Custom, Excise & Service Tax Tribunal
Lancy Constructions vs Mangalore on 12 March, 2026
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 2
Central Excise Appeal No. 21145 of 2017
(Arising out of Order-in-Original No. MLR-EXCUS-000-COM-MS-25-16-17 dated
20.04.2017 passed by the Commissioner of Central Excise & Service Tax, Bengaluru.)
Lancy Constructions
3rd Floor, Pio Mall, Mangalore, Bejai Church Road,
Mangalore Office, Mangalore
Karnataka - 575004. ....Appellant(s)
VERSUS
Commissioner of Central Excise, Mangalore
7th Floor, Trade Centre, Bunts Hostel Rd,
Mangalore, Karnataka - 575003. ....Respondent(s)
WITH
i. Central Excise Appeal No. 21142 of 2017 (Neleema
Mascarenhas)
(Arising out of Order-in-Original No. MLR-EXCUS-000-COM-MS-25-16-17 dated
20.04.2017 passed by the Commissioner of Central Excise & Service Tax,
Bengaluru.)
ii. Central Excise Appeal No. 21143 of 2017 (Smt. Jascintha
Mascarenhas)
(Arising out of Order-in-Original No. MLR-EXCUS-000-COM-MS-25-16-17 dated
20.04.2017 passed by the Commissioner of Central Excise & Service Tax,
Bengaluru.)
iii. Central Excise Appeal No. 21147 of 2017 (Shri. Lancy
Mascarenhas, Partner,)
(Arising out of Order-in-Original No. MLR-EXCUS-000-COM-MS-25-16-17 dated
20.04.2017 passed by the Commissioner of Central Excise & Service Tax,
Bengaluru.)
iv. Central Excise Appeal No. 21148 of 2017 (Neola Tressa
Mascarenhas)
(Arising out of Order-in-Original No. MLR-EXCUS-000-COM-MS-25-16-17 dated
20.04.2017 passed by the Commissioner of Central Excise & Service Tax,
Bengaluru.)
Page 1 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
APPEARANCE:
Mr. M. S. Nagaraja, Advocate, for the Appellant
Mr. Rajashekhar. B. N.N., Authorized Representative (AR) for the Respondent
CORAM:
Hon'ble Mr. P.A. Augustian, Member (Judicial)
Hon'ble Mr. Pullela Nageswara Rao, Member (Technical)
Final Order Nos. 20316-20320 /2026
Date of Hearing: 06.10.2025
Date of Decision: 12.03.2026
PER : P.A. AUGUSTIAN
The issue in the present appeal is whether the Appellant had
evaded service tax by splitting the activities into different units to avail
the benefit of Small-Scale Industries (SSI) and whether they availed
ineligible CENVAT credit.
2. Appellant M/s Lancy Construction was engaged in manufacture of
excisable goods 'Ready Mix Concrete' and registered with Central Excise
authority. Alleging that in violation of SSI exemption Notification,
Appellant had floated various manufacturing units in different names for
availing exemption, proceedings were initiated and Mahazar was drawn
on 12.12.2013. On further investigation, it is found that all the four units
belongs to the same family. Accordingly, based on the statements
recorded from different persons, show cause notice was issued
demanding duty and also demanded duty alleging illegal utilization of
CENVAT credit. Thereafter Adjudication authority as per the impugned
order dated 22.03.2017 confirmed the demand and also imposed penalty
on the appellant. Aggrieved by said order, present appeals are filed.
3. When the appeals came up for hearing, the Learned Counsel for the
Appellant submits that appellant was engaged in providing Construction
Services and had obtained Service Tax Registration. They were also
engaged in manufacture of RMC and clearing the same on payment of
excise duty @ 1%/2% in terms of Notification No 01/2011 CE dated
Page 2 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
1.3.2011 and manufacturing of Concrete Blocks in separate premises and
obtained Central Excise Registration under the Central Excise Act, 1944.
The Appellants submits that as per the Partnership Deed dated
01.4.2000, M/s Lancy Constructions, was a Partnership Firm with Sri
Lancy Mascarenhas and Smt. Jascinta Mascarenhas as Partners. The Firm
entered into Lease Agreement dated 03.08.2006 with Karnataka
Industrial Area Development Board (KIADB), New Mangalore for lease of
Plot No. 309, 312 & 313 totalling to 8199 Sqm of land in Baikampady
Industrial Area, Mangalore for setting up of an Industrial Project. M/s
Lancy Constructions was admittedly closed in August 2013.
4. Learned Counsel further submits that as per the finding in the
impugned order, appellant had created shadow units to supress the
actual clearance value. In this regard, Learned Counsel draws our
attention to the Mahazars drawn on different premises of the appellants
including in plot No.309, 312, 313, Plot No. 154, 154-C and 159-B, where
the details of the activities of each unit was furnished and details of the
machine used for manufacturing activity in each units were also recorded
by investigating officer. Further as per the Mahazar recorded in the
premises of Appellant in the Balaji Church Road on 12.12.2013, entire
documents were seized and all those documents clearly shows that there
are separate machines, offices for carrying manufacturing activity in each
unit. Appellant M/s. Lancy Constructions was registered with Central
Excise on 13.08.2012 and filed ER-1 till November, 2013 and paid Central
Excise duty on RMC till November, 2013. Learned counsel also submits
that while recording statement, appellant furnished month-wise
clearance details of Cement blocks and Interlocks for the years 2010-11
to 2013-14 (up to August, 2013), Balance Sheets of all the units during
investigation. The annual turnover of this firms as per the audited Balance
Sheets was also produced during investigation. Learned Counsel further
draws our attention to the lease deed entered by the Appellant with
Karnataka Industrial Development Area Board on 3rd August 2006, the
sketch showing the details of Plot No.309, 312 and 313 at Bekapadi
Industrial area, details of the central excise registration to show that
these activities are not carried out in the same premises. As regarding
Page 3 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
the allegation that the electricity charges was paid by main appellant,
Learned Counsel draws our attention to the Mahazar dated 12.12.2013
and submits that the ledger accounts for 2012-13 and 2013-14 shows
payment of electricity charges by M/s. Lanwal Blocks towards electricity
charges. Similar entries are available in the ledger account of the other
entities. Learned Counsel also draws our attention to the impugned order
where summary of various parameters furnished by the Appellant were
reproduced by the Adjudication authority as per the following chart.
Noticee Lancy LCN Jasmine Neleema Lanwal
Constructions Enterprise Enterprise Enterprise Blocks
Nature of the Partnership Partnership Proprietary Partnership
Proprietary
entity Firm Firm Firm
Smt Jascintha
Shri Lancy
Shri Lancy Mascarenhas
Mascarenhas
Mascarenhas Managing
Managing Ms
Managing Smt Jascintha Ms Neleema Partner, Shri
Constitution Neola Tressa
Partner, Mascarenhas Mascarenhas Lancy
Mascarenhas
Smt Jascintha Mascarenhas
Mangaing
Mascarenhas Ms Neola
Partner
Tressa
Mascarenas
Started 2009-10
2006-07 2009-10 2009-10 2002-03
Operation
Shed/Plot No. Plot No. 309, Plot No. 309 Plot No.
Plot No.
309, 312 & Baikampady Baikampady 159B,
154C,
Location/Fac 313 Industrial Industrial Baikampady
Baikampady
tory Baikampady Area, Lancy Mangalore Industrial
Industrial
Industrial Mangalore Area, (Rented Area,
Arca,
Area, (Rented from from Lancy Mangalore
Mangalore
Mangalore Constructions construction)
ST
AABFL2262NS
Registration - - - -
T001
No
Central
Excise AABFL2262NE
- - - -
Registration M001
No
VAT Tin No.
TIN No. TIN No. Tin No. TIN No.
Registration 29900129400
29390582428 29710608830 29870813800 29590082477
/TIN No.
Page 4 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
PAN NO AABFL2262N AADFL7491D ABWPM8708J AURPM9486D AAAPL4364N
Trade license 2010IND- 2010COM- 2008COM-
- -
certificate 21558 221704 21202
Books of maintained maintained maintained maintained maintained
Accounts separately separately separately separately separately
Income Tax Filed
Filed Filed Filed Filed
Returns separately
separately separately separately separately
Block making Block making
Own Block Own Block Own Block
machine and machine and
making making making
Interlock Interlock
Machines machine and machine and machine and
machine machine
Interlock Interlock Interlock
taken on hire taken on hire
machine. machine machine.
from Lancy from Lancy
Construction Construction
Electricity
Paid Paid
connection in Independent Independent
proportionate proportionatel
Power supply the name of Electricity electricity
ly as per rent y as per rent
Lancy connection connection
agreement agreement
Constructions
Separate
Separate Separate Separate Separate
employees,
employees, employees, employees, employees,
Muster
Muster Muster Muster Muster
Roll/Register
Roll/Registers Roll/Register Roll/Register Roll/Register
Labour and records
and records and records and records and records
for payment
for payment of for payment for payment for payment
of wages,
wages, of wages, of wages, of wages,
salaries, etc
salaries, etc salaries, etc salaries, etc salaries, etc
available
available available available available
RMC, Concrete
PVC Moulded
& Interlock
Goods Cement Solid Cement Cement Cement
blocks apart
manufactured Blocks Interlocks/des Blocks Bricks
from
ign interlocks &Blocks
Construction
Services
Page 5 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
5. Learned Counsel also draw our attention to the consolidated figures
as per the balance sheet, as per the sales summary:-
Page 6 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
Page 7 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
6. Learned Counsel also draws our attention to communications where
details were furnished including the details of each units to the
respondent and it is evident that they have specifically stated that M/s
Lancy Construction stopped manufacturing of interlock and blocks since
August, 2013. Learned Counsel further submits that the issue was
considered by the Hon'ble Supreme Court in the matter of CC, Jaipur
Vs. M/s Electro Mechanical Engineering Corporation (2008 (229)
E.L.T 321 (SC) where it is held that:-
"10, the case of the Department is that these firms have been
clubbed together as certain employees of the three firms were
common or that their premises are adjoining each other. The
Tribunal were setting aside the order of Commissioner, has held
that there is no evidence on record to prove that there was
mutuality of business interest or there was a flow of fund from one
unit to another. The finding recorded by the Tribunal being a finding
of fact does not call for any interference".
7. As regarding clubbing of clearance for denying SSI exemption,
issue was considered by the Hon'ble High Court of Rajasthan in the matter
of Renu Tanon Vs. Union of India (1993 (66) E.L.T 375
(Rajasthan) where it is held that:-
Page 8 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
"36. The petitioner is a lady entrepreneur and has passed M.Com.
She decided to start a unit for manufacture of copper wire and
installed wire drawing machines in August, 1989 over a portion of
the land taken on rent from M/s. Tandon Brothers; on a monthly
rent of Rs. 715/-. The petitioner has filed a copy of the rent deed
duly executed with the approval of the RIICO who had given the
land on lease to M/s. Tandon Brothers. The petitioner also obtained
a provisional certificate of registration from the Directorate of
Industries, Jaipur and thereafter applied to the Supdt. Central
Excise, for grant of a licence to manufacture copper wire of
thickness entered into the Schedule attached with the application,
giving the address of the premises as 'A-14-A, 22 Godowns'. The
officers of the excise Deptt. inspected the site and after a thorough
enquiry, issued a licence under Rules 174 and 178 of the Central
Excise Rules, 1944. It may be noted here that M/s. Tandon Brothers
is also carrying on a similar business of drawing copper wires on a
nearby plot "A-14, Industrial Estate, 22 Godown, Jaipur" which is
also registered with the Excise Department and the Department
was fully aware of this fact before issuing licence under the Central
Excise Rules to the petitioner. The petitioner also applied for a
separate electric connection from the Rajasthan State Electricity
Board and since connection was not given, she had made
arrangements from M/s. Tandon Brothers situated nearby and
installed a sub-meter for calculation of the actual consumption to
be paid to M/s. Tandon Brothers. The petitioner also opened a
separate bank account in the name of the unit and obtained limits
from the bank. She has been operating the bank account herself.
After starting manufacture of copper wires she submitted return in
Form RT-12 to the Supdt. Customs and Central Excise. The first
return was submitted on 7-10-1989. It was only on 29th August,
1990 that a notice was issued to the petitioner to show cause as to
why the classification list effective from 1-4-1990 should not be
approved taking into consideration the value of clearances of both
the units as clubbed together. The only ground to issue such a
Page 9 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
notice was that the two factories are located adjacent to each other
and that the proprietor of M/s. Tandon Brothers happens to be the
father-in-law of the petitioner and that the work of both these units
is being looked after by Shri Avinash Tandon who is the husband of
the petitioner and son of Shri S.K. Tandon and that she has been
consuming electric power from M/s. Tandon Brothers. These facts
which have been mentioned in the show cause notice, in no way,
can give rise to a presumption or even an inference that the two
units should be treated as one unit. I have already quoted above
the various authorities cited by the learned counsel for the
petitioner, of various High Courts and the Tribunal wherein it has
been held that the value of 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 aspect
about having 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) = (1991) 33 ECR 31]. The petitioner has asserted on
oath that she had opened a separate bank account, she is hereself
operating the same and obtained limits and that the impugned
notice is conspicuously silent and there is no allegation worth the
name that they have any common funding or financial flow-back.
Mere blood relationship or sharing of staff, some temporary
common employment, similarity of product is also not sufficient to
draw an inference that the two units should be clubbed together.
Since I have already quoted extracts of decisions in detail, of
various Tribunals and the Courts, in the earlier part of this order, I
Page 10 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
am not reproducing them here again. Unless there is some basis
and material available with the Department, it has no right or
jurisdiction to issue a show cause notice and it will be wastage of
energy and time if the petitioner is directed to appear before the
Department to get this aspect decided as on the face of the notice
itself read as a whole, the department has not been able to gather
any material to come to that conclusion."
8. Further submits that the issue is also squarely covered by the
decision of the Tribunal in the matter of Associated Engineering
Products Vs. CC, Meerut (2019 (370) EL.T 756 (Tri. Alhd), where it
is held that:-
"5. We find in the present case that the individual manufacturing
appellants have independent identities since the Revenue could not
establish that their books of accounts are common, that their bank
accounts are common, that their registration with Income Tax,
Sales Tax are common and that there is common funding and that
there is mutuality of interest and that there is financial flowback
and that the units which were held to be dummy did not have any
manufacturing facility. In the absence of any such evidence, we
hold that the manufacturer units are independent units and
therefore, their clearances could not be clubbed together. We,
therefore, hold that denial of benefit of SSI Exemption to the
manufacturer appellants is not sustainable and therefore, demands
confirmed against them are not sustainable."
9. Learned Counsel also draw our attention to the decision of the
Tribunal in the matter of CC, Mumbai Vs. Mayur Printers (2017 (349)
E.L.T 336 (Tri.Mumbai) where it is held that:-
"5. The issue for determination is whether the units were, by
subterfuge, splitting the clearances on record to avail the benefits
of Notification No. 175/86-C.E., and its successor Notification No.
1/93-C.E., to evade duty. Decisions cited by either side have
examined some aspect of inter-unit relationship before concluding
in favour of either side as to the sufficiency of evidence to sustain
Page 11 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
the finding. We acknowledge the authority of these decisions with
their varied outcomes. However, taking note that commonality is
the evaluation of factual matrix of each case to determine the
eligibility to avail the exemption notifications, we are required to
determine the outcome of the dispute by a similar factual
evaluation.
6. That the units are set up by members of a family will not suffice
to establish common control for if were to proceed with that
approach to incentivise family aggregation, we would be doing
great disservice to the spirit of entrepreneurship which is the
driving force of economic growth of any community or State. That
the units complement the activities of each other is a facet of
business that cannot be overlooked; economies of scale and
specialization those hallmarks of the industrial revolution - are
founded on the financial benefits that accrue therefrom. Indeed,
the proliferation of service industry, which is not only a source of
development but also of taxes, is a consequence of such
specialisation.
7. In the context of the appeal filed by Revenue, we do not need to
examine the nature of relationship but merely ascertain if the
grounds of appeal of Revenue are on firm foundations. Our scrutiny
of the relationship and mutual undertaking of manufacturing
process make it amply clear that these do not uphold the cause of
Revenue. We take note that these units were not set up to cater to
the framework prescribed in the exemption notification but at
different points in time. We also note that these units, though
functioning out of the same industrial estate, are, nevertheless, not
in the same premises which could have been taken as a pointer to
motivated structuring.
8. Revenue has not been able to adduce the manner in which the
cited circular of Central Board of Excise & Customs has been
misinterpreted in the impugned order. As pointed out in the
memorandum of cross-objections, making an allegation and
Page 12 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
establishing that this is so are entirely distinct. Contrary to the
contention that the units have not been able to adduce evidence of
payments effected for job-works undertaken for each other,
Revenue has not been able to controvert the assertion in the
memorandum of cross-objection that certificate issued by auditors
had been produced.
9. Turning to the applicability of the decision of the Hon'ble
Supreme Court in re Supreme Washers (P) Ltd., while noting the
finding of inter-relationship therein, we must also conclude that the
Hon'ble Supreme Court had remanded the matter back as the
existence of inter-relationship was held not to suffice in the face of
the factual reality of distinctness of the enterprises sought to be
clubbed. It is clear that the Hon'ble Supreme Court intended that
the inter-relationship was of relevance only in the contextual
framework of the notification as clarified by the Central Board of
Excise & Customs. Admittedly, the circular concerned itself with the
independent existence of partnership firms too. Revenue, in its
appeal, has not been able to evince that the partnership firms were
instruments of subterfuge for illicit availment of exemptions.
10. For the above reasons, we hold that the grounds of appeal do
not suffice to overcome the detailed findings on fact and law in the
impugned order. Hence, the appeal must fail. Cross objection also
stands disposed of."
10. As regarding the CENVAT credit, Learned Counsel submits that as
per the impugned order, demand against CENVAT credit of Rs.
15,89,316/- was confirmed on the ground that appellant was engaged in
manufacture of dutiable Cement Concrete Blocks and Interlocks and
exempted RMC cleared on payment of duty @1%/2%. However, such
claim can be made as per the notification No 1/2011 CE dated 01.03.2011
subject to the condition that no credit on inputs and input service is taken.
Since CENVAT credit had been taken on capital goods on the basis of
invoice issued at the address of plot No 159C, where Neleema Enterprises
is in existence and invoices issued at the corporate office address and not
Page 13 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
eligible for credit. In this regard, Learned Counsel submits that when a
manufacturer undertakes manufacture of dutiable final products and
exempted goods, the provisions the SCN to disallow and demand against
CENVAT credit on inputs attributable to Rule 6 of the CCR, 2004 are
applicable and there was no proposal in exempted goods as required in
terms of Rule 6 (3) of the CCR. 2004. There is no dispute about the
receipt, duty paid nature and use of cement in the manufacture and
clearance of final products, they add duty paid on the goods received in
the factory since it is settled law that the manufacturer is entitled to take
credit of the address of the head office of the manufacturer and that there
cannot be any objection for storage of cement at plot Nos 309, 312 and
313 since it is also a part of the factory of Lancy Constructions. Merely if
appellant had rented out the machineries to other Units by collecting/not
collecting hire charges, it is not a ground for disallowing CENVAT credit
on capital goods. Further submits that in the SCN, details of the CENVAT
taken capital goods which had been rented out to other units are not
furnished to deny CENVAT credit. Further temporary removal of capital
goods for the purpose of job work for a period of 180 days is permitted
in terms of Rule 4 (5) (a) of the CCR, 2004 and credit can be reversed
only if the capital goods are not received within 180 days. Further
submits that there was no valid ground to deny the entire credit taken
without segregation of the quantum of credit on capital goods and inputs
and quantification of the credit on inputs attributable to exempted goods
in terms of Rule 6 (3) of the CCR, 2004. Therefore, appellant is entitled
for the CENVAT credit of Rs. 10,73,891/- as claimed. Learned Counsel
further submits that entire credit taken during the period from April 2013
to September 2013 is reversed/deposited without utilization and the law
is settled that once the credit had been reversed without being utilized,
the manufacturer is restored to the position of having not taken the
credit. In this regard, Learned Counsel submits that it was reversed
without utilization as admitted in the impugned order and the issue was
considered by the Hon'ble High Court of Karnataka in the matter of
Hon'ble High Court of Karnataka in the matter of Commissioner of
Page 14 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
Central Excise & S.T., Bangalore v. Bill Forge Private Limited -
2012 (26) S.T.R. 204 (Karnataka) where it is held that:-
20. From the aforesaid discussion what emerges is that the credit
of excise duty in the register maintained for the said purpose is only
a book entry. It might be utilised later for payment of excise duty
on the excisable product. It is entitled to use the credit at any time
thereafter when making payment of excise duty on the excisable
product. It matures when the excisable product is received from
the factory and the stage for payment of excise duty is reached.
Actually, the credit is taken, at the time of the removal of the
excisable product. It is in the nature of a set off or an adjustment.
The assessee uses the credit to make payment of excise duty on
excisable product. Instead of paying excise duty, the cenvat credit
is utilized, thereby it is adjusted or set off against the duty payable
and a debit entry is made in the register. Therefore, this is a
procedure whereby the manufacturers can utilise the credit to make
payment of duty to discharge his liability. Before utilization of such
credit, the entry has been reversed, it amounts to not taking credit.
Reversal of cenvat credit amounts to non-taking of credit on the
inputs.
21. Interest is compensatory in character, and is imposed on an
assessee, who has withheld payment of any tax, as and when it is
due and payable. The levy of interest is on the actual amount which
is withheld and the extent of delay in paying tax on the due date.
If there is no liability to pay tax, there is no liability to pay interest.
Section 11AB of the Act is attracted only on delayed payment of
duty i.e., where only duty of excise has not been levied or paid or
has been short levied or short paid or erroneously refunded, the
person liable to pay duty, shall in addition to the duty is liable to
pay interest. Section do not stipulate interest is payable from the
date of book entry, showing entitlement of Cenvat credit. Interest
cannot be claimed from the date of wrong availment of CENVAT
credit and that the interest would be payable from the date CENVAT
credit is taken or utilized wrongly.
Page 15 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
22. In the instant case, the facts are not in dispute. The assessee
had availed wrongly the Cenvat credit on capital goods. Before the
credit was taken or utilized, the mistake was brought to its notice.
The assessee accepted the mistake and immediately reversed the
entry. Thus the assessee did not take the benefit of the wrong entry
in the account books. As he had taken credit in a sum of Rs. 11,691-
00, a sum of Rs. 154-00 was the interest payable from the date the
duty was payable, which they promptly paid. The claim of the
Revenue was, though the assessee has not taken or utilized this
Cenvat credit, because they admitted the mistake, the assessee is
liable to pay interest from the date the entry was made in the
register showing the availment of credit. According to the Revenue,
once tax is paid on input or input service or service rendered and a
corresponding entry is made in the account books of the assessee,
it amounts to taking the benefit of Cenvat credit. Therefore, interest
is payable from that date, though, in fact by such entry the
Revenue is not put to any loss at all. When once the wrong entry
was pointed out, being convinced, the assessee has promptly
reversed the entry. In other words, he did not take the advantage
of wrong entry. He did not take the Cenvat credit or utilized the
Cenvat Credit. It is in those circumstances the Tribunal was justified
in holding that when the assessee has not taken the benefit of the
Cenvat credit, there is no liability to pay interest. Before it can be
taken, it had been reversed. In other words, once the entry was
reversed, it is as if that the Cenvat credit was not available.
Therefore, the said judgment of the Apex Court has no application
to the facts of this case. It is only when the assessee had taken the
credit, in other words by taking such credit, if he had not paid the
duty which is legally due to the Government, the Government
would have sustained loss to that extent. Then the liability to pay
interest from the date the amount became due arises under Section
11AB, in order to compensate the Government which was deprived
of the duty on the date it became due. Without the liability to pay
duty, the liability to pay interest would not arise. The liability to pay
Page 16 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
interest would arise only when the duty is not paid on the due date.
If duty is not payable, the liability to pay interest would not arise.
23. Under these circumstances, we do not see any error committed
by the Tribunal in passing the impugned order. Accordingly, the
substantial question of law framed is answered against the Revenue
and in favour of the assessee. 24. Parties to bear their own costs.
11. Further submits that Hon'ble High Court of Madras in the matter of
CC, Madurai Vs. Strategic Engineering Pvt. Ltd. (2014 (310) E.L.T
509 (Mad) also held that:-
"6. The Appellate Tribunal has come to a definite conclusion to the
effect that in the instant case the assessed has merely taken
CENVAT credit facilities and before utilising the same, the
Department has reversed it and therefore, the assesses is not liable
to pay interest and penalty.
7. The learned counsel appearing for the appellant has contended
elaborately that the reasoning given by the Appellate Authority for
setting aside the order passed by the Authority is totally baseless
and also against law. Under the said circumstances, the order
passed by the Appellate Authority is liable to be set aside.
8. The entire argument put forth on the side of the
appellant/Department is based upon the decision reported in 2012
(25) S.T.R. 184 (S.C.) = 2011 (265) E.L.T. 3 (S.C.) (Union of India
v. Ind-Swift Laboratories Limited), wherein the Apex Court has
given a finding to the effect that in Rule 14 of Cenvat Credit Rules,
2004 it has been clearly mentioned three stages, known as taken
or utilization or erroneous refund. In the instant case, the first limb
of Rule 14 of the said Rules is applicable and therefore, the assesses
is bound to pay interest as well as penalty. The Honourable Apex
Court has dealt with Rule 14 of the said Rules and subsequently on
the basis of facts available in that case has given a finding to the
effect that assessee therein is liable to pay interest as well as
penalty.
Page 17 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
9. The learned counsel appearing for the respondent has contended
that the decision reported in 2012 (25) S.T.R. 184 (S.C.) (Union of
India v. Ind-Swift Laboratories Limited) has been elaborately dealt
with in the decision reported in 2012 (26) S.T.R. 2042012 (279)
E.L.T. 209 (Kar.) (Commissioner of Central Excise & S.T. Bangalore
v. Bill Forge Private Limited).
10. In fact, this Court has perused the entire decision reported in
2012 (26) S.T.R. 204 (Karnataka) (Commissioner of Central Excise
& S.T., Bangalore v. Bill Forge Private Limited) and ultimately found
that mere taken of CENVAT credit facilities is not at all sufficient for
claiming of interest as well as penalty.
11. It is an admitted fact that Rule 14 of the Cenvat Credit Rules
as been subsequently amended, wherein it has been clearly stated
as "taken and utilised". Therefore, it is quite clear that mere taking
itself would not compel the assessee to pay interest as well as
penalty. Further, as pointed out earlier, the subsequent
amendment has given befitting answer to all doubts existed earlier.
Since, the subsequent amendment has cleared all doubts existed
earlier in respect of Rule 14 of the said Rules, it is needless to say
that the argument advanced by the learned counsel appearing for
the appellant/Department is erroneous, whereas the argument
advanced on the side of the respondent is really having merit and
the substantial questions of law settled in the present Civil
Miscellaneous Appeal are not having substance and altogether the
present Civil Miscellaneous Appeal deserves to be dismissed."
12. Learned Counsel further submits that the findings in the impugned
order is also unsustainable since it is made based on the statements
without complying the provision under Section 9D(1)(b) of Central Excise
Act. This issue was considered by the Tribunal in the matter of M/s Surya
Wires Vs. Principal Commissioner, (2025-TIOL-736 CESTAT DEL)
and held that:-
"28. It, therefore, transpires from the aforesaid decisions that both
section 9D(1)(b) of the Central Excise Act and section 138B(1)(b)
Page 18 of 25
Excise Appeal Nos. E/21142,21143,21145,
21147,21148/2017
of the Customs Act contemplate that when the provisions of clause
(a) of these two sections are not applicable, then the statements
made under section 14 of the Central Excise Act or under section
108 of the Customs Act during the course of an inquiry under the
Acts shall be relevant for the purpose of proving the truth of the
facts contained in them only when such persons are examined as
witnesses before the adjudicating authority and the adjudicating
authority forms an opinion that the statements should be admitted
in evidence. It is thereafter that an opportunity has to be provided
for cross-examination of such persons. The provisions of section 9D
of the Central Excise Act and section 138B(1)(b) of the Customs
Act have been held to be mandatory and failure to comply with the
procedure would mean that no reliance can be placed on the
statements recorded either under section 14D of the Central Excise
Act or under section 108 of the Customs Act. The Courts have also
explained the rationale behind the precautions contained in the two
sections. It has been observed that the statements recorded during
inquiry/investigation by officers has every chance of being recorded
under coercion or compulsion and it is in order to neutralize this
possibility that statements of the witnesses have to be recorded
before the adjudicating authority, after which such statements can
be admitted in evidence.
...............................
.................................
34. The confirmation of demand of central excise duty to the extent of Rs. 3,04,24,623/- is based on the statements of persons who were not examined by the department before the adjudicating authority. This examination was absolutely necessary in terms of the provisions of section 9D of the Central Excise Act. In the absence of examination of such persons before the adjudicating authority and in the absence of admission of such statements in evidence, such statements would not be relevant. For the reasons stated above, the said demand would have to be set aside."
Page 19 of 25Excise Appeal Nos. E/21142,21143,21145, 21147,21148/2017
13. As regarding personal penalties on other appellants, Learned Counsel draws our attention to Rule 26 and submits that once goods are not liable for confiscation, penalty imposed under Rule 26 on co-noticee are unsustainable. In this regard, Learned Counsel draws our attention to the judgment Hon'ble High Court of Karnataka in the matter of Commissioner of Central Excise Vs. M/s Vijaya Steels - 2012 (282) ELT 215 (Kar.) "9. For application of the Rule, the condition precedent is any excisable goods which he knows or reason to believe are liable to confiscation under the Act or the Rules, then penalty is leviable under the aforesaid provision."
14. Learned Authorized Representative (AR) reiterated the finding in the impugned order and submits that M/s. Lancy Constructions and M/s. Lanwal Block were two partnership firms with the same set of parters viz., Shri Lancy Mascarenhas and his wife Smt. Jascinta Mascarenhas. The total value of clearance of the two units during 2009-10 was Rs.1,39,07,554/-. As per the exemption scheme for small scale industries under notification No. 8/2003-CE dt 01.03.2003, unit is liable to pay Central Excise duty on crossing threshold exemption limit of Rs.1.5 crores and when the total value of clearances of excisable goods for home consumption exceeds Rs 4 crores during the previous year, they are not eligible to avail exemption under the said notification. In order to avoid crossing of threshold exemption limit and payment of duty, from 2010- 2011 onwards, M/s Lancy Constructions has created a web of units by re- constituting the existing partnership firm i.e., M/s Lanwal Blocks and also setting up of partnership and proprietary firms, i.e. M/s LCN Enterprises, M/s Neleema Enterprises and M/s Jasmine Enterprises among the family members with the available infrastructure i.e. land and machinery. A web of that shadow unit was created by M/s Lancy Constructions, to suppress /hide their actual clearance value, by artificially fragmenting/splitting the manufacturing units so as to keep the clearance values of each entity, within the exemption limit (i.e. Rs.1.5 crores) in a financial year to evade payment of appropriate central excise duty. Further submits that through Shri. Arun G Pinto has stated that daily wage labourers are hired by each Page 20 of 25 Excise Appeal Nos. E/21142,21143,21145, 21147,21148/2017 of the three units. However, himself, Shri Jason Fernades (Plant Manager), Shri. Hithakshi and Office Assistant are common for all the three units, which are operating from plots 309, 312 and 313. Shri. B. Mohandas Shenoy has stated that he is in-charge of production activities for all the four units, which are operating from the plots 154-C and 159- B and no separate employees are available for each unit and all the employees are made to work in all units depending on the orders, including himself. Shri Wilfred Miranda, Accountant working in administrative office has stated that he is the Accountant of M/s. Lancy Constructions and their group firms and that he is looking after the day- to-day business and financial accounts of M/s Lancy Constructions and group firms as per the directions of Shri Lancy Mascarenhas. Verification of documents reveal that Bills and invoices issued at M/s. LCN Enterprises and M/s. Jasmine Enterprises and also delivery notes were issued/signed by one individual (namely, Shri Hithakshi) at factory site, at plot No. 309, 312 and 313.Sample copies are also provided as relied upon documents. Further Shri Mohan Shenoy, production manager had given a statement that all the workers/employees are working in all the units depending on the orders as there are no separate employees for each unit, Shri Lancy Mascarenhas, Managing Partner, M/s Lancy Constructions in his statement dated 19.06.2015 stated that depending on the work, the units were sharing the workers and payment was made accordingly. Thus though separate Registers of Employment Muster Rolls were maintained, all the workers/employees were working in all the units of the group depending on the orders. Therefore, it is clear from the above facts that all the units has common management operating from either plots Nos. 309,312 and 313 or plot Nos. 154-C and 159-B which were in possession of the family with same set of machineries and with common employees/workers. As regarding reliance of the appellant in the decisions referred in the matter of Associated Engineering Products (supra) and Mayur Printers (supra), on free flow of finance among the units, Learned AR submits that there is free flow of money both in cash and in kind in this case. M/s Lancy Constructions had extended loans to other group companies. In his statement dated 19.06.2015, Shri Lancy Page 21 of 25 Excise Appeal Nos. E/21142,21143,21145, 21147,21148/2017 Mascarenhas, Managing Partner, M/s Lancy Constructions has inter alia stated that since the other firms did not have any assets, they could not get bank loans and therefore M/s Lancy Constructions advanced loans to other firms as and when required by charging interest of 12% per annum. However, as mentioned in the show cause notice / impugned order no entries are forthcoming regarding repayment of loans in the balance sheet. Similarly, though it is claimed that premises had been leased out to M/s Jasmine Enterprises and M/s. LCN Enterprises, no evidence is forth coming regarding receipt of rent by M/s Lancy Constructions. Similarly, M/s Neleema Enterprises was carrying out the manufacturing activity at plot No. 159B without any lease agreement. Rent for the said plot was paid by M/s Lancy Constructions. Further, plot No.154-C was owned by M/s Lanwal Blocks as per Sale deed dated 21.11.2003 and from the facts of the case, Adjudication Authority held that M/s Lancy Constructions Block and interlock unit was also operating at the said premises without any lease agreement and without payment of rent. Further draw our attention to the statement dated 06.03.2015 of Shri Lancy Mascarenhas, Managing Partner, M/s Lancy Constructions stated that M/s. Lancy Construction Interlock and Block units were located in plot Nos.309, 311 and 312 of Baikampady Industrial Area. However, certain machineries belonging to Lancy Construction were given on hire to M/s Lanwal Block at plot No. 154-C and M/s Neleema Enterprises. M/s Lancy Constructions was buying final products, i.e. blocks/interlocks from M/s Lanwal Blocks for the construction purposes. M/s Lancy Constructions provided loan to the other units as per their necessity and charged interest on the same. Ready Mix Concrete is an input for manufacture of blocks and interlocks for the units situated in Plot Nos 159-B and 154-C, viz., (i) M/s Lanwal Blocks (ii) M/s Lancy Constructions Blocks and Interlock Units and (iii) M/s. Neleema Enterprises. As per the delivery notes raised, M/s Lancy Constructions (RMC Unit) is transferring RMC to M/s Lancy Constructions / M/s Neleema Enterprises. It is clearly mentioned in the Delivery Note as Not for Sale; 'Our Own Site'. Further M/s Lancy Constructions Block Unit/ Interlock unit and M/s Lanwal Blocks are operating from Plot Nos. 154-C and 159-B and are adjacent plots having common passage. It is Page 22 of 25 Excise Appeal Nos. E/21142,21143,21145, 21147,21148/2017 thus evident that M/s. Lancy Constructions (RMC Unit), owned by M/s. Lancy Constructions, has cleared RMC to their own sites (154-C and 159- B) without any sale document/Invoices. Further submits that Shri. Arun G Pinto, plant In-charge of M/s Lancy Constructions at Plot No. 309, 312 and 313 in his statement dated 10.12.2013 stated that Ready Mix Concrete (RMC) manufactured by M/s Lancy Constructions, RMC Unit was being used by M/s Jasmine Enterprises and there were no documents for clearance of RMC to M/s Jasmine Enterprises. Verification of the seized records reveals that there are clearances of large quantity of RMC by M/s. Lancy Constructions, R.M.C. Unit to M/s. Lancy Constructions and M/s. Neleema Enterprises, with purpose of transport marked as 'not for sale, our own site. However, Shri Lancy Mascarenhas, Managing Partner, M/s Lancy Constructions in his statement dated 19.06.2015 stated inter alia that they had not supplied any RMC to M/s Jasmine Enterprises. He further stated that they were only mixing the materials like cement, jelly supplied by Neelma Enterprises in their plant and supplying to them; that they were charging only mixing charges; that Neelma Enterprises has a common yard to store raw materials at M/s Lancy Consructions RMC Unit located at plot No.309,312 and 313 and they have no documentary evidence for transfer of materials. Therefore, in the facts and circumstances of the case, the Adjudication Authority rightly held that M/s. Lancy Constructions (RMC Unit), owned by M/s. Lancy Constructions, have cleared RMC to their own sites viz M/s Lancy Constructions, M/s Neleema Enterprises and M/s Jasmine Enterprises without any sale document/invoices and impugned order confirming the demand and penalties imposed on appellants are sustainable.
15. Heard both sides and perused the records. Considering the ratio of the decisions relied by the appellant including decision in the matter of Mayur Printers and Associated Engineering Products (supra), there are sufficient evidence to admit that each unit where having independent identities since the Revenue could not establish that their books of accounts are common, that their bank accounts are common, that their registration with Income Tax, Sales Tax are common. Further merely if products manufactured by one unit is used for manufacturing in Page 23 of 25 Excise Appeal Nos. E/21142,21143,21145, 21147,21148/2017 another unit or on the evidence that one unit was advancing loans to other units, no finding can be made that there is common funding, that there is mutuality of interest and that there is financial flowback or that the units which were held to be dummy did not have any manufacturing facility. Further as held in the matter of Renu Tanon (supra), value of clearances of few units cannot be clubbed together and the same 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. In the absence of any such evidence, especially when separate Registers of Employment Muster Rolls were maintained and when finding is made based on statements recorded during investigation without complying the provision under Section 9D(1)(b) of Central Excise Act, we hold that the manufacturer units are independent units and therefore, their clearances could not be clubbed together. We find that when separate registers of employment muster rolls were maintained, statements as held in the matter of Renu Tanon (supra), mere blood relationship or sharing of staff, some temporary common employment, similarity of product is also not sufficient to draw an inference that all the units should be clubbed together to deny SSI exemption. Further as discussed above, each unit are having separate identities, functioning from different locations as discussed above and use of one common facility even if used by another unit cannot be considered as sufficient reason to reject the benefit of SSI Exemption. We also find that main appellant M/s. Lancy Constructions was closed in August 2013 and in the absence of any clearance / sales during the period 2014-15 and 2015-16, the proposal for adding the clearances of other firms and to allege non-payment of excise duty on main appellant is unsustainable. Therefore, we find that denial of benefit of SSI Exemption to the appellant is unsustainable and impugned order is liable to be set aside.
16. As regards the CENVAT Credit, demand against alleged ineligible Cenvat Credit of Rs.15,89,316/-, we find that the details of the CENVAT taken on capital goods which had been rented out to other units are not Page 24 of 25 Excise Appeal Nos. E/21142,21143,21145, 21147,21148/2017 furnished to deny CENVAT credit. Further we find that the entire credit taken during the period from April 2013 to September 2013 is reversed/deposited without utilization even if it is held as ineligible, as held by the Hon'ble High Court of Karnataka in the matter of Bill Forge Private Limited (supra), once the credit had been reversed without being utilized, the manufacturer is restored to the position of having not taken the credit. Thus the said demand is also unsustainable. Thus, penalty imposed on appellant under Section 11AC and penalty under Rule 15(2) read with Section 11AC of the Central Excise Act , 1944 and personal penalty under Rule 26 of the Central Excise Rules, 2002 are also unsustainable. In view of the above discussion the impugned orders are unsustainable and liable to be set aside.
17. Accordingly, impugned orders are set aside and appeals are allowed with consequential relief, if any, in accordance with law.
(Order was pronounced in open court on 12.03.2026.) (P. A. AUGUSTIAN) MEMBER (JUDICIAL) (PULLELA NAGESWARA RAO) MEMBER (TECHNICAL) Sasi Page 25 of 25