Customs, Excise and Gold Tribunal - Delhi
D.M. Gears Pvt. Ltd. vs Commissioner Of Central Excise, ... on 18 January, 2002
Equivalent citations: 2002(80)ECC533, 2002(141)ELT514(TRI-DEL)
ORDER P.G. Chacko, Member (J)
1. Appeal Nos. 2859 to 2862/2000 are against Order-in-Original No. 13/2000, dated 9-6-2000 passed by the Commissioner of Central Excise, Delhi-I confirming against M/s. D.M. Gears Private Ltd. (appellants in Appeal No. E/2859/2000-B) a demand of duty of Rs. 27,63,467/- under Rule 9(2) of the Central Excise Rules, 1944 read with the proviso to Section 11A(1) of the Central Excise Act 1944, imposing on them a penalty of Rs. 3 lacs under Rule 173Q and also imposing under Rule 209A penalties of Rs. 1 lac, Rs. 1 lac and Rs. 50,000/- on Shri CM. Handa (appellant in Appeal No. E/2861/2000-B), Shri O.K. Jain (appellant in Appeal No. E/2860/2000-B) and Shri R.K. Sharma (appellant in Appeal No. E/2862/2000-B) respectively. The Revenue's appeal (No. E/1663/2001) is against non-imposition of mandatory penalty on M/s. D.M. Gears Pvt. Ltd., under Section 11AC of the Act.
2. The duty demand on M/s. D.M. Gears Private Ltd. [in short, M/s. DMG] is based on clubbing of clearances for the purpose of determination of value of clearance in excess of exemption limit under Notification Nos. 175/86-C.E. and 1/93-C.E.) of motor vehicle parts cleared by M/s. DMG and M/s. Chandra Auto Engineers Private Ltd. [in short, M/s. CAE during 1-4-1993 to 31-12-1997. The clearances of the two companies have been clubbed on the basis of a finding that CAE had been carved out of DMG with the ulterior motive to split the latter's clearances for misutilising SSI exemption under the above Notifications and that there was mutuality of interest between the two companies. The basis of this finding has been summarized in Para (24) of the impugned order as follows :-
"The overall control of Shri Rajiv Gambhir on M/s. DMG and CAE, common work force, common management, common stores, common testing laboratory, common electricity connections/Genera tor, photographs of the factory premises showing commonness between the said two units, regulation of entire sale of goods manufactured by both the units by M/s. DMG after completion of final process at their sales premises, segregation of factory premises with wire-mesh, transfer of goods to the sale premises only in the vehicle of M/s. DMC, admitted statements of Shri R.K. Sharma, Factory Manager, Shri O.K. Jain, Director (DMG), Shri C.M. Handa, Director (CAE) who is also looking after the sales of DMG and other statements on record, all lead to only one conclusion that for all practical purposes the said units were one and M/s. CAE was carved out with an ulterior motive to split the sale of M/s. DMG and to mis-utilise the SSI exemption under Notification Nos. 175/86-C.E. and 1/93-C-E., as amended, by resorting to under valuation of the goods."
The adjudicating authority also found that the companies never disclosed to the department that they were having mutuality of interest and therefore, there was misdeclaration in their classification lists declarations- It has, therefore, invoked the extended period of limitation for confirming the duty demand and imposing the penalty on M/s. DMG. The penalties on S/Shri C.M. Handa, D.K. Jain and R.K. Sharma have been imposed on the basis of the following finding recorded in Para (27) of the impugned order.
"Shri C.M. Handa, Director (CAE), Shri D.K. Jain, Director (DMG) and Shri R.K. Sharma, Factory Manager were responsible for the functioning of these two companies and they inspite of knowing the commonness/mutuality of interest between the two, failed to discharge the appropriate and due central excise duty. They knew or had reasons to believe that the excisable goods on which appropriate duty was not discharged were liable to be confiscation."
3. We have heard both sides. Shri R. Pal Singh, Consultant, reiterated the pleadings and arguments contained in the memoranda of appeal Nos. 2859-2862. He challenged the adjudicating authority's findings of commonality one way or the other. His emphasis was on the point that any or all of such findings, even if assumed to be correct, did not necessarily lead to a conclusion that there was mutuality of business interest between M/s. DMG and M/s. CAE. He sought to draw support to the point from a line of decisions. He mainly relied on the Rajasthan High Court's decision in Renu Tan-don v. Union of India [1993 (66) E.L.T. 375 (Raj.)]. Ld. SDR, Shri R.D. Negi reiterated the findings of the adjudicating authority and submitted that the evidence on record clearly established mutuality of interest, for the purpose of clubbing of clearances of the two units. He also relied on the following decisions of the Tribunal :-
(i) Double Bee Enterprises v. CCE -1995 (78) E.L.T. 261
(ii) Supreme Engg. Works v. CCE -1996 (82) E.L.T. 102
(iii) Step Cosmetics v. CCE - 1996 (87) E.L.T. 734
(iv) H.T. Bhavnani Chemicals (P) Ltd. v. CCE - 1997 (92) E.L.T. 502.
4. Having considered the rival submissions coupled with the evidence on record, we are of the view that this case can be decided by applying the test of mutuality of interest laid down by the High Court in Renu Tan-don's case, which test has been consistently employed by this Tribunal in similar cases and appears to be holding the field. In that case, the two units were situated in the same premises, manufacturing similar product, having common office and electric connection, some common management and labour, etc. One unit was owned by father-in-law and the other by daughter-in-law and the work in both the units was looked after by her husband. Despite all these commonalities, the High Court held that the clearances of the two units were not liable to be clubbed together for purposes of Notification No. 175/86-C.E. in the absence of specific evidence of mutuality of business interest between the two units or of common funding and financial flow-back. In the present case, the Commissioner has found mutuality of interest between DMG and CAE. The correctness of this finding requires to be verified. There is no finding of common finding and financial flow back.
5.1 It is not disputed that M/s. DMG and M/s. CAE were Private Limited companies separately registered under the Companies Act, that they were independent legal entities, that they had separate registration with various Government departments for purposes of various laws viz. Sales Tax Act, Income Tax Act, Central Excise Act, Factories Act, etc., that they were separately registered Small Scale Industrial (SSI) units; that their Central Excise (C.E.) registration was with the same C.E. Range; that they had been submitting monthly RT 12 returns to the C.E, Range Officer; that the officer assessed the returns without any objection and that their classification lists claiming separate SSI exemption for their products under Notification No. 1/93-C.E. used to be scrutinized by the C.E. Range Officer and approved by the jurisdictional Assistant Collector. The adjudicating authority has acknowledged in its order that the two units were "fulfilling all the formalities" for C.E. purposes. Yet that authority did not recognize the existence of CAE for C.E. purposes. We reject this view of Id. Commissioner at the outset as it runs diametrically counter to his own admissions noted above 5.2 Following his finding of commonalities (vide extract given in Para (2) of this order), the Commissioner held that, for all practical purposes, the two units were the same and one, that the units, in fact, functioned as the same and only one company as far as the manufacturing and sale activities were concerned and that CAE had been carved out of DMG with the ulterior motive of splitting the latter's clearances of goods for misutilising SSI exemption. From all these findings and from the undisputed fact that M/s. CAE held 30,000 out of the total number of 1,50,000/- shares of M/s, DMG, the Commissioner concluded that there was mutuality of interest between the two companies and he held that the clearances of the two required to be clubbed for the purposes of computing SSI exemption. For this purpose. Id. Commissioner relied on the following three decisions of this Tribunal :-
(i) Bathija Enterprises & Ors. v. CCE - 2000 (115) E.L.T. 720 (T) = 2000 (36) RLT 181
(ii) Gopi Engineering Works v. CCE -1997 (93) E.L.T. 527
(iii) Verma Frost v. CCE - 2000 (118) E.L.T. 504.
5.3. Renu Tandon (supra) has laid down that commonality in respect of factory premises, office, electric connection, management, labour, etc. or similarly of products is no evidence of mutuality of business interest. The view taken in that case by the High Court, according to our understanding, is that mutuality of business interest has to be inferred from common funding and financial flow-back. As we have already noted, there is no evidence or finding of common funding and financial flow-back in the present case. It has not been shown that M/s. DMG have entirely financed M/s. CAE's business and drawn all the profits of the business for themselves. Therefore, mutuality of interest between the two units is not a correct finding in this case. Renu Tandon was not considered by the Tribunal in two of the three cases cited above, nor was there any finding of mutuality of interest in any of the three cases. In the case of Verma Frost wherein Renu Tandon was referred to, we have not come across any attempt to distinguish the High Court decision on facts, nor any application of its ratio. Therefore, Id. Commissioner's reliance on the decisions rendered in those cases cannot be considered to have helped him decide the issue correctly. The Tribunal's decisions cited by Id. DR cannot prevail over the High Court's decision. We also note that the High Court's decision was not considered in any of those cases decided by the Tribunal.
5.4. Even the adjudicating authority's finding of commonalities in respect of factory premises etc., does not appear to be well-founded. After noting that the premises of DMG and CAE were separated by a wire-mesh, the Commissioner recorded a finding to the effect that the two units had common office, common stores and common testing laboratory. He did not say which was on whose side of the wire-mesh, nor did the photographs (which he accepted as evidence in the case) indicate existence of any openings in the mesh for ingress and egress of workers. As regards management, it is an admitted position that the directors of one unit were not on the board of directors of the other. The Commissioner, however, found that both the units were under the overall control of one Rajiv Gambhir and that the units belonged to the Gambhir family. This finding is not supported by any cogent evidence. Even Shri Rajiv Gambhir did not depose (in his statement recorded by C.E. officers) that he was in overall control or that the directors of the two units were all his family members. The finding of common labour has been drawn from statements of some of the employees/workers, notwithstanding the fact (acknowledged by the Commissioner) that some of those statements had not been signed by any C.E. officer. In this connection, we have considered the case law which was cited by Id. Consultant in support of his argument that the unsigned statement were not reliable. In the cited case of State v. Yakub Ahmed [2000 (125) E.L.T. 113 (Bom.)], it was held by the High Court that statements not recorded by gazetted officer of Customs under Section 108 of the Customs Act were not admissible in evidence. We note that, by and large, the provisions of Section 108 ibid are pari materia to those of Section 14 of the Central Excise Act under which the above statements were recorded. The only difference between the two provisions appears to be that, while under Section 108 of the Customs Act 'any gazetted officer of Customs' shall have power to take evidence from any person, 'any Central Excise officer duly empowered by the Central Government in this behalf shall have similar power under Section 14 of the Central Excise Act. The Central Government has empowered all officers not below a specified rank for purposes of Section 14 of the Central Excise Act. It would follow from these provisions that any statement of any person recorded under Section 108 of the Customs Act should be signed by any gazetted officer of Customs and any statement of any person recorded under Section 14 of the Customs Act should be signed by an officer of Central Excise empowered by the Central Govern-
ment. In other words a statement recorded under Section 108 of the Customs Act and signed by a non-gazetted officer of Customs will not be admissible as evidence for the relevant purpose under that Act. Similarly, a statement recorded under Section 14 of the Central Excise Act and signed by an officer of Central Excise not empowered for the purpose will also not be admissible as evidence. It would follow as a corollary that, if any statement of any person recorded under Section 108 of the Customs Act or under Section 14 of the Central Excise Act does not bear the signature of any departmental officer and does not disclose the identity of the officer who recorded the statement, it will not be admissible in evidence. The ruling of the High Court in the cited case is on this point. Therefore, the reliance placed by the adjudicating authority on those statements of workers which did not bear the signature, and did not disclose the identity of the Central Excise Officer who recorded such statements cannot be sustained.
5.5. Apparently, the Revenue has had no case that CAE manufactured their goods out of the raw materials of DMG or using the machinery which belonged to DMG. On the other hand, they have a case that CAE sold their entire production of goods to DMG and the latter re-sold the goods (after affixing the same with their brand name) to their customers, M/s. CAE has contended in their reply to the show cause notice that they cleared their goods to M/s. DMG on payment of duty. This contention has not been rebutted in the order of the Commissioner. On the other hand, the Commissioner has acknowledged that M/s. CAE fulfilled all the Central Excise formalities. To our mind, "fulfilment of all Central Excise formalities" included payment of duty of excise on the goods cleared by CAE to DMG. Thus, the adjudicating authority has virtually held that M/s. CAE paid duty on the goods which they sold to DMG. Having accepted such payment of duty, it was not open to the adjudicating authority to hold that the goods were not marketable in the hands of CAE. There was no allegation to this effect in the SCN, either. We, therefore, reject the finding of the Commissioner that it was DMG who made CAE's goods marketable and therefore there was mutuality of business interest between the two Companies. Further, it does not appear to us to be reasonable to hold that there was mutuality of interest between CAE and DMG merely on account of the fact that the former held 30,000 shares out of the total number of 1,50,000 shares of the latter. Thus the Revenue has not succeeded in establishing mutuality of business interest between the two units. Accordingly, by applying the test laid-down by the High Court in Renu Tan-don, we hold that the clearances of DMG and CAE were not clubbable for purposes of computing SSI exemption limits under Notification No. 175/86-C.E. and 1 /93-C.E. We, therefore, set aside the demand of duty confirmed by the adjudicah'ng authority against DMG. We also set aside the penalty imposed on them under Rule 173Q because we have already vacated the demand of duty and because a finding, against them, of contravention of C.E. Rules is unwarranted in view of the Commissioner's observation that they have fulfilled all C.E. requirements. Once the demand of dufcy is set aside, penalty equal in quantum to duty will also stand reduced to nil and consequently the Revenue's appeal complaining of non-imposition of such penalty under Section 11AC will get rejected.
6. There is no order of confiscation of any goods by the Commis-
sioner. Hence no confiscation-related offence has been held out against any of the appellants in Appeals 2860-62. Therefore, the penalties imposed under Rule 209A on S/Shri C.M. Handa, D.K. Jain and R.K. Sharma are set aside.
7. In the result, Appeals No. 2859-62/2000 are allowed, while Appeal No. 1663/2001 is rejected.