Customs, Excise and Gold Tribunal - Bangalore
Studioline Interior Systems Pvt. Ltd. ... vs Commissioner Of Central Excise on 25 November, 2005
Equivalent citations: 2006(106)ECC310, 2006ECR310(TRI.-BANGALORE), 2006(201)ELT250(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. These appeals have been filed against Order No 5/2005 dated 14.2.05 passed by The Commissioner of Central excise, Bangalore-I Commissionerate. The brief facts of the case are as follows:
2. M/s Studioline Interior Systems (P) Ltd., (hereinafter known as SISPL) Bangalore manufacture steel furniture, availing SSI exemption based on their clearances. M/s Tesseract Design Bangalore, are engaged in interior design and have retail outlets namely design, store etc., at Bangalore and Chennai. M/s Dovetail Furniture (P) Ltd., (hereinafter known as DFPL) Bommasandra are engaged in the manufacture of wooden furniture/parts. They also avail SSI exemption based on their clearances. Revenue conducted certain investigations and proceeded against all the three units and also S/Shri S. Sunder Director Studioline and V.M Sundaram Manager (Finance) Studioline for undervaluation. The adjudicating authority in the impugned order held that all the three units have mutuality of interest in the business of each other. He held that M/s Tessaract was not an independent manufacturer of furniture and did not trade in the manufactured items of manufacturers except from M/s Studioline and M/s Dovetail. The details of the impugned Order are as follows:
_________________________________________________________________ Sl.No Name of the Amount of Amount of Period party duty penalty _________________________________________________________________
1. M/s Studioline Rs. 64,66,383/- Rs. 64,66,383/-
Interior
2. S. Sunder, Rs. 5,00,000/-
Director M/s.
SISPL
3. M/s. Dovetail Rs. 32,88,629/- Rs. 56,65,396/- 1999-2000 to furniture Rs. 23,76,767/- 2003-2004
4. M/s Tesseract Rs. 13,65,294/- Rs. 13,65,294/- 10/2001 to Design 3/2002 ____________________________________________________________________ Duties have been demanded invoking proviso to Sub-section 1 of Section 11A of the CE Act 1944. Mandatory penalties under Section 11AC have been imposed on the first three appellants. The penalty on Shri S. Sunder is under Rule 209A of the erstwhile Central Excise Rules 1944 and Rule 26 of the CE Act 2002. Further payment of interest under Section 11AB has been demanded on the duties. The appellants have strongly challenged the findings of the adjudicating authority. Hence they have come before this Tribunal for relief.
3. Shri R. Subramanian, learned Chartered Accountant appeared for the appellants and Shri K.S. Reddy learned JDR for the Revenue.
4. The learned Chartered Accountant adduced the following points.
1) M/s SISPL was incorporated in 1985 for the manufacture of metal furniture. It is registered with the Central Excise Department. Shri Sundar was one of its three Directors right from the inception. M/s Tesseract Designs, a partnership firm was formed in 1986 to carry on the business of design work and trading activity. It has retail outlets at Bangalore and Chennai. Initially there were four partners. The 4th partner left and presently there are three partners including Shri Sundar. M/s DFPL Ltd., was formed in 1996. It is engaged in the manufacture of wooden furniture. The directors are S/Shri Sundar, John Mathew and Anand Arora. The learned Chartered Accountant made the point that each unit has been formed for carrying out a particular type of activity and not for evading Central Excise duty.
2) M/s SISPL, M/s DFPL and M/s Tesseract Designs are separately registered under Central Excise, Sales Tax and income tax. The Central Excise range of the appellant and DFPL is the same. Funding has been done independently i.e. by those who are not connected with M/s Tesseract Design/DFTL. The companies/firms engaged separate production, labour and are also physically separate except for employment of common accounts and use of one or two common computers, no other facilities are shared between the companies./firms.
3) M/s SISPL, M/s. DFPL and M/s. Tesseract cleared the goods by availing the benefit of SSI notification individually. SISPL has sold to customers other than DFPL and Tesseract. The show cause notice proposed to treat the three units as related persons under the old as well as the new Section 4 of the Central Excise Act. Further, it proposed to club the clearances of the units to deny the benefit of the relevant SSI exemptions. Even though the show cause notice relied on 26 documents, the Commissioner in his order relied only on 4 documents.
4) The learned Commissioner has neither brought on record any evidence to prove that the units were dummy nor have given a finding that they are dummy units.
5) Since the Commissioner has not given a finding that the units are dummy, the clearances cannot be clubbed for denying SSI benefit.
6) According to Board Circular No. 6/92 dated 29.5.92, clearances of Limited Companies and partnership firms cannot be clubbed.
7) The Commissioner/having issued notices and confirmed the demands separately on each of the entities erred in law and on facts in holding that the values of these clearances are to be clubbed.
8) The Commissioner erroneously erred that the three units are related persons as per Section 4(4)(c) of the Act as it existed prior to amendment in July 2000 and under Section 4(3)(b) of the Act as amended from July 2000. The finding that there is mutuality of interest in the business of each other is not borne out by facts.
9) Invocation of Rule 9 of the Central Excise Valuation Rules 2000/Rule 6(c) of Central Excise Valuation Rules 1975 is not correct when the sales were made both to the so called related and unrelated persons.
10) The Commissioner erred in invoking Rule 9 of Central Excise Valuation Rules without proving that price is not the sole consideration for sale. The Commissioner erred in holding that the units are related merely because there are common Directors/partners.
11) The show cause notice dated 7.10.2004 was issued after the lapse of one year from the date of the visit of the preventive officers to the premises of the appellant. Hence, the same is barred by limitation. The finding that the appellant had suppressed facts to evade duty is perverse as the appellant is not duty bound in law to furnish to the Central Excise Department the various business correspondences. The appellant has furnished declaration under Rule 173C(3A) on 4.6.1998 and 7.4.1999, wherein it was clearly mentioned that the buyers included persons where the Directors or their relatives were interested. When such facts are disclosed, it is for the department to make further investigations. The following decisions were relied.
1) AMCO Batteries v. CCE
2) CCE v. Muzzaffarnagar Steels The names of the Directors were furnished at the time of registration. The department was aware of the fact that the Companies had common Directors. Thus there was no suppression of information and the demand is time barred.
12) The learned consultant relied on plethora of case laws in respect of related persons, denial of SSI benefit, clubbing of clearances, time bar, levy of penalty etc.,
13) As regards the inclusion of design charges, in the assessable value it was pointed out that these design charges were collected by Tesseract in respect of lay out design and they are not at all related to the products purchased by the customers. He argued that even if the design charges relate to the product, the same cannot form part of the assessable value, as the Unit clearing the products did not receive the design charges.
5. The learned JDR reiterated the contentions in the Order-in-Original.
6. We have gone through the records of the case carefully. The adjudicating authority has given a finding that all these units are related. Of the three units, two are Private Limited Companies and one is a Partnership firm. Each unit has its own premises and is registered with Central Excise and Sales Tax Authorities. The adjudicating authority himself mentions in his order that the three units are distinct legal entities. There is no finding that the units are dummies controlled by one person or group. In the absence of such a finding it is very difficult to sustain the clubbing of the clearances of the three units to deny them the benefit of SSI exemption. Mere presence of common Directors/partners cannot be reason for clubbing the clearances in terms of the following decisions:
1) Polyprints v. CCE -
2) Rang Udyog v. CCE -
3) Jagjivandas & Co v. CCE -
In terms of Board Circular 6/92 dated 25.5.92, the clearances of Limited Companies and partnership cannot be clubbed.
7. As regards the issue of related persons, it has to be proved that the parties have interest directly or indirectly in the business of each other in terms of the decision of the Hon'ble Supreme Court in the Attic Industries case reported in 1985(17) ELT 323, wherein it has been held that "Mutuality of interest means that both the Companies mutually get benefited with each other by sharing the profits and losses. The adjudicating authority cites certain transactions and comes to the conclusion that the units were related for example: he has stated in para 31 "on perusal of the extract of the meeting of the Board of Directors held on 21/09/02, in respect of M/s. Studioline, it is observed that Board has taken the decision to use the fixed deposit of M/s. Tesseract Design for Rs. 2,68,709/- as collateral security for obtaining loan form Indian Overseas Bank. The point to be observed here is without the consent of M/s. Tesseract Design, the Board has taken the decision to use the fixed deposit. Moreover from the facts of the case I find no financial compensation was given to M/s. Tesseract Design for using the fixed deposit. Further, on perusal of the ledger account of M/s. Tesseract for the year 2003-2004, it was observed that an amount of Rs. 5,63,668/- has been debited to Indian Overseas Bank account against the payment towards the loan amount taken from M/s. Studioline. On perusal of the ledger account of Ms. Tesseract, an amount of RS. 2,13,000/- has been debited to M/s. Indian Rayan Industries. The related journal voucher dt. 30/09/02 says that the said amount remitted from M/s. Indian Rayon Industries for the supply made by M/s. Studio line. These financial transactions between M/s. Studioline and M/s. Dovetail on one hand and M/s. Tesseract on the other hand shows a financial flow which is not based on commercial parameters. The evidence available satisfies the test for related person established in the judicial decisions of the court and the decisions". The above approach of the adjudicating authority to establish that the units are related, in our view is not a proper approach. Mutuality of interest means each unit should be interested in the business of the other and there should be evidence of flow back of profit from one unit to another. Such evidence is not forthcoming. As the units belong to a group, occasional financial accommodations may not be uncommon. On that ground one cannot allege that the units are related. It has been held in various judicial for a that the existence of common staff, common facilities etc., are not sufficient to conclude that the units are related. Referring to the fixed deposit of M/s. Tesseract Design, being used as a collateral for obtaining loan by M/s. Studioline, it was submitted that the use of collateral by group entities is a common business feature. Further, it was submitted that full interest due on fixed deposit had been paid to M/s. Tesseract Design. The interest payable to bank on the loan has been paid by M/s. Studioline. The CESTAT in the case of Cardcure Engg. Co. v. CCE , has held that occasional financial accommodation cannot lead to a conclusion that the entities involved acted as a single financial entity. Referring to the transaction of Rs. 2,13,000/-, it was submitted that M/s. Indian Rayons by mistake sent the cheque in the name of M/s. Tesseract Design instead of M/s. Studioline. Since the cheque was in the name of M/s. Tesseract, it was deposited in the bank account of M/s. Tesseract. The amount was transferred on the same day to M/s. Studioline. A mistake committed by the customer cannot be relied on to state that the entities are operating as single financial entities. It was further submitted that M/s. Studioline have not only sold to M/s. Tessearct Design but also to customers like TVS Ltd., ECITI Entertainment, NCBS, Chrusti School, Vinod etc., M/s. Studioline's sales to M/s. Tesseract is negligible and the bulk of its sale is to others. As the entire sales have not been made to M/s. Tesseract Design, Rule 9 of the CE (Valuation) Rules 2000 or erstwhile Section 4(4)(c) read with Rule 6 of CE (Valuation) Rules 1975 are not applicable. The Tribunal in Ultra refrigerators Pvt. Ltd v. CCE , have held that when there is a sale to both related and unrelated persons Rule 9 is not applicable.
8. As regards the inclusion of design charges, it was submitted that the design work carried out by M/s. Tesseract Design was related to layout design and such charges received by M/s. Tesseract Design cannot be added to the transaction value of M/s. Dovetail, as the same has not been received by M/s. Dovetail. We agree with this contention of the appellants.
9. The show cause notice had been issued invoking the extend period of limitation in terms of proviso to Section 11A(1), as it was alleged that the noticees had suppressed the facts with an intention to evade payment of duty. We find force in the contention of the appellants that the show cause notice dt. 7/10/04, had been issued after a lapse of one year from the date of visit of the Central Excise Preventive Officers in the premises of the appellant. In fact, the officers visited the units on 26/03/03. The units have been registered with the Central Excise and it cannot be said that the excise department was not aware of the activities of the department. Hence, the demands are time barred.
10. Summing up, we find that the three units being distinct legal entities their clearances cannot be clubbed for denying them the benefit of SSI notifications. There is no finding in terms of Section 4 of the Central Excise Act and also the pronouncements of various judicial fora that the units are related. There is also no justification to include the design charges collected by one unit to the assessable value of the clearances of another unit, as it is violative of the definition of transaction value. In these circumstances, the duty demand on the units cannot be sustained at all. We have no other option but to set aside the duty demand on all the units. When the duty demand is set aside, there is no justification for imposing any penalty on the appellants including Shri. V. Sundar, Director. In the above circumstances, the Order-In-Original has no merits. The same is set aside. We allow all the appeals with consequential relief.
(Operative portion of the Order was dictated in open court on conclusion of hearing)