2016 (9) TMI 1094 - AT - Central Excise

SSI exemption - wrong availment of Exemption benefit - Notification No.175/86-CE and 1/93-CE - denial of SSI notification - clubbing of value of clearances - impugned order does not hold one person as the manufacturer and the others as dummies - Held that - the manufacture and clearances made by the respective noticees/appellants - M/s Atlantic Chemical Industries, M/s Foamsil Chemicals (not appellant here) and M/s Arun Chemicals for the item namely RBA availing the benefit of Notification No.175/86-CE (1/93-CE later) have to be clubbed together as we hold that these units are one and the same, when their operations are under common management and financial control and have mutuality of financial interest with each other. When it is so, then we agree with the findings of the impugned order. The three units namely, M/s Atlantic Chemical Industries, M/s Foamsil Chemicals and M/s Arun Chemicals, whatever is their constitution, (these are proprietary concerns), are under common management and closely controlled by only one person Shri J.S. Jain, who is one of the appellants here. The facts and circumstances have warranted to examine the reality of these units; and after going behind the mask of these entities, it has been revealed that activities of these units i.e. manufacture, clearance etc. has to be clubbed together supported by the decision of Hon ble Supreme Court in the case of Calcutta Chromotype Ltd. vs. C.C.E., Calcutta 1998 (3) TMI 138 - SUPREME COURT OF INDIA . Regarding the submission that M/s Arun Chemicals had got no manufacturing activity, it may be mentioned that both M/s Foamsil Chemicals and M/s Arun Chemicals have been actively involved in the operations of wrongly availing exemption under Notification No.175/86-CE by -artificial fragmentation when there was no distinction in management of the firms . Therefore, M/s Arun Chemicals (who is one of the appellants) deserves to be penalized under Rule 9(2) and 173Q of Central Excise Rules. We are giving no specific findings on M/s Foamsil Chemicals as they are not the appellant here. It is clear that noticee appellants M/s Atlantic Chemicals played a major role in the manufacturing of the item RBA. Many of the machinery items and facilities for manufacturing are available only with M/s Atlantic Chemicals. Therefore, after clubbing of clearances of the subject three units, liabilities for payment of duty of Central Excise is hereby fixed on M/s Atlantic Chemicals. Consequently, the appellant M/s Atlantic Chemicals is to pay total duty of Central Excise of ₹ 71,06,066/- (i.e. ₹ 38,45,363/- ₹ 31,39,343/- ₹ 1,21,360/-) for the RBA manufactured and cleared during 1989-90 to 1993-94. In this regard, corresponding penalty of ₹ 70,20,000/- is also imposed on M/s Atlantic Chemicals under Rule 2(2) and 173Q of C.Excise Rules. Further M/s Arun Chemicals have been involved in continuing this operation of wrongly claiming exemption Notification No.175/86-CE ; therefore, the penalty of ₹ 1,20,000/- imposed on them is hereby sustained. Demand and imposition of penalties - RBA manufactured and not accounted for - removed clandestinely in the guise of soda bicarbonate - Held that - the retractions and modifications do not matter when overall evidences conclusively prove that appellants in fact cleared their product RBA in the guise of soda bi carb thus evading central excise duty. It has also come on record that soda bi carbonate cannot be technically used by the manufacturers concerned, who are using RBA as one of the raw materials for their products in Kerala. In other words, soda bi carb is not the substitute for the use of RBA in the respective rubber or other industries. In this regard, we entirely agree with the findings given by the Commissioner (Adjudication) in the impugned order. It also appears from the record that the RBA cleared in the guise of Soda bi carb by Atlantic Chemicals and Arun Chemicals, were received for further disposal by the Ceyenar Chemicals, India Rubber & Chemicals and Lotus Chemicals. It is evident that Ceyenar Chemicals, Inda Rubber & Chemicals and Lotus Chemicals had sold the said goods to various hawai rubber sheets manufacturers and also collected the differential amount between the price of such supplied RBA and price of Soda bi Carb and arranged then remittance to Atlantic Chemicals and Sh. J.S. Jain. In their defence submissions dated 9.1.95, India Rubber & Chemicals, Ceyenar Chemicals & Lotus Chemicals have denied the allegations and contested the proposed penalty in the SCN. However, these submissions are not supported by any evidence. On the other hand, there is overwhelming evidence indicating the receipt and disposal of RBA transported under the garb of Soda bi Carb as discussed above. It is, therefore, held that they have been concerned in the receipt and disposal of the said offending goods and hence liable to penalty under Rule 209A of the CER . Penalties imposed in the impugned order on M/s Atlantic Chemicals (of ₹ 29 lakhs) and on M/s Arun Chemicals (of ₹ 6 lakhs) are modified and we instead impose the penalty of ₹ 35,00,000/- (Rupees thirty five lakhs only) on M/s Atlantic Chemicals only in this regard under Rule 9(2) and Rule 173Q of the Central Excise Rules. Further, it is to be noted that M/s Arun Chemicals along with M/s Atlantic Chemicals and others has been actively involved in the clearance of RBA in the guise ofsoda bi carb and therefore, deserve imposition of penalties. Consequently, penalty of ₹ 6 lakhs imposed on M/s Arun Chemicals by the impugned order under Rule 9(2) and Rule 173Q of Central Excise Rules is hereby sustained. Demand and imposition of penalties - extra production of RBA (based on the test reports) - not accounted for in the production records and was removed clandestinely without payment of duty - Held that - change of extra production is based solely on the test reports and the Revenue has not been able to give any other corroboratory evidence to support this charge of extra production against the respective assesees. Further, when M/s Arun Chemicals do not have required manufacturing facility available with them there cannot be any production of RBA on record by them. Moreover, unless there are sufficient corroboratory evidences on records to support this charge of extra production of RBA (based on the test reports), we are of the considered view that there would be no sufficient justification to sustain the charge of extra-production of RBA (based on mere test reports), where the Revenue claims that central excise duty was not paid by the respective noticees/appellants. In other words, when we do not find any corroborative evidence(s) to sustain the charge of extra unaccountable production of RBA (based on test report), we have no option but to hold that this charge of unaccounted production of RBA (based on sample test reports) by the noticees namely, Atlantic Chemicals, M/s Foamsil Chemicals and M/s Arun Chemicals remain unsustainable and hereby dropped. Consequently, the penalties imposed on the respective noticees are also not sustainable and are hereby dropped. Imposition of penalties - Held that - we are of the considered view that there is no reason to interfere with the above penalties. The impugned order has rightly imposed these penalties on the respective noticees appellants for the reasons mentioned in the impugned order. - Appeal disposed of

Summary

Issues Involved:
1. Clubbing of manufacturing and clearances of three units during 1989-90 to 1993-94.
2. Confirmation of central excise duty and imposition of penalties for unaccounted manufacturing and clandestine clearance of RBA in the guise of soda bicarbonate.
3. Confirmation of duty of Central Excise and imposition of penalties for unaccounted manufacturing of RBA and clearance thereof without payment of duty by declaring wrong formula.
4. Imposition of separate penalties under Rule 209A of the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Clubbing of Manufacturing and Clearances:
The Commissioner observed that the firms M/s Atlantic Chemicals, M/s Foamsil Chemicals, and M/s Arun Chemicals were operating under common management and financial control, with mutual financial interests. The Commissioner concluded that these firms were artificially fragmented to avail exemption under Notification No. 175/86-CE (later 1/93-CE). The clearances of all units were to be clubbed, and the benefit of the exemption was not available as the value of clearances exceeded the eligibility limit. The Tribunal upheld the Commissioner’s findings, stating that the units were essentially one entity controlled by Shri J.S. Jain. The Tribunal referenced the Hon'ble Supreme Court's decision in Calcutta Chromotype Ltd. vs. C.C.E., Calcutta - 1998 (99) ELT 202 (SC), which supported lifting the corporate veil to reveal the true nature of operations. Consequently, M/s Atlantic Chemicals was held liable to pay a total duty of Central Excise of ?71,06,066/- and a corresponding penalty of ?70,20,000/- under Rule 2(2) and 173Q of Central Excise Rules. The penalty of ?1,20,000/- imposed on M/s Arun Chemicals was sustained.

2. Unaccounted Manufacturing and Clandestine Clearance of RBA in the Guise of Soda Bicarbonate:
The Tribunal found that the appellants had indeed manufactured and cleared RBA in the guise of soda bicarbonate to evade central excise duty. The Commissioner’s findings were supported by clear facts and corroborative evidence, including statements from respective persons and the impracticality of using soda bicarbonate in place of RBA in the concerned industries. The Tribunal confirmed the duty liability of ?36,30,135/- against M/s Atlantic Chemicals under Rule 9(2) read with Section 11A of the Central Excise Act. The penalties imposed on M/s Atlantic Chemicals and M/s Arun Chemicals were modified, with a penalty of ?35,00,000/- imposed on M/s Atlantic Chemicals and the penalty of ?6,00,000/- on M/s Arun Chemicals sustained.

3. Unaccounted Manufacturing and Clearance without Payment of Duty by Declaring Wrong Formula:
The charge of extra production of RBA based on test reports was contested by the appellants. The Tribunal found that the Department had no corroborative evidence other than the test reports to support the charge of extra production. Given the lack of sufficient evidence, the Tribunal held that the charge of unaccounted production of RBA based on test reports was unsustainable and dropped the demand and penalties related to this charge.

4. Imposition of Separate Penalties under Rule 209A of the Central Excise Rules:
The Tribunal upheld the penalties imposed on the individuals and entities involved, including Shri J.S. Jain (?25,00,000/-), Shri Amar Kumar Jain (?10,00,000/-), M/s Amar Enterprises (?2,50,000/-), M/s India Rubber & Chemicals (?1,50,000/-), M/s Ceyenar Chemicals (?60,000/-), and M/s Lotus Chemicals (?85,000/-). The Tribunal found no reason to interfere with these penalties given the totality of facts and circumstances.

Conclusion:
The Tribunal modified the impugned order and disposed of all appeals, confirming the clubbing of clearances, the liability of central excise duty and penalties for clandestine clearance of RBA, and sustaining the penalties imposed under Rule 209A of the Central Excise Rules. The Tribunal did not provide specific findings on M/s Foamsil Chemicals as they were not appellants in this case.