1995 (9) TMI 128 - AT - Central Excise

Summary

Issues Involved:
1. Whether M/s. H. Guru Instruments (North India) Pvt. Ltd., Ghaziabad, U.P. is a dummy unit created and controlled by M/s. H. Guru Instruments Ltd., Calcutta.
2. Whether the demand of Rs. 3,21,198.20 for the period 1-10-1983 to 25-7-1985 is time-barred.
3. Whether the penalty of Rs. 3 lakhs imposed on the appellants is sustainable.

Issue-Wise Detailed Analysis:

1. Dummy Unit Allegation:
The primary issue is whether M/s. H. Guru Instruments (North India) Pvt. Ltd., Ghaziabad should be deemed a dummy unit created and controlled by M/s. H. Guru Instruments Ltd., Calcutta. The Tribunal examined the facts and found that the unit at Sahibabad was set up by the founder company with financial assistance from U.P. Financial Corporation. The new company, M/s. H. Guru Instruments (North India) Pvt. Ltd., was incorporated in 1983 with the objective of taking over the assets and liabilities of the Sahibabad unit. However, the sale agreement drawn up in 1983 was never executed due to objections from the financial institution. A lease deed was later executed, but it was found to be unreliable as it did not mention the lease amount. The Tribunal agreed with the findings that there was no genuine or legal transfer of assets and liabilities to the appellant company. The large part of the appellant's total realizations through sales flowed to the founder company, indicating control by the founder company. Thus, the Tribunal held that the corporate veil should be lifted, and the appellant company and the founder company should be treated as one and the same, not entitled to separate exemption under Notification No. 77/85, dated 1-3-1985.

2. Time-Barred Demand:
The second issue concerns whether the demand of Rs. 3,21,198.20 for the period 1-10-1983 to 25-7-1985 is time-barred. The appellants argued that the demand was time-barred as the facts were known to the Department through statements and declarations filed from time to time. The Tribunal found that the departmental officers were aware of the setting up of the factory at Sahibabad and subsequent developments. The Tribunal also noted that a similar demand raised earlier was held as not sustainable by the Tribunal. Therefore, the Tribunal concluded that there was no willful misstatement or suppression of facts by the appellants and held that the demand raised by show cause notice dated 8-9-1988 was barred by limitation.

3. Penalty Imposition:
The third issue is the sustainability of the penalty of Rs. 3 lakhs imposed on the appellants. The Tribunal, referring to the decision in Pressure Cookers and Appliances Ltd. v. Collector of Central Excise, Chandigarh, emphasized that tax avoidance through dubious methods is not permissible. Given the finding that the appellant company was set up by the founder company for evading Central Excise duty by separate availment of exemption, the Tribunal upheld the Collector's order imposing the penalty on the appellants.

Conclusion:
The Tribunal disposed of the appeals by holding that M/s. H. Guru Instruments (North India) Pvt. Ltd. and the founder company are to be treated as one entity, the demand raised was time-barred, and the penalty imposed was sustainable.