Customs, Excise and Gold Tribunal - Delhi
Bhagwan Das Kanodia And Ors. vs Collector Of Central Excise on 19 August, 1986
Equivalent citations: 1991ECR279(TRI.-DELHI), 1987(32)ELT204(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. Sixteen powerlooms, four each in the name of M/s. Manmohan Textiles (owner Bhagwan Das Kanodia); Vinod Textiles (owner Lakhmi Chand, Kanodia); Vijay Textiles (owner Chandrawati Kanodia) arid Rajinder Textiles (owner Chiranji Lal Bhotika) were working at Andheri. M/s. Surajmal Purshotam Das was said to be the firm which was running these sixteen powerlooms, though in the name of the four different entities as above mentioned. There is no dispute that the four owners above mentioned were close relatives and that the other firm above mentioned was their firm. On the allegation that the 16 powerlooms were working as a single unit and the cloth manufactured thereon was therefore, not entitled to benefit under Notification No. CER-8(28)/56, dated 5-1-1957 (as it stood during the material period 29-10-1962 to 31-8-1963), show cause notice was sent to the abovesaid five firms as to why duty evaded should not be demanded and penalty also levied, apart from ordering confiscation of the goods seized. On adjudication the Officer on Special Duty, Central Excise, Bombay passed order on 30-12-1966 holding the charges established. He imposed penalty of Rs. 250/- on each of the four persons mentioned earlier (owners of the four Textiles) and further demanded duty from them on the cotton fabrics manufactured on the sixteen powerlooms, duty being demanded on the basis of compounded levy rates. He directed that all the four persons shall be jointly and severally liable for payment of duty. He ordered confiscation of the cotton fabrics seized from M/s. Surajmal Purshotam Das and further held that on failure to produce the goods in terms of the bond at the time of provisional release an amount of Rs. 1,000/- was to be appropriated out of the bond amount. The five appeals preferred by the five parties against the said order were disposed of by the Central Board of Excise and Customs under order dated 14-5-1979. Except setting aside the penalties levied, the Board dismissed the appeals in other respects. Five revision petitions were preferred to the Central Government which, on transfer, are now before us as the present appeals.
2. We have heard Shri Gopal Prasad, Consultant for the appellants and Smt. Saxena, SDR, for the Department.
3. The main issue for decision in these appeals is the same as in the appeals before the Board. That would be, in the words of. the Board, as follows :-
"The main issue for decision in all these appeals is whether, under the facts and circumstances of the case, the exemption granted to certain types of cotton fabrics under Government of India Notification No. CER-8(28)/56, dated 5-1-1957 (as it stood during the material period i.e. 2.9-10-1962 to 31-8-1963) was applicable to the cotton fabrics produced on the 16 powerlooms in the appellants' four units. If the exemption is admissible, then there would be no contraventions of Rules as alleged and the demands for duty, confiscation of goods and imposition of penalties on the appellants will not be sustainable. If the exemption is not admissible, then the duty demand and confiscation of the fabrics would be correct in law and the correctness of imposition of penalty will have to be determined on the basis of various other factors."
4. The notification in question is Notification No. CER-8(28)/56, dated 5-1-1957. As it stood at material time it exempts from the whole of the duty the following types of cotton fabrics:
"Unprocessed cotton fabrics manufactured by or on behalf of the same person in one or more factories commonly known as powerlooms (without spinning plants) in which less than 5 powerlooms in all but no roller looker machine are installed."
5. The order-in-original held that though the five appellants were separate legal entities the sixteen powerlooms were being worked by a group or consortium of the *f individuals mentioned earlier and thus the said consortium was the single manufacturer. It was therefore held that since the said single manufacturer manufactured cotton fabrics on the 16 powerlooms the cloth so manufactured was not entitled to duty exemption. Shri Gopal Prasad contends that after the special officer had accepted that the four individuals were separate legal entities with licence in their individual's name, each in respect of four powerlooms, the further conclusion on his part that the four individuals were working together as a group or consortium was not correct. After considering the evidence for the Department in this connection, the special officer had summarised his conclusions as follows in paragraph 31 of his order :-
"31. Thus we find that :
(i) 4 units invariably shared the yarn beams said to have been purchased by them;
(ii) All the relevant papers concerned in the purchase of yarn beams were kept in one file;
(iii) No separate account of weft yarn and coloured yarn was maintained. The coloured yarn for use on all the looms was received from Head Office and was issued for use on all the looms without even putting the name of the unit;
(iv) There was a common stock of weft yarn although it is claimed that the units purchased their weft yarn separately;
(v) All the money for payment of wages was received from the same source and a common statement was maintained for payment of all the wages;
(vi) One arid the same person looked after the folding of all the fabrics produced on all the looms. Similarly, one and the same person was incharge of all the packing work;
(vii) One of the principal employees Shri N.K. Gohil did not know the name of his employer. Though his salary is shown as paid by Vijay Textiles, he looked after the work of the other units also;
(viii) Shri Chiranjilal Bhotika did not remember the name of his jobber, the highest paid among his employees, who had been working with him for at least 5 months. Similarly though a person was shown as working as Methaji in one of the units no payment seem to have been made to him;
(ix) All the fabrics were sold in one and the same name and with the same markings;
(x) The selling firm (M/s. Surajmal Purshotam Das) gave their goodwill and extended banking facility to the units by pledging goods of these units in their own name without any monetary consideration.
This cannot be said to be merely neighbourly co-operation among independent units. They positively show clear identity of the interest of the so-called four units. I, therefore, come to the conclusion that the so-called four units really worked as one. In other words all the 16 powerlooms were run as one and the same manufacturing unit."
6. The Board accepted these findings of the special officer in paragraph 5 of its order. After summarising the findings of the special officer of the Board observed as follows :
"They thus admit that though the 4 units were separate legal entities, they combined their working to gain economical and operational advantages of the system. Thus on the one hand they claim benefit of the combined working and on the other they disown their legal responsibilities arising out of such common working. The Board, however, observes that by such co-operative and joint working, they created a separate entity akin to a consortium which is similar to an unregistered partnership and this" consortium were working all the looms in the 4 legally separate units by employing common Mehta, clerk, folder and jobbers. No doubt that in such joint and co-operative working they were separating some of the accounts by either allocating different pages in the same register or by opening some different pages in the same register or by opening some different statutory registers but this will not mean that the purchase of yarn and its allocation, employment of labour, production of goods and their sale were entirely separate for each unit and that the profits and losses were really separate. Such allocation could always be done any time by splitting the accounts more especially when the law either requires it or confers some benefit thereby. The Board, therefore, finds that on the facts and circumstances of the case the exemption under Notification No. CER-8(28)/56, dated 5-1-1957 was not available to the goods produced in the 4 units during the material time as correctly held by the Collector."
7. Shri Gopal Prasad contends before us that these findings of the special officer, which had been accepted by the Board also, were incorrect. His argument was generally to the effect that whenever there were common purchases, to be utilized by the four units subsequently independently, such a common purchase was for proper reasons and that such purchases were accounted for in respect of each of the four units independently with reference to the quantity used by them independently and thus there was no common benefit derived which was not accounted for. He pointed out that at the relevant time the minimum unit of sale by the mills in respect of beams was one set of 10 beams and that none of the four units independently had need for purchase of such a single set of 1Q beams and therefore after purchase of a set of 10 beams by one or the other the same was subsequently shared amongst the H units, such use being properly accounted and adjusted in their independent accounts. Similarly, in respect of weft yarn and coloured yarn also he explained that they were also distributed between the units after purchase and that they were properly accounted for and adjusted finally. He further pointed out that as there was only one pirning machine the weft yarn was sent for pirning to that machine and therefore the separate identity of the yarn by the different units could not be maintained thereafter but that the utilisation of such yarn was subsequently adjusted with reference to the fabrics produced by each unit. He comments that the observation of the special officer that nothing had been produced in support of the contention that pirning charges were paid by the 3 other units to Shri Bhagwan Das Kanodia was not correct. He referred us to the several documents filed indicating all such adjustments. He said that the same argument would hold good in respect of the single account of coloured yarn also. We find that the submissions of Shri Gopal Prasad in all the above aspects are acceptable. We find that common purchases of beams or weft yarn was justified and that the utilisation thereof by the four different units had been separately accounted and adjusted periodically.
8. So far as wages are concerned the comment for the Department is that they were all received from M/s. Surajmal Purshotam Das and advances were paid out of the same and that this would show that though there were four different units in name they were all functioning as a single entity. In this connection it should be remembered that the 4 units were being run by closely related individuals who had also joint interest in the 5th firm M/s. Surajmal Purshotam Das. Admittedly a partition had been effected in the family long before these 4 units were commenced. The special officer as well as Board have accepted that the i+ units were independent entities in law, with separate payment of Income-tax etc., In the circumstances the mere fact that advance for payment of wages was being received from M/s. Surajmal Purshotam Das would not militate against the case of the appellants if they were able to establish that the advances so received were adjusted periodically with reference to the expenses and income in each of the other four units. Here again, Shri Gopal Prasad contends that the various account books' and other accounts maintained by the appellants establish that there had been such periodical adjustments between the different units. He comments that since the four units were functioning adjacent to each other the same worker may work under different units at different periods on different days and, in some instances, even on the same day. Since advances were being distributed to the workers these advances were to be adjusted subsequently with reference to wages payable by each unit to different workers and such accounting could be done periodically only. Shri Gopal Prasad explains that a running account was being maintained with reference to amounts of advances received, the amount advanced to each worker, amounts adjusted in respect of each worker with reference to the work carried out by him under the different units. In these circumstances we are unable to agree with the conclusion of the lower authorities that merely because advance in the form of cash used to be received from one source that should establish that all the 4 units were functioning unitedly without any distinction amongst them.
9. Another point on which the lower authorities had decided against the appellants was that they had a common manager and that some of the employees were not even sure under which of the appellants he was working. Shri Gopal Prasad explains that as the 4 owners were closely related they had employed a single manager and that he was looking after the entire management. The said manager had been keeping separate accounts with reference to each of the appellants and the names of the particular employees under each of the appellants had been noted in the respective registers relating to each of the appellants. The four units were functioning in the same premises. The workers were receiving their payment from the common manager. Therefore, the fact that one or other of the workers was not sure of the name of his particular master would not be a circumstance to conclude that all the workers were employed by a single employer consisting of a consortium of all the four appellants.
10. Another reason advanced by the lower authorities was that all the fabrics manufactured on all these sixteen powerlooms were sold under a common name with a common marking. But it is not the case for the Department that the said name was a registered trade name owned by any one of the appellants. As earlier mentioned all the units were functioning in the same premises and, in fact, purchases of the beams, weft yarn and coloured yarn were being made jointly, though subsequently shared by the four units. In the circumstances, the fact that the fabrics so manufactured were traded under the same name would not necessarily lead to the conclusion that the four units were functioning jointly.
11. The last reason mentioned by the special officer was that the selling firm (M/s. Surajmal Purshotam Das) extended their goodwill as also banking facility to the four units. He mentions that the extension of such a benefit was without receipt of any monetary consideration therefor. In view of the close relationship between the parties it appears to us that the above fact would not be a proper reason for concluding that the units were not functioning independently but were controlled by a single controlling authority.
12. We may also note that though initially the Department proceeded on the basis that the work sheets prepared in issuing the show cause notice would suffice as evidence to prove that the 16 powerloom units were run jointly, the special officer himself came to the conclusion that it would not be so (para 32 of his order).
13. In view of the above discussion we hold that the conclusion of the lower authorities that though the of units were separate legal entities they created a separate 5th entity akin to a consortium (which is similar to an unregistered partnership) is not correct. We are satisfied that the 4 units were functioning independently, though there was some amount of pooling of resources but with separation of benefits and liabilities periodically and adjustment of accounts.
14. Shri Gopal Prasad raised a further contention regarding the jurisdiction of Shri R.B. Sinha, Officer on special duty, to conduct the adjudication and pass the order that he did on 30-12-1966. Shri Sinha's assignment for adjudication in this matter was intimated to the appellants by letter dated 26-8-1966 of the Collector of Central Excise, Bombay. Shri Gopal Prasad drew our attention to a subsequent letter by Shri Sinha dated 31-1-1966 whereunder he had intimated the appellant about the correct period of contravention. His argument was that by this time Notification No. 11/66 was effective and the earlier notification had ceased to have effect but that there was no fresh order appointing Shri Sinha as an adjudicating officer even after withdrawal of the earlier notification. We may note that this point which is essentially a question of fact had not been raised at any earlier stage, either before the adjudicating officer or even in the appeal to the Board. When this was pointed out to Shri Gopal Prasad he did not pursue the matter further.
15. Shri Gopal Prasad further contended that the demand under Rule 9(2) was bad and was barred by limitation and for that reason also the orders confirming the demand should be set aside. Smt. Dolly Saxena for the Department also agreed with the contention of Shri Gopal Prasad that Rule 9(2) would not apply. But she contended that Rule 10A(1) would apply and hence there is no question of the demand being time barred. But on view of our finding on the merits of the case as discussed earlier it is unnecessary to consider this question of limitation.
16. In the above circumstances we allow all the five appeals and set aside the orders of the lower authorities with consequential relief, if any.
G. Sankaran, Vice-President (T)
17. I have perused the order proposed by brother Shri Raghavachari.
18. It is seen from the Collector's order that till at least the present proceedings were started in 1963, the Income-tax Department treated the 4 persons who ostensibly owned the four powerloom units (Shri Bhagwandas, Kanodia, Shri Laxmichand Kanodia, Smt. Chandravati Kanodia and Shri Chiranjilal Bhotika), as separate assessees. Similarly, they were registered separately under the Central Sales Tax Act. It is also seen that the 4 persons had obtained separate permission for purchase and installation of the looms, got separate Tex Marks from the Textile Commissioner, were given separate electric connections, and executed separate deeds for hiring parts of the premises in which the powerlooms were installed. It has also been noted that separate Central Excises Licences were issued by the proper office in 1960 in the names of the 4 units (Manmohan Textiles, Vinod Textiles, Vijay Textiles and Rajendra Textiles) and that these licences had been renewed from year to year. It has been further noted that each of the 4 units had obtained a certificate from Area Inspector of Central Excise that the unit was licensed for four looms and that the cloth produced by these looms was, therefore, exempted from excise duty (the latter part of the certificate could, as the Board has rightly observed, be ignored as of no consequences since it is without reference to any time frame and without citing any supporting authority). The Collector has, therefore, concluded that the four ostensible owners of the powerlooms were, in the eyes of law, separate legal entities. Thereafter he proceeds to analyse the evidence in the shape of common purchases of yarn, common source of funds etc. (as set out, and commented upon, in Shri Raghavachari's order) and concludes that, in reality, the four units were producing powerloom fabrics for and on behalf of the same person and, on that basis, denies the exemption to the fabrics cleared during the aforesaid period.
19. In Bapalal and Company v. Government of India and Ors., 1981 (8) ELT 587, cited by Shri Gopal Prasad, the Madras High Court held inter alia that merely because two firms (in that case) had got common licences under the Gold Control Act and the Central Excises Act and some of the partners were common in both the firms and there was unity of management and control between the two firms, it could not be said that the two firms were one and the same when they were registered separately with the Registrar of Firms under separate registration numbers and were being assessed separately under the Sales-tax Act and the Income Tax Act. More or less to the same effect is the Tribunal's decision in Jagjiwan Dass and Company v. Collector of Central Excise, Bombay-II - 1985 (19) ELT 441 (Tribunal), wherein the Tribunal has held that if it be found that the three firms (in that case) were distinct and separate, their clearances should not clubbed together for exemption purposes.
20. The various circumstances which have been held against the appellants by the lower authorities have been plausibly explained by the appellants. To establish the case against the appellants for fastening duty liability on them, something more would be required, for example, the existence of a person or a body of persons who, in reality, owned, directed and controlled the production in the four separate units which would show that the of units were only a facade to avail of the exemption. The circumstances brought on record do not point anything conclusively in this direction. In the circumstances, and on the facts of this case, I agree with Shri Raghavachari's conclusion that the appeals should be allowed.