2018 (7) TMI 1277 - AT - Central Excise

SSI Exemption - Dummy units - N/N. 9/200-CE dated 01.03.2000 - it was alleged that the appellants were holding the other firm, M/s Mascot Chemicals, as a dummy unit - demand was confirmed jointly and severally against M/s Chemicos (the appellants) and M/s Mascot Chemicals. Held that - The Small Scale exemption is available to a unit engaged in the manufacture of excisable products. As long as the two units are independent units, complete in themselves to manufacture the goods and did not belong to the same manufacturer, both are separately entitled to the benefit of small scale exemption notification - Admittedly, in the present case one unit is proprietary unit of Shri Avdhesh Gopal Agarwal and the other unit is a partnership unit of Shri Avdhesh Gopal Agarwal and his wife Mrs. Niti Agarwal. Admittedly both the units are located at far off places and are fully equipped to manufacture goods being manufactured by them. The clubbing of clearances of two units is required to be done when one unit is a dummy of the other unit and the goods being manufactured in one unit are being cleared in the name of other unit. When the two units are independent of each other and are manufacturing their own goods and doing the business independently as a separate legal entity, the clubbing of clearances cannot be done for the purpose of denial of the small scale exemption notification. Smt Niti Agarwal is a partner in M/s Mascot chemicals whose clearances stand clubbed with the clearances of M/s Chemicos. It is on record that no notice was sent to M/s Niti Agarwal calling upon her to show cause as to why the clearances of M/s Mascot Chemicals to which she is a partner should not be clubbed with the appellants Clearances. No statement of Smt Niti Agarwal was recorded and as such it is not justifiable on the part of the Adjudicating Authority to hold her partnership concern as a dummy of M/s Chemico, without even intimating the said facts to Mrs Niti Agarwal - one out of the two units is a proprietary unit and the other is a partnership unit. The clearances of the two units in question cannot be clubbed as held by the Tribunal in number of decisions - Reference made to the decision in the case of Mayur Printers V/s Commissioner of Central Excise, Mumbai-I 2017 (3) TMI 598 - CESTAT MUMBAI . Also, It is not the Revenue s case that the units were not separately registered with the various Tax departments and were not doing the business independently in the factories located too far away from each other. The mere fact of Shri Avdhesh Gopal Agarwal being proprietor of one unit and partner of other unit by itself is not sufficient to hold the clearances from both, to be clubbed and to deny the benefit of small scale exemption notification. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Misclassification of Products
2. Clubbing of Clearances for SSI Exemption
3. Financial Independence and Dummy Unit Allegations
4. Clandestine Clearance Allegations
5. Time Barred Demand
6. Imposition of Penalty

Issue-wise Detailed Analysis:

1. Misclassification of Products:
The initial investigation by Central Excise officers on 16.01.2002 alleged misclassification of products Chemisol-35 and Chemisol-38, resulting in a differential duty demand of ?48,51,929/- for the period January 2002 to March 2004. However, the Commissioner, in the order dated 30.03.2011, dropped the demands related to misclassification.

2. Clubbing of Clearances for SSI Exemption:
The primary issue was whether the clearances of M/s Chemicos and M/s Mascot Chemicals should be clubbed for determining duty liability under the SSI exemption. The Commissioner initially confirmed a demand of ?44,47,700/- on the grounds that M/s Mascot Chemicals was a 'dummy' unit, created to evade duty and avail SSI exemption. However, the Tribunal found that both units were independent entities with separate legal standings, factory premises, and financial arrangements. The Tribunal emphasized that the clearances of two units can only be clubbed if one is a dummy of the other and not fully equipped to manufacture goods independently. The Tribunal concluded that the clubbing of clearances was unjustified as both units were independent and fully operational.

3. Financial Independence and Dummy Unit Allegations:
The Tribunal noted that the Commissioner failed to provide evidence of financial interdependence or mutuality of interest between the two units. The business transactions between M/s Chemicos and M/s Mascot Chemicals were conducted on a commercial basis, with appropriate payments including Central Excise duty. The Tribunal highlighted that the mere relationship between the proprietor of one unit and a partner in another does not justify clubbing clearances without concrete evidence of financial control or flow-back of funds.

4. Clandestine Clearance Allegations:
The impugned order included a demand of ?1,96,000/- for alleged clandestine clearance of thinners valued at ?12,25,000/- based on a challan book found during the investigation. The Tribunal found that there was no substantial evidence to support the allegation of clandestine clearances, especially since M/s Mascot Chemicals was availing full SSI exemption and was not required to maintain statutory records.

5. Time Barred Demand:
The demand was challenged as time-barred since the show cause notice was issued on 24.03.2005 for the period 2000-2001 to 2003-2004. The Tribunal agreed with the appellant that the matter involved interpretation of law regarding the clubbing of clearances and there was no evidence of deliberate concealment or suppression of information to evade duty. Therefore, the demand was considered time-barred.

6. Imposition of Penalty:
The Tribunal found no justification for imposing penalties on the appellants. It was noted that penalties cannot be imposed both on the proprietary concern and its proprietor simultaneously. Given the lack of evidence for deliberate evasion of duty, the penalties imposed were set aside.

Conclusion:
The Tribunal set aside the impugned order, allowing both appeals. The clearances of M/s Chemicos and M/s Mascot Chemicals were not to be clubbed, and the penalties imposed were unjustified. The Tribunal emphasized the importance of concrete evidence in establishing financial interdependence and the existence of dummy units for the purpose of denying SSI exemption.

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