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TMI Blog1995 (9) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... h different shareholders but with Shri G. Hazra as Managing Director who was also the Managing Director of the founder company. With the intention of transferring the new factory at Sahibabad together with its assets and liabilities to the new company, a sale deed dated 16-10-1983 was drawn up by the founder company but on account of the objections raised by the U.P. State Industrial Development Corporation, the sale deed could not be executed. It has been claimed that thereafter the factory at Sahibabad was leased out to the appellant company in terms of the lease deed executed on 7-11-1983 but appellant company continued its association with M/s. H. Guru Marketing Co. (Pvt.) Ltd., Calcutta another company set up by the founder company, to act as their selling agents. The appellant company thus conducted its sales directly as well as through M/s. H. Guru Marketing Co. (Pvt.) Ltd., Calcutta, The goods manufactured by the appellant company being classifiable under Item 68 of the erstwhile Central Excise Tariff, in terms of Notification No. 77/85-C.E., dated 1-3-1985, annual production of goods valued upto Rs. 30 lakhs was exempted from payment of duty. Since aggregate clearance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l against the order passed by the Assistant Collector. However, by the impugned order the Collector (Appeals) Central Excise, Ghaziabad upheld the findings of the Assistant Collector. The appellants have preferred the present appeal against the said order dated 30-12-1992 passed by the Collector (Appeals). 3. Appeal No. E/1471/94-B : On 25-7-1985, the Preventive Officers of the Central Excise visited the appellants factory and seized certain records. Manufactured goods valued at Rs. 1,44,625 were also seized on the ground that they had not been entered in the relevant Central Excise records such as RG-I. On the basis of records seized on 25-7-1985 and enquiries made thereafter, a show cause notice dated 21-1-1986 was issued by the Deputy Collector of Central Excise, Ghaziabad alleging that the appellant unit was a subsidiary company of M/s. H. Guru Instruments (P) Ltd., Calcutta and with the assistance of M/s. H. Guru Marketing Co. (Pvt.) Ltd., Calcutta, they had contravened various provisions of Central Excise Rules. The appellants were asked to show cause why the goods seized on 25-7-1985 should not be confiscated and why penalty should not be imposed on them under Rule 173Q. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 8-9-1988 for the period 1-10-1983 to 25-7-1985 was time barred since they had not mis-stated or suppressed any facts. However, by the impugned order dated 13-4-1994, the Collector confirmed the said demand and imposed a penalty of Rs. 3 lakhs on the appellants. 5. In the case which is the subject matter of the Appeal E/942/93-B1, Shri Bipin Garg, Learned Advocate appeared before us. He submitted that the impugned order was not sustainable since registered companies are to be deemed as separate entities and they are entitled to separate exemption under the relevant notification of the Govt. of India. In support of his contention he referred to the Trade Notice No. 53/92, dated 11-11-1992 issued by the Meerut Collectorate. He argued that the mere fact that some shareholders were common or the premises used are common and telephone and telegraphic address are same and the employees are common or there are some common Directors would not make any difference. He submitted that the lower authorities had ignored the fact that the Department had been allowing the founder company and another company set up by the founder company in South India to avail the exemption under the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal); 7. Dealing with the submissions made by the Learned Counsel for the appellants Shri Somesh Arora Ld. JDR referred to the impugned order and submitted that the appellant company was set up by M/s. H. Guru Instruments Pvt. Ltd., Calcutta and despite the claim that it was an independent unit there was ample evidence to show that it was only a subsidiary of the founder company and had been set up for the purpose of evasion of excise duty. He stated that the unit at Ghaziabad was set up by M/s. H. Guru Instruments (P) Ltd., Calcutta and for this purpose a plot was taken form U.P. State Industrial Development Corporation and funds were raised by the company from UPFC. He contended that the appellants had attempted to give the impression that the unit at Ghaziabad was a separate entity having no connection with the parent company at Calcutta by drawing up a sale agreement but they had not succeeded in their plan on account of the objection raised by the U.P.F.C. He added that thereafter the appellant had claimed that the company at Ghaziabad had acquired independent status on account of the Lease Deed dated 7-11-1983 under which the Calcutta Company had leased the factory at G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. He reiterated his stand that it was incorrect on the part of the Collector to allege that the appellant was a dummy whose activities were controlled by M/s. H. Guru Instruments Pvt. Ltd. Calcutta since the appellants were registered separately under Sales Tax and Income Tax Act and there was no flow back of funds from the appellant to the Calcutta firm. He stated that the Collector had also erred in holding that prior to 1984 when the appellants obtained an Import Licence the raw materials needed by the appellants were being supplied by the founder company. He submitted that the fact that the import licence was issued to the appellants supported their claim that they were a separate entity. As regards the Collector's finding that the orders received by the founder company at Calcutta were passed on to the appellants and the supply of finished products to the customers was always made by the Calcutta company alongwith test guarantee and materials certificate of the Calcutta company, he contended that there was nothing irregular in this arrangement since in respect of certain orders received by the founder company they were using the appellants as a job worker. He stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) Ghaziabad have to be deemed as having been manufactured for and on behalf of the Calcutta Company for the purpose of exemption under Notification No. 77/85-C.E., dated 1-3-1985; (ii) Whether the demand of Rs. 3,21,198.20 for the period 1-10-1983 to 25-7-1985 confirmed against M/s. H. Guru Instruments (North India) Private Ltd. vide the impugned order dated 13-4-1994 has to be deemed as time-barred; and (iii) Whether the penalty of Rs. 3 lakhs imposed on the appellants by the said order is sustainable. 11. Taking up the first point we find that M/s. H. Guru Instruments Private Ltd., Calcutta incorporated under the Indian Companies Act and having their factories at Calcutta and Bangalore were engaged in the manufacture of scientific instruments in their factories at Calcutta and Bangalore. As a part of their expansion programme, in 1981 they set up another factory at Sahibabad for the manufacture of similar goods after acquiring an industrial plot from the U.P. State Industrial Development Corporation. For the setting up of the new factory they were sanctioned a loan by the U.P. Financial Corporation. In 1983 a company in the name and style of M/s. H. Guru Instruments (North I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase deeds in question remained suspect and unreliable since, as observed by the Collector (Appeals), as against the lease rent of Rs. 2,74,000/- per month claimed to have been agreed to between the parties the actual hire charges reflected in the Balance Sheets for the period ending 30-6-1984 and 30-6-1985 was only Rs. 2,80,186.15 and Rs. 3,68,779.00 respectively. For these reasons and also in view of the finding of the Collector (Appeals) that a large part of the appellants total realisations through sales were flowing to the founder company, we are inclined to hold that there was no genuine or legal transfer of the assets and liabilities of the factory at Sahibabad to the appellants by the founder company. 13. The appellants have relied upon various decisions of the Tribunal and contended that the mere fact that some shareholders were common or the premises used are common, the telephone and telegraphic address are same, the employees are common or there are some common Directors would not make any difference since the Department had allowed the founder company and another company set up by the founder company in Bangalore to independently avail the exemption under the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Tribunal in SPL Machinery v. Collector of Central Excise reported in 1995 (75) E.L.T. 362 wherein it was held that the clubbing of clearances was not permissible unless it was shown by the Department that the two units were functioning as one entity. 14. In the case of Meteor Satellite Ltd. and Telstar Electronics, Ahmedabad v. Collector of Central Excise, Baroda reported in 1985 (22) E.L.T. 271, the Tribunal has observed that the Court or the Tribunal is entitled to lift the mask of corporate entity if the conception is used for tax evasion or circumvent tax obligation. In view of our findings above that there was no genuine or legal transfer of the assets and liabilities of the founder company to the appellant company, the various decisions of the Tribunal relating to units having common facilities such as premises, telephone and staff including common Directors relied upon by the appellants are not relevant and cannot be of any assistance to them. We, therefore, hold that the corporate veil has to be lifted and the appellant company M/s. H. Guru Instruments (NI) Pvt. Ltd. and the founder company M/s. H. Guru Instruments (P) Ltd., Calcutta, in which Shri G. Hazra is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or suppression of facts by the appellants. We therefore hold that the Collector's order confirming the demand of Rs. 3,21,198.20 for the period 1-10-1983 to 25-7-1985 is not sustainable since the said demand having been raised by show cause notice dated 8-9-1988 was barred by limitation. 15. In the case of Pressure Cookers and Appliances Ltd. v. Collector of Central Excise, Chandigarh reported in 1987 (28) E.L.T. 555, the Tribunal relying upon the judgment of the Supreme Court in the case of Mc Dowell and Company Ltd. v. Commercial Tax Officer reported in (1985) 5 ECC 259 has held that colourable devices cannot be a part of tax planning and it would be wrong to encourage or entertain the belief that it would be honourable to avoid the payment of tax by resorting to dubious methods. Paras 39 to 41 of the said order of the Tribunal, being relevant, are reproduced below : 39. The learned counsel for M/s. PCA dismissed Mr. Sundra Rajan's enlistment of the McDowell judgment of the Supreme Court by saying that this judgment was irrelevant, that it might perhaps support penalty but it did not support the demand of duty etc. This is not a correct understanding. Mr. Sundra Rajan was ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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