Customs, Excise and Gold Tribunal - Ahmedabad
Umiya Ceramics, Mor Ceramic And Shri ... vs C.C.E. on 21 February, 2007
Equivalent citations: 2007(117)ECC211, 2007ECR211(TRI.-AHMEDABAD), 2007(211)ELT500(TRI-AHMD)
ORDER Archana Wadhwa, Member (J)
1. All the appeals are being disposed of by a common order as they arise out of the same impugned order passed by the Commissioner of Central Excise (Appeals). We have heard Shri H. Modh, learned Advocate appearing for the appellants, and Shri Samir Chitkara, learned SDR for the Revenue.
2. As per facts on record Umiya Ceramic as also Mor Ceramic are engaged in the manufacture of Refractory Fire Bricks falling under Chapter 69 of the Central Excise Tariff Act, 1985. Inasmuch as both the said units are located in the same premises, the said premises were visited by the Central Excise officers on 19.12.97. As a result of various checks and verifications, officers entertained a view that though both the units exist separately on paper, factually they are one and the same. Accordingly the records maintained by both the units were seized under Panchnama dated 19.12.97. Statement of Shri Denish Motilal Patel, Managing Partner of Umiya Ceramic was also recorded on 19.12.97 wherein he deposed that he is partner of Umiya Ceramic and Manager of Mor Ceramic drawing a salary of Rs. 1000/-; he is holding Power of Attorney of Mor Ceramic; that the factory premises for both the units are common; that the partners of both the units are close relatives of each other; that a part of the premises belonging to M/s. Umiya Ceramic has been leased out to M/s. Mor Ceramic on a monthly rent of Rs. 2000/-; that Umiya Ceramic is using tunnel kiln of Mor Ceramic for the last 4 years inasmuch as Down Draft kiln of Umiya Ceramic is lying closed. It was further disclosed by Shri Denish Motilal Patel that they are not maintaining separate records/stock register either of raw material or finished goods.
Another statement of the said appellant was recorded on 13.10.98 wherein he admitted that Tunnel Kiln of Mor Ceramic is being used by Umiya without payment of any rent and it was only furnace oil used during the process being supplied by Umiya Ceramic.
3. Based upon the above facts proceedings were initiated by way of issuance of show cause notice dated 7.9.99 alleging that two units are actually one and have been bifurcated for the purpose of availing small scale exemption benefit. The above allegation, based upon the fact that the said two units are located in the same premises without any demarcation; that no separate accounts for raw material and finished products are being maintained; that the work of both the units is being looked after by shri Denish Motilal Patel; that the two units do not have complete machinery for manufacture of the goods and the kiln belonging to Mor Ceramic is being used by Umiya Ceramic for the last 4 years without payment of any rent etc. The said show cause notice culminated into an order passed by Additional Commissioner of Central Excise vide which he held that the clearances of both the units are to be clubbed. Accordingly, he confirmed the demand of duty of Rs. 5,18,349/- against Umiya Ceramic along with confirmation of interest and imposition of personal penalty of identical amount under Section 11AC of Central Excise Act, 1944. In addition personal penalty of Rs. 3 lakhs imposed upon the appellants in terms of provision of Rule 173Q(1) of Central Excise Rules. Personal penalty of Rs. 3,50,000/- was imposed upon Mor Ceramic under Rule 173Q and of Rs. 2 lakhs each was imposed upon Shri Denish Motital Patel, partner of Umiya Ceramic and Shri Motilal V. Patel, working partner of Mor Ceramic in terms of proviso to Rule 209A of Central Excise Rules, 1944. He also confiscated land, plant and machinery belonging to Umiya Ceramic with an option to redeem the same on payment of redemption fine of Rs. 2.50 lakhs.
On appeal against the above order the Commissioner (Appeals) upheld the order of clubbing of clearances of both the units, and hence, confirmed the demand. He, however, set aside the confirmation of interest and imposition of penalty upon Umiya Ceramic on the ground that Section 11AB and 11AC can not be pressed to service in respect of offences committed before the date of their enactment. He also set aside the confiscation of plant and machinery. He, however, upheld the penalty on Mor Ceramic but reduced the same from Rs. 3.5 lakhs to Rs. 2 lakhs. Similarly, he upheld the imposition of personal penalty on Shri Denish Motital Patel but reduced the same from Rs. 2 lakhs to Rs. 1.25 lakhs. Personal penalty on Shri Motilal Patel was set aside. The said order of the Commissioner (Appeals) is impugned before us.
4. After hearing both the sides and after having gone through the impugned order, we find that the prime and sole issue required to be decided in the present appeal is as to whether Umiya Ceramic and Mor Ceramic are independent units having complete machinery, thus entitled to separate small scale exemption or the same is a make-belief arrangement created on paper by bifurcating the two units artificially. The starting point of the adjudication was the visit of the officers in the said premises, where both the units are located. Pachnama drawn at the time of visit of the officers, in the presence of Panchnama revealed that there was no Board or any type of writing showing the existence of Mor Ceramic. It was further revealed, as recorded in the Panchnama that Umiya Ceramic was firing the raw bricks in the kiln owned by Mor Ceramic. It was, further disclosed that since fire bricks are not having any identification mark, it cannot be ascertained that which stock of bricks belong to which factory. Panchnama also shows that the files belonging to two units were found lying in the same office premises of Umiya Ceramic and were recovered from one cupboard of the said office. Further, statement of Shri Denish also revealed certain facts which are (Sic) for (Sic) the disputed issue. Admittedly, kiln belonging to Umiya Ceramic was not in working condition for the last 4 years and the goods were being fired in the tunnel kiln of Mor Ceramic. No charges were being paid to More Ceramic for firing finished goods as admitted by Denish M. Patel in the said statement. The reason disclosed for the same was that the partner of both the units are relatives of one family and he was looking after the affairs of both the units.
5. It has been strongly argued before us by relying upon precedent decisions of the Tribunal that common factory premises, common partner or partners of same family, common office and sharing of same machinery by itself cannot be made the basis for arriving at a finding of clubbing of clearances of two units. While agreeing with the above proposition of law, we observe that the fact of two units being independent of each other is based upon the evidence available in each case and it is basically appreciation of such evidence, which will lead to the conclusion. There is no quarrel about the legal principle that as long as two units are having complete machinery and capable of manufacturing goods without any dependence on each other, the fact of common partners or common premises or even the intention of creation of second unit for remaining within small scale exemption, by itself cannot be made the basis for clubbing the clearances of two units. However, in the present case we find that the two units i.e. Umiya Ceramic and Mor Ceramic were not independent of each other in spite of the fact of their separate registration with the other Government authorities. Process of manufacture of bricks as detailed in the appeal memo show that the raw material for the bricks is clay in lumps, calcined Bauxite and Grog, i.e. broken pieces of rejected refractory bricks. Of the said three raw materials clay and grog are put in a grinding machine, i.e. the distintegrator and are grinded into a homogenous mixture. The said mixture is than mixed with calcined Bauxite and then it is put in a padmill, where it is mixed with water. The said mixture is then weighed and put in a mould called the Dye Box which is then pressed using a power press to bind all the material together. Thereafter mould bricks are kept in an open yard for the purpose of drying. Thereafter the bricks are fired in kiln. There can be different types of kilns, appellant had in their factory a draft kiln which is fired using coal while Mor Ceramic had a Tunnel Kiln which is fired using Furnace Oil.
6. As seen from the above process of firing of raw bricks in the kiln, the most important process and the main machine for the manufacture of Refractory Bricks is nothing but kiln. All other equipments are for the activities which can be easily termed as preparatory. No factory engaged in the manufacture of Refractory Bricks or Fir Bricks can be envisaged without a kiln. This important, requisite and essential part of the factory was only one between the two units. The fact that Tunnel kiln was procured about-4 years back by Mor Ceramic and was being used continuously by Umiya Ceramic is not in dispute. However, Shri Modh has submitted that they were paying the rent for kiln and drawn our attention to some accounts available on record which do not inspire confidence, firstly on the ground that the same are not audited, and secondly it has been the appellants' case throughout the adjudication that no charges for use of kiln was being paid by Umiya Ceramic to Mor Ceramic. The statement of Denish M. Patel are clear on the above issue and also give the reason for such use being that both the units belong to the same family. Further, it is noticed that no sign of existence of Mor Ceramic in the said premises was found at the time of visit of the officers as recorded in the Panchnama. Stock belonging to both the units was admitted to be common. As such in our view it has to be held that Mor Ceramic was only a paper creation and a facade. Mere fact that the said Mor Ceramic was registered with the other Government departments is only a factor to show that Umiya Ceramic took steps towards establishing the said unit different and separate from Umiya Ceramic. Tribunal in the case of Double Bee Enterprises v. CCE, New Delhi in identical facts and circumstances has held that clearances of both the units have to be clubbed, where both the units have one roof, common gate, no separate demarcation, having common machinery, stock not segregated and purchase of raw material at single point. It is also not disputed that the registers though maintained separately were kept together in cupboard under the custody of Shri Denish M. Patel. As such we hold that there is sufficient material and evidence on record to show that both the units were, in fact, one and Mor Ceramic was created artificially, only to avail Central Excise benefit. As such we confirm the demand of duty against Umiya Ceramic.
7. As regards penalty on Mor Ceramic, we find that the Commissioner while reducing the penalty has observed as under:
As regards, the imposition of penalties under Rule 173Q on both the firm, I find that imposition of penalty on both the units does not have any logic, once it is established that one outfit is sham or dummy and ipso facto penalty only survives on the single unit which carried out manufacturing activity i.e. in the instant case the activity of firing in the Tunnel kiln and therefore, the appellants No. 2 (in fact on the clubbing being established they no longer hold separate identity i.e. identity is merged) is only liable for penalty and looking to the over-all facts of the case and that Section 11AC has also been invoked on the appellants, I trim down the penalty on the appellants No. 2 from Rs. 3.5 lacs.
We agree with the learned Advocate that the above observations of the appellate authority are self contradictory. On one hand he is holding Mor Ceramic to be a dummy unit and on the other hand penalty is being upheld on the same in spite of his observation that no penalty can be imposed on dummy unit. Inasmuch we have held that Mor Ceramic was not a complete and independent unit but was dummy of Umiya Ceramic, imposition of penalty upon Mor Ceramic is neither legal nor justified. The same is accordingly set aside.
8. As regards penalty upon Shri Denish M. Patel we find that he was Managing partner of Umiya Ceramic and has been held to be main protagonist of the entire 'episode' who stage managed the show. As such he is liable to penalty, specially in view of the fact that penalty imposed upon Umiya Ceramic stand set aside by the Commissioner (Appeals) on the technical grounds of Section 11AC being not in existence at the relevant time. However, keeping in view the overall facts and circumstances of the case we reduce the penalty amount from Rs. 1.25 lakhs to Rs. 50,000/-.
9. All the 3 appeals stand disposed of in above manner.
(Order pronounced on 21/2/07)