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TMI Blog2000 (1) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... t - (1) The goods manufactured by these units are of M/s. Rexello Castors Pvt. Ltd., 23-D, Mahal Industrial Estate, M.K. Road, Andheri (E), Mumbai - 400 093. (2) M/s. Rexello Castors is the main units and has floated M/s. Rex Arts, M/s. Rex Builders Engineers, M/s. Crown Rollen and M/s. Rex Arts Castors Pvt. Ltd., with an intention to avail exemption under Notification No. 1/93, dated 28-2-93 separately. (3) All these units are manufacturing excisable goods of M/s. Rexello Castors Pvt. Ltd. who accepts purchase orders and subsequently transfers the same to its dummy units. (4) The records of the dummy units are maintained at M/s. Rex Builders Engineers. In order to keep their turnover within units so as to avail the benefits of Notification 1/93, dated 28-2-93. (5) These units are not independent and they have interest in each other. The said show cause notices were confirmed and penalty was imposed under Rule 173Q of Central Excise Rules, 1944, hence the appeals. They had also applied for stay which was granted unconditionally and accordingly the cases were listed for final hearing. 3. Shri Riaz Merchant, Partner of M/s. Rex Arts Crown Rolle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28-2-93 as amended from time to time. Various show cause notices were issued to all the four appellant in question, alleging that four dummy units in the name and style of M/s. Rex Builders Engineers (RBE), M/s. Rex Arts (RA), M/s. Crown Rollen (CR) and M/s. Rex Art Castors Pvt. Ltd. (RACPL) were floated in order to fragment the clearances of M/s. Rexello Castors Pvt. Ltd. and to remain in the duty free exemption limit as envisaged in Notification No. 1/93, dated 28-2-93 to evade Central Excise duty payable during the period from April, 1994 to March, 1998. The appellants had filed a detailed reply refuting the allegations and relying upon documentary and circumstantial evidence to prove that all the four units are independently carrying on their own business. 6. Appellants case is that M/s. RBE is a partnership concern, registration of the said partnership deed was done in the year 1985, having manufacturing premises at 26/6 Mittal Indl. Estate, Siv. M.V. Road, Andheri (East), Mumbai - 400 059 having separate C.S.T. Registration No. MAH/ IK14812, dated 18-8-85, Income Tax No. 35-026-FY-4629/BMY-ITO-WD-22(II), Bank Account No. 3605, Bank of Baroda, Chakala, Excise Licence Regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent stature and existence, performing individual business by virtue of independent sales, purchases, manufacture and arranging all their activity independently as required by any juristic person. They have been filing necessary declarations, classification list, R.T.12s and they have been observing all the formalities required by the law. The physical verification of their stock including prebudget stock, periodical inspections of their records, the department is fully aware of their manufacturing and clearance activities. (a) In the impugned order the Assistant Commissioner has not placed any evidence to show that they are a dummy unit inasmuch as that he has solely placed his reliance on the Order of the Collector-II restricted for the period 1-11-1986 to 31-7-88. (b) Appellant has stated that they are not floated by M/s. Rexello Castors Pvt. Ltd. and that they are not manufacturing excisable goods of M/s. Rexello Castors Pvt. Ltd. as observed in the impugned order. They do not understand as to what is implied here except conclude, that it is only a fanciful imagination. As per Para 5 on Page 5 in the impugned order, the Assistant Commissioner has gone a step further by even n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these units with other unit, solely on the grounds that the earlier in their case for the period 1-11-86 to 31-7-88, Commissioner-II Mumbai-I had confirmed the order against them, without giving any proper findings nor producing any tangible evidence to prove that there was a cash flowback from the appellants unit back to the main unit in question. It was also pointed out that the products manufactured and sold by them do not bear the brand name of Rexello since the change in the Central Excise Law. The copy of the correspondence dated 28-7-94, with the Range Superintendent was produced. They also submitted a copy of letter dated 28-3-94 from M/s. Rexello Castors Pvt. Ltd., referring to termination of license for using the brand Rexello with effect from 1-4-94, as per the Resolution of their Board of Directors. 11. Therefore, the charge regarding dummy unit is not sustainable since all the four units are in existence and that they are conducting their manufacturing and business activities independently. There is no evidence or proof advanced by the Department that the profits earned by the said four units which are alleged to have been floated by Rexello Castors Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned order passed may please be set aside and quashed and also revoke/remove the penalty imposed on each firms person as they hold no ground. The said contention is squarely covered under list of judgments relied upon, the above mentioned judgments. 1. M/s. International Dyestuff Mfg. Co. v. CCE - 1991 (53) E.L.T. 85 (T). 2. M/s. Alpha Toyo Ltd. v. CCE, New Delhi - 1994 (71) E.L.T. 689. 3. R. Suresh Jayaseelan v. CCE - 1990 (48) E.L.T. 37. 4. M/s. Annapoorna Mills v. CCE - 1990 (47) E.L.T. 635. 5. M/s. Ambica Scale Mfg. Works v. CCE, Ahmedabad - 1996 (86) E.L.T. 229. The appellants further requested for setting aside the order of Assistant Commissioner of Central Excise, Dn.K-III, Mumbai-IV. 15. I have carefully gone through the facts on record of each case, the findings given by the Assistant Commissioner of Central Excise, Dn.K-III, Mumbai-IV in his impugned order, the submissions given by all the four appellants and those recorded at the time of personal hearing. I have also gone through the grounds provided for clubbing the value of clearances, denying the exemption under Notification No. 175/86-C.E. as amended and do not find it prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clubbable with that of the job worker. Metal Box v. Collector - 1986 (23) E.L.T. 187 (T). 6. Value of clearances made by two firms are not to be clubbed merely because the Proprietor of one firm is a close relative to the Director/Partner of the other. Kinjal Electricals v. Collector - 1989 (43) E.L.T. 327 (T). 7. Close relation between partners of one firm and proprietor of another company, use of staff, telephone are not conclusive circumstances to prove that two units are one and the same. Therefore, the clearances made by them are not clubbable. Pimpri Gases v. Collector - 1990 (49) E.L.T. 474 (T). 8. The value of clearances of a firm having separate legal entity is not clubbable with that of another unless such separate entity is proved to be a fake. Mere common purchases is no ground for treating a unit as dummy if such common purchases have been duly accounted for, Bhagwan Das Kanodia v. Collector - 1987 (32) E.L.T. 204 (T). 9. When the other Revenue Departments have treated two firms as separate legal entities, their value of clearances are not generally to be clubbed together. Bhagwan Das Kanodia v. Collector - 1987 (32) E.L.T. 204 (T). 10. Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to a separate exemption limit, and hence the question of distributing the exemption does not arise. Thus the clearances of the various partnership firms cannot be clubbed together merely because some of the partners are common as laid down in the case of State of Punjab v. Jullundhar Vegetable Syndicate - (1996) 17 STC 326 (S.C.), G.D. Industrial Engineers v. Collector - 1983 (14) E.L.T. 1994 (T), Smt. Shyam Kumari - 1982 (10) E.L.T. 329 (C.B.E. C), Deputy Commissioner of Sales Tax v. Kelukutty - (1978) 42 S.T.C. 108 (Ker) For Contrary views, see Mahendra Kumar Ishwar Lal Co. v. State of Madras - (1968) 21 S.T.C. 72 (Mad.), 1976 L.T.R 28 (A.P.). Even where all the partners of the two partnership firms are common, both the firms would have separate entity in the law as laid down in the case of Smt. Shyam Kumari - 1982 (10) E.L.T. 329 (C.B.E. C.) and would be treated two different manufacturers eligible separately for exemption because for the purposes of tax law, a partnership firm has its own legal entity separate from the partners constituting it, as referred in the case of Commissioner of Sales Tax, M.P. v. Radhakisan - 1979 (43) S.T.C. 4 S.C., Jaswant Sugar Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner. 21. The matter regarding treating of a company as a dummy unit of another company and denial of full exemption under Notification has been a matter of determination by the Courts of law, which need to be examined before reaching the conclusion in this matter under the requirement of the stated position under the law. 22. I find that the most illustrative examination on the question of clubbing of clearances by treating a unit as a dummy unit, while regulating the benefit of SSI Notification, has been made by the Tribunal in the case of Alpha Toyo Ltd. reported in 1994 (71) E.L.T. 689 (T). The said order states that : Managerial control is different from money flow back, management control and profit sharing. A dummy unit is a unit, which is not in existence in reality, but it is merely created on paper only. In other words, the physical existence of such a unit is not to be found in terms of investment of capital, machinery and labour. The unit which creates such a dummy unit, utilise the dummy unit for the purpose of tax evasion. Therefore, the Courts have clearly distinguished on facts each of the cases and have now settled the issue by holding the mere evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, Income Tax assessment etc. There is nothing to show that profit made by the firm but flowed back to the company. Neither the company had any financial involvement in, nor controlled, the firm in any way. Accordingly, even when goods were produced by the firm with the company s brand name, the manufacture was not considered for or on behalf of company and the concessional benefit extended. In the case of Shree Packaging Corporation, Hyderabad reported in 1987 (32) E.L.T. 94 (T), even while there were several instances of the orders being placed or received without reference to which firm, this fact was not considered as relevant for treating one firm as a dummy of an another. 24. The discussions in the cases of Kinjal Electricals reported in 1989 (43) E.L.T. 327 (T), International Dyestuff Mfg. Co. v. CCE - 1991 (53) E.L.T. 85 (Tribunal) and Pimpri Gases reported in 1990 (49) E.L.T. 474 (T) squarely applies to this case wherein it is stated that in determining the value of clearance for SSI exemption, close relationship between partners of one firm and proprietor of other concern, and use of staff not sufficient to hold that units are one and the same justifying of clubbing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uality of interest as also common funding and financial flow back. No evidence that sale proceeds of one unit are going to the account of another, though there is common source of funding, clearances not to be clubbed as they are independent units. 27. Also in the case of R. Venkatachalam v. Commissioner of Central Excise, Chennai reported in 2000 (115) E.L.T. 192 (Tribunal) it was held regarding SSI Exemption - that the clubbing of Value of clearances of each unit having separate premises, personnel, financial accounts and even sales tax registration etc., is not correct if they are doing independent transaction even among themselves. 28. I, therefore, find that no case has been made out by the Department for establishing that M/s. Rex Builders Engineers (RBE), M/s. Crown Rollen (CR), M/s. Rex Art Castors Pvt. Ltd. (RACPL) and M/s. Rex Arts (RA) were dummy units, or that the same have been set up and controlled by M/s. Rexello Castors Pvt. Ltd. with the intention to avail of the concessional benefit of SSI Notification separately. In fact the charges are totally fallacious as the appellants have proved the physical and independent existence of all the four units in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name or trade mark of such a person would not be entitled to the benefit of Notfn. No. 175/86. It is to be remembered that the restriction contained in Para 7 of Notfn. No. 175/86 is applicable only in relation to the specified goods affixed with the brand name of another person who is not eligible to the benefit of Notfn. No. 175/86, if the same manufacturer is also producing other specified goods which are not affixed with such brand name then the exemption under Notfn. No. 175/86 cannot be denied to such other goods. 29. In view of the above discussions of the facts and the law on the applicability of Notfn. No. 175/86, the exemption claimed by the four appellants is sustainable. Even if it is admitted that these four units are using the brand name of Rexello which is owned by M/s. Rexello, Castors Pvt. Ltd., they are still eligible for the benefit of Notfn. No. 175/86. 30. The investigations conducted by the authorities and the evidences cited can at best throw some light on the close association of the four firms with each other, but by no means it gives any evidence to conclude that the said firms were not independent and separately recognisable units for regulating th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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