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2023 (9) TMI 180 - AT - Central ExciseSSI Exemption - clubbing of clearances of all the manufacturing units including one which is duty paying unit - value of clearances exceeded Rs.1.5 crores - mutuality of interest - HELD THAT - N/N. 8/2003 grants exemption from payment of excise duty in case of Small Scale Industrial units whose value of clearances does not exceed Rs.1.5 crores. This exemption is subject to certain conditions. The SCN dt. 27.03.2014 alleges that the aggregate value of clearances made by Balaji Packagings (BPKG) for the period 2008-09 (01.03.2009 to 31.03.2009) to 2012-13 should be calculated by clubbing the clearances of the clearances made by factories BPKG, SHP, BP, BC, KRK and BPI and also value of goods manufactured by job workers Naga and SPPI and also sales turnover of SAP, SPP, SBPT, SEP and BIP in terms of para 2 (v) and 2 (vii) of notification 8/2003. It has to be stated that the department is a bit confused as to the provisions of Notification 8/2003 which have been invoked in the SCN. Para 2(v) speaks about the situation for calculation of aggregate value of clearances for exemption limit (Rs.1.5 crore) when a manufacturer has one or more factories. It states that for the purpose of calculating the value of aggregate clearances the value of clearances of each factory of manufacturer should not be considered separately - Although it is alleged that BPKG which is run by GTP (Group of Three Persons) has exceeded the exemption limit and other units are dummy units, it is also alleged that BPI has exceeded the exemption limit of Rs.4 crores in terms of para 2 (vii). Admittedly, BPI is a firm which holds Central Excise registration and is paying excise duty. In other words, it does not avail SSI benefit. The unit BPI clears its goods on payment of duty. This fact has been accepted by the adjudicating authority. The duty liability raised in SCN is Rs.2,43,82,782/-. Taking into consideration the duty paid by BPI (Rs.16,60,246/-) the amount confirmed was reduced by the adjudicating authority to Rs.2,27,22,336/- (para 11.01 of OIO). In the absence of such evidence, the above view taken by the Commissioner (Appeals) according to us is legal and proper. It is also observed that the burden to prove clandestine removal of goods is on the department. In case of clubbing of clearances of different units to deny the SSI exemption benefit there should be concrete evidence of mutuality of interest, financial flow among the units. In the case of STUDIOLINE INTERIOR SYSTEMS PVT. LTD. VERSUS COMMR. OF C. EX., BANGALORE-I 2005 (11) TMI 14 - CESTAT, BANGALORE it was held that mere presence of common directors / partners cannot be reason for clubbing of clearances. The interest of parties directly or indirectly in the business of each other and flow back of profit of one unit to another has to be proved. When units belong to a group of persons, occasional financial accommodations may not be uncommon. When each unit is registered with Central Excise / State authorities there should be clear evidence to treat them as dummy units. All the eleven units are held to be dummy units by the department and the demand of duty is raised against a new unit i.e. BPKG run and operated by GTP. The unit BPKG has three partners viz. Smt. R. Rukmani, V. Nagaraj Sri A. Subbiah - there can be partners in a partnership firm who are not actively involved in the business of the firm. The law considers them as sleeping partners. Such sleeping partner shares profits and losses of the firm and cannot be disregarded or removed from rights and responsibilities of the firm. Smt. R. Rukmani is the Proprietor of Balaji Industries Pack (BIP). Smt. N. Devaki w/o Sri V. Nagaraj is a Partner in BPI which is a duty paying unit. Smt. R. Rukmani and Smt. N. Devaki are considered as dummy partners by department as per the table given in para 10.1.2 of the SCN dt. 27.03.2014. Another main allegation is that Sri Kasi Viswanath was the accountant common to all firms who was maintaining the accounts. So also that all firms had common office premises at BPI. It has been held in various decisions that merely because the accounts were maintained at a common office, or the workers were same, it cannot be said that there is mutuality of interest. To establish mutuality of interest there should be some evidence to show that the profits of all the firms are taken by one or few persons only. In the present case, all the units are filing sales tax return, income tax return etc. separately. The department has failed to establish the allegations raised in SCN for clubbing of clearances of the 11 firms. Further, the creation of a fictitious/deemed group (GTP) to be responsible for clandestine activities also does not find favor with us. As per the provisions contained in the Partnership Act 1932, persons can come together to form a partnership firm. Such a partnership can be terminated or dissolved only as per law - The department has, in fact, made all eleven units to be dummy units and created a new entity BPKG run and operated by GTP to be responsible for the clandestine activities. The provisions of law do not permit the same. The impugned order cannot sustain - Appeal allowed.
Issues Involved:
1. Clubbing of clearances for SSI exemption. 2. Legality of creating a new entity (GTP) by the department. 3. Allegations of dummy units and financial accommodation. 4. Non-payment of job work charges and its implications. Summary: 1. Clubbing of Clearances for SSI Exemption: The main issue revolves around whether the clearances of 11 units should be clubbed together to deny the SSI exemption under Notification No. 8/2003-CE. The department alleged that the units were dummy units floated to avail SSI exemption improperly. The Tribunal noted that the units were registered with various authorities, filed separate tax returns, and maintained independent accounts. The Tribunal emphasized that mere common partners, common office, or staff do not justify clubbing clearances unless there is clear evidence of mutuality of interest and financial flow back. 2. Legality of Creating a New Entity (GTP) by the Department: The department created a new entity termed as "Group of Three Persons" (GTP) comprising Shri K. Ravichandran, V. Nagaraj, and A. Subbiah, and held them responsible for the alleged clandestine activities. The Tribunal found this approach fallacious, stating that a partnership firm cannot be reconstituted by the department. The Tribunal emphasized that partnerships are governed by the Indian Partnership Act, 1932, and cannot be altered by external agencies. 3. Allegations of Dummy Units and Financial Accommodation: The department alleged that some units were dummy as they did not have machinery or proper premises. The Tribunal found that the trading units were wrongly clubbed with manufacturing units. It was noted that financial accommodations between units were temporary loans, properly accounted for, and non-collection of interest on these loans did not justify treating the units as dummy. The Tribunal cited various judicial pronouncements to support that occasional financial accommodations are common in business practices. 4. Non-payment of Job Work Charges and Its Implications: The department alleged that non-payment of job work charges indicated financial flow back. The Tribunal noted that job work transactions were properly accounted for and were covered under Notifications No. 83 & 84/1994. The Tribunal held that the denial of SSI exemption for non-filing of an undertaking was not justified, citing precedents where minor procedural lapses did not warrant denial of exemption. Conclusion: The Tribunal set aside the impugned order dated 13.07.2016, which confirmed the demand of Rs. 2,27,22,336/- against BPKG run by GTP, and sustained the order passed by Commissioner (Appeals) dated 31.01.2019, which set aside the demand for the subsequent period. The appeal filed by the assessee was allowed, and the appeal filed by the department was dismissed.
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