Custom, Excise & Service Tax Tribunal
Cce, Jammu vs M/S. Sud Pines (P) Ltd on 4 July, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing:20.04.2011
Date of decision:4.7.2011
Excise Appeal No.112 of 2005-Excise
[Arising out of Order-in-Original No.105/CE/JAL/2003 dated 30.10.2003 passed by the Commissioner of Central Excise, Jalandhar].
CCE, Jammu Appellant
Vs.
M/s. Sud Pines (P) Ltd. Respondent
For approval and signature:
Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Member (Technical)
1. Whether Press Reporters may be allowed to see CESTAT (Procedure) Rules, 1982.
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy of the Order?
4. Whether Order is to be circulated to the Departmental authorities?
Appearance: Rep. by Shri I. Beg, DR for the appellants.
Rep. by Shri A.K. Mishra, DR for the respondent.
CORAM: Honble Shri Justice R.M.S.Khandeparkar, President Honble Shri Rakesh Kumar, Member (Technical) Order No/Dated:
Per Rakesh Kumar The facts giving rise to this appeal filed by the Revenue are, in brief, as under:-
1.1 The respondents are manufacturers of Pinene, Longifolene, Carene, Double Distilled Tupentine Oil, Pine Tar, Dipentine, etc. chargeable to central excise duty under Heading No.38.05 of the Central Excise Tariff. The period involved in this case is from 1997-1998 to 2000-2001. Heading No.38.05 of the Central Excise Tariff during the period of dispute covered gum, wood or sulphate turpentine and other turpenic oils produced by the distillation or other treatment of coniferous woods; crude dipentene; sulphite turpentine and other crude paracymene, pine oil containing alphaterpineol as the main constituent. One sub-heading 3805.11 of this heading is turpentine oil in or in relation to manufacture of which any process is ordinarily carried on the with the aid of power and the same is chargeable to duty. But the rate of duty for turpentine oil manufactured without the aid of power, covered by sub-heading 3805.19 is nil. Other products of Heading No.38.05 are covered under sub-heading No.3805.90 where the tariff rate of duty is 16%. The respondent were availing the benefit of SSI exemption during the period of dispute. The respondents unit is a partnership firm whose partners are Shri Satish Chander Sud and his wife, Mrs. Neena Sud and this firm is functioning since 1989. There is another unit-M/s. Satish Industries, which is proprietary concern of Shri Satish Sud and which also claims to be manufacturing the turpentine oil etc without the aid of power. The factory of M/s.Satish Industries is claimed to be functioning from a portion of the area of the factory of M/s. Sud Pines. On 6.7.2000, the factory premises of the respondent were visited by the jurisdictional central excise officers and in course of inspection of the premises, it was found that in the area marked for M/s. Satish Industries, there is a crude Bhatti made of bricks & mortar with a copper kettle and connected to copper condensers and pipeline of water meant for condensation of vapour of the material put in the kettle. The Bhatti could be heated with wood fuel and the condition of the Bhatti and Distillation Unit indicated that the same had not been used for a long time. However, records recovered from the premises of the respondent indicated that substantial production of pine oil and Double Distilled Turpentine Oil was being shown in the name of M/s. Satish Industries. Since the unit of the respondent M/s. Sud Pines had a modern and fully equipped distillation plant for manufacture of Pine Oil and other products, the officers suspected that the respondent, in order to remain within the SSI exemption limit, were showing a part of their production in the name of M/s. Satish Industries, which was actually not functional. In this regard, the inquiries were made with Shri Rajesh Arora, Production Manager of the respondent company and Shri J.M. Malhotra, Manager of the respondent company, who in their statements stated that there is only one gate for movement of the goods, that the testing laboratory of both the units M/s. Sud Pines and M/s. Satish Industries is common, that factory of M/s. Satish Industries was not working regularly and is totally closed since last 20 days and the workers of M/s. Satish Industries are working in the unit of M/s. Sud Pines, that the work of preparation of invoices and other the paper work of M/s. Satish Industries was being done by Shri V. Panghotra, an employee of M/s. Sud Pines, that water pipe line of M/s.Satish Industries comes from M/s. Sud Pines, and that workers of M/s.Satish Industries as shown in their register are actually working in the unit of M/s. Sud Pines. From the factory of the respondent, invoice books for 1999-2000 and 2001-2002 (upto 5.7.2000) were recovered. The invoices showed the sale of pine oil by M/s. Satish Industries while it appeared that the Pine Oil could not be manufactured without the aid of power and the facility of manufacture of pine oil is only available with the respondent, M/s. Sud Pines. Inquiry was made with the customers mentioned in those invoices, who confirmed having purchased the product called pine oil under the invoices issued by M/s. Satish Industries and from them, the laboratory test reports regarding the product purchased by them were also obtained, which showed TT Alcohol content of the product between 20% to 42%.
1.2 Inquiry was made with Shri Satish Sud, who produced a certificate issued by Dr. K.L. Dhar, Ex-Scientist (G), CSIR, Regional Research Laboratory, Jammu, certifying that after visit to M/s. Satish Industries and seeing the plant and machinery installed therein, he is of the view that the manufacturing process is without the aid of power and that the product manufactured does not contain Alpha Terpineol more than 3 to 4%. Subsequently, inquiry was made with Dr. K.L. Dhar and his statement was recorded wherein he stated that while the Alpha terpineol content of the Turpentine oil produced in the unit of M/s. Satish Industries can be 3 to 4%, the same cannot be in the region of 20% to 42 % and Turpentine oil with Alpha Terpineol content from 20% to 42% can be produced only in the unit of M/s.Sud Pines.
1.3 In view of the above facts, the officers were of the view that M/s. Satish Industries is a non-functional unit but still substantial production of pine oil in the name of this unit is being shown, which had actually been manufactured by the respondent and that this has been done by the respondent to evade the duty by remaining within the exemption limit. It is on this basis that a show cause notice dated 9.7.2002 was issued to the respondents for
(a) Treating M/s. Satish Industries as dummy unit of the respondent created on papers to evade central excise duty and clubbing the clearances made in the name of M/s. Satish Industries with the clearances made by the respondent for determination of their eligibility for SSI exemption;
(b) Demand of allegedly short paid central excise duty amounting to Rs.71,31,281/- during 1997-98 to 2001-2002 period under proviso to Section 11 A (1) of Central Excise Act, 1944 along with interest on the duty under Section 11 AB ibid; and
(c) Imposition of penalty on the respondent under Rule 173 Q (1) of the Central Excise Rules, 1944 / Rule 25 of Central Excise Rules, 2001/2002 read with Section 11 AC of Central Excise Act, 1944.
1.4 The above show cause notice was adjudicated by the Commissioner of Central Excise, Jalandhar vide Order-in-Original No.105/CK/JAL/2003 dated 30.10.2003 by which the proceedings initiated against the respondent by the above show cause notice were dropped.
1.5 The Central Board of Excise & Customs, New Delhi, in exercise of the powers of review vested under Section 35 E (1) of the Central Excise Act, 1944, called for and examined the records of the proceedings leading to the above mentioned order-in-original dated 30.10.2003 passed by the Commissioner of Central Excise, Jalandhar and on examination of the records, the Board was of the view that the order passed by the Commissioner is not legal and proper. Accordingly, the Board vide Order dated 28.04.2004 directed the Commissioner to file review appeal before the Tribunal on the grounds mentioned therein. The present appeal has been filed by the Commissioner, Central Excise, Jalandhar in pursuance of the above mentioned order dated 28.10.2004 passed by the Board.
6. Heard both the sides.
7. Shri I. Beg, Ld. Departmental Representative, assailed the impugned order by reiterating the grounds of appeal in the Revenues appeal and pleaded that the machinery installed in the unit of M/s. Satish Industries consisted only of a wood fired Bhatti with condenser which could be used for simple distillation and condensing operations, that with this equipment, the pine oils containing 20% to 42% terpineol oil could not be manufactured, that for manufacture of pine oil /double distilled turpine oil, circulation of cold water is required in the condenser which was not possible in the unit of M/s. Satish Industries, that at the time of officers visit to the unit, the condition of the distillation machinery installed in M/s. Satish Industries clearly indicated that it was non-functional for a long time, which clearly indicated that no manufacturing activity was going on, that the test certificates supplied by the customers of pine oil sold by M/s.Satish Industries, indicated that the same contained between 20% to 42% Alpha Terpineol, that as per the statement of Shri K.L. Dhar, Ex-Scientist, CSIR, manufacture of Pine Oil with Terpineol content of 20 to 42% was not possible without the aid of power, that the workers on the pay roll of M/s. Satish Industries were actually working in the unit of respondent, that as has been admitted by Shri Rajesh Arora, Production Manager and Shri J.M. Malhotra, Manager of the respondent, water supply to M/s. Satish Industries was from the respondents factory, that while the respondent unit is a partnership firm with Shri Satish Sud and Neena Sud, wife of Shri Satish Sud, as partners, M/s. Satish Industries is a proprietory concern owned by Shri Satish Sud, that this shows that Shri Satish Sud was controlling both the units the respondent unit as well as M/s. Satish Industries and it is Satish Sud, who was the person behind both the units, that judgements of Honble Supreme Court in the case of Commissioner of Central Excise, New Delhi Vs. Modi Alkalies & Chemicals Ltd. - reported in 2004 (171) ELT 155 (SC) and in case of Parle Bisleri Pvt. Ltd. Vs. CCE, Ahmedabad reported in 2011 (263) ELT 15 (SC) are squarely applicable to the facts of this case, that the evidence on record clearly indicates that M/s. Satish Industries were incapable of manufacture of Pine Oil with Alpha Terpineol content of 20% to 42 %, while this product could be manufactured in the unit of the respondent, that from this, it is clear that the goods manufactured by the respondent were being cleared in the name of M/s. Satish Industries so as to evade the central excise duty by remaining within the SSI exemption limit and that the Commissioners order dropping the proceedings against the respondent is, therefore, not correct.
8. Shri A.K. Mishra, Advocate, ld. Counsel for the respondent, defended the impugned order by reiterating the findings of the Commissioner and pleaded that M/s. Satish Industries and M/s. Pine Sud, respondent are two independent units having separate central excise registrations as well as sales tax registration and Income Tax PAN No., that M/s. Satish Industries were manufacturing only Turpentine oil which is clear from the report of CRCL with regard to sample of Turpentine oil seized from the premises of M/s. Satish Industries that it is Turpentine oil with Terpineol content of less than 4%, that though in the invoices of M/s. Satish Industries, the product sold by them has been mentioned as pine oil, it was not pine oil but was double distilled terpentine oil, which could be manufactured without the aid of power, that Pine Oil as per the ISI specification must have at-least 70% terpineol oil, that there is no evidence of financial flow back, which is a must for clubbing the clearances of their unit with the clearances of M/s. Satish Industries, that just because of a few common employees and the proprietor of M/s. Satish Industries being partner of the respondent unit, it could not be concluded that M/s. Satish Industries was a unit owned by the respondent or a dummy unit of the respondent, that there is no evidence that the profit earned by M/s. Satish Industries was flowing back to the respondent unit or that the respondent unit was fully controlling all the activities of M/s. Satish Industries, that when M/s. Satish Industries is an independent unit and the goods being sold by this unit were double distilled terpentine oil, which could be manufactured by this unit without the aid of power and which being manufactured without the aid of power were not chargeable to any duty, there is no question of clubbing the clearances of M/s. Satish Industries with the clearances of the respondent unit and charging duty on that basis and that in view of this, proceedings had been rightly dropped by the Commissioner against the respondent.
9. We have carefully considered the submissions from both the sides and perused the records. The respondents are a partnership concern with Shri Satish Sud and his wife, Smt. Neena Sud as partners and M/s. Satish Industries is a proprietary concern of Shri Satish Sood. The allegation against the respondent is that during the period of dispute, in order to remain within the SSI exemption limit, they were showing substantial clearances of goods manufactured by them in the name of M/s.Satish Industries, while M/s. Satish Industries which is situated within factory premises of the respondent unit, was not capable of manufacturing those goods. In our view, the key question in this case is as to whether M/s. Satish Industries, which is located within the factory premises of the respondent, was capable of manufacturing the goods which have been sold in their name. The undisputed facts are that in the unit of M/s. Satish Industries, only a Bhatti, which could use only wood as fuel along with a copper kettle and condenser tubes was installed. It has not been disputed that at the time of officers visit, the distillation equipment installed in the unit of M/s. Satish Industries was in non-functional condition. We also find that Shri Rajesh Arora, Production Manager and Shri J.M. Malhotra, Manager of the respondent in their statements have stated that the unit of M/s. Satish Industries was totally closed for the last 20 days and earlier also, it was not working regularly. If this is so, the respondents claim regarding the production of a huge quantity of the terpentine oil in the factory of M/s. Satish Industries during the period of dispute is difficult to believe. Moreover, we also find that the goods sold by M/s. Satish Industries are mentioned in the invoices as the pine oil which, as per ISI Specifications (IS:5757-1992) must contain at least 70% terpineol and as per the test reports of the respondents laboratory, supplied to the customers alongwith pine oil sold, the terpineol content of the same was 20% to 42%. As per the evidence of Dr. K.L. Dhar in his statement dated 30.05.2002, the equipment installed in the premises of M/s. Satish Industries, which is crude distillation equipment, is not capable of manufacturing pine oil or turpentine oil with 20% to 42% terpineol and the same could be manufactured only in the plant of the respondent. When the goods which are claimed to have been manufactured by M/s. Satish Industries, could not be manufactured there and the condition of the plant at the time of officers visit to the factory and the other evidences suggest that the same was not functioning, we are of the view that the goods which are claimed to have been manufactured by M/s. Satish Industries have not been manufactured by them but manufactured by the respondent.
9. From the statement of Shri Rajesh Arora, Production Manager of the Respondent firm, that water supply to M/s. Satish Industries was coming from the respondent factory and circulation of cold water in condenser is necessary for distillation, it is clear that production in M/s. Satish Industries was dependent upon pumping of water from the respondents factory. M/s. Satish Industries were not paying anything to the respondent for water supply. Besides this, the statement of Shri Rajesh Arora also discloses that the workers, on the payroll of M/s. Satish Industries were actually working in the factory of the respondent. All these evidences clearly indicate that M/s. Satish Industries did not have any independent existence but was only a part of the respondent firm, and the production and sale of Pine Oil shown in the name of M/s. Satish Industries was actually the production and sale of the respondent.
10. In view of the above discussion, we are of the view that the impugned order dropping the proceedings against the respondent is not sustainable. The same is set aside. The duty demand against the respondent in the show cause notice is confirmed along with interest and penalty of equal amount is imposed on them under Section 11 AC of the Central Excise Act, 1944. The Revenues appeal is allowed.
( Justice R.M.S. Khandeparkar ) President ( Rakesh Kumar ) Member (Technical) Ckp.
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