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TMI Blog2009 (6) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... and Shri P. Karthikeyan, Member (T) Shri K.S. Venkatagiri, Advocate, for the Appellant. Shri M.K.A.K. Mohiddin, JDR, for the Respondent. [Order per: P. Karthikeyan, Member (T)]. - On 6-2-98, central excise officers attached to the Chennai-IV Division visited the premises of M/s. Techno Device (TD), a small scale unit engaged in the manufacture of idlers and parts thereof for M/s. Neyveli Lignite Corporation (NLC), at 45, SIDCO Industrial Estate, Chennai. The officers observed that two other units M/s. Sri Ranganatha Industries (SRI), and M/s. Industrial Engineering Works (IEW) also functioned in the same premises. Another unit M/s. Excel Industries (Excel), had functioned in the same premises till January '98 before it shifted to 98, SIDCO Industrial Estate, Chennai-98. Another unit M/s. Industrial Fasteners (IF) had functioned at 98A, Sidco Industrial Estate till 1992 and moved to 45 SIDCO Industrial Estate in 1993. This unit was wound up in August '96. Statements were recorded from Shri R. Vasudevan, partner of Excel and Shri N. Sanjay, proprietor of IEW. After completing the investigation, the authorities came to the tentative conclusion that members of the famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-8-96, other units continued to function on the date of detection and had started in 1982 (in the case of TD) and in 1986 (in the case of SRI IEW). Only TD had power connection. As per the mahazar, the records of all units were kept at one place at shed No. 45 SIDCO Industrial Estate. One Shri Vaidynathan, clerk maintained the accounts. All the units functioned from a common shed with demarcation made by a line painted on the floor; that some machines were attributed to each unit did not mean that all of them functioned separately. From the letters of Chief Manager, NEC dated 14-9-96, 20-8-98, it was seen that orders were placed only on TD and Excel and not on others. The job relating to these orders was distributed among the various units floated by S/Sh. Vasudevan and Rajagopal with their family members. By doing this, the income from sales and the profit got distributed among these units enabling them to avoid taxes. Shri Sanjay, proprietor of IEW had not invested any amount as a proprietor. A single security guard handled security and safety of all the units. It was evident that all the units pooled the space for their manufacturing activity besides men and machinery. All t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been challenged by TD, S/Sh.Vasudevan, Rajagopal and Sanjay. TD submitted that the finding that TD and four other firms functioned in one big hall demarcated by painted lines and were not functioning separately to be incorrect. Each factory had four walls and separate doors. The yellow line was in the open yard where the raw materials of each unit were kept. This position was obvious from the mahazar. It was an admitted fact that all the four units were engaged in manufacturing activity as per the show cause notice; it was not a case where they merely existed on paper. When separate machinery was found along with separate labour, clearances of the units could not be clubbed. Excel existed since 1982, it functioned from 98 SIDCO Industrial Estate for a short period of three years. They leased out the premises to TD and hired a portion on lease. It had its own plant and machinery. Partners of Excel were different from partners of TD. Excel moved to their own premises at 98 SIDCO Industrial Estate in August '96. Therefore, clearances by Excel were excluded from the impugned demand. A separate firm with its own manufacturing premises, machinery and labour could not become a dummy for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho was partner of Excel during the disputed period and in TD during the period 94-96. Shri Vasudevan was not a partner in TD after 1996. Clearances of Excel after August '96 were excluded in computing the demand. The impugned order was passed without ascertaining the account of transactions by all partners before clubbing their clearances. The impugned order took into account the goods traded by Excel in determining the duty due. This was against the legal provisions. If the various firms were found to have been manufacturers operating from the same factory, demand should have been raised on each of them. Excel had purchased goods not only from the other units and also from unconnected firms Sri Daya Engg. Industries and M/s. Sanghavi Sales Corporation. Turnover of traded goods of Excel in 95-96 and 96-97 were respectively 19.28 lakhs and 18.15 lakhs. The demand of duty on traded goods of value of Rs. 3.63 crores was not sustainable. The appellants prayed that the impugned order be set aside. 6. We have heard both sides. We find that the five firms involved are owned by the following partnerships/persons : S.No. Name of the Firm Partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the appellants, Excel functioned as an independent unit with income tax and sales tax registration and functioned from 1985 at 98 SIDCO Industrial Estate. It had worked for a short duration from 1-4-93 to 9-8-96 at 45, Sidco Industrial Estate and returned to function from 98 SIDCO Industrial Estate since. We find that mutuality of interest, financial integrity among various units and unity of control are the sine qua non for clubbing of clearances of the units involved. There is no examination of the transactions of the firms and the people comprising them to find if in the name of different partnerships, same entity or body of persons operated and the partnerships were a facade devised to evade excise duty, the adjudicating authority referred to apex Court's decision in Calcutta Chromotype Ltd. v. CCE, Calcutta (supra) as applicable but left the above question unanswered. The department has not looked at the aspect of finances/funds operated by each of the units and if there was a common fund and sharing of profits among units to decide if these units were dummies of one main unit. The units considered to be dummy by the Commissioner had engaged in production and transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock of raw materials and one person controls one unit is immaterial; that clearances of two firms cannot be clubbed together. (d) Coimbatore Engg. Works v. CCE - 2009 (239) E.L.T. 366 (T) = [2009-TIOL-438-CESTAT-MAD] In this case, this Tribunal held that the following circumstances were necessary to justify clubbing. (1) Mutuality of interest of the units, (2) Financial flow back and distribution of profit. (3) Separate entity only a facade (4) Common management. These circumstances are not proved to exist in the case on hand. (e) In Renu Tandon v. Union of India - 1993 (66) E.L.T. 375 (Raj.) The Hon'ble High Court of Rajasthan observed as follows : "The only ground to issue such a notice was that the two factories are located adjacent to each other and that the proprietor of M/s. Tandon Brothers happens to be the father-in-law of the petitioner and that the work of both these units is being looked after by Shri Avinash Tandon who is the husband of the petitioner and son of Shri S.K. Tandon and that she has been consuming electric power from M/s. Tandon Brothers. These facts which have been mentioned in the show cause notice, in no way, can give rise to a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Das Kanodia Others, Bombay v. CCE. Bombay - 1987 (32) E.L.T. 204 (Tri.) It was held that if firms which are separate legal entities not to be treated as single manufacturer and denied exemption unless separate entities was only a facade. Common purchases by two or more units do not establish identity of interest if otherwise accounted and adjusted periodically. Four units were independent entities in law, paying income-tax separately, not to be deemed functioning unitedly though they all received advance payment of wages from one source. Manufacturers employing a common manager, and some employees not being sure of who their employer was do not show that there was a single employer. (h) CCE, N.Delhi v. Standard Watch Co. P. Ltd. - 2000 (119) E.L.T. 703 (Tribunal) The Tribunal held that in the absence of any evidence of common funding ,financial flow back from one unit to another, the clearances of two units not liable to be clubbed merely because, the two units maintaining common register of stock, clearances, directors, partners of both the units or closely related. (i) Kinjal Electricals P. Ltd. v. CCE - 1989 (43) E.L.T. 327 (Tribunal) This case dealt was one of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on directors and advancing of interest free loans by main unit to other units were not sufficient to make other units as dummies when they were having independent existence and independent transactions without any profit sharing, management control or money flow back to the main unit. Clearances were held to be not clubbable. (l) CCE, Madurai v. National Adhesive Chemicals - 2007 (208) E.L.T. 361 (Tri.-Chen.). We quote below findings of the Tribunal which apply to the case on hand. "After giving careful consideration to the submissions, we find that the appellant has relied on various statements and private records maintained by the two units, to contend that M/s. Ranveer Co. were set up by the respondents only to show that a part of the clearances of the goods manufactured by the respondents stood in the name of M/s. Ranveer Co. so that the clearances in the name of the respondents remained within SSI limits. It appears from the records that, as rightly pointed out by learned counsel, no common funding or financial flowback was alleged in the show cause notice. According to the ruling of the High Court, in the absence of evidence of common funding and financial flowbac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uniformity of levy of duties of excise the Central Board of Excise Customs has ordered that the following general principles will be applicable to Notification No. 175/86-CE:- 1. The question whether different partnerships having common partners are treatable as separate manufacturers or the same manufacturer, would be a question of fact in each case to be determined on the basis of such factors among other, like composition of the partnership, existence of the factory, licence, nature of goods manufactured etc. 2. Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners ay A, B, C has got more than one factory, all these factories should of course be combined. Limited companies whether public or private are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. 3. If there are two firms with only some of the partners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or individual owns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g purchase orders and distributing the work among different partnerships, we find is totally erroneous and misconceived. Such practice is common in trade and the revenue has not adduced any evidence to conclude that such transactions in the case on hand were not commercial in nature. There is also no categorical finding that LEW is not owned by Shri Sanjay, a person outside the families of the brothers S/Sh. Vasudevan and Rajagopal. In Simplex Expeller Works (supra), relied on by the Commissioner only, one of the units namely Unit No. 1 possessed machinery for manufacture of excisable goods. Confessional statements were rendered by the partners; no coercion was found to have been applied to obtain these statements. These were important circumstances which led the Tribunal to hold that the firms involved therein belonging to members of the same family had manipulated their accounts to stay within the exemption limit. The firms had also failed to show the source of funds each of them had operated. Commissioner thus wrongly relied on this case law. The Commissioner repeatedly highlighted the fact that the family members of S/Sh. Vasudevan and Rajagopal had dominated the business activ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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