2009 (5) TMI 243 - AT - Central Excise

Clubbing of clearances on the ground that it had exceeded the ceiling limit of clearance value and hence not eligible to the benefit of SSI exemption under Notification No. 1/93-CE dated 28-2-1993 - We find that there was no clear-cut demarcation between the factory of MEPP and that of EPI whose proprietor was the wife of the Managing Director of MEPP. Further, raw materials for the manufacture of finished products had been stored in a single room without any identification as to which one belongs to MEPP or EPI. There was only one electricity connection for both the units. - The non-availability of the minimum machinery required for the manufacture of final products drives the lost nail in the coffin of EPI s claim that they were an independent unit. We therefore, agree with the lower authorities that EPI is only a shadow concern of MEPP which was floated to avail improper SSI exemption. Clubbing of clearances is upheld - In respect to unit in which son being proprietor owner of one firm, and in another firm, partner with his mother Mutuality of interest and financial flow back between the units - The evidence on record also establishes that bills for purchase of materials by one unit have been settled by another unit. All these points leads to the inescapable conclusion that MFE and EPI were only facades companies floated by MEPP, to gain undue benefit under the SSI exemption notification. clubbing of clearances is upheld Plea that they were under the bona fide belief that the other two units were independent units, is not acceptable intention to evade duty is clearly evident, so extended period is invocable

Issues:
1. Clubbing of clearances for multiple units under Central Excise Act.
2. Eligibility for SSI exemption under Notification No. 1/93-CE.
3. Allegations of wilful suppression and intention to evade payment of duty.
4. Determination of shadow units and facades companies for undue benefit.

Analysis:

1. Clubbing of Clearances:
The case involved the clubbing of clearances of multiple units, namely M/s. Modern Fabricators & Engineers (MFE), Engineering Plastics Incorporation (EPI), and Modern Engineering Plastics Pvt. Ltd. (MEPP). The Commissioner upheld that the clearances of these units are to be clubbed, leading to a duty demand against MEPP for exceeding the ceiling limit of clearance value under the SSI exemption notification. The Tribunal found that there was no clear demarcation between MEPP and EPI's factories, with shared raw materials and facilities, indicating a lack of independence between the units.

2. Eligibility for SSI Exemption:
The Tribunal noted that EPI and MFE were shadow units of MEPP, created to improperly benefit from the SSI exemption notification. It was observed that EPI lacked essential machinery for manufacturing FRP/PVC products, further supporting the conclusion that it was not an independent unit. MEPP's transformation from MFE with minimal changes in constitution and ownership indicated a continuity of operations, leading to the rejection of their claim for SSI exemption.

3. Allegations of Suppression and Duty Evasion:
The department alleged that MEPP wilfully suppressed the fact of manufacturing and clearing goods in the name of other units to evade duty payment. The Tribunal agreed with the department's findings, rejecting MEPP's claim of bona fide belief in the independence of the units. MEPP's failure to provide a basis for their belief, coupled with evidence of financial transactions between the units, supported the conclusion of intentional duty evasion, justifying the demand for duty and imposition of penalties.

4. Determination of Shadow Units:
The Tribunal concluded that MFE and EPI were facade companies floated by MEPP to exploit the SSI exemption improperly. The interlinked ownership, mutual financial transactions, and lack of operational independence pointed towards the units being shadow entities created for undue benefits. MEPP's involvement in the operations of MFE and EPI, coupled with the absence of genuine independence, reinforced the finding of shadow units for evading duty obligations.

In summary, the Tribunal upheld the impugned order, confirming the duty demand and penalty on MEPP for exceeding clearance limits and intentional duty evasion through the creation of shadow units. The detailed analysis highlighted the lack of independence among the units, shared resources, and intentional suppression of facts, leading to the rejection of the appeal.

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