Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Trichy vs M/S. Rock Pack Pvt.Ltd on 27 November, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/660 to 662/2009
(Arising out of Order-in-Appeal No.124/2009 dated 26.8.2009 passed by the Commissioner of Central Excise (Appeals), Trichy)
Commissioner of Central Excise, Trichy Appellant
Vs.
M/s. Rock Pack Pvt.Ltd.
T. Kumararaj
T. Asokan Respondents
Appearance Shri A. Cletus, Addl. Commissioner (AR) for the Appellant None for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing / Decision: 27.11.2017 Final Order Nos. 43027-43029 / 2017 Per Bench The appellant-company incorporated in the year 1989 is aggrieved by the demand raised clubbing the clearances of another two units namely M/s. Packers India and M/s. AGKk Packers.
2. M/s. Packers India were engaged in the manufacture of corrugated boxes and the partnership firm was dissolved with effect from 1.10.2003. The appellant took over the assets and liabilities of the said firm with effect from 1.10.2003 and started manufacturing activity. One more partnership firm M/s. AGK Packers were also engaged in the manufacture of corrugated boxes. M/s. AGK Packers availed SSI exemption under Notification No. 9/2001-CE dated 1.3.2001 as amended by availing CENVAT credit and cleared their goods on payment of concessional rate of duty @ 9.6% Advalorem (60% of 16%) from the first clearances till the turnover of Rs. One crore and then paid at normal rate of duty @16% thereafter for the period 1.4.2001 to 31.3.2005. With effect from 1.4.2005, they availed CENVAT credit while paying normal rate of duty. Similarly, M/s. Packers India originally availed SSI exemption and thereafter, on taking over the assets and liabilities by the appellant, continued to avail the SSI exemption upto 31.3.2006. It needs to be mentioned that corrugated boxes attracted levy of central excise duty only with effect from 1.3.2001.
2. On scrutiny of records of M/s. AGK Packers and the appellants, it was revealed that the partners of M/s. AGK Packers ShriT. Kumararaj and Shri T. Asokan were also directors of the appellant company. Statements were recorded from both the partners and the partnership deeds as well as the memorandum of association were examined. The department came to the following conclusion:-
(i) The profit / loss of the firm was shared only between S/Shri. T. Kumraraj, T. Asokan and S. Gananapraksam during he period from 01.04.2001 to 31.08.2003. to the exclusion of other partners S/Shri. R.Sundararanan, S.Vinoth and P.K.Ramalingam;
(ii) There were no evidences with regard to contribution of capital by S/Shri. R.Sundararajan, S.Vinoth and P.K. Ramalingam nor there was any payment of interest or any other remuneration to them:
(iii) For the financial year 2001-02 it is seen that there were three partners only (1) Shri. T.Kumararaj, (2) Shri.S.Gnanaprakasam, and(3) Shri. T. Asokan as per Books of Accounts of Packers India which was audited and the loss of Rs. 1,32,004/- during the year was distributed among them in equal share;
(iv) During the year 2002-03 also, the net loss of Rs.3,36,034/- was distributed among the above 3 partners equally;
(v) Since Shri. S. Ganaprakasam retired from the firm on 31.08.2003, his capital account was closed on 31.08.2003 and current account was closed on 30.09.2003 and the net profit of Rs. 45,171/- for the year ending 31.03.2004was divided equally between Shri. T.Kumararaj and Shri. T. Asokan;
(vi) The General Ledger of Packers India for the year 2001-02 contained folios under the head: Partners Current Account and Partners- Capital Account for Shri. T. Kumararaj, Shri. T. Asokan and Shri. S.Gnaprakasam only.
3. Thus from the books of accounts, it was seen that though another partner Shri S. Gnanaprakasam was also a partner of M/s. AGK packers, he retired from the partnership with effect from 31.8.2003 and thereafter M/s. AGK Packers had only two partners, namely Shri T. Kumararaj and T. Asokan. It was also seen that though there were other partners in the books of account namely Shri P. Krishnan and Smt.B. Rajammal, they did not share any profit and the entire profit / loss were shared by Shrii T. Kumararaj and Shri T. Asokan only. From the above it appeared to the department that M/s. Packers India which was taken over by the appellant-company and M/s. AGK Packers were owned and managed by the same set of persons that is Shri T. Kumararaj, Shri T. Asokan and Shri S. Gnanaprakasam from 1.4.2001 to 31.8.2003 and thereafter Shri T. Kumararaj and T. Asokan from 1.9.2003 to 30.9.2003. Likewise, M/s. AGK Packers and the appellant, even though a private limited company duly incorporated under Companies Act, were managed by Shri T. Kumararaj and T. Asokan with effect from 1.10.2003 to 31.3.2006. Show cause notices were issued proposing to club the clearance of M/s. Packers India and M/s. AGK Packers with that of the appellant-company and also for imposing penalties. After adjudication, the original authority confirmed the demand of Rs.23,15,664/- clubbing on the clearances and denying the SSI exemption on Packers India for the period 1.4.2001 to 30.9.2003 along with that of the appellant and to recover the same along with interest. Another demand of Rs.26,49,671/- was ordered to be recovered from the appellant-company for the clearances made by wrongly availing SSI exemption for the period 1.10.2003 to 31.3.2006. A penalty of Rs.49,65,335/- was imposed on the appellant under section 11AC besides separate penalty of Rs.2 lakhs under Rule 9(2), 173Q and 226 of the erstwhile Central Excise Rules, 1944. Separate penalty of Rs.1,00,000/- was imposed on Shri T. Kumararaj and T. Asokan. In appeal, Commissioner (Appeals) set aside the same. Hence, Revenue has come in appeal before the Tribunal.
4. On behalf of Revenue, ld. AR Shri A. Cletus reiterated the grounds of appeal. He submitted that the Commissioner (Appeals) erred in not appreciating the evidences considered by the original authority. The partnership deeds in respect of M/s. Packers India effective from 1.4.2001 was admitted by T. Kamaraj to be created only for the purpose of bank loan and that it did not come into force at all. That this aspect is corroborated by the statement of Shri S. Vinoth who is a silent partner. None of these partners contributed towards capital nor had they received any profit or loss from the firm. They were included in the partnership deed only for the purpose of obtaining bank loan and since the loan was not obtained, the partnership deed did not come into effect. Further, the Chartered Accountant of the above firm/company deposed that the partners of M/s. Packers India and M/s. AGK Packers were Shri T. Kumararaj, Shri T. Asokan and Shri S. Gnanaprakasam. Though the partnership deed dated 1.4.2001 in respect of M/s. Packers India contained these names, the details of contribution of capital and profit sharing ratio is not mentioned in the deed. The Chartered Accountant Shri S. Kalaimani stated that he is not aware of the existence of the above deed. He also stated that the profit and loss were shared only by the above three partners. In respect of M/s. AGK Packers, though they were partners shown in the deed dated 1.4.2004, only Shri T. Kumararaj and Shri T. Asokan shared the profits / losses. The other partners Shri P. Krishnan and Smt. B. Rajammal did not receive any salary or remuneration or interest from the firms. That Shri P. Krishnan and Smt. B. Rajammal were only guarantors for the bank loan and they were inducted to the partnership deed dated 1.4.2001 only for this purpose. The Commissioner (Appeals) erred in holding that M/s. AGK Packers are distinct entity and that their clearances cannot be clubbed with that of the appellant-company. The Commissioner (Appeals) ought to have considered the aspect that the partnership deed is only a camouflage for availing the SSI exemption since only two partners have been receiving the profit / loss of the partnership firm. Though the appellant is a company registered under the Companies Act and is a separate and distinct legal person, the corporate veil can be lifted to understand the illegal activities. Thus, the department has brought out that appellant company after taking over M/s. Packers India as well as through the other firm M/s. AGK Packers have been wrongly availed the SSI benefit. That these are evidences sufficient for clubbing the clearances of M/s. Packers India as well as M/s. AGK Packers with that of the appellant-company. The Commissioner (Appeals) was not correct to accept the plea that it has to be proved that one unit was a manufacturing unit and the other dummy unit where no manufacturing activities were carried out. The departments case is based on the violation of the conditions of the Notification granting SSI benefit. Shri T. Kumararaj and Shri T. Asokan were the real manufacturers in all the three units.
5. As regards applicability of Boards Circular No. C/92 dated 29.5.1992, he argued that the Circular is not applicable and the units having common partners and fictitious partnership deeds cannot take shelter under the above circular. Further, the adjudicating authority had brought out flow of fund between the two units namely M/s. AGK Packers and Packers India during the period 2001 02 and 2002 03. He, therefore, prayed that the order passed by the Commissioner (Appeals) may be set aside and the order passed by the adjudicating authority may be restored.
6. None appeared for the respondents, though notice was issued. The matter is taken up for disposal after hearing the ld. AR and perusal of records.
7. The allegation of the department is that the clearances made by M/s. Packers India for the period till it was taken over by the appellant-company as well as the clearances of M/s. AGK Packers, another partnership firm is to be clubbed with the clearances of the appellant-company and to be treated as one unit so as to deny SSI exemption as the turnover after clubbing exceeded the prescribed limits. In this context, it is to be first mentioned that the appellant company was incorporated in the year 1989 and has later taken over the assets and liabilities of M/s. Packers India with effect from 1.10.2003. After such takeover of the assets and liabilities, M/s. Packers India, in our view, does not have any individual existence. So the contention of the department that the clearances made by M/s. Packers India upto 1.10.2003 has to be clubbed with that of the appellant company does not make legal sense. As already mentioned, the corrugated boxes became leviable to central excise duty only with effect from 1.3.2001.
8. Now coming to the clearances of M/s. AGK Packers, undisputedly, this firm is a separate income tax assessee, has separate sales tax registration besides central excise registration. They have separate electricity connection, SSI registration, separate bank account and separate work force with necessary machinery which is discussed in para of the Order-in-Original. The Commissioner (Appeals) has discussed in para 4.1 that for clubbing the clearances of two units, it is to be established that there is one principal manufacturing unit and the other is a dummy unit wherein all manufacturing activities are carried out only in one of the units. In the present case, M/s. AGK Packers had central excise registration and they were also clearing finished products by payment of duty and were also availing CENVAT credit. This being so, the department has denied the independent existence of such a unit and clubbed the clearances with that of the appellant company. Nothing is brought out from the show cause notice or the Order-in-Original as to which is the dummy unit alleged by the department. When M/s. Packers India was taken over by the appellant company, which is a company registered under the Companies Act, the said unit could no longer be considered as a separate unit so as to club the clearances of the unit alleging it to be a dummy unit of the appellant company. Further, M/s. AGK Packers, as already stated, has a central excise registration as well as separate bank accounts and Income Tax assessment. Merely because Shri T. Kumararaj and Shri T. Asokan are active partners in M/s. AGK Packers and also the appellant company, it cannot be said that M/s. AGK Packers is a dummy unit of the appellant-company. Needless to say that there is no such allegation or confirmation in the adjudication order that M/s. AGK Packers is a dummy unit. The Commissioner (Appeals) has rightly observed that the department has not produced any documentary evidence to establish that M/s. AGK Packers / M/s. Packers India is a dummy of the appellant company.
9. Another important aspect that has come to our notice is that separate notice has not been issued to M/s. AGK Packers and M/s. Packers India, though the department alleges that these are dummy units. The Tribunal in various cases has taken a consistent view that the dummy unit has also to be put into notice for clubbing the clearances with another unit especially when the element of their independent existence is denied. In the case of Commissioner of Central Excise, Chennai Vs. Urbane Industries reported in 2015 (325) ELT 726 (Mad.), the Honble jurisdictional High Court had occasion to analyze a similar issue and held that non issuance of show cause notice to the alleged dummy unit would vitiate the proceedings. In our view, the Commissioner (Appeals) has rightly analysed the issue and followed the decisions of the Tribunal as under:-
(a) Aroma Apparels Vs. Commissioner of Central Excise 1988 (25) ELT 90
(b) Commissioner of Central Excise vs. Shiva Exim Enterprises 2005 (185) ELT 169 (Tri. Del.)
(c) Commissioner of Central Excise Vs. Goyal Fibres Pvt. Ltd. 2009 (234) ELT 108 (Tri.)
(d) Rao Industries Vs. Commissioner of Central Excise 2009 (237) ELT 128 (Tri. Bang.)
10. Apart from the above, the CBEC Circular No. 6/92 dated 29.5.1992 clarifies that the clearances of a partnership firm cannot be clubbed with that of a company even though they may be having common partners / directors. In the present case, the department has been carried away by the fact that Shri T. Kumararaj and Shri T. Asokan who are partners in M/s. AGK Packers is also the Directors in the appellant-company. This alone cannot be a ground for clubbing the clearances as is held by various judgments cited above and relied by the Commissioner (Appeals). The mere fact that other persons were also inducted into the partnership firm for the purpose of obtaining bank loan etc. would not make such partnership deeds fictitious or doubtful. So also the mere fact that such persons did not share the profit and loss will not make the unit a dummy unit for the reason that it is for the partners between themselves to decide how to share the profit / loss as such functions being an internal management of the partnership firm, the department cannot deny such firm having independent existence.
11. From the discussions herein above, we are of the considered opinion that the impugned order calls for no interference and the appeals filed by the department are dismissed.
(Operative portion of the order was
pronounced in open court)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Rex
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