1995 (1) TMI 181 - AT - Central Excise

Summary

Issues Involved:
1. Entitlement to exemption under Notification No. 89/79-C.E.
2. Clubbing of clearances of two entities.
3. Invocation of larger period u/r 9(2) of Central Excise Rules, 1944.
4. Validity of penalty imposed.
5. Issuance of show-cause notice to both entities.
6. Applicability of the doctrine of lifting the corporate veil.

Summary:

1. Entitlement to Exemption under Notification No. 89/79-C.E.:
The Collector of Central Excise, Patna, upheld that the appellant, M/s. Metrosyl, was not entitled to the benefit of exemption under Notification No. 89/79-C.E., dated 1-3-1979, for the financial years 1979-80, 1980-81, and 1981-82. The show-cause notice alleged that M/s. Metrosyl and M/s. Metroark Pvt. Ltd. were closely related and appeared to be one entity, thus violating several provisions of the Central Excise Rules, 1944.

2. Clubbing of Clearances of Two Entities:
The Collector concluded that both entities were essentially the same, based on shared use of premises, telephone, and common employees, and thus clubbed their clearances. The appellant argued that they were independent entities with no common funding or profit sharing, and that they were only performing job work for M/s. Metroark Pvt. Ltd. The Tribunal, however, found that the evidence did not support the department's claim of financial control or profit sharing, and thus, the clearances could not be clubbed.

3. Invocation of Larger Period u/r 9(2) of Central Excise Rules, 1944:
The department invoked the larger period under Rule 9(2) for clandestine removals, alleging suppression of facts. The appellant contended that they had declared their production details to the department and that the department was fully aware of their activities. The Tribunal agreed with the appellant, stating that the department had knowledge of the transactions, and thus, the invocation of the larger period was not justified.

4. Validity of Penalty Imposed:
The Collector imposed a penalty of Rs. 50,000/- under Rule 173Q. The Tribunal, however, found that the department failed to establish the charge of suppression or clandestine removal, and therefore, the penalty was not sustainable.

5. Issuance of Show-Cause Notice to Both Entities:
The appellant argued that no show-cause notice was issued to M/s. Metroark Pvt. Ltd., and thus, the proceedings were vitiated. The Tribunal noted that for clubbing clearances, both entities should have been made parties to the adjudication. The absence of a show-cause notice to M/s. Metroark Pvt. Ltd. rendered the proceedings defective.

6. Applicability of the Doctrine of Lifting the Corporate Veil:
The Collector applied the doctrine of lifting the corporate veil, concluding that both entities were controlled by the same person. The Tribunal disagreed, stating that managerial control alone was insufficient to apply the doctrine without evidence of financial control or profit sharing.

Conclusion:
The Tribunal allowed the appeal, ruling that the appellant and M/s. Metroark Pvt. Ltd. were independent entities, the demand was time-barred, and the penalty was not justified. The Tribunal emphasized that the department failed to establish the necessary grounds for clubbing clearances or invoking the larger period, and the absence of a show-cause notice to M/s. Metroark Pvt. Ltd. further vitiated the proceedings.