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2022 (2) TMI 896 - AT - Central ExciseSSI Exemption - clubbing of clearances of two units - dummy units - Use of trade name of other company - evidence for flow of cash between the two units, present or not - mutuality of interest - Department has merely relied upon rental agreement to allege that there is cash flow between the units - levy of penalty on Managing Director under Rule 26 (1) of Central Excise Rules, 2002 - HELD THAT - The goods manufactured by both the units are different. M/s.TLPPL is engaged in producing laboratory products in the nature of laboratory furnaces, laboratory tray driers etc. M/s. TLGW is engaged in producing glass beakers and jars used in laboratories. The products being entirely different, it cannot be said that the trade name of one unit was used to market the products of the other unit - Further, there is no evidence brought forth from the records that the clearances made by one unit M/s.TLGW are in fact the goods clandestinely manufactured by M/s.TLPPL. Needless to say, when the products are entirely different, it cannot happen. The department has mainly relied on the rental agreement entered into between the two units. Being separate entities, there are no discrepancy in such rent agreement. There is proof that they have reflected payment of rent for the whole year by M/s.TLGW to TLPPL in their annual financial statement. Payment of rent cannot be considered as fund flow in respect of goods manufactured and cleared by the unit. There is no iota of evidence to show that the raw materials were purchased in the name of M/s.TLGW and that these raw materials were used for manufacturing goods which are cleared by TLPPL - it is found from the records that both the units are separately registered with the Central Excise department. One is the Private Limited Company and the other is a Proprietarship firm. Merely because the members of the family are owners of these two units, it cannot be said that there is mutuality of interest. In fact, there is no specific allegation that TLGW is a dummy unit. The department has proceeded to club the clearances of both these units without raising such allegation. It is found that the department has miserably failed to establish any mutuality of interest or cash flow between both the units. Further, there is no show cause notice issued to M/s.TLGW which the department alleges to be a dummy unit. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Eligibility for SSI exemption under Notification No. 8/2003-CE. 2. Clubbing of clearances of two units (TLPPL and TLGW). 3. Mutuality of interest and financial flow between TLPPL and TLGW. 4. Imposition of penalties on TLPPL and its Managing Director. Detailed Analysis: 1. Eligibility for SSI Exemption: The core issue pertains to whether TLPPL and TLGW are eligible for the Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE. The Department argued that both units were not eligible for SSI exemption for the periods 2011-12, 2012-13, and 2013-14. The notification stipulates that the exemption applies to the aggregate value of clearances from one or more factories, not separately for each factory, and does not apply to goods bearing the brand name of another person. 2. Clubbing of Clearances: The Department proposed to club the clearances of TLPPL and TLGW, alleging that both units had common business interests, premises, facilities, and trademarks. The Show Cause Notice (SCN) was issued to TLPPL and its Managing Director, proposing to club the clearances and demand duty on the combined value of clearances. 3. Mutuality of Interest and Financial Flow: The Department argued that both units had financial interdependence and common business interests, citing shared premises, common email profiles, and a rental agreement. However, the Tribunal found no substantial evidence of financial flow or mutuality of interest. The Tribunal noted that the products manufactured by TLPPL and TLGW were entirely different, and there was no proof that raw materials purchased by one unit were used by the other. 4. Imposition of Penalties: The original authority confirmed the demand along with interest and imposed equal penalties on TLPPL and a personal penalty of ?1 crore on the Managing Director under Rule 26 (1) of Central Excise Rules, 2002. The Tribunal, however, found no grounds for imposing personal penalties on the Managing Director, as there was no evidence of mutuality of interest or financial flow between the units. Tribunal's Findings: - Different Products: The Tribunal observed that TLPPL manufactured laboratory furniture and TLGW manufactured laboratory glassware, which are entirely different products. Therefore, it could not be said that one unit used the trade name of the other for marketing. - No Evidence of Financial Flow: There was no evidence to show that clearances made by TLGW were goods clandestinely manufactured by TLPPL. The rental agreement and payment of rent were found to be legitimate and not indicative of financial flow between the units. - Separate Legal Entities: TLPPL is a Private Limited Company, and TLGW is a Proprietorship firm. The Tribunal emphasized that merely because the owners are family members, it does not imply mutuality of interest. - No Dummy Unit Allegation: The Tribunal noted that the Department did not specifically allege that TLGW was a dummy unit, and no SCN was issued to TLGW, which is a procedural lapse. Conclusion: The Tribunal set aside the impugned order, allowing the appeal with consequential relief. The principles laid down in previous judgments, such as the cases of Vizag Poly Packaging Industries and Coimbatore Engineering Works, were applied, emphasizing the lack of evidence for mutuality of interest and financial flow between the units. The penalties imposed on TLPPL and its Managing Director were also vacated. Pronouncement: The judgment was pronounced in court on 03.02.2022, setting aside the impugned order and allowing the appeal with consequential relief.
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