Custom, Excise & Service Tax Tribunal
Mayur Printers vs C.C., Surat I on 8 May, 2017
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, O-20, NMH Compound Ahmedabad Central Excise Appeal No.1976 to 1980 of 2005 - DB Arising out of the order in-original No.07/MP/2005 dated 31.1.2005 passed by the Commissioner of Customs, Surat I. Mayur printers Mayank Rotoplast Industries L.abhubhai Patel .. Appellants Vikas Agency Stylopack Vs. C.C., Surat I .. Respondent Appearance: Present Shri Anand Nainawati, Advocate for the appellants Present Shri S.N. Gohil, A.R. for the Respondent-Revenue Coram: Honble Dr. D.M. Misra, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of hearing: 5.4.2017 Date of pronouncement: 08.05.2017 Final Order No. A/10908 10912/2017 Per Raju: These appeals are filed by M/s Mayur Printers, M/s Mayank Rotoplast Industries, Labhubhai Patel, M/s Vikas Agency and M/s Stylopack against confirmation of demand by clubbing of clearances in the name of these units denying the benefit of small scale exemption. Penalties were also imposed on Shri Labhubhai Patel who was allegedly the main person operating for and on behalf of same set of persons. 2. The facts are that the Headquarters Preventive and Intelligence unit had visited the premises of the appellants and found that in one compound having plot No.P-788 to 792, the following four units were working: Sr.No. Name of the Factory M/s Plot No. Description of final product 1. Mayur Printers P-788 PVC Film 2. Vikas Agencies P-790-791 -do- 3. Mayank Rotoplast Inds P-789 & 792 -do- 4. Stylopack P-791-792 1st Floor HDPE Film While units at Serial No.1, 2 & 4 were registered with Central Excise Department and paying duty after availing SSI exemption under Notification No.1/93-Central Excise dated 28.2.93, the unit at Serial No.3 was neither registered with Central Excise Department nor any declaration for manufacturing activity had been filed with Central Excise Department for the year 1992-93 and 1993-94. During search Panchnamas were made and it was found that stock of raw materials and finished goods of these units were lying in the premises of other units. It was also found that the following machines were available in various plots : Plot No.& Name of Unit Machinery found woking Machinery found not working Other details P 788 M/s MP 65 mm Extruder Machine Duplex 45 mm Extruder machine in dismantled condition 40 kgs. High Speed Mixture PVC file packed in corrugated boxes were lying Backside of Plot No.788/789 Waste Winding machine (Kalimata) water pump Waste winding Machine (new) owned by M/s VA --
P.789 M/s MRPI High Speed Mixture weighing scale for weighment of raw materials
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Raw materials of all units were lying there Outside of P.788 & 789 (i.e. opposite office premises One paper core cutter machine
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P.790 M/s VA One weighing scale for weighment of finished goods
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Fully finished packed goods of all units and packing materials like boxes, steeping, tape etc. were lying there.
At backside of plot One electric Generating set (DG set)
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P.791 M/s VA Slitter Rewinder machine 65 mm Extruder machine High Speed Mixer lying in one corner Entry can be made easily in factory at Plot No.792.
P.792 Chilling Water system Roto Gravious Printing Machine 65 mm extruder machine found rusted P.P. Granules and HDPE waste were lying P.791 792 1st floor M/s SP 65 mm extruder machine with winder 45 mm extruder machine with winder
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HDPE granules and HDPE colour concentrate were ling there.
Thereafter, statement of Shri S.B. Rana, packing supervisor of M/s Mayur Printers were recorded wherein he deposed that he was getting pay from Mayur Printers, though he was working for all of these appellants. He also informed that packing activities of these units were done with common labour at Plot No.790. He stated that finished material from all the units was being received here for wrapping, weighment, packing and strapping etc.
3. In the statement of Shri Labhubhai Patel, partner of all these units, he stated that he was looking after production of goods, clearance of final products, purchase of raw materials and banking etc of all the units. That he was the active partner in all four appellants firms. He further informed that all the four appellant firms were duly registered with the Directorate of Industries as small scale Industry. He also informed that Mayank Rotoplast Industries is engaged in the manufacture of PVC bags and PVC Film but it was not registered with Central Excise Department and that they have not filed any declaration in respect of the said units for the year1992-93 and 1993-94. However, they have filed declaration for 1991 -92 and for previous years. He also confirmed that electricity was supplied to these firms from the electric Generation Set installed at Plot No.790 of M/s Vikas Agency. He also confirmed that packing weigment etc of finished goods was also being done in the premises of Vikas Agency at plot no 790. He also confirmed that though they have separate high speed mixture machines installed in the premises of M/s Mayur Printers but only machines installed in the premises of MRPI was being used by all of these firms located at Plot No.789. Similarly, he confirmed that they have one cutter machine used for winding PVC and HDPE film and the same machines were installed at Plot No.788 & 789 and the said machines cater of all these firms. He also confirmed that water is needed for cooling down PVC film during manufacturing process and the same is supplied to all these units from chilling plant located at Plot No.792 and pumped through common water pump installed at Plot No.788. He also informed that it is practically impossible to install separate chilling plant for small units as it requires huge investment, therefore, they have got only one chilling plant and one water pump for all units. He further informed that the clearances shown in respect of MRPI were from old stock of manufactured goods as the machineries installed in the said unit were not functioning since one and half year. He further informed that since clearances of final products of M/s MRPI did not exceed Rs.10 lakhs they had not taken registration of the said unit with the Central Excise Department but due to oversight they failed to file declaration for last two years. He also informed that they were not keeping raw materials and final products separately for each unit situated at Plot No.788 to 792 due to shortage of space in each unit. He further informed that some chemicals were costly and they had kept these chemicals in locked room. He also informed that they have one office and common staff for all the units as they could not afford separately for each unit, have stationery for unit. He further informed that they were not charging each other any rent or fees for using the facilities of each other. He further deposed that in his statement recorded on 6.1.1994 that other partner of said four units are his relatives such as father, mother, brothers and brothers wife but none of other partners were actively taking any part in day to day affairs of all these four units. He stated that he was only looking after the affairs of the said four units and fully responsible for all its activity. He further deposed that regarding ownership of Kalimata brand waste grinding machine installed at backside room of plot No.788 789 which was found in working condition as on 6.1.94, he stated that the said machine is owned by M/s VA but due to oversight during the Panchnama he had informed that the said machine was owned by M/s MP, which was incorrect. He further informed that 40 kgs size High Speed Mixture (Jailaxmi Engg. Corporation made) installed in plot No.788 in which manufacturing of PVC compound is going on, is owned by MRPI but due to oversight during panchnama the said machine is owned by MP. He further informed that M/s MP was having factory at plot No.P-788 only at Plot No.P.789 is not owned MP but said plot No.P-789 is MRPI and their four units have their factory a following plots:
a) M/s Mayank Rotoplast Inds. : Plot No.P .789 & P.792
b) M/s Mayur Printers : Plot No.P-788 c) M/s Vikas Agencies : Plot No.790 791
d) M/s Stylopack : Plot No.P-791 792, 1st floor.
He also informed that MRPI have two plot No.789 and 792 and in between said plots, plot No.790 and 791 of M/s VA are situated. He produced copies of relevant transfer order of said plots issued by GIDC, Surat in support of his above statements. He also deposed that the amount shown as credit was the amount of loan taken from the said unit without any interest and debit amount was the amount of loan given to the said unit as outstanding in the respective accounting years i.e. M/s MP have taken loan without interest amounting to Rs.2,52,403.71 (outstanding as on 31/03/1990) from M/s SP and VA amounting to Rs.6,16,132.42 (as on 31-3-91), but given loan without interest amounting to Rs.46,500/- (as on 31/03/90) to MRPI and likewise in respect of other units except amount of rent shown against each. He also informed that even partner of one unit has given interest free loan to other unit also. From the above it was alleged in the notice that all the four units are enjoying common facilities which are as under:-
1. One common administrative office and common staff;
2. One common electric generating diesel engine for electricity supply incase of power failure;
3. One common water supply and water chilling plant to make hot water coming from manufacturing activity to cool;
4. One paper core cutting machine is used to cut paper core used for winding of PVC film and HDPE film manufactured by said units;
5. weighment and packing of final products are carried out in one factory at Plot No.790 under supervision of supervisor of one factory for all the four units;
6. Waste arising out of manufacturing activity are grinded in one waste grinding machine owned by VA and installed in backside room of factories of Plot No.788 (MP) and Plot No.789 (MRPI);
7. The raw materials used for the manufacturing of PVC film of the said units (except SP) WERE FOUND LYING IN ONE FACTORY AT Plot No.789 of MRPI;
8. In one room of Plot No.790 (VA), raw material PVC resin were found lying for said units (except SP) and in said room entry can be made only through factory at Plot No.789 (MRPI).
9. PVC Compound, an intermediate product manufactured during the manufacture of PVC film was manufactured only in factory at Plot No.789 (MRPI) for all three units (MP, VA and MRPI).
4. The show cause notice was issued to the appellants seeking clubbing of clearances of all the four units and demanding duty and thereafter as one unit. The said demand was confirmed by the ld. Commissioner and the matter travelled to Tribunal. The Tribunal vide Order dated 6.6.2003 remanded the matter back to the Commissioner for de novo consideration. After de novo consideration, the Commissioner again confirmed the demand of duty. Aggrieved by the said confirmation, the appellants are now before this Tribunal.
5. Ld. Counsel for the appellants argued the very fact that the Commissioner has imposed penalties on dummy units shows that the order recognizes that they have independent existence. He further argued that so called dummy units have existence in reality and have their own independent premises and necessary infrastructure to carry out manufacturing process. He argued that all the units have a separate SSI registration, sales tax registration and are also filing separate Income Tax returns. Three units are also registered with the Central Excise Department. He further argued that they have their independent source of finance and credit facilities from banks to carry out their manufacturing activity. The purchase of raw materials and the sale of finished product are done separately by the three units. He argued that conclusion drawn by the Commissioner of Central Excise that the appellants and other two units are dummy does not hold good as he has imposed penalties on these so-called dummy units. He argued that M/s Stylopack is manufacturing HDPE bags and other noticees namely Mayank Rotoplast Industries, Mayur Printers and Vikas Agencies are manufacturing PVC films. He argued that the four noticees have the following facilities namely
i) Separate premises
ii) Separate machinery to carry out manufacturing activity
iii) Labour
iv) Separate electricity connection.
He argued that each one had separate and independent facility to manufacture goods. In the circumstances, he argued that the same cannot be treated as dummy unit.
5.1 He argued further that the case of Stylopack cannot be clubbed with other units as Stylopack is engaged in the manufacture of HDPE bags, a product different from the product manufactured by other units which is based on PVC. He further argued that the four entities have existence as legal entities. He pointed out M/s Mayank Rotoplast Industries (MRPI) was established on 27.12.76, M/s Vikas Agencies (VA) on 1.6.79, M/s Mayur Printers (MP) on 17.3.80 and M/s Stylopack (SP) on 9.4.87. He argued that all the legal entities came into existence prior to the Central Excise Notification No.175/86-Central Excise dated 1.3.86 and therefore, it cannot be stated that separate firms were formed to avail benefit of Notification No.175/86-Central Excise. He argued that earlier vide Notification No.68/71 dated 29.5.71 as amended by Notification No.198/78 dated 25.11.78 PVC film made from duty paid artificial resins and plastic materials was exempt. He pointed out that said exemption continued to remain in force till 1987. Thus when the units came into existence there was no need to create dummy units as the product itself was exempt.
5.2 He further argued that the reasons given in the impugned order for clubbing of clearances are not maintainable. It is not denied that the units had common machinery for manufacture of goods. He relied on the following decisions :
a) ACCE and Cus vs. J. C.Shah 1978 (2) ELT J 317 (SC)
b) Prabhat Dyes and Chemicals 1992 (62) ELT 469 (Tri) to assert that clubbing of clearances cannot be done merely because of close relationship between partners of one firm and proprietor of another firm, or because of combined purchase of raw materials, or due to interest free loan by one to the other especially when the units are separately registered and filed income tax and sales tax return.
5.3 Ld. Counsel further argued that they were entitled to the benefit of modvat credit on certain endorsed invoices which was denied by the Commissioner. Ld. Counsel argued that at the material time it was permitted to take credit on the basis of endorsed invoices. Perusal of the photocopies of the invoices and the gate passes show the said gate passes did not contain any endorsement. However, the ld. Counsel showed his copy of gate pass and on the backside of the said gate pass there were two endorsements one in favour of the dealer and another in favour of the assessee. He also showed us invoices by which they had purchased material from intermediate dealers.
5.4 Ld. Counsel further argued that extended period of limitation has been invoked on duty demand and in the instant case, the appellants were registered with the Central Excise authorities and were filing Classification List from time to time. He further argued that records of the unit were also audited on various occasions and officers had visited the appellants stock taking of the units on various occasions. He further pointed out that the entire activity was known to the Revenue and therefore, the extended period of limitation cannot be invoked. He argued that allegation of suppression of financial flow-back cannot be relied to invoke the extended period as there was no obligation on the part of the appellants to disclose the financial activity to Revenue. For this assertion, he relied upon
6. Ld. A.R. for Revenue took us through the facts and arguments made in the impugned order.
7. We have gone through the rival submissions. We find that the following facts are not disputed
1. They have common administrative office and common staff;
2. They have common electric generating diesel engine for electricity supply in case of power failure;
3. They have common water supply and water chilling plant to make hot water coming from manufacturing activity to cool;
4. They have common paper core cutting machine is used to cut paper core used for winding of PVC film and HDPE film manufactured by said units;
5. They have common weighment and packing of final products are carried out in one factory at Plot No.790 under supervision of supervisor of one factory for all the four units;
6. They have common facility where waste arising out of manufacturing activity are grinded in one waste grinding machine owned by VA and the same is installed in backside room of factories of Plot No.788 (MP) and Plot No.789 (MRPI);
7. The raw materials used for the manufacturing of PVC film of the said units (except SP) WERE FOUND LYING IN ONE FACTORY AT Plot No.789 of MRPI;
8. That in a room of Plot No.790 (VA), raw material PVC resin were found lying for said units (except SP) and in said room entry can be made only through factory at Plot No.789 (MRPI).
9. PVC Compound, an intermediate product manufactured during the manufacture of PVC film was manufactured only in factory at Plot No.789 (MRPI) for all three units (MP, VA and MRPI).
7.1 Ld. Counsel have essentially argued that these facts are not sufficient to enable the Revenue to club all the clearances of the units. It is seen that apart from the above facts, the Commissioner has taken into consideration the following facts:-
a) While there are machineries for common use, the noticees are not charging with each other.
b) the intermediate production during manufacture of PVC film was manufactured in one High Speed Mixer installed in MRPI while final product PVC film was manufactured by Mayur Printers and Vikas Agencies with extruder machine installed therein.
c) No rent has been paid for giving facility of water by the water supply, water chilling plant and for manufacture of PVC compound etc. though the appellant M/s Mayur Printers paid an amount of Rs.24,000/- to M/s MRPI on 18.3.94 after visit of officers on 6.1.94.
d) That the raw material, intermediate goods and finished goods were moving freely between the premises of various units 7.2 The Commissioner has recorded the process of manufacture being undertaken by the appellants in their factory which involves as follows:
It is pertinent to note that process of manufacture of PVC film/a final product, involves manufacture of PVC compound by mixing of various raw materialslike PVC resin, Tine Stabilizer, Epoxy Plasticizers & DOP in High Speed Mixer Machine at Plot No.789 of MRPI for all three units and then PVC film had been manufactured on Extruder Machine and slitter rewinder; machines installed in Plot No.788 of M/s MP and at plot No.791 of M/s VA for all three units. Thereafter, the weighment & packing of final product PVC film as well as HDPE film & its clearance were carried out at plot No.790 of M/s VA. Thus, a final product PVC film & HDPE film shown manufactured and cleared by all three units had not been manufactured by said three units independently but jointly for all three units. This is clear from the Panchnama dated 6.1.94 drawn at the factory premises of all above units. These facts have not been disputed by the noticees but instead they have confirmed the same in their defence reply. It therefore, goes to show that there is common operational integrity and mutuality among all the units and all the partners. The Commissioner also alleged that the various noticees are providing financial assets during material period by giving loan without charging any interest. He also observed that on the basis of this observation, he has come to the conclusion that all these four units are one and the same and therefore has held that clearances of all these units are to be clubbed for the purpose of determination or total value of clearances for exemption under Notification No.175/86-C.E. dated 1.3.86, as the case may be.
7.3 The appellants have relied upon the case of Prabhat Dyes & Chemicals 1992 (62) E.L.T. 469 (Tribunal) wherein it has been argued that on identical circumstances, the Tribunal held as under:
6. We have examined the records of the case and considered the submissions made on behalf of both sides. The only question that arises for determination in this case is whether on the basis of the facts on record the two units could be deemed as one and the same entity. It is seen that the considerations on the basis of which the Collector arrived at the finding that the two units could not be treated as separate entities were the following :-
(i) The units were controlled by persons who were closely related.
(ii) They had a common office and were located adjacent to each other.
(iii) They were engaged in the manufacture of same goods through deployment of similar machinery.
(iv) The units had some common workers and a common attendance record which was being maintained by the same person.
(v) Raw materials for both units acquired by placing combined orders were stored together in the same place and goods produced by them were sold through a common agent.
(vi) The units were served by a common effluent treatment plant.
(vii) Financial assistance by way of interest free loan had been provided by one of the units to the other.
It is seen that in the said case that the facts are different in so far as in the instant case the some machinery for manufacture and all machinery for packing of goods is common. Even though each premise has most machinery needed for manufacture but still some machinery of other premises are being used freely. The common machinery in the case of Prabhat Dyes & Chemicals (supra) is effluent treatment plant, which is only a subsidiary machinery, not directly used in the manufacture of goods. It is seen in the instant case that there is free movement of material between these units during the process of manufacture, whereas there is no such allegation in the case of Prabhat Dyes & Chemicals (supra). In the instant case raw materials belonging to these units were stored in common premises. It is seen that some of them were availing Modvat and when credit of inputs is taken such movement of goods is not permissible without proper documentation and/or permissions and without reversal of credit. Such free movement of inputs without following due procedure is not permissible in law. Similarly in case of finished goods and intermediates manufactured by them such movement was not permissible without payment of duty and without proper documentation. If any finished or intermediate goods manufactured out of duty paid goods are to be removed outside manufacturing premises the duty is required to be paid. In case the credit is taken, the same is required to be reversed. No such activity was being done and the manufactured goods being moved from premises to another is illegal unless the factory is one registrant. Simply, it is seen in the said case that there was no allegation of free usage of machine of other units.
7.4 Learned counsel has also cited the following case law:
i) Muthusavaari Pillai Paper Products vs. C.C.E. 2004 (171) ELT 219 (Tri-Chennai)
ii) A.C. Pharmaceuticals Pvt. Limited vs. C.C.E. 2003 (159) ELT 1149 (Tri-Kol)
iii) Superior Products vs. C.C.E. 2002 (144) ELT 187 (Tri-Del.)
iv) Poly Printers v. C.C.E. 2002 (139) ELT (Tri-Del.)
v) KAA Arunachalam Printing Div. v. C.C.E.- 2001 (133) ELT 423 (Tri-Chennai)
vi) Shakti Engg.works vs. C.C.E.- 1989 (40) ELT 95 (CEGAT)
vii) Special Machines v. C.C.E. 2004 (169) ELT 215 (Tri-Del.) In the case of Muthusavaari Pillai Paper Products (Supra), A.C. Pharmaceuticals Pvt. Limited (Supra), Superior Products (supra), KAA Arunachalam and Shakti Engg.works (Supra) there was separate machinery, labor and electricity connection. In the instant case there despite existence of some separate machinery the common machinery is being used. Some machinery like chilling plant, packing and electric plant are common. Moreover there was no allegation of free flow of raw material/ intermediates /finished goods from one premises to another. These decisions are therefore distinguishable.
7.5 As against the Tribunal decisions cited by appellants it is seen that in the case of Supreme Washers (P) Limited 2003 (151) ELT 14 (SC) wherein the Honble Supreme Court held as follows:
5. Having heard the learned Counsel for the? parties and perusing the records, we are in agreement with the finding of the Tribunal that there is mutuality of interest between the appellants. The reliance placed by the Tribunal on facts like the three companies having common management under Shri S.L. Raheja, having common procurement of raw material having common stock accounting and planning, having interdependence in manufacturing operations, having common stock of raw materials and semi finished goods, having common use of machinery between the three units, having common marketing arrangements and free flow of finance between three units cumulatively indicates interdependence of the three units with each other as also inter-relationship, cumulatively establishes the appellants inter-relationship and interdependence with each other, hence, the arguments of the appellants on this factual score must fail.
6. In regard to the second contention of the? appellant in Civil Appeal No. 6161 of 1999, it is seen from the Circular dated 1-3-1956, which according to the appellants have been reiterated by another subsequent Circular No. 6/92, dated 29th of May, 1992 by the Central Board of Excise & Customs, New Delhi that a limited company should be treated as a separate entity for the purpose of exemption limit. If that be the position in law, then there may be some justification for the appellant to urge, so far as M/s. Supreme Washers (P) Ltd. is concerned, it being a limited company, its production cannot be clubbed with the other units, However, since this aspect of the case and applicability of the Circulars referred herein above was not brought to the notice of the Tribunal we are in agreement with the suggestion made by the learned Attorney General that it will be just and proper to remand this matter, for this limited purpose, to the Tribunal for examining the applicability of the Circular relied upon by the Appellants, M/s. Supreme Washers (P) Ltd.
7 .For the reasons stated above, we confirm the? finding as to the inter-relationship between the three units, as found by the Tribunal, and remand the appeals back to the Tribunal for the limited purpose of deciding the applicability of the Circular referred herein above.
It is seen that in this case, interdependence in manufacturing operations, having common stock of raw materials and semi-finished goods, having common use of machinery between the three units, having common marketing arrangements and free flow of finance between three units was considered sufficient for clubbing the total production.
7.7 Similarly, in the case of British Scaffolding 2014 (313) E.L.T. 87 (Tri. - Del.), the Tribunal held as under:
7.?SSI Exemption is subject to conditions specified in it. One condition for this exemption notification is that where a manufacturer clears specified goods from one or more factories, the Exemption in his case shall apply for the total value of clearances mentioned against each of the serial numbers in the said table and not separately for each factory. Another condition of the Notification is that the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories during the preceding financial year does not exceed a particular threshold limit, as mentioned in the Notification. Thus, when a manufacturer has four factories located at different locations, and the SSI Exemption Notification prescribes nil rate of duty for first clearances of specified goods worth Rs. 50 lakhs in a financial year, each of these factories would not be separately eligible for full duty exemption in respect of its first clearances worth Rs. 50 lakhs in a financial year and for the purpose of this exemption, it is aggregate value of clearance of all the factories put together which would be considered. Similarly, eligibility for SSI Exemption during a particular financial year, shall be determined on the basis of aggregate value of clearances of all excisable goods for home consumption during the preceding financial year made from all the factories of the manufacturer and if the aggregate value exceeds the threshold limit, none of the units would be eligible for SSI Exemption even if the value of clearances for home consumption of all excisable goods made by each individual unit during the preceding financial year is well within the threshold limit for SSI exemption. It may happen that a manufacture may have several factories located in different states falling under the jurisdiction of different Commissioners of Central Excise. If each of these factories was availing the SSI Exemption separately and if it is found that for a particular financial year, the aggregate value of their clearances of all excisable goods during the preceding financial year had exceeded the threshold limit for SSI Exemption, none of these units would be eligible for SSI Exemption during that year. In such a situation, duty can be demanded by the Jurisdictional Central Excise Authorities separately from each unit and the question of identifying the main unit and dummy units and demanding duty only from main unit does not arise, as in the scheme of collection of Central Excise duty, as laid down in the Central Excise Act, 1944 and the rules made thereunder, the collection of duty is manufacturing unit wise and if a manufacturer has two or more factories located at separate locations, each unit is required to obtain separate Central Excise registration and is assessed to duty separately by the jurisdictional central excise officers. If there is short payment of duty by different units of a manufacturer on account of wrong availment of SSI Exemption, separate duty demands would have to be confirmed by the respective central excise officers having jurisdiction over the unit. If, however, the C.B.E. & C. appoints a common adjudicating authority, that common adjudicating authority can pass an adjudication order demanding duty from the units located in different commissionerates. The question of identifying the main unit and the dummy unit and demanding duty only from the main unit arises only in that situation when on investigation, only one unit is found to be actually functioning and other units are found to be just non-functional fake units established just to show bogus production and clearances in their name.
7.1?However in most of the cases, the fact of common ownership of different units by a person is not so obvious and may be carefully camouflaged. For example - if there is a manufacturing unit of a proprietorship concern of a person X, there is a second manufacturing unit owned by a partnership concern A with X and his wife Y as partners, there is a third manufacturing unit owned by a private limited company B with shareholding by X, his son Z and the partnership concern A and there is a fourth manufacturing unit owned by another private limited company C with shareholding by A, B and another son Z2 of X and if these four units owned by X, A, B and C are each availing of SSI Exemption, a question arises as to whether they are to be treated as separate entities or units owned by the same person, for the purpose of SSI Exemption.
7.1.1?While a company is a legal person entirely distinct from its shareholders, in terms of Apex Courts Judgment in case of Income Tax Commissioner, Madras v. Meenakshi Mills, Madurai, reported in AIR 1967 Supreme Court 819, in certain exceptional cases, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade and that the court has powers to disregard the corporate entity if it is used for tax evasion or to circumvent the tax obligation. Same view has been taken by the Apex Court in cases of :-
(a) Calcutta Chromotype v. Collector of Central Excise, reported in 1998 (99) E.L.T. 202 (S.C.) = (1998) 3, SCC-681;
(b) Subra Mikharjee & another v. Bharat Cooking Coal Ltd., reported in (2000) 3 SCC-312; and
(c) Delhi Development Authority v. Skipp Construction Co. (P) Ltd., reported in (1996) 4 SCC-622.
The Apex Court in the case of Associated Rubber Industry Ltd., reported in 1986 (157) ITR-77 (S.C.), relying upon its earlier judgment in case of Medowell & Co. Ltd. v. CTO, reported in 1985 154 ITR-148, 161 (S.C.) has held that even if companies are distinct legal entities having separate existence, this is not the end of the matter and it is the duty of the Court in every case, where ingenuity is expended, to get behind the smokescreen and discover the true state of affairs. Thus, the principle of lifting the corporate veil for discovering the true state of affairs behind the veil of the corporate entity is a well settled legal principle. It is this principle which has to be applied for determining as to whether two or more manufacturing units owned by separate partnership firms, private limited companies and/or public limited companies are to be treated as the units of the same manufacture. On this point, the Apex Court in case of CCE, Delhi v. Modi Alkalies & Chemicals Ltd., reported in 2004 (171) E.L.T. 155 (S.C.), has held that when on lifting the corporate veil it is found that only one person/company has extraordinary interest and pervasive control over the financial matters and management of other companies, irrespective of the latter having separate sales tax, income tax and central excise registration, their clearances have to be clubbed for determining their eligibility for the SSI Exemption Notification No. 1/93-C.E. In this regard, Para 87 of the judgment is reproduced below :-
Whether there is inter-dependence and whether another unit is, in fact, a dummy has to be adjudicated on the facts of each case. There cannot be any generalization or rule of universal application. Two basic features which prima facie show interdependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly, the share capital of each of the three companies was Rs. 200/-. Though it was claimed that financial assistance was availed from the financial companies, it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1-4-1998. NGCPL received an amount of Rs. 1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about Rs. 52 lakhs while to SCGCPL it was about Rs. 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that, the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis and the need for introducing MACL as the lessee and then the three companies becoming sub-lessees. As noted by the Commissioner, entire receipts were paid as lease amount to MACL. Here again, the under-valuation aspect assumes importance. While the supply by MACL to three companies was Rs. 0.50 per unit, the sale price by the three companies was Rs. 5 per unit. It is on record that accounts were kept by common staff and marketing was done under the supervision of a person who belongs to the same group of concerns. The amounts have been collected by an employee of MACL. The so-called Directors of the companies were undisputedly employees of MACL. Almost the entire financial resources were made by MACL. The financial position clearly shows that MACL had more than ordinary interest in the financial arrangements for companies. The statements of the employees/Directors show that the whole show was controlled, both on financial and management aspects by MACL. If these are not sufficient to show inter-dependence probably nothing better would show the same. The factors which have weighed with CEGAT like registration of three companies under the sales tax and income tax authorities have to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The Circular No. 6/92, dated 29-5-1992 has no relevance because it related to Notification No. 175/86-C.E., dated 1-3-1986 and did not relate to Notification No. 1/93. The extended period of limitation was clearly applicable on the facts of the case, as suppression of material features and factors has been clearly established. If in reality the three companies are front companies then the price per unit to be assessed in the hands of MACL is Rs. 5 and not Rs. 0.50 as disclosed. The question whether there was manufacture or not was not in issue before the Commissioner. The plea that there was no manufacture has also to be rejected in view of the fact that exemption was claimed by the three companies as manufacturers to avail the benefit of Central Excise Notification No. 1/93.
Same view has been expressed by the Apex Court in its judgment in case of Supreme Washers Pvt. Ltd. (Supra).
This decision was upheld by the Hon Apex Court as reported in2015 (323) ELT a 124 (SC) 7.8 In the instant case, the legal entities involved are as follows:
A. M/s Mayur Printers (MP) (established on 1.6.1979)
i) Labhubhai Bhimjibhai Patel (Self);
ii) Maniben Raghavjibhhai Patel (Brothers wife); and
iii) Bhimjibhai Laxmanbhai Patel (HUF) B. M/s Stylopack established in or around 1st June 1979 consisting of the following three partners:
i) Labhubhai Bhimjibhai Patel (Self);
ii) Madhubhai Bhimjibhai Patel (Brother); and
iii) Raghavjibhai Bhimjibhai Patel (Brother) C. M/s Mayank Rotoplat Industries (MRPI) established on 27.12.76
i) Labhubhai Bhimjibhai Patel (Self)
ii) Manibhen Raghavjibhai Patel (Brothers wife);
iii) Madhubhai Bhimjibhai Patel (Brother); and
iii) Santokbhen Bhimjibhai Patel (Mother) D. M/s Vikas Agencies (VA) established on 1.6.1979
i) Labhubhai Bhimjibhai Patel (Self);
ii) Madhubhai Bhimjibhai Patel (Brother); and
iii) Santokbhen Bhimjibhai Patel (Mother) It can be seen that the four legal entities are part of the same family. It is also seen that interest of loan are made to one entity to the another. However, undisputed facts are that raw material has and finished goods were moving from one place to another for processing/packing on machines of different premises of different entities free of costs, using common facitlities of electricity generation and chilling plant free of costs. It is also apparent that there cannot be any legal movement from one Central Excise unit to another without proper documentation and without discharging duty or Modvat credit reversal liabilities. In case of finished goods, there will be liability to pay central excise duty on movement of goods from one unit to another and in case of raw material, there will be liability to reverse modvat credit at the time of moving of goods from one premises to another. From the fact of the case it is apparent that all the four premises are being operated as a single factory. The purchasing and marketing is common, employees are common, there was free movement of raw material/ intermediates and finished goods within the premises. In the circumstances, the decision of the Honble Supreme Court in the case of Supreme Ushers (P) Limited applies. The four noticees need to be treated as single entity for the purpose of Central Excise Exemption Notification No.175/86-C.E. 8 Ld. Counsel has further raised on the issue of limitation. It is seen that the ld. Counsel has argued that their unit was registered with the Central Excise Department and the officers had visited their unit for the purpose audit of stock taking at various times. It is also argued that the appellants filed C/List at various time and the same were approved by the Department. Moreover, it was also argued that Revenue was aware about the constitution of the partnership firm and interrelationship of all the partners and the details were submitted at the material time. It is seen that Revenue was aware of these facts. However, the material facts in the instant case are that there was free flow of raw material/ intermediates / finished goods without documentation and without duty dicharge from one premises to another. The machines of different units were being used without any compensation paid. The raw material and finished goods were being processed together and there was free movement of goods among the units. Under the Central Excise law if any raw material on which credit has been taken or finished goods are to be moved out of the factory premises, the same cannot be done without the authority of law and without permission. If permission for free movement of raw materials and finished goods was sought from Revenue, the Revenue would have given about use of common facility and free flow of material from one unit to another. Failure to disclose these facts and the illegal movement of raw materials and finished goods from one unit to another amounts to suppression and misdeclaration of facts. What was in the knowledge of the revenue was that there are some common partners and the premises are located in adjacent premises. The actual operations of movement of goods and material, use of common machines without any costs, common purchase and storing of raw material, common electricity and chilling plan, was not known to the revenue. Had it all been disclosed or permission needed for movement of goods between premises sought the revenue would have come to know of the facts. Failure to obtain due permissions amounts to suppression. In the circumstances, we are of the opinion that the extended period of limitation has rightly been involved. In view of above the appeals on account of confirmation of demand and imposition of penalty are dismissed.
9. The next contention raised by the appellant is regarding CENVAT credit on certain invoices which have been denied by the Commissioner. We have perused the invoices produced by the ld. Counsel for the appellants. It is seen from the document shown by the ld. Counsel that there is gate pass issued by M/s Indian Petrochemicals Corporation Limited (IPCL) for removal of goods. Thereafter, there are documents of M/s Shah Narotamdas Harjivandas Co addressed to the appellants. Ld. Counsel claimed that they had gate passes of IPCL addressed for their clearance to their own depot endorsed in favour of M/s Shah Narotamdas Harjivandas Co and second endorsement in their favour. It is seen that there is prima facie case made by the appellants that the Commissioner has not dealt with the same in detail. At the material time, the credit was available on endorsed gate pass. It is seen that there is no in depth examination of these documents at the level of Commissioner. Therefore, the denial of credit on these gate passes is set aside and the matter remanded to the Commissioner for re-examination after going through the documents produced by the appellants in the Tribunal.
19. All the appeals are disposed of as above.
(Pronounced in the open Court on 08.05.2017)
(Dr. D.M. Misra) (Raju)
Member (Judicial) Member (Technical)
scd/
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