9911796707
TMI Blog2000 (8) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... to 'D-V' of the Show Cause Notice consists of the following : Annexure 'D-I' Differential duty demand on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Rs. 1,40,000/- (v) M/s. Intelligent Conveyors & Stackers Pvt. Ltd. (Appeal No. 5241 of 1991) Rs. 60,000/- (vi) M/s. Surcoat Consultants Pvt. Ltd. (Appeal No. 5242 of 1991) Rs. 1,50,000/- (vii) Shri Y.G. Ghaisas (Appeal No. 763 of 1991) Rs. 80,000/- (viii) Shri S.R. Apte (Appeal No. 762 of 1991) Rs. 80,000/- (ix) Shri M.R. Apte (Appeal No. 5246 of 1991) Rs. 40,000/- By the said order the adjudicating Authority also confiscated land, building, plant, machinery of the 5 manufacturing units and fixed redemption fine of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants viz. Statfield Systems (Coating) Pvt. Ltd. (Appeal No. 5244 of 1991), Intelligent Conveyors & Stackers Pvt. Ltd. (Appeal No. 5241 of 1991). But it is stated by the Appellants that sales to such companies represent only 15% of their total sales. The manufacturing activity for the programmable conveyors was for their main products viz. painting equipment and was causing difficulties for manufacture. Therefore they sold out the technical know-how to Intelligent Conveyors & Stackers Pvt. Ltd. (Appeal No. 5241 of 1991). The Show Cause Notice dated 16th January, 1989 was issued by the Adjudicating Authority charging them that there was violation in respect of their product. In the Show Cause Notice it was alleged that the Appellants being constituent manufacturing unit of Suyash Sankalp Group, they wrongly claimed Excise exemption under Notification Nos. 77/83, 77/85 and 175/86 for the period 1983-84, 1984-85, 1985-86, 1986-87 and 1987-88 in that they have not declared true relationship of other related manufacturing/non-manufacturing units owned, directed and controlled by the said group of persons. The demand raised against the Appellants at Annexure C-II is Rs. 1,72,296/- and at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Current Sensing Unit and Microprocessor Based Annunciation system. The Appellants also supplied microprocessors to appellants in Appeal No. 5241 of 1991 viz. Intelligent Conveyors & Stackers Pvt. Ltd. They sell only less than 5% of their production to the Appellants in Appeal No. 5241 of 1991. The goods manufactured by them are covered under Chapter Nos. 84, 90, 91. The charge against them was that they wrongly claimed exemptions under Notification Nos. 77/83, 77/85 and 175/86. They were further charged that Suyash Sankalp Group suppressed the facts deliberately and they did not declare to the Central Excise Department the extent of relationship of other related manufacturing/non-manufacturing units owned/directed/controlled by the said group of persons with a view to fraudulently claim benefit under the above mentioned notification. The demand on account of fragmentation charge has been quantified in Annexure D-I at Rs. 24,31,385/- and undervaluation as per Annexure C-III at Rs. 73,640/-. The Appellants filed their reply on 25th April 1989. They stated that no Show Cause Notice was issued to Suyash Sankalp Group nor its whereabouts was brought out in the Show Cause Notice. After h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77/83, 77/85 and 175/86. They have been charged for undervaluation, recovery of designing and consultancy charges through related person viz. Surcoat Consultants Pvt. Ltd. (Appellants in Appeal No. 5242 of 1991) to the tune of Rs, 11,01,107/- and for differential duty on account of benefit of Small Scale Unit exemption to the tune of Rs. 20,95,117/- (clubbing). By their letter dated 3rd April 1989, they denied the charges. However, by the impugned order dated 20th November 1990, the Adjudicating Authority confirmed the demand of Rs. 11,01,107/- on the ground of undervaluation on the allegation that design and engineering charges were not included. The adjudicating Authority confirmed the demand of Rs. 20,96,117/- (clubbing). He imposed a penalty of Rs. 2,20,000/- under Rule 173Q. Hence the present Appeal. (vi) Appeal No. 5242 of 1991 : Surcoat Consultant Pvt. Ltd. The Appellants started business by registering itself as a company from 19th June 1992. They provide drawing, design and consultancy on technical know-how for turnkey projects. They have done the job for certain clients of Appellants in Appeal No. 5244 of 1991. They have also done jobs for certain other independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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) and Mr. S.R. Apte (Appellant in Appeal No. 762 of 1991) were Partners. The Show Cause Notice dated 16th January 1989 was issued. It may be noted that the Appellants was 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, impugned order was passed imposing penalty of Rs. 80,000/- on the Appellant. Hence, the present Appeal. 3. All the group of Appellants as per the respective Appeal memorandum and the Synopsis of the case filed reply to show cause notice stating that right from 1978 certain technically qualified Appellants like Mr. Y.G. Ghaisas, Mr. S.R. Apte and Mr. M.R. Apte started a Partnership firm. Thereafter, floated independent companies for manufacturing activities such as paint equipment, automatic powder coating and liquidating equipment, carousal systems etc. and non-manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant in Appeal No. 782 of 1991 and Appellant in Appeal No. 763, there cannot be any charge of wrongful claiming of exemption because they are not the manufacturers. There can be a clubbing only if there is existence of dummy unit. Shri Nankani strenuously stressed the point that once it is an accepted fact that there is an existence of independent individualistic persons there cannot be any clubbing. He stated that by the decision of the Supreme Court in Gajanan Fabrics Distributors v. Commissioner of Central Excise, Pune, 1997 (92) E.L.T. 451 (S.C.) the issue stands settled in favour of assessee. The Supreme Court has held as follows : "We find after having heard learned counsel, that it is necessary to remand the matters to the Collector to consider the entire case afresh. The principal factor that leads us to this conclusion is the finding of the Collector, upheld by the Tribunal, that the seven units which are the appellants before us "are only a corporate facade although registered with the various authorities with a view to camouflage their actual identity and thereby avail of the exemption which, otherwise, would be inadmissible to them. The Tribunal failed to give due atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere financial flow-back is concerned. For example, one firm may pay money on behalf of some other firm and may in turn it has taken a reimbursement. When such is a position, there cannot be an instance of financial flowback for the conclusion of clubbing. He also stated that only when there is a depreciation of the price because of certain extra commercial considerations the valuation provisions of the product for the purposes of assessment of Excise Duty may be invoked. Looking into the valuation, he stated that one has to prove existence of related persons concept for proving the charge of undervaluation especially in respect of limited companies registered under the Companies Act, one has to prove in line that definition mentioned in Section 4(4)(c). He stated that the Show Cause Notice does not refer to the clause in the said Section nor does the show cause notice mention the existence of the concept of the holding company, subsidiary company or relative under the Companies Act, 1956. The charge of under-valuation, therefore, according to Shri Nankani, cannot be sustained. The learned DR, adopts the reasoning. 6. We have heard the submissions. 6.1 As far as the clu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions taken by the group of companies in their meetings held regarding execution and compliance of certain turnkey projects. We shall refer to circumstances contained in the Show Cause Notice when we are dealing with the undervaluation, but the fact remains that when a turnkey project is taken, it is rightly contended by Mr. Nankani that such an activity involves mutual consultations, meetings, conferences between a man who has undertaken to execute the turnkey project and its constituent without mutual consultation cannot be achieved. The synchronised action should be done in such a way that there should not be any clash of unplanned activity so that there cannot be derailment of the turnkey project. The co-operation of participation of turnkey project in the very nature of things involves joint planning for all the participating individual constituents and careful and coordinated action in a planned way. We are therefore of the view that the charge of clubbing can never be sustained in this case. 7. The valuation provision is dealt with in Section 4 of the Central Excise Act, relevant portion of which reads as under : "Section 4. Valuation of Excisable goods for purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ascertainable equivalent thereof determined in such manner as may be prescribed. (2) - - - - (3) - - - - (4) For the purposes of this section - (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent, (b) - - (ba) - - (c) "Related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation - In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956 (1 of 1956) "; 8. In the said Section 4, sub-section (1)(a) provides for the valuation of excisable goods in normal wholesale trade transaction. Where there is an absence of normal who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 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 from SS(C)PL to the "Central Organisation for modernisation of work shop" vide S. No. 184 of Annexure 'B' to the Show Cause Notice. III-4. The Project report of M/s. SCPL listed at S. No. 185 of the Annexure 'B' to the Show Cause Notice reveals the activity potential, organisation, experience, know-how machinery and projected balance sheet of M/s. SCPL. Under the heading 'Activity' one of the para reads as under : "The activity of this company is planned to provide following services as consultants for industrial paint shops. (a) To decide the process of Painting. (b) To design and estimate the painting plant including layout. (c) To draw specifications of individual plant equipment. (d) To co-ordinate the procurement of plant equipment. (e) To inspect the equipment for quality. (f) To erect such plants. (g) To commission and hand over the plant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection 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". III-9. The file note dated 24-10-86 regarding execution of a particular order listed at S. No. 191 of the Annexure 'B' of the Show Cause Notice would appear to rule out any possibility of treating SCPL and SS(C)PL as separate entities inasmuch as the following step by step execution of a particular order appear to be perfectly homogeneous viz. " - Project sales department will give the format for the feed-back from the project execution department for the status of running projects. Project execution will give the feed-back to project/sales department every 15 days in the prescribed format. - Design department will only start the drawings after putting complete data from project execution in the format given by Design Department. - Design department will check the article movement of raise and fall and bends etc. before finalisation of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This total cost can be sub-divided in following different orders in order to work out minimum taxes (Excise & Sales Tax). (i) Order on M/s. SCPL Towards drawing, design, engineering charges for Painting Plant Rs. 3,25,000/- (ii) Order on M/s. SS(C)PL towards manual and supply of the plant Rs. 9,40,000/- Rs. 9,40,000/- can further be splited as below : Rs. 50,000/- towards erection of the Plant & Rs. 8,90,000/- towards material supply value. Now Rs. 8,90,000/- shall only attract all taxes which are as below : Rs. 8,90,000/- Add 55,000/- Approx. Excise duty Rs. 9,45,000/- Add 94,500/- 10% Sales Tax Rs. 10,39,500/- Add 41,580/- 4% Octroi Rs. 10,81,080/- Add 12,000/- Transport insurance charges Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also very interesting to note that both the said invoices in the letter head of M/s. SCPL and M/s. SS(C)PL are signed, by one and the same person Mr. S.V. Duppalivar Executive P.E. from M/s. SS(C)PL. III-12. From the document listed at S. No. 218 in Annexure 'B' it comes to the light that M/s. SSCPL is engaged in undervaluation to avoid Excise duty in the guise of raising separate invoice for design, drawing and consultancy in the name of M/s. SCPL to the extent of more than 50% of the supply value. The project cost of Automatic Painting Plant pertaining to contract with Haryana Equipments Ltd. has been split in the following fashion. (i) Order value of SS(C)PL (supply of Plant) Rs. 17,47,000/- (ii) Order value of SCPL (design, drawing & consultancy) Rs. 9,83,000/- (iii) % of order value of SS(C)PL to SCPL 56.27% III-13. An inter office Memo from sales to SS(C)PL listed at S. No. 229 of Annexure 'B' speaks how the assessees regularise the impact of separation of design and engineering charges from the basic value on collection of packing and forwarding charges. The relevant para in the said letter reads as under : "As we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said letter reads as under. "Please find enclosed cheque Nos. CHT/GB 245820 & CHT/GB 245821 dated 14-8- of Rs. 8,00,000/- drawn on us by Godrej and Boyce Mfg. Co. Pvt. Ltd. Bombay 85 towards 50% advance against order No. KRT/P2/85/753 dated 5-7-85 against consultancy charges. The manufacturing activities will be carried out by M/s. SS(C)PL. The order placed on them is under IDBI Scheme to start the manufacturing activity for the delivery of the plant in scheduled time. We have to transfer this amount to SS(C)PL. Therefore we request you to discount the above mentioned cheques and credit the proceeds of the same to our account with you". III-17. M/s. SCPL is part and parcel of M/s. SS(C)PL inasmuch as SCPL itself in its letter to their customer advertise SS(C)PL activities as its own activities it can be seen in document replied upon at S. No. 242 of Annexure B. The second paragraph of the letter reads as under : "We introduce ourselves as consultants in the field of Industrial Surface Coating. We are primarily engaged in the manufacture of total paint shop system. Our present range of manufacture includes spray and dephosphating systems, spray booths, ovens, conveyors, Elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sample debit notes raised by M/s. SS(C)PL on M/s. SCPL are relied upon vide S. Nos. 196 to 215 of Annexure 'B' to SCN which shows that SS(C)PL have incurred expenditure on behalf of SCPL in respect of the following viz. Expenses incurred on travelling and erection payments made to employees payments made to other sister concerns, purchases of material at site, telephone bills, electricity bills, provident funds, sales tours and raised debit notes on SCPL for the same which amounts to more than five lakhs in a span of one year. This shows the financial adjustments between the two companies. III-22. As per the documents relied upon at S. Nos. 192, 193, 194, 195, it may be seen that activities of the SCPL is absorbed in Statfield Systems Coating Pvt. Ltd. along with all the staff members w.e.f. 1-4-88 however, separate entity of SCPL has been kept unchanged. While explaining the reason for merger Shri. S.R. Apte, Managing Director explained to S.B.I., Pune that it was mainly because of outstanding balance of SCPL with the Bank and to stop further expenditure on them." 9. From the reading of the above paragraphs would only show that the approach of the department was wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X
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