2016 (11) TMI 12 - AT - Central Excise

SSI Exemption - dummy units - clubbing of turnover of two units - Clandestine removal of goods - Held that - turnover cannot be clubbed together and the two units cannot be treated as one unit merely because various factors such as related partners, common use of machines, labour , employees etc. unless there is a clear and specific evidence that there is mutuality of business interest between the two units and that both have interest in the business of each other or they have common funding and financial flow back - no such evidence indicating mutuality of interest in each other s business and financial flow back have been placed on record by the Department. It has been neither been alleged nor been established that any of the two firms was dummy /fagade or non-existent. On the contrary, it is a fact admitted by the department that both the units were found having independent manufacturing premises/factories during the search operations conducted by the Central Excise officers and were also found engaged in the manufacture of excisable goods as per panchnamas dated 17.11.2005 drawn on the spot. From the above facts stated, it is amply clear that both the firms were engaged in the manufacture of excisable goods namely plastic extrusion machines with the help of various machines installed in their respective premises and workers employed. I find that the most important aspect about having common funding and financial flow back is missing in the instant case which is very much necessary to club the clearances of the said units and deny them SSI exemption under Notification No.8/2003-CE dated 1.3.2003 as amended - demand of duty for the year 2004-05 also does not sustain. Consequently, demand of interest and imposition of penalty on both the appellants also do not sustain - appeal dismissed - decided against the Revenue.

Summary

Issues:
Department's appeal against Commissioner (Appeals) order - Allegations of non-payment of central excise duty and penalties on respondents - Clubbing of turnover of two units for assessment - Validity of confessional statements as evidence - Mutuality of business interest between units - Entitlement for SSI exemption under Notification 8/2003-CE.

Analysis:

1. The Department appealed against the Commissioner (Appeals) order in two cases involving allegations of non-payment of central excise duty and penalties on the respondents. The main issue revolved around the clubbing of turnover of M/s Shiv Mechanical Works and M/s Manjeet Engineers for assessment purposes. The Department claimed that the confessional statement of the main respondent indicated non-payment of duty and clandestine removals, supporting the demand and penalties. However, the first appellate authority set aside the original order, leading to the Department's appeal.

2. The Department argued that the confessional statement of the main respondent, Shri Gian Singh, admitting to the turnover, should be considered valid evidence. It was contended that the units were interdependent, with work carried out at M/s Shiv Mechanical Works, justifying the demand and penalties. The Department criticized the first appellate authority for overturning the original order based on this evidence.

3. Upon review, it was found that the Department's case heavily relied on Shri Gian Singh's statement regarding the turnover of the units. However, no corroborative evidence was presented by the Revenue to support these claims. The absence of detailed investigation into raw materials, clearances, and buyer details raised doubts about the validity of the demand for duty based solely on the confessional statement.

4. The Tribunal noted that the Department failed to provide additional evidence to substantiate the turnover calculations based on Shri Gian Singh's rough estimates. The lack of verification or investigation to ascertain the exact unaccounted turnover undermined the legal sustainability of the duty demand. The Tribunal emphasized the necessity of corroborative evidence to support confessional statements for duty assessment.

5. The first appellate authority's analysis highlighted the importance of establishing mutuality of business interest between units to justify the clubbing of turnovers. The authority found no evidence of financial flow back or mutual interest between M/s Shiv Mechanical Works and M/s Manjeet Engineers. The separate legal entities of the firms, independent operations, funding sources, and lack of mutual funding indicated their entitlement to SSI exemption under Notification 8/2003-CE.

6. Ultimately, the Tribunal dismissed the Revenue's appeals, citing the lack of substantive or legal issues not addressed by the first appellate authority. The decision upheld the findings that the firms were separate legal entities with independent manufacturing units, lacking mutual financial interest, and thus entitled to SSI exemption under the relevant notification.

This detailed analysis of the judgment outlines the key legal issues, arguments presented, and the Tribunal's decision regarding the central excise duty dispute and clubbing of turnovers in the case.