2009 (1) TMI 185 - HC - Central Excise

Dummy Units Clubbing of value of clearances in case of SSI Units Both units have their premises in the same block. The property tax, water charges and other charges relating to the entire premises occupied by both the appellants are paid by the one unit. 2% of the turnover of one unit is payable to another unit. The office staff is common for both the appellants and their salary is paid by one unit. Marketing Agent is common. Trade mark Harnik belongs to one unti but used by another unit without consideration. Both the units are being controlled by one family. Both the units having common office and production blocks All the circumstances narrated above clearly establish that M/s. Harnik Food Industries were the real manufacturers and M/s. Harnik Nutrients Private Limited were only a dummy created for the purpose of availing the benefit of SSI Exemption Held that clubbing of clearances is justified

Issues Involved:
1. Legitimacy of clubbing clearances of M/s. Harnik Food Industries and M/s. Harnik Nutrients Private Limited.
2. Allegation of M/s. Harnik Nutrients Private Limited being a dummy unit.
3. Financial and operational interdependence between the two units.
4. Compliance with the principles of natural justice.

Issue-wise Detailed Analysis:

1. Legitimacy of Clubbing Clearances:
The appellants contested the clubbing of clearances of M/s. Harnik Food Industries and M/s. Harnik Nutrients Private Limited. The CESTAT upheld the clubbing, stating that the two entities were essentially operating as one unit. The appellants argued that both units were separate entities with independent machinery, premises, and tax assessments. However, the court noted that both units were located in the same block, shared office staff, and used a common marketing agent. The court found that the shared use of the trade mark "HARNIK" without royalty payments and the common control by the Hingorani family indicated a significant interdependence, justifying the clubbing of clearances.

2. Allegation of Dummy Unit:
The investigation revealed that M/s. Harnik Nutrients Private Limited was allegedly a dummy unit created by M/s. Harnik Food Industries to evade duty and benefit from small-scale exemption. The court noted several factors supporting this claim: the premises of both units were owned by M/s. Harnik Food Industries, M/s. Harnik Nutrients Private Limited did not have its own machinery, and there was no rent charged for the use of the premises. The court concluded that M/s. Harnik Nutrients Private Limited was indeed a dummy unit, as it was dependent on M/s. Harnik Food Industries for its operations.

3. Financial and Operational Interdependence:
The court highlighted several factors indicating financial and operational interdependence between the two units. These included the shared payment of property tax and water charges, the agreement for M/s. Harnik Nutrients Private Limited to share 2% of its turnover with M/s. Harnik Food Industries, and the common office staff. The court referred to the Supreme Court's observations in Supreme Washers (P) Ltd. v. Commissioner of Central Excise, which stated that factors like common procurement of raw materials, common stock accounting, and financial flow back indicate interdependence. The court found these factors present in the case, confirming the financial and operational interdependence.

4. Compliance with Principles of Natural Justice:
The appellants argued that they were denied the right to cross-examine witnesses, constituting a breach of natural justice. The court found that the cross-examination of all seizing officers and panchas was allowed, ensuring substantial compliance with the principles of natural justice. The court dismissed the appellants' grievance, stating that there was no breach of natural justice.

Conclusion:
The court dismissed the appeals, upholding the CESTAT's decision to club the clearances of the two units. The court found that M/s. Harnik Nutrients Private Limited was a dummy unit created by M/s. Harnik Food Industries, and there was significant financial and operational interdependence between the two units. The court also found no breach of natural justice in the proceedings. The concurrent findings of fact by both authorities were deemed credible and not perverse, warranting no interference by the court.

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