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TMI Blog2023 (2) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Central Excise, Chennai-III confirming the demand of Excise Duty of Rs.4,01,21,130/- for the period from 01.01.2007 to September 2011 and imposing penalty equal to duty confirmed in terms of Section 11AC of the Central Excise Act, 1944 and also imposing penalties under Section 26 of Central Excise Rules, 2002 on M/s. Kaleesuwari Refineries Private Limited (hereinafter referred to as the "principal"), M/s. B.V. Industries and M/s. Golden Industries. As all these appeals involve connected issues, these are taken up together for disposal. 2.1 Briefly stated the facts in these appeals are that the Noticees, Mr. K. Bose Karta of M/s. CG Industries (CGI), Mrs. B. Vasuki, Proprietrix of M/s. Golden Industries and Mr. K. Bose, Proprietor of M/s. B.V. Industries (herein after referred to as "Noticees") were engaged in the manufacture of Tin Containers falling under Chapter 73 of Central Excise Tariff Act, 1985 for packing vegetable oils by various refineries. The Noticee was not registered initially with the central Excise but got themselves registered during the course of investigation by Directorate General of Central Excise Intelligence (DGCEI). 2.2 On the basis of Intelligence t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above, department was of the view that that the value of Tin Containers manufactured in CGI and out rightly sold in the name of M/s. Golden Industries, Kishore Industries and M/s. B.V Industries during the period from 19.01.2009 to 24.12.2009 were liable to be clubbed with the value of Tin Containers manufactured on job work basis at CGI and supplied to various principals. 2.5 It was also revealed that M/s. CGI failed to get themselves registered, assess and pay the Central Excise duty on the Tin Containers so cleared in violation of Rule 4, 6, 9, 10 & 11 of Central Excise Rules, 2002. Further, it was alleged that the Noticees have not adopted the correct value in terms of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 in as much as they have raised Kuli bills which failed to include the value of Tin Sheets used and the element of excise duty payable thereon and appeared to have evaded payment of Central Excise duty to the tune of Rs.4,08,21,130/-. 2.6 Thus investigations conducted has revealed that:- i. The Noticee had a factory located at 2/391A, Vijayapuram, Chithalapakkam, Chennai - 600 073, manufacturing Tin Containers fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng period 19.01.2009 to 24.12.2009) are liable to be clubbed with the value of the Tin Containers, manufactured on job work basis at the premises of the Noticee which were supplied to principals and value to be determined in accordance with the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and the duty payable thereon is demandable invoking sub section 4 of Section 11A of the Central, Excise Act, 1944. 3. In view of the above, a Show Cause Notice dated 14.03.2012 was issued to M/s. C.G. Industries, Kaleesuwari Refineries Pvt. Ltd., M/s. Golden Industries, M/s. B.V. Industries apart from others proposing to:- i. re-determine the value of Tin Containers manufactured on job work basis in terms of Central Excise Valuation Rules, 2000. ii. club the value of Tin Containers manufactured in CGI with those of manufactured and cleared under the invoices of M/s. B.V. Industries, M/s. Golden Industries and M/s. Kishore Industries on job work basis for various Principals, considering K. Bose as the manufacturer of Tin Containers in more than one factory or CGI as the unit manufacturing Tin Containers in the name of different manufacturers, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied for sustaining the huge demand for duty on the Noticee which included the value of the duty paid Tin Sheets also. No proper financial verifications were carried out by the investigation in this matter even when it was clear to the investigation that the oil companies admitted themselves to be the principals engaging the Noticee units for the above job work and the financial benefit of the exemption accruing only to these oil companies namely suppliers of the principal raw materials requiring these oil companies to be treated as the manufacturer of these goods as per Board"s circular No. 56/56/1994-CX dated 14.09.1994 read with Notification No. 36/2001 CE [NT] dated 26.06.2001 whereas the Noticees who were coolie job workers were slapped with the huge demand and that too by unreasonably clubbing their value of clearances to deny the benefit of the SSI exemption. 6.4 The Ld. Advocate pointed out that Golden Industries, [GI], Virudhunagar a proprietrix firm owned by Mrs. Vasuki wife of Mr. Bose was admittedly the first of the clubbed units started in the year 1996 to engage in the manufacture of tins which was admitted by the investigation to have existed at Virudhunagar till Sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is suspected to be the defacto complainant against Mr Bose had given a statement that the goods were manufactured for only eleven months between 19.01.2009 to 24.12.2009 using his name by CG Industries was clubbed with the clearance of CGI by claiming that the said unit was non-existent only for the above short period even while admitting its independent existence after the said period. 6.7 M/S. C.G. Industries which is a HUF of which Mr. Bose is the Karta and which has an independent status on which the entire demand has been confirmed by the Adjudicating Authority was started on 21.06.2006 much later to Golden Industries. The Ld. Advocate pointed out that as per the notice the HUF is not different from the Proprietor of BV Industries on account of which clubbing of the clearances of BVI GI and KI were made because Mr. Bose in his statement has admitted that he is the proprietor of CGI, even when the documents on record showed CGI to be a HUF only and was recognised as so by the IT Department. 6.8 The advocate in the light of the above admitted facts raised the objection that since the order passed had overlooked the admissions made in the notice and the consequent proposal m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clearance of all the units on the ground that GI which was owned by the wife of Mr. Bose is controlled and managed by him only and that for CGI Mr. Bose is the Karta and just for eleven months KI owned by Mr. Sathishkumar functioned at CGI without considering the well settled principles of law permitting the clubbing of units only if shown that the units were dummy or camaflouge or there is flow back of finance from the units to the unit in whose name the clearances are proposed to be clubbed, which is not the case of the revenue warrants the setting aside of the demand on this sole ground alone. The Ld. Advocate submitted that inspite of the above admission and proposal made in the notice the respondent adjudicating authority had traversed beyond the scope of the notice to record in the last Paragraph of para 31 of her order that the investigation established that:- "the management of the entire affairs of GI by the Noticee and floating of KI in the premises of the Noticee and the non-existence of BVI; These facts clearly suggest the manufacture of the specified goods by the Noticee Therefore I am of the reasoned view that all the clearances of the specified goods accounted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the dummy of the another and to propose the clubbing of the clearances of both the units the revenue is under the statutory obligation to establish financial flow back, interdependence, pervasive financial and management control as per the decision of the Hon'ble Rajasthan High Court in the case of Renu Tandon Vs. UOI [1993 (66) ELT 375] which was affirmed by the Apex Court in the case of Commissioner of Central Excise Vs. Electro Mechanical Engg. Corporation [2008 (229) ELT 321] and which ratio was followed in umpteen number of judicial decisions including in the cases of i. Ghaziabad Organics Ltd., Vs. Commissioner of Central Excise, Ghaziabad [2016 (344) ELT 965 (Tri.-All.)] ii. Commissioner of Central Excise Vs. Vaspar Concepts P Ltd., [2006 (196) ELT 95 (Tri.-Bang)] iii. Commissioner of Central Excise Vs. Saron Mechanical Works [2016 (332) ELT 80 (P&H)] iv. B.K. Office Needs (P) Ltd. [2015 (318) ELT 288] v. Commissioner of Central Excise Vs. Poona Radiators and Oil Coolers [2017 (347) ELT 320] vi. Commissioner of Central Excise Vs. Agarwal Rubber Pvt. Ltd. [2009 (238) ELT 336] vii. Shree Nirmal Spinners Vs. Commissioner of Central Excise [2014 (300) ELT 469 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacture either by the Noticees or by the other units or by other contractors was carried out and no attempt was made to quantify the production based on any records, for the reason that that there was no documents available to undertake such quantification except for the cooli bills besides admitting that manufacturing operations were in progress at the premises but the officers did not ascertain whether it was carried out by the contractors or workers employed. It was submitted that the finding recorded by the respondent in para 27 of the impugned order to rule out that the contractors who worked at the premises of CGI are not manufacturers of the goods on fact or law by merely relying upon the statement obtained from the 1st Noticee that those persons supervised the work of the labourers employed under them even when the investigation has not examined or ruled out the said issue on fact or by law renders the said finding bad in law. 6.15 The Ld. Advocate further submitted that apart from the notice admitting to the existence of the above units at different points of time with each of the units registering with the VAT authorities and filing the statutory returns and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that "The burden to prove clandestine manufacture and removal is on the revenue. Direct evidence of clandestine removal would rarely be available and the standard of proof has to be necessarily based on preponderance of probabilities. Conjunctures and surmises cannot be the basis of proof, when clandestine removal is alleged and for establishing the said charge, there should be positive evidence. Therefore, when the department alleges clandestine production and removal of goods, without due proper accounting in the records and without payment of duty, the burden of establishing the allegation lies heavily on the department. In the case on hand, the department, has not discharged the burden". 6.17 The Ld. Advocate further pointed out that as per the investigation "the machineries installed at CG Industries were operated with the aid of power since 2008" as per Paragraph 4/2 [b] of the notice whereas as per Paragraph 10.1, the installed machinery operated with aid of power progressively since 2006, leading to self-contradiction. The advocate has further argued that in such a case, there should have been a quantum jump in the quantity of Tin Containers alleged to have been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies) whereas nothing was brought on record to show that there was any outward movement of the finished goods from the Noticees premises at least even one testimony from any one of the transporters identified by the investigation. Therefore, also the above findings recorded by the Adjudicating Authority are not sustainable. 6.19 It is the further contention of the advocate that the coolie of Rs.7.40 included electricity charges of Rs.0.40 per container. Hence, for the alleged manufacture of 42,38,710 containers, the Noticees ought to have paid Rs.16,95,484/- toward electricity charges. However, there is nothing on record to show that the Noticees had paid the said amount or at or about electricity charges except the allegation that the Noticees had "two service connections in its premises viz., SC No.629 with load of 0.72 KW and S.C.No.764 with load of 10KW" and the electricity consumption "showed an increasing trend of consumption a vague allegation to claim that it proves the progressive/periodical installation of machinery functioning with aid of power". However, there is nothing on record in the Show Cause Notice to support the allegation of "increasing trend" of power consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Refinery Private Ltd. and others who have supplied Tin Sheets for their conversion into Tin Containers on payment of coolie charges per Tin Container basis considering the facts of these appeals? ii. Whether the clubbing of clearances of Golden Industries, B.V. Industries and Kishore Industries with the clearances of M/s. C.G. Industries in terms of Para 2(v) and 2(vi) of Notification No. 8/2003-CE dated 01.03.2003, is justified or not considering the evidence unravelled by the investigation? iii. Whether valuation of Tin Containers manufactured on job work basis for various principals determined in accordance with the provisions of Valuation (Determination of Price of Excisable Goods) Rules, 2000 is legally justified? 10.1 It is evident from the facts obtaining in these appeals that the Noticees are receiving the Tin Plates as the consignees whereas the payment for Tin Plates has been made by the principals. Thus, the Noticees have undertaken the job work of converting Tin Sheets supplied by the principals into Tin Containers as per their prescribed specifications. The Noticees are being paid coolie charges for such conversion. The Tin Containers are cleared to the principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant facts and circumstances of each case. This relationship could be ascertained with reference to the facts such as whether the job worker has received any financial assistance from the supplier of the raw material, whether the supplier of the raw material exercises any control over the management of the affairs of the job worker and whether the job worker is an independent entity and not merely a dummy or an agent of the raw material supplier has to be ascertained. It is evident that there is no written agreement between the job workers and the raw-material suppliers. Raw-materials were supplied to the Noticees which cost is borne by the principals and the Noticees were asked to manufacture Tin Containers and supply at a piece rate i.e, on payment of coolie charges. All the above details of the transactions between the Noticees and the principals very clearly indicate that the Noticees were undertaking mostly the work of converting the Tin Sheets into Tin Containers on payment of coolie charges and clearing under delivery challans and invoices raised for coolie charges. As the Noticees have not borne the cost of the raw-materials supplied, it appears to us that the Noticee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Goods) Rules, 2000 is far-fetched and uncalled for. In this regard, we also find that the impugned Show Cause Notice has determined the eventual assessable value by unreasonable methods applying Rule 8 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000 which reads as under:- "RULE 8.[Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods.]" We have carefully studied the Central Excise (Determination of Price of Excisable Goods) Rules, 2000, as applicable to the facts obtaining in these appeals and adoption of Rule 8 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000 when the Tin Containers were consumed by the principals and not by the job workers is questionable. 10.5 In the instant case, the principal is the actual consumer and even assuming that the goods viz. Tin Sheets are consumed by CGI in the production or manufacture of tin cans, we find that the Show Cause Notice has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso sought to be clubbed with that of M/s. CG Industries. Further, the clearances of M/s. Kishore Industries, owned by Shri Satish Kumar, brother-in-law of Bose was sought to be clubbed with the clearances of M/s. CG Industries by alleging that the said entity was a dummy/ non-existent unit for a part of the disputed period. 11.2 We find that Notification No. 8/2003 grants exemption from payment of excise duty in case of small scale industrial units whose value of clearances does not exceed Rs. 1.5 Crores which is subject to certain conditions. The relevant Paragraphs of which are extracted below:- "2 (v) where a manufacturer clears the specified goods from one or more factories, the exemption in his case shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each factory; 2(vi) where the specified goods are cleared by one or more manufacturers from a factory. the exemption shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each manufacturer; 2(vii) the aggregate value of clearances of all excisable goods for home ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the address of Golden Industries at Virudhunagar for Job work charges and later on shifted to new premises reportedly from 2008-2009 and the Ld. Advocate has submitted a copy of Lease deed for new premises at Chennai which was not considered by the Adjudicating Authority. Further, it is an admitted fact that there was no stock taking or verification of manufactured tins done in the job working units and no attempt was made to quantify the production based on records for the very reason that there were no records or documents available to undertake such quantification except for the bills raised for job charges and hence the investigation adopted questionable methods in arriving at the duty liability as the same was based on a days" production. Such a computation cannot be supported. 11.4 The Ld. counsel for the Noticees has placed reliance on a catena of judgements passed by various judicial forum against clubbing of value of clearances by various units which have been analysed below. 12.1 We find that C.G. Industries was owned by a HUF for which Mr. Bose is the Karta. Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancesto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries [2008 (230) ELT 159 (Tri.- Ahmd.)] it was held that clubbing of clearances of two units, one owned in individual capacity and other as Karta of HUF, is not appropriate, when there is no evidence showing that the two units were not having independent existence found- both the units having separate income Tax PAN no. separate sales tax, etc. which could establish their independent identity. The relevant portion of the above order has been reproduced below: "4. On appeal against the above order, Commissioner allowed the same by observing as under:- "I find from the records there is nothing on records in the form of statement or evidence which establishes with reasonable certainty that manufacturing activity was or had been carried out exclusively in the factory premises of M/s. Arbuda Industries only. If the department was sincerely concerned to hold that M/s. Arbuda Enterprise was a dummy unit of M/s. Arubda Industries or was underveil or was a cover only then in that case they ought to have investigated deeply and could have gathered the material evidences on which the person of ordinary intelligence and prudence could be led to believe that M/s. Arubda Enterprise had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Meerut-I [2019 (370) ELT 756 (Tri.-All.)] while considering the issue of clubbing of clearances held that merely because the units are run by some family members and books of accounts maintained by accountant in one common office it cannot be held that there is mutuality of interest or financial flow back. In absence of such evidence, the clearances cannot be clubbed. "5. We find in the present case that the individual manufacturing appellants have independent identities since the Revenue could not establish that their books of accounts are common, that their bank accounts are common, that their registration with Income Tax, Sales Tax are common and that there is common funding and that there is mutuality of interest and that there is financial flowback and that the units which were held to be dummy did not have any manufacturing facility. In the absence of any such evidence, we hold that the manufacturer units are independent units and therefore, their clearances could not be clubbed together. We, therefore, hold that denial of benefit of SSI Exemption to the manufacturer appellants is not sustainable and therefore, demands confirmed against them are not sustainable. 6. We, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries in the premises of the Noticee and non-existence of M/s BV Industries. In this regard, Ld. Advocate"s contention that there is nothing on record in the impugned Notice to support the allegation of "increasing trend of power Consumption proportionate to the increase in processing of Tin Containers. On Perusal of the impugned SCN itself it is evident that there is no quantum jump in the production of Tin Containers by the Noticee as the production during 2007-2008, 2008-2009, 2009-2010 and 2010-2011 was respectively 8.09 Lakhs, 9.04 Lakhs, 10.7 Lakhs and 9.58 Lakhs which shows that there is no quantum jump in the processing work of Tin Containers. Further, it is not disputed that M/s. Golden Industries commenced business in 2006 and was filing VAT and IT returns till September 2009 and then shifted to Chennai. The Lease deed copy was produced evidencing that M/s. Golden Industries got shifted to Chennai. The impugned order has failed to discuss whether manufacturing was carried in the premises of the main Noticee by its employees or by its sub-contractors. The reason for not conducting stock verification at C.G. Industries to ascertain whether Tin Sheets pertaining to other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, without establishing financial flow back and mutuality of interest between the various units, clubbing of value of clearances of various units has been resorted to by revenue which is not just and fair. Moreover, the re-determined value of clearances of CG Industries owned by a HUF, which is a distinct and separate legal entity and which is engaged in Job Work for various principals is sought to be clubbed with others without complete justification. If the so called re-determined value of clearances of CG Industries is ignored, then the value of clearances of the other units are below the threshold limit as per Notification No. 08/2003 as discussed above. Hence, in the light of judicial pronouncements as above, we are inclined to hold that, the job work of CGI Industries cannot be clubbed with that of other entities. Not enough evidence exist to call these units as dummy units or created fictitiously to justify the clubbing of job work of all these units. 15. In view of the above detailed reasoning, there is no need to discuss about invokability of extended period in this case. The demand raised pertains to the period from 2007-2008 to 2011-2012 whereas the Show Cause Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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