2009 (5) TMI 277 - AT - Central Excise

SSI exemption Sham units - exemption under Notification No. 231/85 Allegation that three units not having sufficient manufacturing facility to independently manufacture and that goods manufactured only under brand name of respondent no. 1 - Surprisingly no statement of any of the person who has authored the documents has been relied upon. Infact there is indication that no statement has been taken from any of the persons concerned. The show cause notices were based on mere inference of various documents adopted by the department. None of these documents have been shown to the witnesses and their version obtained. We are surprised that such a massive demand has been proposed based on incriminating documents resumed from the possession/control of the respondents and without deciding the veracity of the same in the investigation. Units running as 3 separate units as also held by Commissioner It is not proper to treat units as sham or dummy units in absence of reliable evidence - The fact that registration of these units as small scale units was rejected by the State Government is not relevant as the benefit of concessional rate of duty under Notification No. 231/85 is not dependent on registration as small scale units by the State Government. Commissioner (A) order setting aside demand upheld

Issues Involved:
1. Eligibility for exemption under Notification No. 231/85.
2. Adequacy of machinery and facilities in respondent units.
3. Control and management of respondent units.
4. Validity of the show cause notices.
5. Evidence supporting the Department's allegations.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 231/85:
The primary issue was whether respondents No. 2, 3, and 4 were eligible for the exemption under Notification No. 231/85, which allowed a concessional duty rate for small-scale units with clearances below Rs. 2 crores. The Department alleged that these units were sham units controlled by respondent No. 1, and thus their clearances should be aggregated with respondent No. 1, making them ineligible for the exemption.

2. Adequacy of Machinery and Facilities in Respondent Units:
The Department argued that respondents No. 2, 3, and 4 did not have adequate machinery to manufacture tyres independently and relied on respondent No. 1 for significant manufacturing processes. The Commissioner found that the units had submitted lists of machinery, supported by inspection reports, affidavits, and invoices, proving the existence of adequate machinery. Additionally, balance sheets showed the value of installed machinery, and inspection registers confirmed regular visits and checks by Central Excise Officers.

3. Control and Management of Respondent Units:
The Department alleged that respondent No. 1, particularly Shri Sam Verma, controlled respondents No. 2, 3, and 4, making them sham units. However, the Commissioner found no evidence of overall control by respondent No. 1. The units were separate legal entities with different shareholders, management, and financial arrangements. The Commissioner noted contradictions in the Department's allegations and concluded that mutuality of interest and common funding were not proved.

4. Validity of the Show Cause Notices:
The show cause notices were based on documents resumed from respondent No. 1, but the authenticity of these documents was not verified by questioning the concerned persons. The Commissioner highlighted that the notices were based on mere inferences without reliable evidence. The Commissioner analyzed the defense submissions in detail and found that the allegations were not substantiated by the evidence presented.

5. Evidence Supporting the Department's Allegations:
The Department's evidence included internal communications and letters suggesting manipulation of records and financial accommodations. However, the Commissioner found that these documents did not conclusively prove the Department's allegations. The Commissioner emphasized that no statements were taken from the authors of the documents, and the evidence did not support the claim that respondents No. 2, 3, and 4 were sham units controlled by respondent No. 1.

Conclusion:
The Commissioner concluded that respondents No. 2, 3, and 4 were independent units with adequate machinery and facilities, and there was no evidence of overall control by respondent No. 1. The show cause notices were based on unverified documents, and the allegations were not substantiated by reliable evidence. Therefore, the Commissioner dropped the proceedings, and the appeals by the Department were rejected. The judgment emphasized the importance of reliable evidence and proper verification in adjudicating such cases.

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