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TMI Blog2000 (8) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... account of fragmentation of Minilec Controls Pvt. Ltd. (Appeal No. 5243 of l991) for the years 1983-84 to 1987-88, The duty amount involved is Rs. 24,31 384.90 Annexure D-II Demand on account of fragmentation in respect of Statfield Equipments Pvt. Ltd. (Appeal No. 5240 of 1991) for the period 1-8-83 to 31-7-88 The duty amount involved is Rs. 23,41,941.10 Annexure D- III Fragmentation in respect of Statfield Systems (Coating) Pvt. Ltd. (Appeal No. 5244 of 1991) for the period 1-8-83 to 31-7-88 The duty amount involved is Rs. 20,95,117.10 Annexure D-IV Fragmentation in respect of Minilec Protective Relays Pvt. Ltd. (Appeal No. 5245 of 1991) For the year 1985-86 up to 31-7-88 The duty amount involved is Rs. 14,07,066.30 Annexure D-V On account of Fragmentation in respect of Intelligent Conveyors Stackers Pvt. Ltd. (Appeal No. 5241 of 1991) For the period 1986-87 to 31-7-1988. The duty amount involved is Rs. 5,75,374.50 The total duty demand confirmed as per A B above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Excise Act and Rules. Detailed replies were filed by each of the Appellant. The Collector after hearing parties and after taking note of various evidences of both oral and documentary came to the conclusion that there has been clearances of firms which were required to be clubbed together and the Appellants were not entitled to benefit of Small Scale Industries Exemption Notification No. 175/86 or other earlier notifications. He confirmed the demand stated above and imposed penalties as mentioned above. We shall deal with each Appeal seriatim. (i) Appeal No. 5240/1991 : Statfield Equipments Pvt. Ltd. The Appellants started their business on 3rd October 1973. They were engaged in manufacture of Manual and Automatic Powder Coating and Liquidating Equipments and their Spare Parts falling under Chapter heading, 84.24, 84.28 and 84.31 mentioned in Schedule of CETA, 1985. They also manufacture painting equipment in collaboration of German Company M/s. Mullers. They also have Japanese Collaborators by name Iwato in respect of painting equipment. They supply to other spray painting small painting contractors and companies like Bajaj Auto Ltd., Escorts Ltd., Godrej Broyce Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellants by the Show Cause Notice dated 16th January, 1989 were charged with evasion of duty and specifically the Appellants were charged for violation of taking exemptions wrongly under Notification Nos. 77/83, 77/85 and 175/86. They were also charged with failure to determine the correct excise duty under TI 68 of the then Excise Tariff and Chapters, 84, 85 91 of the CETA of 1985. The Appellants were charged for suppressing the fact deliberately to the extent of true relationship of the inter-related manufacturing, non-manufacturing units owned, controlled by the said group of persons. The Appellants filed a reply on 24th April, 1989. The impugned order was passed by the adjudicating authority confirming the demand of Rs. 5,75,375.00 (clubbing) under Annexure D-II in the Show Cause Notice and a penalty of Rs. 60,000/- was imposed. The main charge of violation is fragmentation of the production, which according to Appellants is contrary to law. Hence, the present Appeal. (iii) Appeal No. 5243 of 1991 : Minilec Controls Pvt. Ltd. The Appellants was registered under the Companies Act, 1956 on 24th July, 1982. They entered into partnership with Miniature Electricals Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants that since no Show Cause Notice was issued to the so-called Suyash Sankalp Group they are not liable to pay any duty. By the impugned order dated 20th November, 1990, the Adjudicating Authority confirmed the duty amount of Rs. 14,07,086.30 from the Appellants and imposed a penalty of Rs. 1,40,000/-, confiscation of land, building, machinery etc. Hence, the present Appeal. (v) Appeal No. 5244 of 1991 : Statfield Systems (Coating) P. Ltd. The Appellants in this case started its business in 31st July, 1979 in the manufacturing of Spray Phosphating Plant, Spray Booth and Ovens. They are contractors of complete industrial paint shop by undertaking to supply and erecting and commissioning complete paint-shop which includes both liquid as well as powder coating systems, baking oven, material transport system. They purchased bought out items like Power motors, pump sets, boilers etc. They carried out complete, industrial paint-shop for electronic industrial company, Godrej and Boyce Ltd. Bombay, Bajaj Group of Companies, Escorts, Siemens, etc. They are also engaged in erection and installation of industrial paint-shops. As mentioned above, the Show Cause Notice dated 16th Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply dated 4th April 1989 denying the charges made. However, by the impugned order dated 20th November 1990, the Adjudicating Authority imposed a penalty of Rs. 40,000/-. Hence, the present Appeal. It is reported that the Appellant died on 19-8-97 and hence the Appeal aborts. (viii) Appeal No. 762 of 1991 : Mr. S.R. Apte The Appellant is a partner of Suyash Sankalp firm which was constituted on 16th December 1981 with an objective to provide labour market survey, to provide research and development facilities etc. Besides, the present Appellant, Late Mr. M.R. Apte (Appellant in Appeal No. 5246 of 1991) Mr. Y.G. Ghaisas (Appellant in Appeal No. 763 of 1991) were Partners in the said firm. The present Appellant is not related to Mr. M.R. Apte. The Show Cause Notice dated 16th January 1989 was issued. It may be noted that the Appellants were not a manufacturing unit and yet the Show Cause Notice charged him for claiming wrongly exemption under Notification Nos. 77/83, 77/85 and 175/86. A reply dated 4th April 1989 was filed denying the charges. However, the impugned order was passed imposing penalty of Rs. 80,000/- on the Appellant. Hence, the present Appeal. (ix) Appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Minilec Controls P. Ltd. (MCPL) and Minilec Protective Relays Pvt. Ltd. (MPRPL). (c) Statfield Equipments Pvt. Ltd. (SEPL) and Intelligent Conveyors Stackers P. Ltd. (ICSPL). (ii) The second basis on which the show cause notice proceed is to show that SS has common and mutuality of interest with other companies which come under Suyash Sankalp Group . The notice therefore relies on documents and instances to show the association of SS with each of the other 6 companies. 4. Shri Vikram S. Nankani, Advocate along with Shri A.G. Kulkarni, Chartered Accountant appeared for the Appellants. Shri Deepak Kumar, DR appeared for the Department. 5. Shri Nankani stated that at conceptual level what is known as clubbing in the Central Excise Law is combination of existence of certain pattern in the clearances of the excisable goods manufactured by two or more manufacturers. These are as follows : - common control of production and sales, - day to day management control and financial control/relationship, - financial flowback from one unit to the other. He stated that some of the Appellants like Appellant in Appeal No. 5242 of 1991, Appellant in Appeal No. 782 of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice. He also stated that sales between one or two units cannot be called as a sale to a related person as since there was no finding that one is not the holding company of any subsidiary company. He therefore pointed out in terms of the provisions of the Central Excise Law there cannot be the concept of the related persons. Commenting on the Appellant in Appeal No. 5244 of 1991, he stated that Paras III-1 to III-22 of the Show Cause Notice point out certain stray instances of the common activities. He stated that the turnkey project in the very nature of things cannot be achieved without discussions and mutual consultations. He further stressed that the undertaking of the turnkey project involve coordination and execution in a planned manner so that the object is achieved. He further emphasised the fact that the approach of the department in coming to the conclusion that there is undervaluation is wrong in law inasmuch as the adjudicating authority has confused the issue of mutuality. The mutuality is used in this case wrongly in an interchangeable manner in respect of both valuation and clubbing. He also stated that there cannot be a case of mutuality where financial flow-back i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a financial flow-back. The Show cause notice does not provide for existence of any documentary evidence to that effect. In the absence of financial flowback and the existence of independent legal individuality amongst the Appellants clearly goes to show that the charge of wrongful claiming of exemption under the Notification Nos. 77/83, 77/85 175/86 are not established in the group of companies. 6.3 Even the board has issued a Circular Order under Section 37B of the Central Excise Act, the gist of which has been reflected in the Madurai Collectorate Trade Notice reported in Page No. T41 of Volume 60 E.L.T. where, in the first para, it has been specifically stated that Limited companies whether Public or Private is a manufacturer by itself and will be entitled to a separate exemption limit. In this case all are separate private limited registered companies under the Companies Act, 1956. Those could not be treated as one company or one firm. The department is bound by the trade notices issued in terms of the Board Circulars issued under Section 37B. 6.4 It is true that the Show Cause Notice proceeds on the basis of certain decisions taken by the group of companies in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such place of removal ; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof ; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail ; (b) where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is floated. This company is also banking with you and you have not given any limits to this company except bank guarantee and hence there will be always substantial amount receivable from this company. The reason for this is also, the same, which we have explained in case of SSEPL . In the same letter a comparative statement of amount payable/receivable of their business associates is also available as enclosure to letter. III-2. In another letter written from M/s. SS(C)PL to Gujarat Communication and Electronics Ltd., Baroda vide S. No. 103 of Annexure B to the Show Cause Notice the first para of the letter reads as under : The above tender documents have been forwarded to us by our sister concern M/s. Surcoat Consultants Pvt. Ltd., Pune. We are manufacturers of the tendered equipment and Surcoat Consultants is our sister concern and Project division. We are taking liberty to forward our offer against the tendered documents received from M/s. Surcoat Consultants Pvt. Ltd. III-3. M/s. SS(C)PL authorises M/s. SCPL to bid, negotiate and conclude the contract on their behalf. An example of such authorisation communicated to customers may be seen in a letter written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.V. Duppaliwar will be looking after the Co-ordination and costing of Surcoat Consultants Pvt. Ltd. as well as Statfield Systems (Coating) Pvt. Ltd. He will be in Head office during morning hours and in the afternoon at SSCPL. All are requested to give the necessary co-operation . III-6. In a circular listed at S. No. 138 while deciding about the best communication system for productive results at item 5 it is mentioned that Designation for all the staff members will be the same on SCPL and SSCPL . III-7. The Circular listed at S. No. 189 and signed by Shri S.R. Apte mentioned about functions of Project execution group appears to further substantiate that employees of the unit are asked to work for other unit of the group and project execution group is entrusted to co-ordinate with design, purchase production, sales, accounts and also finalise erection contracts. III-8. In the minutes of meeting held on 5-6-86 listed at S. No. 190 attended by key persons under SCPL and SSCPL decided amongst various other things the following at Item 6. The viability of the projects should be checked by arranging common sittings of project execution, project sales, design and production . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractors are not carrying out all the tools, tackles required for erection. This delays the project. This is necessary to take decision. Whether we can provide our tools and tackle for all sites or any special machine, drill bit, special consumables like S.S. Rods etc. to avoid the delay at sites. - Our Accounts department will start to update the project-wise costing immediately with necessary help from project execution . III-10. The intentional avoidance of payment of Excise Duty on design and consultancy by the assessee would appear established from the documentary evidences listed at S. Nos. 225, 223, 224, 222, 221, 220, 219, 218, 217, 216, 227, 228, 229, 230, 231, 232, 233, 238, 250, 251, 252, 253, 255, 256, 257, 258, 259 of Annexure B to the Show Cause Notice which clearly show their systematic approach to under- invoice the goods by splitting order value. For example : In the documents mentioned at S. No. 225 M/s. SS(C)PL in its offer of painting plant to Steelage Industries Ltd. intimate the total project cost in the following manner. Total Ex-Works cost Rs. 12,65,000/- including design, drawing, consultancy, manufacturing, supply, erection, commissioning. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) Rs. 15,56,000/- Grand Total inclusive of packing charges, Erection and commissioning charges Rs. 24,61,000/- Note : Excise and Sales Tax will not be applicable as per the present regulation on Sub Total A i.e. on Rs. 6,60,000/-. In the documents listed at S. Nos. 226 and 227 originated from M/s. SS(C)PL Note given at the end of each reads as under. Note : Being these companies are in private sector and to save taxation we have advised to raise separate order for drawing, designing and consultancy and erection and commissioning to our associate M/s. Surcoat Consultants Pvt. Ltd. which is fully owned by a parent company . III-11. In the documents relied upon vide S. Nos. 219 and 220 to Annexure B of the Show Cause Notice it is pertinent to note that M/s. SS(C)PL have raised separate proforma invoices, one in the account M/s. SS(C)PL for supply of the Plant and the other one in the account of M/s. SCPL for design, engineering and consultancy charges pertaining to plant supplied by SS(C)PL mentioning within separate charge for erection and commissioning. It is also very interesting to note that both the said invoices in the letter head of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,44,000/- (ii) Supply of material inclusive of powder coating booth applicators and control panel etc. Rs. 5,76,000/- Rs. 7,20,000/- In the other said draft-amending order the original order value is split in the following manner. (i) Drawing, design and consultancy charges Rs. 3,80,000/- (ii) Supply of material value inclusive of spray painting booth, oven, flash off zone and conveyor Rs. 13,75,000/- (iii) Erection and commissioning of the total plant and handing over charges Rs. 1,95,000/- Total Rs. 19,50,000/- III-15. As regards standardisation of a product of M/s. SS(C)PL on instance of decision taken by common meeting of key persons from the group of Industry may be seen from the minutes of meeting listed at S. No. 231 of Annexure B . III-16. A letter from Surcoat Consultants Pvt. Ltd. to S.B.I. Pune listed at S. No. 236 of the Annexure B establishes the financial relations between SCPL and SS(C)PL inasmuch as advance received by M/s. SCPL towards design and consultancy has been transferred to M/s. SS(C)PL to start manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs. 11,24,400/- It may be seen that outward nos. are serially arranged with identical date which shows despatch from one and the same office. In one of the agreements signed between SCPL and Godrej Boyce for consultancy contract relied upon vide S. No. 254 of the Annexure B at item 3 Para reads as under. The consultants for and in consideration of the payment by the company as provided hereinafter in this agreement shall undertake to supply technical know-how and technical services, which shall be in the form of : (a) Design and drawings (b) Technical specifications (c) Supervision during installation and commissioning of plant and undertake to help in achieving optimum results. (d) Inspection, quality assurance of the equipment being supplied by the concerned manufacturer. Technical know-how shall mean and include details of process practices and service concerning designs and drawings III-20. When erection and commissioning charges are separated the remaining consultancy charges are pertaining to design and drawing charges which is a manufacturing activity in the light of nature of consultancy provided as above and the relationship as es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject cannot be individual. The principal co-ordinator along with the help of the designated constituent has to do it in a systematic planned way to achieve the objective. Moreover nowhere the idea of related person or holding company or subsidiary company as mentioned in Clause (c) of sub-section (4) of Section 4 referred to in the Show Cause Notice or in the finding in the impugned order. The said clause specifically provides for meaning a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and including the holding company, subsidiary company, a relative, a distributor of the assessee and any sub-distributor of such distributor. The show cause notice does not refer to the existence of any fact, which comes within the ingredient of this sub-section viz. 4(4)(c) of the Central Excise Act, 1944. In the absence of the same, we are afraid we cannot agree to the contentions raised by the department in the Show Cause Notice that there has been any undervaluation. We are therefore of the view that the entire proceedings initiated by the department as reflected in the Show Cause Notice and the impugned order are not s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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