2017 (12) TMI 331 - AT - Central Excise

SSI Exemption - dummy units - clubbing of clearances - N/N. 8/2001 - validity of SCN - Held that - different SCN was issued to the units demanding separate duty from each of the Units. If the revenue is of the view that both the units are not independent and are same, in that case the SCN should have been issued only to the actual alleged manufacturer and the duty demand should have been made against it. The SCN and the impugned order proceeds to demand duty from both the units without alleging/ holding as to which of the unit is actual manufacturer and which is dummy manufacturer. Such issuance of separate SCN and separate demand from each of the units itself recognizes the separate and independent legal entity of each unit - the ratio of Hon ble Supreme Court judgment in the case of Gajanan Fabrics Distributors 1997 (5) TMI 50 - SUPREME COURT OF INDIA is squarely applicable, where it was held that By confirming the demand upon all the seven units the Collector appears, however, to have treated them all as assessees and, implicitly recognised their independent existence - no demand of duty can be made from the Appellants. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Separate legal entity of companies under the same management
- Allegations of evasion of SSI exemption benefits by related manufacturing units

Analysis:
1. Separate Legal Entity of Companies: The case involved appeals by multiple entities, including M/s Penco Trade Chem (P) Ltd., M/s Desmo Exports, and various directors. The issue revolved around whether these companies, despite being under the same management and sharing common shareholders, should be considered as separate legal entities for the purpose of availing SSI exemption benefits. The appellant argued that each company had distinct registrations and independent manufacturing structures, emphasizing that separate show cause notices and demands were issued to each unit, indicating recognition of their separate identities. The appellant cited legal precedents such as the Supreme Court judgment in the case of M/s Gajanan Fabrics Distributors to support the claim that limited companies are distinct legal entities regardless of common management.

2. Evasion of SSI Exemption Benefits: The core allegation was that M/s Penco and M/s Desmo, engaged in manufacturing similar products, were availing SSI exemption under Notification No. 8/2001 CE. The department contended that these companies were controlled by the same management, with significant overlap in ownership and operations, leading to the misuse of SSI exemption benefits. The department proposed to club the clearances of both units to deny SSI exemption based on the combined turnover exceeding the exemption limit. Separate show cause notices were issued to each company, resulting in individual demands and penalties being confirmed against them. However, the Tribunal noted that the separate issuance of notices and demands to each unit implied the acknowledgment of their independent legal status. Citing the Supreme Court's judgment in the case of Gajanan Fabrics Distributors, the Tribunal ruled that without establishing which unit was the actual manufacturer, demanding duty from both entities was unjustified. Consequently, the Tribunal set aside the demands and penalties, emphasizing the entities' separate legal existence.

3. Legal Precedents and Arguments: The appellant's counsel relied on legal principles and judgments to assert the distinct legal identities of the companies, emphasizing that separate notices and demands indicated the recognition of their independence. In contrast, the revenue representative referred to legal precedents such as the Supreme Court's order in CCE, New Delhi Vs. Modi Alkalies & Chemicals Ltd. and M/s Euro Scaff (India) Ltd. Vs. Commissioner to support the department's position. However, the Tribunal, after considering arguments from both sides and examining the facts, concluded that the demands and penalties imposed on the appellants were unsustainable due to the failure to establish the actual manufacturer and the separate legal status of the entities.

4. Decision and Conclusion: The Tribunal, after thorough deliberation, found in favor of the appellants, setting aside the impugned orders and allowing the appeals with consequential reliefs. By emphasizing the entities' separate legal identities and the lack of clarity on the actual manufacturer, the Tribunal ruled that the demands and penalties could not be upheld. The judgment underscored the importance of establishing the distinct legal status of companies, even when under common management, to determine liability for duty and penalties accurately.