2015 (5) TMI 99 - AT - Central Excise

SSI Exemption - Clubbing of clearances - Clandestine removal of goods - Held that - Allegation against the appellant is that both the companies were promoted by Shri D.V. Khanna himself as Managing Director of both the companies and Director in both the companies are same. It is also found that by the Adjudicating Authority, the salesman/dealers to be decided mutually and marketing of both the companies were commonly and salary of employee of M/s. Nova was paid from M/s. DSA and commission of employees of M/s. NOVA was paid from M/s. DSA s account. The annual incentives were given to the dealers on the basis of combined sales of both the units. Moreover, the shareholding in both the units by the Directors is almost common. Sometimes, money was given to each other but nothing was shown in the balance sheet. Therefore, clearance of both the units are to be clubbed as the same are managed by Shri D.V. Khanna, Managing Director in the clearance of NOVA. - both the units are separately located having separate registrations and dealing separately. We also find that there is no financial flow back, therefore, there is no mutuality of interest between the units. Accordingly, clearances of both the units cannot be clubbed together. Case has been made out against the appellant on the basis of the documents resumed from the residence of employees and third party. There were no incriminating documents recovered from the custody of the appellant or Managing Director thereof. On the basis of the investigation conducted, the matter was referred to the Income-tax department also and the Income-tax Department after further investigating the case found that the some parties are manufacturing the duplicate goods and some employees of the appellant were in league with the parties who are manufacturing duplicate goods. On the basis of that investigation, the case booked by the Income-tax Department has been dropped. Cross-examination of Shri Suresh Anand was not granted from whose possession certain records were recovered which were relied upon by the Adjudicating Authority. Moreover, the production capacity of the appellant has not been considered. It has not been proved with supportive evidence that the appellant has used electricity/procured excess raw material, etc. In rebuttal, there is an evidence on record that some parties are manufacturing duplicate goods under the brand name of NOVA/ DSA are owned by the appellant. The case looked by the Income-tax Authority has been dropped for clandestine removal of goods, also supports the case of appellants. No efforts were made to comply with tests laid down by this Tribunal in the case of Arya Fibres (P) Ltd. (2013 (11) TMI 626 - CESTAT AHMEDABAD). Therefore, as discussed above and in view of the decision of Arya Fibres (P) Ltd. (2013 (11) TMI 626 - CESTAT AHMEDABAD), the charge of clandestine removal is not sustainable against the appellant. Accordingly, demands confirmed against the appellant on the account of clandestine removal, is not sustainable. Therefore, the same is set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Clubbing of clearances of M/s. Deluxe Sanitary Appliances Pvt. Ltd. (DSA) with M/s. Nova Industries Pvt. Ltd. (NOVA).
2. Allegations of clandestine removal of goods without payment of duty.

Issue-Wise Detailed Analysis:

1. Clubbing of Clearances:

The primary issue was whether the clearances of DSA could be clubbed with NOVA. The Adjudicating Authority argued that both companies were controlled by Shri D.V. Khanna and had common directors, shared marketing strategies, and financial interdependencies. Salaries and commissions were sometimes paid interchangeably between the companies, and dealers received incentives based on combined sales. The authority concluded that the companies operated as a single entity to exploit SSI exemptions fraudulently.

However, the Tribunal found that both units were separately registered with various governmental departments, had distinct locations, separate machinery, and independent operations. The Tribunal cited several precedents, including Bullows India Pvt. Ltd. Vs. CCE and Sharad Industries Vs. CCE, where it was held that mere common management or inter-company transactions do not justify clubbing clearances unless there is evidence of financial flowback or mutual interest.

The Tribunal concluded that the clearances of DSA and NOVA could not be clubbed as they were independent entities without mutual financial interests. The charge of clubbing was thus set aside.

2. Clandestine Removal of Goods:

The second issue was the allegation of clandestine removal of goods without payment of duty. The case against the appellants was based on documents recovered from the residences of employees and third parties, not from the appellants' premises. The Tribunal noted that these documents alone were insufficient to prove clandestine removal.

The Tribunal referred to the Arya Fibres Pvt. Ltd. Vs. CC Ahmedabad-II case, which outlined the necessary evidence for proving clandestine removal, including excess raw materials, actual removal instances, discovery of unaccounted goods, and proof of transportation and sale. The Tribunal found that the Revenue failed to meet these criteria. The production capacity of the appellants, the lack of excess raw materials, and the absence of corroborative evidence further weakened the case.

Additionally, the Tribunal noted that the Income-tax Department had investigated and dropped similar charges against the appellants, reinforcing their defense. The Tribunal concluded that the charge of clandestine removal was not sustainable and set aside the demand.

Conclusion:

The Tribunal set aside the demands for duty and penalties on both grounds: the improper clubbing of clearances and the unproven allegations of clandestine removal. The appeals were allowed with consequential relief.