1986 (9) TMI 328 - AT - Central Excise

Summary

Issues Involved:
1. Whether Shree Mahesh Containers (SMC) was a bogus firm created by Shree Packaging Corporation (SPC) for evasion of Excise duty.
2. Confiscation and duty demand on 7013 containers.
3. Penalty imposed on the appellant.

Summary:

1. Whether Shree Mahesh Containers (SMC) was a bogus firm created by Shree Packaging Corporation (SPC) for evasion of Excise duty:

The main question was whether SMC was a fictitious entity created by SPC to evade Excise duty by claiming benefits under small scale industries notifications. The Collector's reasons for concluding that SMC was a bogus firm included:
- Shared Space: The Collector noted that SMC occupied a portion of the area disclosed by SPC in its licence. However, it was established that this portion was not in SPC's possession when the lease was effected and was obtained by the lessor only in 1971.
- Common Storage: The Collector observed that raw materials for both firms were stored in a common place. The appellants argued that separate accounts were maintained for each firm, and the stock could be identified separately.
- Common Workforce: The Collector pointed out that the workforce was common, with some workers of SMC found working on SPC's machines. The appellants explained that SPC was manufacturing containers for SMC due to labor issues in SMC, supported by seized records.
- Close Relationship: The Collector concluded that SMC was a mirage created by SPC due to the close relationship between the partners. However, there was no proof of common funding or financial flow back between the firms. The partners of SMC had separate income tax assessments, reflecting their investment in SMC.

The Tribunal found that the instances cited by the Collector did not suffice to support the conclusion that SMC was a fictitious firm created by SPC. The Tribunal held that SMC was a separate and distinct entity, and its clearances could not be treated as those of SPC.

2. Confiscation and duty demand on 7013 containers:

The Collector ordered the confiscation of 7013 containers, including:
- 2747 Containers: Seized from the lorry without proper gate pass and duty payment. The appellants admitted this, and the confiscation was justified.
- 4266 Containers: Found in a fully manufactured condition but not entered in the RG-1 register. The confiscation was proper, and duty was rightly demanded on this quantity.

The Tribunal upheld the confiscation and duty demand on the 7013 containers, finding the redemption fine of Rs. 7,000/- not excessive.

3. Penalty imposed on the appellant:

The Collector imposed a penalty of Rs. 1 lakh on the appellant. The Tribunal, considering that the charge of evasion of duty by creating a fictitious entity was not made out, reduced the penalty to Rs. 20,000/-. The demand for duty on 263 unaccounted containers was confirmed, as the explanation that they were eaten by white ants was not acceptable.

The appeal was disposed of in the above terms.