Customs, Excise and Gold Tribunal - Tamil Nadu
Muthusavarri Pillai Paper Products And ... vs Cce on 3 March, 2004
ORDER Jeet Ram Kait, Member (T)
1. These two appeals arise out of order in Original No. 35/97 dated 16.7.97 passed by the Commissioner of Central Excise & Customs, Coimbatore whereby the Commissioner has confirmed a duty demand of Rs. 16,03,063.00 on appellants M/s. MM & sons Cones (herein after referred to as M/s. MMSC) under rule (2) read with proviso to Section 11A(1) of the CE Ac, besides imposing equal amount of penalty on them under Section 11AC and Rule 173Q of the CE Rules, 1944. The other appellants viz. M/s. Muthusavari Pillai Paper Products (M/s. MPPP for short) have been imposed a penalty of Rs. 1,00,000/- under Rule 209-A of the CE Rules, 1944.
2. The Appellants viz. M/s. MM Sons & Cones are engaged in the manufacture of paper tubes and cones of various seized. The departmental officers on a visit to the said factory premises found that the following machines were installed therein :
1. Automatic cone making machine - 3 Nos.
2. Nosign machine - 1 No.
3. Semi Velvet Machine - 1 No.
4. Printing Machine - 1 No.
5. ABR Model cone functioning machine - 2 Nos.
6. Jumbo Cone Semi velvet machine - 1 No.
7. Heater machine - 2 Nos.
8. Cone cutting machine - 2 Nos
9. Paste making machine - 1 No.
3. Shri Selvaraj, supervisor of M/s. MMSC informed officers that he was also working as Supervisor for the other factory viz. M/s. MPPP for short which is situated adjacent to M/s. MMSC. He has also stated before the officers that semi finished paper cones manufactured at M/s. MPPP were being brought to the other premises for nosing, end cutting and velvet finishing process and the invoices were prepared at their officer. Hence on a reasonable belief that M/s. MMSC might have wrongly availed the benefit of Small Scale Industries Exemption Notification No. 1/93, the officers seized various documents under a mahazar dated 13.2.96 for further action. The officers also visited the other unit viz. M/s. MPPP and found that the following machines were installed therein :
1. Paper slitting machine
2. paper reeling machine
3. paste tanker machine
4. paper tube winding machine
5. rough paper tube cutting machine.
6. paper cutting machine
7. grinding machine
8. emborring machine
9. semi cone winding machine.
3.1 The operator at /s. MPPP, Shri MP Mani, informed the officers that since machinery required for final cutting of paper tubes was not available with them, the semi finished tubes were sent to the other factory for final cutting, nosing, finishing packing and clearing. The proprietor of M/s. MMSC Shri Richard Durairaj, who arrived on the spot also corroborated the facts stated by the operator. Shri Kannan, supervisor of the factory viz. M/s. MPPP corroborated the statement given by the supervisor Shri Selvaraj of M/s. MMSC. The interrogation of the supervisors and acceptance of the facts by Shri Richard Duraraj Prima facie indicated that there was centralised production of paper tubes and cones in one factory and clearances were bifurcated among the two units with an intent to avail the exemption Notification NO. 1/93.
4. Statements were recorded from Shri Richard Durairaj, proprietor of M/s. MMSC, who inter alia stated that cones produced on 11.12.1995 at M/s. MMSC were accounted in M/s. MPPP which is a proprietary concern of his sister and that he looked after the affairs of both the units and that his sister was not involved in the day-to-day affairs of unit. He has also stated that production of tubes and cones was common and they were apportioned among the two units for the purpose of excise. He has also stated that there was flow of funds between the two units. The proprietrix of M/s. MPPP also corroborated the statement given by Shri Richard Durairaj. Statements were also recorded from the machine operator of M/s. MPPP and Shri P. Kannan supervisor of M/s. MPPP who all stood by what they stated when the officers visited the factories. Proceedings were therefore, initiated by issue of show cause notice dated 18.12.96 addressed both to M/s. MMSC and M/s. MPPP alleging contravention of various provisions of the Act and the rules made thereunder and the proceedings culminated in the order impugned order as aforesaid. Aggrieved by the said order appellants viz. M/s. MMSC have in appeal on the following grounds :
(a) Both the units are separate legal entities. The orders of the Commissioner clubbing of clearance of the two units are not sustainable.
(b) Both the units came into existence as early as 1985-1986 whereas the excise duty came to be levied only as late as 1.4.94. They were functioning for 8 to 9 years before the levy the same way as after the levy with the same pattern of manufacturing activity with the same set of machinery in each unit.
(c) When two units are separately registered under Central Excise Act, 1944, Sales Tax. SSI having their own separate balance sheet and income tax assessment, work force and infrastructure, the two units cannot be clubbed as one for some minor factors such as common office, common management, one unit doing certain finishing process for another unit, common packing and storing facilities. Etc.
(d) The product in the semi-finished form came in for finishing. Therefore, the products will have to be apportioned on the basis of receipt of semi finished goods and there is nothing wrong in it.
(e) Extended period of limitation cannot be invoked in this case, as the department was aware of the activities being undertaken in both the units.
4.1 The appellants also cited various case laws on clubbing of clearances such as Kanjal Electricals Pvt Ltd. vs. CCE, reported in 1989 (43) ELT 327 (T), Padma Packaging Pvt. Ltd. Vs. CCE reported in 1997 (90) ELT 175, Shree Packaging Corporation reported in 1987 (32) ELT 941 (T), CCE Vs. Srinagar Cosmetics Reported in 1988 (35) ELT 581 (T), Prabhath dyes chemicals, Amber Dyes Chemicals reported in 1992 (62) ELT 469, Swastik Engineering Works Vs. CCE, reported in 1992 (62) ELT 313 (T) in support of their plea that the clubbing of clearances in the present case cannot be done.
5. Appellants M/s. MPPP in Appeal No. E/2242/97 have come in appeal against the same impugned order against imposition of penalty of Rs. 1,00,000/- under Rule 209A of the CE Rules, 1944 on the ground that the provisions of the said rule are attracted only when a person acquires, transports, deposits, keeps, conceals, sells or purchases or deals in any other manner with excisable goods liable for confiscation whereas in the show cause notice there was no such allegation against the appellants.
6. Shri Muthu Venkataraman, Learned Counsel appeared for the appellants invited out attention to the show cause notice at page No. 71 of the paper book and submitted that there was no specific allegation of omissions and commissions on the part of the appellants. He has submitted that there was no flow of cash from one unit to the other. He has also submitted that during 1985-86 cones were exempted from payment of duty and hence there was no necessity to start another unit for the purpose of claiming exemption under the Notification No. 1/93. He has also submitted that the show cause notice has been issued after a period of six months and hence the demand is hit by limitation. He also submitted that longer period of limitation is not invocable in the present case inasmuch as the department was aware of the activities being undertaken in the units. He further submitted that the period of dispute in this case is between 01.4.94 to 16.2.96 i.e. much before the introduction of Section 11AC with effect from 28.9.96 and it is well settled that the provisions of the said Section cannot be invoked retrospectively. As regards imposition of penalty on the other appellants under Rule 209A he submitted that there was no case for imposition of penalty on them and he prayed for setting aside the impugned order and allowing the appeal. He has also cited various case laws such as :
(a) Kaur & Singh Vs. CCE, New Delhi reported in 1997 (94) ELT 289 (SC) wherein it was held that show cause notice issued beyond six months not even alleging fraud or collusion or wilful mis statement or suppression of facts or contravention with intent to evade payment of duty, let apart giving particulars in respect thereof is not sustainable for demand of duty. It was also held therein that which ground is alleged against the assessee must be made known to him.
(b) Dinesh Grass & another Vs. CCE, Madurai reported in 2001 (47) ELT 457 wherein the Tribunal held that extended period cannot be invoked for demanding duty short levied by clubbing clearance of the earlier manufacturer as the assessee took over a running factory and the department should have been aware of the operation of the factory earlier.
(c) Raj Bahadur Narain Singh Sugar Mills Ltd. Vs. UOI reported in 1996 (88) ELT 24 (SC) wherein the Apex Court has held that extended period of five years inapplicable as the show cause notice do not refer to any act or omission as required under Section 11A and the authorities are required to specifically state which of the default the assessee is charged with.
(d) CCE, Vs. HMM Ltd. reported in 1995 (76) ELT 497 (SC) wherein the Apex Court held that limitation for extended period not invocable unless show cause notice puts the assessee to notice specifically as to which of the various commissions or omissions stated in he proviso to Section 11A(1) had been committed.
The learned Counsel therefore, prayed for setting aside the impugned order and allowing the appeals.
7. Shri A Jayachandran, learned DR appearing for the Revenue referred to the show cause notice and the findings portions in the impugned order and submitted that specific charges of contravention of rules have been brought out in the show cause notice and the Commissioner has also discussed the same in detail and his order is well reasoned. He has also referred to the comments received from the Commissionerate a copy of which was made available to the Court on the date of hearing on 26.2.03 and submitted that this is a clear cut case of fabrication of documents for the purpose of availing exemption notification. He, therefore, prayed for upholding the impugned order and dismissing the appeals.
8. We have carefully considered the rival submissions and gone through the case records and perused the various case laws cited by the learned Counsel for the appellants. We observe that the gravamen of the department is that both the units are separate only on paper and M/s. MPPP have been created for the purpose of claiming the benefit of the exemption of Notification and therefore their productions should be clubbed with the production of M/s. MSSC for excise purpose. Examining this issue, we note that Selvaraj, supervisor of M/s. MMSC has admitted that he was functioning as the supervisor of both the units. He has also clearly stated that semi finished paper cones manufactured at M/s. MPPP were being brought to the other factor for nosing end cutting and velvet finishing. His admission is corroborated by the availability of nosing machine cone cutting machine, velvet machine at M/s. MSSC and not availability of these machines at M/s. MPPP. This statement was corroborated by the statement of Shri Kannan supervisor of M/s. MPPP who stated that semi finished goods used to be sent to the other factory for cutting, nosing and velvet finishing and these were packed and despatched from that factory itself. Shri Richard Durairaj, proprietor of M/s. MMSC also stated that the managerial control of both the factories were looked after by himself and his sister G. Metilda who is the proprietrix of M/s. MPPP was not involved with the day today activities of M/s. MPPP. He has also stated that in his voluntary statement dated 13.2.96 which was admitted as correct and true by his sister G. Metilda that the production of M/s. MSSC was distributed for the purpose of excise. He statement also was corroborated by the statement of Richard Durairaj. Shri Richards Dorairaj also stated that one tube cutting machine purchased in the account of M/s. MMSC was installed at M/s. MPPP and that there was flow of funds between the two factories. The facts contained in the above statements were never disputed and there was no retractions by any of them. Common office, common management one unit doing certain finishing processes, and string packing and clearances by one unit on behalf of the other unit is also not denied. In the back ground of the above factual position which have been admitted and never retracted, it cannot be said that just because, both the units were separately registered for the purpose of Income Tax Sales Tax etc. both the units are separate legal entities for production and clearance of excisable goods. The appellants have also taken a ground in the appeal that both the units came into existence as early as 1985 and 1986 and excise duty came to be levied on the goods with effect from 1.4.94 and before the levy and after the levy there was no difference so far as their pattern of manufacturing activity was concerned. In the back ground of the plea taken as above and the statements of admissions made by various persons as noted above and which statements have not been retracted by any one of them in regarding the financial flow back, centralised production and distribution of finished goods for excise purpose and the other evidence available on record, we have come to an irresistible conclusion that centralised production and sharing of various machines which were the practice before the goods were leviable to duty, continued even after the goods become leviable to central excise duty. The modus operandi was adopted by the appellants M/s. MMSC with a view to escape from the duty liability. We have perused the various case laws cited by the appellants and we find that the facts and circumstances of those cases are not similar to the facts of the present case. In the above circumstances, we are of the considered view that the conclusion arrived at by the adjudicating authority that the production of both the units is required to be clubbed cannot be found fault with and we uphold the order of the lower authority in this regard.
9. Coming to the next question regarding invocation of the longer period of limitation in term of proviso to Section 11A(1), we observe that the appellants have taken the plea that longer period of limitation cannot be invoked in this case because there had been no suppression of facts as the existence of the units was known to the department. They have also cited various case laws wherein it has been held that there should be specific mention of the commissions and omissions on the part of assessee in the show cause notice, for the purpose invoking the proviso to Section 11A(1). We have gone through the show cause notice and we find that para 8 of the show cause notice clearly indicated that the interrogation and investigation clearly revealed that the production was centralised and clearances were bifurcated among the units with an intent to wrongly avail the SSI Exemption. Statements recorded from various persons including the proprietors of both the units and corroborated by the statements of other persons such as operator and Supervisors also admit of the above factual position of centralised production and clearance. Further para 20 of the show cause notice also clearly brought out the details of the manner of wrong availment of exemption with an intent to evade payment of duty. There was flow of funds between the two units as admitted by Richard Dorairaj and so also the fact regarding machine purchased from the account of M/s. MMSC having been installed in the other units. These factual details were held back by the appellants and it is not the case of the appellants that these details were brought to the notice of the department by them. We have also examined the plea taken by the appellants that movement of semi-finished goods between the units was know to the department as they have filed 57F(3) challans. But the records show that M/s. MPPP have sent semi finished goods under 57F(3) challans for process like pattern cutting and winding only and this was done only on five occasions during the period from 14.10.1994 to 20.10.95 and there is no mention even in those challans about other processes like velvet finishing, nosing and cutting etc. Further it is ad admitted fact that semi finished goods sent for various process to M/s. MMSC have been finally cleared from M/s. MMSC without being returned to the other unit who sent them. The appellants have held back all these information from the department. It was in these circumstances that it was held that there was suppression of fact and mis statement. Therefore, we are of the considered opinion that longer period of limitation in terms of the proviso to Section 11A(1) has been correctly invoked and we uphold order of the lower authority in this regard.
10. Now coming to the legality of the imposition of penalty of equal amount of duty under the provisions of Section 11AC and Rule 173Q. We observe that it is the settled proposition of law laid down by the Hon'ble Supreme Court in the case of CCE, Coimbatore Vs. Elgi Equipment Ltd. reported in 2001 (42) RLT 974 (SC) that operation of the provisions of Section 11AC is prospective and penalty is not leviable in respect of illegality committed prior to insertion of the said Section. In the present case, the period involved is 1.4.94 to 16.02.96 whereas Section 11AC was inserted with effect from 28.9.96. Further, the penalty under Rule 173Q has not been apportioned. Therefore, penalty imposed under Section 11AC and Rule 173Q on the appellants viz. M/s. MMSC is set aside.
11. Now coming to the sustainability of imposition of penalty on appellants M/s. MPPP under the provisions of Rule 209-A, we observe that though they were privy to the commission of offence committed by M/s. MMSC as evidenced by the statements given by various persons, the main appellants i.e. M/s. MMSC whose proprietor Richard Durairaj, was the person behind organizing the centralised production and clearances as noted above, have not been imposed any penalty under Rule 209A of the CER. Therefore, the penalty imposed any penalty under Rule 209A of the CER. Therefore, the penalty imposed on the other appellants M/s. MPPP cannot be sustained and is set aside.
12. In the result, appeal of MMSC is partially allowed by setting aside the penalty imposed on them under Section 11AC and Rule 173Q while appeal of the other appellants is allowed.
Archana Wadhwa, Member (J)
13. I have gone through the Order proposed by my Learned Brother. With due respect, my views on merits as also on limitation are different in respect of appeal of M/s. M.M. & Sons (MMSC). Accordingly, I record a separate Order in the case of M/s. MMSC. However, in respect of allowing the appeal of M/s. Muthusavari Pillai Paper Products (MPPP) by setting aside the penalty upon them, I concur with the Learned Brother's Order.
14. The disputed issued is as to whether the two units namely, M/s. MMSC and M/s. MPPP - are one and the same units and their clearances are required to be clubbed or not. Learned member (Technical) has already detailed the facts of the case and has concluded in para 8 of his Order that the two units were, in fact, one and the same, inasmuch as M/s. MPPP were created for the purpose of claiming the benefit of the exemption Notification and one Mr. Selvaraj Was acting as a Supervisor of both the units and it is admitted on record that semi-finished paper cones manufactured at M/s. MPPP were being brought to the other factory for nosing, end-cutting and velvet finishing. Learned Brother has also relied upon the statement of Shri Richard Dorairaj, Proprietor of M/s. MMSC as also Smt. G. Metilda who is the Proprietrix of M/s. MPPP. ON the above basis, he concluded that clearance of both the units are required to be clubbed.
15. As regards limitation, my learned Brother has observed that it was only as a result of interrogation and investigation, that it was revealed that the production was centralized and clearances were bifurcated amongst the units with an intent to wring availment of SSI exemption.
16. I find that both the units were created in the year, 1985-86 when there was not duty of excise on the paper cones. duty came to be levied for the first time with effect from March, 1994 and as such, the allegation made in the Department's case that two units were created with the sole purpose of availing the benefit of exemption under Notification No. 1/93-CE dated 28.2.93. cannot be accepted on the face of it. In the year, 1985-86, the appellants could not presume that paper cones are going to be made leviable to excise duty in future and the same would be entitled to small-scale exemption and so, they have created two different units for availing the benefit of the exemption which was not even in existence at the time of creation of the units. it is also to be noted that it is not for a small period prior to leviability of cones to excise duty when the last ten years and as such on the face of it, the Revenue's contention that they were created with an ulterior motive, cannot be accepted.
17. It if further seen that both the units are registered separately with the Central Excise Department as also with the Sales Tax and Income Tax Authorities. During all these years, they were being accepted by all the Revenue Departments as separate legal entities. The appellant were given a Central Excise Registration. They were regularly filing all the returns that are all assessed. Not only that, they were given permissions to do job works on behalf of the other undertaking for certain processes like nosing, end-cutting and velvet finishing processes. For the above purposes, permission under Section 57F(3) was also granted to them. In these circumstances, merely because M/s. MMPP were not having the requisite machinery to complete the paper cones in their factory, they were getting it done from M/s. MMSC. Proper documentation under the authority of law ill not be a factor to conclude that the clearances of the two units are required to be clubbed. Both the units were having separate SSI Registration and were having independent Balance Sheets. In these circumstances, the factors of on Supervisor working for two units and one unit doing certain finishing processes for another unit, cannot be made the basis for clubbing the clearance of the-two. There are plethora of judgments to the above effect. The Revenue has not disputed that each unit has its separate premises, electric connection, machinery an separate labour. Looking after the work of the sister's unit by Prop. of M/s. MPPP on day-to-day basis is not a sufficient ground for clubbing of clearances. It is also seen that both the units are paying duty after crossing Rs. 30 lakh and were availing the benefit of MODVAT Credit. M/s. MPPP have obtained necessary permission from the Assistant Commissioner to follow the procedure under rule 57F(3). The assessee are entitled to send their semi-finished product on job work basis to another unit and even if there is any lapse to follow the procedure, the assessee would not be denied the benefit of exemptions provided under the statute.
18. As regard the statement that the products are apportioned between the two units, the appellant's contention is that the Commissioner has misconstrued the same inasmuch as it is not disputed that the products in the semi-finished form came in for finishing and as such, the same have to be naturally apportioned on the basis of receipt of the semi-finished goods and there is nothing wrong about it. The appellants have strongly contended that the pattern of movement of goods and their apportionment was exactly the same even before the excise levy and they continued to follow the same even after March, 1994 when their product became excisable. As such, in my view, this is not a proper case for clubbing the clearances of both the units. I order accordingly.
19. As regards limitation, I find that the appellants have a strong case inasmuch as the show cause notice was issued on 18.12.96 for the period from 1.4.94 to 16.2.96. It is an admitted fact that both the units were registered with the Central Excise Authorities and were filing separate returns which were also being assessed by the Central Excise Authorities. In these circumstances, it cannot be said that there is any positive suppression on the part of the appellants thus allowing the Revenue to invoke the extended period of limitation. As such, the demand being beyond the period of six months, is barred by limitation.
19. In view of foregoing, I allow both the appeals with consequential relief to the appellants by concurring with the Learned Brother that penalty on M/s. MPPP is to be set aside.
DIFFERENCE OF OPINION Whether the appeal of M/s. M.M. & Sons Cones is required to be rejected and appeal of M/s. Muthusavari Pillai Papers Products is to be allowed as held by Member (Technical) or both the appeals are to be allowed as held by Member (Judicial).
S.L. Peeran, Member (J)
20. The difference of opinion between the Members in the above matter has been placed before me for decision as a Third Member in terms of the Hon'ble President's direction.
21. The point of difference of opinion is stated in the differing order.
22. I have heard Ld. Counsel Shri Muthu Venkatraman for the appellants and Ld. SDR, Smt. R. Bhagya Devi for the Revenue. LD. Counsel took me through both the orders and pointed out the both the units are independently functioning and their independent status have never been challenged by the department. The department also did not allege that the other unit namely M/s. MPPP is the dummy unit of M/s. MM & Sons. He pointed out from para 13 to 19 of Ld. Member (Judicial) order to show that both the units are independent and clearances cannot be clubbed. He pointed out that the Member (Technical) has proceeded solely on the basis of certain statements of the employees who were working for both units. It is his submissions that mere fact of common supervision will not take away the independent of the units. In this regard, he relied on the judgments of this Tribunal rendered in the case of
i) M/s. Nikhildeep Cables P. Ltd. Vs. CCE, Coimbatore reported in 1994 (70) ELT 273 (T)
ii) CCE, Mumbai Vs. Niton Industries Reported in 2001 (138) ELT 651 (T) He further pointed out the fact of common machinery is not a ground fob clubbing the clearances. In this regard he relied on the judgments rendered in the case of reported in 1999 (108) ELT 598. He further submitted that the Tribunal has laid down the ratio required to be considered as a dummy unit in the case of Alpha Toyo Ltd. Vs. CCE, New Delhi reported in 1994 (71) ELT 689 (T). He submits that in terms of the law laid down on the clubbing of clearances, the department's claim is not sustainable. He further pointed out that the unit had taken licence from the department including permission to remove the goods under Rule 57F(3) of the Central Excise Rules, 1944. In this circumstances the findings arrived at by the Member (judicial) with regard to demands being time barred should be accepted. Ld. SDR pointed out that the second unit namely MPPP did not have any machinery for finishing the work and therefore, the conclusion arrived at by Member (T) on the basis of the recorded statements is sustainable to club the clearance. She relied on the judgments rendered in the case of B.A. Rajmanickam Vs. CCE, Coimbatore reported in 2001 (135) ELT 347 (T-CH). She prays for sustaining the order of the Member (Technical).
23. On a careful consideration of the submission made by both sides I notice that the Tribunal in the case of Alpha Toyo Ltd. (supra) has laid down the concept of a dummy unit and as to how the unit is required to be considered so far the purpose of clubbing the clearance. On a perusal of the entire records I notice that the department has not alleged that MPPP is a dummy unit of the other unit. The Hon'ble Member (Technical) has, in the facts and circumstances of the case and on the basis of the statements of the employees has held that the second unit did not have machinery for completing the work. In this regard Member (J) has come to precise conclusion in para 18 of the order that "The appellants have strongly contended that the pattern of movement of goods and their apportionment was exactly the same even after March, 1994 when their product became excisable. As such, in my view, this is not proper case for clubbing the clearances of both the units. I order accordingly." I notice that this point has been arrived after due consideration of the facts and the appellants being independent in nature. On the other hand, I notice that the Member (T) has solely recorded his findings on the basis of the statements to consider that both the units are same oblivious of the fact the units are independent in all aspects of the matter. There has to be a clear flow back of funds between both the units or one of the units should be set up by the other by full financial assistance and there has to be entire flow back of funds. Such an allegation has not been not made by the department. Therefore, I conclude there is no financial flow back, centralized production, and distribution of final product for excise purpose as held by the Member (J) in terms of her findings. I also notice that the Member (Judicial) has given a clear cut finding on the demand being time barred. In view of the admitted facts that both units were registered with the Central Excise authorities and were filing separate returns, which were also being assessed. In the facts and circumstances of the case and that i view of the matter the demands are also time barred. On the both the counts I agree with the Ld. Member (Judicial) in allowing the appeal. The citations cited by Ld. Counsel apply to the facts of the case while the citations relied by Ld. SDR is distinguishable as in that case the Bench held that there was no separate independent existence of a dummy unit. The appeal is required to be allowed by setting aside the demands and penalties as held by the Member (Judicial). The Registry shall place the appeal papers before the Members of the original Bench for passing the majority order.