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2002 (7) TMI 485

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..... e paying duty on the aforesaid goods manufactured and cleared from their factory. 2.2 The officers of the Directorate General of Anti-Evasion Mumbai Zonal unit searched the applicant s factory on 22-7-1997 and seized certain records on the presumption that the applicant was adopting a modus operandi of clandestine removal of the excisable goods without payment of Central Excise duty by raising invoices in the names of fictitious firms. After recording various statements and further investigations, the Directorate General, Anti-Evasion issued a show cause notice F. No. DGAE/BZU /202/12(4) 80/97/506, dated 29-1-1998 alleging that the applicant had cleared said goods without payment of Central Excise duty during the period December, 1995 to 21st July, 1997 in contravention of Central Excise Rules by fraudulently removing the said goods in the names of three non-existant units floated under three fictitious firms, viz. M/s. Neha Refrigeration, M/s. Subhash Chandra and Brothers and M/s. Subhash Air-conditioning Pvt. Ltd. as well as under the invoices of M/s. Engineer Industries besides clandestine removal of copper waste, aluminium waste and copper tubes totally valued at Rs. 3,67,032 .....

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..... Subhash Air-Conditioning Pvt. Ltd. during the period December, 1995 to 21st July, 1997. 2.7 The ld. Advocate stated that these units were registered with Income-tax Department. No SCN has been issued to these 3 units even though the Department alleged that these are non-existing units. SCN ought to have been issued to them. He also stated that there was no evidence with the Department about the actual manufactured goods. The only evidence were the invoices raised in the name of M/s. Neha Refrigeration, M/s. Subhash Chandra Brothers and M/s. Subhash Air-Conditioning Pvt. Ltd. The Department did not have any evidence to establish that the applicant had manufactured and clandestinely removed excisable goods without payment of Central Excise duty and whether the applicants in fact had manufactured the said goods in their factory or had the capacity to manufacture the said goods in their factory during the relevant period. 2.8 After receipt of the SCN they had employed the service of a Chartered Engineer to assess the manufacturing capacity of the machines installed in their factory. The Chartered Engineer after a detailed study of the production schedule and examining the various .....

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..... Act, 1944. The Commission directed the applicant to pay the admitted liability within 30 days of the receipt of a copy of the order. 2.11 The applicant filed a miscellaneous application dated 13-11-2000 seeking instalment facility of the admitted duty amount of Rs. 9,50,074. The same was heard by the Commission on 19-1-2001 along with the applications filed by S/Shri Subhash Chandra Sharma, Shitala Prasad Sharma and Shri Manoj Sharma all Directors of M/s. Sapna Coils Pvt. Ltd. on 20-11-2000. 2.12 During the hearing held on 19-1-2001, the Commission drew the attention of the ld. Advocate of the applicant to the Interim Order, dated 9-8-2000 wherein it had been directed that the admitted amount of Rs. 9,50,074/- should be paid within 30 days of receipt of the order and enquired whether the said amount had been paid. The ld. Advocate submitted that the applicant had paid the entire amount of Rs. 9,50,074/- by 13th January, 2001 but not within the period contained in the order. The Commission explained that the applicant ought to have themselves paid the interest due on the said admitted amount not paid within the due date and thus cooperated with the Commission. The Commission all .....

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..... e were several records available with the Revenue to establish that these four units were in existence and it was not known as to why show cause notice was not issued to these units and as to why duty was not demanded therefrom. He argued that duty to be recovered from some other units could not be fastened to a unit which had not manufactured the goods. The ld. Advocate further placed emphasis on the applicant s written submission dated 29th January, 2002 to substantiate the existence of M/s. Neha Refrigeration, M/s. Subhash Chandra Bros. and M/s. Subhash Air-conditioning Pvt. Ltd. He argued that these so called fictitious concerns were in fact in existence. The ld. Advocate further argued that M/s. Engineer Industries, was, in fact, a registered unit and he drew the attention of the Commission to the fact that it had opted and paid Rs. 1,00,202/- under KVSS and the same was accepted by the Commissioner, Central Excise Mumbai-I vide his Order F.No. V/PI/30-185/KVSS-93/98/3493, dated 23-6-1999. 3.7 The ld. Advocate further submitted that the applicant had admitted Rs. 9,50,074/- which was full and true disclosure of its duty liability and the same was paid as per directions of th .....

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..... chased by M/s. Neha Refrigeration, M/s. Subhash Chandra Brothers, M/s. Subhash Air-Conditioners and M/s. Engineering Industries were actually transported from Mumbai to Palghar where the factory of the applicant was situated. He further submitted that there was no direct reference in statements of the customers regarding the goods procured by the applicant from M/s. Neha Refrigeration, M/s. Subhash Chandra Brothers, M/s. Subhash Air-Conditioners and M/s. Engineering Industries that they were manufactured by the applicant s firm. 3.11.4 The Revenue at the end contended that they rely on the report of the Commissioner (Investigation) and also the order of the Settlement Commission in an earlier case of M/s. Sapna Engineering, where the facts were more or less similar to the existing case. 4. The Commission has gone through the records and heard the submissions made by the ld. Advocate and the Revenue. 4.2 In course of hearing, the Revenue was directed to summarise the case in the backdrop of the show cause notice issued and the submissions made by the applicant from time to time. The Revenue vide their letter dt. Nov., 2001 has inter alia submitted as below : 4.3 Besides abov .....

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..... here are confessional statements of the officials of the various customers confirming the statements of these three persons of Sapna Group. 4.7 The defence taken by the applicant is after a period of 18 months. Case was booked on 22-7-1997. Applicant could have submitted or brought on records these facts during investigations when several statements were recorded. They had the opportunity when they were arrested and presented before the Magistrate. First show cause notice on the similar issue was issued on 5-8-1997 and last show cause notice on 29-9-1998. But applicant during this period were silent and were giving statements admitting the evasion of duty. Unless submitting the convincing reasons for the delay, the theory brought by the applicant before the Hon ble Commission, may not be considered. Besides, no verifiable documentary evidence/data have been produced to substantiate their claim. The new theory now brought on records by the applicant may not be considered without verification of the facts. The principal raw material required to produce condenser/cooling coil/evaporator is Aluminium Sheets/Copper tube/GP Sheets. The purchases made by Sapna Group are reflected in the .....

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..... avits of so called suppliers are of doubtful nature as no supporting documents in respect of their supplies have been produced. (5) The so called suppliers have not maintained any record about their purchase/sale as per affidavits but have given precise information about exact quantity supplied during each year. (6) Applicants have not explained why no statutory records/ returns are available pertaining to these concerns. In seized private purchase registers, no entry having purchased damaged goods is reflected. (7) If M/s. NR, M/s. SA were engaged in repairing/servicing, then there was no need to file declarations with the C. Excise authorities in their name. Presuming that the claim of the applicant is factual, then they would have declared in the declarations that they were doing job work. On the other hand they declared themselves as manufacturers and not doing any job work. (8) The premises declared in the said declarations was in fact used by M/s. SE, supported by the panchanama and the Factory Inspectors reports. (9) Neither the applicant produced documentary evidence to support their claim nor a single document is available in the seized record .....

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..... a single clearance from M/s. EI and M/s. SE, (on payment of duty) which are located in Bombay (Mumbai) have been distinguished by letter P . (b) Clearances effected from M/s. SC, having factory at Palghar have been distinguished by letter P invariably. Similarly, clearances from M/s. NE having factory at Palghar, have also been distinguished by putting letter P . (2) Supporting evidences are also available in the form of Statements of the officials of M/s. Kirloskar Pneumatics Co. Ltd., Pune who visited the factory premises of the Sapna Group. (3) Outdoor inspection reports were seized from factory premises of M/s. SC (seized record No. 25), under which goods were produced for inspection under documents of M/s. EI, in the factory premises of M/s. SC. Various inspection reports on different dates, have been signed by Shri Amit Dubey, Works Manager of M/s. Sapna Coils Pvt. Ltd. (4) In Inspection report No. 11067, dated 26-10-1996, under which the goods were presented by M/s. EI, for inspection, to Shri Kavthekar, of M/s. Kirloskar Pneumatics Co. Ltd., it has been written that party has dispatched 8 nos. of coils from their Palghar Works without inspection .....

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..... g the process of manufacture of the Condenser and Cooling Coils. As per RG 1 Register, accounted Aluminium and Copper Scrap is 384.500 kgs., against the manufactured quantity of 12341 nos. of Condenser and Cooling Coils. The average Scrap of Aluminium and Copper generated per coil works out to 0.031 kgs (384.500 kgs/12341 nos.). The applicant accepted having cleared Aluminium and Copper Scrap, totally weighing 4542.480 kgs., then the applicant had manufactured 1,46,531 Condenser and Cooling Coils (Total Scrap 4542.480 kgs/0.031 kgs. Scrap per coil). 5. The applicant submitted his comments in relation to submissions made by the Revenue as discussed supra. The applicant has submitted as below : 5.2 Sapna Coils Pvt. Ltd., is a Company registered under the Companies Act, 1956 having their factory at Palghar, Neha Refrigeration is a Proprietary concern of Shri Sitla Prasad Sharma, duly registered with sales tax authorities. 5.3 Deptt s case in the Notice is that the impugned goods, were manufactured by M/s. Sapna Engineering and M/s. Sapna Coils Pvt. Ltd., only and these goods were cleared on the Delivery Challans and invoices of alleged fictitious concerns. This allegation is bas .....

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..... est that the retraction in the form of letters or applications filed before the Hon ble Magistrate cannot be called as the retraction. Copies of the retraction filed before the Court which are submitted during the proceedings before the Hon ble Commission bears the endorsement of the Hon ble Magistrate to forward a copy of the retraction to the Investigating Officer. Hence, there is no basis to contend that Revenue has not received intimation of this retraction. As regards the contention that facts were not disclosed in the retraction, it is submitted that the true facts of the case were already before the investigating officers in the form of seized records which would bear out the truth that other units in whose name, invoices, delivery orders were there, were not fictitious. (c)(i) Statements of the 3 persons recorded on 23-7-99, 25-7-99 and 29-7-99 were retracted by each of these persons who filed the retraction before the Hon ble Addl. Chief Metropolitan Magistrate s Court on 30-7-99 and the Hon ble Addl. C. M.M. had ordered the office to forward copies thereof to the Investigating Officer as is evident from the endorsement dt. 30-7-97 appearing on this retraction, copies o .....

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..... xamination by the Revenue or any technical personnel of the Revenue. Further the persons who had sold condemned Condensers/Scrap will be produced for cross-examination, if Revenue or Hon ble Commission desires to. 5.3.4 The Purchase Registers maintained for the Sapna Group of Companies in fact show purchases by each of the alleged fictitious concerns. It is neither established by the Revenue nor even investigated by the Revenue whether the raw materials purchased by each of the alleged fictitious Companies were consumed by either these two companies viz. Sapna Engineering and Sapna Coils Pvt. Ltd. Further, on page 118 of the tabulated statement, the Revenue even confirms the receipt of payments for the goods sold by each of the alleged fictitious concerns from outside parties and customers. 5.3.5 The value taken by the Revenue of approx. Rs. 48 lacs for the month of October, 95 and January, 96 are the value of clearances and not the value of production. This remark is offered by the Revenue on account of lack of appreciation of the factual position. The goods shown to be accounted as manufactured in the RT 12 Returns cannot by any stretch of imagination be taken as the manufact .....

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..... e case. The fundamental dispute in the present case is as to who were the Manufacturers of the goods referred to in the various annexures to the show cause notices in respect of which duty is demanded. Having decided to issue the notice only to two Companies, the Revenue has pre-judged the core issue in dispute and concluded without any cogent evidence that others are fictitious concerns and only Sapna Engineering and Sapna Coils Pvt. Ltd. are the real manufacturing units. 5.5.2 When the allegation is that 4 or 5 Companies are dummy Companies then so called dummy firms should have been called upon to explain why they should not be treated as dummy Companies. Failure to do so, has resulted in condemning them without hearing their version and demand of duty on goods which were cleared and manufactured by the alleged fictitious concerns are being fastened on M/s. Sapna Coils Pvt. Ltd. 5.6 Comments on Chart II prepared by Revenue are as under : 5.6.2 Revenue s case is based on evidence in the form of statements which are retracted. Applicants are not liable to pay duty on these goods cleared by M/s. Neha Refrigeration and others since they are repairing or reconditioning parts of .....

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..... hers, M/s. Subhash Air-conditioning Pvt. Ltd. which was the source for payment towards goods purchased on cash basis. Copy of bank statement is enclosed. 5.6.9 M/s. Neha Refrigeration, M/s. Subhash Air-conditioning Pvt. Ltd. and Subhash Chandra Brothers had intention to manufacture within the exemption limit, that is why the declarations were filed. Besides, repairing and reconditioning of old and used air-conditioners cannot be called as job work as they were purchasing old and condemned parts of air-conditioners/ refrigerating machines and selling after repair and reconditioning 5.6.10 This is not relevant in the context of the case of the applicants. 5.6.11 It is not the claim of the applicants that they were doing repair and reconditioning. The repairing and reconditioning work were done by Neha Refrigeration, Subhash Air-conditioning Pvt. Ltd. and Subhash Chandra Bros. since no notice is issued to them the question of their producing the documentary evidence supporting their claim of repair and reconditioning does not arise. 5.6.12 This is not relevant for the purpose of present dispute. 5.6.13 Repairing, reonditioning does not attract sales tax. Hence nil returns we .....

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..... se Registers also show purchase of raw materials by M/s. Neha Refrigeration, M/s. Subhash Chandra Brothers, M/s. Subhash Air-conditioning Pvt. Ltd. 5.8 Cash purchases were not entered in the Private Purchase Registers and since the damaged goods/condemned air-conditioners were purchased from scrap dealers on cash basis, these purchases do not reflect in the Private Purchase Registers. 5.8.2 The purchase and sale of goods mentioned in the Private Registers not only reflect purchase and sale of goods by the applicants but pertain to the other four units as well. Therefore, the applicants cannot be expected to give any explanation as to why other Companies/firms did not distinctly mention in the Private Purchase Registers whether the items sold are manufactured goods or repaired goods. 5.8.3 The value taken by the Revenue of approx. Rs. 30.93 lacs for the month of March, 97 is the value of clearances and not the value of production. This remark is offered by Revenue due to account of lack of appreciation of the factual position. 5.8.4 For the comments offered against para 5.1 above, the Revenue s conclusion is not sustainable. Further, the Revenue has not sought to challenge t .....

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..... ties for. I was shown some 3 or 4 Galas. Q(9) Now I am showing you supplies Datas furnished by M/s. Neha Refrigeration, M/s. Subhash Chandra and Bros. and M/s. Subhash Air-conditioning Pvt. Ltd. produced by you today. Please go through the same and compare the details given under all the columns except name, gala No. contact person, sales tax No. and offer your comments ? (A) It appears that they are using common facilities. Only the banker of Subhash Air-conditioning to be different - Branchwise and the company is Private Ltd. The other two are Proprietory. Q(10) What do you mean by common facilities? Does it include manufacturing facility also? (A) It appears that staff, office and manufacturing facilities are shared. (Emphasis supplied) 6.2.2 Perusal of the replies to the said questions clearly indicates that Shri Kalianpurkar has stated that he had visited Neha Refrigeration at Mazgaon Thakkar Industrial Estate. In view of this even the statement supports the fact that Neha Refrigeration was in existence. With reference to question No. 9 the said official has deposed that it appears that they are using common facilities . With reference to question No. 10, the sai .....

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..... lubbing of value of clearance is permissible if there is a financial flow back or sharing of profits. In the instant case the Revenue has not proved any financial flow back. In the purchase register as well as the private sales register there is indication that each of the unit has purchased the raw materials and/or sold the goods in their own name using their own invoice. Payment for such sale or purchase have been made in the name of those units. In the Index for the year 1996-97 relating to payments against each entry of purchase, the factory which has paid the amount for purchase of raw materials has been indicated. The position is same for other years as well. For e.g. In the purchase register for the year 1996-97 some entries appear as below : Pg. No. 19 14-1-97 Cupcell 3016 = 00 Kg Paid on 19-4-97 by N.E.BOI Rs. 5,04,999.00 Pg. No. 22 23-5-96 Cu.Tube 732 = 000 Kg Paid on 24-7-96 by N.R. Union Rs. 1,26,985.00 Pg. No. 35 8-6-96 Aluminium Roll 176 707 = 00 + 0 Paid on 14-8-96 by S.C.Bros Rs. 1,32,4807- from D.C.B. 8-6-96 Aluminium 142 = 600 .....

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..... by the applicant or Magistrate. On the issue of relevance of retracted statements, the provisions in the Evidence Act has a bearing. Chapter II on Of the Relevancy of Facts of the Indian Evidence Act, 1872 the terms admission and confession have been defined in Section 17 and Section 24 respectively. Admission is made in relation to a civil case whereas confession is made in relation to criminal case. If it appears that confession has been improperly induced then the court is bound to exclude it no matter how true it may be. An extra judicial confession is in the very nature of things a weak evidence. The retraction of a confession does not cancel the confession but it puts the Court on inquiry as to its value, its voluntary character and the probability of it being true. The Supreme Court has held that as a matter of prudence and caution the retracted confession cannot be made solely the basis of conviction unless it is corroborated. However, it is not a matter of rule that the corroboration must come from facts and circumstances discovered after the confession was made. It would be sufficient if the general trend of the confession is substantiated by some evidence whic .....

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..... e impugned order about the various activity carried out by the job workers. The point which has been missed by the Commissioner for consideration is as to whether the items which came back to Brinda Industrials had to undergo any further processing at their hands to bring into existence any new goods for the purpose of classification under a particular heading and whether the records disclosed certain material facts which are contrary to the admission made ? If so, in and in such a situation, the retraction made is required to be considered. The Commissioner should have taken a view on these aspects and not proceeded to hold that the admission of the appellants and deposit of Rs. 75,000/- had established the charges. The appellants have explained that under duress and coercion they gave the statements and also in order to avoid humiliation they had deposited Rs. 75,000/-. They have taken a plea that there was no flow back for the purpose of clubbing of the clearances. As held by the Tribunal in the case of Alpha Toyo Ltd. v. CCE as in 1994 (71) E.L.T. 689 = 1994 (53) ECR 310 (T) a dummy unit is a unit which is only on paper. Therefore, a dummy unit is different from a unit which is .....

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..... of interest or financial flow back between the two companies. We also find that it is clear from the verification report of the Superintendent of Central Excise that machinery installed in the premises of M/s. Premier Paper Converters was capable of being operated even with single phase motor and that single phase electric supply connection existed. We further find that if unaccounted goods were found in the premises of the appellants, that by itself would not come to prove that there was no production in the premises of M/s. Premier Paper Converters as this was a separate issue. Therefore, taking totality of the evidences into consideration, we find that except for the statement which were subsequently retracted, there is no other corroborative evidence to support the allegations in the show cause notice. Apart from this, we also find that though the order impugned says that M/s. Premier Paper Converter are not treated as dummy unit, yet as held in the annexure (B) to the show cause notice the amount of duty confirmed is merely on the basis of clubbing of production of both these units as on record. Such clubbing, it has been held in the case of Dawn Fire Works Factory Others (s .....

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..... istence but it is created only on paper, as held in Alpha Toyo Ltd. v. CCE, New Delhi -1994 (71) E.L.T. 689. In that case also, there was common managerial control between the company and the other unit. The Tribunal on appreciation of the law laid down that two independent units, even if it has a common managerial control, that by itself cannot be a cause for clubbing the unit. This judgment directly applies to the facts of the case. The Commissioner has held in the present case that the unit appear to be a dummy unit of the main unit, operating only on paper. Such a finding cannot be accepted for the reason that private limited company was incorporated under the Company s Act and was functioning independently from 1961, while the other as partnership firm came into existence only in the year 1984. Each of the above case law narrates the fact where there were independent units and merely because there was common passage or there was some independent transaction between the unit, that has been negatived as a reason for clubbing of clearances. In the present case, the second unit had accepted certain job work and that was completely accounted for and the documents produced clearly i .....

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..... funds to M/s. UPU without charging any interest. The third ground is that although there is bifurcation of ground plan but there was no delineation from the approved ground plan of M/s. VPP and the Department was not informed about the existence of M/s. UPU until registration was made by M/s. UPU in 1993 by which time goods worth Rs. 20 lakhs had already been cleared in the name of M/s. UPU from the approved premises of M/s. VPP. In order to club both the units, the law laid down in terms of the judgments cited is that there has to be flow back of funds and that the second unit should be a mere dummy unit on paper without clear bifurcation of funds and without any independent business. In this case, the Commissioner has proceeded on the basis that Mr. M. S. Raju, Chairman and Managing Director of M/s. VPP is holding 50% of the share in the private limited company and is also a proprietor of M/s. UPU. However, this is seriously challenged and it is contended with production of record and evidence that Mr. M. S. Raju was only a karta of Hindu joint family and the shares were not individually held by him in his name. It has also been brought on record through evidence that the seco .....

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..... ty with a direction that he shall re-examine the entire evidence produced by the appellants to show that both the units are independent and they are so treated by various authorities including factory authorities under the Factories Act, SSI Act, Sales Tax, etc., and both the units are having independent SSI registration certificates. The matter has to be examined in the light of Board s circular referred to as well as in the light of judgment cited. The Commissioner shall grant full opportunity to the appellant to demonstrate their case that there is no flow back of funds and there is no mutuality of interest between them and they are independent units for the purpose of grant of exemption. A plea was raised that Department was aware of the facts and that they filed write-ups, etc., and that there was no question of suppression in the matter. This aspect also should be examined on de novo consideration. Thus the appeals are allowed by way of remand for de novo consideration to the original authority. As the matter is old one the Commissioner shall endeavour to dispose of the matter as expeditiously as possible. 6.7.3 On the issue of availability of common facilities the Tribu .....

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..... by them; (g) The brand name NITON was common for Niton Firm and Niton Co.; (h) There were interest-free loan transactions between the units; (i) The units had a common Drawing and Designing Department looked after by Shri V. R. Sharif along with a Draftsman; (j) The PBX Board for the telephone lines to the units was installed at gala C-138 of Niton Firm and the same was handled for all the units by an operator who was on the muster roll of Inventa Co. and received salary from that company; (k) Niton firm manufactured certain quantity of valves against order procured in the name of Niton Co. (l) The 78 valves seized from gala No. B-8 of Niton Co. had been manufactured by Niton Firm and the same were not accounted for in the latter s RG-1; (m) The 76 valves (packed in wooden cases) seized from the c-2nd wing of the Industrial Estate had been manufactured by Niton Co., which was not under control and had not kept any records; (n) Niton Firm and Inventa Co. were holding Central Excise licnce and paying duty on their product at concessional rate of duty under Notification No. 175/86-C.E. (as amended) . Their RG-1s showed NIL st .....

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..... manufactured by them and therefore they were known in the market as one manufacturer. 6.7.4(2) When certain facts are within the knowledge of the department, it has to be assumed that proper verification therein has been made. The applicant has pleaded that the alleged dummy units had filed declarations to the Revenue. In the case of Cheryl Laboratories v. Collector of Central Excise reported in 1993 (65) E.L.T. 596 (Tribunal). The Tribunal has held as below : We have carefully considered the submissions made by both the sides, perused the records and the citations referred to by both the sides. We have in detail broughtout the facts of this case, the stand of the appellants and the findings of the learned collector. The Learned Collector has confirmed to demand on the basis of the terms of the agreements and according to him M/s. Glenmark are having actual control over the appellants and they are getting the goods manufactured from the appellants on their account and the appellant cannot be considered as independent manufacturers and as a result, the benefit of the exemption of the notification cannot be extended to the appellants. We do not agree with the findings of the le .....

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..... ut that cannot be taken as ground to levy duty of excise on one unit in exclusion of others, even if the others have collected sales tax. 6.7.6 In the eye of law, a company registered under the companies Act is a distinct legal entity other than the legal entity or entities that hold its share as held by Supreme Court in the case of Electronics Corporation of India Ltd., and Others v. Government of Andhra Pradesh reported in 1999 (3) CLJ 353 (S.C.). 6.7.6(2) The Supreme Court had an occasion to examine the liability of partners in the criminal offence. In the case of Sham Sunder and others v. State of Haryana reported in 1990 (67) Compcas-0001-SC it has been held as below : But we are concerned with a criminal liability under a penal provisions and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law under the Statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not. 7. The applicant has produced the Chartered Engineers Certificate in support of its contention .....

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