2018 (10) TMI 1059 - AT - Central Excise

SSI Exemption - clubbing of clearances - related person - close relationship between the Directors and Partners in the four companies - Inter Connected Undertakings - N/N. 8/2003-CE dated 1.03.2003 - issuance of four distinct SCNs individually to four units. Held that - Undisputedly in the present case revenue has proceeded to issued four distinct show cause notices individually to each of the unit. In the impugned order Commissioner has also confirmed the demand against each of the unit individually - This fact of issuance of four distinct show cause notice and confirmation of the demand against unit separately is recognition of the fact that each of the unit exists as an independent unit. It is not understood how four separate demands can be made when the entire case is for clubbing the clearance of the four different entities/ units by treating the entire scheme from creation of the units as fa ade for evading the central excise duty. In case the four units/ entities are treated as separate units/ entities for proceeding each of them separately the entire basis for proceedings get vitiated. The entire case of revenue in the show cause notice and the impugned order is based on the fact to show that all the four units are interconnected units and hence related to each other in terms of Section 4(3)(b) of the Central Excise Act, 1944. And since they are related there clearances has been sought to be clubbed. The approach of the revenue in the entire matter reflects the poor appreciation of law. The concept of related person as have been incorporated in the Section 4 and Valuation Rules, is for the purpose of determination of the correct assessable value in cases where the goods are being cleared though the related person. The admittance of relationship between the two units for the purpose of said section goes to signify the existence of two separate entities which may have some relationship impacting the transaction value between the two. It is now settled by various judicial pronouncements that to club the clearances of the two separate entities one should be shown to be the dummy of the other. Since department has failed two discharge the said burden the clubbing of the clearances as proposed by the revenue in the present case cannot be upheld. Since there are no merits in the grounds for raising the demand against each of the unit separately, the order of Commissioner is set aside on this ground itself without going into any other arguments advanced by the appellants in appeal or during the course of hearing - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Relationship between the directors and its impact on exemption entitlement under Notification 8/2003-CE.
2. Separate manufacturing facilities and independent existence of the companies.
3. Application of the concept of related persons for clubbing clearances.
4. Issuance of separate show cause notices and demands to each entity.
5. Invocation of extended period of limitation.
6. Suppression of facts by the appellants.

Issue-Wise Detailed Analysis:

1. Relationship between the Directors and Its Impact on Exemption Entitlement:
The appellants argued that the relationship between the directors of the companies does not affect their entitlement for exemption under Notification 8/2003-CE. The tribunal noted that the revenue proceeded on the basis that the four units were interconnected and thus related under Section 4(3)(b) of the Central Excise Act, 1944. However, it was clarified that the concept of related persons under Section 4 is for determining the correct assessable value and does not imply that one unit is a dummy of another for the purpose of clubbing clearances.

2. Separate Manufacturing Facilities and Independent Existence:
The appellants contended that each company had separate manufacturing facilities, including premises, machinery, and registrations with various authorities. They procured raw materials and cleared products independently. The tribunal found that the issuance of separate show cause notices and confirmation of demands against each unit individually by the revenue implicitly recognized their independent existence. This was supported by the Supreme Court's decision in Gajanan Fabric Distributors, which emphasized that separate demands contradict the assertion that the units are a corporate facade.

3. Application of the Concept of Related Persons for Clubbing Clearances:
The tribunal highlighted that the concept of related persons under Section 4 is for valuation purposes and does not justify clubbing clearances of separate entities. It was established that clubbing clearances require proving that one unit is a dummy of another, which was not demonstrated by the revenue. The tribunal referred to its own decision in Handy Wires Pvt Ltd, where it was held that interconnected undertakings do not automatically become related persons under Section 4(3)(b).

4. Issuance of Separate Show Cause Notices and Demands to Each Entity:
The tribunal found a fundamental flaw in the revenue's approach of issuing separate show cause notices and confirming demands against each unit individually. This contradicted the revenue's claim that the units were a corporate facade. The tribunal cited various cases, including Rao Industries and Unity Industries, where similar flaws led to the setting aside of demands.

5. Invocation of Extended Period of Limitation:
The appellants argued that they had not suppressed any facts from the department, making the invocation of the extended period of limitation unjustified. The tribunal agreed, noting that the revenue had failed to establish any suppression of facts. The tribunal referred to cases such as Pushpam Pharmaceutical Co and Gufic Pvt Ltd, which supported the appellants' position.

6. Suppression of Facts by the Appellants:
The tribunal found no evidence of suppression of facts by the appellants. The revenue's reliance on Section 40-A(2)(b) of the Income Tax Act, 1961, was deemed misplaced. The tribunal emphasized that the burden of proving suppression of facts lies with the revenue, which it failed to discharge.

Conclusion:
The tribunal concluded that the revenue's approach was flawed and lacked a proper appreciation of the law. It set aside the impugned order of the Commissioner, allowing the appeals filed by the appellants. The tribunal emphasized that the concept of related persons under Section 4 cannot be used to club clearances of separate entities without proving that one is a dummy of another. The tribunal's decision was based on various judicial precedents and a thorough analysis of the facts and arguments presented.

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