2009 (2) TMI 331 - AT - Central Excise

Clubbing of clearances for denial of SSI exemption Separate show cause notices necessary to all units when independent/separate existence of partnership firms not disputed by Revenue evidence indicating that one of units giving work on jobwork basis to others and paying charges for same At stage of show cause notice department nly makes allegations, leaving for adjudication authority to come to conclusions, and it cannot assume that there is no need for show cause as that would be gross denial of natural justice - We find that the lower authorities have not considered all the submissions made by the appellants. Legally also, the non-issue of Show Cause Notice to the other two firms, which have independent existence is very fatal to the case - There is blatant violation of the Principles of Natural Justice in not issuing Show Cause Notice to M/s. RTI as well as to M/s. HP. - Even at the investigation or Show Cause Notice stage, the Revenue cannot assume that there is no need for issue of Show Cause Notice to M/s. RTI especially, when the fact that M/s. RTI is an independent unit is not in dispute. Even if department says that the clearances made in the name of M/s. RTI are not the actual production of M/s. RTI, still, in order to observe the principles of Natural Justice, a Show Cause Notice ought to have been issued to M/s. RTI. - The appellants have strongly contended that they are entitled for exemption in respect of job work under Notification Nos. 83/1994 and 84/1994 both dated 11-4-1994. There is absolutely no discussion on this point. The records with reference to the job work given by M/s. RTI have not been examined at all. In view of all these things, we do not find any merit in the impugned orders. The same are set aside. As the demands are set aside, there is no justification for confiscation of the land, plant, machinery etc. Penalty is also not justified

Issues Involved:
1. Clubbing of turnover between M/s. Southern Plywoods (SP) and M/s. Raziya Timber Industries (RTI)
2. Validity of Show Cause Notice issued to only one unit
3. Alleged short levy on excess amount collected from customers
4. Evidence and cross-examination of witnesses
5. Validity of penalty and confiscation imposed
6. Limitation period for issuing Show Cause Notice
7. Entitlement to exemption under job work Notifications 83/1994 and 84/1994

Detailed Analysis:

1. Clubbing of Turnover:
The Department's case was based on the allegation that the turnover of M/s. RTI should be clubbed with M/s. SP for the periods 1999-2000 and 2000-2001, leading to a short levy on the plywood manufactured and cleared by M/s. SP. The Tribunal noted that M/s. RTI had machinery installed and was engaged in manufacturing core veneers and wooden sizes, which were then sent to M/s. SP for pressing into plywood on a job work basis. The Tribunal found that M/s. RTI did indeed have an independent existence and was engaged in legitimate business operations.

2. Validity of Show Cause Notice:
The Tribunal emphasized that the existence of three independent partnership firms (SP, RTI, and HP) was not in doubt. Despite this, the Department issued a Show Cause Notice only to M/s. SP. The Tribunal held that the non-issue of Show Cause Notices to M/s. RTI and M/s. HP was a violation of the Principles of Natural Justice. The Tribunal cited several case laws to support its position that Show Cause Notices should have been issued to all implicated units.

3. Alleged Short Levy on Excess Amount Collected:
The Tribunal noted that the Department had included certain values based on the statement of one Mr. V.H. Harshad, which contributed to the alleged short levy. However, as Mr. Harshad was not produced for cross-examination, the Tribunal held that the clearances included based on his statement should be excluded.

4. Evidence and Cross-Examination:
The Tribunal found that the lower authorities did not properly consider the evidence submitted by the appellants, which included records of job work done by M/s. SP for M/s. RTI. The Tribunal also noted that the statement of Mr. V.H. Harshad was relied upon without offering him for cross-examination, which was a significant procedural lapse.

5. Validity of Penalty and Confiscation:
Given the Tribunal's findings that the Show Cause Notice was improperly issued and that the evidence was not adequately considered, the penalties and confiscations imposed by the lower authorities were deemed unjustified. The Tribunal set aside the penalties and confiscations.

6. Limitation Period for Issuing Show Cause Notice:
The appellants argued that the Show Cause Notice issued on 20-5-2003 was barred by limitation, as the investigation was completed in May 2001. The Tribunal found merit in this argument, noting that the demand was indeed barred by limitation.

7. Entitlement to Exemption Under Job Work Notifications:
The Tribunal noted that the appellants contended they were entitled to exemption under Notifications 83/1994 and 84/1994 for job work done for M/s. RTI. The Tribunal found that this point was not discussed by the Commissioner (Appeals) and should have been considered, given the substantial evidence provided by the appellants.

Conclusion:
The Tribunal set aside the impugned orders, finding that the lower authorities failed to consider all relevant submissions and evidence, and violated the Principles of Natural Justice by not issuing Show Cause Notices to all implicated units. Consequently, the demands, penalties, and confiscations were also set aside, and the appeals were allowed with consequential relief.

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