Customs, Excise and Gold Tribunal - Delhi
Padma Packages (P) Ltd. vs Collector Of C. Excise on 29 December, 1995
Equivalent citations: 1997(90)ELT175(TRI-DEL)
ORDER Gowri Shankar, Member (T)
1. These appeals are filed by M/s. Padma Packages Pvt. Ltd. and Ors. against the order of the Collector of Central Excise Coimbatore, holding that the manufacturing activities of three of the appellants, M/s. Padma Packages, Blossom Plastics, and Satya Prakash & Company have to be clubbed together and that the other three appellants are liable to penalty in having helped these three.
2. We have heard the elaborate arguments advanced by both sides.
3. The Collector has, for the purposes of clubbing the clearances together cited the existence of the factors common to more than one unit. These are that the owners of all the units are three brothers, their wives and their fathers; one person is the authorised signatory for all the units except one; one employee of M/s. Super Poly Products deals with excise matters of all the units; the units have a common office; the three units in question manufacture the same commodity; huge amount have been paid on behalf of the other and temporary loans has been exchanged between them; all units are functioning towards a common goal, since they manufacture products, which taken together, range from plastic granules to exclusion machinery.
4. As to the first point, each of the three units is seen to be a limited company. A limited company has an identity that is independent of the identity of its shareholders and partners. It is a person in the eyes of the law and can sue and sued by any of the shareholders of directors. The fact of all the directors being related to each other therefore is of no significance.
5. A limited company is responsible to its Board of Directors for control of the company over a period, although day today control and supervision may be exercised by the Chief Executive Officer. The fact that Shri Subhash Chandra was an authorised signatory for each of the companies therefore does not mean that there was any control over the affairs of the each of the companies. The claim of one person controlling the affairs of the company therefore fails. It has been held that the mere existence of a common office and common management would not by themselves constitute factors sufficient to warrant clubbing [See Renu Tandon v. Union of India - 1993 (66) E.L.T. 375 & Prima Controls (P) Ltd. v. CCE -1994 (72) E.L.T. (62)]. The Collector's conclusion that the existence of a common office and an employee common to more than one unit by itself shows the existence of 'unified control' over the affairs of the units has no basis.
6. The claim that each of the units undertook one phase in the range of activities beginning from manufacture of plastic granules and going on till the manufacture of plastic extrusion machinery is not borne out by the record. The Collector himself says that the three units those he seeks to club - manufactured the same product, polyethylene film, even if the claim is true, we do not see how this point can lead us to conclude that all but one of these were dummies or shell companies. It might be perfectly possible for a group of persons to undertake activities which complement each other. This by itself may perhaps show that the persons were known to each other. There is no dispute in this case that the directors of the companies are related, either by blood or by marriage. This fact however does not itself justify the conclusion that the units were created in order to take advantages not available to them in law. The Collector himself does not deny that the units came into existence at different points in time; the fact that they were created much before Notification No. 175/86 was issued and for the reason that they wished to avoid disputes within the family, subsequently are significant and cannot be ignored.
7. The Collector in his error when he says that the show cause notice alleges that huge amounts have been paid by one unit on behalf of the other. We are unable to find any such allegation in the show cause notice. Ail that it says is that there were temporary loans between these units. There are decisions to the effect that giving or of taking loans or a advance would not constitute clubbing [Alpha Toyo Ltd. v. CCE -1994 (71) E.L.T. 689, LMP Precision Engg. Co. Ltd. v. CCE - 1994 (70) E.L.T. 580].
8. As against these it is seen that each unit is a separate legal person. They are considered separate persons for the purposes of electric connection, in payment of income tax, the factory licence etc. The Collector's claim that these are 'artificial breakups' cannot deny their separate existence for these purposes.
9. We also note that while the Collector's arguments about the existence of common factors relate to all these units, he has only ordered clubbing of three, holding the other three to be in the nature of abators of such clubbing. He does not say why he singled out three units alone, or indicate the particular characteristics of these three which places them on a separate footing from the other; nor does he say in what manner these other three abetted the first three.
10. On balance we must hold that there has not been sufficient evidence, either to justify the clubbing of the three units, or to find that the other three units have helped in such clubbing. We therefore allow these appeals with consequential relief if any.