1996 (4) TMI 256 - AT - Central Excise

Summary

Issues Involved:
1. Clubbing of clearances for small scale exemption.
2. Separate legal existence of M/s. Step and M/s. Arkay.
3. Applicability of extended period of limitation due to alleged suppression of facts.

Detailed Analysis:

1. Clubbing of Clearances for Small Scale Exemption:
The primary issue in this case was whether the clearances of cosmetics and toilet preparations by M/s. Step Cosmetics and M/s. Arkay Industries should be clubbed for the purpose of availing small scale exemption under Notification No. 140/83-C.E., dated 5-5-1983. The Collector of Central Excise, Bombay-III, had determined that the clearances should be combined, as the efforts to present the two units as separate legal entities were deemed "paper entries with a view to mislead authorities." This conclusion was based on the fact that Arkay had no machinery of its own, no technical staff, and shared premises, electricity, and water with Step. Moreover, Arkay's goods were found in Step's premises, and the electricity and water bills were paid by Step, indicating a lack of independent operation.

2. Separate Legal Existence of M/s. Step and M/s. Arkay:
The appellants argued that M/s. Step and M/s. Arkay were separate entities, each with its own license, operating under an agreement in the same premises. They cited previous Tribunal decisions, such as Jagjivan Das and Co. v. CCE and Shree Packaging Corpn. v. CCE, to support their claim that the use of common premises and facilities does not conclusively establish that one entity is a dummy of the other. However, the Tribunal noted that Arkay had no independent machinery or quality control staff, and the goods were cleared under both names, suggesting a lack of genuine separate existence. The Tribunal referenced several decisions, including Grauer and Weil (India) Ltd. v. CCE and Unique Resin Industries v. CCE, which supported the view that common facilities and close relationships justified clubbing clearances.

3. Applicability of Extended Period of Limitation:
The appellants contended that there was no suppression of facts and that the Department was aware of their operations, thus the extended period of limitation should not apply. However, the Tribunal found that the show cause notice dated 20-8-1987 alleged fraud, willful suppression, and misstatement of facts with intent to evade excise duty. The Tribunal emphasized that the declarations filed by the assessees must be correct and complete, and any misrepresentation or withholding of vital facts warranted the application of the extended period of limitation. The Tribunal cited the case of Priya Corporation v. CCE, where the extended period was deemed applicable when a unit was fragmented to wrongfully avail exemption.

Conclusion:
The Tribunal concluded that M/s. Arkay did not have a separate existence and was effectively a facade to avail small scale exemption. The clearances of both units were rightly clubbed, and the extended period of limitation was applicable due to the suppression of facts. The appeal was rejected, affirming the adjudicating authority's decision to demand duty and impose penalties on M/s. Step.