9911796707
TMI Blog1987 (7) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rs. 4,97,689.40, they stopped manufacturing goods on their own account and undertook the manufacture of S.O. Dyes on behalf of one M/s. N.R. Dyes Chemicals, stated to be their loan licensee with office at 9, Maheswar Kripa, Plot No. 126, R.B. Mehta Marg, Ghatkopar, Bombay-86. The proprietor of this company is Miss. Nirupa Ratilal Mehta, Daughter of Shri R.R. Mehta, one of the partners of the appellant s concern. After clearance of goods valued at Rs. 4,79,325/- for M/s. N.R. Dyes Chemicals, the manufacture of the said goods for the said company was stopped and further manufacture was done for a newly constituted concern, namely, K.B. Chemical Enterprises as having office at 304, Anandeep Chambers, Narsinatha Street, Office address of the appellant concern, as a loan licensee. The partners of M/s. K.B. Chemical Enterprises are one Mrs. Usha Bharat Kumar Mehta, wife of Mr. Bharat Kumar Mehta and the other partner of appellant s concern is one Mr. Satish Panachand Bhayani. After the clearances in their name, valued at Rs. 4,96,946.50 had been made, the manufacture of the goods in their name stopped and the same was continued for another loan licensee, a newly constituted firm na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew to take benefit of exemption Notification No. 71/78. Statements were also recorded from partners of other concerns. It is seen that there were two persons taken as partners from outside the family of Shri R.R. Mehta. - Shri S.P. Bhayani, one of the two partners of M/s. K.B. Chemical Enterprises and Shri Ajay P. Mody who was one of the two partners of M/s. Hema Dyes and Chemicals. Both these were allocated major share in the respective partnership concerns. Both were having jobs elsewhere and did not invest any amount in the partnership concerns and according to their statement played no role in the day to day operations of these concerns and did not receive any profits from the operations of these two concerns. Both of them signed only some letters and correspondence including the partnership deed papers at the instance of Shri Bharat Kumar Mehta at the time the firms were constituted and it was Shri Bharat Kumar who brought them in as partners. The other partners of the loan licensee concerns also as seen from the statement recorded played no role either in manufacturing or selling or procurement of raw materials nor did they participate in any financial arrangement made for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir office to the other concerns and assisting them in purchase and sale of goods. He pleaded that since relatives of the partners of M/s. Mehta Dye-Chem Industries were partners in the other concerns, there was nothing wrong in the relations helping each other. He pleaded that the Collector accepted the existence of each firm as a separate legal entity and having done that he could not club the clearances of all the firms for the purpose of benefit of Notification 71/78. He stated that there is no warrant in law to club the clearances of all concerns merely because of the partners in different concerns were common. He cited the case of Bapalal Co. v. Government of India and Others : 1981 E.L.T. 587 (Mad.). He stated that the material on record does not in any way lead to the conclusion that all the operations relating to the goods were carried for M/s. Mehta Dye-Chem Industries. At best what could be attributed is that the appellants did the tax planning to take advantage of benefit available under the law in terms of Notification No. 71/78. He stated that not much should be read in the statement of Shri Ratilal Mehta that different firms had been floated by them to take advanta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir own account and also on account of loan licensees were within the knowledge of the Central Excise authorities and it was only after the necessary permission granted by the concerned authorities and after necessary approval of the classification lists and price lists filed by the appellants on behalf of the loan licensees that the clearances were made. He stated that the appellants furnished all the information that was required under the law to be furnished. There was no further duty cast on the appellants to make any disclosure unless they were asked to do so. He pleaded that having approved the price list and classification list, the Department could not have made enquiries after the approval accorded and cited the decision of the Government of India reported in 1981 E.L.T. 958. He pleaded that there was no allegation that the appellants had suppressed any fact and bland findings had been given that this was done by the appellants. He pleaded that demand if at all could be raised for a short period from 18-2-1980 to 31-3-1980. He stated in terms of judgment of Tribunal in the case of Hoist-0-Mech. Ltd., Thane v. Collector of Central Excise, Bombay : reported 1984 (18) E.L.T. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocate as to how he could claim the benefit of the notification for clearance of goods at nil rate of duty upto a limit of Rs. 5 lakhs in respect of each of the four parties involved in the case individually as in terms of sub-para (c) of the notification, the upper limit upto which the specified goods that could be cleared at nil rate of duty from a factory run at different times in a financial year by different manufacturers was Rs. 5 lakhs, the relevant extract of Notification 71/78 is reproduced below for convenience of reference : In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the excisable goods of the description specified in column (3) of the Table hereto annexed (hereinafter referred to as the specified goods") and falling under such Item Number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as is specified in the corresponding entry in column (2) of the said Table, in respect of the first clearance of such excisable goods for home consumption upto an aggregate value not exceeding rupees five lakhs and cleared on or after the 1st day of April in any fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of determining the eligibility of manufacturer to the exemption contained in Notification No. 71/78-C.E., dated 1-3-1978, the value of goods manufactured and cleared by the manufacturer on behalf of his loan licensees should not be taken into account. The loan licensees will be eligible for the said exemption, separately provided their clearances do not exceed the limits prescribed in the said notification. - (Baroda Collectorate Trade Notice No. 135/78). He also drew our attention to Poona Collectorate Trade Notice clarifying the position in this regard. This Trade Notice No. 102/80, dated 15-7-1980 and the clarification in this regard is reproduced as under : A doubt has been raised whether, for the purpose of deterring the eligibility of a manufacturer to the exemption contained in the above cited notification, the value of goods manufactured and cleared by the manufacturer on behalf of his loan licensees should also be taken into account. In the context, it is clarified that a loan licensee will be treated as a manufacturer within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. In view of this, it is clarified that the value of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statement of Shri R.R. Mehta one of the partners of M/s. Mehta Dye-Chem Industries. She stated that he had clearly admitted that M/s. N.R. Dyes Chemicals was floated only to avail of benefit of exemption under Notification No. 71/78 and that the said concern was financed by them (M/s. Mehta Dye-Chem Industries). She stated likewise the same thing happened in the case of other concerns which were floated and his admission is on record. She also pointed out that he also admitted that it is they who were arranging sale of goods of the loan licensees. She also pointed out that it has been admitted by him that the matters relating to the manufacture and clearance of goods was being looked after by him. She also pleaded as seen from the statement by Shri Mody that he had no business interest in the partnership. He merely signed partnership deeds. She pleaded he played no role in any way in the business of the partnership concern. All he did was to sign the partnership deed and there was no financial commitment on his part nor he did any work in relation to the partnership concern even when he had a major shareholding in the partnership concern. She stated Shri Bhayani, partner in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir factory were the owners of all the goods. In this regard she cited the case of Shri H. Abdul Rasheed, Proprietor, M/s. Quality Steel Industries, Bangalore v. Collector of Central Excise, Bangalore; disposed of vide Order No. 388/84-D, wherein the Tribunal under similar circumstances have held as under : We also note that as recorded by the Collector in his order, Smt. Inayathunnisa in a statement, dated 10-10-1982 deposed that she does not know anything about the day to day affairs of M/s. Unit and that her husband Shri Rasheed looks after the day to day transactions and holds a Power of Attorney. The appellant relied much on the registration by Commercial tax authorities and Income Tax authorities and argued that Unit having been registered separately should be considered as an independent unit. We are unable to accept this argument. The provisions of each law differ. The purpose of each statute is different. In the present context a notification has been issued where certain concessions were given to Small Scale Industries and as mentioned earlier this concession was based on the value of clearances by or on behalf of a manufacturer. Being separately situated and being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) are inter-connected. We first advert to Notification No. 71/78 under which duty free clearances for each of the four parties were made at nil rate of duty. Relevant extract of the notification is reproduced for sake of convenience of reference : In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the excisable goods of the description specified in column (3) of the Table hereto annexed (hereinafter referred to as the specified goods") and falling under such Item Number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) as is specified in the corresponding entry in column (2) of the said table, in respect of the first clearance of such excisable goods for home consumption upto an aggregate value not exceeding rupees five lakhs and cleared on or after the 1st day of April in any financial year by or on behalf of a manufacturer, from one or more factories, from the whole of the duty of excise leviable thereon, subject to the following conditions, namely :- (a) the exemption contained in this notification shall not be applicable to a manufacturer - (i) during the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed under the said notifications. The clarifications issued cannot enlarge the scope of the notification. All that we can read from these clarifications is that for determining the eligibility of manufacturer, the clearances made on behalf of loan licensees, who, according to these instructions, is also to be treated as manufacturer, should not be taken into account and then as a corollary thereto, the clarification is that the loan licensee will be eligible for the benefit of the notification separately provided clearances did not exceed the limits prescribed in the notification. Thus, for determining eligibility in terms of sub-para (a) of the notification, the clearances of the loan licensees and the manufacturer himself have to be reckoned separately. However, in terms of sub-para (c) of the notification, another limit has been fixed as to quantum of goods which can be cleared from the factory at nil rate of duty and this limit was Rs. 5 lakhs. In the opening para of the notification also, the limit for exemption provided in respect of clearances made by or on behalf of the manufacturer is upto Rs. 5 lakhs. Thus, it would be seen in case the manufacturer who satisfies the cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have been made from the factory of the appellants was only Rs. 5 lakhs and any clearances made beyond that limit without payment of duty for the specified goods listed against any serial number were not warranted under the notification. The clarifications given by the Department do not and cannot confer any benefit more than that stipulated in the notification. In this view of the matter we hold that there was no legal basis for the lower authority to have permitted appellants initially the benefit of Notification 71/78 in respect of goods cleared in excess of Rs. 5 lakhs in the name of loan licensees. 6. After having field as above, normally there would have been no need to go into other questions raised in the context of the facts of the case relating to as to whether the loan licensees could be held to be manufacturers or they were just dummies created for misutilising the benefit of notification but inasmuch as the question of limitation has been raised, we proceed now to deal with the other aspects. The plea of the Revenue is that the firms, stated to be loan licensees, were created to avail of benefit of Notification 71/78 and to avoid payment of duty in respect of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office at 304, Anand Deep Chambers, Narsinatha Street, Masjid, Bombay-9, i.e., where our office is situated. There are two partners in this concern. One is Mrs. Usha Bharatkumar Mehta, my daughter-in-law and the other one is Shri Mody whose full name and address I do not remember. I have mentioned earlier that Shri Mody is the other partner M/s. N.R. Dyes Chemicals which is not correct through confusion I mentioned his name. I do not remember the name of the concern. The name of the other partner is known to my son, Bharatkumar and also mentioned in the agreement. The agreement made by us with the second loan licensee M/s. K.B. Chemicals Enterprises is at our office and will be produced later on. This concern has also been financed by us and separate bank account was opened in that concern ship; no loan was taken from any of the banks by any of the partner of this concern. The raw material required for the production in the name of this loan licensee was purchased from open market at Bombay and the goods manufactured for them was sent from our factory in their name and were sold through our agent namely M/s. Lac Enterprises. On manufacturing and clearing the goods totally valued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Dyes Chemicals as they were temporarily hired by us. I will attend again on 10-8-1980 for giving further statement. Shri A.P. Mody, partner in M/s. Hema Dyes Chemicals who had been given 70% share, has stated as under : In the month of January 1980 Shri Bharat Mehta proposed that he intends to start a new business and asked me whether I could become a partner in the same. As I had no savings of my and also no financial help from my father or brothers, I told him that I had no money to invest. On that Bharatbhai told me that I need not worry about the finance and also that I need not worry anything in this business. He himself will manage everything right from the purchase of the raw material upto the sale of the final products and I was only required to sign certain documents. I gave my consent. and further stated : After signing this partnership deed I signed some correspondence for Hema Dyes Chemicals and also signed some cheques. This correspondence was signed by me as per the directions from Shri Bharatbhai at his residence and about the cheques, I state here that Shri Bharatbhai has already got some blank cheques signed by me I am not able to produce the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. I was however told by Bharatbhai that the business will be run in the name of M/s. K.B. Chemical Enterprises and that his wife Mrs. Usha Bharat Mehta would be another partner in the said business. Thereafter I never signed any documents in the name of K.B. Chemical Enterprises and never attended to any of the work relating to the business conducted in that name. I do not know who was looking after the business. Smt. Hemlata Mehta, partner in M/s. Dyes Chemicals and also partner of M/s. Mehta Dye-Chem Industries in her statement has stated as under :- My name and address is as given above. My husband is having a factory owned by name M/s. Mehta Dye-Chem Industries at plot No. 8/7, Bassein Taluka Industrial Cooperative Society Limited Achole, Bassein, District Thane, manufacturing S.O. Dyes. I am one of the partners in the above factory besides myself and my husband my son Bharat Kumar is the third partner. I however do not look after any work of this factory. I am also a partner in M/s. Hema Dyes Chemicals who only deals in dyes. There is also another partner in M/s. Hema Dyes Chemicals by name Shri Ajay Modi, who resides at Poulnagar, Ghatkopar and known to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat Kumar Mehta, one of the partners in M/s. K.B. Chemical Enterprises has stated as under : However, I am also one of the partners in M/s. K.B. Chemical Enterprises. The other partner is Shri Satish Panachand Bhayani residing at Malad (E). This M/s. K.B. Chemical Enterprises deals to Dyes. We started this business in the month of October, 1979. Shri S.P. Bhayani is friend of my husband. In order to avail of the facilities of loan licensees as with Shri S.P. Bhayani started the business to Dyes. From my husband I came to know that one can purchase raw materials in open market, get the same manufactured in finished product such as Dyes and sale them in market without investing good amount of capital. Abovementioned Shri Bhayani used to come our house very often and hence myself and Shri Bhayani decided to go in for the said facility since my husband has already having abovementioned manufacturing unit and he was also known dealers in raw materials. To start with the business I invested initial on account of Rs. 301. This was deposited in the Bank of Maharashtra at Ghatkopar (East) against current account opened in the name of M/s. K.B. Chemical Enterprises under my signature, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials, manufacture of the goods or sale thereof. Nor were they concerned with the excise formalities relating to the goods in any way. Nothing has been shown that they were also financially involved in the transactions relating to the manufacture or sale of the goods. In fact, it has been admitted that Shri R.R. Mehta was the person controlling all the operations alongwith his son. Admittedly finances for all the loan licensees were arranged by M/s. Dye-Chem Industries. Statements of only outsiders who were partners alongwith family members of Dr. R.R. Mehta, Shri Bhayani and Shri Mody clearly go to show that the partnership was created to show that these were independent legal entities with a view to persuade the authorities into believing that independent loan licensee firms were engaged in getting the goods manufactured. No doubt, some book entries have been made showing financial transactions in the books as if these were between the loan licensees and the appellants. These entries can only be taken as in the nature of paper entries with a view to mislead authorities to believe that the transactions were between independent parties. 7. We observe that there were no contra ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
