Customs, Excise and Gold Tribunal - Delhi
Jaybee Industries vs Commissioner Of Central Excise on 4 March, 2004
Equivalent citations: 2004(95)ECC611, 2004(168)ELT316(TRI-DEL)
ORDER P.G. Chacko, Member (J)
1. These are three appeals, Appeal No. 2430 by a partnership firm by name "Jaybee Industries" and the other two appeals by the two partners of the firm, Shri M.K. Aggarwal and Shri Pradeep Agarwala. The appeal of the firm is against a demand of duty of Rs. 3,01,518/- confirmed against them under Section 11A of the Central Excise Act as also against a penalty of Rs. 3 lakhs imposed on them under Rule 173Q of the Central Excise Rules, 1944. In the other two appeals, the challenge is against the personal penalties of Rs. 50,000/- each imposed on the aforenamed partners of the firm under Rule 209A of the said Central Excise Rules.
2. Briefly stated, the facts of the case are that the partnership firm viz. 'Jaybee Industries" has two units, one at Bhatinda (Punjab) and the other at Panchkula (Haryana), both manufacturing identical excisable goods specified under SSI exemption Notification No. 1/93-C.E., dated 28-2-93; that the Panchkula unit availed the benefit of exemption under the said Notification during the period July, 1994 to May, 1995; that, on the basis of their Classification List for the years 1994-95 and 1995-96 as also of statements of Shri M.K. Aggarwal and Shri Pradeep Agarwala, the department found that the Panchkula unit of the firm had fraudulently evaded Central Excise duty to the tune of Rs. 3,01.518/- by suppressing aggregate value of clearances of the goods (i.e., by not including the sister unit's clearances in the aggregate value in terms of the above Notification) and had contravened various provisions of the Central Excise Rules, 1944; that a show cause notice dated 2-8-99 was issued by the Department to the Panchkula unit and partners of the firm for recovery of the above amount of duty for the period July, 1994 to May, 1995 as well as for imposition of penalties on the firm and its partners; that the proposals in the show cause notice were contested by the noticees; that, in adjudication of the dispute, the jurisdictional Additional Commissioner of Central Excise confirmed the demand of duty against the firm under Section 11A ibid, imposed a penalty of Rs. 3 lakhs on them under Rule 173Q ibid and also imposed personal penalties of Rs. 50,000/- each on the two partners under Rule 209A; and that the appeals preferred by the firm and its partners against the decision of the adjudicating authority were rejected by the Commissioner (Appeals). The present appeals are against the order of the lower appellate authority.
3. Heard both sides. Ld. Counsel for the appellants submitted that the two manufacturing units at Panchkula and Bhatinda were run by two different partnership firms and not by the same firm as held by the lower authorities; that Jaybee Industries, Panchkula and Jaybee Industries, Bhatinda were independent manufacturers dealing with each other on principal-to-principal basis and having separate registration under the Central Excise Act, State/Central Sales Tax Act and Income-tax Act; that they had separate SSI registration also; that they were maintaining separate bank accounts; that they were separately assessed to income-tax; that there was no mutuality of interest between them; that, for all these reasons, it was erroneous on the part of the original and first appellate authorities to have clubbed the clearances of the two units under Notification No. 1/93-C.E. for the purpose of demanding duty from the Panchkula unit; that the appellant-firm had no intent to evade payment of Central Excise duty as they were under the bonafide belief, on the basis of the Tribunal's decision in G.D. Industrial Engineers, faridabad v. CCE [1983 (14) E.L.T. 1994], that the clearances of the Bhatinda and Panchkula units were not clubbable; that, in the absence of intent to evade payment of duty, the larger period of limitation was not invocable against the appellant-firm and also no penalty was liable to be imposed on them; and that, in any event penalties were not liable to be imposed on the partners under Rule 209A in addition to the penalty imposed on the partnership firm. Ld. Counsel also relied on the following decisions of the Tribunal :-
(i) Shakti Engineering Works v. CCE [1989 (40) E.L.T. 95]
(ii) Loten Electricals v. CCE [1999 (105) E.L.T. 300]
(iii) Superior Products v. CCE [2002 (144) E.L.T. 187]
(iv) CCE v. Sethia Foods [2003 (156) E.L.T. 395]
4. Ld. SDR submitted that the Panchkula and Bhatinda units belonged to the same partnership firm. There could not be two different partnership firms with the same firm-name, of the same partners, holding shares in the same ratio. DR argued that, on the facts and evidence on record, the Panchkula and Bhatinda units were liable to be held to have been run by the same partnership firm viz. Jaybee Industries and, for that matter, liable to be held to have had mutuality of interest between them and, therefore, the clearances of the two units were liable to be clubbed for purposes of the SSI Notification. He also pointed out that the appellants had not even produced separate partnership deeds, if any, to prove their claim that the two units belonged to two different partnership firms distinct and separate for Central Excise purposes. In his bid to dislodge the Counsel's plea that the two units were distinct entities for Central Excise purposes, ld. SDR relied on the following decisions :-
(i) H.T. Bhavnani Chemicals (P) Ltd. v. CCE [1997 (92) E.L.T. 502]
(ii) CCE v. Elemec Inds. [2000 (120) E.L.T. 198]
(iii) Rana Rubber Industries v. CCE [1987 (32) E.L.T. 433]
(iv) Malabar Fisheries Co. v. Commissioner of Income Tax [(1979) 4 SCC 766]
(v) Dulichand Laxminarayan v. Commissioner of Income Tax [AIR 1956 SC 354]
(vi) Rashik Lal and Co, v. Commissioner of Income Tax [AIR 1998 SC 401].
On the question of time-bar. ld. SDR submitted that, as the appellant-firm had not declared under Rule 173B that they had proprietary interest in the Bhatinda unit, suppression of facts with intent to evade payment of duty had been rightly found against them by the adjudicating authority. The extended period of limitation had been correctly invoked for raising the demand of duty on the appellant-firm. In this connection, ld. SDR placed reliance on the Supreme Court's judgment in Grauer & Weil (India) Ltd. v. CCE [1994 (74) E.L.T. 481 (S.C.)]. In his rejoinder, ld. Advocate submitted that the show cause notice had not even alleged the requisite facts for mutuality of interest between the two units. He argued that mutuality of interest was the sole criterion for clubbing of clearances by two manufacturing units, under the SSI exemption Notification. In this connection, Counsel relied on the Tribunal's decision in D.M. Gears Pvt. Ltd. v. CCE [2002 (141) E.L.T. 514].
5. We have carefully considered the submissions. It has been asserted by ld. Counsel that the Panchkula and Bhatinda units were run by two different partnership firms. Admittedly, each of the two units belonged to a partnership firm namely "Jaybee Industries" consisting of Shri M.K. Aggarwal and Shri Pradeep Agarwala as partners holding equal shares. In the absence of contra evidence, this fact is enough for us to hold that the two manufacturing units at Panchkula and Bhatinda were run, during the material period, by a single partnership firm. That the two units were working separately for purposes of various statutes would not detract from the unrebuttcd fact that they were solely owned, managed and operated by the same partnership firm viz. Jaypee Industries. The legal position of a partnership firm vis-a-vis its partners was settled by the Supreme Court long ago vide Malabar Fisheries (supra). The Court examined the English, Scottish and Indian laws on partnership and held that the position as regards the nature of a firm and its property under the Indian Partnership Act, 1932 was almost the same as in English law and, therefore, in Indian law, a partnership firm was not a distinct legal entity and the partnership property belonged to all the partners constituting the firm. In the earlier case of Dulichand Laxminarayan (supra), the Supreme Court had held that a firm was not an entity or person in law but merely an association of individuals and that a firm-name was only a collective name of those individuals who constituted the firm. Therefore, in the instant case, "Jaybee Industries" was the collective name of the two partners who constituted the firm with equal shares. Had Shri M.K. Aggarwal and Shri Pradeep Agarwala had another firm of theirs, such a firm would have been differently constituted (i.e., with unequal shares) and differently named. We think that this view of ours can claim firm support from the Apex Court's decision in Dulichand Laxminarayan (supra), which was followed in the case of Rashik Lal & Co, (supra), wherein it was further held that the definition given to "person" by the General Clauses Act could not be extended to a firm under the Partnership Act. In the light of this ruling of the Apex Court in Rashik Lal & Co. (supra), the Tribunal's decision in G.D. Industrial Engineers (supra) holding that a partnership is a 'person' distinct from the partners in terms of Section 3(42) of the General Clauses Act, 1897 would not hold good. For this very reason, we are also unable to rely on the decisions in Shakti Engg. Works (supra) and Loten Electricals (supra), which were rendered by following G.D. Industrial Engineers. In the case of Superior Products (supra), relied on by the Counsel, a partnership was treated as a juridical person. It appears, the Apex Court's ruling on the point had not been cited before the Bench. In Sethia Foods (supra), clubbing of clearances by two manufacturing units was disallowed by the Tribunal as it was found that the Revenue had failed to prove that the two units belonged to the same manufacturer. The instant case is factually different. The fact (alleged by the Department) that each of the two units (at Panchkula and Bhatinda) manufacturing the same goods belonged to the firm viz. "Jaybee Industries" consisting of Shri M.K. Aggarwal and Shri Pradeep Agarwala as partners with equal shares has been admitted by the appellants. It was for the appellant-firm to show that the Bhatinda unit belonged to a different partnership firm. This, they have not shown.
6. In the case of Rana Rubber Industries cited by ld. DR. two manufacturing units were run by a partnership of three brothers and their mother and it was held by this Tribunal that the two units could not be said to be run by different manufacturers. This conclusion contained in Para (3)(ii) of the Tribunal's order seems to support the view we are taking in the instant case. The Tribunal's decision in H.T. Bhavnant Chemicals (supra) and Elemec Industries (supra) relied on by the DR, however, do not appear to be relevant to the present case. While, in the former case, the three manufacturing units involved were private limited companies which were legal entities, the Tribunal was passing an order of remand for de novo adjudication in the latter. The two manufacturing units at Panchkula and Bhatinda in the instant case belonged to the same partnership firm which was not a legal entity distinct from its partners. The interest of the firm in the manufacturing activity of the two units was not anything different from the collective interest of the partners in the said activity. Admittedly, both the partners were equally interested in the business of each unit. Mutuality of interest between the two units was inbuilt in such a dispensation. The Tribunal's decision in DM. Gears (supra), wherein it was held that mutuality of interest between two manufacturing units belonging to two companies required to be established for the purpose of clubbing of clearances under SSI Notification, cannot be applicable to such a situation.
7. We, therefore, hold that the Panchkula and Bhatinda units were only two factories run by the same partnership firm and the clearances from both the units were liable to be clubbed in terms of Paragraph (3) of Notification No. 1/93-C.E., which reads:
"Nothing contained in this Notification shall apply, if the aggregate value of clearance of all excisable goods for home consumption.
(i) by a manufacturer from one or more factories, or
(ii) from any factory, by one or more manufacturers had exceeded Rs. Two hundred lakhs (three hundred lakhs w.e.f. 1-4-95) in the preceding financial year."
We are also not impressed with the Counsel's arguments on the limitation issue. The extended period of limitation has been invoked for the demand of duty on the aggregate clearances of the two units of the appellant-firm on the basis of "suppression of facts with intent to evade payment of duty" as alleged in the show cause notice. The allegation has been upheld by the Commissioner who found that the proprietary interest of the firm in the Bhatinda Unit had not been disclosed in Rule 173B classification list/declaration filed by the firm. We have not seen any valid challenge to this finding of the adjudicating authority. Hence the demand cannot be held to be time-barred, nor can we find fault with the Commissioner's view that the appellant-firm was liable to be penalised for contravention of law with intent to evade payment of duty. A penalty of Rs. 3 lakhs, however, is far from reasonable in the facts and circumstances of the case. We reduce it to Rs. 1 lakh. It is settled law that, where a penalty is imposed on a partnership firm, no separate penalty shall be imposed on any of its partners. Accordingly, we set aside the penalty on the partners.
8. In the result, our order is as under :-
(a) The demand of duty is upheld.
(b) The penalty on M/s. Jaybee Industries stands reduced to Rs. 1 lakh.
(c) Penalties on Shri M.K. Aggarwal and Shri Pradeep Agarwala stand set aside.
(d) Appeal No. 2430 stands dismissed, but with reduction of the quantum of penalty as above. Appeal Nos. 2431 and 2432 stand allowed.