2009 (1) TMI 233 - AT - Central Excise

SSI Units Dummy units clubbing of value of clearance Partners are from the same family One unit established on the piece of land owned by the partners of another firm without rent - Labourers working in both the units punched the card in the same punching machine (to mark theft attendance). Accountant-cum-Manager maintains the account of both the units Common electricity connection. They borrowed money from each other in times of need and did not pay interest. The goods manufactured by one unit were subjected to finishing process by another unit Held that These grounds are not sufficient to held that one unit is dummy merely use of common facilities and premises can not justify clubbing - The plethora of case law we considered overwhelmingly hold against clubbing of clearances of the two units in the facts of the case. The impugned demand and penalty are vacated. The appeal is allowed.

Issues Involved:
1. Clubbing of clearances for determining SSI exemption.
2. Financial flow back and common funding.
3. Mutuality of interest between units.
4. Validity of penalties imposed.
5. Delay in proceedings and its impact on the case.

Detailed Analysis:

1. Clubbing of Clearances for Determining SSI Exemption:
The primary issue was whether the clearances of Coimbatore Engineering Works (CEW) and Pneumatic Controls (PC) should be clubbed to determine the Small Scale Industries (SSI) exemption under Notification No. 175/86 dated 1-3-86. The Commissioner (Appeals) justified the clubbing based on common fund flow, shared infrastructure, and lack of independent operation by PC. However, the Tribunal found these grounds insufficient, stating that mutuality of interest and financial flow back were not conclusively established. The Tribunal cited previous judgments, emphasizing that familial ties and administrative commonalities alone do not justify clubbing.

2. Financial Flow Back and Common Funding:
The Tribunal examined the financial transactions between CEW and PC, noting that both units borrowed money from each other without interest and shared certain utilities and infrastructure. However, it found no evidence of financial flow back or common funding that would indicate one unit was a dummy of the other. The Tribunal referenced several cases, such as Vivomed Labs (P) Ltd. v. CCE and Electro Mechanical Engg. Corp. v. CCE, which held that in the absence of financial flow back, clubbing of clearances is not permissible.

3. Mutuality of Interest Between Units:
The Tribunal analyzed the operational details of CEW and PC, noting shared resources like a common telephone, electricity connection, and generator. It concluded that these shared resources did not establish mutuality of interest sufficient to justify clubbing. The Tribunal also highlighted that both units operated independently, with CEW manufacturing limit switches for a specific client and PC producing different types of switches for a broader market. The Tribunal cited Modi Alkalies & Chemicals Ltd. v. CCE and Indian Metal Industries v. CCE to support its finding that mutuality of interest and financial flow back must be proven for clubbing to be justified.

4. Validity of Penalties Imposed:
The original authority had imposed penalties on CEW and its partners under various rules of the Central Excise Rules, 1944. The Commissioner (Appeals) upheld these penalties but vacated the penalty on Smt. Lalithamani. The Tribunal, however, vacated all penalties, finding that the grounds for clubbing clearances were not substantiated. It referenced the Renu Tandon v. Union of India case, which held that in the absence of evidence of common funding and financial flow back, penalties based on clubbing of clearances are not justified.

5. Delay in Proceedings and Its Impact on the Case:
The appellants argued that the proceedings, initiated 15 years after the remand order, were bad in law. The Commissioner (Appeals) rejected this argument, stating that the delay had given the appellants sufficient time to prepare their defense. The Tribunal did not find this delay to impact the substantive issues of the case but focused on the lack of evidence for clubbing clearances.

Conclusion:
The Tribunal concluded that the clearances of CEW and PC should not be clubbed for determining SSI exemption, as there was no conclusive evidence of financial flow back, common funding, or mutuality of interest. The penalties imposed were vacated, and the appeal was allowed. The judgment emphasized the need for clear evidence of financial interdependence and operational integration to justify clubbing of clearances under the Central Excise Rules.

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