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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 ..... e forged couplers and pressed couplers. M/s. Lineman Halflo India Ltd., Bhiwadi (hereinafter referred to as 'LHIL') also a public limited company with nine Directors, two of which are Sh. Neerav Hans and Sh. H.R. Shiv, manufacture tubes and angle based equipments. M/s. NEC Industrial Products Pvt. Ltd., Gurgaon (hereinafter referred to as 'NIPL'), a private limited company with five Directors, two of which are Sh. Neerav Hans and Sh. H.R. Shiv, manufacture pressed couplers and assembled forged couplers besides manufactures of sheet metal components. M/s. SGB Engineers Pvt. Ltd., Kundli (Haryana)(hereinafter referred to as 'SGBL'), a private limited company with Sh. Neerav Hans and Sh. H.R. Shiv as Directors, manufacture tubular structures. M/s. Framik Scaffolding (I) Ltd. (hereinafter referred to as 'FSIL'), Noida, U.P. also a private limited company with Sh. Neerav Hans and Sh. H.R. Shiv, Directors manufacture tubular structures and floor form panel. There is no dispute that though Sh. Neerav Hans and Sh. H.R. Shiv are Directors in each of these companies. All of them have separate factories located at separate places and each of them was separately availing SSI exemption during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 14-18/2004 dt.31.03.04 Duty demand of Rs. 18,51,315/- confirmed against BSL along with interest and while penalty of equal amount was imposed on BSL u/s 11AC of Central Excise Rules, 1944, penalty of Rs.1,75,000/- and Rs. 1,25,000/- have been imposed under Rule 26 of the Central Excise Rule 2001/ 209A of Central Excise Rules, 1944 on Sh. H.R.Shiv and Sh. Neerav Hans respectively. 2. 19-23/2004 dt.31.03.2004 Duty demand of Rs. 20,27,500/- confirmed against SGBL along with interest and penalty of equal amount had been imposed on them u/s 11AC ibid. Penalty of Rs.2,00,000/- and 1,50,000/- was imposed under Rule 26 of Central Excise 2001/ 209A of Central Excise Rules 1944 on Sh. H.R.Shiv and Sh. Neerav Hans respectively. 3. 24-28/2004 dt.31.03.2004 Duty demand of Rs.5,76,642/-/- confirmed against FSIL along with interest and penalty of equal amount imposed u/s 11AC ibid. Penalty of Rs.60,000/- and 44,000/- has been imposed under Rule 26 of Central Excise Rules, 2001/ 209A of Central Excise Rules 1944 on Sh. H.R.Shiv and Sh. Neerav Hans respectively. 4. 34-38/2004 dt.31.03.2004 Duty demand of Rs.15,78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding in each of these companies, it cannot be concluded that they are fully controlling each of these six companies. Out of these six companies, three companies - BSL, ESIL and LHIL are public limited companies and the other three are private limited companies. No evidence on record has been produced to show that Sh. H.R.Hans and his son Sh. Neerav Hans had exercised through BSL, pervasive financial and management control over other five companies- ESIL, LHIL, NIPL, SGBL and FSIL from raw-material purchase and manufacturing to marketing of the final products. (iii) The appellant companies had been started at different point of time. They manufactured different products and have separate Central Excise Registration and sales tax registration. There is separate income tax assessment as each company prepares separate balance sheet declaring its assets and liabilities and prepares separate profit and loss account. There is no administrative and financial control exercised by Sh.H.R. Shiv and Sh. Neerav Hans, through BSL, as has been alleged in the Show Cause Notice. It is not correct to say that inflow and outflow of funds was controlled by BSL, Delhi, as alleged by the Department. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that clubbing of clearances of the units was not justified when duty demand has been confirmed separately against each unit. (viii) Tribunal in case of Alpha Toyo Ltd. Vs. CCE, New Delhi reported in 1994(71) ELT-(689) has held that common managerial control, a few common Directors, advancing of interest free loans by main unit to other units is not sufficient to make other unit dummy, when they are having independent existence and independent transactions, without any profit sharing, management control or money flow back to the main unit and in such a situation, the clearances cannot be clubbed for the purpose of SSI exemption notification. Tribunal in case of CCE Bangalore Vs. Vaspar Concepts (p) Ltd. reported in 2006(196)ELT-95 has held that when all the four units were functioning independently under separate registration and were filing separate returns under various Acts and when there is no flow back of funds which is an essential ingredient for clubbing clearances of the units, merely because the assessee were giving business to other and got their products manufactured from each other, is no ground to hold that other units were dummy units. (ix) Apex Court in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup companies namely BSL, LHIL, SGBL, NIPL, FSIL & ESIL had mutuality of interest in each other's business. BSL, Delhi purchased more than 75% of the products of SGBL, FSIL, ESIL & NIPL and was selling the same in the market at much higher price. LHIL was selling its entire production to BSL which was being sold by BSL at much higher price. This shows that the transactions between these companies were not on principal to principal basis. (iii) The norms of payment among the units were such that the same reflected inter-dependence of these units. The frequent transfer of funds among the units was done to protect the business of each other. The payments were made in lump sum as per need/requirement of individual company and no one to co-relation in their ledger of debit and credit entries could be found. (iv) Sh. H.R.Shiv and his son Sh. Neerav Hans controlled all the affairs of BSL, SGBL, NIPL, LHIL, ESIL and FSIL such as production, sales, procurement of orders, financial transactions, funding of different manufacturing units, administration and management etc. They had shown different members of their family as directors in these manufacturing units. (v) Sh. H.R.Shiv and his so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or BSL, LHIL, SGBL & FSIL. (viii) There are numerous instances where a person employed in one group company was doing the work of other group company also. (ix) from the premises of ESIL, a communication from ESIL to BSL Delhi was recovered, which was with regard to projected requirement of funds by ESIL for Feb.2000 under various accounts heads like:- Staff salary, Telephone bills, production, shipment, Contractors etc. (Para 53 & 54.1 of the impugned order No. 14-18/04 dt. 31.03.04). The total fund requirement shown in the document was Rs.45,57,924/- which was to be provided by BSL, Delhi. There were similar fund requisitions from ESIL to BSL, Delhi for other months also. This indicates that BSL were providing the funds to group companies for their day to day operations. The office memo from Sh. Neerav Hans to Sh.J.R. Choudhary of ESIL, Mohali states that any decision having financial implication on the units should be approved in writing prior to implementation from Sh. Neerav Hans. Sh. J.K.Choudhary of ESIL in his statement dt. 15.05.01, has stated that for funds, they were dependent on BSL, Delhi that BSL, Delhi was auditing the records of ESIL and was also planning their p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw-material, common stock accounting, common planning of production, common use of machinery and common marketing arrangement with free flow finance between them, the three entities have to be treated as being owned by one person and the value of their clearances would be required to be clubbed for the purpose of SSI Exemption Notification No. 175/06-CE. Thus in term of the above judgment of the Apex Court for the purpose on clubbing the clearances of two or more units for the purpose of determining their liability for SSI Exemption, what has to be seen is as to whether after lifting the corporate veil, the entities are run by one person and it is only one person who has pervasive managerial and financial control over them. This criteria for clubbing the clearances is satisfied in this case. In view of the above it was pleaded that there is no infirmity in the impugned order. 5. We have considered the submissions from both the sides and perused the records. The undisputed facts are that:- (a) the entities which are alleged by the Department to be owned by one person and on this basis whose clearances are sought to be clubbed for the purpose of SSI Exemption Notification, are Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the SSI Exemption Notification. 8. 7. SSI Exemption is subject to conditions specified in it. One condition for this exemption notification is that where a manufacturer clears specified goods from one or more factories, the Exemption in his case shall apply for the total value of clearances mentioned against each of the serial numbers in the said table and not separately for each factory. Another condition of the Notification is that the aggregate value of clearances of all excisable for home consumption by a manufacturer from one or more factories during the proceeding financial year does not exceed a particular threshold limit, as mentions in the Notification. Thus when a manufacturer has four factories located at different locations, and the SSI Exemption Notification prescribes nil rate of duty for first clearances of specified goods worth Rs. 50 lakhs in a financial year, each of these factories would not be separately eligible for full duty exemption in respect of its first clearances worth Rs. 50 lakhs in a financial year and for the purpose of this exemption, it is aggregate value of clearance of all the factories put together which would be considered. Similarly, eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be just non-functional fake units established just to show bogus production and clearances in their name. 7.1 However in most of the cases, the fact of common ownership of different units by a person is not so obvious and may be carefully camouflaged. For example if there is a manufacturing unit of a proprietorship concern of a person 'X', there is a second manufacturing unit owned by a partnership concern 'A' with 'X' and his wife 'Y' as partners, there is a third manufacturing unit owned by a private limited company 'B' with shareholding by 'X', his son 'Z'1, and the partnership concern 'A' and there is a fourth manufacturing unit owned by another private limited company 'C' with shareholding by 'A', 'B' and another son Z2 of 'X' and if these four units owned by 'X', 'A' 'B' and 'C' are each availing of SSI Exemption, a question arises as to whether they are to be treated as separate entities or units owned by the same person, for the purpose of SSI Exemption. 7.1.1 While a company is a legal person entirely distinct from its shareholders, in terms of Apex Court's Judgment in case of Income Tax Commissioner, Madras Vs. Meenakshi Mills, Madurai, reported in AIR 1967 Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application. Two basic features which prima facie show interdependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly, the share capital of each of the three companies was Rs. 200/-. Though it was claimed that financial assistance was availed from the financial companies, it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1-4-1998. NGCPL received an amount of Rs. 1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about Rs. 52 lakhs while to SCGCPL it was about Rs. 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that, the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether public limited or private limited are separate entities and each such limited company is a manufacturer by itself and would be entitled for SSI Exemption separately, has not considered the principle of lifting of corporate veil in the cases where different corporate entities appear to be just colorable devices for tax evasion, and hence this circular is not in accordance with the provisions of law. In accordance with Apex Court's Judgment in case of CCE Vs. Ratan Melting & Wire Industries, reported in 2008(231)ELT-22(SC) a circular which is contrary to the statutory provisions, has no existence in law. Though in case of Supreme Washers Pvt. Ltd. (Supra), the Apex Court taking note of the Board's Circular No.6/92 dt.29.05.92, had remanded the matter to the Tribunal for examining the applicability of this circular, since this circular being contrary to the law laid down by the Apex Court in the case of Income Tax Commission, Madras Vs. Meenakshi Mills, Madurai (Supra), M/s. Calcutta Chromotype Vs. CCE (Supra), Delhi Development Authority Vs. Skippe Construction Co. (P) Ltd. (Supra), Associated Rubber Industry Ltd. (Supra) and CCE Vs. Modi Alkalies & Chemicals Ltd. (Supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholding is of NEC Engineers P. Ltd. which is a company controlled by Sh. H.R. Shiv and his family members. Thus H.R. Shiv and his family together with NEC Engineers Pvt. Ltd. have about 80% shareholding in BSL, Delhi. (ii) In NIPL out of 80,000 shares, Sh. H.R. Shiv and his family members holds 74% shares. Thus in this company also bulk of the shareholding is of Sh.H.R. Shiv and his close family members. (iii) In ESIL out of total shares of 3,61,600 shares, while H.R. Shiv and his family members hold 1,90,500 shares, BSL Delhi, a closely held company of Sh. H.R. Shiv and his family members, hold 1,70,400 shares and M/s. NEC Engineers Pvt. Ltd. another closely held company for Sh. H.R. Shiv and his family members, holds 700 shares. Thus this company is also fully controlled by Sh. H.R. Shiv and his family members and a group company with 100% shareholding. (iv) In FSIL 100% of the shareholding is of Sh. Siddharth Hans (1,74,000 Shares), Sh. Neerav Hans (2,01,000 Shares), Sh. H.R. Shiv (55,000 Shares) and BSL Delhi (1,50,000 Shares). (v) As regards LHIL while their collaborator M/s. LHIL, UK hold 40% of the shares, Sh. H.R. Shiv along with M/s.NEC Engineers Pvt. Ltd. hold 35,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posited, Rs.91,77,352/- was withdrawn. The details of the withdrawals indicated that while Rs. 10 lakh was withdrawn by self cheque on 22.09.2000, Rs.35 lack was paid to BSL, Delhi on 26.09.2000. Sh.K.C.Gupta, General Manager, Finance BSL Delhi when asked to explain the payment of Rs. 35 lakh from the account of FSIL to BSL on 26.09.2000, expressed the inability to explain the same. (iv) There are a number of instances where the persons employed in one Group Company and drawing their salary from there, were actually working in the other group company. For example Sh. Chitranjan Singh & Sh. Kishore Kumar Gupta though, on pay rolls of BSL, Delhi, were doing the quality control work in the factory of SGBL. Similarly Sh. Sunil Kumar Pandey, Accountant, NIPL in his statement dt. 15.05.01,stated that there was no person in NIPL to look after the quality control work and that Sh. Munish Kumar, the qualitycontrol person of BSL,Delhi, used to visit the unit of NIPL from time to time and was looking after the entire quality control work of NIPL. There is also an instance where BSL, Delhi, remitted amount of Rs. 25 lakh by cheque No. 731868 dt. 01.03.2000 to NIPL which was used for payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , SGBL and NEC Engineer Pvt. Ltd. etc. were group companies of BSL, Delhi and their accounts persons were reporting to Sh. K.C.Gupta, GM (Accounts) of BSL, who controlled the accounts matters of the entire group and that there was transfer of funds between the group companies which was being handled by Sh.K.C.Gupta General Manager (Finance and Accounts),BSL Delhi. This statement of Sh. Rajesh Kumar Kaushik (Assistant Accounts Manager) SGBL clearly shows that the accounts of all the group companies and the transfer of funds between the group companies were being controlled by Sh. K.C.Gupta, General Manager, (Accounts & Finance) BSL, Delhi and who was directly reporting to Sh. H.R.Shiv. The statement of Sh. Rajesh Kumar Kaushik also shows that not only the raw-materials for use of SGBL were being purchased by BSL, even production plan of SGBL was being decided by BSL, Delhi and the payments to the vendors were also being made by BSL, Delhi as cheque book of SGBL was lying with BSL, Delhi. (vii) Sh. Rajesh Kumar Kaushik, Assistant Manager of SGBL in his further statement dt. 04.07.02, stated that payments for the goods sold by SGBL to BSL Delhi were not being received by consignment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the products are developed and manufactured after approval from BSL, that production and dispatch planning is also assisted by BSL, that quality control of the goods manufactured is done by the persons deputed by BSL and that ESIL is not only dependent upon BSL for funds but their records are but also audited by BSL. (xiv) The evidence on records shows that out of above mentioned six group companies, only BSL, Delhi was making profit and other group companies -ESIL, LHIL, NIPL, and SGBL & FSIL, in spite of selling their 75% to 100% of their production of SGBL, were making losses. If ESIL, LHIL, NIPL, SGBL & FSIL were really independent companies, they would not sell entire or bulk of their production at lower price to BSL, Delhi to enable the BSL, Delhi to make profit while they themselves were suffering losses. This arrangement control with the statement dt. 27.07.01 of Sh. Deepak Kakkar that expense of companies were being manipulated to show lower profit clearly shows the transfer of funds to Sh. H.R. Shiv and his family who were controlling BSL, which, in turn, was controlling the other five manufacturing units- ESIL, LHIL, NIPL, SGBL & FSIL. This fact, looked on the backgro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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