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TMI Blog2003 (8) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Senior Advocate that if at all there was any discrepancy, it could have been in the form of clandestine removals but even no allegations have been brought out in that regard. He pointed out that at the time of the raid on the premises of M/s. RC, the department had not found out any excess production or any other documents being not properly maintained. There was no shortage of material also to allege clandestine removal. In that view of the matter, I am inclined to agree with learned Member (Judicial) on the point of merits as arrived by Member (J) in her considered order. In paras 19 to 21, learned Member (Judicial) has also examined the other points which have been taken by the Revenue to allege mutual flow of funds. I have gone through the order and I agree with the said findings. In so far as the allegation of suppression is concerned , it was argued by learned DR that the Commissioner has given a detailed finding on suppression and that should be upheld, while the Sr. Counsel argued that both the units after crossing the limit as per the notification were paying duty and their records were being scrutinized and the department have not found any discrepancy in respect of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 11AC of the Act apart from imposition of penalty of Rs. 10,00,000/- (Rupees Ten lakhs) under Rule 173Q of the CE Rules, on the appellants Company. He has also ordered for appropriation of Rs. 6,00,000/- (Rupees Six lakhs) already paid by the appellants Company, besides imposition of penalty of Rs. 3,00,000/- (Rupees Three lakhs) on the partner Shri Shabbir D. Bootwala. He has also charged interest under Section 11AB of the Act. While ordering so, he has also allowed the appellants Company to avail the Modvat credit of duty paid on the inputs used in the manufacture of finished product cleared. 2. The brief facts of the case are that appellants M/s. Poly Resins situated at Kodungalyur, Chennai (hereinafter referred to as M/s. PR) who are a partnership concern, are engaged in the manufacture of synthetic Polymers of Vinyl Acetate falling under heading No. 39.05 and Acrylic Polymers falling under heading No. 39.06 of the CETA, 1985. The partners are S/Shri Shabbir D. Bootwala, Shabbir A. Gadly and Flazza Y. Lehri. There is another partnership firm by name M/s. Reliable Corporation (hereinafter referred to as M/s. RC) situated at the same place viz. Kodumgalyur, Chennai who are als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allegation that there was financial flow back between the two concerns by way of sharing manufacturing facilities, fuel, electricity, raw material, consumables etc. and M/s. PR were required to show cause among other things, why the clearances of both the units should not be clubbed and consequently why differential duty amounting to Rs. 58,57,843/- should not be demanded from them, besides imposition of penalty under Section 11AC and Rules 173Q and 226 ibid. Partner of M/s. PR Shri Shabbir D. Bootwala and partner of M/s. RC Shri Huzefa were also called upon to explain as to why penalty should not be imposed on them under Rule 209A of the CE Rules, 1944 apart from imposition of penalty and also asking them as to why penalty should not be imposed on the partners. Another show cause bearing No. 12/98 dated 15-12-98 was also issued jointly to M/s. PR and M/s. RC demanding duty of Rs. 8,02,065/- from M/s. PR in terms of Section 11A(1) of the Act, being the differential duty for the goods cleared between the period 1-6-98 and 12-9-98. Both the show cause notices were decided by the same impugned order as noted above, after considering the reply furnished by the appellants. Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case there was mere issuing of show cause notice only to partner for imposing penalty and no show cause notice to the firm whose clearances are proposed to be clubbed, demand is not sustainable. He submitted in the present case inasmuch as no show cause notice was issued to the dummy unit whose clearances were sought to be clubbed with the clearances of the main unit viz. M/s. PR, the entire proceedings are vitiated and he therefore prayed for setting aside the impugned order and allowing the appeals. While concluding his arguments he, also invited our attention to the grounds taken in the appeal and sought for allowing the appeal. 4. Shri C. Mani, learned JDR for the department defended the impugned order and submitted that in this case two joint show cause notices were issued to M/s. PR M/s. RC and to the partners of the firms and it was not as if a copy of the show cause notices were marked to the firm whose unit was proposed to be clubbed and the proceedings culminated demanding duty and imposing penalty on M/s. PR and its partner since the other firm viz. M/s. RC was found to be a dummy unit. It was in these circumstances that there was neither demand of duty from M/s. RC nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring No. 12/98 dated 15-12-98 was addressed to M/s. PR and M/s. RC in which reference to the earlier show cause notice No. 11/98 was also made. Vide para 7 8 of SCN No. 12/98 both the units viz. M/s. PR M/s. RC were specifically asked to produce evidence and also to submit their written reply. The said paras 7 8 are reproduced below : 7. The noticees (underlined by us) are required to produce at the time of showing cause all the evidences upon which they intend to reply in support of their defence. 8 They are also required to indicate in their written reply whether they wish to be heard in person. If there is no indication in this regard in their written reply, it will be construed that they do not wish to be heard in person. Show cause notice bearing No. 11/98 dated 29-11-98 was addressed to all the units i.e. M/s. PR and M/s. RC, Shabbir D. Bootwala, partner of M/s. PR and S. Husefa. Partner of M/s. RC and Abbas Bhai partner of M/s. Abbas Co. and a copy thereof was not merely marked to M/s. RC as contended. This show cause notice had enclosed as annexure to it a statement of facts running from page 1 to 32. In each page of the statement of facts, the role played by both M/s. PR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posing to impose penalty. Vide the above said show cause notice, the demand has been quantified by treating the entire goods manufactured by RC as actually being manufactured by PR only, with an intention to avail the SSI benefit is factually incorrect. The SC has proceeded to treat RC as a dummy unit as if no manufacturing activity has taken place. The show cause notice has admitted that PR and RC are two different entities. The show cause notice has also accepted the existence of various infrastructure for RC for the manufacture of the adhesives. There are also purchases made by RC within the factory for the manufacture of adhesives and independent order has been placed by the customers including the Government Agencies on RC for the supply of final products. RC has manufactured the final product during the disputed period out of the infrastructure available within the factory. The above said facts are not disputed in the show cause notice and still show cause notice demanded entire duty on PR. Though show cause notice has proposed to impose penalty on the partner of RC no notice has been served on RC with regard to the demand of duty. It is well settled that the show cause notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Central Excise Department no where there is an admission to show that the RC has no infrastructure to manufacture the goods recorded in the books of accounts. There are also various evidences to show that the RC has got their own capacity to manufacture. We have also purchased the raw material required for the manufacture of recorded production. Therefore the allegation in the show cause notice that RC has no infrastructure for the manufacture of the product is not sustainable. Though various allegations are made in the show cause notice with regard to non availability of infrastructure with the RC, corresponding exercise of verification at the end of PR to show that the excess quantity has been manufactured by PR has been carried out. Further there is no deemed demand against RC. There is no dispute in the show cause notice that RC is a separate entity. RC also produced goods in their premises. In that event the demand ought to have been made on RC also and in the absence of such demand on RC the imposition of penalty does not arise and not warranted. In view of the above, it is prayed before the goodself to drop the proceedings. Thanking You, Yours faithfully Sd/- For Reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the firm also. Inasmuch as in the present case, show cause notices were jointly addressed to both the units, the dummy unit had accepted that the show cause notice has been served on them, and the show cause notice had also specifically asked the partner of the dummy units to show as to why penalty should not be imposed on him and inasmuch as the replies to the show cause notices were also furnished by all the units and they also actively participated in the proceedings before the Commissioner as noted above, the appellants cannot turn around and say that the dummy units have not been issued with show cause notice. When the main unit and the dummy unit were aware and conscious of the allegation and the dummy unit has also accepted that the show cause notice has been served on them and have replied to the show cause notice and actively participated in the proceedings and defended their case, the appellants herein (M/s. PR) cannot take a technical argument that the dummy unit has not been specifically asked to show cause just to defeat a just demand because no prejudice can be said to have been caused to them. 7. We observe that the Larger Bench in the matter of Bakelite Hylam Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice seeks to review are indeed improper and incorrect and need to be set aside. 8. Further the Tribunal in the case of CCE, Meerut v. Star Paper Mills Ltd. reported in 1986 (26) E.L.T. 81 has held as under : "Even if the notice does not describe it as a show cause notice but the contents thereof makes a recipient aware and conscious of the position, the recipient cannot be permitted to raise a technical argument to defeat a just demand. Therefore, the argument of the respondents that the show cause notice is not a valid notice in the eyes of law as it is a letter dated 29-12-1979, cannot be accepted." 8.1 Further, the Hon'ble Apex Court in the case of Beharilal Ramchandran v. Income Tax Officer, Special Circle 'B' S Ward, Kanpur and another reported in 1982 1 SCR has held as under : "Held : The view if the High Court that by reason of non-specification in the notice dated May 21, 1966 of the amount due from the petitioners to assessee no prejudice had been caused to the petitioners was correct. At no point of time did the petitioners complain that the notice did not specify the amount alleged to be due from them to the assessee or that it was vague and indefinite. In fact they re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether a particular unit is dummy or not and this is what precisely the learned lower authority has done in the impugned order vide para 61 thereto. This para 61 is reproduced below for convenience of reference : "In the case of Xenon v. CCE, Jamshedpur - 2000 (41) RLT 316 (CEGAT) it was held that no penalty is leviable on a unit when it is considered to be a dummy unit or another firm and duty on their clearances demanded from that firm. Further, the decision in the cases of Bijoli Grill Aerated Water Co. v. CCE, Calcutta-I, 1999 (31) RLT 441, Joginder Nath Mehra v. CC, 2000 (119) E.L.T. 102 Gajanan Fabrics Distributors v. CCE, 1997 (92) E.L.T. 451 support the above view." Thus, on adjudication the Commissioner has found that M/s. RC is a dummy unit and while duty has been demanded from the main unit and penalty has also been imposed on them, no penalty has been imposed on the dummy units nor on its partner. 9. In the present case, the show cause notices were jointly addressed to the main unit and the dummy unit (M/s. RC) amongst others, and the dummy unit itself has admitted that the show cause notice has been served on them and they were aware and conscious of the charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be clubbed. This case law is also distinguishable inasmuch as in the present case, both partner of the dummy unit and the dummy unit itself were issued with show cause notice jointly and both of them have replied separately as noted above. In view of the judgment of the Hon'ble Apex Court in the case of Beharilal Ramchandran v. Income Tax Officer (supra), Larger Bench judgment in the case of Bakelite Hylam Ltd. (supra) and the Tribunal judgment in the case of CCE, Meerut v. Star Paper Mills Ltd. (supra) and in view of our discussion on the judgments relied upon by the learned Counsel, the case laws relied upon by the learned Counsel do not help them. We, are therefore, of the considered opinion that show cause notices have been issued to the dummy units also and hence the proceedings are not vitiated and were validly drawn. 11. Now coming to the merits of the case, we observe that the appellants themselves have admitted in reply to the show cause notice that few machineries deployed in M/s. PR are owned by M/s. RC and vice versa. In other words, the fact of exchange of machineries between two units are admitted by them. We observe that the Commissioner has dealt the reply fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it was held that general corroboration would suffice and corroboration is not necessary for each detail contained in the confessional statement and so also his reliance in the case of Seimens Ltd. v. Collector reported in 1994 (70) E.L.T. 305 (Tribunal) wherein it has been held that where direct evidence is seldom forthcoming, appropriate inference is drawable for circumstantial evidence, conduct of the party and other materials factors in respect of clandestine removal. It was further held therein that in economic offence, it is not always possible to prove with evidence of mathematical precision every step involved in the offence and it should suffice if evidence of the nature, which would convince a prudent man of the possibility of such an event having taken place, is established. The Madras High Court has also held in the matter of Santhanam v. Collector reported in 1995 (79) E.L.T. 564 that adjudicating authorities are concerned only with preponderence of probabilities and cannot be tied down by strict rules of evidence. 12. As regards invocation of the longer period of limitation, the appellants have suppressed information with regard to the sharing of machineries and cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Poly Resins are required to be clubbed with the clearances of two other units, M/s. Reliable Corpn and M/s. Abbas Co. for the period 1993-94 to 1997-98. The Commissioner in his impugned order has confirmed the demand against M/s. Poly Resins by holding that the other two units i.e. M/s. Reliable Corpn. and M/s. Abbas Co. are dummy units of the said appellant. The details of the facts have already been numerated in the order proposed by my learned brother and as such the same are not being repeated to avoid redundancy. 17. The appellants have strongly argued that the entire proceedings are vitiated inasmuch as no show cause notice was issued to M/s. Reliable Corpn. whose clearances were proposed to be clubbed with the appellants' clearances by holding the same as dummy unit. For the above proposition reliance has been placed upon the following decisions of the Tribunal holding that non-issuance of a show cause notice to all the units whose clearances are proposed to be clubbed vitiates the proceedings. 1. Dawn Fire Works Factory Ors. v. CCE, Madurai - 1999 (31) RLT 104 2. Ramsay Pharma Pvt. Ltd. v. CCE - 2001 (127) E.L.T. 789 (T) = 2000 (41) RLT 713 3. SKN Gas Appliances Ors. v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments of the ld. Advocate No doubt, no duty is proposed to be confirmed against M/s. Reliable Corpn., but it is the status of the said unit which is proposed to be disturbed by the Revenue from an "independent unit" to a "dummy unit" which, in my views, cannot be done without giving a notice to M/s. Reliable Corpn. and without including them in the proceedings. Now the question arises as to whether marking of the copy of the show cause notice to M/s. Reliable Corpn. amounts to issuance of a proper notice to them or not. The answer to the above question lies in the ratio of the various decisions relied upon by the ld. Advocate and mentioned supra. The common ratio of all these decisions is that a mere marking of the show cause notice to the proposed dummy unit without specifically calling upon the same to show cause against the proposed action cannot be held to be sufficient compliance with principles of natural justice and the proceedings arising out of the same are required to be set aside. Learned Member (Technical) has observed that M/s. RC having participated in the proceedings and having filed a reply to the show cause notice, are estopped from taking the above technical plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve owners facilitating them to claim the depreciation under Income-tax Act, the same would not amount to any financial flow back from one unit to the other. I fully agree with the above contention of the ld. Advocate that exchange of machineries of equal value between the two units will not amount to any mutuality of interest and cannot be considered as a flow back of money from one unit to another. 21. Similarly the allegation that M/s. RC used less fuel than the requisite requirement is not borne out of any evidences on record. M/s. RC has taken a categorical stand that apart from the fuel they were also using SBP solvent, which has not been taken into consideration by the Commissioner. Similarly the stock of the diesel and the SBP solvent at the time of visit of the officers has also not been considered. They have placed on record the vouchers showing the purchase of the diesel, which have been summarily discussed by the Commissioner by observing that the same show the rate of diesel as Rs. 3.50 to Rs. 4.50 per ltr. whereas the price of the diesel in the market range between Rs. 8/- to Rs. 10/- per ltr. The ld. Advocate submits that the vouchers placed on record cannot be dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly M/s. RC has explained that packing carboys old and new were being purchased by them from the market and were being sent to Dorai for cleaning purposes and the charges paid to Mr. Dorai are for cleaning of the old and not for buying of the new. The other small factors like receipt of carboys by the security guard of M/s. PR, which were originally meant for M/s. RC have also been explained by them as well as by their sellers that the consignment was meant for M/s. RC but was by mistake sent to M/s. PR and the security guard being an illiterate person accepted the same. In any case, in my views, all these facts do not constitute sufficient and positive evidence for holding that M/s. RC was a dummy unit of M/s. PR. Even presuming for a second that the raw material fuel used by M/s. RC was not sufficient to produce the final product shown to have been manufactured by them, it is not understood as to how the same will lead to the inevitable conclusion that the goods have in fact been manufactured by M/s. PR in the absence of any evidence to that effect. There are plethora of judgments to the effect that even common partners, common office, common telephone and common employees wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der in this respect and remand the matter on this limited issue of reconsideration of the appellants' stand that M/s. Abbas Co. being was an independent unit capable of producing the goods in question. 25. In view of the foregoing it is held that the clearances of M/s. Reliable Corpn. are not to be clubbed with the clearances of M/s. Poly Resins. As regards the question of clubbing of clearances of M/s. PR with the clearances of M/s. Abbas Co., the matter is remanded to the Commissioner for decision. Penalties imposed are also set aside. However, if the Commissioner in the remand proceedings hold against the appellant in respect of clearances of M/s. Abbas Co. he would be at liberty to impose penalty of the quantum commensurate with the demand. Appeals are disposed of accordingly. Sd/- (Archana Wadhwa) Member (J) DIFFERENCE OF OPINION Whether the order proposed by learned Member (Technical) rejecting the appeal on merits but reducing the penalties or whether the order passed by Member (Judicial) allowing the appeal in respect of clubbing of clearances with the clearances of M/s. Reliable Corpn. and remanding the matter for the purposes of clubbing the clearances with the clearances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts partner calling upon them as to why penalty should not be imposed under Rule 209A of the C.E. Rules. He submits that this is not a case wherein the notice was marked to these two appellants. The allegations are specific with regard to violation committed by them. He submits that department was crystal clear in demanding duty for violation against M/s. PR and therefore, the show cause notice does not demand duty against M/s. RC. The show cause notice clearly called upon the parties to explain in the light of allegations. They have all explained and they have also given their statements. Therefore, the Commissioner's confirming the demand on the charges having been proved is required to be accepted. He also submitted that M/s. RC have also given their reply in the matter, so also not Abbas Co. He submits that if there are any defects in the show cause notice, they are technical in nature and it will not vitiate the proceedings. 30. In contra, the learned Sr. Advocate Shri Arvind Datar accompanied by Shri T. Ramesh, ld. Advocate submits that the show cause notice is the focal point and goes to the root of the issue. He points out that the grounds made out in para-3 of the show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he show cause notice being vague and unclear is itself a sufficient reason to set aside the proceedings. He submits that when the department has alleged mutuality of interest, then it was bound to have brought out the allegations in the SCN and called upon M/s. RC to explain as to why their independent unit should not be treated as an unit of PR. The show cause notice should have delineated the grounds on that score. Same not having been made, the proceedings are null and void. The clearances of M/s. RC cannot be clubbed with the assessee and when M/s. RC who is not before the Tribunal. He further pointed out that Rule 209 and 209A allegations have not been dealt with by the Commissioner and no findings have been arrived at. It follows there that there is no contravention committed by M/s. RC and M/s. Abbas Co. with regard to allegations made against them. It further follows that they have not contravened any provisions of law and, therefore, M/s. PR has not indulged in any act so as to make their clearances susceptible and to club their clearances with the clearances of M/s. RC. He, further, submitted that both M/s. PR RC were independently constituted unit being geographically ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learance made by M/s. R.C. and M/s. P.R. is demandable from M/s. PR by invoking extended time limit prescribed under proviso to Section 11A(1) of the Central Excise Act, 1944". 33. While in para 12.1, M/s. P.R. were required to show cause as to why their value of clearances during each of the financial years from 1993-94 to 1997-98 should not be clubbed with the value of clearances of M/s. R.C. during each of the respective financial years. The apparent confusion in the mind of the Commissioner in drafting the show cause notice is clear. If the clearances are required to be clubbed between the units, it can be done as is now well settled law that it can be done provided one of the units is not in existence and is only on paper. Such an unit has been termed as "dummy unit", (see Alpho Toyo Ltd. v. CCE - 1994 (71) E.L.T. 689). In the present case, it is not the allegation that M/s. RC is a dummy unit of M/s. PR. The second ground on which clearances can be clubbed are when an unit is independent but is totally managed by the main assessee with the financial assistance, supply of machinery, production control, sales and total output is sold and profits are usurped by the main unit, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made in the SCN does not appear to be in that light that M/s. RC was set up by M/s. PR for the purpose of evading duty. It is very clear from the records that M/s. RC has been independently getting orders from the Ministry of Defence and the goods manufactured by them are different and they have different set of machineries for manufacturing the same. As regards the allegation of mutual exchange of machinery of respective capacity, the appellants clearly explained that their 600 ltr. capacity vessel was found to be redundant to them as they were no longer manufacturing the said product. They had found 1200 ltr. capacity vessel in M/s. RC premises which had also had become redundant for them to be usable to them. The 600 ltr. capacity vessel was a new one and 1200 ltr. capacity vessel of M/s. RC was an old one, hence they mutually fixed the value and the difference was Rs. 23,000/-. Due to business practice, they exchanged the machinery although they retained the ownership for the purpose of obtaining IT depreciation. It was explained that this in no way showed mutuality of interest as there was no mutual interest being obtained from the exchange of goods or from the use of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso examined the other points which have been taken by the Revenue to allege mutual flow of funds. I have gone through the paragraphs 21 22 of the order and I agree with the said findings. 35. In so far as the allegation of suppression is concerned, it was argued by learned DR that the Commissioner has given a detailed finding on suppression and that should be upheld, while the Sr. Counsel argued that both the units after crossing the limit as per the notification were paying duty and their records were being scrutinized and the department have not found any discrepancy in respect of same. 36. On a detailed consideration, I agree with learned Member (J) that "there is nothing in the order of the Commissioner to justify invocation of longer period of limitation". 37. Insofar as the charge of clubbing of clearances of M/s. Abbas Co. with the clearances of M/s. PR, the learned Member (Technical) has confirmed the demand and has held that the clearances of M/s. Abbas Co. are to be clubbed with M/s. PR, while Member (J) has remanded the matter for de novo consideration. I am inclined to hold that demands are not to be confirmed for the reason that M/s. Abbas Co. has not been put to noti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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