Customs, Excise and Gold Tribunal - Delhi
Unique Resin Industries vs Collector Of Central Excise on 22 August, 1994
Equivalent citations: 1994ECR86(TRI.-DELHI), 1995(75)ELT861(TRI-DEL)
ORDER P.K. Kapoor, Member (T)
1. By the Misc. Order Nos. 104 to 107/94-C, the Final Order Nos. 276 to 279/93-C, dated 4-8-1993 was recalled to hear both sides on the appellants' plea that the demand raised in the case was time-barred and consequently the penalty imposed by the impugned order was illegal.
2. Appearing on behalf of the appellants, Shri P.M. Dave, learned advocate stated that the show cause notice dated 5-7-1989 issued for the period 1984-85 to 18-8-1985 was dropped. He contended that under these circumstances, the show cause notice dated 5-7-1990 issued on the same facts was illegal. He submitted that the finding in the impugned order that all the 4 units were not separate legal entities and M/s. Usha Thermosets Pvt. Ltd. had created the other three dummy units with the mala fide intention of getting the benefit under Notification Nos. 175/86 and 85/85 was based on the finding that the units were situated in a common compound, they had common products having same grade number; common customers and common partners having financial interest in each other's business. He submitted that the classification lists filed by the units from time to time giving the description and nature of the products manufactured by them were approved by the Department. Hence, it could not be said that the concerned units had in any way concealed or suppressed the details regarding the nature of the products manufactured by them. He added that in the gate passes filed with the RT-12 returns the names of the customers were mentioned and such returns were finalised by the Department. Shri Dave further submitted that the names of the partners/directors of the units were disclosed in the AL-4 application filed by each of the unit for obtaining the Central Excise licence. He also referred to the letter at pages 206-207 of the paper-book and stated that whenever there was change in the constitution of any of the firms, the Department was informed. He also submitted that all the four units were under the charge of a single Central Excise Officer. He contended that under these circumstances all information in respect of the firm including the nature of their products and their constitution was furnished to the Department. He stated that for this reason and also in view of the fact that all the central excise formalities were complied with by the concerned units, there could not be any charge of suppression or wilful mis-statement. He submitted that since the proceedings drawn up earlier on the basis of the same facts had been dropped, no mala fide on the part of the appellants could be attributed. He reiterated his stand that the appellants having complied with all the central excise formalities and no irregularity having been pointed out by the department at any stage, there could be no charge of suppression or wilful mis-statement against them. In support of his contention he cited the judgment of the Hon'ble Supreme Court in the case of Padmini Products v. Collector of Central Excise reported in 1989 (43) E.L.T. 195 (SC). He contended that no reasons had been given by the Collector in support of his finding regarding suppression of facts. He argued that the demand confirmed by the Collector by invoking the extended period on the ground of suppression was not sustainable and for this reason the order imposing penalty has also to be held as illegal. He contended that in view of his finding that three out of the four units were dummies, the Collector should not have imposed penalty under Rule 173Q on such units. In this regard he also submitted that full and complete disclosures having been made by the concerned units and all central excise formalities having been complied with, the penalties imposed were illegal.
3. On behalf of the respondent, Shri Somesh Arora, ld. JDR submitted that there was no force in the appellants' contention that the show cause notice was illegal. He stated that it was permissible for the Department to issue the second show cause notice since fresh evidence regarding common funding of the units had been revealed by the subsequent investigations. He contended that the appellants' claim that the units were controlled by the same Central Excise Officer and they had been complying with the prescribed central excise formalities was not relevant since the fact that three out of the four units were dummy concerns set up with the objective of evading central excise duties was confirmed by the finding that there was mutuality of interest on account of common funding that there was mutuality of interest on account of common funding. In support of his contentions he placed reliance on the Tribunal's decision in the case of Shree Gajanan Fabrics Distributors v. Collector of Central Excise, Pune reported in 1992 (43) ECR 172. He referred to the Collector's finding in para 30 of the impugned order and contended that the finding regarding suppression of fact was sustainable since the appellant had not disclosed the full facts regarding the funding of the concerned units.
4. It is seen that the Collector held that M/s. Usha Thermosets Pvt. Ltd. and the three other units, namely, Unibond Industries, Uniset Industries and Unique Resin Industries were not entitled to separately claim exemption from the payment of central excise duty under Notification No. 175/86-C.E., dated 1-3-1986 and 85/85, dated 17-3-1985 since M/s. Usha Thermosets Pvt. Ltd. had created the other three dummy units merely for the purpose of claiming the exemption under the said notification. The main considerations on the basis of which the Collector arrived at his finding that the units in question could not be treated as separate legal entities was that they were functioning in the same compound and they had common arrangements for the purchase of raw materials at Usha Thermosets Pvt. Ltd., Bombay. In this regard the Collector also took into account the fact that the units in question had certain common employees and their products were also marketed under common code/grade numbers. Apart from these considerations, another factor which influenced the Collector's finding was that the finances of all the four units had been provided by Shri H.C. Parikh and his family members. After arriving at this finding the Collector had also held that the period beyond six months was invokable for recovery of differential duty since the appellants had suppressed the fact regarding mutuality of interest in the business of each other with the wrong intention of enjoying the benefit of the exemption Notification Nos. 175/86 and 85/85. The Learned Counsel on behalf of the appellants has submitted that the Collector's finding in regard to suppression of fact is not sustainable since the appellants, during the relevant period, had complied with all the central excise formalities and the activities of all the four units were within the knowledge of the Department. In this regard he has pointed out that all the four units were supervised by the same Central Excise Officer and they were issued separate central excise licences. It has also been pointed out that the constitution of the firms was disclosed to the Department while filing the A.L. 4 application for Central Excise Licence and also the changes in the constitution were also intimated from time to time. It has also been stated that the grade/code number of the products and also the names of their customers were clearly indicated in the copies of the gate passes which were regularly filed along with the R.T. 12 Returns and all the four units had filed classification lists which were duly approved by the Department. On these grounds, it has been contended that the Collector's finding regarding suppression of fact is erroneous and the confirmation of the demand by invoking the extended period beyond six months is not sustainable.
5. On a plain reading of the impugned order and also having regard to the submissions made by the learned JDR, it is seen that the only ground on which the Collector has based his finding regarding suppression of facts is that the appellants had failed to disclose the details regarding the funding of the concerned units. In this regard, we find that there is no provision in the Central Excise Act or Rules which required the concerned units to declare the source of their finances. They had, as pointed out by the appellants, disclosed the names of the directors/partners in the relevant AL-4 application and also kept the Department informed about the changes, if any, in the constitution of the firm and if there was any doubt the Department could have sought further information from the appellants.
6. In the case of Apex Electricals Pvt. Ltd. v. Union of India, reported in 1992 (61) E.L.T. 413, the Hon'ble Gujarat High Court has held that the Department will not be justified in proceeding on the basis that there was suppression of true facts and, therefore, the show cause notice could be issued within the larger period of 5 years when the only fact not disclosed by the assessee was such which he was not required to disclose and about which he was not questioned before recording his statement by the excise authority. Para 18 of the judgment, being relevant, is reproduced below :
"18. It was also urged by the learned counsel for the petitioner that the show cause notice dated 20-1-1982 issued to Apex Electricals was time-barred and without jurisdiction. According to him, the six processors had disclosed all the relevant facts to the Excise authorities in their applications made for seeking exemption. In March 1980 statements of the partners or owners of those processors were recorded by the Excise authorities. On 17-3-1980 statements of the Managing Director of Apex Electricals was also recorded. After gathering all the relevant facts, the concerned officer had granted exemption on 7-3-1980. Therefore, the show cause notice issued to Apex Electricals and the action taken pursuant thereto on the basis that relevant and material facts were suppressed by Apex Electricals and those six processors cannot be said to be legal. As pointed out above, the only fact which was not disclosed by those six processors was that they were going to manufacture lamination for Apex Electricals. They were neither required to disclose the same nor questioned about it before their statements were actually recorded by the Excise authorities. Therefore the Department was not justified in proceeding on the basis that there was suppression or concealment of true facts and therefore, the show cause notice could be issued within the large period of five years. As we have found that there was no justification for taking that view, the show cause notice issued to Apex Electricals and the order passed thereon by the Collector deserves to be quashed and set aside. So also the prosecution which has been launched against Apex Electricals will have to be quashed on the ground that it did not commit the offence alleged against it."
7. Having regard to the fact that the appellants had complied with all the central excise formalities and there being no provision under which they were required to declare the source of finance obtained by each of the concerned units, on the ratio of the judgement quoted above, we hold that the invocation of the extended period beyond six months for confirmation of the demand by the Collector is not legal and sustainable.
8. The Final Order Nos. 276 to 279/93-C, dated 4-8-1993 stands amended accordingly and as a consequence thereof all the four appeals are allowed with consequent relief to the appellants in accordance with law.
9. This order shall be read as a part of Final Order in question.