2005 (7) TMI 241 - AT - Central Excise

SSI Exemption - Clubbing and clandestine removal - Duty Demand - Bar of Limitation - Confiscation - Liability under Rule 173Q(1) - Penalty - HELD THAT - It is an admitted position that the show cause notice has a reference to all the four units required to be termed as one unit and their values of clearances were required to be clubbed together and eligibility to SSI exemption notification was to be determined afresh, yet the notice demands duty separately from each of the units. The demands in the notice are in conflict with the charge. Such notices are required to be set aside. The order impugned is demanding duty of Rs. 1,45,29,754/- from M/s. Sotex, the proprietary firm of Shri M.M. Majithia. The demand cannot be upheld, since the demand in the Show Cause Notice proposed to be recovered from M/s. Sotex was not a figure of Rs. 1,45,29,754/- but much less, the present proposal to confirm the duty demand beyond which was proposed in the Show Cause Notice at Rs. 35,806/- Rs. 2,884/- cannot be upheld. The finding that the three units are just dummy units cannot be upheld when the department is recognizing separate clearances and duty demands on these other units. The matter of existence of these units and the activity were within the knowledge of the department vide proceedings initiated by Preventive Officers by Show Cause Notice dated 8-3-1994 issued to each unit and which culminated in order-in-appeal by Commissioner dated 3-7-1996. Since the ld. Commissioner has found that SS coil were removed for slitting and not have been found to be diverted for any other purpose, the non-following of procedure of Modvat rules will not call for the heavy penalty of Rs. 1.00 lakh under Rule 173Q on Sotex. The same is required to be set aside. Since no duty demands and/or confiscation liability under Rule 173Q(1) are being upheld, the confiscation ordered on M/s. Sotex under Rule 173Q(2) is not upheld. The same is set aside. Since duty demands on M/s. Sotex are not being upheld, the penalty of Rs. 1,45,29,754/- u/s 11AC as imposed is to be set aside. The duty demand of Rs. 18,900/- on 8,400 kgs of scrap found short at M/s. Unity along with Rs. 34,000/- demand of duty on watch straps found short at premises of M/s. Unity under Section 11A determined on M/s. Sotex when M/s. Unity is an independent registered assessee under Central Excise Act, 1944 a partnership firm, the same is misdirected demand and penalty. The same cannot be upheld as imposed on M/s. Sotex. The duty demands are also set aside for same reasons. When no demands on shortages found at M/s. Unity are being found held, there is no cause to visit M/s. Sotex with a penalty of 100% under Section 11AC cannot be upheld for the same. That penalty is to be set aside. Since no demands of M/s. Sotex are being upheld, the interest demand will abate. When no confiscation as arrived in this order is being upheld, the penalty under Rule 209A on Shri M.M. Majithia or Shri V.V. Rajani cannot be upheld. Thus, order is set aside and appeals allowed.

Summary

Issues Involved:

1. Clubbing of clearances of multiple units.
2. Clandestine removal of goods.
3. Financial transactions and flow-back.
4. Separate existence and registration of units.
5. Validity and scope of the Show Cause Notice.
6. Bar of limitation.
7. Confiscation and penalties.

Issue-wise Detailed Analysis:

1. Clubbing of Clearances of Multiple Units:

The case involved the proposed clubbing of clearances from four units: M/s. Sotex, M/s. Unity, M/s. Sonic, and M/s. Stelex. The Commissioner held that the units were not separate entities but facets of the same firm, controlled by Shri M.M. Majithia, and thus their clearances should be clubbed. However, the Tribunal found that the independent existence of the other partnership concerns and proprietary concerns could not be doubted, noting that they had separate SSI registrations, Central Excise registrations, separate audited balance sheets, and were geographically apart. The Tribunal concluded that the finding of the three units being dummy units could not be upheld.

2. Clandestine Removal of Goods:

The Commissioner relied on gate pass books to allege clandestine removal of unaccounted goods by M/s. Sonic, M/s. Unity, and M/s. Stelex. The Tribunal found that the demand was based on assumed and presumed production on estimation of machines, which could not be upheld. The Tribunal noted that the figures used for calculation were inconsistent and misapplied, leading to the conclusion that the demand was not permissible.

3. Financial Transactions and Flow-back:

The Commissioner alleged financial flow-back among the units, citing financial assistance taken from one another. However, the Tribunal found no evidence of financial flow-back that could be upheld, noting that the Commissioner was satisfied with the explanations provided by the appellants. The appellants had produced detailed bank accounts, balance sheets, and other documents to show independent financial arrangements.

4. Separate Existence and Registration of Units:

The appellants provided evidence of separate existence, including separate Central Excise registrations, SSI registrations, income-tax assessments, sales tax assessments, and independent purchase and sale transactions. The Tribunal found that the independent existence of the units could not be doubted, and the units were not dummy units controlled by a single entity.

5. Validity and Scope of the Show Cause Notice:

The Tribunal noted that the Show Cause Notice demanded duty separately from each of the units, which was in conflict with the charge of clubbing clearances. The Tribunal held that such notices were required to be set aside and that the demand of Rs. 1,45,29,754/- from M/s. Sotex could not be upheld, as the Show Cause Notice proposed a much lower figure.

6. Bar of Limitation:

The Tribunal found that the department was fully aware of the charges as early as 1993-94, and no new findings or proceedings justified the issuance of the present notice in 1998. The Tribunal held that the demand was barred by limitation and that the allegation of suppression was untenable. The entire proceedings of demands were quashed on the ground of time-bar.

7. Confiscation and Penalties:

The Tribunal set aside the orders of confiscation and redemption fine of Rs. 50,000/- under Rule 173Q, noting that the goods had been cleared as per the Tribunal's order allowing the appeals. The penalty of Rs. 1.00 lakh under Rule 173Q on Sotex was also set aside, as the non-following of Modvat rules did not call for such a heavy penalty. The penalty of Rs. 1,45,29,754/- under Section 11AC was set aside, as no duty demands on M/s. Sotex were upheld. The penalties under Rule 209A on Shri M.M. Majithia and Shri V.V. Rajani were also set aside.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeals, finding that the demands and penalties were not justified based on the evidence and legal principles. The demand was barred by limitation, and the allegations of financial flow-back and clandestine removal were not substantiated. The separate existence of the units was upheld, and the penalties and confiscations were quashed.