Customs, Excise and Gold Tribunal - Delhi
H.T. Bhavnani Chemicals (P) Ltd. vs Collector Of C. Ex. on 20 March, 1996
Equivalent citations: 1997(92)ELT502(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. These appeals arise out of a common order dated 22-10-1991 passed by-the Commissioner of Central Excise & Customs, Baroda. Appellants, H.T. Bhavnani Chemicals, L.B. Fine Chemicals and Calibre Chemicals are three units located in the same plot in GIDC, Sarigam, Distt. Bulsar. Appellant, R/B. Chemicals & Agro Industries is another unit at Bombay. H.T. Bhavnani Chemicals manufacture potassium per sulphate, potassium iodate, and potassium bromate falling under Chapter 28 of Central Excise Tariff Act, 1985. The other units produce potassium iodate. Appellant Ranjit Bhavnani, alongwith his wife, Mala Bhavnani, is the Director in all these units and Ranjit is also their Chairman. The registered office of all these units is at the same address at Nariman Point, Bombay. All of them hold Central Excise licences and are availing of exemption under Notification No. 175/86 for small scale industries based on value of clearances in a financial year. The authorised, issued and paid up capital of the various units, which are private limited companies, and the share holdings (which is confined to Ranjit Bhavnani and his wife, and their own firm R.B. Chemicals & Agro Industries) are as follows:
M/s. H.T. Bhavnani Chemicals Pvt. Ltd.:
(a) Company Shares:
Authorised Capital : Rs. 10,00,000.00
Issued & Paid-up Capital
(Rs. 100/-per share) : Rs. 4,65,000.00
(b) Share-holders:
Mrs. Ranjit H. Bhavjiani : Rs. 2,05,000.00
Mrs. Mala R. Bhavnani : Rs. 1,45,000.00
M/s. R.B. Chemicals & Agro
Industries (P) Ltd., Bombay. : Rs. 1,15,000.00
----------------
Rs. 4,65,000.00
----------------
M/s. L.B. Fine Chemicals Pvt. Ltd.:
(a) Company Shares:
Authorised Capital : Rs. 5,00,000.00
Issued & Paid-up Capital
(Rs. 10/- per share) : Rs. 2,00,000.00
(b) Share-holders:
Mr. Ranjit H. Bhavnani : Rs. 1,25,000.00
Mrs. Mala R. Bhavnani : Rs. 25,500.00
M/s. R.B. Chemicals &
Agro Ind. (P) Ltd., Bombay. : Rs. 49,500.00
---------------
Rs. 2,00,000.00
---------------
M/s. Calibre Chemical Pvt. Ltd.:
(a) Company Shares
Authorised Capital : Rs. 5,00,000.00
Issued & Paid-up Capital
(Rs. 100/- per share) : Rs. 1,01,800.00
(b) Share-holders:
Mr. Ranjit H. Bhavnani : Rs. 68,900.00
Mrs. Mala R. Bhavnani : Rs. 14,900.00
M/s. S.R.B. Chemicals & : Rs. 18,000.00
Agro Ind. (P) Ltd.
---------------
Rs. 1,01,800.00
---------------
(a) Company Shares:
Authorised Capital : Rs. 25,00,000.00
Issued and Paid-up Capital
(Rs. 100.00 per share) : Rs. 16,00,000.00
(b) Share Holders:
Mr. Ranjit H. Bhavnani : Rs. 15,25,000.00
Mrs. Mala R. Bhavnani : Rs. 75,000.00
----------------
Rs. 16,00,000.00
----------------
2. The department found, while scrutinising the classification list submitted by H.T. Bhavnani Chemicals effective from 1-3-1988, that they had declared value of clearances for the financial year 1986-87 of Rs. 74,83,535.00 which is very close to the ceiling of value of clearances of Rs. 75 lakh under the notification. The departmental officers visited the factory on 20-7-1989 for verifying the correctness of the declaration and conducted enquiry also into the declaration that they do not have any other unit in India manufacturing excisable products. The officers were informed by S.D. Gandhi, Manager of H.T. Bhavnani Chemicals that he is looking after all the affairs of production and despatches of all the three units as per the directions given by Ranjit H. Bhavnani and that their Excise Clerk, Arun Thakore is looking after the Central Excise work of all the units, and that they also have a common chemist, one Sh. Kiran Koli incharge of quality control work. Appellant, Ranjit Bhavnani also gave a statement during enquiry saying that as a Director, he decides the overall policies of the units and that he visits the units once in 2-3 months. Sh. Suresh Gandhi stationed at Bulsar, visits their Bombay office two to three times a month to coordinate the work relating to the units with one Purshottam Barwal of the Bombay office.
3. As a result of the enquiries, proceedings were initiated against the appellants, herein, alleging that the four appellant units have two common Directors, namely, Sh. & Smt. Ranjit Bhavnani and Ranjit Bhavnani is the person managing all the four units and they have set up in one common plot at Sarigam, Bulsar, three units out of four, producing the same goods and that there are common employees controlling the various activities of the four units; so, one set of Directors have set up more than one small scale unit and the clearances of the said four units are, therefore, to be clubbed for determining eligibility to exemption under Notification No. 175/86 from the financial years 1986-87 upto November, 1990 and, when so clubbed, for the financial year 1988-89 and 1989-90 the said four units become ineligible for the exemption right from financial years 1986-87 and 1987-88. Hence, the demand for the short levy.
4. The Commissioner of Central Excise and Customs, Baroda, thereafter, adjudicated the case confirming the demand for Rs. 69,86,381.24 on H.T. Bhavnani Chemicals. He also imposed penalty of Rs. 25 lakh on Ranjit H. .Bhavnani. On the other three appellants, penalty of Rs. five lakh each was imposed.
The Commissioner also confiscated the land, building and plant used in the manufacture and removal of the offending goods under Rule 173Q(2) of Central Excise Rules, giving option to pay a fine of Rs. 1 lakh in lieu of confiscation.
5. Sh. Lakshmi Kumaran, ld. Counsel, along with Sh. J.C. Patel, ld. Counsel appeared for the appellants, while Sh. J.M. Sharma, ld. J.D.R. represented Revenue.
6. The question is whether the Commissioner was right in holding that the values of the clearances of the four units, H.T. Bhavnani Chemicals, L.B. Fine Chemicals, Calibre Chemicals, R.B. Chemicals & Agro Industries, are to be clubbed together to deny them the exemption under small scale industries exemption Notification No. 175/86. When appellant H.T. Bhavnani Chemicals filed their classification list No. 2/87-88 effective from 1-3-1988, it was found that their declared value of clearances for the financial year 1986-87 was Rs. 74,83,535.00 which was very close to the ceiling of Rs. 75 lakh under Notification No. 175/86. When the verification of this declaration was carried out by the department in July, 1989, it was found that there were two units situated in the same plot in the same compound in Bulsar, L.B. Fine Chemicals, & Calibre Chemicals engaged in the manufacture of the same product, pottassium iodate which were floated, and controlled by the husband and wife team of Ranjit Bhavnani and Mrs. Bhavnani. Ranjit Bhavnani and his wife are the Directors in all these private limited companies. Ranjit Bhavnani is the Chairman in all these units. It is found that he controls the production, procurement of raw-materials, marketing activities of all the units. Suresh D. Gandhi, Manager of H.T. Bhavnani Chemicals attends to the administrative work of all the units and entire activities of production and despatches. He reports periodically to Ranjit Bhavnani. So also another employee of R.B. Chemicals & Agro Industries, Sh. P. Barwal looks after various activities including sales of L.B. Fine Chemicals and Calibre Chemicals. The chemist doing quality control and the employee looking after Central Excise work in all the 3 units at Bulsar - is common. Sh. Bhavnani also visits Bulsar and exercises control. Therefore, it is clear that there is total identity of interest among the units which are all under the effective control and direction of Sh. Bhavnani and his wife.
7. It is this aspect of identity of interest as between partnership firm which was stressed by the Supreme Court in the case of Mohanlal Maganlal Bhavsar v. U.O.I. -1986 (23) E.L.T. 3 in a case of valuation under Section 4 of Central Excises & Salt Act, 1944. The contention before the Court was that in determining the assessable value of the goods the price at which the petitioner sold the goods to their chief distributor, M/s. N.B. Bhavsar & Sons should have been adopted and not the wholesale price at which the goods were sold. The Supreme Court, however, observed that Bhavsar & Sons, though a separate partnership firm, was in fact a firm in which not only the original appellants \ were partners, but a son of each of them was also a partner. There was thus identity of interest, held the Supreme Court, between the two firms and further noted that both these firms had their offices in the same premises and under the partnership agreement the sons of the original appellants were to share only in the profits of M.B. Bhavsar and Sons but not to be liable for any losses. "These two firms, therefore, cannot be said to be at arm's length or independent parties and the prices at which the medicinal preparations were supplied by Bhavsar Chemical Works to M/s. M.B. Bhavsar & Sons cannot be taken to be the real value of the said preparations", held the Supreme Court. In the present case also, there is sufficient evidence, as noted above, to show such identity of interest amongst the firms under whose names the 3 units at Bulsar and the one at Bombay are run and because of that it cannot be held that these firms though separate are independent parties. The totality of circumstances in this case are * sufficient to show that Sh. Bhavnani and his wife in reality owned, directed and controlled the production of all the seemingly separate units, which served only as a facade to avail of the exemption.
8. It is, further, seen that the decision of the Tribunal in the case of G.D. Industrial Engineers v. C.C.E. -1983 (14) E.L.T. 1994 relied upon by the appellants has been considered in Tribunal decision in C.C.E. v. Paper Packing Industries - 1988 (36) E.L.T. 340. In the G.D. Industry case, it had been held that even though the partners of two firms were common, the units were separate and their clearances cannot be clubbed. The Tribunal, however, did not follow that decision (which is since reportedly confirmed by Supreme Court), but found that the Supreme Court decision in the case of Deputy Commissioner of Sales Tax v. K. Kelukutty - 1986 (24) E.L.T. 186 was applicable. Para 11 of the Supreme Court decision was extracted wherein Supreme Court had observed, "It is permissible to say that a partnership agreement creates and defines the relation of partnership and, therefore, identifies the firm. If that conclusion be right, it is only a further step to hold that each partnership agreement may constitute a distinct and separate partnership and, therefore, distinct and separate firm. That is not to say that a firm is a corporate entity or enjoys a juristic personality in that sense. The firm name is only or collective name for the individual partners. The partners may be different and yet the nature of the business may be the same, the business may be different and yet the partners may be the same. An agreement between the partners to carry on a business and share its profits may be followed by a separate agreement between the same partners to carry on another business and share the profits therein. The intention may be to constitute two separate partnerships and, therefore, two distinct firms.... It will depend on the intention of the partners. 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".
9. The intention in the present case in constituting the other separate units by the same husband and wife duo is to carry on the same business of manufacturing. Management of the firms is by the same two persons and finances by way of share capital is provided by them only in differing proportions in each firm. They are set up to manufacture the same product pottassium iodate. The appellants have not put forth any commercial reason why the other two units L.B. Fine Chemicals (started in December, 1987) and Calibre Chemicals (started in December, 1988) were constituted when already H.T. Bhavnani Chemicals had been in existence in 1984. The timing of the creation of the two other units at Bulsar in 1987 and 1988 significantly happens to be around the time, the other firm H.T. Bhavnani Chemicals achieved value of clearances during 1986-87 which came close to Rs. 75 lakh limit under small scale industries' Exemption Notification No. 175/86, which stipulates that the aggregate value of clearances of the specified goods under the exempted rates therein taken together shall not exceed Rs. 75 lakh.
10. Case law has been cited before the Tribunal to say that commonness of partners by itself is not sufficient and that flow back of funds should be established to justify clubbing of clearances of the separate firms. But in the present case, the firms are private limited companies which are owned and controlled by appellant Bhavnani and his wife. It is not so much the flow back of finances only which is to be considered, but also the identity of interest amongst the firms and the intention of the partners which is established in this case. Para 12 of Show Cause Notice also alleges this. And such criteria stand approved by Supreme Court in the Mohanlal Maganlal Bhavsar and Kehtkutty cases (supra). In the case law cited by the appellants, the Tribunal did not have occasion to consider the decisions of the Supreme Court. Therefore, on the facts and in the circumstances of this case the clubbing of the value of clearances of these units is justified.
11. The plea now put-forth, that the Commissioner, Baroda lacks territorial jurisdiction to include the value of clearances of the unit at Bombay, has not been made before the adjudicating authority and there is no findings thereon. But even without it, the appellants H.T. Bhavnani Chemicals at Bulsar would fall outside the ambit of the notification, by considering the clearances of the other units at Bulsar.
12. It has been contended that the show cause notice having proposed to recover duty and to impose penalty on the two Directors, the adjudication order demanding duty from H.T. Bhavnani Chemicals and imposing penalty on the other units is unlawful. However, a perusal of the show cause notice shows that though there was a failure therein to specifically call upon the other units to answer the charges and for demanding duty as well to impose penalty, yet para 14 of show cause notice sets out the provisions violated by the other units and alleges that they have wrongly availed the benefit of exemption Notification No. 175/86 and the consequences thereof. The substance of the charges against the units having been so spelt out the absence of the proper form of the narration of charges is not material. Moreover, all the units have furnished detailed replies to the show cause notice which shows that the substance of the charges against them therein was clearly understood. Therefore, there is no force in this contention.
13. On the question of limitation, there is substance in the contention that the longer period for demanding duty under Section 11A Central Excises & Salt Act, 1944 is not attracted in this case because all the three units in Bulsar are located adjacent to each other and fall under the jurisdiction of the same assessment Range and Division under the same Assistant Commissioner. Central Excise licences in Form L4 had been issued to the units by the Assistant Commissioner based on their application in which the names and addresses of Directors of each firm alongwith names of product, intended to be manufactured, had been furnished with ground plans of the units. The names of Directors is also mentioned on each of the L4 licences. Further, all the units had been subjected to scrutiny by the Internal Audit parties with reference to their records which in the circumstances of the case should have provided the information regarding the relationship of the units. Earlier, on 16-5-1990, a show cause notice had been issued to H.T. Bhavnani Chemicals by the Assistant Commissioner on same grounds and seeking to club the clearances of the three units at Bulsar. The outcome of this notice is not on record. Moreover, in the classification list, effective from 1-4-1990 submitted by R.B. Chemicals & Agro Industries, Bombay to the Central Excise, Bombay, besides the declaration, "We have no other unit in India which manufacture excisable goods", there is also a further declaration, "The directors of the company are also directors of some other companies which are entiredly separate legal entities". Therefore, the charge of suppression of facts by the appellants is not established and the longer period under Section 11A for demanding duty cannot be invoked on the facts and in the circumstances of this case.
14. It is, further, found that the confiscation of plant and machinery under Rule 173Q(2) Central Excise Rules is not sustainable as that Rule is not normally invoked unless the party is a habitual offender, and, the Commissioner's order, herein, while ordering such confiscation has not set out the reasons therefor as required under that Rule. The order of confiscation under Rule 173Q(2) is hence set aside.
15. In view of the findings as above, the quantum of penalty on the appellants calls for modification, and accordingly, the penalty on H.T. Bhavnani Chemicals is reduced to Rs. 10 lakh, and penalty on Ranjit Bhavnani to Rs. 5 lakh. The penalty on all the other appellants is reduced to Rs. 1 lakh each.
The appeals are disposed of in the above terms.