1996 (12) TMI 164 - AT - Central Excise

Summary

Issues Involved:
1. Clubbing of clearances under Notification No. 175/86
2. Applicability of extended period for duty demand under Section 11A of Central Excises and Salt Act, 1944
3. Imposition of penalty under Rule 173Q of Central Excise Rules, 1944

Issue-wise Detailed Analysis:

1. Clubbing of clearances under Notification No. 175/86:
The primary issue was whether the clearances of M/s. Campion Plastic Industries (P) Ltd. (CPI) and M/s. Campion Business Associates Pvt. Ltd. (CBA) should be clubbed for the purpose of computing the aggregate value of clearance under Notification No. 175/86. The appellants argued that the two companies should not be treated as one entity merely because they had common directors and shared some administrative and marketing resources. They cited various case laws to support their position, including:

- 1994 (71) E.L.T. 689 in the case of Alpha Toyo Ltd. v. Collector of C.E.
- 1989 (43) E.L.T. 327 in the case of Kinjal Electricals Pvt. Ltd. v. CCE.
- 1989 (40) E.L.T. 95 in the case of Sakti Engineering Works v. CCE.

However, the tribunal considered several factors cumulatively, which pointed towards treating CPI and CBA as a single entity:

- Both companies were managed by the same set of persons and had common directors.
- CBA was floated immediately after CPI's clearances reached Rs. 74 lakhs, close to the exemption limit of Rs. 75 lakhs.
- Both companies shared a common administrative office and marketing infrastructure, with CPI handling the marketing for CBA.
- CPI procured raw materials for CBA and provided financial assistance and moulds and dyes for manufacturing.
- The balance sheets showed arbitrary division of expenses without correlation to actual expenditure, indicating financial flow back between the companies.
- The SSI certificate indicated that CBA was essentially a branch of CPI.

The tribunal concluded that the cumulative effect of these factors supported the clubbing of clearances, thereby confirming the demand of Rs. 10,02,075/- as differential duty.

2. Applicability of extended period for duty demand under Section 11A of Central Excises and Salt Act, 1944:
The tribunal examined whether the extended period for duty demand was applicable. It was found that CPI had wilfully created CBA to evade payment of higher duty and had suppressed information regarding their common marketing and administrative setup. This suppression was with the intent to benefit from Notification No. 175/86. Therefore, the extended time limit under proviso to Section 11A(i) was deemed applicable.

3. Imposition of penalty under Rule 173Q of Central Excise Rules, 1944:
Given the findings of wilful suppression and evasion of duty, the tribunal upheld the imposition of penalties on CPI and CBA. However, considering the facts and circumstances, the penalty on each firm was reduced to Rs. 25,000/- from the originally imposed Rs. 75,000/-.

Conclusion:
The tribunal confirmed the clubbing of clearances of CPI and CBA under Notification No. 175/86 and upheld the demand of Rs. 10,02,075/- as differential duty. The extended period for duty demand was applicable due to wilful suppression by CPI. The penalties were reduced to Rs. 25,000/- for each firm, and the appeals were otherwise dismissed.