Customs, Excise and Gold Tribunal - Delhi
Heemanshu Traders vs Commissioner Of C. Ex. on 19 December, 2002
Equivalent citations: 2003(86)ECC599, 2003(153)ELT119(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in these seven appeals, arising out of a common adjudication order, is whether the value of clearances of the excisable goods of all the units is to be clubbed for the purpose of assessment of Central Excise Duty.
2.1 Briefly stated the facts are that the Central Excise officers intercepted a truck No. GRW - 2645 on 7-4-88 at Umbergaon Sanjan Road. The driver of the truck produced a Challan No. 862, dated 7-4-88 for M.S. Scrap issued by M/s. Heemanshu Auto Ltd. The driver, however, did not produce any Central Excise gate pass. In his statement, the Excise clerk of Heemanshu Traders deposed that as per oral instruction of Shri Girisbhai Shah, he prepared a challan for dispatch of 12.285 Kgs. of M.S. Scrap from M/s. Heemanshu Traders in the name of M/s. Heemanshu Auto Ltd. Scrutiny of records of Heemanshu Traders revealed that duty determined under Gate Passes for the period from 4th April, 1988 to 7th April, 1988 had not been debited. Some goods such as Electric horns received by different customers, from M/s. Heemanshu Traders, were also seized. Detailed examination of records of Heemanshu Traders, Heemanshu Auto Pvt. Ltd., Shri Krishna Industries, M.K. Industries, Shri Hari Industries revealed that all the partners and/or Directors are members of the Shah family and they had mutual interest in the business of each other and that Heemanshu Traders was controlling the overall activities of manufacture and sales of these units. The Department was of the view that Heemanshu Traders had by recourse to fraud, wilful mis-statement and suppression of facts evaded payment of duty in respect of 12285 Kgs. of M.S. Scrap seized from the Truck, did not account for the day to day production of M.S. Scrap in R.G. 1 register, cleared 12323 Electric Horns during the period from 4-4-88 to 7-4-88 without debiting the duty in PLA/RG 23A and that all the units above mentioned along with Shri Vishnu Industries, M.C. Industries and D.G. Auto Industries affixed the brand name of M/s. Heemanshu Traders on Electric Horns and C.B. Points, worked under the directions and instructions issued by Heemanshu Traders from Head Office for production and sale, transferred raw materials and finished products to each other units, made cash flow to each other units for their administration and that the aggregate value of clearance exceeded the exemption limit of Rs. 1.5 crores in terms of Notification No. 175/85-CE. (earlier Notification No. 83/83, dated 1-3-83 and 85/85, dated 17-3-85) and, therefore, were not entitled to exemption as SSI unit. The duty of Rs. 24,31,502 was demanded under show cause notice dated 4-10-1988 for the period from 1985 to 1987-88 besides proposing confiscation of goods under seizure, truck and land, plant, buildings and imposition of penalty under Rule 173Q (1) of the Central Excise Rules.
2.2 The Adjudicating authority, under the impugned order, confirmed the demand of duty, confiscated the seized goods with an option to redeem the same on payment of fine, confiscated the Truck with an option to redeem the same on payment of fine and imposed penalty of Rs. 10 lakhs on Heemanshu Traders under Rule 173Q(1) and Rs. 5 lakhs each on other six appellants under Rule 209A of the Central Excise Rules. The Adjudicating Authority also confiscated the land, plant, building and machinery belonging to each of the units with an option to redeem the same on payment of fine of Rs. 25,000/- each (except Shri Krishna Industries).
3.1 Shri R.G. Sheth, learned Advocate submitted that M/s. Heemanshu Traders manufacture parts like electric horns; that other appellants also deal in automobile parts both in trading and manufacturing; that all these units are small scale units and have filed necessary declarations which were verified by the Department; that the appellants filed only interim replies raising preliminary points and objections; that they had never replied to the actual merits of the case regarding the alleged "clubbing of the units" on account of mutuality of interest, supervision, control, financial control, etc. He further, submitted that for the financial year 1985-86, the value of clearance of only two units have been clubbed, namely, Heemanshu Traders and M.K. Industries; that the show cause notice did not invoke Notification No. 77/85-CE. in respect of Tariff Item 68 of the Old Central Excise Tariff; that during the said period C.B. Points and parts thereof manufactured by M/s. M.K. Industries fell under Tariff Item 68; that, therefore, it is not permissible to confirm duty liability in respect of goods falling under Item 68; that the impugned order, thus, travels beyond the scope of the show cause notice; that the value of clearance of M.K. Industries for the financial year 1985-86 was Rs. 18,13,161/- which is less than Rs. 20 lakh as specified in Notification No. 77/85; that there is, therefore, calculation error while calculating duty liability of the appellants; that further show cause notice does not bring out or mention any evidence of flow back of financial interest etc. 3.2 The learned Advocate mentioned that during the year 1986-87, the clearance of 5 units have been clubbed sleaving 2 units namely M.C. Industries and D.Q. Auto Industries); that the total clearance did not exceed Rs. 1.5 crores and as such they are eligible for the SSI benefit; that the total value of clearance for 1986-87 is Rs. 1,29,83,667/- which is less than Rs. 150 lakh; that Annexure C-2 to the show cause notice does not allow the benefit of first clearance of either Rs. 7.5 lakhs or Rs. 15 lakhs, as the case may be; that as such duty collection is not correct in law and is contrary to the provisions of Notification No. 175/86;
3.3 He further mentioned that for the financial year 1987-88, clearance of only 4 units namely Heemanshu Traders, M.K. Industries, Shri Had Industries and Heemanshu Auto P. Ltd. have been clubbed; that as per Annexure C-3 to the show cause notice the total value of clearance is Rs. 1,44,41,292/- that is less than Rs. 150 lakhs and as such they are eligible for the exemption under Notification No. 175/86-C.E. 3.4 The learned Advocate also claimed the Modvat credit of the duty paid on the inputs and submitted that since each of the units were availing the small scale exemption individually in their own right, Modvat credit lying at the end of the financial year was allowed to be lapsed; that the Adjudicating Authority ought to have given the credit for the same while confirming the duty liability.
3.5 He also mentioned that show cause notice was not issued for confiscation of 5500 Kgs. of aluminium scrap and as such its confiscation and release on redemption fine of Rs. 8000/- is beyond the purview of the show cause notice.
3.6 The learned Advocate submitted that Rule 209A was inserted in the Central Excise rules only from 14-4-1986; that moreover the said Rule was not invoked in the show cause notice and accordingly the imposition of penalty on the 6 appellants under Rule 209A is totally without jurisdiction and unsustainable in law particularly when the findings in the impugned order are that these units are not manufacturers; that in any case in none of the financial year value of clearances effected by M/s. D.G. Auto Ltd. has been clubbed with the clearances of others and that unit was closed in 1986 and, therefore, the question of imposing any penalty on them does not arise.
3.7 Regarding penalty, he also contended that the Department had in 1986 undertaken the inquiries pertaining to alleged clubbing of the units existing at that time which were Heemanshu Traders, M.K. Industries, D.G. Auto Ltd. and M.C. Industries; that, therefore the Department was in full knowledge of the facts that the units were sister concern of Heemanshu Traders; that each of the units were independent units having separate sales tax/income tax registration, excise registration, separate plant and machinery, labour, finances, etc.; that they have their SSI registration; that, therefore, the extended period of limitation cannot be invoked for demanding the duty.
3.8 In respect of seizure of M.S. Scrap on 7-4-1988, the learned Advocate mentioned that the same is totally exempted from duty under Notification No. 91/88-C.E,; that Shri S.S. Mehta has stated that the goods were purchased from Heemanshu Auto (P) Ltd. and produced the challan also which should be accepted. Regarding seizure of contact break and horns, he submitted that it was a technical lapse as there was sufficient balance in RG 23 A part II and the goods accompanied gate passes; that only debit entry was not carried out purely on account of inadvertence; that duty was paid in April, 1988 only; that CB/horns were sent to M/s. Fluxbol for packing only and goods were duty paid wherever required.
3.9 He also submitted that the units have different factories at different premises having independent existence; that Hari Industries was closed in 1987 and Krishna Industries in December 1986; that Bombay Office owned by Heemanshu Traders was used by all the appellants for the purpose of dispatching sales documents; that Heemanshu Traders and M.K. Industries had book debts facilities with Bank of Baroda, Fort Branch, Mumbai and the documents were brought to Mumbai office and forwarded to parties, Bank directly; that Mumbai office was used for commercial correspondence by the various units situated at Umbergaon; that maintaining office for correspondence facilities cannot be a basis for clubbing the clearances made by different units. Referring to Para 33.2 of the impugned order, the learned Advocate submitted that the financial transactions between Heemanshu Traders & Heemanshu Auto Pvt. Ltd. were normal business transaction and not financial flow back; that these transaction establish and reflect loan transaction and are genuine and not dubious. He also relied upon the following decisions :
(1) Poly Printers v. CCE, Delhi - 2002 (139) E.L.T. 295 (T) (2) Alpha Toyo Ltd. v. CCE, New Delhi - 1994 (71) E.L.T. 689 (T) (3) Pimpri Gases v. CCE - 1990 (49) E.L.T. 474 (T) (4) Vivomed Labs (P) Ltd. v. CCE - 1991 (53) E.L.T. 152 (T)
4.1 Countering the arguments, Shri R.D. Negi, learned SDR submitted that the appellants had created a facade by creating a number of units in order to avail the SSI exemption which was not otherwise available to them; that the Tribunal in the earlier decision as reported in 2000 (122) E.L.T. 555 (Tribunal) had considered the clubbing aspect and held that the clubbing of value of clearances of the units is permissible if they have been created for the purpose of evasion of duty provided there exists mutuality of interest and financial control i.e. financial interest in the business of each other unit; that the Tribunal observed that the Adjudicating Authority had carefully scrutinized all the evidence on record to come to the conclusion that M/s. Heemanshu Traders had created other units for the purpose of circumventing the restriction of value of clearances contained in the SSI notifications; that Heemanshu Traders had been issuing challans for their goods in the name of Heemanshu Auto Pvt. Ltd. in order to remain within the exemption limit and they also manipulated bills for the same purpose. The ld. SDR further, submitted that financial interest had been brought on record by several circumstances such as payment by Heemanshu Traders to M/s. Hari Industries, M.K. Industries and D.G. Auto, purchase of raw materials by Heemanshu Traders and supply of the same to all other units, payment of the salary of the employees of M.K. Industries was controlled through Heemanshu Traders. Ld. SDR referred specifically to Para 10.6, 11 and 12 of the impugned order, which contained the charge of financial flow back and Heemanshu Traders controlling the overall activities of manufacture, sale/trading of all the units.
4.2 The learned SDR relied upon the decision in H.T. Bhavnani Chemicals (P) Ltd. v. CCE., Baroda - 1997 (92) E.L.T. 502 (T) wherein the Tribunal, in view of the facts that four units were having two common Directors, one of them being the Chairman of all the four units and who controlled the production, procurement of raw materials of all the units, three units were located in one common plot at Bulsar and fourth at Mumbai, three units were producing the same goods, having common employees controlling the various activities of the four units and there was flow back of finances, has held that the clubbing of the value of clearances of these units is justified as the units are not independent. He also placed reliance on the decision in the case of Bathija Enterprises v. CCE, Bombay-II, 2000 (115) E.L.T. 720 (T) = 2000 (36) RLT 181 (CEGAT) wherein the Tribunal upheld the clubbing of clearances of all units in which partners/proprietors were blood relations, one supervisor looking after work of all units, same brand name used by all units, proprietor of main unit managing the affairs of all units and common utilization of raw materials. Reliance has also been placed on the following decisions :-
(i) Kores (India) Ltd. & Ors v. CCE, Indore - 2000 (39) RLT 776 (CEGAT) (ii) L.R. Industries v. CCE, Pune 1999 (114) E.L.T. 550. (iii) Alembic Industries Ltd, v. U.O.I. - 1992 (59) E.L.T. 207 (Guj.)
wherein it was held by the Gujarat High Court that once existence of mutual interest in the business of each other is established, degree of such interest is not material.
5. The learned SDR also contended that the creation of different units for the purpose of evasion of duty clearly amounts to suppression of facts and accordingly extended period of limitation for demanding duty is invocable. He relied upon the decision in the case of Madras Petro-Chem Ltd. v. CCE, Madras - 1999 (108) E.L.T. 611 wherein it was held that under the self-removal procedure, the primary obligation of an assessee is to make proper declarations and entries in the RG-I register, gate passes and RT-12 Returns. The Court, therefore, held that extended period of limitation is invocable. The learned SDR also mentioned that mere non mention of Notification No. 77/85-C.E. in the show cause notice does not affect the denial of the benefit of the Notification as the show cause notice was issued for denying them the benefit of small scale exemption only. He also submitted that merely because Rule 209 A of the Central Excise Rules was not mentioned in the show cause notice it is no bar to the Adjudicating Authority for imposing penalty on Appellants as he has the power to impose a penalty on them. He relied upon the judgment of the Apex Court in the case of UO1 v. Khazan Singh, AIR 1992 SC 1535 wherein it has been held that "It is settled proposition of law that when the exercise of power can be justified under any provision of law then non-mention of the said provision in the order cannot invalidate the sate". He also relied upon the decision in the case of Roche Products Ltd. v. Collector of Custom, 1989 (44) E.L.T. 194 (S.C.) wherein it was held by the Supreme Court that "when an authority has power to do a certain act and in exercise of such he does the same but with reference to a wrong provision of law that would be a mere irregularity and would not vitiate such act or action.
6. We have considered the submissions of both the sides. As far as clubbing of value of clearances of various units are concerned, we find that the Collector has dealt with this aspect in detail and has given many reasons for clubbing the value of clearances. The specific findings given by the Adjudicating Authority are in respect of getting the bills issued in the name of Heemanshu Traders changed in the name of Heemanshu Auto Pvt. Ltd.; scrutiny of case book and general ledger revealed that the money was being transferred among the appellants which are being described by the appellants as normal business transaction; supply of raw material by Heemanshu Traders to all the units at Umbergaon. The Adjudicating Authority has referred number of correspondence in support of the findings reached by him. For instance, he has referred to a letter dated 25-2-87 from M/s. Harish Metal Industries in which they had mentioned that they had not received any instruction in whose name the bill is to be charged for the supply. In reply, Heemanshu Traders, in their letter dated 5-3-87, informed Harish Metal Industries to prepare the bill in the name of M/s. M.K. Industries. We also observe that the Adjudicating Authority has given his findings that Heemanshu Traders fixed the prices of electric horns and C.B. Points for other units also in such a way so as to retain the price of all their products one and the same. He has also referred to statement of sale for the month of December 1987 which contains sales figures of Heemanshu Traders, M.K. Industries and Shri Hari Industries. The Inter Office notes exchanged between Mumbai Office and Umbergaon Office, according to the impugned order, show that Heemanshu Traders were managing the administrative matters like even printing of letter heads, sending of blank bill books etc. Further the files seized also showed that the file pertaining to Heemanshu Traders contained the detailed expenses in respect of Heemanshu Auto Pvt. Ltd. including electricity expenses, labour charges, driver charges and wages. The file also contained particulars of each loan or deposit of Rs. 10,000/- or more taken or accepted from Shri Krishna Industries and Heemanshu Auto Pvt. Ltd. Taking into consideration cumulatively all the finding, we do not find any reason to interfere with the findings in the impugned order that Heemanshu Traders have floated different units with the intention to evade payment of duty of Excise and value of clearance has to be clubbed. The appellants have relied upon the decision in Alpha Toyo Ltd, supra. But we find that in the same decision there was no dispute that all the four units were independent in existence with independent transactions, without any profit sharing, management control or money flow back to the main unit. Similarly in Poly Printers case, there was no evidence of flow back of funds or sharing of profit and there was no allegation that one unit financially controlled the others. On the other hand, the Appellate Tribunal, in the case of H.T. Bhavnani Chemicals, relied upon by the learned SDR, referred to a decision of Dy. Commissioner, Sales Tax v. K. Kelukutty - 1986 (24) E.L.T. 186 wherein the Supreme Court observed that "the intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances including evidence as to the interlacing or interlocking of management, finance and other incidents of the respective business". The Tribunal, thereafter, upheld the clubbing of the value of clearances as the four units were having two common directors, one being Chairman of all the units controlling the production, procurement of raw materials of all the units; units producing same goods, common employee and flow back of finance. The Tribunal also observed that "It is not so much the flow back of finance only which is to be considered, but also the identity of interest amongst the firms and the intention of the partners". We find that in the present matter the intention is apparent to create a legal facade by having different units with an intent to avail of small scale exemption.
7. We, however, find substantial force in the submissions of the learned Advocate that the benefit of small scale exemption has to be extended to them during the relevant period if the total value of clearances are within the limits specified in the relevant notifications. The learned Advocate for the appellants has submitted that for the financial year 1985-86, the products manufactured by M/s. M.K. Industries were falling under Tariff Item 68 and benefit of Notification No. 77/85-CE. would be available. The said Notification exempted goods falling under Item No. 68 upto Rs. 20 lakhs from the whole of the duty of excise leviable and subsequent clearances of Rs. 5 lakhs and 15 lakhs were exempted partly. A perusal of Annexure C-I to the show cause notice reveals that the benefit of this Notification had not been extended while working out the duty payable by the appellants.
7.1. Similarly the appellants would be eligible to the benefit of Notification No. 175/86-C.E. for the financial year 1986-87 and 1987-88 as they were availing of the benefit Notification No. 85/85-C.E. in the preceding financial year and the aggregate value of clearances had not exceeded Rs. 150 lakhs in the preceding financial year. In addition the Appellants would be eligible to avail Modvat credit of the duty paid on the inputs used in or in relation to the manufacture of the final products chargeable to Central Excise duty.
7.2. It has been contended by the learned Advocate that the Revenue had undertaken the inquiry pertaining to alleged clubbing of the units existing at that time which were Heemanshu Traders, M.K. Industries, D.G. Auto Industries and M.C. Industries; that as such Revenue was in full knowledge of the facts that these were sister concerns of Heemanshu Traders and accordingly extended period of limitation is not invocable. The learned Advocate has also shown summon dated 14-11-86 issued to M/s. M.C. Industries regarding "Inquiry against M/s. Heemanshu Traders, Umbergaon". The aspect of limitation as to whether larger period can be invoked after 14-11-86 has to be examined by the Adjudicating Authority. If the enquiry conducted in 1986 related to the independent nature of all the units, certainly the extended period beyond 14-11-86 cannot be invoked as the Department was aware of the same. As the aspect has not been examined, the matter has to go back to the Adjudicating Authority.
7.3. As the show cause notice has not been issued for confiscation of 5500 Kgs. of aluminium scrap, the same cannot be confiscated. The same has to be released to the Appellants without payment of any redemption fine. In respect of M.S. Scrap seized on 7-4-88, the Appellants have claimed benefit of Notification No. 91/88 which requires to be considered.
7.4. As provisions of Rule 209A of the Central Excise Rules, 1944 were not invoked in the show cause notice, no penalty can be imposed on the appellants under the sale rule. The appellants are required to be put to notice for imposition of penalty under Rule 209A. We, therefore set aside the penalty imposed on appellants No. 2 to 7. In the facts and circumstances oi the case the confiscation of the plant, building and machinery belonging to appellants is not warranted and the same is set aside. The penalty on M/s. Heemanshu Traders is to be considered by the Adjudicating Authority after examining the question of invocability of extended period of limitation, re-computation of duty liability in view of findings contained in Para 7.0 & 7.1 of this order.
7.5. The learned Advocate has also challenged the confiscation of goods contending that there was sufficient balance in RG 23A Part-II and CB/Horns were sent to Fluxbol only for packing only. The fact, however, remains that these goods were removed from the factory without payment of duty which is a must. Accordingly, the said goods are liable for confiscation. However, we reduce the redemption fine from Rs. 2,500/-, Rs. 35,000/-Rs. 2,000/- and Rs. 60,000/- to Rs. 1,000/- Rs. 10,000/-, Rs. 500/- and Rs. 20,000/-respectively.
8. All the appeals stand disposed of in the above manner.