Custom, Excise & Service Tax Tribunal
M/S. Indian Spring Company vs Cce, Coimbatore on 4 November, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. E/852 & 853/2004
(Arising out of Order-in-Appeal Nos. 97 & 98/2004-CE dated 15.3.2004 passed by the Commissioner of Central Excise (Appeals), Coimbatore)
For approval and signature:
HonbleShriP.K. Das, Judicial Member
HonbleShri Mathew John, Technical Member
1. Whether Press Reporters may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether the Members wish to see the fair copy of the Order?
4. Whether order is to be circulated to the Departmental authorities?
M/s. Indian Spring Company
M/s. Bharathi Machine Tools Appellants
Vs.
CCE, Coimbatore Respondent
Appearance Shri M. Saravanan, Chartered Accountant, for the Appellant Shri P. Arul, Superintendent (AR) for the Respondent CORAM HonbleShriP.K. Das, Judicial Member HonbleShri Mathew John, Technical Member Date of Hearing: 10.07.2013 Date of Pronouncement:
Final Order No. 40496 & 40497/2013 Per Mathew John In this proceeding, two appeals are being considered together because both the appeals arise from the same impugned order. The two appellants M/s. Indian Spring Company (ISC, for short) and M/s. Bharathi Machine Tools (BMT, for short) claimed to be separately manufacturing springs and textile machine spares and were availing exemption under Notification No. 1/93-CE dated 28.8.1993, meant for small scale units, separately. Revenue made out a case that these two appellants were not having independent manufacturing facilities to manufacture the said final products and they had just split the total turnover in the names of the two units and hence they were not eligible independently for exemption under notification 1/93-CE and exemption had to be reckoned as if M/s ISC had manufactured and cleared the goods. The period of demand is 1993-94, 1994-95 and 1995-96 up to 11-03-96. The Show Cause Notice was issued on 08-07-1998. The demand confirmed is Rs.1,40,880/- along with interest and penalty.
2. The evidence relied upon by the Revenue are the following:-
(i) M/s. ISC was a proprietorship concern of S. Kumarasamy and M/s. BMTwas a proprietorship concern of Smt. Meenakshi w/o S. Kumarasamy and the affairs of both the units were being managed by S. Kumarasamy because he was holding the power of attorney for BMT.
(ii) The premises of the two buildings were adjacent separated by a common passage with the doors of each premises leading to the common passage.
(iii) When the officers visited the premises on 13-03-96, in the portion occupied by ISC, manufacturing activities of punching, cutting and bending steel were undertaken to manufacture springs and textile machine spares.
(iv) On that day, that is 13-03-96, in the premises belonging to BMT, the process of bending and hand tampering of coiled springs were beingcarried out;
(v) In the common passage tampering furnace and acid tank were seen. These were for heat treating and blackening of the products.
3. On 13.3.1996 the list of machinery available at M/s. ISC were as follows:
(1) Tempering furnace - 1 No. (2) Blocking - 1 No. (3) Tool Grinder - 1 No. (4) Welding machine - 1 No. (5) Die grinder - 1 No. (6) Drilling machine - 2 Nos.
(7) 60 Ton power press - 1 No. (8) 20 Ton power press - 1 No. (9) 10 Ton power press - 2 Nos.
(10) Shaping machine - 1 No. (11) Sheet cutting machine - 2 Nos.
(12) Ply press - 2 Nos.
3. On 13.3.1996 when officers visited the factory it was seen that the following list of machineries were available at the premises of M/s. BMT:-
(1) Table lathe - 1 No. (2) 10 No. ply press - 1 No. (3) 7 Fit lathe - 1 No. (4) Tool grinder - 1 No. (5) 10 Ton power press - 1 No. (6) 20 Ton power press - 1 No. (7) Table drilling - 1 No. (8) Polish Motor - 1 No. (9) Hand spring winding machine - 2 Nos. (10) No. 5 Ply press - 1 No. (11) No. 3 Ply press - 1 No. (12) Press brake - 1 No. (13) Zinc plating unit - 1 No. (14) Generator - 1 No.
5. A statement was recorded from Sri. S.Kumarasamy on 13.3.96. In his statement, Shri S. Kumarasamy has stated that he was the proprietor of M/s. ISC; that they manufacture springs and textile machinery spares; that M/s. BMT was functioning at M/s. BMT, 37, Sathy Road adjacent to M/s. ISC, 38, Sathy Street, Coimbatore; that there was a common passage between the two units; that Smt. Meenakshi, his wife was the Proprietrix of M/s. BMT; that he was the power of attorney holder for M/s. BMT that he looked after the day to day affairs of both companies; that they manufacture springs and textile machinery spares at M/s. BMT; that the springs manufactured by M/s. BMT were being cleared through the invoice of M/s. ISC; that apart from the two hand winding machines available at M/s. BMT no other hand winding machine was available in any of their units; that the work relating to the manufacture of springs like hard tempering, cleaning, blackening were done only at M/s. BMT and at the common passage between the two units; that he was not getting any rent from M/s. BMT and there was no rent agreement also.
6. On 15.4.1996, the officers visited the factory again. They found a newhand winding machinery which was not available on 13.3.1996 when the officers initially visited. In statement dated 11.9.96, ShriKumarasamy stated that the hand winding machine appearing on 15.4.1996 was available in some other portion of the building on 13-03-96 and he had forgotten to include this machinery on 13.3.1996.
7. Revenue also found transfer of money between the two units as under:-
Year Amount given by ISC to BMT Amount given by BMT to ISC 84500.00 100000.00 1992 93 70000.00 Nil 1993 94 310000.00 40000.00 1994 95 200000.00 30200.00 1995 96 75000.00 235000.00
8. Revenue also noticed that the building maintenance charge for both the units was being met by M/s. ISC.
9. Thus M/s. ISC and M/s. BMT manufacture textile machinery spares and coiled springs. Their raw materials were basically steel/iron wire rods for coiled springs and steel sheets for making leaf springs and textile spares. From the facts, statements, mahazars and other records it appeared that neither M/s. ISC nor M/s. BMT had the entire machinery and other infrastructural facilities to manufacture the finished goods independently. In fact the machineries in both the units put together made a complete set of machinery required for manufacturing the final products. Both the companies depended on each other to manufacture completely finished goods. For example, M/s. ISC did not have hand winding machinery and electro plating machine required for the manufacture of goods cleared by them and M/s. BMT did not have some machines like sheet cutting machines required for the manufacture of goods cleared by them. Similarly the electric generator was used by both the companies commonly.
10. It was also noticed that a common building was shared by both the units, though the building belong to M/s. ISC. Shri S. Kumarasamy had also admitted in his statement that he only look after the day to day affairs of both the companies. Entries made in the concerned registers indicated transfer of funds between M/s. ISC and M/s. BMT to meet day to day expenses without charging interest. Further, M/s. ISC incurred expenses towards maintenance of building as mentioned in book of accounts.
11. Since the Revenue noticed that neither of the units had independent set of machineries to manufacture the final products and they employed common labour, utilized common infrastructure, building and common machinery to manufacture completely finished and marketable goods under total management of ShriKumarasamy, proprietor of ISC and power of attorney to M/s. BMT. It further appeared that Smt. Meenakshi did not have any control in day-to-day affairs of the company. Therefore, it appeared that both the units were engaged in the manufacture of springs and textile machinery machineries jointly and the production was distributed between two units on record to avail the benefit of Notification No. 1/93-CE dated 28.3.93. It appeared that M/s. ISC had not registered itself with the Central Excise Department and had not followed any procedure under Central Excise Act. Therefore, ISC and BMT were issued with show-cause notices asking them to show cause as to why the clearances made in the name of both the parties should not be treated as clearances from ISC and duty liability determined accordingly. On adjudication of the show-cause notice, an amount of Rs.1,40,880/- was confirmed against ISC towards excise duty along with interest. Further a penalty of Rs.1,40,880/- was imposed on ISC under Section 11AC of the Central Excise Act,1944 and an amount of Rs.15,000/- was imposed on BMT under Rule 209 of the Central Excise Rules, 1944. Aggrieved by the order, the appellants filed appeals before the Commissioner (Appeals). At the time of deciding the appeal by the first appellate authority, ShriKumarasamy had passed away. Therefore, the first appellate authority confirmed the duty demand on the first appellant and penalty imposed on the second appellant. But the penalty imposed on the deceased proprietor of ISC was set aside. Aggrieved by the order of the Commissioner (Appeals), ISC and BMT have filed appeals before this Tribunal. The appeal for ISC has been filed by Shri K. Balamurugan, proprietor, who has succeeded ShriKumarasamy.
12. Arguing for the appellant, the learned counsel submits that there is no finding in the Order-in-Original that BMT was a dummy unit. He claimed that BMT had been in existence sinceMay 1982 and ISC had been in existence from August 1973 and in support of the claim the appellants had submitted, along with appeal papers, Registration issued by Commercial Tax Officer, Singanallur Circle. It is contended that they had independent machinery, manufacturing facilities, power connection and work force and they were independently assessed by Government Departments such as sales tax, income tax, ESI, PF. The learned counsel argues that Revenue has not been able to show any financial flow back from one unit to other or that the units were drawing upon funds from the same source. The learned counsel further argues that temporary loan given to BMT cannot be considered as financial flow back. He submits that the building belonged to ISC and hence maintenance was done by ISC this cannot be considered as financial flow back from ISC to BMT. According to him non-payment of rent by BMT also will not amount to financial flow from ISC to BMT.
13. He also argues that ISC and BMT had been submitting SSI declarations to the Central Excise Department from time to time. These units were also inspected from the Central Excise Department as claimed in the grounds of appeal. He relied on the decision of the Tribunal in the case of Bentex Industries Vs. CCE- 2003 (151) ELT 695 wherein it was held that extended period cannot be invoked as both the units were registered with the Department after disclosing their existence and place of working. He contends that since all the material facts were disclosed to the Department by both the units and they were submitting periodical statements extended period of time cannot be invoked. He submits that BMT was duly registered with the Superintendent of Central Excise, Range IIA Coimbatore as evidenced by License in Form L4 No.4/Ch.84/91 dated 30.4.1991 and certificate of registration No. 8/1992 dated 3.7.1992. The licence as well as certificate of registration was issued to Smt. K. Meenakshi wife of S. Kumarasamy. They have given various evidences as under:-
Declarations filed for the year Serial No. allotted by Department Date of acknowledgement 1986 87 3.2.1987 1987 88 3/86-87 6.4.1987 1988 89 2/88-89 Assistant Commissioners letter C. No. IV/16/149/88 Pol dated 3.11.1988 6.4.1988 1989 90 17/89-89 II B Assistant Commissioners letter C. No. IV/16/85/89 dated 23.6.89 11.4.1989 1990 91 353/90-91 16.3.1990
14. Further it was pointed out that BMT was audited by the Internal Audit Party (Group No. II) of the Coimbatore Collectorate during June 1991 as evidenced by letter C. No. II/37/29/8/91 1A dated 12.6.1991 and again during May 1992 as evidenced by letter C.No. II/37/26/891A dated 1.5.1992.
15. Similarly, ISC had duly filed declaration under Notification No.111/78 C.E. dated 9.5.1978 every year and the following details were furnished:-
Declarations filed for the year Serial No. allotted by Department Date of acknowledgement 1985 86 16/85-86 9.1.1986 1986 87 17/87-88 5.9.1986 1987 88 1/87-88 2.4.1987 1988 89 1/88-89 of Section II Assistant Commissioners letter C. No. IV/16/149/88 Pol dated 3.11.1988 5.4.1988 1989 90 15/89-89 II B Assistant Commissioners letter C. No. IV/16/85/89 dated 23.6.89 11.4.1989 1990 91 16.3.1990 1991 92 15.4.1991 1992 93 Sl. No. 35/92-93 9.6.1992 1993 94 Sl. No. 44/93-94 29.9.1993 1994 95 Sl. No. 6/94-95 2.5.1994
16. Ld Counsel further argues that the demandis on ISC and since the proprietor Shri. S Kumaraswamy is no more the demand cannot survive. He relies on the following decisions:
(a) D. Matai Vs. CCE Mumbai-2000(1264) ELT 126
(b) Mafhh ducts Vs. CCE-2003 (57) RLT 596 (CEGAT-Mum)
(c) The State of Punjab Vs. Jullunder Vegetable Syndicate-1966 (16) STC 326 (Supreme Court)
17. Thus the Ld. Counsel submits that the demand is not maintainable on merits and on account of time bar in raising the demand and hence the same may be dropped.
18. Opposing the prayer the Ld. A. R. for Revenue submits that the exemption under notification 1/93-CE is meant for small scale units and exemption was provided for first clearancesof a manufacturer from different factories up to certain values to be cleared at different concessional rates. This notification had two conditions. One that the clearances by one manufacturer from one or more factories will be taken together for deciding the value of clearances eligible for the exemption. Secondly the value of clearances from the same factory by different manufacturers will also be taken together to consider the exemption limits. That is to say a manufacturer could not have availed exemption by splitting his manufacturing activity under different factories and also a factory could not be given to use by different manufacturers for each manufacturer to claim exemption limit separately in a financial year. Such conditions were required to ensure that the exemption is limited only to genuine cases and not cases of artificial splitting of the factory or splitting of the period of use of a factory in the same financial year. He invites our attention to clauses 2 and 3 of Notification 1/93-CE reading as under:-
2. The aggregate value of clearances of the specified goods for home consumption in a financial year -
(a) by a manufacturer from one or more factories; or
(b) from a factory by one or more manufacturers, -
(i) under sub-clause (a) of clause (1) and clause (2) of paragraph 1 taken together shall not exceed rupees thirty lakhs;
(ii) under sub-clauses (b) and (c) of clause (1) shall not exceed rupees twenty lakhs and twenty-five lakhs respectively; and
(iii) under clause (2), shall not exceed rupees ten lakhs.
3.?Nothing contained in this notification shall apply if the aggregate value of clearances of all excisable goods for home consumption, -
(a) by a manufacturer, from one or more factories, or
(b) from any factory, by one or more manufacturers, had exceeded rupees two hundred lakhs in the preceding financial year.
19. The Ld. A. R. argues that in this case the splitting in factory is for real because either of the factories did not have complete machinery to produce final products. The splitting of the ownership also is clearly discernible because it is the same person doing activities in different names ?one in his own name and another in the name of his wife. He points out that in such situation the Tribunal held in the case of Quality Steel Industries Vs. CCE-1989 (43) ELT 775 that the clearances of the two units can be clubbed. This is case where the turnover exceeded the exempted limit and the appellants split the existing machineries into two lots. Any of the lotsof machineries was not sufficient to complete manufacturing process of final products which clearly demonstrates that the splitting is only for evading Central Excise duty. He argues that physically the two units may not be dummy because they have separate buildings. But as a factory producing springs and textile machineries boththese units do not have separate existence. Such existence cannot be achieved by taking registration under sales tax or submitting separate Income Tax return. What is required to be seen is that whether the two factories had separate facilities for manufacture of final products. When the answer to this question is in the negative the two entities cannot be considered as separate entities for the purpose of availing SSI exemption.
20. In the matter of time bar the Ld A. R. relies on the finding in para 23 of adjudication order.
The contentions regarding the invoking extended period by alleging suppression are not sustainable inasmuch as all these telltale factors were brought to light only after the visit and thorough investigation of the officers to both the units and recovery of records and drawing of mahazars on the spot. But for the efforts of the investigating offices, these circumstances would not come to surface. Neither, mere filing of RT12 returns, obtaining of Central Excise Registration Certificate by M/s. BMT nor filing of declarations filed by M/s. ISC could come to their rescue as there had been deliberate planning on their part to conceal the total interrelated atmosphere as found out after thorough investigation made by the department. Taking relevance from the decision of the Honble Tribunal in the case of M/s. Alembic Glass Industries Vs. CCE 1994 (73) ELT 579, I hold that the visit of Central Excise Audit officers to one of the units does not mean that the entire activities of both the units having special interrelationships and the circumstances which establish the fagade nature of one of the units brought out in the investigation was within the knowledge of the department. Hence I have no hesitation to conclude that the contentions of the noticee on this score has no merit for consideration, since the noticee is guilty of suppression of material facts, giving false and separate declaration seeking exemption from licencing control/registration that there are no other factory wherein they have proprietary interest with deliberate intent to evade payment of duty and as such the larger period of five years under the proviso to Section 11A(1) of Central Excise Act, 1944 is rightly invokable in this case.
21. The Ld. AR also relies on para 6.6 of the impugned order reproduced below:
As regards the first appellants contention that extended period is not invocable as both the appellants have filed necessary declarations with the Department it is seen that out of the two units involved in this issue, only the unit of second appellant was a Central Excise assessee and the other unit remained outside the purview of Central Excise control. Therefore, I hold that mere submission of returns and declarations to the Department does not absolve the appellants from the allegation of suppression of facts from the Department regarding bifurcation of units for the purpose of suppressing the actual value of clearances. Further, I find from para 23 of the impugned order that the lower authority has made a detailed discussion to substantiate the allegation of suppression of material facts to avail the exemption wrongly. I find no valid reason advanced by the appellants in the grounds of appeal to disprove the findings of the lower authority.
22. The ld. A. R. pointed out that in the cases relied upon by the Advocate regarding proceeding against a proprietorship after the death of the proprietor, the notices were issued after the death of the proprietor. In this case the notice was issued before the death of the proprietor and adjudication also was completed and therefore the decisions are not applicable to the facts of the case.
23. We have considered submissions on both sides. From the facts of the case it is quite clear that neither of the factories had complete equipment for manufacture the final products. It is not a case of one equipment being shared by two units. It is more of case where one set of equipment is grouped into two premises and exemption claimed in the name of the two units. It is also clear that both the units were in effect operated by the same person. The facts of the case are very akin to those in Quality Steel Industries (Supra). Separate existence was only through separate excise registration, sales tax registration, income tax returns etc.
24. While returns filed with sales tax department can at best show that the two units were doing trading activity since the manufacturing facilitiessince those dates. However the returns filed with central excise department cannot be brushed aside. It is difficult to accept the contention of Revenue that when M/s BMI was audited for 1988-89 and 1989-90 the existence of the two units side by side could not have been noticed. Revenue had accepted subsequent returns by BMI and declarations by ISC without any questions being raised. The argument adopted by the lower authorities that only BMI had registration and ISC was only filing declaration as a small scale unit having turnover within the fully exempted limit cannot change the position because at least BMI was registered which implied visits by officers at least on an annual basis and being regularly audited as evidenced by papers produced by the appellant.The objection that is being raised now by Revenue is of a type which could be noticed during routine visits and audit of one unit itself. The adjudicating authority had relied on the observation of the Tribunal in Alembic Glass Industries Vs. CCE -1994 (73) ELT 579. But in that case the relevant information was about share holding pattern in two companies by different persons. Here the relevant fact is one of availability of machines which becomes apparent on visual inspection. On the contrary in a few cases the Tribunal has held that extended period of time cannot be invoked for demanding duty by clubbing the clearances of the two units when relevant facts are known to the department. The following decisions are relevant:
(a) Quality Steel Industries Vs. CCE-1989 (43) E.L.T. 775 (Tribunal) affirmed by Hon Apex Court in 1999 (107) E.L.T. A61 (S.C)];
(b) Electro Mechanical Engg. Corporation Vs. CCE-2003 (152) ELT 194 (Tri-Del)-upheld by Hon. Apex Court as reported at 2008 (229) E.L.T. 321 (S.C.)
(c) K. R. Balachandran Vs. CCE-2003 (151) ELT 68 (Tri-Chennai);
(d) Bentex Industries Vs. CCE-2003 (151) E.L.T. 695 (Tri. Del) affirmed by Hon Apex Court as reported at 2004 (173) E.L.T. A79 (S.C.).
25. In the facts and circumstances of the case we consider that the demand invoking extended period cannot be sustained and hence the order is set aside and appeals are allowed.
(Pronounced on____________________)
(Mathew John) (P.K. Das)
Technical Member Judicial Member
Rex
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