2024 (1) TMI 934 - AT - Central Excise

SSI exemption - creation of dummy units in order to keep the total value of clearances below the SSI exemption and not paying duty on their clearances - HELD THAT - The charges against M/s Varun of creating dummy units for keeping the value of clearances below the SSI exemption are not sustainable. Hence, the demand and penalty imposed against M/s Varun is set aside - the penalty imposed upon co-appellants also set aside. Thus, impugned order is set aside and appeals are allowed.

Summary

Issues Involved:
1. Whether M/s Varun B Corporation, M/s Nishoo Arts, and M/s Global Integrated Technology were dummy units created to evade Central Excise duty.
2. Whether the clearances of these units should be clubbed for the purpose of calculating the total aggregate clearance value.
3. Whether the penalties and demands imposed were justified.

Summary of Judgment:

Issue 1: Dummy Units Allegation
The investigation revealed that M/s Varun B Corporation, M/s Nishoo Arts, and M/s Global Integrated Technology were allegedly operating as a single entity to keep the total value of clearances below the SSI exemption limit. The search operations found common records and shared machinery among the units, indicating interdependence. However, upon review, the Tribunal found that the units were situated on adjacent plots with separate entries and demarcations. The presence of separate machinery and independent operations was noted. The Tribunal concluded that there was no sufficient evidence to prove that the units were dummy or interdependent.

Issue 2: Clubbing of Clearances
The Show Cause Notice suggested that the clearances of M/s Varun B Corporation, M/s Nishoo Arts, and M/s Global Integrated Technology should be clubbed for calculating the total aggregate clearance value. The Tribunal, however, found that the units were independent with no mutual financial flow back or interdependence. The Tribunal relied on various precedents, including CCE Ahmedabad Vs S.C Patel -2011 (264) E.L.T 414 (Tri. Ahmd.) and M/s COIMBATORE ENGINEERING WORKS Versus COMMISSIONER OF C. EX., COIMBATORE - 2009 (239) ELT 366 (Tri. Chennai), to establish that non-payment of interest on borrowing funds cannot be a basis for clubbing.

Issue 3: Penalties and Demands
The adjudicating authority had confirmed a demand of Rs. 1,00,06,208/- against M/s Varun along with interest and equivalent penalty. Penalties of Rs. 10,00,000/- each were also imposed on the co-appellants u/r 26 of Central Excise Rules, 2002. The Tribunal found that the charges of creating dummy units were not sustainable and set aside the demand and penalties imposed against M/s Varun and the co-appellants. The Tribunal emphasized that procedural requirements, such as filing SSI exemption declarations, should not negate the exemption itself.

Conclusion
The Tribunal set aside the impugned order and allowed the appeals, providing consequential reliefs in accordance with the law. The judgment emphasized the importance of substantial evidence over procedural technicalities in determining the independence of business units.