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TMI Blog2013 (11) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... bility for the SSI Exemption Notification No. 1/93-CE. the evidence on record is sufficient to establish that it is BSL, Delhi controlled by Sh. H.R. Shiv and his family members, which had pervasive financial and management control over ESIL, LHIL, NIPL, SGBL & FSIL and only to wrongly avail the SSI Exemption, the manufacturing activities had been split up into several companies. Therefore, ESIL, LHIL, NIPL, SGBL & FSIL have to be treated as the units owned by BSL, Delhi and for determining their eligibility for SSI Exemption, their clearances during the preceding financial year have to be clubbed and if this is done, none of them would be eligible for SSI Exemption. - The duty demands have, therefore, been correctly confirmed and penalty under section 11AC has been correctly imposed on each of the six Appellant companies Imposition of Penalty u/s 11AC - Imposition of Penalty under Rule 209A of Central Excise Rules 1944/ Rule 26 of Central Excise Rules, 2001 – Held that:- Sh. H.R.Shiv, his son Sh. Neeraj Hans have dealt with the goods which they knew or had reason to believe, were liable for confiscation, penalty on then under Rule 209A of Central Excise Rules, 1944/Rule 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducting enquiries with regard to eligibility of each of these companies for SSI exemption, was of the view that all these units were actually owned by M/s. BSL, New Delhi, a company controlled by Sh. H.R. Shiv and his close family members, which exercised full control over all the activities of ESIL, LHIL, NIPL SGBL and FSIL right from procurement of raw-material and manufacturing to the clearances and sale of the finished goods. In this regard the Department relied upon the facts that:- (a) in each of these six companies Sh. H.R. Shiv, his son Sh. Neerav Hans and other family members along with group companies closely held by Sh. H.R.Shiv and his family members, have substantial shareholding, so as to exercise full financial and management control; (b) while more than 75% of the clearances of ESIL, NIPL, FSIL, SGBL are to BSL; 100% of the clearance of LHIL are to BSL and it is BSL which sells the goods to independent buyers at much higher prices, which shows mutuality of interest between BSL on one hand and ESIL,NIPL, SGBL, LHIL and FSIL on the other hand; (c) there are a number of instances where the staff of one company is working for the other, and payment for raw mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst LHIL along with interest and penalty of equal amount was imposed on them u/s 11AC ibid. Penalties of Rs.1,50,000/- and 1,25,000/- have been imposed under Rule 26 of the Central Excise Rules, 2001/ 209A of Central Excise Rules 1944 on Sh.H.R.Shiv and Sh. Neerav Hans respectively. 5. 39-43/2004 dt.31.03.2004 Duty demand of Rs.20,20,000/- confirmed against NIPL along with interest and penalty of equal amount was imposed on them u/s 11AC. Penalty of Rs.2,00,000/- and 1,50,000/- has been imposed under Rule 26 of the Central Excise Rules, 2001/ 209A of Central Excise Rules 1944 on Sh.H.R.Shiv and Sh. Neerav Hans respectively. The duty demands against various companies have been confirmed by invoking extended period under proviso to Section of Central Excise Act, 1944 and holding that none of these companies were eligible for SSI exemption. Against these six orders of the Commissioner, these 18 appeals has been filed. 2. Heard both the sides. 3. Sh.L.P. Asthana representing all the appellants made the following submissions:- (i) Confirmation of the duty demand against each of the six appellant company is based on denial of the SSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (iv) Although one persons of BSL, Delhi was authorised signatory for bank accounts of various companies, the accounts were quite separate and mostly in different banks and just on this ground, it cannot be said that it is the BSL which was fully controlling the said companies. (v) While factories of BSL and LHIL are located at Bhiwadi on separate plots, SGBL is located at Kundli (Haryana), NIPL is located at Gurgaon(Haryana), ESIL is located at Mohali(Punjab) and FSIL is located at Noida(U.P.). Each company has its own assets and liabilities and separate profit loss account. Separate balance sheet is prepared by each company and each company is treated as separate assessee by the Income Tax Authorities. Therefore, it is absolutely incorrect to say that all these companies are owned by one person. just because some companies of the group ESIL, NIPL, FSIL SGBL were selling more than 75% of their products to BSL, it cannot be concluded that all these companies were owned by one person. (vi) Different companies were procuring raw-material separately from separate suppliers. Though there were purchase and sale transactions between some companies, those transactions were done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in case of Supreme Washers (p) Ltd. Vs. CCE, Pune reported in 2002 (53) RLT-753(SC) has held that the clearances of two or more units can be clubbed for the purpose of SSI exemption when they are under common management, there is common procurement of raw-material, there is common stock accounting and planning, there is inter-dependence of manufacturing operations, common stock of raw-material and finished goods, common machinery, common marketing arrangement, free flow of finance among the units and cumulative indication of interdependent and inter relationship. This criteria prescribed for clubbing in this judgment of Apex Court is not at all satisfied in the present case. Moreover in this case the Apex Court taking note of the Boards Circular No. 6/92, dt. 29.05.92, remanded the matter to the Tribunal for examine the applicability of this circular and subsequently the Tribunal in de-novo proceedings, relying upon the Boards Circular dt. 29.05.92 held that there is no case for clubbing. 4. Sh. Nagesh Pathak, learned DR, defending the impugned order by reiterating the findings of the Commissioner in it, emphasized on the following points:- (i) From the scrutiny of resume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.Shiv and his son Sh. Neerav Hans were controlling these six units by direct shareholding in each of these companies and also by shareholding in the name of close family members and in the name of other companies of the group, in which they had large shareholding. (vi) Sh. Rajesh Kumar Kaushik, Assistant Manager of SGBL, in his statement dt. 15.05.01 (Para 45 of the impugned order No. 14-18/04 dt. 31.03.04) has stated that he was looking after the work relating to the Central Excise, Sales Tax, Receipts of raw-material and dispatch of finished goods in respect of SGBL, that he reported directly to Sh.K.C.Gupta, General Manager, (Finance Accounts),BSL, Delhi sitting at its Head Office at Manisha Building, Nehru Place, New Delhi, that SGBL is one of the group companies of BSL, Delhi, where Managing Directors is Sh. H.R.Shiv and Sh. Neerav Hans is the Director, that Sh. Ashok Mandal is the Executive Director of SGBL that various raw- materials for SGBL for use in the manufacture of their finished goods were being received directly from their vendors as per the specifications given and orders placed by BSL, Delhi, that quality control Engineer of BSL, Delhi was also doing the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also planning their production and dispatch. (x) Sh. S.K .Gupta, Manager (Accounts) of BSL, Delhi, in his statement dt. 07.08.02 (Para 65.1 of the impugned order No. 14-18/04, dt. 31.03.04) stated that while he was reporting to Sh.K.C.Guta, G.M., (Finance and Accounts), BSL, Delhi., that besides being authorised signatory to operate the bank account of BSL, Delhi, was also authorised to operate the accounts of NIPL, SGBL, FSIL, ESIL and LHIL and that this was so, as the directors of those companies knew him and had authorised him to operate accounts of those units. Similarly Sh. S.Solanki, Manager Accounts of BSL, Delhi in his statement dt.03.08.02 stated that though his responsibility was to look after the work relating to sales tax of BSL, Delhi he was also looking after the sales tax matters of LHIL, NIPL, FSIL etc. and in fact rubber stamps of other group companies were also recovered from the drawer of his table. (xi) The above evidence on record shows that though the six companies BSL, ESIL, LHIL, NIPL, SGBL FSIL are shown to be separate and independent limited companies and three of such companies are public unit and the rest are private limited company, on lifting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption Notification, are Pubic limited companies or private limited companies, but in each of these companies Sh.H.R.Shiv and his son S.Neerav Hans are common directors; (b) in each of these companies Sh. H.R.Shiv his son Sh. Neerav Hans and other family members have shareholder in addition to shareholding by other group companies and other persons; (c) while BSL is engaged in trading also, in addition to manufacturing, other group companies ESIL, LHIL, NIPL, SGBL FSIL are engaged only in manufacturing activities; (d) while LHIL during period of dispute sold entire production to BSL, Delhi, other group companies ESIL, NIP, FSIL SGBL sold more than 75% of their production to BSL, which is in turn, sold those goods at much higher prices to independent buyers; and (e) all these units BSL, ESIL, LHIL, NIPL, SGBL FSIL during period of dispute i.e. during April98 to March 02 period, were separately availing SSI Exemption Notification. 5.1 The point of dispute is that while according to the Department, in each of these companies Sh. H.R. Shiv and his family members along with other group companies had more than 50% shareholding and thus Sh. H.R. Shiv and his family member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be considered. Similarly, eligibility for SSI Exemption during a particular financial year, shall be determined on the basis of aggregate value of clearances of all excisable goods for home consumption during the proceeding financial year made from all the factories of the manufacturer and if the aggregate value exceeds the threshold limit, none of the units would be eligible for SSI Exemption even if the value of clearances for home consumption of all excisable goods made by each individual unit during the proceeding financial is well within the threshold limit for SSI exemption. It may happen that a manufacture may have several factories located in different states falling under the jurisdiction of different Commissioners of Central Excise. If each of these factories was availing the SSI Exemption separately and if it is found that for a particular financial year, the aggregate value of their clearances of all excisable goods during the preceding financial year had exceeded the threshold limit for SSI Exemption, none of these units would be eligible for SSI Exemption during that year. In such a situation, duty can be demanded by the Jurisdictional Central Excise Authorities s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rai, reported in AIR 1967 Supreme Court 819, in certain exceptional cases, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade and that the court has powers to disregard the corporate entity if it is used for tax evasion or to circumvent the tax obligation. Same view has been taken by the Apex Court in cases of :- (a) Calcutta Chromotype Vs. Collector of Central Excise, reported in (1998) 3, SCC-681; (b) Subra Mikharjee another Vs. Bharat Cooking Coal Ltd. reported in (2000) 3 SCC- 312; and (c) Delhi Development Authority Vs. Skipp Construction Co. (P) Ltd., reported in (1996) 4 SCC-622. The Apex Court in case of Associated Rubber Industry Ltd. reported in 1986 (157) ITR-77(SC) relying upon its earlier judgment in case of Medowell Co. Ltd. Vs. CTO, reported in 1985 154 ITR148, 161(SC) has held that even if companies are distinct legal entities having separate existence, this is not the end of the matter and it is the duty of the Court in every case, where ingenuity is expended, to get behind the smokescreen and discover the true state of affairs. Thus, the principle of lifting the corporate veil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MACL as the lessee and then the three companies becoming sub-lessees. As noted by the Commissioner, entire receipts were paid as lease amount to MACL. Here again, the under-valuation aspect assumes importance. While the supply by MACL to three companies was Rs. 0.50 per unit, the sale price by the three companies was Rs. 5 per unit. It is on record that accounts were kept by common staff and marketing was done under the supervision of a person who belongs to the same group of concerns. The amounts have been collected by an employee of MACL. The so-called Directors of the companies were undisputedly employees of MACL. Almost the entire financial resources were made by MACL. The financial position clearly shows that MACL had more than ordinary interest in the financial arrangements for companies. The statements of the employees/ Directors show that the whole show was controlled, both on financial and management aspects by MACL. If these are not sufficient to show inter-dependence probably nothing better would show the same. The factors which have weighed with CEGAT like registration of three companies under the sales tax and income tax authorities have to be considered in the backgr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellants plea for decision of this matter on the basis of Boards Circular No. 6/92-CE is not acceptable. 7.1.3 Thus, if there is evidence on record to prove that a particular person, whether natural or juristic, has comprehensive financial and management control over several entities and is the actual beneficiary of their activities, the clearances of the factories owned by these entities are to be clubbed for the purpose of determining their eligibility for SSI Exemption by treating them as the units of only one manufacturer, even if those units are owned by different public limited companies, private limited companies or partnership firms. If on clubbing their clearances during the preceding financial year, the aggregate value of the clearances is found to be exceeding the threshold limit for SSI Exemption, the SSI Exemption would have to be denied to each of them and if each of them is a functioning unit and not a non-functional dummy unit, the duty can be demanded separately from each unit. 7.1.4 However, if there is only one unit which is functioning unit and other units are just dummy units not actually engaged in manufacturing activities, duty would have to be dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except for LHIL, in the other group companies Sh. H.R. Shiv and his family members have bulk of the shares holding so as to exercise full control. However, LHIL sells 100% of its production to BSL and other group companies EHIL, NIPL, FSIL SGBL sell more than 75% of their production to BSL except for a small quantum of sales to independent buyers BSL, Delhi, sell those goods to independent buyers at much higher prices. 9. While the above mentioned shareholding pattern of BSL,NIPL,LHIL, SGBL, ESIL and FSIL and also the fact that SGBL, NIPL, LHIL, ESIL FSIL sell 75% to 100% of their production to BSL, in turn, who sell those goods to independent buyers at much higher prices, by themselves, would not be the evidence of pervasive managerial and financial control of the H.R. Shiv family held Company BSL, Delhi over other group companies SGBL, ESIL, NIPL, LHIL FSIL, these facts have to be seen in the background of the following facts and when this is done so, a different picture emerges. (i) Sh. S.K.Gupta, Manager (Accounts) of BSL, Delhi, in his statement dt. 07.08.02, has stated that in addition to being authorised signatory in respect of BSLs account in Canara Bank, Noida, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the staff of NIPL(para 34 of the impugned order No. 14-16/04 dt. 31.03.2004) (v) Sh. Deepak Kakkar in his statement dt.27.07.01 stated that though employed with SGBL and drawing his salary from that company, he was looking after the Central Excise matters of all the group companiesBSL,LHIL,ESIL, NIPL, FSIL and NEC Engineers Pvt. Ltd. He also stated that in all these group companies, Sh. H.R. Shiv and his son Neerav Hans are the directors and besides this, in some company his other son Sh. Siddharth Hans and also some of the employees of group companies namely Sh. Rajiv Dhir, Sh.Ashok Mandal, Sh. R.C.P. Choudhary, Sh. Upender Kaul, Sh. Hari Om and Sh. Arun Kumar Datta are also directors, that all these companies are owned by Sh. H.R. Shiv and that he was also the authorised signatory of SGBL, BSL, LHIL and FSIL. He also stated that from page 150-151 of File No. 23 seized from BSL, Delhi it appeared that to reduce the profit of one company, the expenses were being manipulated and that except BSL, Delhi, all other group companies were in loss. (vi) Sh. Rajesh Kumar Kaushik, Assistant Accounts Manager of SGBL in his statement dt. 15.05.01, stated that he was looking after the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were being made in lump sum, that whenever SGBL required funds for further payments to their suppliers, they contacted Sh. K.C.Gupta, Manager (Accounts) of BSL, Delhi to release funds to SGBL. (viii) Statement dt.21.02.01of Sh. K.C.Gupta also indicated that the finances of all BSL and other companies were being controlled by him. (ix) The evidence on record also indicates that the purchase of raw- material of all the group companies was being handled from BSL, Delhi and it is BSL which was preparing the production plan of the group companies. Since SGBL, LHIL, ESIL, NIPL FSIL were selling 75% to 100% production to BSL, Delhi, it is clear that it is the BSL, Delhi who was marketing the goods manufactured by other group companies. (x) During 1997-98, 1998-99, 1999-2000, no payments were made by SGBL to NIPL for the goods supplied by NIPL, as SGBL was running in losses. But still NIPL was supplying the goods continuously to SGBL without charging any interest on the outstanding. However, inspite of such critical position of funds in SGBL during 1999-2000, it still transferred Rs.44 lakhs to BSL, Delhi, for which there is no explanation. (xi) Show Cause Notice dt.02.06.2000 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of the evidences discussed above already indicates that it is BSL, Delhi, which had pervasive financial and management control over ESIL, LHIL, NIPL, SGBL and FSIL. In fact, the Apex Courts judgment in case of Modi Alkalies Chemicals Ltd. (Supra) is squarely applicable to the factual matrix of this case. 10. In view of the above discussion we are of the view that the evidence on record is sufficient to establish that it is BSL, Delhi controlled by Sh. H.R. Shiv and his family members, which had pervasive financial and management control over ESIL, LHIL, NIPL, SGBL FSIL and only to wrongly avail the SSI Exemption, the manufacturing activities had been split up into several companies. Therefore, ESIL, LHIL, NIPL, SGBL FSIL have to be treated as the units owned by BSL, Delhi and for determining their eligibility for SSI Exemption, their clearances during the preceding financial year have to be clubbed and if this is done, none of them would be eligible for SSI Exemption. The duty demands have, therefore, been correctly confirmed and penalty under section 11AC has been correctly imposed on each of the six Appellant companies. Since Sh. H.R.Shiv, his son Sh. Neeraj Hans hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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