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2023 (5) TMI 186 - AT - Central ExciseSSI Exemption - clubbing of the clearance of various entities which were found to be dummy - persons involved in the manufacture and clearance of goods - lifting of Corporate veil - appellants are contesting the issue solely on the ground that there was no financial flowback and hence the clubbing cannot be done - N/N. 8/2003-CE dated 01.03.2003 - Extended period of limitation - penalty - HELD THAT - From the statements and various documentary evidences referred in the impugned order, the fact that the appellants namely M/s Vijaylakshmi Co through its proprietor was engaged in the supply of the gymnasium equipments to M/s Telebrands and in order to keep his turnover below the exemption limits as per the Notification No 8/2003-CE had floated/ used the names of the proprietary concerns created/ operated in the name of his family members and employees. In fact if the corporate veil is lifted we are firmly of the view that M/s Vijaylakshmi Co through its proprietor Shri G Nandgopal was person responsible for manufacture and clearance of the gymnasium equipments manufactured and cleared from these units - From the facts as stated in the statement of Shri Prakash Pandya proprietor of M/s Balarajeshwar Co and Shri P Subbaraju of M/s Ganesh Enterprises it is evident that M/s Ganesh Enterprise was nothing a front/ dummy created and used by Shri Prakash Pandya proprietor of M/s Balarajeshwar Co, to suppress his turnover and claim the exemption under notification No 8/2003-CE dated 01.03.2003. Documentary evidences relied in the impugned order also suggest the same. Whether the financial flow-back has to be established before the clearance of the various units can be clubbed? - HELD THAT - The issue involved in the present case is not of the clubbing of clearance of distinct manufacturing units, but is the case wherein persons involved in manufacture and clearance of the goods is found to be one. Instead of treating as case of clubbing, the present case is a case where in the corporate veil needs to be lifted to determine who is the person involved in the manufacture and clearance of the goods, in the name of various units which may be dummy or otherwise. If on lifting the corporate view it is found that the same person is undertaking the manufacture and clearance of goods by utilizing the name of various entities, the clearances made in the name of various entities are to be treated as clearances made by that person. In the case of CALCUTTA CHROMOTYPE LTD. VERSUS COLLECTOR OF C. EX., CALCUTTA 1998 (3) TMI 138 - SUPREME COURT , Hon ble Supreme Court held that It is, however, difficult to lay down any broad principle to hold as to when corporate veil should be lifted or if on doing that, could it be said that the assessee and the buyer are related persons. That will depend upon the facts and circumstances of each case and it will have to be seen who is calling the shots in both the assessee and the buyer. When it is the same person the authorities can certainly fall back on the third proviso to clause (a) of Section 4(1) of the Act, to arrive at the value of the excisable goods. It cannot be that when the same person incorporates two companies of which one is the manufacturer of excisable goods and other is the buyer of those goods, the two companies being separate legal entities, the Excise authorities are barred from probing anything further to find out who is the person behind these two companies. It is difficult to accept such a narrow interpretation. True that shareholdings in a company can change but that is the very purpose to lift the veil to find out if the two companies are associated with each other. Hon ble Bombay High Court has in the case of M/S. SUNSUK INDUSTRIES, AND M/S. SHANDAR PRODUCTS, VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI -IV, 2018 (5) TMI 780 - BOMBAY HIGH COURT held that even in the reply of the appellants in both the appeals to the show cause notice, this factual allegation is not disputed. Therefore, it was rightly held that the clearances are required to be aggregated in terms of the Notification No. 1/93-C.E. The appellants namely M/s Vijaylakshmi and Co and M/s Balarajeshwar Co, have in fact suppressed their turnover under the cover of corporate veil to avail the exemption under notification no 8/2003-CE dated 01.03.2003, knowingly. Hence their intention to evade payment of duty by resorting to suppression, misstatement is established beyond doubt accordingly the extended period of limitation as provided by proviso to section 11A (1) is correctly invoked for demanding the duty in the impugned order - Existence of the ingredients as per the proviso to Section 11A (1) is a question of fact and needs to be determined on the basis of the facts of each case. Extended period of Limitation - penalty - HELD THAT - As the ingredients as per proviso to section 11 A (1) are present in the case for invoking extended period of limitation, the natural consequence is imposition of penalty as per Section 11AC as has been held by the Hon ble Supreme Court in the case of UNION OF INDIA VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS AND COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VERSUS M/S. LANCO INDUSTRIES LTD. 2009 (5) TMI 15 - SUPREME COURT - As the penalty equivalent to the duty sought to be evaded has been imposed on the appellants namely M/s Vijaylakshmi Co and M/s Balrajeshwar Co, under Section 11AC of Central Excise Act, 1944, imposition of the same penalties on Shri G Nandgopal proprietor of M/s Vijaylakshmi Co and Shri Prakash Pandya proprietor of M/s Balrajeshwar Co., under Ruel 26 of the Central Excise Rule, 2002 cannot be justified. The said penalties imposed under Rule 26 are thus set aside. The appellants have actively participated and abetted the act of Shri G Nandgopal and Shri Prakash Pandya leading to evasion of the central excise duty the penalties imposed on them under Rule 26 of the Central Excise Rules, 2002 is also justified. Further the quantum of penalty imposed also is not very excessive but is reasonable looking into the gravity of offence perpetuated, in their name. Appeal allowed in part.
Issues Involved:
1. Clubbing of clearances of various entities. 2. Validity of extended period of limitation for demand. 3. Imposition of penalties under Section 11AC and Rule 26 of Central Excise Rules, 2002. 4. Denial of cross-examination. 5. Legitimacy of the entities involved in the manufacturing process. Summary: Clubbing of Clearances: The Tribunal upheld the Commissioner's finding that M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. had floated multiple dummy units to distribute their actual turnover and avail benefits under Notification No. 8/2003-CE dated 01.03.2003. The Commissioner established that these units were under the financial and managerial control of Shri G. Nandgopal and Shri Prakash Pandya, and thus, their clearances should be clubbed. The Tribunal supported this by lifting the corporate veil, revealing that the same persons were behind the manufacture and clearance of goods, thus justifying the clubbing of clearances. Extended Period of Limitation: The Tribunal agreed with the Commissioner that the appellants had suppressed their turnover to evade duty, thereby justifying the invocation of the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944. The Tribunal noted that the appellants' actions constituted suppression and misstatement with the intent to evade duty, thereby validating the extended period for demand. Imposition of Penalties: The Tribunal upheld the penalties imposed on M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. under Section 11AC, aligning with the Supreme Court's ruling in Rajasthan Spinning and Weaving Mills, which mandates penalties when the extended period under Section 11A(1) is invoked. However, the Tribunal set aside the penalties imposed on the proprietors, Shri G. Nandgopal and Shri Prakash Pandya, under Rule 26, as equivalent penalties had already been imposed under Section 11AC. The penalties on other appellants under Rule 26 were upheld due to their active participation in the evasion scheme. Denial of Cross-Examination: The Tribunal found the Commissioner's decision to deny cross-examination justified, citing Supreme Court rulings in K I Pavunny and Telestar Travels Pvt Ltd., which held that statements recorded under Section 14 of the Central Excise Act, 1944, are substantive evidence and do not necessitate cross-examination unless specific prejudice is shown. Legitimacy of Entities: The Tribunal confirmed that entities like M/s B.N. Enterprises, M/s GEEKAY & Co., and others were fictitious firms created to suppress the actual turnover of M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. The Tribunal found substantial evidence, including statements and documentary proofs, indicating that these entities were mere fronts used to evade central excise duty. Conclusion: The appeals by M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. were partly allowed by setting aside penalties on their proprietors under Rule 26, while the penalties under Section 11AC were upheld. Appeals by other appellants were dismissed, affirming the penalties imposed under Rule 26 for their roles in the evasion scheme.
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