Custom, Excise & Service Tax Tribunal
Kadeer Khan vs - Do - on 28 February, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH, CHENNAI (Arising out of Order-in-Appeal Nos.431 to 436/2010 dated 28.9.2010 passed by the Commissioner of Central Excise (Appeals), Madurai) Appeal No. Appellant Respondent E/742/2010 M/s. Prabha Beverages Pvt. Ltd. CCE, Tirunelveli E/743/2010 Shri Arun G. Nagar - do - E/9/2011 M/s. Parle Bisleri Pvt. Ltd. - do - E/10/2011 Ramesh Chauhan - do - E/11/2011 S.K. Motani - do - E/12/2011 Kadeer Khan - do - Appearance Shri Hari Radhakrishnan and Shri Akhil Suresh, Advocates for the Appellants Shri A. Cletus, Addl. Commissioner (AR) for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing / Decision: 28.02.2018 Final Order Nos. 40566-40571 / 2018 Per Bench M/s. Prabha Beverages Pvt. Ltd., herein after referred to as PBPL was manufacturing aerated / soft drinks under various brand names. It appeared to the department that PBPL had indulged in suppression of production and clandestine removal of goods; that further PBPL were manufacturing goods with brand names belonged to M/s. Limca Flavours and Fragrance Pvt. Ltd. (LFFL for short) and M/s. Aqua Minerals P. Ltd. (AMPL for short) and that the appellants were not eligible to claim SSI exemption using these brand names. Accordingly, five show cause notices were issued as under:- SCN Details and Period Involved Nature of Office Brand names involved Nature of demand with duty amount V/22.01/15/17/94-Adjn. Dt. 28.2.94 issued by Collector of CE, Madurai Feb. 1989 to Sept. 1993 Suppression of production and clandestine removal as reflected in the sales managers report Bisleri Club Soda, Gold Spot, Limca, Thumps Up, Citra, Maaza @ Normal effective rate of duty Rs.9,61,561 V/22.01/15/42/94-Adjn. Dt. 24.9.94 issued by Collector of CE, Madurai Sept. 1991 to Nov. 1993 Denial of SSI exemption for using other mans brand (Parle) who is not eligible for SSI exemption Bisleri Club soda and Citra Demand of differential duty (effective rate minus SSI exemption) Rs.49,75,204/- O.C. No. 2387/93 dt. 2.11.93 issued by Superintendent, Nager Coil Range April 1993 to Oct. 1993 Simultaneous availment of MODVAT facility and SSI exemption Citra Normal effective rate of duty Rs.13,43,874/- O.C. No. 307/94 dt. 26.2.94 issued by Superintendent, Nager Coil Range 20.9.1993 to 30.11.1993 Denial of SSI exemption for using other mans brand who is not eligible for SSI exemption Citra Normal effective rate of duty Rs.5,31,582/- O.C. No. 621/94 dt. 26.2.94 issued by Superintendent, Nager Coil Range 1.11.1993 to 11.11.1993 Simultaneous availment of MODVAT facility and SSI exemption Citra Normal effective rate of duty Rs.67,931/- 2. These show cause notices were adjudicated under a common order dated 26.3.2009. In adjudication, the adjudicating authority found that no action is warranted in respect of three show cause notices; however, confirmed the proposal in respect of two show cause notices dated 28.2.1994 (inter alia for demand of duty of Rs.9,61,561/- and vide dated 24.9.1994 inter alia for demand of duty of Rs.49,75,204/-). The original authority demanded duties and imposed penalties as under:- Name of the Appellant OIO No. & Date Period Involved Duty Amount Involved (In Rs.) Penalties Imposed (In Rs.) M/s. Prabha Beverages Pvt. Ltd. 05 to 09/JC/CE/2009 dated 26.3.2009of JC, TVL Feb. 1989 to Nov. 1993 59,36,765/- 59,36,765/- Shri Arun G. Nagar Feb. 1989 to Nov. 1993 --
10,00,000/-
M/s. Parle Bisleri Pvt. Ltd.
1.9.1991 to 11.11.1993
--
49,75,204/-
Ramesh Chauhan 1.9.1991to 11.11.1993
--
5,00,000/-
S.K. Motani 1.9.1991to 11.11.1993
--
5,00,000/-
Kadeer Khan 1.9.1991to 11.11.1993
--
5,00,000/-
3. In appeal, Commissioner (Appeals) vide the common Order-in-Appeal No. 431 to 436/2010 dated 28.9.2010 (impugned order) upheld the order of the original authority and rejected the appeals. Aggrieved, all these appellants have filed appeals to this forum.
4. On 28.2.2018, when the matter came up for hearing, these appellants represented by ld. Advocates Shri Hari Radhakrishnan and Shri Akhil Suresh made the submissions which can be broadly summarized as under:-
5.1 The duty demand of Rs.49,25,204/- upheld by the lower authority are in respect of three disputed areas as under:-
5.2 The demand can be broadly classified into three heads namely (i) allegation of clandestine removal involving duty amount of Rs.9,61,561/-; (ii) allegation of wrong availment of SSI exemption for goods using brand name Bisleri Club Soda involving duty amount of Rs.11,44,571/- and (iii) wrong availment of SSI exemption of goods using brand name CITRA accounting for duty demand of Rs.38,30,633/-.
5.3 In respect of demand of Rs.9,61,561/-, that is based on Sales Manager Report (SMR) submitted by PBPL to PEL for the purpose of deciding the budget for sales promotion and also fixing targets for subsequent years.
5.4 The Sales Manager Report (SMR) cannot be the sole basis to allege clandestine removal. The SMR was inflated one to show higher sales and to meet the sales target and was at the instance of the Franchisor. The adjudicating authority failed to consider the Plant Managers Report tallied with the RG-1 register and no rationale method was adopted to corroborate the charge of clandestine removal. There is no evidence at all with regarding purchase of excess crown corks, concentrates, bottles etc. The issue involved is covered by the decision of the Honble Tribunal in the case of Commissioner of Central Excise Vs. Moon Beverages reported in 2002 (150) ELT 976; Commissioner of Central Excise Vs. Annapurna Industries Ltd. reported in 2003 (153) ELT 586 and Madura Coats Pvt. Ltd. Vs. Commissioner of Central Excise reported in 2009 (245) ELT 403.
5.5 With regard to demand of Rs.11,44,571/-, that has been made on the ground that the owners of Bisleri Club Soda do not manufacture club soda and hence PBPL themselves are not eligible for SSI exemption. Ld. Advocates submit that there is no legal requirement that the brand owner must actually manufacture the goods. What is relevant for consideration is whether Aqua Minerals Pvt. Ltd. were eligible for the grant of exemption. The issue involved is covered by the decision of the Honble Supreme Court in the case of Commissioner of Central Excise, Jaipur Vs. Sri Ganganagar Bottling Co. reported in 2007 (215) ELT 481 (SC).
5.6 In respect of demand of Rs.38,30,633/-, that has been made on the ground that Limca Flavours & Fragrances Ltd. brand owners of Citra are not eligible for SSI exemption as they have exceeded the statutory limits of aggregate value of clearances specified in Notification No. 175/86 and 1/93.
5.7 Ld. Advocates submit that the appellant had claimed SSI exemption on the basis of the certificates issued by the Superintendent having jurisdiction over Limca Flavours & Fragrances Ltd. and that the classification list and price list which was filed was also approved by the competent authority. The SSI exemption is proposed to be denied on the ground that Limca Flavours & Fragrances Ltd., Parle Exports Ltd. and Parle International Ltd. have deliberately fragmented the activity of manufacture so as to wrongly avail the benefit of Notification No.175/86-CE. There is no allegation in the show cause notice against the appellant that they were part of this alleged conspiracy. Therefore, the extended period of limitation cannot be invoked so as to demand duty against the appellant. The issue is covered in favour of the appellant by the decision of the Honble Supreme Court in the case of Commissioner of Central Excise, Bangalore Vs. Brindavan Beverages (P) Ltd. reported in 2007 (213) ELT 487 (SC).
5.8 Ld. Advocates further submitted that the Mumbai Tribunal in the case of Commissioner of Central Excise & Customs, Ahmedabad I Vs. Limca Flavours and Fragrances Ltd. reported in 2006 (198) ELT 106, has held that the clearances of Limca Flavours & Fragrances Ltd., Parle Exports Ltd. and Parle International Ltd. cannot be clubbed together for the period 1988- 89 to 1992 93 and that they are entitled to claim the benefit of erstwhile Notification No. 175/86-CE. This view was taken based on Circular No. 6/92 dated 28.5.1992.
6. On the other hand, ld. AR Shri A. Cletus made oral submissions which can be broadly summarized as under:-
6.1 He submits that the SMR was filed in six parts SMR-1 to SMR-6 which indicates the bottling efficiency of the plant, production, rejection and breakages, consumption of raw materials, wastage resulted. Hence the plea of the appellant that the SMRs were only inflated showing higher sales figures cannot be accepted.
6.2 With respect to case law of Moon Beverages Ltd. (supra), relied upon by the appellant, the charge of clandestine removal was sought to be established on the basis of one single factor namely that of the SMR. Whereas in the present case, the SMRs were further used for formulating marketing programme and expenditure on advertising at national / regional level through soft drinks advertising and Marketing Services Pvt. Ltd.
6.3 In respect of dispute concerning Bisleri Club Soda, the ld. AR takes us to page 9 of the impugned order, wherein the Commissioner (Appeals) has found that PEL were the proprietors of Bisleri Club Soda and this brand name does not appear to have been given under the written consent to the Bisleri Club Soda to their franchise units. Hence the Bisleri Club Soda manufactured by various franchisees of PEL including PBPL are also not eligible for exemption.
6.4 In respect of demand of Rs.38,30,633/-, ld. AR submits that LFFL brand owned by CITRA are not eligible for SSI exemption as they had exceeded statutory limits of aggregate value of clearances specified in Notification No. 175/86 and No.1/93. This being so, PBPL are themselves ineligible for availing exemption of goods bearing the said brand name.
7. Heard both sides and gone through the case records.
8. We intend to take up with the contentious issues one by one.
8.1 In the first issue, demand of Rs.9.61,561/- is based on the grounds that the figures of sales indicated in the Sales Manager Report (SMR) sent by the appellants to their franchisors was more than the clearances shown in RG 1 Register. However, we find that identical issue in the case of Moon Beverages (supra) concerning another franchisee of PEL was decided in favour of that appellant in the Tribunals decision reported in 2002 (150) ELT 976. The ld. AR has sought to distinguish this decision by submitting that in the present case there is an additional evidence of the SMRs having been utilized for formulating advertising expenses by the company especially set up for that purpose by the franchisees. However, we find from para 6 of Moon Beverages (supra), that there was an allegation that SMRs had been utilized for working out the advertising budget. The relevant portions of the order are reproduced below:-
2.?Acting on an intelligence that M/s. Moon Beverages (hereinafter referred to as the assessees) were indulging in evasion of duty by resorting to suppression of production and clandestine removal, the officers of the Directorate General of Anti-Evasion, conducted searches of the assessees factory premises at Sahibabad, their Sales Depot and registered office at Delhi on 28-9-1993. They carried out verification of finished excisable goods and found certain shortages and excesses both in the factory and in the depot. They also found unaccounted cash amounting to Rs. 3,46,493/- in the sales depot and the excess goods and cash were seized under the reasonable belief that they were liable to confiscation. The officers also seized certain records relevant for the purpose of their enquiry and also recorded statements of various persons concerned with the production and clearance of excisable goods. During the course of investigation, it was found that the assessees were sending sales figures of beverages to M/s. PEL of Bombay and Delhi on monthly/weekly basis in terms of Clause 5 of the agreement entered between the assessees and M/s. PEL under which they were required to maintain complete record relating to production, sales and distribution of beverages and furnish these details to M/s. PEL. The sales figures supplied by the assessees were fed into the computer by M/s. PEL and used by them for various purposes such as brand strategy, marketing research etc. In this connection, the statements of various officers of M/s. PEL were recorded and they confirmed the correctness and authenticity of the sales figures reflected in the computer print out. These sales figures were found to be much higher than the sales figures recorded in the RGI register maintained by the assessees. Besides this, the Central Excise officers also found that the assessees have not accounted for the entire quantity of NABB received from M/s. PEL/Parle International Ltd.
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6.?Shri C.G. Hegde, Franchise Development Manager of PIL has stated that they were receiving Sales Manager Report from Franchise bottlers in form SRM-I to SMR-6 every month, based on which the franchise wise sales reports were fed into the computers and the sales was analysed and also sent to the Advertising agencies for working out the bottlers to the advertising pool. He was also shown a letter dated 12-7-1991 wherein Shri G.P. Selvam had reported to him, test results of Limca by Shriram Institute of Industrial Research indicating that MBL was diluting Limca. Shri Selvam confirmed that in the year 1990, there was a general compliant of sale of diluted product by MBL.
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10.?The Revenue has not, to our mind, advanced any convincing arguments to dislodge the above finding for holding that the demand of Rs. 4,72,51,048/- is sustainable. Further, it is well settled that the charge of clandestine removal cannot be established on the basis of one single factor, which in this case, is the figures of sales reflected in the computerised sheets recovered by the Department from M/s. PEL. Other corroborative evidence such as evidence of other inputs required for manufacture of aerated waters namely sugar, carbon dioxide being purchased and utilised in the manufacture of the final product during the period in dispute is required. There is no such corroborative evidence in the present case. There is also no evidence regarding higher electricity consumption. There is also no evidence of receipt of extra sales proceeds of goods clandestinely manufactured or removed. We therefore, uphold the dropping of the demand of Rs. 4,72,51,048/-. In dealing with the liability to confiscation of goods seized on 28-9-1993 and 30-9-1993 from the factory premises as well as the depot of MBL, non-entry in regard to production and clearance after 25-9-1993 in the RGI register is a technical violation, not warranting confiscation of 385 crates seized from the factory on 28-9-1993. 1400 crates of aerated waters seized on 30-9-1993 at MBL factory premises were accounted for in the RGI register. They were seized since they were found fully loaded in the trucks, ready for removal although details were not given in the gate assess and duty was not debited in the PLA. Since the goods had not left the factory and were very much in the factory, we cannot fault the finding of the Adjudicating authority that the goods cannot be held to be intended for clandestine removal without payment of duty. Regarding 3387 crates of aerated waters seized on 30-9-1993 from the factory premises of MBL, we agree with the finding of the Adjudicating authority as contained in paras 133 and 134 that this quantity is not liable to confiscation.
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14.?Further, it is a well settled legal position that clandestine manufacture and removal cannot be alleged and duty demand cannot be confirmed thereon, solely depending upon the use of one particular material. Other raw materials required are crown corks, sugar, and carbon dioxide. The Department has not been able to establish that the assessees have surreptitiously procured such raw materials for use in the manufacture of aerated waters. This, coupled with the fact that the assessees have further explained for the difference in quantity of concentrates purchased and quantity accounted for, renders the duty demand on account of suppression of production, unsustainable. 8.2 In the circumstances, we find that the Moon Beveragess decision will on all fours apply to the facts of the present dispute and since that decision has attained finality, the ratio thereof will necessarily have to be applied to facts of the present case also. Hence that portion of the impugned order on this issue confirming the demand of Rs.9,61,561/- will not sustain and will have to be set aside. So ordered.
8.3 The 2nd issue concerns an allegation that PBPL are not eligible for SSI exemption in respect of production of clearances of Bisleri Club Soda, since the owners of that brand Aqua Minerals Pvt. Ltd. do not themselves manufacture the goods. The ld. counsel has submitted that in an identical issue, the Honble Supreme Court in the case of Sri Ganganagar Bottling Co. (supra) has held in favour of those appellants. Per contra, the ld. AR has drawn our attention to a finding of Commissioner (Appeals) that PEL and not AMPL are the owners of that brand, therefore, the franchisee PBPL will not be eligible for the exemption. However, from the related show cause notice dated 24.9.1994, it is seen from para 2 thereof, that the allegation made out by the department, on the basis of evidence gathered, is that AMPL is the brand name owner of Bisleri Club Soda, they are not manufacturing club soda and hence PBPL is not eligible for SSI exemption. We further find in para 15.7 of the adjudication order that original authority has held that AMPL are the owners of Bisleri Club Soda and since they do not manufacture club soda, they are not eligible for SSI exemption as per Notification Nos. 175/86-CE and 1/93-CE (as amended). In the circumstances, the ratio of the Honble Apex Court judgments in Sri Ganganagar Bottling Co. Ltd. (supra), is very much applicable to the present case since the facts are pari materia. In the facts of Sri Ganganagar Bottling case the brand name owners were themselves not manufacturing CITRA aerated water and therefore was alleged that the franchisee who was in fact manufacturing the same would not be eligible for SSI exemption. The Honble Supreme Court after analyzing Notification No. 175/86-CE, held as follows:-
10.?Clause 7 of the Notification after amendment deals with exemption of specified goods and circumstances where the exemption is not available. The notification is goods specific. What is required is that a person, who may be a manufacturer, must be eligible for exemption under the notification in respect of the specified goods. Any other interpretation would render the purpose for which the notification has been issued redundant.
11.?As noted above, the notification is goods specific. The emphasis is on specified goods.
12.?The intention is crystal clear that at the relevant time, the unit should be eligible for exemption under the Notification in respect of the specified goods 8.4 Applying the ratio of Sri Ganganagar Bottling (supra), we find that the portion of the impugned order confirming demand on this issue of Rs.11,44,571/- cannot be sustained. So ordered.
8.5 The last issue of contention involves the duty demand of Rs.38,30,633/- on the ground that LFFL, brand owners of CITRA are not eligible for SSI exemption as they have exceeded statutory limits of aggregate value of clearances. In the statement of facts annexed to the show cause notice dated 24.9.1994, it has been alleged that PEL and LFFL are controlled by the same management headed by Shri R. Chauhan. The notice has given the clearance value of all excisable goods by these three factories in page 24 of the notice and has alleged that since the statutory limits of aggregate value of clearances specified in Notification No.175/86 having been exceeded, the branded goods LFFL manufactured by PBPL as a franchisee will also not be eligible for SSI exemption. The period of dispute indicated in the show cause notice is from 1.9.1991 to 11.11.1993, covering the periods when SSI Notifications No.175/86 dated 1.3.1986 and 1/93 dated 28.12.1993 were in force. In response to these allegations which have been upheld by the lower authorities, ld. Advocates have contended that PBPL had claimed SSI exemption only on the basis of certificates issued by the Superintendent having jurisdiction over LFFL. We in fact find that one such certificate dated 11.5.1992 has been signed and issued by Superintendent of Central Excise, Range VI, Division III, Ahmedabad, certifying that LFFL are availing exemption under Notification No.175/86. Yet another certificate was issued by the same jurisdictional Range Superintendent, on 12.4.1993, certifying that LFFL are availing exemption No. 175/86. The ld. Advocates contend that PBL cannot be faulted for having relied upon these certificates issued by the Central Excise officer which have led them to believe that LFFL was very much within the SSI exemption limits, especially since such certificates have been issued for over consecutive years. We find merit in this contention. There is also no evidence put forth by the department that PBPL had colluded with LFFL or otherwise had misrepresented to the department that they are eligible for the SSI exemption. We have also no reason to doubt the veracity of the copies of the certificates issued by Central Excise Department which have been produced before us.
8.6 The Honble Supreme Court in the case of Brindavan Beverages P. Ltd. (supra), relied upon by ld. Advocates, has unequivocally held that when the assessee is not having knowledge of any deliberate fragmentation by the franchisor to avail SSI exemption and it is not shown that there has been connivance on the part, the benefit of SSI exemption to the assessee cannot be denied. The Honble Supreme Court observed as under:-
7.?Mr. A. Subba Rao, learned counsel for the appellant has submitted that respondent BBPL had the franchise of M/s. Parley Exports Ltd. under whose brand name they had manufactured aerated water in the brand names of Limca, Thums Up and Gold Spot. Respondent had also manufactured aerated water in the name and style of Citra said to be the brand name of M/s. Limca Flavours and Fragrances Ltd., a holding company of PEL in which 50% shares are held each by Shri Ramesh J. Chauhan and Shri Prakash J. Chauhan both of whom happened to be brothers. Additionally, the respondents also manufactured goods under the brand name of Bisleri Club Soda with the permission of M/s Acqua Minerals (P) Ltd., New Delhi. With reference to the various positions and as Directors in LFFL, PEL, AMPL, PIL, Apex Traders, M/s Coolade Beverages (P) Ltd. And M/s Delhi Bottling Co. Ltd. it is submitted that either Shri Ramesh J. Chauhan or Prakash J. Chauhan or persons related to him or being members of the Board of Directors of various companies had right to create facet to avail the benefits under the Notification in question. Since these concerns could not have availed the benefits they have created dummy concerns to avail the benefits. It is submitted that in the circumstances there was necessity to lift the corporate veil to find out the true owners.
8.?Per contra, learned counsel for the respondents submitted that there is no material that the respondents had ever been parties to the so called arrangement, even if it is accepted for the sake of arguments but not conceded, that such arrangement was in reality made. There was no material brought on record to show that the respondents had any role to play in such matters as alleged. Even the show cause notice did not refer to any particular material to come to such a conclusion. Therefore, the Commissioner and the CEGAT were justified in holding that the respondents were entitled to the benefits.
9.?We find that in the show cause notice there was nothing specific as to the role of the respondents, if any. The arrangements as alleged have not been shown to be within the knowledge or at the behest or with the connivance of the respondents. Independent arrangements were entered into by the respondents with the franchise holder. On a perusal of the show cause notice the stand of the respondents clearly gets established.
10.?There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents unless it is shown that they were parties to the arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted. 8.7 In view of the ratio laid down in Brindavan Beverages (P) Ltd. (supra), when PBPL was not within the knowledge of the fact whether LFFL had crossed the aggregate value of clearances prescribed for SSI benefit and further, when the belief that the former had not, was strengthened by way of certificates issued by the Range Superintendents, even as on 12.4.1993, in our view, the benefit of SSI exemption cannot be denied to PBPL not only for the impugned period covered by Notification No.175/86-CE but also that covered by Notification No. 1/93-CE. Hence that part of the impugned order which has upheld the demand of Rs.38,30,633/- on an allegation of wrong availment of SSI exemption cannot be sustained and will require to be set aside. So ordered.
9. In the result, all three contentious issues are found in favour of the appellant PBPL. This being so, the total demand of duty of Rs.59,36,765/- with equal penalty on PBPL is set aside and Appeal No. E/742/2010 filed by PBPL is allowed. In consequence the penalties imposed on Shri Arun G.Nagar, M/s. Parle Bisleri Pvt. Ltd, Ramesh Chauhan, S.K. Motani and Kadeer Khan are set aside and the related appeals filed by these persons also allowed.
(Operative portion of the order was pronounced in open court) (Madhu Mohan Damodhar) (Sulekha Beevi C.S.) Member (Technical) Member (Judicial) Rex 15