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2018 (2) TMI 1014 - AT - Central ExciseSSI Exemption - clubbing of clearances of four entities i.e., Silicone Carbide Grinding Mills Pvt. Ltd (i.e. SCGM), Lignin Research Center (i.e. LRC), Sweta Electric (P) Ltd (i.e. Sweta) and Indostaits (Pvt.) Ltd. (i.e. Indostraits) - dummy units - it has been held in the impugned order that the four companies are dummy company. They are a facade created for circumventing the small scale notifications and therefore the aggregate value of clearance of all four companies were clubbed. Held that - while there were noteworthy transaction between SCGM and LRC, no significant transaction in respect of Sweta and Indostraits has been pointed out in the show-cause notice or in the impugned order. The only evidence in respect of Sweta and Indostraits relates to common office premises, common control of Shri S.V. Jayshankar. In absence of any evidence of common pool of funds, free movement of material, common manufacturing operations etc, merely on the basis of some common shareholding and management clubbing of clearance by holding them as dummy units cannot be upheld. In these circumstances, the charge for clubbing the clearances of Sweta and Indostraits with SCGM and LRC cannot be sustained. The two units were commercially interacting with each other as in they were buying and selling material to each other. Therefore a few transactions do not by any manner indicate that there was a common pool of funds. It can be seen that the SCGM and LRC came into existence as totally different units. SCGM came into existence in1982 while LRC was formed in 1966. The original shareholding pattern was very different at the time of formation. Later by resignation and induction of partners the shareholding pattern evolved to present state - It is apparent that the SCGM and LRC have separate identities right from the inception. Various licences have been procured at different times. Thus independent development of the two cannot be doubted. Tribunal in the case of Electro Mechanical Engg Corpn 2002 (5) TMI 186 - CEGAT, NEW DELHI has in almost identical circumstances held that clearances cannot be clubbed. No evidence of any significant transaction between Sweta and Indostraits among themselves or with SCGM and LRC. Some instances of transactions have been pointed out between SCGM and LRC, but they are neither significant nor substantial to prove that there was common pool of funding or common identity of the two or any flowback. Thus the clearances of the four appellants cannot be clubbed for the purpose of small scale exemption. Extended period of limitation - Held that - at the material time there was a view of revenue that each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. In such circumstances the bonafides of the appellants cannot be doubted - invocation of larger period of limitation is not justified. Confiscation of goods cleared during the previous five years - redemption fine - Held that - Since on merits the case is not established there can be no confiscation. Moreover in absence of goods and in absence of any seizure no confiscation can be ordered and no redemption fine can be imposed - confiscation and redemption fine set aside. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Clubbing of clearances of four factories. 2. Denial of SSI exemption. 3. Imposition of penalties. 4. Liability for confiscation and imposition of redemption fine. 5. Abatement of appeal due to death of one appellant. Issue-wise Detailed Analysis: 1. Clubbing of Clearances of Four Factories: The primary issue was whether the clearances of four factories (Silicon Carbide Grinding Mills Pvt. Ltd., Lignin Research Center, Sweta Electric Pvt. Ltd., and Indostaits Pvt. Ltd.) should be clubbed together, treating them as a single manufacturer. The tribunal examined the evidence presented, which primarily focused on transactions between SCGM and LRC, such as financial interlinking and movement of materials. The tribunal found that while there were some transactions between SCGM and LRC, they were not significant or substantial enough to prove a common pool of funding or common identity. The evidence regarding Sweta and Indostraits was negligible. The tribunal concluded that the clearances of the four entities could not be clubbed for the purpose of small-scale exemption. 2. Denial of SSI Exemption: The tribunal held that the denial of the SSI exemption was based on the incorrect premise that the four entities were dummy units created to circumvent small-scale notifications. The tribunal found that the entities were independently incorporated, had separate factory plots, manufacturing premises, and independent workforces. The evidence did not support the claim that they were dummy units. Therefore, the denial of SSI exemption was not justified. 3. Imposition of Penalties: Penalties were imposed on the directors and partners of the entities under Rule 209A of the erstwhile Central Excise Rules and Rule 26 of the Central Excise Rules 2001/2002. However, since the tribunal found that the clearances should not be clubbed and the SSI exemption was wrongly denied, the basis for the penalties was invalid. Consequently, the penalties imposed on Shri S.V. Jayshankar, Mrs. P.S. Rajishankar, and Girija Jayshankar were set aside. 4. Liability for Confiscation and Imposition of Redemption Fine: The tribunal noted that without any seizure, the goods manufactured and cleared during the five-year period could not be confiscated, and no redemption fine could be imposed. The tribunal referenced the case of FINESSE CREATION INC, where it was held that in the absence of goods and seizure, no confiscation or redemption fine could be ordered. Therefore, the confiscation and the redemption fine of 50 lakhs imposed were set aside. 5. Abatement of Appeal Due to Death of One Appellant: The tribunal acknowledged the death of Mrs. P.S. Rajishankar and accepted the submission that her appeal should abate in view of the decision in Shivkripa Ispat Pvt. Ltd. Accordingly, the appeal in her case was abated. Conclusion: The tribunal set aside the impugned order, allowing the appeals. The findings were that the clearances of the four entities could not be clubbed, the SSI exemption was wrongly denied, and the penalties and redemption fine imposed were unjustified. The tribunal emphasized the lack of significant evidence to support the revenue's claims and highlighted the independent existence and operations of the entities involved.
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