Customs, Excise and Gold Tribunal - Delhi
S.K.N. Gas Appliances vs Collector Of Central Excise on 30 May, 2000
Equivalent citations: 2000(120)ELT732(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The above appeals arise out of the order of Commissioner of Central Excise, Delhi who has confirmed a duty demand of Rs.67,04,555/- on goods cleared by M/s. S.K.N. Associates P. Ltd. and M/s. S.K.N. Gas Appliances during the period from October 1992 to March 1996, April 1997 to September 1997 and October 1997 to February 1998, holding that M/s. S.K.N. Associates had deliberately created another unit which was fully owned and controlled by them in order to circumvent monetary limit of aggregate value of clearances specified under SSI exemption Notification and that, therefore, the value of clearances of both appellants are to be clubbed for computing the aggregate value of clearances under Notification 175/86 dated 1-3-86 and Notification 1/93 dated 28-2-93. He has also imposed a penalty equal to duty amount on M/s. S.K.N. Gas Appliances under Section 11 AC of the Central Excise Act.
2. The facts of the case are that the appellant No.2 (M/s. S.K.N. Associates P. Ltd.) (established in 1983) was engaged in the manufacture of LPG gas stoves of all types, Super Chef Cooking Range, Pressure Regulator and parts of gas stoves upto June 1992. Subsequently they discontinued production of all the above mentioned items except pressure regulators which they continued to manufacture. They were availing the benefit of SSI exemption under Notification 175/86. The plant and machinery as well as raw materials for the discontinued products were transferred to appellant No. 1 viz. M/s. SKN Gas Appliances under regular invoices. Appellant No.2 is a Private Ltd. Company with 4 Directors viz. S/Shri Satish Chopra, Kapil Chopra, Nishit Chopra and Ahmed Hussain (the last named person became a Director in 1995). Appellant No. 1 is a partnership firm with the following partners: S/Shri Satish Chopra Kapil Chopra and Nishit Chopra. Both appellants were registered separately with Central Excise Department, premises on which the two Units were situated were rented premises belonging to M/s. Chopra Electricals. Both Units had entered into separate rent agreement. 3 show cause notices were issued to Appellant No. 2 proposing clubbing of its clearances with the clearance of Appellant No. 1. Details of the show case notice are as under :-
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Date of SCH Period Demand
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7-10-1997 Oct.92 to March 96 Rs. 55,19,695
4-11-1997 April 97 to Sept.97 Rs. 5,30,868
15-4-1998 October 97 to Feb.98 Rs. 6,53,992
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Rs. 67,04,555
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The notices proposed recovery of duty as well as penal action only on appellant No. 2, no show cause notice was issued to appellant No. 1, the notices were adjudicated by the Commissioner who confirmed the duty demand against Appellant No. 2, but imposed penalty equal to duty demand on appellant No. 1. Hence these appeals.
3. We have heard Shri K.K. Anand, Learned Advocate and Shri M.P. Singh, Learned D.R.
4. The contention of the appellants is that non-issue of show cause notice to M/s. SKN Gas Appliances whose clearances have been clubbed with those of M/s. SKN Associates itself vitiates the entire proceedings and in this connection he relies upon the decision of the Tribunal in the case of Ogesh Industries v. Collector of Central Excise, Kanpur reported in 1997 (94) E.L.T. 88 and Dawn fire Works Factory and Ors. v. Collector of Central Excise, Madras reported in 1999 (31) RLT 104. We see great force in the above submission. In the case of Ogesh Industries cited supra, it has been held that when a demand is raised by clubbing of value of clearances of two units, and show cause notice has been issued to one unit and not to the other when the separate existence of both units was projected, the notice is bad in law and the proceedings have been set aside by the Tribunal on this basis. The above decision has been followed in the case of Dawn Fire Works Factory. In the present case, the Central Excise Department itself granted a separate Registration Certificate to M/s. SKN Gas Appliancess, accepted their classification list and approved RT 12 returns and M/s. SKN Gas Appliances was also separately registered with Sales Tax Department and was also filing Income Tax returns. The ratio of the Ogesh Industries decision is, therefore, squarely applicable in the facts of the present case, and hence following the same, we set aside the impugned order as bad in law.
5. It is the submission of M/s. SKN Associates that they were no longer interested in carrying on the manufacture of LPG gas stoves and cooking ranges and that since their clearances of LPG regulators was increasing, they wanted to concentrate on this product only and hence discontinued manufacturing of gas stoves and cooking ranges. They, therefore sold the plant and machinery for manufacture of LPG gas stoves and cooking ranges under regular invoice to M/s. SKN Gas Appliances. This by itself does not create mutuality of interest in the business of each other. The invoice under which M/s. SKN Associates sold plant and machinery, etc. to M/s. SKN Gas Appliances is invoice No. 4058, dated 13-6-1992 whereas invoice No. 4068 under which the goods were sold to M/s. Venus Agencies is dated 16-6-1992. The appellants have explained that one invoice number was given to both the invoices due to misprinting. The material on record is not sufficient to support the finding that the invoices are fabricated or forged. Further the mere fact that the rented premises of both the units were owned by M/s. Chopra Electricals is not sufficient to hold that M/s. SKN Gas Appliances is owned and controlled by M/s. SKN Associates. As regards the finding that M/s. SKN Gas Appliances did not ask for fresh additional security from their dealers, we accept the appellants' submission that most of the distributors of M/s. SKN Associates were buying gas regulators as well as LPG gas stoves and cooking ranges from them and when M/s. SKN Associates discontinued manufacturing gas appliances, the same distributors continued with them, since they were buying gas regulators and this security amount remained in the accounts of M/s. SKN Associates and was not diverted in favour of M/s. SKN Gas Appliances.
6. As regards use of M/s. SKN Associate's telephone to M/s. SKN Gas Appliances, the contention of M/s. SKN Associates that the other unit was paying for the use of the telephone of M/s. SKN Associates and payments were duly reflected in the books of accounts of both units stands unrebutted by the adjudicating authority and further use of telephone of one unit by another does not create mutuality interest and does not make M/s. SKN Gas appliances a dummy unit owned and controlled of M/s. SKN Associated. The fact that the Head Office of both the units situated at the same premises is also not sufficient by itself to hold that M/s. SKN Gas Appliances is a dummy unit of M/s. SKN Associates.
7. The adjudicating authority has accepted that both units have separate staff. The fact that some of the employees of M/s. SKN Associates joined M/s. SKN Gas Appliances cannot be a ground to club the clearances of that unit with the clearances of M/s. SKN Associates. When M/s. SKN Associates stopped manufacturing LPG gas stoves and cooking ranges, naturally they did not require the services of some of their staff who were then free to join any organisation. Further the adjudicating authority has himself accepted that there is no clinching evidence of financial flow back. The material on record is not sufficient to hold that one unit was merely a facade and to hold that there was mutuality or interest between the two units.
8. On the aspect of applicability of the extended period of limitation, we note that the Department was all along aware about the Directors of M/s. SKN Associates were partners in M/s. SKN Gas Appliances. The fact of discontinuing the manufacture of LPG gas stoves by M/s. SKN Associates was intimated to the Department vide letter dated 2-9-1992. M/s. SKN Associates submitted a revised ground plan after discontinuing manufacture of LPG gas stoves and the revised plan as approved by the Department. This ground plan was submitted by M/s. SKN Gas Appliances when they submitted their application for registration. The Registration Certificate of both units contained names of Directors/Partners and therefore, the Department had knowledge that all of the Directors of M/s. SKN Associates were partners of M/s. SKN Gas Appliances. At the time of granting Registration Certificate No. 36/92 dated 31-8-1992, the Range Superintendent had asked M/s. SKN Gas Appliances to supply information regarding sale pattern of the final products proposed to be manufactured, undertaking from M/s. SKN Gas Appliances that they do not have business or proprietory interest in any other unit manufacturing excisable goods, original SSI certificate to be produced for verification. In response to the above letter, M/s. SKN Gas Appliances sent the undertaking as well as the original SSI certificate and bill for sale of plant and machinery by M/s. SKN Associates to them. The Superintendent again addressed M/s. SKN Associates under cover of letter dated 3-8-1993 making further queries, and M/s. SKN Associates replied vide letter dated 6-10-1993 that both units are separate entities, having independent legal existence and also submitted SSI Registration Certificate for both units, Memorandum and Articles of Association of M/s. SKN Associates, partnership deed of M/s. SKN Gas Appliances and photo-copy of classification list duly approved for M/s. SKN Gas Appliances. Further correspondence was exchanged between the Department and M/s. SKN Associates in respect of investigation against M/s. SKN Group of companies. From the above it is clear that the Department was all along aware of the constitution of M/s. SKN Associates and M/s. SKN Gas Appliances and that all of the Directors of first named company were partners of M/s. SKN Gas Appliances. Viewed from this background, M/s. SKN Associates cannot be held to be guilty of suppression of facts so as to invoke the extended period of limitation of 5 years against the appellants and we hold that the demand is hence barred by limitation. The penalty imposed upon M/s. SKN Gas Appliances is also set aside as unsustainable, since no show cause notice was issued to them.
9. In the result we set aside the impugned order for all the above reasons, and allow the appeals with consequential relief.