2000 (11) TMI 197 - AT - Central Excise

Summary

Issues Involved:
1. Dummy Units
2. Evasion of Central Excise Duty
3. Validity of Show Cause Notice
4. Evidence of Dummy Character
5. Financial Flow Back
6. Benefit of Notification No. 175/86-C.E.
7. Penalties Imposed

Issue-wise Detailed Analysis:

1. Dummy Units:
The appellants were accused of creating four dummy units (M/s. M.K. Enterprises, M/s. K.K. Enterprises, M/s. United Traders & Contractors, and M/s. Lucky Traders) to evade Central Excise duty. The Tribunal found that these units were controlled by Mahesh Bharadwaj, proprietor of the appellants, and his family members. The evidence included statements from various individuals and the seizure of records indicating that the manufacturing activities were conducted at the appellants' premises, not at separate locations as claimed.

2. Evasion of Central Excise Duty:
The appellants were found to have evaded payment of duty by showing clearances in the names of dummy units. The Tribunal upheld the Additional Collector's finding that the appellants used these dummy units to split clearances and illegally avail the benefit of Notification No. 175/86-C.E., which allowed concessional or nil rates of duty for small-scale industries.

3. Validity of Show Cause Notice:
A show cause notice dated 26-2-1991 was issued to the appellants following a raid on 3-9-1990. The appellants contested the notice, denying the dummy character of the units. However, the Tribunal found that the notice was valid and the proceedings were correctly initiated based on substantial evidence gathered during the raid.

4. Evidence of Dummy Character:
The Tribunal relied on multiple statements and documents to conclude that the four units were dummy. Statements from Bhanwarlal, Jitendra Jain, and Jagdish Sajwani corroborated that the manufacturing activities were directed by Mahesh Bharadwaj and conducted using materials and equipment provided by him. No evidence was presented by the appellants to counter these findings.

5. Financial Flow Back:
The appellants argued that there was no evidence of financial flow back from the dummy units to the principal unit. The Tribunal dismissed this argument, stating that proving financial flow back is not a statutory requirement for establishing the dummy character of units. The Tribunal noted that such transactions are often concealed and not transparent.

6. Benefit of Notification No. 175/86-C.E.:
The appellants were found to have created dummy units to split clearances and avail the benefits of Notification No. 175/86-C.E. illegally. The Tribunal upheld the Additional Collector's finding that if the clearances had been made in the name of the principal unit, the appellants would have exceeded the prescribed limit and would not have qualified for the concessional rates.

7. Penalties Imposed:
The Tribunal upheld the penalties imposed by the Additional Collector: Rs. 1 lakh under Rule 173Q(1) and Rs. 2,000 under Rule 226 of the Central Excise Rules. The penalties were deemed appropriate given the deliberate evasion of duty and the creation of dummy units.

Conclusion:
The Tribunal dismissed the appeal, affirming the Additional Collector's order for the recovery of Rs. 3,72,466/- in duty and the imposition of penalties. The judgment emphasized that the appellants had created dummy units to evade duty and illegally avail the benefits of Notification No. 175/86-C.E., and that the evidence overwhelmingly supported this conclusion.