1998 (2) TMI 196 - AT - Central Excise

Summary

Issues Involved:
1. Whether the Indore unit is a separate legal entity from the Bombay unit.
2. Whether there was suppression of facts and wilful mis-statements by the appellants.
3. Whether the clearances of the two units can be clubbed for the purpose of Central Excise duty.
4. Whether the demand for duty is barred by limitation.
5. Whether penalties and confiscations imposed by the Collector are justified.

Detailed Analysis:

1. Separate Legal Entity:
The appellants argued that the Indore company is an independently incorporated entity, distinct from the Bombay company. This distinction was recognized by various authorities including Income Tax, Sales Tax, Provident Fund, and Employees' State Insurance Corporation. The appellants emphasized that both units carried out their manufacturing activities independently, managed their own finances, and complied with all excise formalities separately. The Collector, however, held that the Indore unit is a wholly owned subsidiary of the Bombay unit, with its activities controlled by common directors, and thus their clearances should be clubbed.

2. Suppression of Facts and Wilful Mis-statements:
The appellants contended that there was no suppression of facts as the existence of the Indore unit was known to the department since 1984. They provided evidence including balance sheets submitted during departmental visits and internal audits. Despite this, the Collector concluded that the appellants had not declared the clearances of both units to the proper officer, leading to suppression of facts and justifying the invocation of a larger period for demand.

3. Clubbing of Clearances:
The appellants relied on several judgments to argue that clearances of two separate units cannot be clubbed if there is no financial flow back and the other unit is not a dummy unit. They cited cases such as Alpha Toyo Ltd. v. Collector of Central Excise, Wox Coolers P. Ltd. v. Collector of Central Excise, and Prima Controls (P) Ltd. v. Collector of Central Excise, which established that geographical separation and independent financial operations prevent clubbing of clearances. The Tribunal agreed with this view, noting that both units were independent entities with no financial flow back, thus their clearances could not be clubbed.

4. Limitation for Duty Demand:
The appellants argued that the demand for duty was time-barred as the department had knowledge of the Indore unit's existence since 1984. The Tribunal found merit in this argument, noting that the balance sheets and affidavits provided evidence of the department's awareness, thereby barring the demand by limitation.

5. Penalties and Confiscations:
The Collector imposed penalties and ordered confiscation of land, building, plant, and machinery. The Tribunal, however, found no grounds for such severe penalties and confiscations. It referred to the case of Reliance Industries Ltd. v. CCE, Bombay, which outlined the circumstances under which confiscation can be imposed. The Tribunal concluded that the present case did not meet these criteria, thus setting aside the penalties and confiscations.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned orders. It held that the Indore unit is an independent entity, there was no suppression of facts, and the clearances of the two units could not be clubbed. The demand for duty was barred by limitation, and the penalties and confiscations imposed were unjustified.