Customs, Excise and Gold Tribunal - Bangalore
Nms Babu And Ors. vs The Commissioner Of Central Excise on 25 October, 2005
Equivalent citations: 2006(106)ECC188, 2006(108)ECC188, 2006(110)ECC188, 2006ECR188(TRI.-BANGALORE), 2006(198)ELT528(TRI-BANG)
ORDER
1. The following appeals have been filed in respect of the Order-in-Original No. 9/2004 dated 12.10.2004 passed by the Commissioner of Central Excise, Bangalore.
Sl. Appellants Period of Appeal No Duty Penalty Total
No. Dispute
1. NMS Babu April 97 to E/1407/2004 50,000 50,000
Mar. 2003
2. Pradeep April 97 to E/1408/2004 250,000 250,000
Jaipuria Mar. 2003
3. Margo April 97 to E/1409/2004 15,660,273 5,872,141 21,532,414
Biocontrols Mar. 2003
P. Ltd.
4. Praveen April 97 to E/1410/2004 250,000 250,000
Jaipuria Mar. 2003
5. P.J. Margo April 97 to E/1411/2004 5,528,048 1,469,919 6,997,967
P. Ltd Mar. 2003
2. The brief facts of the case are as follows. M/s. P. J. Margo (P) Ltd. (PJM) are engaged in the manufacture of Econeem an excisable product. M/s. Margo Biocontrols Pvt. Ltd. (MBC) are engaged in the manufacture of Econeem, Delfium, Ecoderma, Ecohume, Ecohume-G and Pheramones, all excisable commodities. Revenue conducted certain investigations and proceeded against the appellants. Shri Pradeep Jaipuria is the Managing Director of M/s. PJ Margo Pvt. Ltd. Shri Praveen Jaipuria is the Executive Director and Shri N.M.S. Babu, is authorized signatory of the same company. The main charges established by the adjudicating authority are the following.
(a) The Value of clearances of both PJM and MBC is to be clubbed for the purpose of determining their eligibility to the benefit of SSI exemption Notification for the relevant period. Since the value of clearance so clubbed will cross the monetary limit, no exemption can be availed.
(b) Activity of repacking of the product "Pheromones" into smaller retail packs carried out by MBC amounts to manufacture and appropriate duty on the repacked items should be paid.
(c) Item "Ecoderma" is classifiable under Chapter sub heading 3808.10 of the Central Excise Tariff Act, 1985 and the items "Ecohume" and "Ecohume -G" under chapter sub heading 3105.00.
(d) The longer period under proviso to Section 11A has been held to be applicable in view of suppression of facts and therefore, penalties under 11AC and interest under 11AB have been levied.
The appellants have strongly challenged the findings of the adjudicating authority. Hence they have come before this Tribunal for relief.
3. Shri v. Raghuraman, learned Advocate appeared for the appellants and Shri S. Reddy, JDR appeared for the Revenue.
4. The learned Advocate urged the following points.
A. Clubbing of clearances
1. PJM and MBC are limited companies. Each is a distinct legal entity. In terms of Board's Circular C/92, limited companies clearances cannot be clubbed with other units. The adjudicating authority has introduced a new concept of "Independent limited companies, which has no legal basis". The learned advocate relied on the following case laws.
(a) Supreme Washers (P) Ltd. v. reported in CCE 2003 (85) ECC 9 (SC).
(b) Alembic Glass Industries v. CCE reported in 2002 (143) ELT 224
(c) Malik & Co v. CCE
(d) Genesis Instrument Co v. CCE
(e) L.D. Industries v. CCE
2. PJM was incorporated in 1991 and started its commercial operation in January 1993 and was fully engaged in the manufacture of water soluble neem extract and neem oil. These products were exported; MBC was started in 1994 and the commercial operations commenced only from 1996-97. This unit started marketing of neem pesticides, later it started importing, repacking and marketing of Biological insecticide - Delfin from 1998. Further MBC ventured into manufacture of Bio Control Agent Ecoderma and Vegetable Fertilizer - Ecohume subsequently. Hence, no malafide can be attributed to the establishment of MBC.
3. The clubbing of clearances is not sustainable when the notice of demand is issued on both the units. The following case are relied on:
(a) Gajanan Fabrics Distributors v. CCE .
(b) Highland Dye Works P. Ltd. v. CCE .
4. The excise authorities have granted registrations to both the units. Hence their turnover cannot be clubbed. The Case Law referred in the case of Nikildeep Cables P. Ltd. v. CCE reported in 1994 (70) ELT 272.
5. The two units have different sales tax, income tax, SSI registration numbers, etc. They are separate legal entity under Companies Act. Hence there clearances cannot be clubbed. The following case laws are relied on:
(a) A.C. Pharmaceutical Pvt. Ltd. v. CCE .
(b) Tapsya Steels P. Ltd v. CCE reported in 2004 (65) RLT 44.
6. The investment pattern of the units cannot be the basis for considering one unit as dummy. Moreover, there is no evidence of common funding and financial flow back. In fact, MBC is the loss making company. In these circumstances, the clearances cannot be clubbed. The following case laws are relied on:
(a) Balsara Extrusions P. Ltd. v. CCE .
(b) Spring Fresh Drink v. CCE .
(c) Renu Tandon v. Union of India .
7. The fact of giving guarantee by PJM to MBC for taking loan cannot be the basis for clubbing.
8. The expenses incurred by PJM on behalf of MBC is debited vide Debit Notes/Journal Entries.
9. Sales Tax paid by PJM on behalf of MBC for September 1996 has been subsequently recovered vide Journal Voucher.
10. MBC has taken cash credit from SBI, therefore, there is no basis in the allegation that PJM had funded MBC.
11. MBC has a license to manufacture neem based products, which is given to PJM. All Econeem is sold to MBC and the sale price of MBC is adopted for discharging excise duty.
12. The Commissioner himself has admitted that the units are separated They are holding and subsidiary companies. Hence, there clearances cannot be clubbed. The case law referred in the case of Ralliwolf Ltd. v. UOI .
13. In terms of notification 115/75-CE dated 30.4.1975, all manufacturers of solvent extract oil are exempted from payment of central excise duty. The case law referred in the case of Bombay Oil Industries v. CCE .
B. Manufacture of Econeem
1. As par as Econeem is concerned MBC receive the same from PJM. In other words MBC do not manufacture Econeem. PJM pays duty at their factory gate at the value at which MBC sales the goods. Therefore, there is no manufacture on the part of MBC attracting liability to excise duty. MBC was only taking care of the marketing of Econeem manufactured by PJM. It was further urged that MBC does not have any facilities for the manufacture of Econeem, The Chartered Accountant certificate was also relied on. Moreover, PJM is licensed to produce Econeem. The case laws referred are as follows:
(a) Madhu Food Products v. CCE , and
(b) Durga Trading Co. v. CCE reported in 2004 (148) ELT 967.
C. Repacking of Pheromones
1. MBC imports Pheromones and sell the same without repacking. The imports were made in units of small packs of 250 grams, 100 grams and 50 grams. Moreover, the appellant does not undertake any activity of labeling or relabelling. The said product is not imported in bulk. The activity of importing and selling the goods does not amount to manufacture. Therefore, there is no question of paying excise duty on these goods. The Tribunal in the case of Ammonia Supply Company v. CCE has held that with respect to Chapter Note No. 10 of Chapter 28 which is similar to the chapter note No. 2 of Chapter 38 "The first ingredient that is to be satisfied is labeling of container while repacking from bulk to retail packs. The second may be re-labeling of the containers while repacking from bulk packs to retail packs. The third will be adoption of any other treatment to render the product marketable to the consumer. In the light of the above decision, repacking does amount to manufacture as there is no labeling.
2. Only in one instance repacking was taken. Even assuming that the same amounts to manufacture MBC within the permissible turnover limits and hence they are not required to file any detail to the Department.
D. Reclassification of Ecoderma and Ecohume
1. Ecoderma is a product based on soil microorganisms. The Microorganisms are mass cultured under laboratory conditions and used for formulating the finished product Ecoderma. The heading note No. (D) (3) given in the Chapter heading 30.02 in HSN clearly says that this heading includes cultures of microorganism for technical purposes (e.g. for aiding plant growth).
2. The learned Advocate relied on the certificate issued by Fredrick Institute of Plant Protection and Toxicology (Fippat) recognized by DST, Ministry of Science and Technology, Government of India and also certificate issued from Directorate of Plant Protection, Quarantine & Storage Authorities to the effect that the product is not a fungicide. Hence the product cannot be classified under chapter 38.
3. The Chemical Examiner has given his opinion that the Ecoderma is a fungicide is not acceptable. Fungicide is basically any chemical or other substance, which kills the fungus. Ecoderma is fungus by itself, which can be killed by fungicide. Moreover, the basic function of Ecoderma is not to kill any fungus and hence it cannot be classified as fungicide.
4. The Chemical Examiner has given his opinion on the basis of contents of the write up and labels. As the chemical laboratory of the department does not undertake testing for the fungus/bacteria, as admitted by them in respect of a test for another similar product called Ecocill, they could not have tested the samples of Ecoderma.
5. The appellant had requested for cross-examination of the Chemical Examiner, which was not considered by the adjudicating authority.
6. As regards the product Ecohume, it is an "animal and vegetable fertilizer". The definition of fertilizer as per the Farm Chemical Handbook 1998 Electronic Pesticide Dictionary is "Any natural or manufactured material added to the soil in order to supply one or more plant nutrients". Ecohume is also a substance, which contains few nutrients in insignificant quantities along with few mixed substances. Therefore, Ecohume can be called as fertilizer. Chapter heading 31.01 covers animal or vegetable fertilizers, whether or not mixed together or chemically treated. In the instant case, (the manufacturing process is that farm yard manure or cow dung, waste vegetables or green leaf and ground shell are converted into partially digested compost, in a compost bed by placing the material layer by layer and watering copiously. Partially digested composite is allowed to be confused by earthworm in compartmental beds under shade. The Earthworm acted compost is passed through the processes and ultimately the finished product is manufactured. From the process as explained above, it is clear that the goods manufactured are nothing but animal and vegetable fertilizer to be classified under 31.01 and not under 31.05.00.
7. As Ecohume does not contain as an essential constituent, one of the elements nitrogen, phosphorus or potassium. In term of chapter note 6, it cannot be classified under 31.05 as other fertilizer. As Ecohume contains the above elements in insignificant amount, it is rightly classifiable under heading 3101.00.
8. Assuming but not admitting that the Ecohume is classified as other fertilizers under 31.05, the same is exempted vide notifications 4/1997, 5/1998, 6/1999, respectively for the year 1997-98, 1998-99 and 1999-2000.
9. The adjudicating authority has wrongly interpreted notification 4/97 in denying the exemption. The particular entry in the table annexed to the notification is as follows.
Sl. Chapter Description of goods Rate of duty Remarks
No. Heading
42 31 All goods, other than those NIL
which are clearly not to be
used-
(a) as fertilizers; or
(b) in the manufacture
of other fertilizers, whether
directly or trough the stage
of an intermediate product.
A very careful reading of the entry would show that the goods used as fertilizers would carry nil rate of duty.
E. Limitations MBC intimated to the Department in their letter-dated 20.7.1998 regarding their manufacture. In that letter, the fact of holding 100% shares is MBC by PJM was also mentioned Job work permission has been taken to send out certain materials. Therefore, the question of suppression does not arise. MBC was registered as a manufacturer and applied for registration in their letter dated 10.8.1998. When the documents containing all available information are supplied to the department, there cannot be any suppression. Hence, extended period cannot be invoked for demanding duty. The following case laws were relied on:
(a) Collector v. Chemphar Drugs and Liniments
(b) Padmini Products v. Collector .
(c) Tamil Nadu Housing Board v. Collector .
(d) Pushpam Pharmaceuticals Co. v. Collector .
5. In view of the foregoing submissions there is no evidence of intention to evade payment of duty. Hence, penalty under Section 11AC and Rule 173Q cannot be imposed. They relied on several case laws. If the proviso to Section 11A(1) cannot be invoked. Section 11AB and 11AC imposing interest and penalty can also not be invoked. Hence, the order in original may be set aside. In view of the above submission, there is no justification for imposing penalty under Rule 209A on the following persons, in the absence of mens rea.
(a) Shri Pradeep Jaipuria, Managing Director
(b) Shri Praveen Jaipuria, Executive Director
(d) Shri N. M. S. Babu, Authorised Signatory of the Company
6. The learned SDR reiterated the orders in original and relied on the Supreme Court's decision in CCE v. Garmmon Far Chems. Ltd. and said that the clearances of the subsidiary company can be clubbed. The learned advocate said that the case taw cited by the learned SDR is distinguishable because the said judgment was delivered in the context of notification No. 85/85 wherein the clearances included "By or on behalf of a manufacturer". The phrase on behalf of manufacturer is significant. This phrase is not found in respect of present notification 7/97 CE. Hence the Supreme Court's decision does not apply.
7. We have gone through the records of the case carefully.
(a) M/s. PJM and M/s. MBC are separate private limited companies. On this point, there is no dispute. In Board's Circular dated 29.5.1992, it has been clearly stated that limited companies whether public or private are separate entities, distinct from the shareholders composing it Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. There is nothing in the circular clarifying that if one company is a subsidiary of the other, then both should be treated as one unit and the clearances should be clubbed. Therefore, the finding of the learned Commissioner that if one company is a subsidiary of the other, then their clearances should be clubbed is unwarranted. Hence, we set aside the Commissioner's finding in this regard. In our view, there are absolutely no grounds for clubbing the clearances. The Commissioner's decision against the Board's Circular and it cannot be sustained. In our view, as rightly contended by the learned Advocate the Supreme Court's decision in Garmmon case (supra) is not applicable, as the same was in the context of Notification No. 85/85 dated 17.3.1985 wherein the clearances include even those on behalf of a manufacturer. In that context, the SC held that the clearances of subsidiary company would be deemed to be the clearances on behalf of the holding Company. In the present case, the phrase 'on behalf of a manufacturer' is not appearing in the Notification. Hence, the Supreme Court's decision is not applicable.
(b) As regards the allegation that MBC Limited manufactured and cleared Econeem, we find that there is no clinching evidence for the same. The documents recovered by the Revenue indicate that there was only some proposal to manufacture the same and there is no evidence that such a proposal was translated into action. Moreover, the fact that MBC Limited did not have any facility to manufacture Econeem should be borne in mind while deciding the issue. Moreover, only PJM is licensed to manufacture Econeem. The charge of clandestine manufacturing clearance cannot be sustained on presumptions and assumptions in the absence of tangible evidence. As held in Durga Trading Company v. CCE, Lucknow reported in 2002 (148) ELT 1967 (Tri.-Del.).
(c) As regards repacking of Pheromone, we find that the said item was imported and sold as such in smaller packs of 250 gm, 100 gm, and 50 gm and only in one instance there was repacking. There was no labeling and relabeling at all. The contention of the appellant that even though there was repacking in only one instance, there was no labeling or relabeling and hence the process would not amount to manufacture in the light of the Tribunal's decision in Ammonia Supply Company v. CCE, deserves serious consideration. The Tribunal in the context of interpreting note 10 to Chapter 28 held as follows in the above-cited decision.
In relation to products of this Chapter, labelling or re-labelling of containers and repacking from bulk packs to retail packs, or the adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture.
The appellants' contention that on the basis of a lone instance, duty cannot be demanded on the ground that they undertook the activity of manufacture has merits. In any case, in the light of the Tribunals decision cited supra, the allegations of manufacture cannot be sustained. Hence, we set aside this charge also.
(d) The correct classification of Echoderma and Echohume, according to the appellants, would be under Chapter heading 30.02 and 31.01 as cultures of microorganisms and animal and vegetable fertilizer, respectively. The Department contends that the items are classifiable under heading 38.08 as fungicides/pesticides. The contention of the appellant is that fungicides/pesticides are synthetic chemicals meant to kill the pests and harmful and fungi, whereas Echoderma itself is a living fungi which can be killed by typical fungicide. Secondly, pesticides kill the target pests by poisoning them through different mode of action. Echoderma does not kill any fungi. It is a beneficial test growth fungus which when applied to soil grows fast preventing other harmful fungi to attack the plant. In fact, Echoderma is a biochemical agent. According to the Central Insecticide Board, Echoderma is an antagonistic fungus. The appellants have produced enormous technical literature on the subject. The Fredrick Institute of Plant Protection and Toxicology has tested the item and stated that the same can be used as an antagonistic fungus for biocontrol. No reliance can be placed on the Chemical Examiner's Report as it is on record that the concerned laboratory of the Department does not undertake testing for fungus and bacteria. Hence, in our view the classification of Echoderma under Chapter 30 appears to be correct.
(e) As regards Echohume, according to the appellant the product is an animal and vegetable fertilizer. They are relying on the definition of fertilizer as per the Association of American Plant Food Control Officials (AAPFCO). Accordingly, "animal and vegetable fertilizer is any substance containing one or more recognized plant nutrient which is used for its plant nutrient content and which is designed for use are claimed to have value in promoting plant growth except unmanipulated animal and vegetable manure, marl, lime, limestone, wood ashes and other products exempted by regulation". Echohume contains few nutrients in insignificant quantities along with humic substances, therefore Echohume can be called as a fertilizer. The appellants contend that it is rightly classified under 31.01. The Revenue has classified under 31.05.00 "Other Fertilizers". According to the appellant for he purpose of heading 31.05, the term other fertilizer applies only to products of a kind used as fertilizers and containing as an essential constitute at least one of the fertilizing element, nitrogen, phosphorus or potassium (Chapter Note 6). Echohume does not contain any of the above said fertilizing elements as an essential constituent. Echohume contains the said fertilizing element in insignificant quantum and therefore, it is rightly classifiable under 31.01.00. Even if the classification is under 31.05, according to the appellants the item would be exempted under Notification No. 4/97. The appellant have made a very strong case and clearly brought out a difference between Echohume and other fertilizers classified under 31.05. In any case, even if Revenue's classification is accepted the item is entitled for the benefit of the notification cited. Hence, we hold that the findings of the Commissioner on this point are not sustainable. We uphold the classification of the Echohume under 31.01.
(f) The appellants have produced evidence to show that they had intimated to the department on 20.7.1998 regarding Margo Biocontrols Pvt. Limited, starting a manufacturing unit. In that letter they had also intimated that 100% shares in Margo Biocontrols is held by PJM. They had taken job work permission to send out materials. In these circumstances, their contention that suppression of facts cannot be sustained, deserves consideration. The case laws cited are in favour of the appellants. In view of the above findings all the charges against the appellants are set aside. No penalty and interest can be levied. The longer period also cannot be invoked. Hence, we allow all the 5 appeals with consequential relief.
(Pronounced in open Court on 25 OCT 2005)