9911796707
TMI Blog2023 (9) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... g Industries (BPI). 2.2 On gathering intelligence that BPKG manufactured corrugated cartons and availed SSI exemption provided under Notification No. 08/2003 and when the value of clearances was likely to exceed Rs.1.5 crores, the partners of M/s. BPKG started another firm with the name and style "M/s. Balaji Packaging Industries" (hereinafter referred to as BPI) investigations were conducted. It was noted that when the value of clearances exceeded Rs.1.5 crores, BPI was registered with the Central Excise Department and started paying Central Excise Duty. Further, they started floating different proprietorship/partnership firms keeping themselves as proprietors/ partners or with their relatives as partners. It was also noted by the Department that all these firms manufactured corrugated cartons and cleared the same availing SSI exemption as if they were all independent units. BPKG has floated some trading firms also without having any factory premises and machinery and the corrugated cartons manufactured in such firms, including BPKG and BPI, were cleared under the invoices of these trading firms and thus evaded Central Excise duty. The appellants, by floating various partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BIP as admitted by themselves and concerned sleeping partners and diverted Corrugated Carton manufactured in other manufacturing firms on account of these trading firms * started BIP, a proprietary firm with Smt R Rukmani as the pro-prietrix since 2003, which did not possess important machinery namely corrugation machine to manufacture corrugated cartons during the period of demand; the corrugated cartons manufactured in SHP and other manufacturing firms were sold under the invoices of BIP * appellant influenced Shri.K.Gopi (owner of NAGA and job worker for BPKG group of firms) to start a proprietary firm by name SEP with the premises of NAGA being declared as the factory premises and without having any factory premises for itself, the corrugated cartons sold under the invoices of SEP were manufactured in BPKG, Shri Gopi did not know the business activities of SEP and he did not receive any profit from the business activities of M/s Sri Eswari Packs, * they have engaged two job workers namely M/s Naga Packagings and M/s. Sree Pothis Packaging Industries; although raw materials were supplied by BPKG or BPI to these job workers, the corrugated cartons manufactured were clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation; that clearances of corrugated boxes/cartons manufactured in one unit was freely done under the invoices of other units, resulting these units being inseparably intertwined with each other from the point of financial control, managerial control, operational control and administrative control. 2.5 It appeared that BPKG and BPI have procured raw materials such as Kraft Paper, Gum Powder and Stitching Coils and engaged in the manufacture of corrugated cartons. They have sent the raw materials to their manufacturing firms namely, SHP KRK, BC and BP and got corrugated cartons, manufactured and sent the same under invoices and delivery notes of other firms prepared at the common office, functioning at the premises of BPL. Show Cause Notice No.26/2014 dated 27.03.2014 was issued for the period from March 2009 to March 2013 alleging - "It appeared that BPKG and BPI have procured raw materials such as kraft paper, Gum powder and Stitching Coils and engaged in the manufacture of corrugated cartons; they have also sent the said raw materials to their manufacturing firms viz SHP, KRK, BC and BP and got corrugated cartons manufactured and sent the same under the invoices and Delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Shri K. Ravichandran in his statement dated 19-12-2013. From the above it appeared that exchange of raw materials and finished products took place among the units of BPKG group without any monetary consideration; no payment of coolie charge made by the firm which supplied raw materials to the firm which manufactured Corrugated Carton Boxes using such raw material, instead, at times, payments were made from the accounts of the trading firms for money lending among the BPKG group units, interest was not charged on the outstanding amount out of such financial flow. Therefore, it appeared that said three persons have exercised pervasive managerial control, operational control, administrative control and financial control over all the business activities all the firms of BPKG group, they are also the partners (including the de facto partner) of BPKG, which is the first firm started by them. BPKG represented by the group of three persons is the leading manufacturer manufacturing corrugated cartons as discussed above, since the firms of BPKG group have not maintained any distinctive identity and inseparably intertwined in their dealings, the aggregate value of clearances of corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and Shri K. Ravichandran, the de facto partner, representing his wife Smt. R. Rukmani, to be the manufacturer of corrugated cartons in the premises of BPKG, BPI, BC, BP, SHP and KRK and as manufacturer of goods cleared on account of the other trading firms namely SAP, SPP, SBPT, SEP and BIP 13.03. I order that the value of clearances of corrugated cartons manufactured in the factories of BPKG, SHP, BP,BC, KRK and BP1 and also got manufactured from the job workers namely NAGA and SPPI, which were effected under the invoices of those manufacturing firms and the trading firms viz. SAP, SPP, SBPT, SEP and BIP during the period from 2008-09(01.03.2009 to 31.03.2009) to 2012-13, be included together in terms of Para 2(v) and 2(vii) of Notification No.8/2003 CE dated. 01.03.2003, as amended, to determine the aggregate value of clearances of BPKG controlled and run by the 'group of three persons'. 13.04. Having ordered as above in paras 13.01 to 13.03 supra, I confirm and demand an amount of Rs 2,27,22,336/-(Rupees Two Crores Twenty Seven Lakhs Twenty Two Thousand Three Hundred and Thirty Six Only) towards Central Excise duty. Educational Cess and Secondary & Higher Education C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Devaki (w/o Nagaraj) 11.08.95 Duty paying 3. Balaji Cartons [BC] 144, Muthhunagaiya Puram, Periayur K. Ravichandran, Nagaran & A. Subbiah 14.06.99 SSI unit 4. Balaji Ind Packs [BIP] 141B, Sukkiravarpatti Road, Anaikuttam R. Rukmani (w/o K. Ravichandran) 11.08.03 SSI unit 5. KRK Packaging [KKR] 1/90F Vadamalpuram, TTL-17-11-2009 [RAC] K. Ravichandran 11.11.05 SSI unit 6. Sri Hari Pack [SHP] 1/528, Sivakasi Co. Operative Industrial Estate, Sivakasi S. Rajathilakar (s/o Subbiah) 15.06.07 SSI unit 7. Balaji Ind Pack [BP] 136B, Sukkiravarpatti Road, Anaikuttam K. Ravichandran, R. Rukmani & Smt. N. Devaki 01.02.09 SSI unit 8. Sri Eswari Packs [SEP] Formerly Packaging 171, SIDCO Industrial Estate, Kappalur, NMadurai K. Gopi 15.10.10 Job unit 9. Sri Balaji Pack Tech[SBPT] 1/363, Sukkiravarpatti Road, Anaikuttam V. Nagaraj 14.10.09 Trading 10. Sri Andal Packaging[SAP] 725/H-1, Virudhunagar Road, Thiruthangal, Sivakasi MK. Kanagaraj 19.11.09 Trading 11. Sri Padmavathi Packs [SPP] 1/17, North Street, M. Alagapuri, Meesalur PO, Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanded the duty by taking the value of clearances as declared by each of the units in their respective VAT returns. The notice also asked the other manufacturing trading and job working firms to show cause as to why their clearances should not be clubbed with that of BPKG controlled and run by group of 3 persons apart from proposing the imposition of the penalty under rule 26 of the Central Excise Rules on all the fifteen noticees which included the Manager except for BPKG. 6.4 The basic fact involved in this case is that there were 11 independent units involved of which one was a duty paying unit as already stated, six other units were manufacturing units. having their own factory infrastructure, finance, labourers, complying with the VAT, and Income Tax laws maintaining proper accounts and availing the SSI exemption, one was a job working unit and the remaining two trading units. 6.5. The Reasons for clubbing in short are as under : 1. The units had partners or proprietors who are related or friends to the GTP; 2. Maintenance of accounts and preparation of invoices for all the units from a common place viz. at the premises of BPI: 3 Distribution of the raw materials from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticees and appeared for the personal hearing before the respondent and made detailed submissions for all the units including the individuals. The appellant submits that in the interregnum show cause notices for the subsequent periods were issued by the department and accordingly he prayed for the adjudication of the said notices subsequently since the hearing granted was in respect of the main notice only. The respondent passed the order in original dated 13.07 2016, verbatim confirming the proposal made in the notice by recording certain legally unfounded findings and without adverting to the various factual and legal submissions as well as the plethora of judgments relied in support in a most mechanical manner by merely borrowing the contention in para 11 of the notice by relying upon the statements obtained from the various personals. 6.8. The basic dispute to be resolved in this case is as to whether the clubbing of clearances of all the manufacturing units including one which is duty paying unit which is admittedly independent having their own funds, labour, machinery, factory in different geographical location and the job working unit and the three trading units who are adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of BPKG which is a registered partnership firm, and whether such a proposal is sustainable in law especially under the partnership Act. 6.11 If the revenue wanted the demand to be slapped on the GTP out of which two are partners of BPKG, then the revenue ought to have made the demand on them considering as members of the partnership either jointly and severally instead of the demand being made on BPKG by modifying its constitution which is beyond the authority of law and therefore also the whole notice fails. 6.12 The demand on the other hand, having been made on BPKG on the premise that BPKG was controlled and run by GTP even when the constitution of the firm was different not only defies logic but also the legality of such a demand. 6.13 The charge and proposal to treat Shri K. Ravichandran as the defacto partner of BPKG and his wife R. Rukmani (factual partner) as the dejure partner is basically fallacious since neither the Partnership Act, 1932 nor the Central Excise Act, 1944 recognises the concept of any defacto or dejure partner. It is made to suit the convenience of the revenue but not supported by law and such a proposition by the authorities is not only bad in law bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d recorded based on the state as well as documentary evidences that it was GTP who were looking after the administrative financial matters of all the units and therefore have to be treated as one by relying upon the decisions of the tribunal without properly considering that the decision either held all the units to be owned by the same persons having financial control or dummy corporate entities by lifting the corporate veil which is totally different from the admitted facts in this matter. 6.19 The further observation of the respondent in para 08.02 of his order at page 76 to the effect that there existed an undisclosed partnership which actually ran the business to confirm the demand as proposed is wholly erroneous for the reason that in the first place there was no such allegation in the notice which resulted in the respondent traversing beyond the scope of the notice issued, to affirm the demand. The respondent further failed to take note of the law that a partnership can only be a disclosed one that too by way of a partnership deed and the involvement of any other person tacitly or otherwise cannot change the constitution of the partnership and its liability and as such no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts by itself evidence to the fact that the revenue otherwise was not in a position to sustain the clubbing of clearances of all the units and to deny the benefit of the SSI exemption in the admitted facts of the case so as to make the said illegal and unsustainable proposal to treat BPKG run by GTP to be the manufacturer for the purpose of denying the benefit of the SSI exemption. 6.25 Apart from the above, even though the show cause notice was issued to the other ten firms asking them to show cause as to why their clearances should not be clubbed with BPKG run and controlled by the GTP for which each of the units responded by filing their detailed objections, supported by documentary evidences the respondent had never considered these objections but had proceeded to confirm the liabilities on BPKG run GTP causing gross violation to the principles of natural justice rendering his order unsustainable. 7. The Ld. Counsel put forward the following contentions to argue that the proposal to club clearances is not sustainable on merits also. 7.1 The department has alleged five reasons for clubbing the clearances of all eleven (ii) units detailed in the table. In para 8.03 of OIO dt. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain their accounts in the same computer installed with a tally software rendering assistance of the GTP who happened to be partners/relatives/long time acquaintances of them to run the business cannot make their status of separate legal entities as non-est in the eyes of law It was also recorded that since they did not have any previous experience of dealing with the preventive officers of the department they have signed the statements as asked for. In para 09.02 and 09.03 the claim for independent legal entities was rejected for the reason of lifting the corporate veil relying upon the judgments of the Supreme Court cited therein. The respondent thus without adverting to any of their defence submissions on fact and law merely approved the contentions made in para 11 of the show cause notice totally violating the principles of natural justice besides exposing his bias and non-application of mind. 7.5 The respondent relied upon the statements obtained from the various deponents holding that the same in the absence of retraction or seeking permission to cross examine the officers is admissible in terms of Section 14 of the Central Excise Act and in support of the same judicial prono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me judgment and another case of Parle Bisleri decided by the Apex Court (para 07.04 to 07 06 pg 75) the respondent had denied the benefit of circular no 6/1992 dated 29.05.1992 issued by the Board which squarely supported the case of the appellant. 8. The Ld. Counsel argued that department committed gross violation to the principles of justice by merely adopting the averment in the notice without considering any of the admitted facts on record not showing any inter-dependence or pervasive managerial control of one over the other that the partners are different in the various units. The finding that the partners are either related in some way or the other or friends and hence they are not truly independent is bereft of any logic or meaning and is also against the settled position of law. The respondent also failed to appreciate that since liability of partnership firm is unlimited, it is but natural that partnership business is started taking the family members at the first instance as partners and in the second instance like mined and trusted friends as partners. As mutual trust is the back bone of a partnership firm, members of the family and friends becoming partners is nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 8.2 The status of the partnership firms have been dealt with in the Section 37 B Circular no 06/92 dated 1905 1992 issued by the Board in the context of availment of the SSI exemption in which it was specifically clarified that partnership firms with uncommon partners are distinct and different and each such partnership firms are eligible to avail the SSI exemption separately and in the present case it is a fact on record that none of the five partnership firms constituting the manufacturing units there is any common partners and even in fact in the said firm firms outside members are also partners and hence the respondent ought to have religiously followed the instructions contained in the said circular which is still valid and existing and also binding on him. failure of which renders his order otiose and redundant. On the other hand, the respondent had placed reliance on the decisions of the Hon'ble SC in the case of Modi Alkalis & Chemicals Ltd. reported in 2004 [171) ELT 155 (SC) to get over the above circular which is wholly misplaced. The said decision was rendered in the context of the peculiar facts and circumstances in which the three front companies established w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he units as belonging to BPKG controlled and run by thee GTP The law is also settled that unless the revenue discharges it onus by establishing that there is common funding or financial flow back the clubbing of clearances for denial of the SSI exemption is not permissible. The appellant submits that even though there are large number of pronouncements on this point they would like to cite the following few case laws in support of their above contention: 1. Deep Jyote Vs CCE - 2000 [117] ELT 223 CESTAT LB; 2. Bentex Industries Vs CCE - 2003 [151] ELT 695 CESTAT; 3. Studio line Interior Systems Vs CCE -2006 (201) ELT CESTAT; 4. CCE Vs Vaspar Concepts - 2006 (196) ELT 95 CESTAT; 5. Coimbatore Engineering Works Vs CCE - 2009 (239) ELT 366. 6. CCE Vs Bombay Neon Signs - 2004 [166] ELT 102 CESTAT, 7. Renu Tanden Vs UOI - 1993 [66] ELT 375 Raj; 8. CCE Hyderabad Vs Beaver Engineering Components -2017 (353) ELT 126; 9. CCE Vs Saron Mechanical Works - 2016 [332] ELT 80 Pun & Har; 10. Associated Engg Projects Vs CCE, Meerut - 2019 [370] ELT 756; 11. Jain Pole Industries VS CCE, Jaipur - 2018 [364] ELT 189 Tri Del; 12. CCE Jaipur Vs Electro Mechanical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other for which admittedly and no job charges were paid by the other and advancement of loan without stipulation for interest to support the allegation that there is financial accommodation (para 10.6 and 10.7 pg. 220 to 225). 8.7 In this regard, as already submitted that such instances being few and also as it was a reciprocal arrangement and as the respondent had only sustained the said allegation based on the judgment of the Supreme Court in the case of Modi Alkalies & Chemical which is distinguishable the whole allegation should fail for the above reason. 8.8 Non -payment of coolie charges for having undertaken the job work by the representative units has been cited as a reason for financial flow back and for the consequent clubbing it is on record @pp 213 that the various unis at different points of time gave raw materials to the job working units such as M/S NAAGAS and Sree Pothis Packaging Industries and got the cartons manufactured by them and paying the appropriate coolie charges to the said job workers and hence the value of such goods cannot be clubbed with BPKG The job working units were independent units doing job work to others as well by the units themselves i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factories on their own account on the strength of their invoices and accounted for the same. As submitted earlier, the appellant also did job work/conversion for other manufacturing and trading units on certain occasions out of the raw material supplied to them by the said units. Those converted goods were cleared by the respective units under their invoices to the respective customers who had placed orders on them. The despatches were covered under proper invoices. For the purpose of determining the limit of SSI exemption, the appellant had already aggregated the job worked goods value also and hence there can be no objection from the department on this account. 8.11 Without prejudice the notice had also fairly admitted that each of the manufacturing units including that of the job worker have factory premises of their own and they are not either dummy or letter pad companies. [pgs 92 & 93 of the typed set- para 3.1.5 and 3.1.8 of the notice - para 32 of the reply by BPKG. Only the trading premises were found not having any machineries Trading firms naturally need not have any manufacturing facility as they are mainly supplying raw material and getting the goods converted on paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flected in the respective annual reports of the concerned units. The non-collection of interest for temporarily loans it is submitted is a normal business practice without any taint reply of BPKG @ para 52. Non-payment of interest in itself will not make the units are dummy or inter dependent or involved any financial flow back or to call such units not independent and the law in this regard is also well settled in the following Judicial pronouncements : 1. M/S Bright Gems Company Vs CCE 2004 [173] ELT 173 CESTAT 2. M/S Polly Printers Vs CCE 2002 [139) ELT 295 CESTAT 3. M/S Alpha Toya Ltd. Vs CCE 1994 (71) ELT 175 CESTAT 10. One other allegation is that accounts of all units were maintained in a common place (at the premises of BPI). It is argued that Maintenance of accounts of several units in a common office for cost conservation and utilisation of the services available in common is permissible in law especially for SSI units which could not result in the units being called non-independent which legal position has been affirmed in the cases reported in (i) 2013 (294) EL1 561 (T), (ii) 2008 [229] ELT 321 (SC), (iii) 2003 (152) ELT 194 (T.-Del), (iv) 2004 [167] ELT 299 [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck Tech 1/363, Sukkiravarpatti Road, Anaikuttam V. Nagaraj 14/10/2009 33156002854 31/12/2011 9. Sri Andal Packagings 725/H-1, Virudhunagar Road, Thiruthangal, Sivakasi K. Kanakaraj, M(Brother of K. Ravichandran) 19/11/2009 33046002866 31/12/2011 10. Sri Padmavathi Packs 1/17, North Street, M. Alagapuri, Meesalur (PO), Sivakasi Smt. K. Devaki 7/10/2010 33895782385 31/12/2011 11. Sri Eswari Packs 174, SIDCO Industrial Estate, Kappalur,Madurai K. Gopi, relative of Shri V. Nagaraj (as Per stt.Dt.06.12.12 of Shri Kasi Viswanathan, Manager) 15/10/2010 33676003053 31/12/2011 13. From the above table itself, it is clear that in all the 11 firms, Shri Nagaraj, Sri K. Ravichandran, and Sri A. Subbiah were among themselves either as proprietors or as partners with their close relatives, Shri N. Devaki w/o Shri Nagaraj, Smt. R. Rukmini w/o Shri K. Ravichandran; Shri K. K. Kanakaraj brother of Shri K. Ravichandran, Sri S. Rajathilagar, s/o A. Subbiah. Some of the firms were closed on 31.12.2011. 13.1 The 10 units were dummy units floated by BPKG to wrongly avail th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Nilakottai, under the Invoices No.537 dated 02-03-2010 of SAP through vehicle No.TN67L0183 and the same is found tallied with he respective invoice found in the Invoice file bearing Sl.No.28 (Enclosed in Sl.No.28 of Annexure-B) containing the invoices of SAP recovered from the premises of BPI under mahazar dated 04.12.2012. On further examination of the dispatch details contained in the aforesaid Production Registers of BPKG and BC (para 4.1.3 & 4.1.4), it appears that there were despatches of Corrugated Carton Boxes, which were cleared under the invoices of SAP, found recorded through out the period for which production and dispatch details available in the said registers. Ore such instances are given in Annexure-I (SAP). From this is appears that the corrugated cartons sold under the invoices of SAP were manufactured in the premises of BPKG and BC. 13.3 On scrutiny of ledger folios for payment of conversion charges (Enclosed in SI.No.61 of Annexure-B), it appears that SAP have paid coolie charge of Rs.581244 to NAGA during the year 2009-10 (19-11-2009 to 31-03-2010) and Rs. 539700/ -to BIP during the period 2011-12 (1-4-2011 to 31-12-2011) and during the period 2010-11 no cool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness activities are looked after by her husband Sri V. Nagaraj and Sri R. Ravichandran. It was also stated by her that it started on 17.09.2010 and was closed on 31.12.2011. It can be seen that M/s.SPP was a trading firm and the corrugated boxes sold by M/s.SPP vide invoices was manufactured in the factory of BPI. On comparing the details of sales turnover disclosed by M/s. SPP to Commercial Taxes Authorities (CTA) it was seen that without consumption of electricity and manufacturing activity they raised invoices and the sale proceeds are only from trading. On dispatch entries contained in the register seized from premises of BPKG it contained despatches of corrugated boxes which were cleared under invoices of SPP. For eg. On 04.01.11; 5300 Nos. of corrugated boxes appears to have been delivered from BPKG to M/s Devi Crop Science, but no corresponding invoice was there among the invoices of BPKG on the said date contained in the files recovered from the premises of BPI, where the same quantity of boxes appears to have been cleared under the invoice nos. 233 of SPP contained in the Invoice File bearing Sl. No. 106-1/2 (Enclosed in SI.No.56 of Annexure-B) of SPP recovered from M/s B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to certain fictitious firms which though had machines was not carrying out any manufacturing activity. On examination of Registration Certificate (CTA) of M/s.Sri Eswari Packs (SEP) the office address was at Sukkiravarpatti Road, Thiruthangal. The factory address was at SIDCO, Kappalur, Madurai. When officers visited the factory premises, the factory was running with the name M/s.Naga Packagings and Sri Gopi was the Proprietor. Sri Gopi stated that after surrendering RC in the year 2007 he undertook job work for BPI, BPKG and BC by converting raw materials received from them into corrugated cartons. That RC was not needed from CTA for job work. It therefore revealed that the sales turnover declared by SEP for the years 2010-11 and 2011-12 were not sales turnover of boxes manufactured by them but happened to be the boxes made in the premises of Naga by K. Gopi for BPKG group of firms. Sri K. Ravichandran of BPI stated that Sri Gopi was doing only job work and he was paid only conversion charges. It is very much clear that M/s.SEP is dummy firm. The electricity consumption of M/s.Naga Packagings was also obtained. On details of sales turnover of SEP and Naga Pacakagings the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these delivery notes contained in the said file was shown to Shri K.Ravichandran, partner of BC, and was asked to comment, he has inter alia, stated in his statement dated 19-12-2013 (Enclosed in Sl.No.10 of Annexure-A) (Ref: Ans. To. Q.No 14) that he agreed that the raw materials mentioned in the Delivery Notes contained in the aforesaid File (Sl. No. 143) were actually, delivered from BPI to its sister firms; whenever, orders were received in BPI with a request to deliver the goods within a very short period, raw materials were sent to BPI's sister concern's and corrugated cartons were got manufactured on behalf of BPI; the conversion charges for the cartons manufactured by BC for BPI were paid to BC from the account of trading firms of BPI viz. SAP, SPP and SBPT; no account had been maintained in the books of BPI for payment of conversion charges to BC. 16.1 On examination of delivery note books it appeared that Delivery Note Books of BPI, BPKG, SAP and Form JJ Book of BPKG and SHP, were kept in BC to Clear the Corrugated Carton Boxes manufactured at BC under Delivery Note and Form JJ of the. aforesaid other firms of BPKG group; the Corrugated Carton Boxes, despatched und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.61 of Annexure B) among the group firms as creditors. From the above, it appears that though there were financial accommodation from one firm to others, interest payable on the outstanding amount was never charged as per the ledger folios under the head "SISTER CONCERN", "TDS PAYABLE"(Enclosed in S1 No.61of Annexure-B); transfer of funds from one firm to other firm was done mainly for the procurement of raw materials when one firm has insufficient funds; such transfer of funds had occurred both the ways i.e. from BPI and BPKG to other firms and other firms to BPL and BPKG. Therefore, it appears that all BPKG group firms/ units have mutuality of interest among themselves, since the proprietors & partners of all the firms are closely related; they resorted to financial accommodation by lending of funds without charging interest and exhibited close interdependence in their activities; this was possible since business activities all these firms were monitored, managed and financially controlled by Shri K. Ravichandra Shri V. Nagaraj and Shri A. Subbiah with help of Shri Kasi Viswanathan, Manager of BPI. 16.4 Thus BPKG was run by the group of three persons and had mutuality of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of calculating the value of aggregate clearances the value of clearances of each factory of manufacturer should not be considered separately. In other words, each factory of a single manufacturer cannot claim exemption limit of Rs.1.5 crores. Para 2 (vii) speaks about the situation of computing the value of aggregate clearances of a manufacturer who clears goods from one or more factories or from a single factory by one or more manufacturers. The exemption is available if the aggregate value of clearances does not exceed Rs.4 crores in the preceding financial year. These are separate situations. The SCN alleges that BPKG (run by three persons) is the manufacturer carrying out clearances from various other units, including the trading units. The value of clearances of all these units are to be clubbed together with the clearances of BPKG in terms of Para 2(v) of notification to raise the demand considering BPKG as a single manufacturer having many factories / units. However it is also alleged in the SCN that BPI exceeded the exemption limit of Rs.4 crores as provided in para 2 (vii) of notification No.8/2003 (see para 15 of SCN). Although it is alleged that BPKG which is run by GTP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner Of C. Ex., Chennai-IV Versus B.K. Office Needs (P) Ltd. (2015 (318) E.L.T. 288 (Tri. Chennai)] had held that mere common partners and staff and common managerial control not sufficient to consider other units as one and same if no material on record of flow back of funds between Units having separate registration of sales tax and income-tax, etc. and that there is no reason for clubbing of clearances for purpose of duty demand. No allegation that the appellant and other units clubbed together were manufacturing their products by using common machinery, common labour or the like. It has been admitted by the department that the units have separate plant & machinery. The department had failed to produce any evidence or ingredients, as mentioned above, required for clubbing of clearances of the various factories with the appellant's value of clearance. Hence the demand has to be held as not sustainable." 21. From the above, it can be seen that Commissioner (Appeals) has set aside the order passed by original authority for the subsequent period confirming the demand, interest and penalty on the ground that the department has not conducted investigation to adduce fresh ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the three bottling units were located in one single shed and were separated from each other by small brick walls of 4 ft. height. The Directors of the three front companies were employees of MACL or other Modi Groups of companies and they were frequently changed. They had common staff for maintenance of records and operation. The main plant and machinery i.e. cylinders for filling the gas, had been supplied by MACL only and the total finance was provided by MACL as unsecured loans or had been arranged by finance companies whose whereabouts were not known to the directors. The balance sheet revealed that whatever income is earned went to MACL in the form of lease rent of cylinders. The facts in the case of Modi Alkalies and Chemicals reveal mutuality of interest and financial flow so as to profit only one unit. In the case before us, we do not find that only BPKG was receiving the income and that other units did not receive any income at all. 22.2 The Hon'ble High Court of Rajasthan, at Jaipur Bench in the case of Ranu Tandon Vs UOI - 1993 (66) ELT 375 (Raj.) held that value of clearances of two units cannot be clubbed together and the two units cannot be treated as one unit merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the firm, the department has removed her from the partnership of BPKG. Needless to say, that there can be partners in a partnership firm who are not actively involved in the business of the firm. The law considers them as sleeping partners. Such sleeping partner shares profits and losses of the firm and cannot be disregarded or removed from rights and responsibilities of the firm. Smt. R. Rukmani is the Proprietor of Balaji Industries Pack (BIP). Smt. N. Devaki w/o Sri V. Nagaraj is a Partner in BPI which is a duty paying unit. Smt. R. Rukmani and Smt. N. Devaki are considered as dummy partners by department as per the table given in para 10.1.2 of the SCN dt. 27.03.2014. 23.1 The adjudicating authority, in para 7.1 and 7.2 of the impugned order dt. 13.07.2016 has discussed the arguments put forward by assessee against the creation of a new entity (GTP) consisting of Shri K. Ravichandran, V. Nagaraj & Sri A Subbiah. The assessee has strongly opposed to such attempt of the department to create a new entity and disturb the partnership firms constituted by partners under the Indian Partnership Act, 1932. It is not disputed that all these firms including the trading firms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate personality or ignore the separate personality of each company. The decision in the case of Delhi Development Authority Vs Skipper Construction (P) Ltd. and Others - 1996 AIR 2005 SC was also taken support to conclude that the creation of a new entity viz. the GTP by the department is sustainable. In para 07.03, the adjudicating authority concludes as below: "In view of the above legal position, the exception taken by the noticees to the proposal of creation of a new entity viz., the GTP by the Notice is not sustainable and accordingly I hold it so." 23.3 All along, in the SCN, and in the impugned orders, the department has created a new entity as 'GTP' and has confirmed the demand of duty against this new entity. In the operative portion of the order it is held that 'BPKG which is run and operated by GTP' is liable to pay the duty. In fact, there is no entity in existence as BPKG run by GTP. The partners of BPKG are three, including Smt. R. Rukmini. The department cannot create a partnership or entity. It has to be constituted as per consent and agreement between the persons who form the partnership. We have to hold that this approach taken by the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited company is a manufacturer by itself and will be entitled to a separate exemption limit. If there are two firms with only some of the partners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or one individual owns several factories, he or it gets exemption only in respect of one lot and the manufacturer being only one entity, there will be no question of distributing the exemption. Whether or not in the expression 'by or on behalf of a manufacturer' the expression 'from one or more factories' is added, the effect would be the same if the manufacturer is also the same. The expression 'one or more factories' only further clarified that whether the factory is one or more, it is the clearances by or on behalf of the same manufacturer which is to be taken into consideration for purpose of interpreting the exemption Notification. The matter requires to be viewed accordingly." 26. In the case before us, though there are partners common in these firms, the constitution of all firms are different. In other words, the pattern of partnership is not repeated in any of the firms. As per the circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of notification 83-84/1994 job work by one SSI unit to another SSI unit is permissible if properly accounted. The adjudicating authority has denied to apply the above notification only for the reason that undertaking as required was not filed. The counsel submitted that in the case of Salem Weld Mesh Vs CCE Salem - 2007 (218) ELT 405 (Tri.-Chennai) it was held that SSI exemption of supplier of raw material under notification 83/94-CE cannot be denied for non-fulfillment of a minor procedural condition. 30. From the discussions made above, we find that department has failed to establish the allegations raised in SCN for clubbing of clearances of the 11 firms. Further, the creation of a fictitious/deemed group (GTP) to be responsible for clandestine activities also does not find favor with us. As per the provisions contained in the Partnership Act 1932, persons can come together to form a partnership firm. Such a partnership can be terminated or dissolved only as per law. An external agency like the department cannot constitute or disturb the constitution of the partnership by removing certain persons for the purpose of casting duty liability. The department has, in fact, made ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
