Custom, Excise & Service Tax Tribunal
Cce, Ludhiana vs M/S. Dirba Pipes Pvt.Ltd on 23 August, 2016
?CUSTOMS, EXCISE & SERVICE TAXAPPELLATE TRIBUNAL SCO 147-148, SECTOR 17-C, CHANDIGARH-160017 DIVISION BENCH COURT NO.1 Appeal No.E/826 to 838/2006-Ex(DB) [Arising out of OIO No.34/LDH/05 dt.6.9.05 passed by the CCE Ludhiana) Date of Hearing: 18.07.2016 Date of Decision: 23.08.2016 For Approval &signature: Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr. V.Padmanabhan, Member (Technical) 1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No 3. Whether their Lordships wish to see the fair copy of the order? seen 4. Whether order is to be circulated to the Department Authorities? Yes CCE, Ludhiana Appellant Vs. M/s. Dirba Pipes Pvt.Ltd. Respondent
North India Pipes Ltd.
Garg Pipes Ltd.
M.A.Pipes Ltd.
Ashwani Kumar Megh Raj Ashok Kumar Ashok Kumar Narain Dutt Raj Kumar Jagpal Singh Subhash Chandra Pankaj Thakkar Appearance Shri G.M.Sharma, AR- for the appellant Shri Kamaljeet Singh/N.K.Garg, Advocates for the respondent CORAM: Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr.V.Padmanabhan, Member (Technical) FINAL ORDER NO: 61172-61184/2016 Per Ashok Jindal:
The Revenue is in appeal against the impugned order.
2. The facts of the are that the respondents are engaged in the manufacture of ERW pipes and registered with the Central Excise department. They are availing SSI exemption benefit under various Notifications as applicable from time to time and had been availing the modvat/cenvat credit facility to discharge their duty liability on their final products. Based on intelligence gathered, DGCEI conducted raid on various factory, office, business, godown and residential preemies of the respondents on 29.11.2001. Furtherance to investigation, the show cause notices were issued to the respondents on account of that the clearances of four units should be clubbed together and the benefit of SSI exemption should not be given and demanding duty on account of clandestine manufacture and clearance of excisable goods by the respondents. The matter was adjudicated, the Commissioner in the impugned order set aside charges alleged against the respondents and dropped the proceedings initiated through the show cause notices. Aggrieved with the said orders, the Revenue is in appeals before this Tribunal.
3. Learned AR submits that the Commissioner has fell in error and without considering confessional statements made by the respondents during the course of investigation and over emphasised irregularity in search and seizure procedure and completely ignored hostile atmosphere created by the respondents at the time of search. It is his submission that during the investigation, the police was required to be called and thereafter certain records were resumed. He further submitted that the findings of the adjudicating authority is not correct by holding that the show cause notices should have been issued to the main units which controlled all the other three units and the demand could not have proposed to that company. He submits that there are various allegations in this case where SSI exemption can be denied. The allegation of clubbing is not based on minor monetary accommodation of temporary nature or simply relationship of the directors but it is on the basis of creation of new front companies, arrangement of funds for the same, financial flow back from one company to another, common staff, common office premises and common management are some crucial evidences which have been overlooked by the adjudicating authority. He submits that if the clearances of all four units be clubbed then the benefit of SSI exemption is not available to the respondents. He submits that various plants of the same manufacturer located together are one factory in terms of the definition under section 2(e) of Central Excise Act, 1944 as held by this Tribunal in the case of Dhampur Sugar Mills Ltd.-2001 (129) ELT 73 (Tri.-Del.).
4. He submits that photocopies of the documents are admissible under section 36B of Central Excise Act, 1944. He further submits that a holistic look explicitly revealed that there exists unity of ownership and purpose among the units, so different units of the same manufacture needs to be treated as a single factory and consequently exemption availed under these notifications merits to be denied. He submits that the adjudicating authority fell in error while holding pancha should be educated intelligent and should belong to the locality where the searches were carried out.
5. He submits that when the calculation of duty on the basis of clandestine clearance recorded at various ICC has been brushed aside merely on the basis of Sales Tax Assessment orders made by the Sales Tax Authorities. As no data of clearances obtained from the Sales Tax department are clearly co-relatable with the respondents private records/statutory records and there is no ground for not accepting the same in as much as the data relied on has been duly obtained from the Sales Tax department.
6. He further submits that the respondents are a group of industries and controlled over the management, staff, sale and purchase of finished goods and raw materials, financial transactions is with two persons who are cousins. There is commonality of interest among the business of the factories vis-a-vis financial arrangements, inter-unit transfers of finances, working of the staff under the directions of two persons among the respondents. The arrangement of initial and later investments were made by the two cousins and/or the other family members. Providing of security, by the family members, against the cash credit limits/loans taken from the financial institutions also corroborates the departments allegation of clubbing of clearances. In view of the above submissions, it i prayed that the impugned orders to be set aside.
7. On the other hand, learned Counsel appearing for the respondents submitted that all the four units are created separately and claiming the benefit of SSI exemption. In the adjudication, the SSI exemption sought to be denied by clubbing the clearances of the respondents. The allegation of clandestine clearance is based on the data obtained from the ICC set up under the Punjab General Sales Tax Act and some allegedly incriminating records, allegedly recovered during the search operation.
8. Learned Counsel heavily relied on the impugned order particularly paras 4.10, 4.11, 4.24 and 2.97 of the impugned order which are reproduced as under:
4.10 A number of grave irregularities have been alleged by the noticees in matters relating to search and seizure operation. These have been already mentioned in the reply of the noticees. I consider it relevant to recall only a few:
The panch witness in respect of operation carried out at M/s North India Pipes ltd. and M/s Garg Pipes ltd., dont know to read, write or speak English, the language in which panchnama was prepared. They were the drivers of the taxies, which brought the raiding officers from Ludhiana to Dirba and received remuneration from the raiding organization and did not belong to the locality where the searches were carried out. They have admitted that, as taxi drivers, they remained seated outside in their respective taxies when the searches were carried out and merely signed the papers at the behest of the officers without being able to read or understand the contents. Sh. Mandeep Singh pancha admitted that he studied only upto class IV, does not know English nor can read Punjabi. He was not read out anything before being made to sign various papers, whose contents he had no idea. Nearly same is the case with other pancha Sh. Pawandeep Singh. In the case of DPL one of the panchas is a taxi driver with similar lack of credentials as stated above. The other pancha has also stated during cross examination that he arrived only around 8 pm to collect money from workers to whom he had sold karyana goods. Same is the case in respect of nearly all other panchas as already explained in the record of the personal hearing.
Moreover, Annexure-A of the panchnama is original of M/s NIPL is missing and has not been produced. This Annexure is alleged to contain the details of records (private diaries marked 17,18 & 68) based on which the case of clandestine removal has been largely booked. The private diaries marked 17,18 & 68 in the said Annexure are also missing. Page 3 of the Panchnama prepared at the residence of Sh. Meghraj is also missing.
The seized papers dont have the signatures of panchas or of any representative of the notice parties or of the seizing officers. Even first and the last pages of all seized records, including the photocopies of the diaries marked 17,18 & 68 on which the case of clandestine removal is largely based, do not bear the signatures of panchas or of any representative of the notice party or of the seizing officers.
Besides, the physical verification of stocks of raw material and finished goods carried out at different premises is reported to have been completed in all the four entities. The noticees have alleged that it is humanly impossible to verify such huge quantity in such a short period. For example in the case of DPL a huge quantity of 80,874 kg of ERW Pipes of 14 different diameters and different lengths, when the number of packets/bundles were 2365 and number of pipes in a bundle varies, besides huge quantity of scrap, both weighing 169.074 Mts in 2640 packets of different weights are stated to have been weighed within 5.30 hrs. Likewise in the case of GPL a quantity of 1,19,154 kgs. has been shown verified within three hours while the goods were in 31 different sizes of pipes of 3654 bundles having different sizes an weights. In NIPL the quantity verified goes as 2,02,235 kgs in a matter of 3 hours 45 minutes . similarly in the cases of MAPL 62,225 kgs have been shown verified in a matter of 7 hours.
The Dy. Director DGCEI, Ludhiana, in reply to Commissionerates letter dated 17.03.2005, vide their letter dated 28.03.2005 has pointed out that the loss of Annexure A of the panchnama was noticed in September, 2004 which has been intimated, inter allia, to the police. Page 3 of the panchnama of the search at the residential premises of Sh. Megh raj was also found lost in sept. 2004. Likewise private diaries marked 17,18 & 68 in Annexure A of panchnama at the premises of NIPL were found missing in Sept., 2004. The existence of these documents is now being established by DGCEI, Ludhiana on the basis that when Sh. Ashok Kumar applied for anticipatory bail, their bails were granted after perusal of the case file by Honble Session judge of Ludhiana. Since only valid and authentic documents could be file in the court of law, it would be reasonable to presume that such documents were indeed lawfully created. As regards, the background of the panch witness, it has been stated by DGCEI, Ludhiana that the search was conducted in a very un-cooperative/ hostile atmosphere and in these circumstances it was not possible to get the witnesses from the locality and further that the panchnama was explained to the panchas in local language. It has also been stated by the officers that photocopies constitute valid evidence under section 36Bof the Central Excise Act.
4.11 As regards the background of the panchas, I am unable to convince myself with the arguments tendered by the Dy. Director DGCEI, Ludhiana. Panchas have to be selected before the operation is begun. Officers have to make themselves available for search so that the possibility of planting anything at the raided premises is ruled out. I cant understand how, even before the operation began, the officers could anticipate any trouble and made no efforts whatsoever to get respectable persons from the nearby locality. They were expected to be aware of, based on their intelligence, about the possible discovery of incriminating documents. The documents were likely to be in English at least in part if not wholly. Officers of DGCEI are expected to be aware of these aspects and should have taken the basis precautions not to have panchas who could not read or write and were moreover under their own financial remuneration. The justification given to have taxi drivers and other persons as panchas due to hostilities is a clear admission by the Deputy Director, DGCEI that panchas were engaged much later and not at the start of the operation. They have not at all stated that they started with some other panchas in the beginning but changed them later due to any hostilities. Their statement in their letter dated 28.03.2005 that these panchas had to be engaged due to hostilities at the raided venue-when police had to be called-indicate that searches were started if not fully carried out, without panchas, moreover, panchas have admitted that they remained seated in their respective taxies outside the raided premises and that corroborates that panchas did not witness the search operations. Further, in panchnama drawn on 29.11.2001 at the manufacturing premises of M/s NIPL, it has been stated that the search was conducted in a peaceful manner whereas in the letter dated 28.03.2005 of Deputy Director DGCEI, Ludhiana it has been mentioned that the search was conducted in very uncooperative/hostile atmosphere.
4.24 This clearly shows that the show cause notice issuing authority has admitted that all the 4 companies are the manufactures. The above position is further established from the fact that duty form all the 4 manufacturing units in respect of clubbing has been demanded on an independent basis i.e. to the extent of their respective clearance. If the show cause notice issuing authority was of the view that any of the companies had no independent existence and appeared on paper only, then the main unit which existed physically and which controlled all the affairs of the other three companies should have been identified in the show cause notice and a demand should have been proposed on that company.
2.97 Sh. Kamaljeet Singh Advocate submitted the written replied on behalf of M/s NIPL and M/s MAPL. He has submitted that M/s NIPL was incorporated on 23.09.1197, has set up the manufacturing unit on a owned plot, having registration with director of industry as SSI unit, registered with Central Excise Deppt., registered under PGST Act and CST Act, assessed separately under income tax Act, registered with PF and ESI Deptt, having separate power connections, telephone connections, its own labour and work force, its own plant and machinery. All expenses are incurred out of own funds or borrowed funds from PFC and Bank. Similarly, he has submitted the documents showing that MAPL is also having its separate registrations, factory plant and machinery etc. all the four units are located at Dirba and falls within same Central excise Range and Divisions. Though the factories of M/s NIPL, M/s GPL and M/s MAPL are near to each other on one side of the road, M/s DPL is located on the other side. He has filed the list of shareholders of both the companies. It was explained that the directors of M/s DPL and M/s NIPL are brothers of cousins however there is no relationship between the directors of M/s GPL and M/s MAPL there is no relationship between directors of M/s GPL/ M/s MAPL and M/s NIPL, M/s DPL. The learned counsel submitted that the search is vitiated because in M/s GPL and M/s MAPL the officers took the record in their custody and left the unit without mentioning in the panchnama that record has been resumed, in M/s NIPL the officers threatened and beaten Sh. Subhash Chander who was taken to hospital Sh. SUbhash Chander during cross examination stated that he was working for M/s GPL and not for M/s NIPL, he was brought to M/s NIPL from M/s GPL, officers remained in the factory of M/s GPL for 2 to 3 hrs and he had shown all the Excise Record, officers took the record to the factory of M/s NIPL, officers did not take the physical stock, he had not explained any document. Statement was dictated to Sh. Subhash Chander by the officers. Sh. Subhash Chander disowned the note book 007 and other note books were not recovered from him and his statement subsequent to search were recorded under threat of arrest. The learned counsel explained that the search was conducted in a vexation manner with clear malicious intention of building a false case. He has pointed out that Panchnama in M/s GPL was not signed by any representative of M/s GPL. The factory of M/s NIPL was set up in the year 1997-98 since the numerous officers of Central Excise Deptt has visited the factory and found the record lying there and signed them. Similarly, the factories of M/s GPL, and M/s MAPL were inspected, thus the allegation that the record of M/s MAPL and M/s GPL were found in the M/s NIPL does not stand to reason. In fact, all records were available in the premises of the representative units and were takne deliberately to M/s NIPL. He has pointed out that Sh. Megh Raj was summoned for recording the statement by the officers of DGCEI on 09.01.2002 when his statement was extracted under the trheat of arrest and ultimately Sh. Megh Raj was arrested on the same day. The learned counsel has referred the DGCEIs application for seeking judicial remand and submitted that DGCEI had admitted that search was not peaceful. Hence the facts mentioned in the panchnama are wrong. He has further pointed out that there were common panches in the M/s GPL and M/s NIPL. Since the time of search was at the same time the panches could not witness the search simultaneously in both the units. He has further contended that searches were conducted without independent and respectable inhabitants of the locality as panchas. Panchas are from Ludhiana who brought the officers in their taxis from Ludhiana to Dirba. This causes serious doubts regarding their independence. The documents recovered during searches do not bear the signatures either of panchas or of the offices or the representatives of the officers. Hence it is clear that the search was conducted in a vexatious manner with the soul purpose of building a false case.
9. He also relied on the following case law:-
1. J. Yashoda Vs. Shobha Rani, 2007 (212) ELT 458 (SC)
2. Nova Industries Ltd. Vs. CCE, Chandigarh -Final order No. A/50917-50922/2015-EX(DB) dt. 18.02.2015
3. Bullows India Pvt.Ltd. Vs. CCE, 2012 (284) ELT 584 (Tribunal)
4. Ennar Cements Pvt. Ltd. Vs. CCE, 2013 (292) ELT 245 (Trib)
5. Geeta Valves & Engineers (P) Ltd. Vs. CCE,1996 (87) ELT 672 (CEGAT)
6. Spring Fresh Drinks Vs. CCE, 1991 (54) ELT 333(CEGAT)
7. Santha industrials Vs. CCE,1995 (78) ELT 556 (CEGAT)
8. International Dyestuff Mfg. Co. Vs. CCE,1991 (53) ELT 85 (CEGAT)
9. CCE Vs.Rock Drill (I) Pvt.Ltd.,1997 (95) ELT 93 (CEGAT)
10. Padma Packages (P) Ltd. Vs. CCE,1997 (90) ELT 175 (CEGAT)
11. CCE, Kanpur vs. Sharad Industries,2013 (294) ELT 561 (Tri. Delhi)
12. CCE, Banglore vs. Vaspar Concepts (P) ltd., 2006 (196) ELT 95 (Tribunal)
13. Poly Printers vs. CCE,2002 (139) ELT 295 (Tribunal)
14. Superior Products vs.CCE, 2002 (144) ELT 187 (Tribunal)
15. Alpha Togo ltd. Vs. CCE, 1994 (71) ELT 689 (Trib)
16. Shree Packaging Corpn. Vs.CCE, 1987) ELT
17. Supreme Washers (P) ltd. Vs. CCE,Pune, 2003 (151) ELT 14 (S.C)
18. Sapthagiri Cements pvt. Ltd. Vs. CCE, 2005 (183) ELT 385 (Trib Bang.)
19. Arya Fibres Pvt. Ltd. Vs. CCE, 2014 (311) ELT 529 (Tri. Ahmd.)
20. Gian Castings Pvt. Ltd. Vs. CCE, 2015 (319) ELT 339 (Tri. Delhi)
21. Continental Cement Co. Vs. UOI, 2014 (309) ELT 411 (All.)
22. CCE Vs. Renny Steel Castings P. Ltd., 2013 (288) ELT 45 (P&H)
23. Suntrek Aluminium p. Ltd. Vs. CCE, 2013 (288) ELT 500 (guj)
24. Kuber Tobacco Products Ltd. Vs. CCE, Delhi, 2013 (290) ELT 545 (Tri.Delhi)
10. He also relied on the CBEC circular No.6/92 dated 29.5.1992 wherein the Board has issued the direction that limited companies whether the public or private are separate entities, distinct from the shareholders composing it and hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit.
11. With regard to the issue of clubbing of clearance, he submits that the demand has been raised on the basis of data collected from ICCS of the Punjab Govt. It was alleged in the show cause notice that sales were being effected by the manufacturing units through three trading firms. It is his submission that sales tax assessments of three firms have been finalized for the period of dispute after verifying the data from ICC and no efforts were made by the by the investigating officers to prove veracity of the data obtained. As the sales tax assessments are already finalised, therefore, allegation of clandestine sale of the finished goods through three trading firms are not sustainable. He further submits that the private diaries have been made the basis for clandestine removals for the period July, 2001 to November, 2001 on the presumptions that these goods may have gone thorough escape routes are not substantiated by the records at ICC. There were a large number of the irregularities in the search and seizure operations. No reliance can be placed on the allegedly incriminating documents which are alleged to have been recovered during the search. He further submits that the demand of duty is based only on conjectures and surmises. There is no corroborative evidence on record in support of the allegation of clandestine manufacture. To support his contention, he relied on the decision this Tribunal in the case of Arya Fibres Pvt.Ltd.-2014 (311) ELT 529 (Tri.-Ahmd.) and Gian Castings Pvt.Ltd.-2015 (319) ELT 339 (Tri.-Del.), Continental Cement Co.-2014 (309) ELT 411, Renny Steel Castings Pvt.Ltd.-2013 (288) ELT 45 (P&H), Sunttrek Aluminium P.Ltd. and Kuber Tobacco Products Ltd.-2013 (290) ELT 545 (Tri.-Del.). Therefore, he prayed that the impugned order is to be upheld.
12. Heard both sides and considered the submissions.
13. Considering the submissions made by both sides, we find that there are issues involved in the matter:
(i) Whether the panchnama drawn during the course of investigation can be relied upon and photocopies of the documents are admissible in the absence of original documents.
(ii) Whether the clearances made by the respondents, namely, M/s.Dirba Pipes Pvt. Ltd., M/s.North India Pipes Pvt. Ltd., M/s.M.A. Pipes Pvt. Ltd. and M/s.Garg Pipes Pvt. Ltd. can be clubbed together and the benefit of SSI exemption can be denied
(iii) Whether the demand can be confirmed on the basis of allegation of clandestine manufacture and clearance of excisable goods by the respondents or not.
Issue No.1
14. In the impugned order, the adjudicating authority has found that there are grave irregularities in the panchnama and particularly recorded as under:-
4.10 A number of grave irregularities have been alleged by the noticees in matters relating to search and seizure operation. These have been already mentioned in the reply of the noticees. I consider it relevant to recall only a few:
The panch witness in respect of operation carried out at M/s North India Pipes ltd. and M/s Garg Pipes ltd., dont know to read, write or speak English, the language in which panchnama was prepared. They were the drivers of the taxies, which brought the raiding officers from Ludhiana to Dirba and received remuneration from the raiding organization and did not belong to the locality where the searches were carried out. They have admitted that, as taxi drivers, they remained seated outside in their respective taxies when the searches were carried out and merely signed the papers at the behest of the officers without being able to read or understand the contents. Sh. Mandeep Singh pancha admitted that he studied only upto class IV, does not know English nor can read Punjabi. He was not read out anything before being made to sign various papers, whose contents he had no idea. Nearly same is the case with other pancha Sh. Pawandeep Singh. In the case of DPL one of the panchas is a taxi driver with similar lack of credentials as stated above. The other pancha has also stated during cross examination that he arrived only around 8 pm to collect money from workers to whom he had sold karyana goods. Same is the case in respect of nearly all other panchas as already explained in the record of the personal hearing.
Moreover, Annexure-A of the panchnama is original of M/s NIPL is missing and has not been produced. This Annexure is alleged to contain the details of records (private diaries marked 17,18 & 68) based on which the case of clandestine removal has been largely booked. The private diaries marked 17,18 & 68 in the said Annexure are also missing. Page 3 of the Panchnama prepared at the residence of Sh. Meghraj is also missing.
The seized papers dont have the signatures of panchas or of any representative of the notice parties or of the seizing officers. Even first and the last pages of all seized records, including the photocopies of the diaries marked 17,18 & 68 on which the case of clandestine removal is largely based, do not bear the signatures of panchas or of any representative of the notice party or of the seizing officers.
Besides, the physical verification of stocks of raw material and finished goods carried out at different premises is reported to have been completed in all the four entities. The noticees have alleged that it is humanly impossible to verify such huge quantity in such a short period. For example in the case of DPL a huge quantity of 80,874 kg of ERW Pipes of 14 different diameters and different lengths, when the number of packets/bundles were 2365 and number of pipes in a bundle varies, besides huge quantity of scrap, both weighing 169.074 Mts in 2640 packets of different weights are stated to have been weighed within 5.30 hrs. Likewise in the case of GPL a quantity of 1,19,154 kgs. has been shown verified within three hours while the goods were in 31 different sizes of pipes of 3654 bundles having different sizes an weights. In NIPL the quantity verified goes as 2,02,235 kgs in a matter of 3 hours 45 minutes . similarly in the cases of MAPL 62,225 kgs have been shown verified in a matter of 7 hours.
The Dy. Director DGCEI, Ludhiana, in reply to Commissionerates letter dated 17.03.2005, vide their letter dated 28.03.2005 has pointed out that the loss of Annexure A of the panchnama was noticed in September, 2004 which has been intimated, inter allia, to the police. Page 3 of the panchnama of the search at the residential premises of Sh. Megh raj was also found lost in sept. 2004. Likewise private diaries marked 17,18 & 68 in Annexure A of panchnama at the premises of NIPL were found missing in Sept., 2004. The existence of these documents is now being established by DGCEI, Ludhiana on the basis that when Sh. Ashok Kumar applied for anticipatory bail, their bails were granted after perusal of the case file by Honble Session judge of Ludhiana. Since only valid and authentic documents could be file in the court of law, it would be reasonable to presume that such documents were indeed lawfully created. As regards, the background of the panch witness, it has been stated by DGCEI, Ludhiana that the search was conducted in a very un-cooperative/ hostile atmosphere and in these circumstances it was not possible to get the witnesses from the locality and further that the panchnama was explained to the panchas in local language. It has also been stated by the officers that photocopies constitute valid evidence under section 36Bof the Central Excise Act.
4.11 As regards the background of the panchas, I am unable to convince myself with the arguments tendered by the Dy. Director DGCEI, Ludhiana. Panchas have to be selected before the operation is begun. Officers have to make themselves available for search so that the possibility of planting anything at the raided premises is ruled out. I cant understand how, even before the operation began, the officers could anticipate any trouble and made no efforts whatsoever to get respectable persons from the nearby locality. They were expected to be aware of, based on their intelligence, about the possible discovery of incriminating documents. The documents were likely to be in English at least in part if not wholly. Officers of DGCEI are expected to be aware of these aspects and should have taken the basis precautions not to have panchas who could not read or write and were moreover under their own financial remuneration. The justification given to have taxi drivers and other persons as panchas due to hostilities is a clear admission by the Deputy Director, DGCEI that panchas were engaged much later and not at the start of the operation. They have not at all stated that they started with some other panchas in the beginning but changed them later due to any hostilities. Their statement in their letter dated 28.03.2005 that these panchas had to be engaged due to hostilities at the raided venue-when police had to be called-indicate that searches were started if not fully carried out, without panchas, moreover, panchas have admitted that they remained seated in their respective taxies outside the raided premises and that corroborates that panchas did not witness the search operations. Further, in panchnama drawn on 29.11.2001 at the manufacturing premises of M/s NIPL, it has been stated that the search was conducted in a peaceful manner whereas in the letter dated 28.03.2005 of Deputy Director DGCEI, Ludhiana it has been mentioned that the search was conducted in very uncooperative/hostile atmosphere.
15. As observed by the adjudicating authority in the impugned order, that the panch witnesses were tax drivers which brought the raiding party from Ludhiana to Dirba and they have received remuneration from the raiding party. In their respective statements that the raid were carried out and signed the papers at the behest of the officers without being able to read or understand the contents. These facts have not been denied by the Revenue, in that circumstance, panchnama drawn during the course of investigation have no evidentiary value. Therefore, the statement recorded and records seized during the course of investigation have no evidentiary value, therefore, these documents cannot be relied upon to allege the allegation of clubbing of clearances of the units on the basis of said records as the panch witnesses are independent persons were not present at the time of search. In the show cause notices, the photocopies of the documents which are not available in original has been relied on by the revenue is not admissible evidence in light of the decision of the Apex Court in the case of J.Yashoda vs. Shobha Rani-2007 (212) ELT 458 (SC).
16. In view of the above, we hold that panchnama is not admissible evidence as discussed above and the photocopies of the documents are not admissible evidence. Therefore, the issue No.1 answered in favour of the respondents.
Issue No.2
17. To deal with the issue of clubbing of clearances, we find that the organisational structure of all four units is as under:
1. M/s.Dibra Pipes Pvt.Ltd.(M/s.DPL), is a private limited company in which the following persons have been shown on paper, as Directors:-
(i) Shri Ashok Kumar S/o Sh.Des Raj, New Grain Market, Dirba Mandi-148035
(ii) Sh. Megh Raj S/o Sh. Hari Ram, New Grain Market, Dirba Mandi-148035
2. M/s.North India Pipes Pvt.Ltd.(M/s.NIPL), is a private limited company in which the following persons have been shown on paper, as Directors:
(i) Shri Ashok Kumar S/o Sh.Des Raj, New Grain Market, Dirba Mandi-148035
(ii) Sh. Megh Raj S/o Sh. Hari Ram, New Grain Market, Dirba Mandi-148035
(iii) Sh. Moti Ram (brother of Sh. Megh Raj S/o Sh. Hari Ram, New Grain Market, Dirba Mandi-148035
3. M/s.Pipes Pvt.Ltd. (M/s.MAPL), is a private limited company in which the following persons have been shown on paper, as Directors:
(i) Shri Ashok Kumar S/o Sh.Baldev Raj, New Link Road, Dirba, Distt. Sangrur.
(ii) Sh.Bhim Sain, S/o Sh.Narata Ram, VPO Basiark, Distt.Sangrur.
4. M/s.Garg Pipes Pvt.Ltd. (M/s.GPL) is a private limited company in which the following persons have been shown on paper, as Directors:
(i) Sh.Narain Dutt S/o Sh.Mani Ram, Salar Patti, Dirba, Sangrur
(ii) Shi.Naresh Kumar S/o Sh.Des Raj, Link Road, Distt.Sangrur.
(iii) Sh.Madan Lal S/o of Sh.Atam Ram, VPO Kamalpur, Distti.Sangrur.
18. On the basis of above organisational structure, it has been held that Shri Meghraj and Shri Ashok Kumar have either been shown on paper as directors or have been shown other persons as directors in the aforesaid manufacturing units. It is admitted fact that all the units are companies registered under the Companies Act and these cannot be held related to each other. We find that the said issue came before this Tribunal in the case of Nova Industries Ltd. vide Final order No.50917-50922/15 dated 18.2.2015, wherein this Tribunal has held that the units are private limited company registered with the Registrar of Companies and both the units are having their units separately located with a distance in the same industrial area but there is no common gate for both the companies. Further, both the companies are registered with Income-tax Department, Sales-tax department, Central Excise department, Director of Industries, etc. As separate units. The registration of Central Excise was granted to both the units although the documents were signed by Shri D.V.Khanna for filing returns or correspondence with the department but they were not objected to.
19. Therefore, on organisational structure, it cannot be held that all the units are controlled by one person.
All the units are independent separately incorporated private limited companies under the Companies Act,1956;
All the units are separately registered under the Central Excise although and fall within the same the Central Excise range and division;
All the units registered as SSI unit with the Directorate of Industries, they have their own investment of capital, machinery and work force;
They have their own financial sources and credit facilities;
All units have separate factories and manufacturing facilities;
All the units have purchased the machinery owned by them and also all the raw materials required for manufacturing from their own resources;
All the salaries, wages are paid by the all the units from their own sources of finance;
All the units have their own Sales Tax and Income Tax Registration;
All the units had paid their own electricity Bills;
All the units have separate electricity and telephone connections.
20. These facts have not been controverted by the Revenue. The only allegation is that Shri Ashok Kumar and Shri Meghraj have controlled all the four units having common directors in all the units. In fact as per organisational structure, they are not the directors in all the four respondents company and there are common directors in all four respondents companies. We have seen that two directors are not related to the directors of other three companies. From that, it cannot be said that these units have been managed by Shri Ashok Kumar and Shri Meghraj. We have seen that directors of the two companies have related to the other, it does not mean that they are only one with other companies are dummy as held by in the case of Nova Industries Pvt.Ltd. (supra) wherein this Tribunal has observed as under:
15.?First, we will deal with the issue whether the clearance of M/s. DSA can be clubbed with the clearance of M/s. NOVA. In the impugned order, the allegation against the appellant is that both the companies were promoted by Shri D.V. Khanna himself as Managing Director of both the companies and Director in both the companies are same. It is also found that by the Adjudicating Authority, the salesman/dealers to be decided mutually and marketing of both the companies were commonly and salary of employee of M/s. Nova was paid from M/s. DSA and commission of employees of M/s. NOVA was paid from M/s. DSAs account. The annual incentives were given to the dealers on the basis of combined sales of both the units. Moreover, the shareholding in both the units by the Directors is almost common. Sometimes, money was given to each other but nothing was shown in the balance sheet. Therefore, clearance of both the units are to be clubbed as the same are managed by Shri D.V. Khanna, Managing Director in the clearance of NOVA.
16.?We also find that in this case, both the units are private limited and registered with the Registrar of Companies and both the units are having their units separately located with a distance in some industrial area but there is no common gate for both the companies. Further, both the companies are registered with Income-tax Department, Sales-tax Department, Central Excise Department, Director of Industries, etc. as separate units. The registration of Central Excise was granted to both the units although the documents were signed by Shri D.V. Khanna for filing returns or correspondence with the department but they were never objected to. We also find that in this case although both the companies are having different brand names of their product such as NOVA/DSA. The units are having their own separate machinery having manufacturing the goods and same have been cleared on payment of duty by availing SSI exemption of both the units separately. The only allegation is that sometimes, salary of one of the employees was paid by the other firm or they are managed by one person. Moreover, the dealers get the commission on the combined sales of both the companies. These things cannot constitute that there was a mutuality of interest and therefore, clearances of one unit cannot be clubbed with the clearance of other unit.
17.?We find that this issues has come before the Tribunal in various cases whereas in the case of Bullows India Pvt. Ltd. v. CCE, reported in 2012 (284) E.L.T. 584 (T) (supra) wherein this Tribunal has observed as under:
We find that in the present case the issue is whether the appellants are entitled for the benefit of Notification 175/86-C.E. and subsequently Notification 1/93-C.E., therefore, the ratio of the above decision of the Honble Gujarat High Court is fully applicable on the facts of the present case. The Honble High Court held that the Revenue has to establish that there was mutuality of interest or financial flowback of the funds and in such cases the clearances of the holding and subsidiary private limited companies can be clubbed. In the present case we find that even in the show cause notice there were no such allegations. In the show cause notice the only allegation is that the holding company has share capital in the subsidiary company. There is no evidence regarding financial flowback on record. In these circumstances and respectfully following the decision of the Honble Gujarat High Court, the impugned order is set aside and the appeals are allowed. The cross objections filed by the Revenue are disposed off accordingly.
18.?Further, we find that, in the case of CCE v. Sharad Industries reported in 2013 (294) E.L.T. 561 (T) this Tribunal again observed as under:
We, after appreciating the submissions of both the sides find that there is not much dispute on factual position. It is not the Revenues case that two units owned by Smt. Kamlesh Gupta and her husband Shri Avdesh Kumar Gupta not complete units having all the necessary machines and infrastructure for manufacture of their final product. Both the units have separate Sales Tax Registration, Industries Registration, Income Tax Registration, Electricity Connection, Telephone Connection & ESI Registration etc. Merely because there is a door between the two units and power of attorney stand given to her husband to look after the job of her unit, by itself cannot be held to be a ground for holding both the units as one. Admittedly, husband and wife are entitled to their own business and if the husband is looking after the business of the wife that will not make the unit owned by the wife as a dummy unit. The prime requirement, for clubbing the clearance of two units is not having complete independent machinery and infrastructure to manufacture the goods. If both the units are complete by itself, capable of manufacturing the goods without any help from the other unit, it has to be held that both the units are independent units. The various decisions of the Tribunal referred to and relied upon by Commissioner (Appeals) in his impugned order are applicable to the facts of the present case. It stands held in precedent decision that financial flow back and financial intertwining between the two units is the main reasons for reflecting upon the fact of their being independent or not. One such reference can be made to in decision of the Honble High Court in the case of M/s. Renu Tandon v. Union of India - 1993 (66) E.L.T. 375 (Raj.). Similarly, in the case of M/s. Electro Mechanical Engg. Corporation v. CCE, Jaipur - 2003 (152) E.L.T. 194 (Tri.), Girish Electricals Industries v. CCE, Mumbai - 2004 (167) E.L.T. 299 (Tri.) it was held evidence of common office premises, common staff and common maintenance of records, etc. cannot be held to be sufficient to club the clearances of the units, who have different registration in all the departments and in the absence of any financial flow back.
19.?We further, analyse the decision of Ennar Cements Pvt. Ltd v. CCE reported in 2013 (292) E.L.T. 245 (T) (supra) wherein this Tribunal has observed as under :
We have gone through the records of the case carefully. The appellants are two Private Limited Companies. They have separate existence. The investigation reveals that the clearances of one unit were done with the other and vice versa in order to remain with the exempted limit and thereby evading payment of Central Excise duty. If that is the case, the investigation ought to have decided the real clearances of each unit and demanded the duty accordingly in respect of each unit. However, in the present case, the duty has been demanded collectively from both the units. If the Department feels that out of the two units, one unit is dummy, then the dummy unit should have been identified. In that case, the value of the clearance of dummy unit could have been clubbed with the clearance of the real unit and duty demanded. This has not been done.
The learned Commissioner in the impugned order has given the following findings : -
70 (ii) Whether each unit is entitled to a separate limit (under the SSI exemption notification) as per the Boards Circular No. 6/1992, dated 29-5-1992.
I have perused the Circular No. 6/1992, dated 29-5-1992 [issued from F. No. 213/15/92-CX-6] issued by the Central Board of Excise and Customs, New Delhi in the context of SSI exemption Notification No. 175/86-C.E., dated 1-3-1986. In the said Circular, the board had, inter alia, clarified that the limited companies, whether public or private, are separate entities distinct from the shareholders composing it and hence, each limited company is a manufacturer by itself and would be entitled to a separate exemption limit. It is not in dispute that M/s. Ennar Cements and M/s. Seshashaila Cements are private limited companies registered separately under the Companies Act and each of them have separate factories. Taking various facts into account I have already held in my findings on (i) above that the management [of both the units] is one and the same and both the units are not independent to each other, thereby they are to be treated as a single manufacturer having more than one factory. Hence, the clarifications given by the Board in the said Circular dated 29-5-1992 are not applicable to the facts of the present case. On perusal of the above findings of the learned Commissioner, it is clearly stated that each appellants company is separate. In respect of the Boards Circular, the clearances of the limited companies cannot be clubbed. The Commissioner has clubbed it and demanded duty collectively. This is not legal and correct and it is contrary to the Boards Circular.
20.?We further find that in the case of Alpha Toyo Ltd. v. CCE, New Delhi reported in 1994 (71) E.L.T. 689 (Tribunal) this Tribunal has observed as under :
SSI exemption - Clubbing of clearances common Managerial Control, a few common directors and advancing of interest free loans by main unit to other units not sufficient to make other units as dummies when they are having independent control or money flow back to the main unit - Clearances not clubbable - Situation not to be confused with that of related person concept under Section 4(4)(c) of Central Excises & Salt Act, 1944 - Notification No. 175/86-C.E., dated 1-3-1986 - Section 5A ibid.
21.?In the case of Renu Tandon v. Union of India reported in 1993 (66) E.L.T. 375 (Raj.) Exemption - SSI Exemption - Clubbing of clearances - Two units situated at same premises, manufacturing similar product, having some common management, office and labour and common electric connection - One unit owned by father-in-law and the other by daughter-in-law and work of both units looked after by her husband - In absence of evidence of common finding and financial flow back, two units not treatable as one and their clearances not clubbable - Notification No. 175/86-C.E. dated 1-3-1986.
22.?In the case of Vivomed Labs. (P) Ltd. v. Collector of C. Ex. reported in 1991 (53) E.L.T. 152 (Tribunal) Exemption to SSI Units - Clubbing of clearances - Units registered separately under Income-tax Act, Sales Tax having separate Central Excise Licenses and also financed through separate application for loan from financial institutions - Shareholders in all the firms not the same group of persons - Tie up with Medly Pharmaceuticals for marketing purposes explained inasmuch as the services rendered being paid for in terms of agreement between them - Clubbing of clearances of units not justified in absence of conclusive evidence of financial flow back among them - Notification No. 83/83, dated 1-3-1983, No. 85/85, dated 17-3-1985 and No. 175/86, dated 1-3-1986.
23.?We also find that the activity of the appellants were in the knowledge of the department as they were registered with the Central Excise Department and units are located in the same range, therefore, extended period of limitation is also not invokable for clubbing the clearance of DSA with NOVA.
24.?From the analysis of the above decisions and the facts of the case before us, we find that both the units are separately located having separate registrations and dealing separately. We also find that there is no financial flow back, therefore, there is no mutuality of interest between the units. Accordingly, clearances of both the units cannot be clubbed together.
25.?In these circumstances, the charge of clubbing of the clearance of M/s. DSA with M/s. NOVA is not sustainable and the same is set aside.
21. We find that learned AR relied on the decision of the Apex Court in the case of Modi Alkalies & Chemicals Ltd. In the said case, the facts were as under:
Respondent no. 1 - M/s. Modi Alkalies & Chemicals Ltd. (in short MACL) is engaged in the manufacture of caustic soda of which Hydrogen gas is a by-product. The Central Excise Authorities noticed that in reality MACL was engaged in the manufacture of Hydrogen gas falling under sub-heading 2804.90 of the schedule of the Central Excise Tariff Act, 1985 (in short Tariff Act). But with a view to evade payment of excise duty it floated three front companies, namely, respondent nos. 2 to 4 i.e. M/s. Mahabaleshwar Gas & Chemicals Pvt. Ltd. (for short MGCPL), Shri Chamundi Gas and Chemicals Pvt. Ltd. (for short SCGCPL) and M/s. Nippon Gas and Chemicals Pvt. Ltd. (for short NGCPL). All the three front companies were in vicinity of the factory of MACL. What in reality happened was that through pipelines Hydrogen gas was sent to the three front companies for compressing and bottling the gas. The sole object was to avail benefit of exemption given to small scale industries under the Central Excise Notification No. 1/93, dated 28-2-1993 and thereby evade payment of central excise duty. With a view to unravel the truth, Director General of Anti-Evasion (for short DGAE) searched the factory and office premises of MACL and the three front companies on 27-9-1996. It was found that all the three bottling units were located in one single shed and were separated from each other by small brick walls of about 4 ft. height. The Directors of the three front companies were employees of either MACL or other Modi Group of companies and they were frequently changed. They had common staff for maintenance of records, and operation of the units. The main plant and machinery i.e. cylinders had been supplied only by MACL and the total finance was provided by MACL as unsecured loans or had been arranged by finance companies whose whereabouts were not even known to the Directors of the three front companies. Marketing of the products was done by one Ritesh Beotra, a so-called Director of SCGCPL who was working as Deputy Manager (Marketing) in M/s. Modi Gas & Chemicals Sales Depot at Delhi. He was marketing various gases manufactured by a Modi group concern and was answerable as an employee of MACL. It was, therefore, concluded that MACL had control over Hydrogen gas even after the stage of bottling till it was sold to the customers. The Balance-sheets and other financial statements of the three units revealed that whatever income they earned had gone to MACL in the form of lease rent of cylinders. One Mr. Sita Ram Goswami, Accountant of MACL and Mr. Ashok Kumar, Chief Operating Officer of MACL admitted that some amount of cash was also collected by MACL over and above the invoice prices of Hydrogen gas supplied by three companies. It was noted that while front companies were being supplied gas by MACL @ 0.50 per unit, till August 1996, the same gas was sold by the three companies @ Rs. 5/- per unit. Keeping in view all these factors the authorities were of the view that MACL had created the three companies with the fraudulent intention to avail benefit of exemption granted under Central Excise Notification No. 1/93, dated 28-2-1993 and has mis-declared the assessable value in the invoices with the intention to evade central excise duty.
22. On these set of facts, the Apex Court came to the conclusion that the benefit of exemption notification is not available and were fraudulent intention to evade the benefit of SSI exemption. The said facts are not in the case in hand, Therefore, the said decision is not applicable to this case.
23. Further in the case of Heemanshu Traders vs. CCE-2003 (153) ELT 119, the facts as under:
2.1 Briefly stated the facts are that the Central Excise officers? intercepted a truck No. GRW - 2645 on 7-4-88 at Umbergaon Sanjan Road. The driver of the truck produced a Challan No. 862, dated 7-4-88 for M.S. Scrap issued by M/s. Heemanshu Auto Ltd. The driver, however, did not produce any Central Excise gate pass. In his statement, the Excise clerk of Heemanshu Traders deposed that as per oral instruction of Shri Girisbhai Shah, he prepared a challan for dispatch of 12.285 Kgs. of M.S. Scrap from M/s. Heemanshu Traders in the name of M/s. Heemanshu Auto Ltd. Scrutiny of records of Heemanshu Traders revealed that duty determined under Gate Passes for the period from 4th April, 1988 to 7th April, 1988 had not been debited. Some goods such as Electric horns received by different customers, from M/s. Heemanshu Traders, were also seized. Detailed examination of records of Heemanshu Traders, Heemanshu Auto Pvt. Ltd., Shri Krishna Industries, M.K. Industries, Shri Hari Industries revealed that all the partners and/or Directors are members of the Shah family and they had mutual interest in the business of each other and that Heemanshu Traders was controlling the overall activities of manufacture and sales of these units. The Department was of the view that Heemanshu Traders had by recourse to fraud, wilful mis-statement and suppression of facts evaded payment of duty in respect of 12285 Kgs. of M.S. Scrap seized from the Truck, did not account for the day to day production of M.S. Scrap in R.G. 1 register, cleared 12323 Electric Horns during the period from 4-4-88 to 7-4-88 without debiting the duty in PLA/RG 23A and that all the units above mentioned along with Shri Vishnu Industries, M.C. Industries and D.G. Auto Industries affixed the brand name of M/s. Heemanshu Traders on Electric Horns and C.B. Points, worked under the directions and instructions issued by Heemanshu Traders from Head Office for production and sale, transferred raw materials and finished products to each other units, made cash flow to each other units for their administration and that the aggregate value of clearance exceeded the exemption limit of Rs. 1.5 crores in terms of Notification No. 175/85-CE. (earlier Notification No. 83/83, dated 1-3-83 and 85/85, dated 17-3-85) and, therefore, were not entitled to exemption as SSI unit. The duty of Rs. 24,31,502 was demanded under show cause notice dated 4-10-1988 for the period from 1985 to 1987-88 besides proposing confiscation of goods under seizure, truck and land, plant, buildings and imposition of penalty under Rule 173Q (1) of the Central Excise Rules.
Thereafter this Tribunal has held that exemption is not available.
24. We have seen that the decisions in both cases relied on by the learned AR the facts are somehow different from the case in hand before us. As observed in above paragraphs. Therefore, the said decisions are not applicable to the facts of this case.
25. We take note of the fact that in this case, the facts somehow similar to the facts in the case of Nova Industries Pvt.Ltd. (supra) and on the analysis of that decision, we hold that all the units are having separate machinery, separate registration number and dealing separately. We also take note of the fact there is no financial flow back and there is no mutuality of interest between the units. Therefore, all the four units cannot be clubbed together and the same has been confirmed by the adjudicating authority in the impugned order giving detailed findings on the issue. In the circumstances, we hold that the all the units cannot be clubbed together and the respondents are entitled to the benefit of SSI exemption from time to time. Therefore, this issue is answered in favour of the respondents.
Issue No.3
26. The demand on the basis of clandestine clearance, we have seen that the demands were raised on the basis of data collected from ICC of Punjab Gov. and it has been alleged that the sales were being effected from the manufacturing units through three trading firms. We have seen that Sales tax assessments of all the four firms have been finalized for the period in dispute after verifying the data recovered from the ICC and it has been held that there is no clandestine sale of the finished goods, therefore, through these trading firms as no sales took place as per sales tax assessment and there is no corroborative evidence to allege that clandestine removal of the goods by the respondents, moreover, the demand on clandestine clearance is made on assumption and presumption. No calculation has been given and the demand was sought to be distributed in all four respondents manufacturers equally which is against the judicial discipline. Further, as no corroborative evidence to support the allegation of clandestine manufacture, therefore, in the light of the decision of the Arya Fibres Pvt.Ltd. (supra), wherein this Tribunal has observed as under:
40.?After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained as per the statutory records;
(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc.
27. We hold that the charge of clandestine removal of goods is not sustainable against the respondents.
28. Further, we find that in the show cause notice, it is alleged that since it is not ascertainable how much the quantify and value of ERW pipes had been cleared in the aforesaid manner from each of the manufacturing units, the duty not paid has been equally apportioned in respect of these manufacturing units. In the case while distributing the demand on account of clandestine removal of the units have been recognised independent that is why the demand on the clandestine removal of the goods have been demanded from all four units separately. In that circumstance, the clearances of the said units cannot be clubbed together.
29. Further, we find that the quantity and value of clearance in respect of each of the manufacturing unit is required to be identified and duty liability is to be determined. No effort has been made to quantify the value and quantity of ERW pipes cleared by each units. Therefore, without ascertaining of value of the goods cleared clandestinely, the demand is not sustainable. Therefore, the issue No.3 is also answered in favour of the respondents.
30. We also take note of the fact that the original documents were not available with revenue. No efforts were made to trace the documents, no official was held liable for the said discrepancy which shows the negligent attitude of the investigating agency, despite that the impugned order has been challenged before this Tribunal is not appreciable.
31. In view of the above discussion, we do not find any infirmity in the impugned orders and the same is upheld and the appeals filed by the Revenue are dismissed.
(Pronounced in the open court on ______________)
(V.Padmanabhan) (Ashok Jindal)
Member (Technical) Member (Judicial)
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