Custom, Excise & Service Tax Tribunal
Nms Babu vs The Commissioner Of Central Excise on 17 November, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeals (s) Involved: E/1407-1411/2004-DB (Arising out of Judgment of Honble Supreme Court in Civil Appeal No.5851 of 2006 dated 16th September 2015; originally arising out of Order-in-Original No.9/2004 dated 12.10.2004 passed by Commissioner of Central Excise, Bangalore.) 1. NMS Babu 2. Pradeep Jaipuria 3. Margo Biocontrols P. Ltd. 4. Praveen Jaipuria 5. P.J. Margo P. Ltd. Appellant(s) versus The Commissioner of Central Excise Bangalore. Respondent(s)
Appearance:
Shri V. Raghuraman & Shri Raghavendra, Advocates For the Appellant Shri Mohammed Yousuf, AR For the Respondent Date of Hearing: 03/10/2016 Date of Decision: 17/11/2016 CORAM:
Mr. Mohammed Yousuf, AR For the Respondent HON'BLE SHRI S.S. GARG, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER Date of Hearing: 30/09/2016 Final Order No. 21155 21159 / 2016 Per : Ashok K. Arya
1. The present matter earlier came before this Tribunal against Order-in-Appeal No.9/2004.BNG.II dated 6.10.2004 passed by Commissioner of Central Excise, Bangalore-II and the Tribunal vide its Final Order No.1837-1841/2005 dated 25.10.2005 set aside the said Order-in-Original No.9/2004 dated 12.10.2004.
1.1 The Revenue (Commissioner of Central Excise, Bangalore) went in appeal before Honble Supreme Court against the Tribunals above order dated 25.10.2005. The Honble Supreme Court decided the Revenues Civil Appeal No.5851/2006 by its order dated 16.9.2015. The Honble Supreme Court by this decision dated 16.9.2015 remands the case to CESTAT to decide afresh on the following issues:
(i) As to whether any case for clubbing of excisable goods manufactured by the holding company and the subsidiary company is or is not made out on facts.
(ii) As to whether or not there has been suppression of material facts by both the aforesaid companies.
1.2 Consequent to above directions of Honble Supreme Court in respect of two issues mentioned above, the matter has been taken up for decision afresh by this Tribunal. The following are the appellants and Revenue is the respondent.
Sl. No. Appellants Appeal No. 1 NMS Babu E/1407/2004 2 Pradeep Jaipuria E/1408/2004 3 Margo Bio-controls Pvt. Ltd.
E/1409/2004 4 Praveen Jaipuria E/1410/2004 5 P.J. Margo Pvt. Ltd.
E/1411/2004
2. The appellants, M/s. P.J. Margo Pvt. Ltd. and Others have been represented by the learned advocate, shri V. Raghuraman and the Revenue has been represented by learned AR, Shri Mohammed Yousuf.
3. The learned advocate, Shri V. Raghuraman, based on the written submissions and compilations submitted to the Tribunal, inter alia pleads as follows:
(i) M/s. PJ Margo Pvt Ltd., (referred as PJM) is located in Plot No. 3A, Antharasanahalli Indl Area, Tumkur. They are engaged in the manufacture of water soluble Neem Extracts, Neem oil, Neem Husk, Neem De-oiled cake and Econeem.
(ii) M/s. Margo Bio Controls Pvt. Ltd. (referred as MBC) is located in No.64, Antharasanahalli Indl Area, Tumkur. MBC is wholly owned subsidiary of PJM having separate factory premises and is engaged in manufacture of Ecoderma, Ecohume, Echohume G, Delfin, Heligard etc. Both factories are located at a distance of 1.5 kms from each other.
(iii) The Department issued show cause notices (SCNs) for the period from April 1997 to March 2003 demanding Central Excise duty on various allegations. The first and the main allegation is that PJM is running one more manufacturing unit in the name of their subsidiary MBC alleging that they have financial control over MBC and the value of their clearances should be clubbed resulting in denial of benefit of SSI exemption to both PJM and MBC.
(iv) The details of show cause notices issued to PJM and MBC along with demands under various allegations are given as under:
SCN NO& Date Demand confirmed by Commissioner in OIO 9/2004 Dt 12.10.2004 PJM MBC Total Demand PJM&MBC Clubbing of clearance MBC-Clubbing clearance Clandestine-Mfr- Econeem Pheromon Repacking Ecoderma Ecohume C.No: V/38/15/6/2000 C.1/97 dt. 12.03.2001 8,69,919 4,73,244 7,04,907 2,24,720 7,16,943 2252,327 52,42,060 C.No: V/38/3/11/98 Prev 1761/01 dt 26.06.2001 15,00,422 35,65,866 50,66,288 C.No: V/38/15/8/2001 B.8/1066 dt 7.05.2002 15,97,310 43,87,047 59,84,357 C.No: V/38/15/8/2001 B8 370/03 dt. 24.1.2003 12,34,015 19,92,897 32,26,912 C.No: V/38/15/8/2001 B8 363/03 dt. 24.1.2003 0 0 0 C.No: V/38/15/8/2001 B.8/1656 dt. 24.06.2003 3,26,382 13,42,322 16,68,704 C.No: V/38/15/8/2001 B.8/1658 dt. 24.06.2003 0 0 0 55,28,048 11761,376 7,04,907 2,24,720 7,16,943 2252,327 2,11,88,321
(v) The appellants had filed an appeal before Honble Tribunal against the above referred order of Commissioner demanding excise duty on Clubbing of Clearances along with other issues viz., clandestine manufacture of Econeem, repacking of Pheromones, re-classification of Ecoderma, Ecohume.
(V-A) Honble Tribunal vide Final Order No. 1837-1841/2005 dated 25.10.2005 allowed the appeals of the appellant dropping all the duty demands and penalties.
(V-B) Aggrieved by the above referred Final Order dated 25.10.2005 issued by Honble CESTAT, the respondent-Commissioner of Central Excise, Bangalore II filed five appeals before Honble Supreme Court numbered as Civil Appeal No.5851 of 2006.
(V-C) The Honble Supreme Court held that whether the excisable goods manufactured by the holding company and the subsidiary company have to be clubbed together has not been satisfactorily answered either by the learned Commissioner or by the CESTAT in the impugned judgment. Supreme Court held that CESTAT, without adverting to either the facts stated in the show cause notice or the reply thereto, directly arrived at a conclusion that the manufacture of the excisable goods by both the holding company and the subsidiary company cannot be clubbed only on the basis of a circular dated 29.05.1992. Considering the decision of Supreme Court in CCE, New Delhi Vs. Modi Alkalies & Chemicals Ltd., & Ors 2004 (7) SCC 569 which held that the above referred circular would have no relevance to the notifications other than the Notification mentioned therein and therefore, Supreme Court held that CESTAT has decided the issue of clubbing is bad in law. On the issue of suppression of material facts leading to the extended period of limitation, the findings of the CESTAT is equally cursory, relying upon one letter dated 20.07.1998 sent by the subsidiary company.
3.2 The learned advocate for the appellants further submits as under:
i. Clubbing of clearances: Whether any case for clubbing of excisable goods manufactured by the holding company and the subsidiary company is or is not made out on facts:
a. Contradiction in findings given by the respondent. On the one hand MBC is termed as dummy unit or fagade of PJM and vice versa, on the other hand duty is demanded on both units PJM and MBC recognizing them as separate companies. This itself shows that the units are different.
b. Duty in such cases can only be demanded from principal unit and not from both units where duty is demanded from both units, it could be inferred that Revenue has recognized that both units are independent units. The case laws in support are as follows: i. Gajanan Fabrics Distributors Vs CCE 1997 (92) ELT 451 (S.C.) ii. CCE, Chandigarh Vs. Shiva Exim Enterprises 2005 (185) ELT 169 (Tri. Del.) iii. Affirmed by Supreme Court in 2015 (322) ELT A32 (S.C.) c. PJM, the holding company was incorporated in 1991. MBC, the subsidiary company was incorporated in 1994 with sole intention of marketing the products manufactured by PJM. Subsequently, it diversified into manufacturing activity and started its production in August 1998. As the holding company was established 3 years prior to incorporation of MBC and the latter only commenced its manufacturing activity in 1998, it is factually and legally untenable to term MBC as dummy unit of PJM. In support, the following case laws are cited:
i. CCE, Ludhiana Vs. Jagatjit Agro Industries 2014 (309) ELT 301 (Tri. Del.) ii. Affirmed in CCE Vs. Saron Mechanical Works 2016 (332) ELT 80 (P & H) d. No clubbing of clearances could be made between two limited companies clarified by Board Circular No. 6/92- 29.05.1992. In support, following case laws are relied upon: i. Supreme Washers (P) Ltd., Vs. CCE, Pune 2003 (151) ELT 14 (SC).
ii. CCE, Bangalore Vs. Aschem Agrotech P Ltd., 2015 (315) ELT 618 (Tri. Bang.) iii. Ennar Cements Pvt Ltd., Vs. CCE, Bangalore 2013 (292) E.L.T. 245 (Tri. - Bang.) iv. Indore Steel Casting P Ltd., Vs. CCE, Indore 2015 (317) ELT 556 (Tri. Del.) v. Nova Industries Pvt Ltd., Vs. CCE, Chandigarh 2015 (327) ELT 103 (Tri. Del.) e. The Honble Supreme Court in Commissioner v. Modi Alkalies and Chemicals Ltd.: 2004 (171) E.L.T. 155 (S.C.) in the context of clubbing of clearances held that the pervasive financial and management control are prima facie indicators of interdependence between the units. However, it was held that whether a unit is dummy is to be based on the facts of each case and there could not be any generalization or rule of universal application. f. It is submitted that the holding company PJM and MBC, the subsidiary are separate legal entities having separate factories with separate plant and machinery. This fact has been accepted by the respondent and two companies are engaged in manufacture of entirely different types of products. g. No clubbing could be done when two units have separate sales tax, income tax, SSI registration and have separate legal entity under Companies Act. h. PJM & MBC have their own Plant and Machinery:
i. There is no evidence of common funding and financial flow back. Departments letter dated 15.9.98 was replied to by appellant stating no flow back and department has not led any evidence to the contrary. j. PJM & MBC have separate manpower. MBC has substantial work force which is evident from the s0alaries and wages mentioned in Balance Sheet. k. The sales wing of MBC is headed by a Marketing Manager and it also has six Marketing Regional Managers located at Poona, Baroda, Calcutta, Zirakpur, Hyderabad, Coimbatore and Karnataka. It also has a separate accounts department headed by a Cost Accountant located at Bangalore. l. The comparative list of employees working in PJM and MBC during the impugned period is given as under: Year No of Employees PJM MBC 1997 47 8 1998 53 28 1999 55 36 2000 59 38 2001 65 50 2002 64 61 2003 64 63 2004 66 62 2005 65 63 2006 70 61 3.3 Further appellants plead as follows:
i. As per Supreme Court order dated 16.09.2015, the entire classification issue is in favour of the assessee company MBC, thereby majority of products manufactured by them viz., Ecoderma, Ecohume and Ecohume G are exempted goods.
ii. Consequently, the value of clearances of these exempted goods has to be excluded from the clearances of MBC when it is clubbed with that of PJM for determining as to whether combined value of clearances has crossed Rs.300 lakhs during the preceding financial year.
iii. It is submitted that combined value of clearances is well within Rs.300 lakhs till 2000-01 as it has crossed Rs.3 crores (Rs.3,91,51,247) only during the financial year 2001-02.
iv. Therefore, both PJM & MBC were eligible for SSI exemption for the period up to 2001-02 during which they are eligible for exemption up to Rs.100 lakhs and duty could be demanded only on the balance amount of clearances of Rs.2.91 crores for the financial year 2001-02.
v. Limitation: Whether or not there has been suppression of material facts by both the aforesaid companies.
a. Commencement of manufacturing activity by MBC is intimated vide letter dated 20.07.1998.
b. Application dated 10.8.1998 for registration under Central Excise.
c. Marketing pattern filed u/r 173C (3A) indicating routing of goods through related party (MBC).
d. Price declaration dated 14.10.1996.
e. Copy of Dept Letter dated 15.9.98 & reply by PJM.
f. Appellant had filed price declaration and other details starting from 1996 and continued to file during 1998 as well.
g. Show cause notice dated 12.3.2001 has been issued two years after the intimation and 4 years after registration by MBC.
h. No SCN could be issued by invoking extended period after a gap of many years after intimation and filing of price declaration having details of subsidiary.
3.4 The learned advocate for the appellants additionally submits as under:
* The reliance by the respondent during the hearing on 3.10.2016 on the decision of Tribunal in British Scaffolding India Pvt. Ltd: 2014 (313) ELT 87 (Tri.-Del.), is completely misplaced.
(a) As in this case 6 units were set up, all sold goods at a deflated price to BSL which controls the finance and raw material procurement. BSL resold the said goods at a very high price. By depressing the price, the other units could take the benefit of SSI exemption. In this factual scenario, the clubbing was ordered. On the contrary, in the instant appeal, as is evident from the price declaration filed by PJM and PJM the holding company has sold certain goods through the subsidiary and paid duty at the price declared by the subsidiary. This is a case where PJM has paid extra duty and not evaded duty payment as in British Scaffolding case.
(b) The other decisions relied on (not pressed by the respondents) relates to units being dummy units and are clearly distinguishable on fact. For e.g., reference can be made to the decision of Tribunal in Modern Engineering Plastics Pvt. Ltd.
(c) The real intention of having multiple units in the case quoted by Revenue is to evade taxes and where there are two independent manufacturer being holding and subsidiary with their own infrastructure, the position that all subsidiary factories belong to the holding company is wrong and against the definition of manufacture in Section 2(f) of Central Excise Act, 1944.
(d) It is submitted that plethora of case laws, especially in the case of CCE vs. Aschem Agrotech P. Ltd.: 2015 (315) E.L.T. 618 (Tri.-Bang.) clearly show that holding and subsidiary companies are entitled to SSI exemption notification separately. In the said case, this very Bench has held that both are entitled to the SSI exemption Notification.
4. The learned AR, Shri Mohammed Yousuf, on behalf of the Revenue reiterated the findings given by the Commissioner in the impugned order dated 12.10.2004.
4.1 The learned AR, further inter alia submits as under.
(i) It is not important to decide which is a facade company and which is the dummy company. It is one manufacturer, who has got these two different units or two different factories, whose clearances have to be clubbed as per the contents of the relevant SSI Notification No.175/86-CE dated 1.3.86; No.7/97-CE dated 10.3.1997; No.8/2000-CE dated 1.3.2000.
(ii) The SSI Notification mentions that wherever manufacturing is done by one manufacturer in one or more factories, if aggregate value of the clearances from these different factories exceeds the value limit given in the Notification, duty of Central Excise becomes chargeable.
(iii) Reference is made to Circular No.6/1992 dated 29.5.1992 issue by CBEC, Ministry of Finance which clarifies that if the clearances are on behalf of the same manufacturer, it should be taken into consideration for purposes of interpreting the exemption Notification concerning SSI. In the present case, the two units under the name of PJ Margo and Margo Bio-controls Pvt. Ltd. (MBC) are units of one manufacturer only and their clearances are to be clubbed.
(iv) In support, reliance is placed on the following case laws:
a. British Scaffolding India Pvt. Ltd. vs. CCE, Delhi: 2014 (313) E.L.T. 87 (Tri.-Del.) b. NEC Industrial Project vs. Commissioner : 2015 (325) E.L.T. A145 (S.C.) c. Euro Scaff (India) Ltd. vs. Commissioner: 2015 (323) E.L.T. A124 (S.C.) d. Premium Suiting (P) Ltd. vs. CCE: 2016 (331) E.L.T. 589 (All.) e. Modern Engg. Plastics Pvt. Ltd. vs. CCE, Trichy: 2009 (243) E.L.T. 289 (Tri.-Chennai) f. Parle Bisleri Pvt. Ltd. vs. CCE, Ahmedabad: 2011 (263) E.L.T. 15 (S.C.) g. Apex Electrostatics vs. CCE, Hyderabad-I: 2015 (330) E.L.T. 701 (Tri.-Bang.)
(v) Shri N. M. S. Babu, Deputy Manager of PGM who is looking after day-to-day affairs was also authorised signatory to MBC but was drawing salary from PGM. Administrative office of both units are in the same premises. Branches/depots of both units in various parts of the country are in same premises.
(vi) Both PJM and MBC are separate private limited companies but former is the holding company of MBC and latter is the subsidiary company of PGM; thus holding company have monetary control over MBC.
(vii) The Boards Circular dated 29.5.1992 relates to independent limited companies and not to holding and subsidiary companies. PGM and MBC are not two different limited companies.
5. We have carefully considered the facts on record, the submissions made by both sides and the case laws cited.
6. The Honble Supreme Court has remanded the matter to decide the matter afresh on the following two issues:
i. As to whether any case for clubbing of excisable goods manufactured by the holding company and the subsidiary company is or is not made out on facts.
ii. As to whether or not there has been suppression of material facts by both the aforesaid companies.
7. Whether it is the case of clubbing of excisable goods manufactured by the two units:
7.1 The relevant facts are given again below:
(i) M/s. P.J. Margo Pvt. Ltd. (PGM), one of the appellants is holding company and M/s. Margo Bio Controls Pvt. Ltd. (MBC), who is also one of the appellants, is the subsidiary company of PGM. Both have separate factory premises within a distance of 1.5 km from each other.
(ii) PJM, holding company came to existence in 1991 and MBC, subsidiary company came into existence in 1994.
(iii) The units of PJM & MBC have separate central excise registration, sales tax registration and income tax and SSI registration and have separate plants and machineries.
(iv) PJM and MBC are two separate private limited companies under Companies Act.
(v) PJM and MBC in general have separate manpower/work force where PJM is the holding company and MBC is the subsidiary company.
7.2 We find that there are substantial facts to treat these two appellants viz., PJM and MBC as separate manufacturers. At the same time, the submissions from the Revenue very much indicate that there are certain facts based on which it can be stated that these two units PJM and MBC are one and the same only. In this regard, Revenue inter alia cites the following facts.
(i) Authorised signatory is common, who is paid by PJM.
(ii) Administrative office and branches/depots are in common premises
(iii) Entire quantity of one the products econeem manufactured by PJM is sold through MBC and no commission is paid to MBC by PJM.
(iv) Entire funding to float MBC is done by PJM only.
7.3 We find that by and large PJM and MBC have separate existence in terms of separate factory premises, separate machinery, separate product items and so on. However, there are some key features/elements, whereby this separation (separate private limited companies) merges into one and these two units give the appearance of one only. The said features which merge these companies into one and preponderantly indicate that they are one manufacturer only are:
(i) The Deputy Manager of PJM, Shri NMS Babu is Authorised Signatory of both the units and also looks after day-to-day affairs of both the units.
(ii) The entire funding for starting MBC in respect of its start and manufacturing activities was done by PJM.
(iii) MBC had the license from Ecotech International and Technology for manufacturing neem based products, which was passed on to PJM without any consideration.
(iii-A) The appellants argue that MBC is allowing PJM to manufacture Econeem and in return for using technology PJM sells all Econeem to MBC.
(iii-B) The argument of the appellants is that commercially there is no sense for the MBC to pay PJM for using technology and then the same product to be bought from PJM by paying the price.
(iii-C) Above arguments of the appellants cannot be accepted as in the field of business and commerce every transaction has to have consideration, wherever two parties are involved. If the appellants insist that there are two separate parties, when use of licensed technology was allowed by MBC to PJM, necessary consideration has to be paid by PJM to MBC.
(iii-C.1)When there is another transaction of PJM selling all Econeem to MBC, there again consideration becomes payable from MBC to PJM.
(iii-C.2)These transactions, where no consideration is paid from one party to another again indicate that PJM and MBC are one and the same.
(iv) The appellants submit that Revenues contention that PJM is not charging any rent for leasing of factory premises is not correct as there is supplementary deed dated 6.7.1999, where there is provision of lease rent from MBC to PJM.
(iv.1)The appellants submission that they are giving lease rent by supplementary deed 6.7.1999 cannot be the sole basis to treat two companies as separate, when we have contrary facts on record to conclude otherwise. Further, the period of show-cause notice in these cases start from April 1997 till March 2003, whereas the supplementary deed is dated 6.7.1999 only, therefore, what about the period prior to 6.7.199, when MBC had come into existence in the year 1994 and started its production in 1998.
(v) PJM is holding company and MBC is its subsidiary company. They are separate companies under company law. MBC is 100% subsidiary company to PJM. In other words 100% funding or 100% equity of MBC is held by PJM only. Further when the authorised signatory, who looks after day-to-day work is one common person only, even then considering other facts mentioned above, these two appellants having separate existence under Company Law cannot become entitled to the benefit of two separate SSI units under law of Central Excise.
(vi) Here the key factors and key features discussed above lead us to conclude that productions in these two units viz., PJM and MBC are by one common manufacturer, who for the purpose of liability of duty of Central Excise is PJM only. Therefore, all the liability of Central Excise duty and other taxes becomes payable by PJM only. Consequently, the clearances from both these units have to be clubbed together and thereafter it has to be decided if they are entitled to SSI benefit and what is their liability of payment of duty of central excise.
7.3.1 It is to be noted that the value of manufacturing and clearances of exempted goods from any unit (PJM and MBC) has to be excluded, when the clearances of both the units are clubbed to determine the eligibility of SSI benefit to the appellants.
7.4 We have held that both the companies are one and the same. The principal company is PJM and it will be liable for payment of duty of Central Excise, if any, for the clearances made by both the units. We take support from the Ministry of Finance, CBEC Circular No.6/1992 dated 26.5.1992. The text of the Direction issued under Section 37B has been mentioned in the said Circular. From the said direction one of the general principles given in Clause 4 is quoted below:
(iv) Whether or not in the expression by or on behalf of a manufacturer the expression from one or more factories is added, the effect would be the same if the manufacturer is also the same. The expression one or more factories only further clarifies that whether the factory is one or more, it is the clearances by or on behalf of the same manufacturer which is to be taken into consideration for purposes of interpreting the exemption notification.
7.4.1 With reference to above clause 4, the facts have indicated that manufacturing from these two factories of PJM and MBC respectively have been made on behalf of the same manufacturer, who is PJM only. It is clarified that under Companies Law, PJM and MBC have got independent existence but the facts on record, where key features like common authorised signatory, common person looking after day-to-day affairs, having same administrative office and common financial funding, common management control clearly indicate that overall control as well as day-to-day affairs and policy affairs were being looked after by the common management belonging to PJM. So these key elements/features led us to pierce the corporate veil and treat these two companies as one only for the purpose of charging Duties of Central Excise for their manufacturing and clearances.
7.4.2 The CESTAT Delhis decision in the case of British Scaffolding India Pvt. Ltd. (supra) gives us support for above conclusions as it is applicable for the present facts though there has been no depreciation of value by any of these companies. In this decision, CESTAT has also referred to Honble Supreme Courts decisions for support and in this regard, we agree that those case laws are applicable to the present case also. In this regard, we refer to the observations made by CESTAT Delhi in the said case. The CESTAT Delhi inter alia has observed as follows:
7.?SSI Exemption is subject to conditions specified in it. One condition for this exemption notification is that where a manufacturer clears specified goods from one or more factories, the Exemption in his case shall apply for the total value of clearances mentioned against each of the serial numbers in the said table and not separately for each factory. Another condition of the Notification is that the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories during the preceding financial year does not exceed a particular threshold limit, as mentioned in the Notification. Thus, when a manufacturer has four factories located at different locations, and the SSI Exemption Notification prescribes nil rate of duty for first clearances of specified goods worth Rs. 50 lakhs in a financial year, each of these factories would not be separately eligible for full duty exemption in respect of its first clearances worth Rs. 50 lakhs in a financial year and for the purpose of this exemption, it is aggregate value of clearance of all the factories put together which would be considered. Similarly, eligibility for SSI Exemption during a particular financial year, shall be determined on the basis of aggregate value of clearances of all excisable goods for home consumption during the preceding financial year made from all the factories of the manufacturer and if the aggregate value exceeds the threshold limit, none of the units would be eligible for SSI Exemption even if the value of clearances for home consumption of all excisable goods made by each individual unit during the preceding financial year is well within the threshold limit for SSI exemption. It may happen that a manufacture may have several factories located in different states falling under the jurisdiction of different Commissioners of Central Excise. If each of these factories was availing the SSI Exemption separately and if it is found that for a particular financial year, the aggregate value of their clearances of all excisable goods during the preceding financial year had exceeded the threshold limit for SSI Exemption, none of these units would be eligible for SSI Exemption during that year. In such a situation, duty can be demanded by the Jurisdictional Central Excise Authorities separately from each unit and the question of identifying the main unit and dummy units and demanding duty only from main unit does not arise, as in the scheme of collection of Central Excise duty, as laid down in the Central Excise Act, 1944 and the rules made thereunder, the collection of duty is manufacturing unit wise and if a manufacturer has two or more factories located at separate locations, each unit is required to obtain separate Central Excise registration and is assessed to duty separately by the jurisdictional central excise officers. If there is short payment of duty by different units of a manufacturer on account of wrong availment of SSI Exemption, separate duty demands would have to be confirmed by the respective central excise officers having jurisdiction over the unit. If, however, the C.B.E. & C. appoints a common adjudicating authority, that common adjudicating authority can pass an adjudication order demanding duty from the units located in different commissionerates. The question of identifying the main unit and the dummy unit and demanding duty only from the main unit arises only in that situation when on investigation, only one unit is found to be actually functioning and other units are found to be just non-functional fake units established just to show bogus production and clearances in their name.
7.1?However in most of the cases, the fact of common ownership of different units by a person is not so obvious and may be carefully camouflaged. For example - if there is a manufacturing unit of a proprietorship concern of a person X, there is a second manufacturing unit owned by a partnership concern A with X and his wife Y as partners, there is a third manufacturing unit owned by a private limited company B with shareholding by X, his son Z and the partnership concern A and there is a fourth manufacturing unit owned by another private limited company C with shareholding by A, B and another son Z2 of X and if these four units owned by X, A, B and C are each availing of SSI Exemption, a question arises as to whether they are to be treated as separate entities or units owned by the same person, for the purpose of SSI Exemption.
7.1.1?While a company is a legal person entirely distinct from its shareholders, in terms of Apex Courts Judgment in case of Income Tax Commissioner, Madras v. Meenakshi Mills, Madurai, reported in AIR 1967 Supreme Court 819, in certain exceptional cases, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade and that the court has powers to disregard the corporate entity if it is used for tax evasion or to circumvent the tax obligation. Same view has been taken by the Apex Court in cases of :-
(a) Calcutta Chromotype v. Collector of Central Excise, reported in 1998 (99) E.L.T. 202 (S.C.) = (1998) 3, SCC-681;
(b) Subra Mikharjee & another v. Bharat Cooking Coal Ltd., reported in (2000) 3 SCC-312; and
(c) Delhi Development Authority v. Skipp Construction Co. (P) Ltd., reported in (1996) 4 SCC-622.
The Apex Court in the case of Associated Rubber Industry Ltd., reported in 1986 (157) ITR-77 (S.C.), relying upon its earlier judgment in case of Medowell & Co. Ltd. v. CTO, reported in 1985 154 ITR-148, 161 (S.C.) has held that even if companies are distinct legal entities having separate existence, this is not the end of the matter and it is the duty of the Court in every case, where ingenuity is expended, to get behind the smokescreen and discover the true state of affairs. Thus, the principle of lifting the corporate veil for discovering the true state of affairs behind the veil of the corporate entity is a well settled legal principle. It is this principle which has to be applied for determining as to whether two or more manufacturing units owned by separate partnership firms, private limited companies and/or public limited companies are to be treated as the units of the same manufacture. On this point, the Apex Court in case of CCE, Delhi v. Modi Alkalies & Chemicals Ltd., reported in 2004 (171) E.L.T. 155 (S.C.), has held that when on lifting the corporate veil it is found that only one person/company has extraordinary interest and pervasive control over the financial matters and management of other companies, irrespective of the latter having separate sales tax, income tax and central excise registration, their clearances have to be clubbed for determining their eligibility for the SSI Exemption Notification No. 1/93-C.E. In this regard, Para 87 of the judgment is reproduced below :-
Whether there is inter-dependence and whether another unit is, in fact, a dummy has to be adjudicated on the facts of each case. There cannot be any generalization or rule of universal application. Two basic features which prima facie show interdependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly, the share capital of each of the three companies was Rs. 200/-. Though it was claimed that financial assistance was availed from the financial companies, it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1-4-1998. NGCPL received an amount of Rs. 1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about Rs. 52 lakhs while to SCGCPL it was about Rs. 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that, the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis and the need for introducing MACL as the lessee and then the three companies becoming sub-lessees. As noted by the Commissioner, entire receipts were paid as lease amount to MACL. Here again, the under-valuation aspect assumes importance. While the supply by MACL to three companies was Rs. 0.50 per unit, the sale price by the three companies was Rs. 5 per unit. It is on record that accounts were kept by common staff and marketing was done under the supervision of a person who belongs to the same group of concerns. The amounts have been collected by an employee of MACL. The so-called Directors of the companies were undisputedly employees of MACL. Almost the entire financial resources were made by MACL. The financial position clearly shows that MACL had more than ordinary interest in the financial arrangements for companies. The statements of the employees/Directors show that the whole show was controlled, both on financial and management aspects by MACL. If these are not sufficient to show inter-dependence probably nothing better would show the same. The factors which have weighed with CEGAT like registration of three companies under the sales tax and income tax authorities have to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The Circular No. 6/92, dated 29-5-1992 has no relevance because it related to Notification No. 175/86-C.E., dated 1-3-1986 and did not relate to Notification No. 1/93. The extended period of limitation was clearly applicable on the facts of the case, as suppression of material features and factors has been clearly established. If in reality the three companies are front companies then the price per unit to be assessed in the hands of MACL is Rs. 5 and not Rs. 0.50 as disclosed. The question whether there was manufacture or not was not in issue before the Commissioner. The plea that there was no manufacture has also to be rejected in view of the fact that exemption was claimed by the three companies as manufacturers to avail the benefit of Central Excise Notification No. 1/93.
Same view has been expressed by the Apex Court in its judgment in case of Supreme Washers Pvt. Ltd. (Supra).
7.1.2?The Boards Circular No. 6/92, dated 29-5-1992 clarifying that limited companies, whether public limited or private limited are separate entities and each such limited company is a manufacturer by itself and would be entitled for SSI Exemption separately, has not considered the principle of lifting of corporate veil in the cases where different corporate entities appear to be just colorable devices for tax evasion, and hence this circular is not in accordance with the provisions of law. In accordance with Apex Courts Judgment in case of CCE v. Ratan Melting & Wire Industries, reported in 2008 (231) E.L.T. 22 (S.C.) = 2008 (12) S.T.R. 416 (S.C.), a circular which is contrary to the statutory provisions, has no existence in law. Though in case of Supreme Washers Pvt. Ltd. (supra), after upholding the principle of lifting of corporate veil the Apex Court taking note of the Boards Circular No. 6/92, dated 29-5-1992, had remanded the matter to the Tribunal for examining the applicability of this circular, since this circular being contrary to the law laid down by the Apex Court in the case of Income Tax Commissioner, Madras v. Meenakshi Mills, Madurai (supra), M/s. Calcutta Chromotype v. CCE (supra), Delhi Development Authority v. Skippe Construction Co. (P) Ltd. (supra), Associated Rubber Industry Ltd. (supra) and CCE v. Modi Alkalies & Chemicals Ltd. (supra), has no existence in law, the Appellants plea for decision of this matter on the basis of Boards Circular No. 6/92-C.E. is not acceptable.
7.1.3?Thus, if there is evidence on record to prove that a particular person, whether natural or juristic, has comprehensive financial and management control over several entities and is the actual beneficiary of their activities, the clearances of the factories owned by these entities are to be clubbed for the purpose of determining their eligibility for SSI Exemption by treating them as the units of only one manufacturer, even if those units are owned by different public limited companies, private limited companies or partnership firms. If on clubbing their clearances during the preceding financial year, the aggregate value of the clearances is found to be exceeding the threshold limit for SSI Exemption, the SSI Exemption would have to be denied to each of them and if each of them is a functioning unit and not a non-functional dummy unit, the duty can be demanded separately from each unit. (Emphasis supplied) 7.4.3 It is to be noted that CESAT Delhis above decision in the case of British Scaffolding India Pvt. Ltd. (supra) has been endorsed by the Honble Supreme Court in cases of NEC Industrial Project (supra) and Euro Scaff (India) Ltd. (supra) 7.4.4 The Honble Allahabad High Court in the case of Premium Suiting Pvt. Ltd. (supra) inter alia in para 5 to 7 observes as under:
5.?The extract of the relevant notification that was applicable during the period in question, namely, Notification No. 7 of 1997, dated 1st March, 1997 is extracted hereunder :-
The exemption contained in this notification shall apply only subject to the following conditions, namely :-
(i)?
(ii)?...
(iii)?The aggregate value of clearances of all excisable goods for home consumption (including clearances for export to Bhutan or Nepal) by a manufacturer from one or more factories, or from a factory by one or more manufacturers, has not exceeded rupees three hundred lakhs in the preceding financial year.
6.?From the aforesaid, it is clear that a manufacturer is entitled for exemption if the aggregate value of clearances of all excisable goods for home consumption from one or more factories or from a factory by one or more manufacturers does not exceed Rs. 3 crores in the preceding financial year.
7.?Admittedly, from the evidence that has come on record, the manufacturer has two factories. One factory is engaged in the manufacture of cloth and the second factory is engaged in the manufacture of Polymer Vinyl Acetate, etc. Both the goods manufactured in two separate factories are excisable goods. The exemption therefore can be claimed only if the aggregate value of the clearances of all excisable goods does not exceed Rs. 3 crores. The fact that the two factories are of one manufacturer is clear from the fact that common balance sheet is being filed. It is, therefore, irrelevant to contend that the two factories have separate entrances, managing staff or central excise registration. What is relevant is that a manufacturer, if he has one or more factories, would be entitled for exemption at concessional rate of duty if the aggregate value of clearances of all excisable goods does not exceed Rs. 3 crores. Since the appellant has another factory, which is manufacturing an excisable commodity, its clearances have to be added while considering the exemption notification. Since the aggregate clearances exceeded the limit of Rs. 3 crores, the appellant was not entitled for exemption. The adjudicating authority rightly issued the show cause notice and quantified the demand. Above observations of Honble High Court are applicable to the present facts. Therefore, there can be no doubt that the clearances of both the units deserve to be added for deciding on the eligibility of SSI exemption Notification.
7.4.5 The Honble Supreme Court in the case of Commissioner vs. Modi Alkalies and Chemicals Ltd.: 2004 (172) E.L.T. 155 (S.C.) observes as under:
8. Whether there is inter-dependence? and whether another unit is, in fact, a dummy has to be adjudicated on the facts of each case. There cannot be any generalization or rule of universal application. Two basic features which prima facie show interdependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly, the share capital of each of the three companies was Rs. 200/-. Though it was claimed that financial assistance was availed from the financial companies, it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1-4-1998. NGCPL received an amount of Rs. 1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about Rs. 52 lakhs while to SCGCPL it was about Rs. 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that, the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis and the need for introducing MACL as the lessee and then the three companies becoming sub-lessees. ..The so-called Directors of the companies were undisputedly employees of MACL. . When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The Circular No. 6/92, dated 29-5-1992 has no relevance because it related to Notification No. 175/86-C.E., dated 1-3-1986 and did not relate to Notification No. 1/93 ...
These observations further support our conclusion that PSM and MBC are one manufacturer for purpose of leviability of Duty of Central Excise. It is also to be made clear that the facts of each case are unique and the matter has to be decided after examining those facts. Our conclusion is based on the facts present for this case, the submissions of both the sides along with the case laws cited.
7.5 The appellants argument that they have different plant and machinery, different manpower, different factory premises, therefore, they are two separate companies, has not been found to be of assistance to the appellants in their stand and these submissions/arguments do not stand the scrutiny of law as discussed above, when the key features of the appellants units and the case laws given above overwhelmingly support us to conclude that they are one and the same manufacturer, where clearances have to be clubbed together to decide on the eligibility of claiming SSI benefit under the respective Notification(s).
8. Limitation: The appellants plead that all the facts were in the knowledge of the Revenue/Department, therefore, the demands of Central Excise duty cannot go beyond one year and extended period clause for demand of central excise duty cannot be invoked.
8.1 Based on the facts on record and the submissions of both sides and the case laws cited, we are in agreement with this plea of the appellants that there has not been any suppression of material facts by the appellants, when the two appellants viz., PJM and MBC are under the jurisdiction of one Commissionerate of Central Excise, who have granted separate central excise registration to them and from time to time, there has been correspondence between these two appellants and the department. Therefore, based on the facts as well as the ratios laid down by the Honble Supreme Court in the following cases:
(i) CC, Mumbai vs. MMK Jewellers: 2008 (225) E.L.T. 3 (S.C.)
(ii) CCE, Mangalore vs. Pals Microsystems: 2011 (270) E.L.T. 305 (S.C.)
(iii) Collector vs. Chemphar Drugs and Liniments: 1989 (40) E.L.T. 276 (S.C.) the demands issued for the period beyond one year are not sustainable and are, therefore, hereby set aside. In other words, the liability of Central Excise Duty has to be decided for the period of one year preceding the date(s) of the show-cause notice issued to the appellants.
9. As this matter has been remanded by the Honble Supreme Court to decide afresh, our decision based on the above discussions and the case laws cited, is as follows:
(i) Based on the facts, there is a case made out for clubbing of excise goods manufactured by the holding company, PJM and the subsidiary, MBC.
(ii) There has not been suppression of material facts from the Revenue by the two appellant companies viz., PJM and MBC.
10. Based on above findings and decision, matter requires quantification of liability of duty of Central Excise, if any, and for imposition of penalties, if any, in respect of the impugned periods - April 1997 to March 2003, for which respective show-cause notices were issued to the appellants. This will require detailed verification of figures and documents at the field level. Therefore, the matter for re-quantification of the liability of the appellants and imposition of penalties is being remanded to the original adjudicating authority, Commissioner of Central Excise, Bangalore, who shall decide the matter based on our findings, within four months of receipt of this Order after giving necessary opportunity for personal hearing and for production of documents to the appellants.
11. The remanded matter and the subject appeals are disposed off in above manner.
(Order was pronounced in Open Court on 17.11.2016.) ASHOK K. ARYA TECHNICAL MEMBER S.S. GARG JUDICIAL MEMBER rv 1