Customs, Excise and Gold Tribunal - Tamil Nadu
V. Devaraj vs Collector Of Central Excise on 4 December, 1991
Equivalent citations: 2003(162)ELT894(TRI-CHENNAI)
ORDER S. Kalyanam Member (J) 1. The appeals are directed against the common impugned order of the Collector of Central Excise, Coimbatore, dated 14-12-1986 levying a duty of Rs. 2,46,838.43 on the appellants besides a penalty of Rs. 10,000/- on each of the appellants under the provisions of the Central Excises and Salt Act, 1944 and the Rules thereunder. 2. Proceedings were instituted against the appellants by issue of a show cause notice dated 16-8-1985 inter alia alleging that, the two appellant units are in fact one and the same and are integrally related and connected in business activities and were by suppression of facts availing the benefit of notifications 80/80-C.E. and 83/83 as amended, showing and declaring the units as two different entities and the proceedings ultimately resulted in the present impugned order. 3. S/Shri Santhanagopalan and Sadagopachari, the learned Counsel and consultant appearing for the appellants, contended as follows. Both the units are two separate legal entities in law as well as on facts. M/s. Lakme Industries has been in existence since September, 1978 while the other unit was started in May, 1980. Appellant Lakme Industries is a separate small scale unit registered with the Department of Industries and is functioning at No. 285, Dr. Rajendra Prasad Road, Gandhipuram, Coimbatore - 12 and has separate Sales-tax, Income-tax and Professional lax assessments. Declarations under the Excise law have been filed regularly and after due verification they were accepted by the Department granting exemption from payment of duty. During 1983-84 in pursuance of notification No. 83/83, dated 1-3-1983 appellant Lakme Industries also applied for AL-4 licence by submitting ground plan of the premises and other records maintained in the course of the business and a licence was also granted by the Department. In the same compound there is a Pump manufacturing unit run by one Shri Venkatesalu, father-in-law of the proprictrix of M/s. Lakme Industries under the name and style M/s. Lakshmi Engineering Works and the Department erroneously has confused and mistaken that unit for Lakme Industries, which is situated in a different place at Sathyamangalam Road, Coimbatore-12 and by reason of the apparent similarity in the name resulting in the impugned order. 4. M/s. Lakme Engineers, the appellant herein, is a separate engineering unit manufacturing electric motors owned by Shri V. Devaraj and this unit's production did not exceed the exemption limit and the Department also accepted after due verification this fact. This unit is also separately paying sales-tax, income-tax and professional tax maintaining separate accounts. The adjudicating authority has erroneously held in Para 11 of the order that M/s. Lakme Industries paid the electricity charges for both the units. This is an erroneous and patent mistake on facts, because M/s. Lakme Industries is receiving electric supply from service connection No. 19479 held by Shri V. Soundararajan whereas M/s. Lakme Engineers is receiving its supply from Service connection No. 51953 held by Shri Lakshminarayanasamy and the accounts maintained in this regard would bear ample testimony to the same. The finding in para 8 of the impugned order that M/s. Lakshmi Engineering Works claimed to have exceeded Rs. 7.5 lakhs value of clearances in 1984-85 is factually incorrect and evidently the adjudicating authority has misconstrued M/s. Lakshmi Engineering Works, which manufactures irrigation pumps, located in the same compound for M/s. Lakme Engineers, which is located geographically in a different place. In any case the show-cause notice is time barred, since there was no suppression of fact or mis-declaration with intent to evade payment of duty and also by reason of the issuance of the notice after the lapse of 6 months period. 5. Heard Shri Vedantham, the learned DR, who adopted the reasoning of the adjudicating authority in the impugned order. 6. We have carefully considered the submissions made before us. The only important question that falls for decision in the above appeals is as to whether there is any evidence on record to warrant a conclusion that actually both the units are one and the same having financial interest inter se and have been deliberately created as two separate units under an apparent legal facade for purposes of availing the benefits of small scale exemptions or not. It was not disputed that at the time when the appeals were heard that both the units have two geographical existence and have been periodically filing declarations before the authorities and the authorities also have visited the two units and have accepted the declarations filed by the units and have accepted their claims. There are separate assessments under State Acts and Central Acts, viz. Sales-tax, Professional tax, Income-tax, etc. One of the important grounds on which the adjudicating authority would appear to have given a finding that both units are one and the same is on the ground that M/s. Lakme Industries paid the electricity charges for both the units. This is factually incorrect. There are two separate electric connections under two separate service connections for the two units as set out above. On going through the records it would appear that M/s. Lakshmi Engineering Works, which is located in the same compound where M/s. Lakme Industries is located, would appear to have been mistaken for M/s. Lakme Engineers, which is in a different place viz. Sathyamangalam Road, Coimbatore-12. It would also be relevant to note in this context that M/s. Lakshmi Engineering Works is only manufacturing irrigation pumps and are not liable to pay any excise duty. It is now a well-settled proposition of law that if one resorts to subterfuge and artful evasion of payment of tax under an apparent legal facade, it is always open to the authorities to look to the real state of affairs by piercing the "corporate veil". The court is entitled to lift the mask of corporate entity if the conception is used for tax evasion or to circumvent tax-obligation or to perpetrate a fraud. One must find out the true nature of the transaction. The adjudicating authority himself has found in para 7 that mere proximity of relationship of owners of two units would not be determinative of the oneness "but a host of circumstances and factors which alone decide whether the units are separate or masquerade as independent units when they are in fact the same unit. In each such case, the facts have to be examined and decision arrived at". We are entirely in agreement with the above observations of the learned adjudicating authority and if the evidence on record is examined in the above perspective and in the light of the decisions holding the field, it would appear that the evidence on record in the present case does not warrant a conclusion that both the units are one and the same. As stated earlier, both the units have different sales-tax, professional tax, income-tax accounts and separate assessments for all the years. Both units were started at two different points of time, one in September, 1978 while the other in May, 1980. Under Excise Law separate declarations have been filed and have also been accepted by the Central Excise authorities and for the year 1983-84 appellant M/s. Lakme Industries applied for AL-4 licence along with the ground plan of premises and the authorities after due verification of the premises and the records maintained in the course of the business, issued the licence to M/s. Lakme Industries. Both the units have been maintaining separate bank accounts and at all individual times the value of production and clearance from each of the units was well below the exempted limit for payment of duty. No evidence, direct or circumstantial, has been brought on record to establish any financial interest inter se between the units. On the other hand the evidence available on record would clearly bear out that both the units have been functioning separately with the knowledge and blessings of the Department and the authorities would appear to have erred on certain fundamental facts viz. payment of electricity charges by erroneously holding that M/s. Lakme Industries paid the charges for both the units ignoring the factual position that both the units are located in different streets at Coimba-tore under two different and separate electric meters and paying separate electricity dues. Therefore, on consideration of the entire evidence on record, we are inclined to think that the various facts set out above would only lead to the conclusion that both the units are separate and different and in this view of the matter we hold that the reasoning and the factual finding of the learned adjudicating authority in the impugned order are not sustainable in law and on facts available on record. In the result the impugned order is set aside and the appeals are allowed. V.P. Gulati, Member (T)
7. I agree with my learned brother that the learned lower authority's order has to be set aside and my reasons for the same are the following.
8. I observe that the two units were started at different point of time and geographically they are located at two different places. The learned lower authority has held the following circumstances against the appellant :-
(1) The two units are owned by husband and wife.
(2) The entire range of machinery for the manufacture of the motors was not available in the two units separately and that in the factory of M/s. Lakme Engineers there was no coil winding facility or facility for testing of the finished motors. (3) The distribution of raw material and machinery between the two units is such as distinctly shows their complementary nature and not their competing nature. (4) The workers constituted a common work force.
(5) M/s. Lakme Industries paid the electricity charges for both the units, and (6) Shri Devaraj, the husband, was the incharge of both the units.
As pointed out by my learned brother, the learned lower authority has made a factual error in holding that the electricity charges for both the units were being paid by M/s. Lakme Industries. The appellants have brought to our notice the meters from which the electricity was being drawn by the two units separately. It is seen from the narration of facts in the show-cause notice that another unit viz. M/s. Lakshmi Engineering Works has been mistaken for M/s. Lakme Engineers. I observe that no evidence has been brought on record to show that the electric motors were in fact manufactured in one unit only except the circumstantial evidence as set out above. The appellants have explained that the workers were working as casual labourers and depending on the work they were deployed by both the units and the payments here being made separately for the work done by these workers in their respective units. The absence of coil winding machine has been explained that winding was being done on job work basis from outside. The learned lower authority has not held that there was no manufacturing activity at all taking place in one of the two units. All that the learned lower authority has stated is that the full machinery was not in existence in the two units for the manufacture of the electric motors and the machineries in the two units were complementary in nature. Specifically the learned lower authority has taken note of the absence of coil winding machine in M/s. Lakme Engineers premises and this has been explained by the appellants. The two units had been licensed at different points of time and had been filing the declarations regularly and they were also maintaining records for requirements of various other laws separately. In the absence of any specific finding in regard to the actual manufacture of the motors at only one unit and also in the absence of any specific evidence by way of statements by the workers or any evidence from which an inference could be drawn that in fact the manufacturing activity of the job required for the electric motors was not taking place in one of the two units as held by the learned lower authority, the charge cannot be held to have been brought home beyond reasonable doubt. There is no statement on record to show that no motors at all were manufactured at M/s. Lakme Engineers premises. The learned lower authority has taken note of the fact that there was no machinery for testing of the motors at M/s. Lakme Engineers but no fact has been elicited from anybody as to where the motors at Lakme Engineers were being tested. There is also no finding that as a part of the practice of the industry each unit must have its own motor testing facility. In view of the above, therefore, I hold that benefit of doubt has to be given to the appellants and for that reason the learned lower authority's order has to be set aside.