2016 (10) TMI 477 - AT - Central Excise

SSI exemption - dummy units - clubbing of clearances - modvat/cenvat credit - ERW pipes - reference made to the decision in the case of M/s. Nova Industries (P) Ltd. Versus CCE- Chandigarh 2015 (5) TMI 99 - CESTAT NEW DELHI - Held that - the facts are similar to the facts in the case of Nova Industries Pvt.Ltd. and on the analysis of that decision, it is held that all the units are having separate machinery, separate registration number and dealing separately. There is no financial flow back and there is no mutuality of interest between the units. Therefore, all the four units cannot be clubbed together and the same has been confirmed by the adjudicating authority in the impugned order giving detailed findings on the issue after her personal inspection of the units. In the circumstances, it can be held that the all the units cannot be clubbed together and the respondents are entitled to the benefit of SSI exemption from time to time - issue answered in favor of respondent. Clandestine removal of goods - Held that - in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following (i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of (a) raw materials, in excess of that contained as per the statutory records; (b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him; (f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty; (g) statements of buyers with some details of illicit manufacture and clearance; (h) proof of actual transportation of goods, cleared without payment of duty; (i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Any of the charges mentioned above not proved, hence, the charge of clandestine removal of goods is not sustainable against the respondents. The quantity and value of clearance in respect of each of the manufacturing unit is required to be identified and duty liability is to be determined. No effort has been made to quantify the value and quantity of ERW pipes cleared by each units. Therefore, without ascertaining of value of the goods cleared clandestinely, the demand is not sustainable - issue answered in favor of respondents. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Whether the clearances made by the respondents can be clubbed together and the benefit of SSI exemption can be denied.
2. Whether the demand can be confirmed on the basis of allegation of clandestine manufacture and clearance of excisable goods by the respondents.

Issue-Wise Detailed Analysis:

Issue No. 1: Clubbing of Clearances and SSI Exemption Denial
The organizational structure of the six units involved was examined, revealing that they were either partnerships or companies registered under the Companies Act. It was argued by the Revenue that these units were controlled by two individuals, Shri Sham Lal and Shri Ramesh Kumar, and were fraudulently availing of SSI exemption by manipulating the value of clearances. However, it was found that:

- Each unit was independently incorporated and registered under the Companies Act, 1956.
- All units had separate registrations under Central Excise, Sales Tax, and Income Tax.
- They had their own investment of capital, machinery, and workforce.
- They maintained separate financial sources, credit facilities, factories, and manufacturing facilities.
- They purchased machinery and raw materials from their own resources and paid salaries and wages from their own finances.
- Each unit had separate electricity and telephone connections and purchased inputs and sold finished goods independently.

The Tribunal found that the facts did not support the Revenue's allegations of common control and mutuality of interest. The units were not dummy entities of each other, and there was no financial flowback or mutual interest that would justify clubbing their clearances. The Tribunal referenced several case laws, including Nova Industries Ltd., Bullows India Pvt. Ltd., and Ennar Cements Pvt. Ltd., which supported the view that separate legal entities with independent operations should not have their clearances clubbed. Consequently, the benefit of SSI exemption could not be denied, and the Tribunal upheld the adjudicating authority's decision.

Issue No. 2: Allegation of Clandestine Manufacture and Clearance
The demand for duty was based on allegations of clandestine clearance of goods, supported by data collected from the ICC of Punjab Government and sales tax records. However, it was found that:

- The sales tax assessments for the period in dispute were finalized, and it was determined that there were no clandestine sales.
- The demand was based on assumptions and lacked corroborative evidence.
- The Revenue failed to provide concrete evidence of clandestine manufacture and clearance, such as excess raw materials, actual removal of unaccounted finished goods, discovery of such goods outside the factory, or statements from buyers.

The Tribunal emphasized that for a charge of clandestine manufacture and clearance to be sustainable, there must be tangible evidence rather than inferences or assumptions. The Tribunal cited the decision in Arya Fibres Pvt. Ltd., which outlined the necessity of concrete evidence in cases of clandestine manufacture. Since the Revenue's allegations were based on conjectures and lacked substantial proof, the charge of clandestine removal was not sustainable.

Conclusion
The Tribunal concluded that the clearances of the respondent units could not be clubbed together, and the benefit of SSI exemption could not be denied. Additionally, the demand based on allegations of clandestine manufacture and clearance was not sustainable due to the lack of concrete evidence. The impugned order was upheld, and the appeals filed by the Revenue were dismissed.