2017 (11) TMI 706 - AT - Central Excise

SSI exemption - clubbing of units - mutuality of interest - the proposal to club the units are based upon allegations that both the companies were owned by family members of Shri B.N. Khurana and Shri B.N. Khurana was the over-all authority - Trade Notice dt 24.9.1992 and Board Circular 213/15/92-CX.6 dt 29.5.1992 - Held that - The adjudicating authorities has viewed the transfer of funds for few days from one concern to the other to save themselves from crossing the bank overdraft limit or to meet the short-term financial needs as indicator of both the units being one. However we are of the view that such short terms transfer of amount for few days from one unit to another and which has been properly accounted for cannot lead to the conclusion that there is mutuality of business interest or has common funding. The interest free loan for a short period cannot be held as a ground to club both the units as a single entity. In case of M/s Rollatainers Limited 2004 (7) TMI 92 - SUPREME COURT OF INDIA the Hon ble Supreme Court held that two factories located within the same premises, owned by same owner, common boundaries and common balance sheet, but having separate staff, separate management, separate passage, separate entrance with separate central excise registration and producing different end products, cannot be treated as one and the same factory and, hence, are two factories separately eligible to exemption. In present case we do not find any factor to club the units such as common procurement of raw materials or common stock of raw material. Neither there is any inter-dependence in manufacturing operations, common use of machinery or free flow of finance between two units. Thus in absence of such factors we do not find any reason to club the clearances of the Appellant Units. The value of clearances of independent and separate units and that too of limited companies cannot be clubbed only for the reason that the units belong to same family, controlled by same family members or use of certain common amenities or interest free loans when both have separate set ups. It is pertinent to note that the persons/share holders of the company are different from company which is an artificial legal person. Hence even same family members are looking after affairs of two companies, both companies have independent legal entities - M/s NCPL and M/s NEPL cannot be considered as single entity and their clearances cannot be clubbed. We, thus, set aside the demands and penalties imposed upon M/s NCPL and M/s NEPL. Time limitation - Held that - the demands are also time barred as there is no suppression facts or mala-fide intention. Penalties - Held that - since no case for demand of duty is made out, consequentially there is no reason to impose penalty upon him. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Clubbing of clearances of two companies for the purpose of SSI exemption.
2. Allegations of mutuality of interest and financial transactions between the companies.
3. Validity of extended period of limitation for demand.
4. Imposition of penalties on the companies and individuals.

Issue-Wise Detailed Analysis:

1. Clubbing of Clearances for SSI Exemption:
The primary issue was whether the clearances of M/s NEPL and M/s NCPL could be clubbed for determining eligibility for Small Scale Industries (SSI) exemption. The adjudicating authority held that both units were essentially one entity due to common management, shared resources, and financial transactions. However, the Tribunal found that both companies were registered separately with various authorities, had different manufacturing setups, and were located more than 25 kilometers apart. The Tribunal noted that both companies had separate legal entities, distinct products, and independent operations. It was concluded that the mere fact of common ownership or shared resources does not justify clubbing clearances. The Tribunal cited several precedents, including Balsara Hygiene Products Ltd. v. Commissioner of C. Ex., Vapi and Rollatainers Ltd. v. CCE, to support the view that separate legal entities should be treated independently for SSI exemption purposes.

2. Allegations of Mutuality of Interest and Financial Transactions:
The adjudicating authority alleged mutuality of interest between the companies due to interest-free loans, shared employees, and common office space. The Tribunal, however, found that the short-term financial transactions were properly accounted for and did not indicate mutuality of interest or common funding. The Tribunal stated that shared amenities or common management assistance cannot be grounds for clubbing clearances. The Tribunal relied on judgments such as Girish Electricals Inds. v. CCE, Mumbai-III and Super Star v. CCE, Calicut to emphasize that independent legal entities should not be penalized for operational efficiencies achieved through shared resources.

3. Validity of Extended Period of Limitation for Demand:
The issue of whether the extended period of limitation could be invoked was also considered. The Tribunal found that both companies had been filing necessary declarations and returns with the Department, and there was no suppression of facts or mala fide intention. The Tribunal referred to the Supreme Court judgments in Pushpam Pharmaceuticals v. CCE, Bombay and Cosmic Dye Chemical v. CCE, Mumbai to conclude that the demands were time-barred due to the absence of suppression or fraudulent intent.

4. Imposition of Penalties:
Penalties were imposed on both companies and Shri B.N. Khurana. The Tribunal held that since the demand of duty itself was not sustainable, the penalties could not be justified. The Tribunal found no evidence of mens rea or mala fide intention on the part of Shri B.N. Khurana. Consequently, the penalties imposed on him were also set aside. The Tribunal cited M/s Chamundi Die Cast v. CCE and M/s Gopal Zarda Udyog v. CCE to support the view that penalties should not be imposed in the absence of fraudulent intent or suppression of facts.

Conclusion:
The Tribunal concluded that M/s NEPL and M/s NCPL could not be considered a single entity for the purpose of SSI exemption, and their clearances should not be clubbed. The demands and penalties imposed on the companies and Shri B.N. Khurana were set aside. The appeals were allowed with consequential reliefs, and the orders were pronounced in court on 31/10/2017.