5. Non-issuance of show cause notice to M/s NTB International.

Detailed Analysis:

1. Classification of Nylon Sandwich Power Transmission Belt:
The classification issue was settled in favor of the revenue. The product was classified under chapter subheading No. 4010.90, 4210.90, and 5901.00 of the Central Excise Tariff Act, as upheld by the Supreme Court in NTB International Pvt. Ltd. Vs. Commissioner 2015 (319) ELT 45 (SC).

2. Eligibility for SSI Exemption:
The appellant, M/s Polybelt Technologies India, claimed SSI Exemption under Notification No. 175/86 CE. The earlier investigations concluded that M/s Polybelt Technologies was a dummy entity of M/s NTB International, leading to the clubbing of their clearances. The Tribunal had remanded the matter to the adjudicating authority to reconsider the eligibility for SSI Exemption, particularly focusing on whether the non-issuance of a show cause notice to M/s NTB International invalidated the clubbing of clearances.

3. Clubbing of Clearances:
The adjudicating authority confirmed the clubbing of clearances based on earlier investigations and findings that M/s Polybelt Technologies India was a dummy of M/s NTB International. However, the Tribunal found that the non-issuance of a show cause notice to M/s NTB International was a significant procedural lapse. The Tribunal emphasized that if M/s Polybelt was considered a dummy, no demand should have been raised against it independently.

4. Validity of Demands and Penalties:
The Tribunal observed that the confirmation of demands against M/s Polybelt Technologies India implicitly recognized its independent existence, which contradicted the revenue's stance of it being a dummy unit. The Tribunal referenced the Supreme Court's judgment in Gajanan Fabrics Distributors Vs. CCE, Pune, which held that confirming demands against all units involved in clubbing implicitly recognizes their independent existence. Consequently, the Tribunal found the demands and penalties against M/s Polybelt Technologies India unsustainable and set them aside.

5. Non-Issuance of Show Cause Notice to M/s NTB International:
The Tribunal noted that the non-issuance of a show cause notice to M/s NTB International was not merely a technicality but a critical procedural requirement. The adjudicating authority's reliance on earlier investigations without fresh examination of mutuality of interest and financial flowback between M/s Polybelt and M/s NTB International was deemed insufficient. The Tribunal held that the demands based on such flawed procedures were not sustainable.

Conclusion:
The Tribunal allowed the appeals filed by M/s Polybelt Technologies India, setting aside the demands and penalties. The Tribunal also dismissed the revenue's appeal for the imposition of penalties on M/s Polybelt Technologies India, citing procedural lapses and the lack of fresh evidence to justify the clubbing of clearances. The judgment emphasized the need for issuing show cause notices to all entities involved in clubbing and conducting thorough investigations to establish mutuality of interest and financial interdependence.