2018 (5) TMI 874 - AT - Central Excise

SSI Exemption - clubbing of value of clearances of four other manufacturing units - N/N. 8/2003-CE dated 01/03/2003 - Held that - the facts of the case justifies the removal of the corporate veil in respect of all the units in this case. This reveals that all the units are having dejure separate existence but defacto existence of that of a single unit. SBTPL was the original unit started by Shri Mahendra Bohra and the same is to the defacto unit comprising all the units - the clearances of all the manufacturing units will need to be clubbed and the benefit of duty free clearance under N/N. 8/2003 is to be allowed to SBDTPL only - SSI benefit rightly denied. Valuation - adoption of selling price of the trading units as assessable value - It has been argued that the trading units are not related with any of the manufacturing units in terms of Section 4 (3) (b) of the Central Excise Act, 1944 - Held that - all the manufacturing as well as trading units had only nominal existence but effectively were not independent but related. Since Shri Mahendra Bohra is the one person who has total financial as well as management control of all the units, the transaction values at which the goods are shown as sold from the manufacturing units to the trading units has no sanctity. It is not only that the manufacturing units and trading units are liable to be held as related persons as per Section 4 (3) (b) (iv), they are in effect one single large unit - the duty is required to be determined on the basis of the price on which the trading units have ultimately sold the goods to independent buyers. Similar issue decided in the case of COMMISSIONER OF C. EX., NEW DELHI Versus MODI ALKALIES & CHEMICALS LTD. 2004 (8) TMI 108 - SUPREME COURT OF INDIA . Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Clubbing of value of clearances of multiple manufacturing units to deny Small Scale Industry (SSI) exemption.
2. Valuation of goods by adopting the selling price of related trading firms.

Issue-wise Detailed Analysis:

1. Clubbing of Value of Clearances:
The primary issue was whether the value of clearances from Shree Bherav Diamond Tools Pvt. Ltd. and its related manufacturing units should be clubbed to deny SSI exemption. The Commissioner confirmed the demand of Cenvat Excise duty amounting to ?2,91,28,460/- and ?58,47,246/- against Shree Bherav Diamond Tools Pvt. Ltd. and its related manufacturing firms.

The appellants argued that each manufacturing unit had separate manufacturing facilities, identities, and ownerships, with separate Income Tax PANs and central excise registrations. They contended there was no mutuality of interest and that each unit discharged its duty liability lawfully. They also argued that clubbing of clearances is not justified as the units were not dummy units and had independent existence.

The Tribunal, however, found that despite the separate legal identities, the units were controlled by Shri Mahendra Bohra, who had pervasive financial and management control. The investigation revealed that the units shared common facilities, employees, and financial transactions without interest. The Tribunal concluded that the independent existence of the units was a facade and upheld the clubbing of clearances, denying the SSI exemption.

2. Valuation by Adopting Selling Price of Related Trading Firms:
The second issue was whether the valuation of goods should be based on the selling price of related trading firms. The Commissioner imposed penalties on the trading firms and directors under Rule 25 of Central Excise Rules, 2002, and Section 11AC of the Central Excise Act, 1944.

The appellants argued that transactions between manufacturing and trading units were on a principal-to-principal basis with no mutuality of interest, thus not requiring valuation under Rule 9 of the Central Excise Valuation Rules, 2000. They contended that the trading units were not "related" as per Section 4 (3) (b) of the Central Excise Act, 1944.

The Tribunal, however, found that the manufacturing and trading units were effectively not independent but related, with Shri Mahendra Bohra having total financial and management control. The Tribunal upheld the valuation based on the price at which the trading units sold the goods to independent buyers, finding no infirmity in the Adjudicating Authority's view.

Conclusion:
The Tribunal upheld the impugned order, confirming the clubbing of value of clearances and the valuation based on the selling price of related trading firms. All appeals were rejected, and the decision was pronounced in open court on 11/05/2018.