2025 (3) TMI 1058 - AT - Central Excise

SSI Exemption - clubbing of clearances of three firms - M/s. Meena Fire Works Industries M/s. Meena Fire Works and M/s. Meena Sparklers should be treated as a single manufacturer under section 2(f) of the Central Excise Act read with para 2(v) of Notification No.8/2003-CE. or not - denial of cross-examination of the investigating officer by the adjudicator - demand with penalty - delay in adjudication. HELD THAT - As per condition (v) and (vii) of para 2 of the exemption notification No.8/2003-CE dated 01-03-2003 there ought to be a manufacturer who has a factory or factories the clearances of which are to be taken in aggregate for determining the exemption in the event of a manufacturer having clearances from more than one factory. Therefore for the purposes of clubbing of clearances it is an imperative prerequisite that one unit is identified or determined as the principal entity to which the clearances from the other units or factories then get clubbed and the proposal for demand is then required to be raised on the said principal entity. Evidently the attempt of the Department here is to deny the benefit of exemption notification individually to the three units as the Department is of the view that the three brothers have indulged in subterfuge of maintaining separate units while exercising financial and managerial control over all the three. This Tribunal in Amit Talwar v CCE Delhi-I 2018 (5) TMI 667 - CESTAT NEW DELHI has held that it is well-settled that demand cannot be made jointly and severally. The lack of clarity in determining the manufacturer from whom the demand of duty in the event of clubbing of clearances ought to be made and non-identification of any such principal entity and instead embarking on proposing a demand on a department mooted group of persons comprising of the three brothers / group of firms comprising of the three firms neither of which proposal has any legal basis in the provisions of Central Excise Act 1944 or the Rules made thereunder indicates the indelible taint of non-application of mind that permeates the entire proceedings right from conceptualisation of the demand in the SCN to the confirmation of the demand in the impugned order in original. Such an attempt of foisting a fictional financial entity onto the appellants and pegging a demand thereon is devoid of any legal backing and vitiates the proceedings in toto. Since the lacunae of lack of clarity in demand exists in the demand proposal in the SCN as well as its confirmation in the impugned OIO it is a fundamental flaw that cannot be cured and the impugned order in original is liable to be set aside on this count alone. Request of the counsel for the appellant for cross examination of the investigating officer and the officers before whom the statements were recorded was denied stating it will delay the adjudication proceedings - HELD THAT - In the impugned proceedings the Adjudicating Authority has not observed the mandate of Section 9D while admitting in evidence the statements given under Section 14 of the Central Excise Act 1944 and has not deposed the deponents who had given such statements and where deposed and cross-examined has not stated any reason why the statements as originally deposed alone is to be relied on or in other words the adjudicating authority has not given any reason for discarding the deposition made during cross-examination such as that he is treating the witness as hostile or that the contradiction/inconsistencies are minor enough to be discarded. The request of the appellant for cross examination of the Investigating Officer after having given up his request for cross examination of the other Departmental Officer sought cannot be said to be unreasonable. The denial of cross-examination of the investigating officer by the adjudicator is a violation of the appellant s right in this regard as held by the Honourable High Court of Allahabad in CCE Allahabad v. Govind Mills Ltd. 2013 (8) TMI 649 - ALLAHABAD HIGH COURT and CCE Meerut I v R.A. Castings Pvt Ltd 2010 (9) TMI 669 - ALLAHABAD HIGH COURT . Also the appellant s contentions on quantification of the duty demand have not been controverted by the Adjudicating Authority. Admittedly even the long note books relied for quantifying the alleged unaccounted removal contains entries only for the period from April 2007 to September 2009. Admittedly for the period from October 2009 to March 2010 there was no evidence available pertaining to unaccounted clearances and the show cause notice had proceeded to quantify the same adopting the average value of the preceding year s clearances that is clearance from October 2007 to March 2008 and October 2008 to March 2009 to arrive at an average value of clearances per day and then to presumptively quantify the unaccounted clearance for the period October 2009 to March 2010 as is evident from the remarks in the column in the worksheet at Annexure C(i) and para 15.3 of the SCN at page 84-85. Similarly for the period 2010-11 and 2011-12 the show cause notice has not even an iota of evidence to rely on for determining the quantification of the alleged clandestine removals. In the instant case the evidence adduced is woefully inadequate much less clear and convincing evidence . Apart from the reliance placed on the statements which is determined as inadmissible the information found in the long and small note books and other records at best would prima facie create a strong doubt about the unaccounted manufacture and clearance of fireworks and sparklers - mere indication of credit entries is of no avail without any explanation as to the nature of such credits. The SCN alleges that the appellants had deposited Rs.17, 00, 000/- in TMB and such entries were touted as indication of profit earned out of illicit transactions. The appellant in its reply at para 18.8 has categorically rebutted the same stating that no such deposit was made and in evidence enclosed letter dated 24.03.2012 of the Manager of the said Bank and contended that such wrong averments were made to prejudice the mind of the adjudicating authority. In fact the adjudicating authority has not controverted the categorical rebuttals of these entries which the appellant has stated is misplaced. The reconciliation statement in respect of the bank accounts provided along with the reply to substantiate their defence was also not controverted by the adjudicating authority. Delay in adjudication - HELD THAT - The decision of this Tribunal in Kopertek Metals Pvt Ltd 2024 (12) TMI 269 - CESTAT NEW DELHI which turns on the peculiar facts and circumstances of that case cannot be construed as laying down a blanket proposition that any delay in adjudication beyond the time limit prescribed under sub-section 11 of Section 11A of the Central Excise Act would automatically result in the impugned order being vitiated for non-adherence to the time limit stipulated dehors an examination of the facts and circumstances or insurmountable exigences which made it impracticable for the adjudication to take place as has been held by the Delhi High Court in Swatch Group 2023 (8) TMI 864 - DELHI HIGH COURT . Conclusion - i) The finding of the Adjudicating Authority that M/s. Meena Fire Works Industries M/s. Meena Fire Works and M/s. Meena Sparklers are to be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of Central Excise Act read with para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended is wholly untenable and cannot sustain. ii) The finding of the Adjudicating Authority that the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena Fire Works Industries M/s. Meena Fire Works and M/s. Meena Sparklers during the period 2007-08 to 2011-12 should be clubbed together in terms of para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended to determine the aggregate value of clearances for demanding duty from the said three firms is wholly untenable and cannot sustain. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether M/s. Meena Fire Works Industries, M/s. Meena Fire Works, and M/s. Meena Sparklers should be treated as a single manufacturer under section 2(f) of the Central Excise Act, read with para 2(v) of Notification No.8/2003-CE.
• Whether the value of clearances from these three firms should be clubbed together to determine the aggregate value for excise duty purposes.
• Whether the demand of duty and penalties imposed on the firms and individuals are tenable.
• Whether the procedural aspects, including the denial of cross-examination and the reliance on statements, were handled correctly.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Single Manufacturer Status

• Relevant Legal Framework and Precedents: The case hinges on the interpretation of section 2(f) of the Central Excise Act and para 2(v) of Notification No.8/2003-CE, which discusses the aggregation of clearances for manufacturers with multiple factories.
• Court's Interpretation and Reasoning: The Tribunal found that the adjudicating authority's attempt to treat the three firms as a single manufacturer was flawed. The adjudicating authority did not clearly identify a principal entity among the firms, which is necessary for clubbing clearances.
• Key Evidence and Findings: The evidence relied upon by the adjudicating authority included statements and documents allegedly indicating financial and managerial control by the three brothers over the firms. However, these were not corroborated by sufficient evidence of interdependence or mutuality of interest.
• Application of Law to Facts: The Tribunal noted that the firms were legally distinct entities with separate registrations and licenses, and there was no legal basis to treat them as a single entity.
• Treatment of Competing Arguments: The Tribunal considered the appellants' arguments regarding the independence of the firms and the lack of evidence for clubbing. The Tribunal found these arguments persuasive.
• Conclusions: The Tribunal concluded that treating the three firms as a single manufacturer was untenable.

Issue 2: Clubbing of Clearances

• Relevant Legal Framework and Precedents: The issue involves the application of para 2(v) of Notification No.8/2003-CE regarding the aggregation of clearances for excise duty purposes.
• Court's Interpretation and Reasoning: The Tribunal found that the adjudicating authority failed to establish a legal basis for clubbing the clearances of the three firms. The lack of clear identification of a principal entity and the absence of evidence for interdependence were critical flaws.
• Key Evidence and Findings: The evidence presented was deemed insufficient to prove the alleged interdependence or financial control necessary for clubbing.
• Application of Law to Facts: The Tribunal emphasized the need for clear and convincing evidence to justify clubbing, which was lacking in this case.
• Treatment of Competing Arguments: The Tribunal considered the appellants' arguments about the independence of the firms and the absence of mutuality of interest. These arguments were found to be valid.
• Conclusions: The Tribunal held that the clubbing of clearances was not justified and could not be sustained.

Procedural Issues: Statements and Cross-Examination

• Relevant Legal Framework and Precedents: The admissibility of statements under Section 14 of the Central Excise Act and the right to cross-examination were key procedural issues.
• Court's Interpretation and Reasoning: The Tribunal found that the adjudicating authority failed to adhere to the mandate of Section 9D regarding the admissibility of statements. The denial of cross-examination of the investigating officer was also deemed a violation of the appellants' rights.
• Key Evidence and Findings: The Tribunal noted that several deponents had resiled from their statements, and the adjudicating authority did not provide reasons for relying on the original statements.
• Application of Law to Facts: The Tribunal emphasized the need for proper examination and cross-examination to establish the truthfulness of statements.
• Treatment of Competing Arguments: The Tribunal considered the appellants' objections to the procedural handling of statements and found them valid.
• Conclusions: The procedural flaws in handling statements and denying cross-examination contributed to the Tribunal's decision to set aside the adjudication.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the attempt to treat the three firms as a single manufacturer was legally untenable.
• The clubbing of clearances was not justified due to the lack of evidence and failure to identify a principal entity.
• The procedural handling of statements and denial of cross-examination were significant procedural flaws.
• The Tribunal set aside the adjudicating authority's order, allowing the appeals with consequential relief.