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TMI Blog2018 (2) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri S.V. Jayshankar. In absence of any evidence of common pool of funds, free movement of material, common manufacturing operations etc, merely on the basis of some common shareholding and management clubbing of clearance by holding them as dummy units cannot be upheld. In these circumstances, the charge for clubbing the clearances of Sweta and Indostraits with SCGM and LRC cannot be sustained. The two units were commercially interacting with each other as in they were buying and selling material to each other. Therefore a few transactions do not by any manner indicate that there was a common pool of funds. It can be seen that the SCGM and LRC came into existence as totally different units. SCGM came into existence in1982 while LRC was formed in 1966. The original shareholding pattern was very different at the time of formation. Later by resignation and induction of partners the shareholding pattern evolved to present state - It is apparent that the SCGM and LRC have separate identities right from the inception. Various licences have been procured at different times. Thus independent development of the two cannot be doubted. Tribunal in the case of Electro Mechanical Engg Corpn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced in court. He argued that in view of decision of Tribunal in the case of Shivkripa Ispat Pvt. Ltd. - 2010 (262) ELT 477 the appeal in case of Mrs. P.S. Rajishankar abates. 2. Ld. Counsel argued that it has been held in the impugned order that the four companies are dummy company. They are a facade created for circumventing the small scale notifications and therefore the aggregate value of clearance of all four companies were clubbed and demand was raised from Silicon Carbide Grinding Mills Pvt. Ltd. (SCGM for short) being the oldest company manufacturing excisable goods. 2.1 Ld. Counsel further argued that all four entities were incorporated independently on different times and he submitted the following chart regarding history of each of these entities:- Silicone Carbide Grinding Mills Pvt. Ltd [i.e. Silicon] Lignin Research Center [i.e. LRC] Sweta Electric (P) Ltd [i.e. Sweta] Indostaits (Pvt.) Ltd. [i.e. Indostraits] ->The Private Limited Company was formed in 1982 for manufacturing of excisable goods with original Directors being Shri. S.V.Jayshankar; Shri.P.S.Vijayshankar; Smt.Reshmi Vijayshankar & Smt.Girija Jayshankar. -->In an around 1987-88, Shri.P.S.Vijayshanka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and facility and with independent work force and power and infrastructure for the products manufactured by them. All four units are duly registered with various authorities as can be seen from the table below. Name of Appellant Silicone Carbide Grinding Mills Pvt. Ltd [i.e. Silicon] Lignin Research Center [i.e. LRC] Sweta Electric (P) Ltd [i.e. Sweta] Indostaits (Pvt.) Ltd. [i.e. Indostraits] A) Nature of concern Pvt. Ltd.Co. Partnership Pvt. Ltd.Co. Pvt. Ltd.Co. B) Factory Address Plot No. W-11, MIDC, TTC, Pawne Village, Dist.Thane. Plot No.D/9-4, Kukshet Village, MIDC Indl. Area, TTC, Turbhe, Dist. Thane. Plot No.D/9-3, Kukshet Village, MIDC, TTC, Turbhe, Dist. Thane. Plot No.5, B-29 to 33, Cuncolim Indl. Estate, Cuncolim, Salceta, Goa. C) C.Ex. Range; Division & Commissionerate Range-VIII, Divn. -Belapur-I, Comm.- Mumbai-III Range-VIII, Divn. -Belapur-I, Comm.- Mumbai-III Range-VIII, Divn. -Belapur-I, Comm.- Mumbai-III Range-Quepem, Divn. - Panjim, Comm.- Goa D) Registration No. (Registrar of company) 11-022195 NA 11-072720 11-140150 E) Factory License No. Thane-319-9/80A 2666 T-28/89/DPM/34179/6 Dt 26.09.89 Thane-2(m)(i)/ 24299 NA F) SSI Regn N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under proper intimation and job work charges have been duly paid. He argued that the same cannot be a ground for clubbing the clearances, or to treat these two as dummy units. He further argued that most of the movement is from SCGM to Sweta and from SCGM to Indostraits, and therefore if at all, SCGM should be referred to as dummy unit and not vice versa, since manufacturing activity on job work basis has been done by Sweta and Indostraits. He pointed that most of the transactions identified in the notice are in relation to SCGM and LRC only. He argued that the said transactions cannot be used to hold that Sweta and Indostraits are dummy units. 3.4 He argued that most of the activities of all the units are handled by Shri S.V. Jayshankar and the companies are owned by close family members. He argued that this cannot be a ground for clubbing the clearance of all units or to treat all units as dummy units. He argued that Shri S.V. Jayshankar was assisted by wife Girija Jayshankar and son Shri S.V. Jayshankar and mother Mrs. P.S. Rajishankar. 3.5 Ld. Counsel argued that the factory premises of LRC comprise of two floors and the manufacturing infrastructure was on the ground floor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of other group companies and name of common director were provided at the time of registration. He further argued that the classification list under 173B was filed by all units were accepted by revenue. 3.9 He further argued that without any seizure, all the goods manufactured and cleared by them during the five year period have been confiscated and redemption fine has been imposed. He argued that without seizure of goods no confiscation can be made and no redemption fine can be imposed. 4 Ld. AR appearing on behalf of the revenue argues that the impugned show-cause notice and impugned order brings out the following from the facts of the case:- i) Common control of management under one person/closely held family. ii) Free flow of finance/financial interlinking/financial accommodation among units proposed to be clubbed. iii) Common source of funding. iv) Sharing of profit. v) Mutuality of interest in the business of each other/Mutual inter-dependence on each other. vi) Purpose and the intent of the parties. vii) Common control of production, marketing. viii) Inter - relationship and interdependence among units. 4.1 He argued that Shri S.V. Jayshankar was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 50% P.S.Rajisankar - 50% Managing Partner Partner partnre Self Mother e further argued that SCGM and LRC were paying commission @ 2% of total sales and 3% of the value of job charges to Indostraits. He argued that it amounted to sharing of profits. 4.4 He further argued that there was a mutuality of interest between these units and he cited following as evidence of the same :- i) ₹ 6900/- M/s. Silicon paid on behalf of M/s. LRC to James Fernandes a garage mechanic. ii) ₹ 15,000/- M/s. Silicon paid for deposit in PLA of M/s. LRC. iii) ₹ 27054.11 M/s. Silicon paid on behalf of M/s. LRC towards citi bank bills of Shri S.V.Jaysankar iv) ₹ 200000/- Advance paid by M/s. Silicon to M/s. LRC to clear Koppers Bills. v) ₹ 15436/- M/s. Silicon paid to Sejpal Plastic towards advane against supply on behalf of M/s. LRC. vi) ₹ 1,04,449/- paid by M/s. Silicon to HPCL towards booking of LDO on behalf of M/s. LRC vii) ₹ 3800/- paid by M/s. Silicon to Jai Bhavani Hairres & supplies on behalf of M/s. LRC. viii) ₹ 6600/- paid by M/s. Silicon to Nirman Bazar on a/c of LRC. ix) ₹ 62,676/- paid by M/s. Silicon to Mr. Jagdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not stored separately and also the finished product manufactured out of the same is not stored separately but they are stored in a common storage tank. Further there are instances of transfer of material from one group concern to another through job work challans by mentioning "raw material returned un processed". However, such return takes place after a long gap of time. He argued that on going through the case records, it can be seen that it is not possible that the same material is returned as the storage tank is common. 4.6 He argued that whenever there is shortage of raw material to the one unit, materials are transferred from one unit to other unit without the cover of any invoice/challan/document. Shri T.K.Maji, Shri S.K. Shrivastav and Shri Satish Jaysankar have in their statements confirmed that the management has given standing instruction to all the concerned/production staff and key personnel that in any emergency shortage of material to execute the dispatches as planned LRC may get material from Silicon or vice versa. 4.7 He argued that the statements shows how to control production, the material has been transferred to other units and it proves that all the units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Jagdish Kale on behalf of Indostraits is meagre and cannot be considered as relevant factor for clubbing the clearances. Some evidence regarding movement of material from LRC to SCGM and vice versa and between Sweta and LRC has been pointed out. The movement of material is very insignificant and total 5 transactions in the period of two years have been identified. These can be treated as exception and not the rule. Another piece of evidence used in respect of Sweta is that they were charging very low job charges from LRC and SCGM. Satish Jain in his statement stated that the job work charges were excluding the profit margin. Ld. Counsel has clarified that in respect of the job work, the costing of `2.50/kg was for complete manufacturing process, from inputs to finished product. These processes included plating, spray drying etc. The charges of 0.25/ 0.50/ 0.75/kg were for only planting, or spray drying and not to complete process of production. He further pointed that LRC and SCGM were paying warehousing charges to Sweta for the raw material sent by them to Sweta for job work. Thus the job charges were excluding the warehousing cost. 5.2 From the above discussion it is appare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LRC to M/s. Silicon: Rs.5,22,360.39 - 1999-00 05. Temporary advance given by M/s. Silicon to M/s. LRC: Rs.6,68,954.00 2000-01 01. Temporary advance given by M/s. LRC to M/s. Silicon : Rs.3,59,766.00- 2000-01 02. Temporary advance given from M/s. Silicon to M/s. LRC: Rs.3,81,233.00- 2001-02 03. Temporary advance given from M/s. Silicon to M/s. LRC : Rs.2,55,000.00- 04. Excess Credit in Silicon's debtor a/c transferred to M/s. LRC's creditors A/c.: Rs.9,60,467.00(00-01) 2001-02 01. Temporary advance given by M/s. LRC to M/s. Silicon: Rs.10,50,085.26- 2001-02 02. Temporary advance given by M/s. Silicon to M/s. LRC: Rs.5,15,793.00 - 03. Temporary advance given by M/s. LRC to M/s. Silicon: Rs.1,75,000.00- 2001-02 04. C Credit balance in creditor's a/c. transferred to their Debtors' A/c.: Rs.8,74,314.70 05. Temporary advance given by M/s. LRC to M/s. Silicon: Rs.4,21,716.85 - 2001-02 06. Temporary advance given by M/s. Silicon to M/s. LRC: Rs.2,70,770.15 07. Temporary advance given by M/s. Silicon to M/s. LRC: Rs.2,01,000.00 - 2002-03 01. Temporary advance given by M/s. LRC to M/s. Silicon : Rs.22,87,743.00- 2002-03 02. Temporary adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no finding that "Expo Gems" did likewise earlier or later. That one unit lent loan without interest to the other would not ipso facto give rise to mutuality of interest between the units. Common partners or common employees are also not conclusive criteria for such mutuality. Thus mutuality of interest has not been established in the impugned order. The Commissioner himself has acknowledged that commonality of partners between the two firms is not enough for clubbing of their clearances. As we have already noted, the two firms were in existence from 1980 and 1985, with separate SSI registration, separate Central Excise licence/registration, separate Sales Tax and Income Tax assessments and separate premises with separate machinery and labour. Yet the adjudicating authority recorded a finding of mutuality of interest for clubbing of clearances of the two firms. We are unable to sustain this finding". 5.5 The following transactions have been pointed out by revenue where the payments on behalf of one have been made by other. 6 Mutuality of interest in the business of each other/Mutual inter-dependence on each other. 01. ₹ 6900/- M/s. Silicon paid on behalf of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in any emergency shortage of material to execute the dispatches as planned LRC may get material from Silicon or vice versa. However the following instances of actual transfer have been identified 2000-01 03. Material transferred by Lignin to M/s. Silicon on loan basis : Rs.3,54,198/- 04. Material transferred by Silicon to Lignin on loan basis: Rs.1,43,905/- 2001-02 02. Material transferred to Silicon by Lignin : Rs.1,00,253/- 2001-02 03. Material given on loan basis to Sweta by Lignin: Rs.1,27,489/- 04. Material given to Sweta on loan basis by Lignin: Rs.90,500/- During a period of two years only three instances of transfer of material from one to another have been identified. 5.7 As against this the appellants have given the following history of the units Silicone Carbide Grinding Mills Pvt. Ltd [i.e. Silicon] Lignin Research Center [i.e. LRC] Sweta Electric (P) Ltd [i.e. Sweta] Indostaits (Pvt.) Ltd. [i.e. Indostraits] -->The Private Limited Company was formed in 1982 for manufacturing of excisable goods with original Directors being Shri. S.V.Jayshankar; Shri. P.S.Vijayshankar; Smt. Reshmi Vijayshankar & Smt. Girija Jayshankar. -->In an around 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerate Range-VIII, Divn. -Belapur-I, Comm.- Mumbai-III Range-VIII, Divn. -Belapur-I, Comm.- Mumbai-III Range-VIII, Divn. -Belapur-I, Comm.- Mumbai-III Range-Quepem, Divn. -Panjim, Comm.- Goa D) Registration No. (Registrar of company) 11-022195 NA 11-072720 11-140150 E) Factory License No. Thane-319-9/80A 2666 34179/6 Dt 26.09.89 Thane-2(m)(i)/ 24299 NA F) SSI Regn No. 11 24 02269 Dt22.07.83 11 24 81478 PMT SSI Dt 25.06.91 11 24 85862 Dt19.07.2002 300206702 G)Old Central Excise L4 RVI/NES-S/85 04/R-VII/Ch-38/89 NA NA H) Central excise Regn. No AACCS2623N XM 001 AABFL 0326K XM 001 AAECS6195DXM 001 AAACI 1798JXM 001 I) Income tax PAN No. AACCS 2623 N AABFL 0326K AAECS 6195 D AAACI 1798J J) MST Regn. No. 400701/S/1201 WEF.01/07/01 400701/S/1202 WEF:01/07/01 400705/S/1942 Dt.08.05.2000 GST No.P/5523 Dt16.03.2002 K) CST Regn No. 400701/C/1073 wef.01.07.01 400701/C/1074 WEF.01/07/01 400705/C/1708 Wef..08.05.2000 CST NO.P/8256 Dt.16.03.2002 L) ESIC Regn No. 31-38208-34 31-24770-34 34-1138-34 NA M) PF Regn. No. MH/35553 MH/38460 MH/115392 NA N) Municipal Cess Regn NMMC/CEG/04/0096 NMMC/CEG/02/00033 NMMC/CEG/01362 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e independent Central Excise Registration, DIC Registration, Sales Tax Registration and Income-tax Registration. 7. There is no tangible evidence on the record to prove the financial flow back from one firm to another which is most essential for clubbing the clearances of the units. In this context, reference may be made to the case of Indian Metal Indus. v. CCE, Bhuvaneshwar, 1999 (108) E.L.T. 593 (T), wherein it has been so ruled. Similarly, in the case of CCE, Rajkot v. Amar Plast Indus., 2000 (115) E.L.T. 482 (T), it has been held that use of common premises, telephone, common electric generator and cutting/mixing machines are not enough for clubbing the clearances of the units in the absence of evidence of financial flow back from one unit to another. 8. On the strength of proximity of relationship or the situation of the units or because there were some common employees, the value of clearance of two units cannot be clubbed unless there is evidence to prove that there was mutuality of the business interest and the units were having financial flow back. In this context, reference may be made to the case of Renu Tandon v. UOI, 1993 (66) E.L.T. 375 (Raj.), wherein it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3B also. It has also been argued that balance sheets were given during the audit. From the proceedings it is apparent that no specific item of information has been identified that the appellants have suppressed. The charge has failed on merits too. Moreover at the material time there was Circular No. 6/92, dated 29-5-1992 issued from F. No. 213/15/1992-CX. 6 which clarified as follows: "In exercise of the powers conferred under Section 37-B of the Central Excise Act, 1944, for the purpose of ensuring uniformity of levy of duties of excise the Central Board of Excise & Customs has ordered that the following general principles will be applicable to Notification No. 175/86-CE :- (i) -- (ii) Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners say A, B & C, has got more than one factory, all these factories should of course be combined. Limited companies whether public or private are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit." Thus at the material time there was a view ..... 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