Customs, Excise and Gold Tribunal - Tamil Nadu
Nikhildeep Cables Pvt. Ltd. vs Collector Of C. Ex. on 8 October, 1993
Equivalent citations: 1994(70)ELT273(TRI-CHENNAI)
ORDER S. Kalyanam, Member (J)
1. Stay - On hearing the learned Counsel for the petitioners since we felt that the impugned order is not sustainable on question of law and on the basis of well settled decisions and also on the basis of the evidence available on record, with the consent of parries by granting waiver of pre-deposit of duty and penalty we take up the appeals for disposal in accordance with law.
Appeals
2. These appeals are filed against the order of the Collector of Central Excise, Coimbatore dated 26-12-1992 levying a duty of Rs. 9,85,989.74 and penalty of Rs. 10,000/- and a further penalty of Rs. 10,000/- on appellant Nikhildeep Cables Pvt. Ltd. under the provisions of the Central Excises and Salt Act, 1944.
3. Shri Sampath, the learned Counsel for the appellants submitted that the main charge against the appellant is that appellant Dharamdeep Properzi and Alloys Pvt. Ltd. cleared without payment of duty 213.030 kgs. of DPC wires classifiable under 8544 of the Central Excise Tariff and also 3039 kgs. of insulated conductor valued at Rs. 1,19,912.05. The further ground of charge is that appellant Nikhildeep Cables (P) Ltd., was set up by appellant Dharamdeep Properzi and Alloys Pvt. Ltd. only for the purpose of availing the benefit of small scale exemption Notification 175/86 dated 1-3-1986, as amended and therefore, the clearances of both the units should be clubbed together and in that view differential duty was demanded. The learned Counsel contended that the entire impugned order is passed purely on surmise without considering vital piece of evidence in support of the plea that both the units are separate entities and do not have any common financial interests inter se and are having independent manufacturing activities of goods with their own machineries with relevant excise licence falling under different tariff headings functioning under the territorial supervision of the same Range Supdt. and Asstt. Collector of Central Excise. It was submitted that the evidence would clearly bear out that absolutely there is no common funding between the two units. It was urged that the turnover of M/s. Dharamdeep Properzi for the year 1989-90 was Rs. 5,38,78,182.60 and for the year 1990-91 it was Rs. 8,61,89,583 and likewise in respect of appellant Nikhildeep Cables the turnover for the year 1989-90 was Rs. 1,13,13313.75 and for the year 1990-91 the turnover was Rs. 2,98,84,63.35. It was urged that the above figures would clearly establish that they were not working with a view to stay within the exemption limit in terms of Notification 175/86 and the applicability of the Notification simply does not arise having regard to the volume of the turnover. It was further submitted that right from the inception of the appellant's company in Aug. 1989 onwards they are paying duty and what is demanded is only differential duty. The learned Counsel further urged that the units are functioning under the same Range Superintendent and Assistant Collector of Central Excise. The learned Counsel further submitted that on a proper application being made out by appellant Nikhildeep Cables permission was granted in terms of Rule 57F(2) of the Central Excise Rules, 1944 on 22-12-1989 for movement of inputs to the other unit on job work basis. The learned Counsel submitted that appellant Nikhildeep Cables was then availing the benefit of Modvat credit. It was urged that the demand is for the years 1989-90 and 1990-91 in respect of which show cause notice was issued on 17-6-1992 and even in respect of the demand, having regard to the quantity and the value of the clearances from each of the units, the period is only August 1989 to February 1990 and likewise from 3rd April '90 to 9th May '90 during which short period alone the benefit of Notification 175/86 was availed of. If the large volume of turnover of both the units are taken into account and also how the Notification would not apply for such clearances and if it is construed that the benefit of notification was sought to be availed only for a short and limited period referred to above it is apparent that the other unit could not have been constituted either as a dummy unit or with an intent to avail the small scale exemption as held by the learned adjudicating authority. The learned Counsel further submitted that on 14-8-1993 on conclusion of the adjudication, elaborate written submissions were filed along with case laws and unfortunately the adjudicating authority has not considered any of them and merely dismissed the appellants' case by a vague and general observation in para 20 of the impugned order.
4. Shri Subramanian, the learned DR submitted that if the Tribunal feels that the relevant piece of evidence and the case laws cited by the appellants have not been considered in the impugned order the Tribunal may remand the matter for reconsideration.
5. We have considered the submissions made before us and gone through the entire records. The only question that falls for our main consideration in the appeals is as to whether the clearances of both the units should be clubbed together for the purpose of levy of differential duty on the ground that appellant Nikhildeep Cables was only created for the purpose of availing the benefit of small scale exemption Notification 175/86. It is well settled law that in circumstances where such allegation is levelled against two units the primary consideration that would weigh with the adjudicating authority is as to whether there is mutuality of financial interest between the two units inter se and this position is well settled by a catena of decisions of the Tribunal, High Court and other authorities. In the present case this allegation set out in show cause notice (in para 6) reads as under:
"A statement was recorded from Shri Gopalakrishna Hegde, power attorney of M/s. Nikhildeep Cables Pvt. Ltd. and Chief Executive of M/s. Dharmdeep Properzi & Alloys Ltd., wherein he deposed that with regard to debit entry of Rs. 5,05,622.11 at page 353 of M/s. Nikhildeep Cables Pvt. Ltd., on 30-1-1991 against sales invoice No. 24 due to M/s. Nikhildeep Cables Pvt. Ltd. from M/s. Surya Wires has been paid by M/s. Dharamdeep Properzi & Alloys through book adjustments, instead of receiving payment from Surya Wires directly. With regard to debit and credit at page No. 353 of M/s. Nikhildeep Cables, general ledger, the amounts are as follows:
Date Credits Date Debits 16-11-1990 13.00 lakhs 8-1-1991 4.00 lakhs 14-2-1991 10.00 lakhs 17-1-1991 8.00 lakhs 16-2-1991 3.00 lakhs 30-1-1991 25.00 lakhs" 20-2-1991 5.00 lakhs 27-2-1991 2.00 lakhs
It would be seen that the turnover of M/s. Dharamdeep Properzi Alloys for the year 1980-90 was more than Rs. 5.38 crores and for the year 1990-91 it is more than Rs. 8.61 crores. Likewise it would be seen that the turnover of Nikhildeep Cables for the year 1989-90 was more than Rs. 1.13 crores and for the year 1990-91 it was more than 2.98 crores. In the light of the above huge turnover in excess of exemption limits applicability of Notification 175/86 would hardly arise. Even availment of such benefit for a short period Aug. '89 to Feb. '90 and 3rd April '90 to 9th May '90 would be very insignificant in the context of the turnover. We also like to note that in respect of the charge of mutuality of interests between the two units as stated with figures in para 6 of the show cause notice the entire financial transactions are at a time when both the units were paying full rate of duty, without availing the benefit of Notification 175/86. We would also like to note that even subsequently both the units never claimed the small scale exemption notification and paid duty at the tariff rate. In dealing with this question in the impugned order the evidence has not been dealt with by the learned adjudicating authority and in para 18 only a cryptic observation in this regard is made as under:
"...Above all, there has been flow of financial accommodation over a period of time."
As we noted earlier, the financial transaction is at a time when the benefit of Notification 175/86 was never applicable to either of the units and as stated earlier taking into consideration the large volume of turnover of both the units and payment of duty at the nominal tariff rate and non-applicability of Notification 175/86, the main charge that appellant Nikhildeep Cables was constituted for the purpose of availing the benefit of exemption notification is not sustainable either in law or on facts. The Special Bench of the Tribunal in the case of M/s. Swastik Engineering Works v. CCE, reported in 1992 (62) E.L.T. 313 has clearly held that clubbing of clearances of various units are not permissible for reason of commonality or close relationship of partners and sharing of common facilities unless ownership of unit by another; production control and flow back of profit is clearly proved. We also refer in this context the larger Bench ruling of the Tribunal in the case of M/s. Jagjivandas and Co. v. Collector of Central Excise, reported in 1985 (19) E.L.T. 441 wherein the Tribunal has observed as under:
"The Collector had held that the goods manufactured by two other firms were in fact manufactured by or on behalf of the appellants. He had based his decision on certain pieces of evidence or circumstances such as use of common premises, telephone, telegraphic address, common use of some machinery and commonness of partners etc. Giving of a common telephone as address by the three firms which consist of relations, when telephones are difficult to get in bigger cities; use of table space by one firm in the shop-cum-office of another, which is a common practice in commercial towns; use of a common telegraphic address, which is used by a number of shops in the same complex; location of the three factories in the same compound within the knowledge of the Excise authorities; commonness of partners; occasional use of buffing machine of one firm by others; and mutual financial transactions without charging of interest etc. are not conclusive circumstances to show that the clearances of the appellants were for and on behalf of the others. While some of the circumstances are innocuous, others are inconclusive. The parties have separate income tax registration, sales tax registration, registration of small scale units, separate electricity meters. The Department has, therefore, failed to bring home the allegations against the appellants."
We also like to note that this ruling of the larger Bench was upheld by the Supreme Court by judgment dated 2-8-1989 in Civil Appeal No. 4173. We may also refer to the recent ruling of the High Court of Rajasthan in the case of Renu Tandon v. Union of India, reported in 1993 (66) E.L.T. 375 wherein the High Court on consideration of the various rulings in regard to the question of clubbing observed as under:
"Value of the clearances of the two units cannot be clubbed together and the two units cannot be treated as one unit merely because of proximity of relationship or the situation of the two factories or because there are some common employees unless there is a clear and specific evidence that there is mutuality of business interest between the two units and that both have interest in the business of each other or they have common funding and financial flow back. In the present case the most important common funding and financial flow back is missing and therefore, to withdraw the assessment or club the clearances is wholly unjustified and illegal and without jurisdiction. Reference in this connection may be made to International Dyestuff Mfg. Co. v. Collector of Central Excise, Baroda -1991 (53) E.L.T. 85 (Tribunal)."
We further note that the Special Bench ruling of the Tribunal in the case of M/s. Vivomed Labs (P) Ltd. v. CCE, reported in 1991 (53) E.L.T. 152 was upheld by the Supreme Court in Civil Appeal No. 2709-14/92 dated 21-9-1992 and the Supreme Court has observed as under:
"... The Appellate Tribunal further held that where the units are registered separately under the Income Tax Act and Sales tax having separate Central Excise licences and also financed through separate application for loan from financial institutions, the clubbing of clearances of these units is not maintainable in law in the absence of conclusive evidence of financial flow back among them."
6. We therefore, note that the evidence on record clearly bears out the following factors in the present case:
(i) The two units have been separately licensed and are functioning under two different premises under the control of the same Range Superintendent and the Assistant Collector of Central Excise.
(ii) Appellant Nikhildeep Cables has been granted permission under Rule 57-F2 of the Central Excises and Salt Act, 1944 as early as 22-12-1989 to move their inputs for job work to be done in the other unit.
(iii) Appellant Nikhildeep Cables was converted into a Private Limited company on 2-1-1990 and was funded by 35 share-holders and except two or three share-holders none of the other share-holders are related to the Managing Director or the other Directors of the appellant Dharamdeep Properzi & Alloys Ltd. We further note that out of a total equity shares of 24399, about 50% of the shares are stated to be held by outsiders and evidence in this regard has also been filed in the written submissions before the adjudicating authority which is not considered in the impugned order.
(iv) The turnover of Dharamdeep Properzi as mentioned above is more than Rs. 5.38 crores and Rs. 8.61 crores respectively for the years 1989-90 and 1990-91. Likewise the turnover of appellant Nikhildeep Cables is more than Rs. 1.13 crores and Rs. 2.98 crores respectively for the years 1989-90 and 1990-91.
7. These factors would clearly establish that both the units were not operating as one unit or one entity and had not financial connections.
8. The learned Counsel also referred to the plea of limitation and has filed an additional ground and though normally we are reluctant to allow an additional ground, having regard to the facts and circumstances of the case where permission under Rule 57F(2) was accorded to appellant Nikhildeep Cables to move their duty paid inputs to the other unit for job work and also having regard to the RT-12 assessment by the authorities and also keeping in mind that both units were admittedly under the same Range Superintendent and Assistant Collector of Central Excise, we find considerable force in regard to the plea of applicability of the bar of limitation as well. Since on the facts available on record we hold that there is no mutuality of interest between the two units and further the independent existence of both the units is clearly brought out we do not feel called upon to go into the question of limitation.
8A. Therefore, on consideration of the entire evidence on record we hold that the impugned order is not sustainable in law and in this view we set aside the impugned order.
9. So far as the quantum of redemption fine levied on both the units is concerned, the learned Counsel submitted that he is not pressing it on technical grounds and the same is upheld. So far as the penalty levied on both the units is concerned, the learned Counsel pleaded for nominal token penalty. We reduce the penalty to Rs. 500 (Rs. Five hundred). The appeals stand disposed of in the above terms.