2003 (8) TMI 132 - AT - Central Excise

Validity of Show Cause Notice - Modvat credit of duty paid on the inputs - Demand - Clubbing of clearances - Dummy units - mandatory penalty - interest u/s 11AB - manufacture of finished product cleared - difference between the Members. Whether the order proposed by learned Member (Technical) rejecting the appeal on merits but reducing the penalties or whether the order passed by Member (Judicial) allowing the appeal in respect of clubbing of clearances with the clearances of M/s. Reliable Corpn. and remanding the matter for the purposes of clubbing the clearances with the clearances of M/s. Abbas Co. is correct. HELD THAT - From the record it is clear that, the SCN does not spell out the allegations correctly and M/s. RC and M/s. Abbas Co. have not been put to notice on the point of clubbing of clearance with separate reasons. Hence, I agree with the finding of Member (J) on non-issue of SCN. Further, it was explained by the learned Senior Advocate that if at all there was any discrepancy, it could have been in the form of clandestine removals but even no allegations have been brought out in that regard. He pointed out that at the time of the raid on the premises of M/s. RC, the department had not found out any excess production or any other documents being not properly maintained. There was no shortage of material also to allege clandestine removal. In that view of the matter, I am inclined to agree with learned Member (Judicial) on the point of merits as arrived by Member (J) in her considered order. In paras 19 to 21, learned Member (Judicial) has also examined the other points which have been taken by the Revenue to allege mutual flow of funds. I have gone through the order and I agree with the said findings. In so far as the allegation of suppression is concerned , it was argued by learned DR that the Commissioner has given a detailed finding on suppression and that should be upheld, while the Sr. Counsel argued that both the units after crossing the limit as per the notification were paying duty and their records were being scrutinized and the department have not found any discrepancy in respect of same. Insofar as the charge of clubbing of clearances of M/s. Abbas Co. with the clearances of M/s. PR, the learned Member (Technical) has confirmed the demand and has held that the clearances of M/s. Abbas Co. are to be clubbed with M/s. PR, while Member (J) has remanded the matter for de novo consideration. I am inclined to hold that demands are not to be confirmed for the reason that M/s. Abbas Co. has not been put to notice on the ground that their clearances are required to be clubbed with the clearances of M/s. PR. The show cause notice confines itself to M/s. PR RC. The same, finding as given with regard to show cause notice would apply to the facts of M/s. Abbas Co. However, as a third Member, I cannot choose to give an independent order other than the one proposed in the points of difference. As the learned Member (Judicial) has remanded the matter for de novo consideration, I am inclined to accept the view for remanding the matter. However, the Commissioner shall take into consideration the findings recorded by the majority in this order on the point pertaining to show cause notice being bad in law and other points noted in the majority order. MAJORITY ORDER - In the light of the majority view, it is held that the clearance of M/s. Reliable Corporation are not to be clubbed with the clearances of M/s. Poly Resins. Longer period of limitation also cannot be invoked in this case for demand of duty. As regards question of clubbing of clearances of M/s. PR with the clearances of M/s. Abbas and Co., in the matter is remanded to the Commissioner for decision. Penalties imposed are also set aside.

Issues Involved:
1. Validity of Show Cause Notice
2. Clubbing of Clearances
3. Financial Flow Back and Mutuality of Interest
4. Invocation of Extended Period of Limitation
5. Imposition of Penalty

Summary:

1. Validity of Show Cause Notice:
The appellants argued that the proceedings were vitiated as no proper show cause notice was issued to M/s. Reliable Corporation (RC). The Tribunal examined whether the show cause notice was validly issued to the dummy units. It was found that joint show cause notices were addressed to both M/s. Poly Resins (PR) and M/s. RC, and both units were aware and conscious of the allegations. The Tribunal concluded that the proceedings were not vitiated as the dummy units were served with the show cause notice and actively participated in the proceedings.

2. Clubbing of Clearances:
The main issue was whether the clearances of M/s. PR should be clubbed with those of M/s. RC and M/s. Abbas & Co. The Tribunal found that M/s. RC was not a dummy unit and had independent existence with separate registrations. The evidence did not support the allegation of financial flow back sufficient to justify clubbing of clearances. However, the matter regarding M/s. Abbas & Co. was remanded for reconsideration by the Commissioner.

3. Financial Flow Back and Mutuality of Interest:
The Commissioner had concluded that there was financial flow back between M/s. PR and M/s. RC, justifying the clubbing of clearances. However, the Tribunal found that the exchange of machinery between the units did not constitute financial flow back. The Tribunal noted that both units had separate infrastructure and operated independently, and the evidence did not support the claim of mutuality of interest.

4. Invocation of Extended Period of Limitation:
The Tribunal held that the extended period of limitation was not justified. The appellants had not suppressed information with the intent to evade duty, and the evidence did not support the invocation of the extended period.

5. Imposition of Penalty:
The penalties imposed under Section 11AC and Rule 173Q were examined. The Tribunal confirmed the proportionate penalty under Section 11AC for the period covered by the section but reduced the penalty imposed on the partner of M/s. PR from Rs. 3,00,000 to Rs. 1,50,000. The penalties on M/s. PR under Rule 173Q were upheld.

Conclusion:
The Tribunal, by majority, held that the clearances of M/s. RC should not be clubbed with those of M/s. PR, and the extended period of limitation could not be invoked. The matter regarding M/s. Abbas & Co. was remanded for reconsideration. Penalties imposed were also set aside, except for the proportionate penalty under Section 11AC and the reduced penalty on the partner of M/s. PR.

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