2017 (12) TMI 226 - AT - Central Excise

SSI exemption - clubbing of clearances - dummy units - allegations raised is that M/s. Airflow was not registered with Central Excise Department and was wrongly availing SSI benefit under the notification by suppressing its value of clearances by clearing goods through another unit M/s. Bala - Held that - Admittedly M/s. Bala has a separate sales tax registration and is a separate income tax assessee. Thus it is a separate unit before all public authorities for compliance of various laws - Shri G. Dakshina Moorthy the father of Sh. D. Ventakesh who is managing director of M/s. Airflow, is the proprietor of M/s. Bala. It is settled law that merely because the directors are related to the proprietor/partners of the other unit, such unit cannot be said to be a dummy unit - Undisputedly, M/s. Bala has a separate electricity connection. M/s. Bala has been paying sales tax and also tax on their income. Only because Sh. D. Venkatesan was helping to manage the affairs of the proprietorship concern run by his father, that will not by itself make the unit a dummy unit. The appellant has strongly contended that there was no flow back of money or sharing of profit. They have also submitted that the illustrations of fund transfer shown in show cause notice were only temporary funds paid by M/s. Airflow to M/s. Bala and the same was paid back. The department has mainly relied on these few illustrations and has not taken or considered the entire transactions. On perusal of record this argument is not without substance - matter requires reconsideration. The matter is remanded to the adjudicating authority for denovo adjudication - appeal allowed by way of remand.

Issues Involved:
1. Clubbing of clearances of M/s. Airflow and M/s. Bala.
2. Evasion of excise duty by M/s. Airflow.
3. Legality of penalties imposed on M/s. Airflow, M/s. Bala, and individuals.
4. Validity of the claim that M/s. Bala is a dummy unit of M/s. Airflow.
5. Applicability of SSI exemption to M/s. Airflow.

Detailed Analysis:

1. Clubbing of Clearances of M/s. Airflow and M/s. Bala:
The primary issue was whether the clearances of M/s. Airflow and M/s. Bala should be clubbed for the purpose of computing excise duty. The department argued that M/s. Bala was a dummy unit created to evade excise duty and that the clearances should be combined. The original authority and the Commissioner (Appeals) upheld this clubbing, leading to the demand for duty and penalties. The appellants contended that M/s. Bala was a separate legal entity with its own sales tax registration, income tax assessments, and separate electricity connection. They argued that there was no flow of profit between the two units, which is essential for clubbing clearances.

2. Evasion of Excise Duty by M/s. Airflow:
The department alleged that M/s. Airflow evaded excise duty by clearing goods through M/s. Bala and maintaining parallel invoices. The investigation revealed that M/s. Airflow did not register with the Central Excise Department despite crossing the exemption limit and used bogus invoices to suppress actual clearances. The appellants argued that the transactions between the two units were commercial loans paid back in due course and did not indicate evasion of duty.

3. Legality of Penalties Imposed:
The original authority imposed penalties on M/s. Airflow, M/s. Bala, and individuals involved, which was upheld by the Commissioner (Appeals) except for the penalty on M/s. Airflow. The appellants challenged these penalties, arguing that the department failed to prove that M/s. Bala was a dummy unit and that the transactions were legitimate commercial dealings.

4. Validity of the Claim that M/s. Bala is a Dummy Unit:
The department's claim that M/s. Bala was a dummy unit was based on several factors, including the relationship between the directors of M/s. Airflow and the proprietor of M/s. Bala, shared premises, and financial transactions between the two units. The appellants countered that M/s. Bala was a separate entity with its own machinery for powder coating, separate tax registrations, and independent financial assessments. They argued that the mere relationship between the directors and the proprietor and shared premises did not make M/s. Bala a dummy unit.

5. Applicability of SSI Exemption to M/s. Airflow:
The department denied the SSI exemption to M/s. Airflow by clubbing the clearances with M/s. Bala, arguing that the combined clearances exceeded the exemption limit. The appellants contended that the clearances should not be clubbed and that M/s. Airflow was entitled to the SSI exemption.

Conclusion:
The Tribunal concluded that the facts required reconsideration and remanded the matter to the adjudicating authority for denovo adjudication. The Tribunal emphasized the need for a thorough examination of the transactions and the relationship between the two units. The appeal was allowed by way of remand, with instructions to provide a reasonable opportunity for the appellants to furnish evidence and for a personal hearing.

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