Customs, Excise and Gold Tribunal - Delhi
Mehta Dye-Chem. Industries And 3 Ors. vs Collector Of Central Excise on 31 July, 1987
Equivalent citations: 1987(14)ECC138, 1987(13)ECR787(TRI.-DELHI), 1988(34)ELT184(TRI-DEL)
ORDER V.P. Gulati, Member (T)
1. These appeals are filed against the order of Collector of Central Excise, Bombay. We first proceed to decide appeal No. ED/2055/83-C, filed by M/s. Mehta Dye-Chem. Industries. The decision in the appeal will be equally applicable to the facts of the other appeals.
2. Brief facts of the case are that the appellants are a family partnership concern with the following three partners - Dr. R..R. Mehta, Shri Bharat Kumar Mehta and Mrs. Hemlata Mehta wife of Dr. Mehta. They manufactured S.O. Dyes falling under Tariff item 14D and availed of benefit of Notification No. 71/78 and cleared the goods within the exemption limit of Rs. 5 lakhs during the year 1978-79 and year 1979-80. In the year 1979-80, after they had cleared goods valued at Rs. 4,97,689.40, they stopped manufacturing goods on their own account and undertook the manufacture of S.O. Dyes on behalf of one M/s. N,R. Dyes & Chemicals, stated to be their loan licensee with office at 9, Maheswar Kripa, Plot No. 126, R.B. Mehta Marg, Ghatkopar, Bombay-86. The proprietor of this company is Miss. Nirupa Ratilal Mehta, Daughter of Shri R,R. Mehta, one of the partners of the appellant's concern. After clearance of goods valued at Rs. 4,79,325/- for M/s. N.R. Dyes & Chemicals, the manufacture of the said goods for the said company was stopped and further manufacture was done for a newly constituted concern, namely, K.B. Chemical Enterprises as having office at 304, Anandeep Chambers, Narsinatha Street, Office address of the appellant concern, as a loan licensee. The partners of M/s. K.B. Chemical Enterprises are one Mrs. Usha Bharat Kumar Mehta, wife of Mr. Bharat Kumar Mehta and the other partner of appellant's concern is one Mr. Satish Panachand Bhayani. After the clearances in their name, valued at Rs. 4,96,946.50 had been made, the manufacture of the goods in their name stopped and the same was continued for another loan licensee, a newly constituted firm namely, Hema Dyes & Chemicals having their address as 3, Kailash Mahal, R.B. Mehta Marg, Ghatkopar, Bombay. Partners of this concern are one Mrs. Hemlata Ratilal Mehta, wife of Dr. R.R. Mehta and the other partner of the appellant's firm was one Shri Ajay P. Mody. The affairs of M/s. N.R. Dyes & Chemicals were managed by Shri R.R. Mehta who held General Power of Attorney and his daughter, the proprietress after marriage had gone abroad. In the K.B. Chemical Enterprises, partnership share of ) Mrs. Usha Bharat Kumar is 25% and the share assigned to the other partner, Shri S.P. Bhayani, 75%. In the case of M/s. Hema Dyes & Chemicals, share of Mrs. Hemlata, wife of Dr. R.R. Mehta is 80% and that of Shri Ajay P. Mody 70%. The office address of M/s. N.R. Dyes & Chemicals is residential premises of Shri B.K. Mehta, partner of Mehta Dye-Chem. Industries and the address of M/s. Hema Dyes & Chemicals is address of Mrs. Nirupama Ratilal, the proprietor of N.R. Dyes & Chemicals. Goods manufactured in the factory of M/s. Mehta Dye-Chem. Industries in their name and in the names of other three concerns referred to above, were the same and all were sold to the same selling agents namely M/s. Lac Enterprises and the same commission was allowed to them in respect of sales of all the four concerns. No separate sales agreements were entered into between the selling agent and the said three loan licensees. The partners of M/s. Lac Enterprises in their statements before the Central Excise authorities stated that they were informed by M/s. Mehta Dye-Chem Industries about the names under which the various supplies will be received by them after they had discontinued clearances in their own name. Intimation regarding the pricing etc. was also given by the partners of M/s. Mehta Dye-Chem Industries and the selling operations vis-a-vis these agents were being controlled by M/s. Mehta Dye-Chem. Industries. The investigations by the departmental authorities also revealed that the loan licensee firms had no staff of their own and all operations in regard to procurement of raw materials, manufacture, sale, arranging of finance and office work including correspondence and entries in the ledger were looked after by M/s. Mehta Dye-Chem Industries. Shri R.R. Mehta in his statement before the Central Excise authorities recorded on 22-2-1980 admitted that the other companies were floated with a view to take benefit of exemption Notification No. 71/78. Statements were also recorded from partners of other concerns. It is seen that there were two persons taken as partners from outside the family of Shri R.R. Mehta. -. Shri S.P. Bhayani, one of the two partners of M/s. K.B. Chemical Enterprises and Shri Ajay P. Mody who was one of the two partners of M/s. Hema Dyes and Chemicals. Both these were allocated major share in the respective partnership concerns. Both were having jobs elsewhere and did not invest any amount in the partnership concerns and according to their statement played no role in the day to day operations of these 'concerns and did not receive any profits from the operations of these two concerns. Both of them signed only some letters and correspondence including the partnership deed papers at the instance of Shri Bharat Kumar Mehta at the time the firms were constituted and it was Shri Bharat Kumar who brought them in as partners. The other partners of the loan licensee concerns also as seen from the statement recorded played no role either in manufacturing or selling or procurement of raw materials nor did they participate in any financial arrangement made for these firms by active partners of M/s. Mehta Dye-Chem Industries, namely, Dr. R.R. Mehta and Shri Bharat Kumar.
3. The Collector taking into account the facts and circumstances of the case has held as under :
"All these aspects lead to the inevitable conclusion that the activities of N.R. Dyes & Chemicals, K.B. Chemical Enterprises and Hema Dyes & Chemicals were entirely controlled by Mehta Dye-Chem Industries and especially so far as the manufacture and clearances were concerned they had no separate existence. The value of the goods cleared on their behalf has, therefore, to be clubbed with the value of goods cleared by Mehta Dye-Chem Industries. The question of time bar in this respect does not arise since Mehta Dye-Chem Industries and the other three firms did not disclose full facts to the Central Excise Department while applying for permission to manufacture dyes as loan licensees and thus by suppression of facts, availed of separate exemptions under Notification No. 71/78, dated 1-3-1978 to which they were not entitled."
He, therefore, demanded the duty, on the goods valued @ Rs. 12,89,131.95 which had been cleared from the factory taking the clearances of the appellants and also made in the name of loan licensees. Some goods which were being cleared in the name of M/s. Hema Dyes & Chemicals and which had been seized were ordered to be confiscated and released on payment of redemption fine. Penalty of Rs. 25,000/- was imposed on M/s. Mehta Dye-Chem Industries.
4. The learned advocate for the appellant, Shri Ganesan, pleaded that all the concerns were legally independent entities created through proper partnership deeds and these had been registered for income tax and sales tax purposes separately. He also stated that the partnership deeds executed were also registered with the concerned governmental authorities. He pleaded that the Central Excise authorities were duly informed about the start of the operations in the name of different companies and clearances made after their due approval and that necessary RT12 returns were filed and Central Excise records maintained and clearances were made under proper Central Excise documents in the name of each individual concern at the relevant time. He stated that there was nothing wrong in M/s. Mehta Dye-Chem Industries arranging the finance for the other firms and also providing facility for use of their office to the other concerns and assisting them in purchase and sale of goods. He pleaded that since relatives of the partners of M/s. Mehta Dye-Chem Industries were partners in the other concerns, there was nothing wrong in the relations helping each other. He pleaded that the Collector accepted the existence of each firm as a separate legal entity and having done that he could not club the clearances of all the firms for the purpose of benefit of Notification 71/78. He stated that there is no warrant in law to club the clearances of all concerns merely because of the partners in different concerns were common. He cited the case of Bapalal & Co. v. Government of India and Ors. : 1981 ELT 587 (Mad.). He stated that the material on record does not in any way lead to the conclusion that all the operations relating to the goods were carried for M/s. Mehta Dye-Chem Industries. At best what could be attributed is that the appellants did the tax planning to take advantage of benefit available under the law in terms of Notification No. 71/78. He stated that not much should be read in the statement of Shri Ratilal Mehta that different firms had been floated by them to take advantage of benefit of Notification 71/78 as this could be only a part of the tax planning done by them. He also pleaded that the demand was hit by time bar as the show cause notice was issued on 18-8-1980 and the demand had been raised in respect of clearances made during the period 1979-80. He pleaded demand for major part of the period would be hit by time bar as on the facts of the case extended period of five years was not available for raising the demand and has to be restricted to six months reckoned from the date of receipt of the show cause notice by them. He drew attention of the Bench to a letter written by M/s. Mehta Dye-Chem. Industries in which they had sought permission for manufacture of S.O. Dyes on behalf of M/s. Hema Dyes & Chemicals; the letter is dated 19-2-1980 and also letter dated 11-2-1980 written by loan licensee, i.e., the Hema Dyes & Chemicals in which they had informed the Superintendent of Central Excise as under :
"Our firm namely M/s. Hema Dyes & Chemicals is newly formed on 27-12-1979.
We are undertaking the Government of India Notification No. 71/78, dated 1-3-1978. We are exempted from Central Excise duty from first 5,00,000/-, as we have not manufactured any product for the period l-4-1978 to 31-3-1979, being a new firm.
We have no proprietory interest in any other unit manufacturing the said exempted goods."
He also drew our attention to a letter dated 21-2-1980 of M/s. Mehta Dyes-Chem. Industries to the Superintendent of Central Excise informing him that they had already submitted classification list and price list relating to M/s, Hema Dyes and Chemicals, the loan licensee and enquired whether they could clear the goods of the loan licensee who had applied for exemption under 71/78 for the first Rs. 5 lakhs. There is endorsement on this letter which reads as under :
"The classification & PL are submitted to A.C. Kalyan II for approval in the meantime you may manufacture and clear the goods.
Sd/-
Superintendent Central Excise, AGI Palghar."
He also drew our attention to the classification lists filed in this regard for the three loan licensees and the approval granted by the authorities for the purpose of clearances of the dyes on behalf of the loan licensees in terms of the notification. He pleaded that all the facts relating to the operations connected with manufacture and clearance of the goods on their own account and also on account of loan licensees were within the knowledge of the Central Excise authorities and it was only after the necessary permission granted by the concerned authorities and after necessary approval of the classification lists and price lists filed by the appellants on behalf of the loan licensees that the clearances were made. He stated that the appellants furnished all the information that was required under the law to be furnished. There was no further duty cast on the appellants to make any disclosure unless they were asked to do so. He pleaded that having approved the price list and classification list, the Department could not have made enquiries after the approval accorded and cited the decision of the Government of India reported in 1981 ELT 958. He pleaded that there was no allegation that the appellants had suppressed any fact and bland findings had been given that this was done by the appellants. He pleaded that demand if at all could be raised for a short period from 18-2-1980 to 31-3-1980. He stated in terms of judgment of Tribunal in the case of Hoist-O-Mech. Ltd., Thane v. Collector of Central Excise, Bombay : reported 1984 (18) ELT 442 (Tribunal) a duty cast on the officers to make enquiry in a situation like this. He stated that Rule 9(2) could not be invoked as there was no clandestine removal and that all removals were within the knowledge of the authorities. He cited the case of Air Conditioning Corporation, New Delhi v. Collector of Central Excise, Calcutta : 1985 (19) ELT 206 (Tribunal). In the facts of the case, he pleaded, there has been no wilful suppression on the part of the appellants. He cited the case of Elmo Engineering Works, Madurai v. Collector of Customs, Madras : 1984 (17) ELT 431 (para 5 and 8). In the same context he cited the case of Collector of Central Excise, Bombay v. Bombay Chemicals Pvt. Ltd., Bombay : 1986 (24) ELT 373 (Tribunal) and case of Indian Explosives Ltd., Calcutta v. Collector of Central Excise, Patna : 1986 (24) ELT (345) (Tribunal). He also pleaded that appellants had furnished all the information required for the purpose of clearance of goods and clearance of goods at nil rate of duty in respect of all the concerns was allowed by the authorities and the authorities had all the information relating to the manufacture and clearance of the goods with them and that they were consciously allowing clearances of the goods and therefore the authorities were barred from reopening the case and cited the case of Commissioner of Income-tax, Calcutta v. Burlop Dealers Ltd. : 1971 ITR 609 and also the case of Income-tax Officer, 1-Ward, Hundi Circ, Calcutta and Ors. v. Madnani Engineering Works Ltd.: ITR 118. His plea is that they had made full disclosure of the facts relating to the clearances and therefore there was no warrant in re-opening the assessement. the relevant extract from the judgment cited in this regard is reproduced below :
"(ii) That the respondent had produced in the original assessment proceedings all the hundis on the strength of which it had obtained loans from the creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not : the respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus."
In the course of arguments it was pointed out to the learned advocate as to how he could claim the benefit of the notification for clearance of goods at nil rate of duty upto a limit of Rs. 5 lakhs in respect of each of the four parties involved in the case individually as in terms of sub-para (c) of the notification, the upper limit upto which the specified goods that could be cleared at nil rate of duty from a factory run at different times in a financial year by different manufacturers was Rs. 5 lakhs, the relevant extract of Notification 71/78 is reproduced below for convenience of reference :
"In exercise of the powers conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the excisable goods of the description specified in column (3) of the Table hereto annexed (hereinafter referred to as the "specified goods") and falling under such Item Number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as is specified in the corresponding entry in column (2) of the said Table, in respect of the first clearance of such excisable goods for home consumption upto an aggregate value not exceeding rupees five lakhs and cleared on or after the 1st day of April in any financial year by or on behalf of a manufacturer, from one or more factories, from the whole of the duty of excise leviable thereon, subject to the following conditions, namely :-
(a) the exemption contained in this notification shall not be applicable to a manufacturer - (i) during the financial year 1978-79, if the aggregate value of the specified goods cleared, if any, by him or on his behalf for home consumption, from one or more factories, during the period commencing on the 1st day of April, 1977 and ending on the 28th day of February, 1978, had exceeded Rs. 13.75 lakhs; and (ii) during financial years subsequent to the financial year 1978-79, if such clearances, if any, of the specified goods, during the preceding financial year, had exceeded rupees fifteen lakhs;
(b) the value of clearance made during the financial year shall be calculated separately for all the goods specified in column (3) of the said Table against each serial number specified in the corresponding entry in column (1) thereof;
(c) where a factory producing the specified goods is run at different times of any financial year by different manufacturers, the value of the specified goods so cleared from such factory in any such year at nil rate of duty shall not exceed rupees five lakhs.
Explanation I. - For the purposes of this notification, the expression 'value' means the value as determined in accordance with the provisions of Section 4 of the Central Excises and Salt Act, 1944 (1 of 1944)."
In this context he drew our attention to clarification issued by the Indore Collector vide Trade Notice No. 53/78 and of the Baroda Collector Trade Notice No. 135/78 in the context of this notification. He stated that it has been clarified therein as under :
"This point was raised earlier also and it was clarified that a loan licensee may be treated as a manufacturer within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. This being the position, it is again clarified that the value of the goods cleared by a manufacturer on behalf of his loan licensees should not be taken into account for the purposes of determining the eligibility of the manufacturer to the said exemption. The loan licensees will be eligible for the said exemption, separately, provided their clearances do not exceed limits prescribed in the said notification. -(Indore Trade Notice No. 53/78).
"For the purpose of determining the eligibility of manufacturer to the exemption contained in Notification No. 71/78-C.E., dated 1-3-1978, the value of goods manufactured and cleared by the manufacturer on behalf of his loan licensees should not be taken into account. The loan licensees will be eligible for the said exemption, separately provided their clearances do not exceed the limits prescribed in the said notification." - (Baroda Collectorate Trade Notice No. 135/78).
He also drew our attention to Poona Collectorate Trade Notice clarifying the position in this regard. This Trade Notice No. 102/80, dated 15-7-1980 and the clarification in this regard is reproduced as under :
"A doubt has been raised whether, for the purpose of determing the eligibility of a manufacturer to the exemption contained in the above cited notification, the value of goods manufactured and cleared by the manufacturer on behalf of his loan licensees should also be taken into account.
In the context, it is clarified that a loan licensee will be treated as a manufacturer within the meaning of Section 2(f) of the Central Excises and Salt Act. 1944. In view of this, it is clarified that the value of goods cleared by a manufacturer on behalf of his loan licensees should not be taken into account for purposes of determining the eligibility of the manufacturer to the said exemption. The loan licensees will be eligible for the said exemption, separately provided their clearances do not exceed the limits prescribed in the said notification."
A communication which has been extracted from a publication clarifying the position is also as under :
"A doubt has been raised whether, for the purpose of determining the eligibility of a manufacturer to the exemption contained in Notification No. 71/78-C.E., dated the 1st March, 1978 the value of goods manufactured and cleared by the manufacturer on behalf of his loan licensee should also be taken into account. Attention is invited, in this connection, to the instructions contained in Board's F.No. 25/5/66-CX.I, dated the 18th October, 1968 and F.No. 24/35/68-CX.I, dated the 28th January, 1969 where the question of loan licensees has been examined in consultation with the Law Ministry. The Law Ministry had opined that a loan licensee may be treated as a manufacturer within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 and this opinion was accepted by the Board. This being the position, it is clarified that the value of goods cleared by a manufacturer on behalf of his loan licensee should not be taken into account for the purpose of determining the eligibility of the manufacturer to the said exemption. The loan licensees will be eligible for the said exemption, separately provided their clearances do not exceed the limits prescribed in the said notification, - [G.O.I.M.F. (R.D.) F.No. B.23/21/78-TRU, dated 23-5-1978].
He pleaded that in terms of these, the loan licensee in his own right was eligible for making clearances upto Rs. 5 lakhs at nil rate of duty.
4. Smt. J.K. Chander, the learned JDR for the Department pleaded that the facts on record clearly show that M/s. Mehta Dye-Chem Industries had full control and direction of the operations carried out in the name of others. She pointed out that investigation in the case started with the seizure of goods being cleared in the name of M/s. Hema Dyes & Chemicals and the driver who was transporting the goods stated that the goods were being taken to the office of M/s. Mehta Dye-Chem Industries. In this connection, she drew our attention to the statement of Shri R.R. Mehta one of the, partners of M/s. Mehta Dye-Chem Industries. She stated that he had clearly admitted that M/s. N.R. Dyes & Chemicals was floated only to avail of benefit of exemption under Notification No. 71/78 and that the said concern was financed by them (M/s. Mehta Dye-Chem Industries). She stated likewise the same thing happened in the case of other concerns which were floated and his admission is on record. She also pointed out that he also admitted that it is they who were arranging sale of goods of the loan licensees. She also pointed out that it has been admitted by him that the matters relating to the manufacture and clearance of goods was being looked after by him. She also pleaded as seen from the statement by Shri Mody that he had no business interest in the partnership. He merely signed partnership deeds. She pleaded he played no role in any way in the business of the partnership concern. All he did was to sign the partnership deed and there was no financial commitment on his part nor he did any work in relation to the partnership concern even when he had a major shareholding in the partnership concern. She stated Shri Bhayani, partner in the other concern, M/s. K.B. Enterprises, has mentioned that he was induced by Shri Bharat Kumar Mehta a partner of Mehta Dye-Chem Industries to be a partner of this firm and he was not required to give any capital or to look after the business of the partnership concern. He was not made aware of the nature of the business and that he merely appended his signatures on the partnership deed. She stated that Shri Bhayani has admitted that he never put his signatures on any papers and he never attended to any work relating to the business conducted by firm nor he knew who was looking after the said business. She pleaded that he even did not know how the debit/credit entries were raised in the name of M/s. K.B. Chemicals of which he was made a partner. She stated even Mrs. Mehta who was another partner in M/s. Hema Dyes & Chemicals along with Shri Ajay Mody confirmed that Shri Mody had made no investment and that the company had only financial capital of Rs. 1,300/-. Learned JDR pointed out that the partners of the loan licensee concerns have admitted that no staff had been appointed by them for attending to the daily work of their concerns, and admitted ignorance of the accounts and admitted they could not explain the details of the accounts. She pleaded that on the facts on records and also admission of the various persons from whom statements were recorded clearly showed that all affairs of loan licensee firms in fact were looked after by M/s. Mehta Dye-Chem Industries and none of the partners of the three concerns, namely M/s. N.R. Dyes & Chemicals, M/s. K.B. Chemical Enterprises and M/s. Hema Dyes & Chemicals played and role in the business affairs relating to procurement of raw materials, manufacture, sale or even financial transactions. She stated that the goods manufactured by M/s. Mehta Dye-Chem Industries stated to be on behalf of other three loan licensee firms were identical to those which were manufactured by the appellants the labels fixed thereon were almost identical. She further pointed out that the sales transactions for all the said loan licensee firms were handled by partners of M/s. Mehta Dye-Chem Industries and they only informed the sales agents about the prices etc. and the supplies made. She pleaded in view of the facts on record it was apparent that M/s. Mehta Dye-Chem Industries who had been manufacturing all the Dyes manufactured in their factory were the owners of all the goods. In this regard she cited the case of Shri H. Abdul Rasheed, Proprietor,. Quality Steel Industries, Bangalore v. Collector of Central Excise, Bangalore; disposed of vide Order No. 388/84-D, wherein the Tribunal under similar circumstances have held as under :
"We also note that as recorded by the Collector in his order, Smt. Inayatnunnisa in a statement dated 10-10-1982 deposed that she does not know anything about the day to day affairs of M/s. Unit and that her husband Shri Rasheed looks after the day to day transactions and holds a Power of Attorney.
The appellant relied much on the registration by Commercial tax authorities and Income Tax authorities and argued that Unit having been registered separately should be considered as an independent unit. We are unable to accept this argument. The provisions of each law differ. The purpose of each statute is different. In the present context a notification has been issued where certain concessions were given to Small Scale Industries and as mentioned earlier this concession was based on the Value of clearances by or on behalf of a manufacturer. Being separately situated and being separately registered under other laws does not constitute a ground for us to hold that the two units are independent units and that the clearances from the two units are on behalf of different persons. The evidence to the contrary is convincing. Many circumstances show that it is Shri Rasheed on whose behalf and by whom the goods are being cleared both from Quality and Unit.
These extracts do not leave any doubt that whatever be the other circumstances regarding capital, registration under other laws etc., Shri Rasheed was the person on whose behalf production, clearance, sales etc., all took place. These are by him and for his benefit which is to say for the benefit of his own and that of his family consisting of his wife and 11 children. We, therefore answer the first question in the affirmative and second question in negative."
She also pointed out that transactions between the three firms stated to be loan licensees and the appellants were not on Principal to Principal basis and the loan licensees were the creation of M/s. Mehta Dye-Chem Industries to take advantage of the benefit of Notification No. 71/78. About the limitation she pleaded that even after approval of classification list their duty free clearances under notification by the authorities, there was a case for reopening the assessment. As seen from the facts of this case only deep probe could unravel the nature of the transactions and business relationship between the said loan licensees and the appellants. She pleaded that there was suppression of facts as seen from the facts on record and the narration of the facts in the show cause notice alleged so. She cited the case of Shyam Sunder U. Nichani v. Assistant Collector of Central Excise, Bangalore and Another : 1985 (22) ELT 751.
5. We have considered the arguments put forth by both the sides. Following questions arise for our consideration :
(i) whether the benefit of Notification 71/78 was available to each of the four parties i.e., M/s. Mehta Dye-Chem Industries and the other three described as loan licensees;
(ii) whether the loan licensees were in the nature of dummies setup by M/s. Mehta Dye-Chem Industries for purpose of availing of benefit of Notification No. 71/78;
(iii) whether the demand was hit by time bar and whether the proviso to Section 11A could be invoked.
We observe questions at serial numbers (i) and (ii) are inter-connected. We first advert to Notification No. 71/78 under which duty free clearances for each of the four parties were made at nil rate of duty. Relevant extract of the notification is reproduced for sake of convenience of reference :
"In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the excisable goods of the description specified in column (3) of the Table hereto annexed (hereinafter referred to as the "specified goods") and falling under such Item Number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) as is specified in the corresponding entry in column (2) of the said table, in respect of the first clearance of such excisable goods for home consumption upto an aggregate value not exceeding rupees five lakhs and cleared on or after the 1st day of April in any financial year by or on behalf of a manufacturer, from one or more factories, from the whole of the duty of excise leviable thereon, subject to the following conditions, namely :-
(a) the exemption contained in this notification shall not be applicable to a manufacturer -
(i) during the financial year 1978-79, if the aggregate value of the specified goods cleared, if any, by him or on his behalf for home consumption, from one or more factories, during the period commencing on the 1st day of April, 1977 and ending on the 28th day of February, 1978, had exceeded Rs. 13.75 lakhs, and
(ii) during financial years subsequent to the financial year 1978-79, if such clearances, if any, of the specified goods, during the preceding financial years, had exceeded rupees fifteen lakhs;
(b) the value of clearances made during any financial year shall be calculated separately for all the goods specified in Column (3) of the said Table against each serial number specified in the corresponding entry in Column (1) thereof;
(c) where a factory producing the specified goods is run at different times of any financial year by different manufacturers, the value of the specified goods so cleared from such factory in any such year at nil rate of duty shall not exceed rupees five lakhs.
Explanation I. - For the purposes of this notification, the express "value" means the value as determined in accordance with the provisions of Section 4 of the Central Excises and Salt Act, 1944 (1 of 1944)."
We find that in terms of sub-para (a) the eligibility of the manufacturer to the benefit of notification is spelt out and under para (c) the maximum value of the goods up to which the specified goods listed against any serial number of the list of exempted goods set in the notification could be cleared from the factory is fixed. The appellants have pleaded that maximum limit of the nil rated clearance as set out in sub-para (c) was available in respect of each loan licensee on whose behalf the goods were manufactured in the factory in the financial year. From reading of the clarifications cited by the appellants, we observe that clarifications given were obviously in the background of the issues posed before the authorities and by their very nature these cannot override the provisions of the notification. These instructions envisage (i) that value of the goods cleared by a manufacturer on behalf of loan licensee should not be taken into account for the purpose of determination of the eligibility of the manufacturers to the said exemption; (ii) that the loan licensee will be eligible for the said exemption separately provided their clearances did not exceed the limits prescribed under the said notifications. The clarifications issued cannot enlarge the scope of the notification. All that we can read from these clarifications is that for determining the eligibility of manufacturer, the clearances made on behalf of loan licensees, who, according to these instructions, is also to be treated as manufacturer, should not be taken into account and then as a corollary thereto, the clarification is that the loan licensee will be eligible for the benefit of the notification separately provided clearances did not exceed the limits prescribed in the notification. Thus, for determining eligibility in terms of sub-para (a) of the notification, the clearances of the loan licensees and the manufacturer himself have to be reckoned separately. However, in terms of sub-para (c) of the notification, another limit has been fixed, as to quantum of goods which can be cleared from the factory at nil rate of duty and this limit was Rs. 5 lakhs. In the opening para of the notification also, the limit for exemption provided in respect of clearances made by or on behalf of the manufacturer is upto Rs. 5 lakhs. Thus, it would be seen in case the manufacturer who satisfies the criterion as laid down in sub-para (a) regarding the total clearances of goods cleared by him and if he manufactures the goods on his account, the maximum benefit for duty free clearances of specified goods, he gets is for clearances upto Rs. 5 lakhs. It is seen that as per sub-para (c) the framers of the notification have envisaged the maximum limit of clearances at nil rate of duty from factory which may be run by different manufacturers who may take the factory on lease or utilise it otherwise, as Rs. 5 lakhs. The scope of the notification cannot be enlarged by reading into the clarifications that each of the different manufacturers getting the goods manufactured in a factory as loan licensees can each make clearances at nil rate of duty upto Rs. 5 lakhs. A similar question came for consideration before the Hon'ble Karnataka High Court in the context of Notification No. 80/80 in the case of Shyam Sunder U. Nichani v. Assistant Collector of Central Excise, Bangalore and Another : 1985 (22) 751. The Hon'ble High Court has held as under :
"Reading the Notification as a whole and on a proper construction of the proviso to Clause (1) read with Clause (4) the aggregate value of the clearances of the specified goods from "any factory" should not exceed Rs. 7.5 lakhs during any preceding financial year for purposes of exemption from duty though production is by more than one manufacturer during the same year. Thus, what is important for the purpose of granting exemption under the Notification is the aggregate value of clearances from "any one factory" during the financial year should not exceed Rs. 7.5 lakhs. If several Clauses of Notification are read harmoniously the limit for the purpose of granting exemption would be a "factory". Therefore it is the aggregate value of clearances from that factory during the preceding year that is to be taken into consideration for purposes for granting exemption even in cases where the clearances are made by more than one independent manufacturer or owner. Since, in the instant case, the aggregate value of goods cleared by the petitioner and his lessor, M/s. Regal Rubbers exceeded Rs. 7.5 lakhs during the previous financial year therefore, imposition of duty, on the aggregate value of the goods cleared by them notwithstanding of the lease, : was justified."
We therefore hold that maximum value up to which duty free clearances could have been made from the factory of the appellants was only Rs. 5 lakhs and any clearances made beyond that limit without payment of duty for the specified goods listed against any serial number were not warranted under the notification. The clarifications given by the Department do not and cannot confer any benefit more than that stipulated in the notification. In this view of the matter we hold that there was no legal basis for the lower authority to have permitted appellants initially the benefit of Notification 71/78 in respect of goods cleared in excess of Rs. 5 lakhs in the name of loan licensees.
6. After having held as above, normaly there would have been no need to go into other questions raised in the context of the facts of the case relating to as to whether the loan licensees could be held to be manufacturers or they were just dummies created for misutilising the benefit of notification but inasmuch as the question of limitation has been raised, we proceed now to deal with the other aspects. The plea of the Revenue is that the firms, stated to be loan licensees, were, created to avail of benefit of Notification 71/78 and to avoid payment of duty in respect of clearances made in excess of Rs. 5 lakhs from the factory of the appellants. The defence plea, however, is that the three loan licensees firms were legally constituted firms which were registered with the concerned authorities and that all the clearances in the name of the respective loan licensees were made after taking permission of the competent Central Excise authorities and the benefit of notification also availed of after approval of the classification lists filed in the name of the said companies after due compliance with all Central Excise formalities in respect of clearances made. In this context, it is very relevant to refer to the statements given by different persons involved in this case. Of the three loan, licensee companies one was owned by the daughter of Shri R.R. Mehta, partner of M/s. Mehta Dye-Chem Industries and he held General Power of Attorney on her behalf. His daughter was not available for recording the statement as she had got married and gone abroad. All the operations of the said company as per statement of Shri R.R. Mehta were being carried out by him under this General Power of Attorney. No evidence was led by him to show that his daughter had played any role in the matter of purchase of raw materials, manufacture of goods, sale of goods or in relation to any financial transactions in regard to the company's affairs. Shri R.R. Mehta in this regard has stated as under :
"However, in fact, I admit that this concern namely N.R. Dyes & Chemicals have been financed by us only and was floated only to avail of the exemption under Notification No. 71/78. The raw materials used for the manufacture of goods on behalf of M/s. N.R. Dyes & Chemicals are also purchased from the more or less same Bombay parties and the goods manufactured for them are sent in their name and sold to the same agent namely M/s. Lac Enterprises. We had opened separate Bank Account in their name and my daughter used to sign cheques and other documents. No loan was taken from any of the Banks by this concern. After the manufacture by us on behalf of M/s. N.R. Dyes & Chemicals reached total value of Rs. 4,79,325.00, we stopped manufacture on their behalf.
In the month of November, 1979 having reached the exemption limit of Rs. 5 lakhs for the loan licensee M/s. N.R. Dyes & Chemicals, we floated another loan licensee by name M/s. K.B. Chemicals & Enterprises having office at 304, Anand Deep Chambers, Narsinatha Street, Masjid, Bombay-9, i.e., where our office is situated. There are two partners in this concern. One is Mrs. Usha Bharatkumar Mehta, my daughter-in-law and the other one is Shri Mody whose full name and address I do not remember. I have mentioned earlier that Shri Mody is the other partner in M/s. N.R. Dyes & Chemicals which is not correct through confusion I mentioned his name. I do not remember the name of the concern. The name of the other partner is known to my son, Bharatkumar and also mentioned in the agreement. The agreement made by us with the second loan licensee M/s. K.B. Chemicals Enterprises is at our office and will be produced later on. This concern has also been financed by us and separate bank account was opened in that concernship; no loan was taken from any of the banks by any of the partner of this concern. The raw material required for the production in the name of this loan licensee was purchased from open market at Bombay and the goods manufactured for them was sent from our factory in their name and were sold through our agent namely M/s. Lac Enterprises. On manufacturing and clearing the goods totally valued at Rs. 4,96,946.50 on behalf of M/s. K,B. Chemicals Enterprises we stopped manufacturing for them as the limit of Rs. 5 lakhs provided in the Notification No. 71/78 was also most exhausted.
Thereafter, we floated another loan licensee in the name of M/s Hema Dyes & Chemicals, with their office at 3, Kailash Mahal, R.B. Mehta Marg, Ghatkopar, Bombay-77. There are two partners in this concern - One is my wife Smt. Hemlata R. Mehta and the other partner is one Shri C.A. Mody whose full name and address is not known to me. The agreement made for this concern is at our office and will be produced later on. As in the case of abovementioned two loan licensees, this loan licensee, i.e. Hema Dyes and Chemicals have also been financed by us and separate bank account has been opened in their name, but no bank Joan has been taken by any of the partners from any of the banks. The cheques for this concern are signed by Smt. Hemlata who is my wife. The raw material purchased by us for them from the open market and the goods manufactured in their name are although addressed to them. They are actually sold through our agent M/s. Lac Enterprises we started manufacturing on behalf of this concern from this month only and till today we have manufactured and cleared goods for them totally valued at Rs. 1,33,770.00. The last Gate Pass is having No. 87, 28-2-1980.
I admit here that above mentioned three loan licensees were floated by us only to avail of the exemption under Notification No. 71/78."
and further on, he again reiterated as under :
"As promised in my previous statement of 24-3-1980, I produce before you the statement showing comparative figures of overhead for the years 1977-78 and 1978-79. The date for the period 1979-80 is not yet compiled. I am not able to give you the breakup of job-charges to the loan licensees but I will give you the same after about four to five days. I produce before you our sales register for the period April, 1979 and onwards. Entries in this register are yet to be completed. I also produce before you our file containing debit notes for the period from 5-6-1979 to 13th February, 1980. On this file there are some signature as S.D. Mehta and Shah signed below rubber stamp of M/s. N.R. Dyes & Chemicals on the debit notes issued to M/s. N.R. Dyes & Chemicals, These two persons are working in our office. These persons have signed for N.R. Dyes & Chemicals as they were temporarily hired by us. 1 will attend again on 10-8-1980 for giving further statement."
Shri A.P. Mody, partner in M/s. Hema, Dyes & Chemicals who had been given 70% share, has stated as under :
"In the month of January 1980 Shri Bharat Mehta proposed that he intends to start a new business and asked me whether I could become a, partner in the same. As I had no savings of my and also no financial help from my father or brothers, 1 told him that I had no money to invest. On that Bharatbhai told me that 1 need not worry about the finance and also that I need worry anything in this business. He himself will manage everything right from the purchase of the raw material upto the sale of the final products and I was only required to sign certain documents. I gave my consent."
and further stated :
"After signing this partnership deed I signed some correspondence for Hema Dyes & Chemicals and also signed some cheques. This correspondence was signed by me as per the directions from Shri Bharatbhai at his residence and about the cheques, I state here that Shri Bharatbhai has already got some blank cheques signed by me I am not able to produce the correspondence which was signed by me as they are not with me. The cheque-book as well as bank book of M/s. Hema Dyes are also not with me. They are with Shri Bharatbhai of his father."
"I received one partnership deed from my brother Shri Anil, who told me that the partnership deed was handed over to him for getting my signature on the same. I do not know who handed over this partnership deed to my brother. This was the same partnership deed which I produced before you on 4-3-1980. In this connection, I have to further state that my statement made before you on 4-3-1980 about Shri Bharat Mehta proposing me to start new business etc. is not correct. Actually there was no talk about any business by Shri Bharat Mehta with me and I only signed on the said partnership deed without any talk or discussion, either with Shri Bharat Mehta or with other partner mentioned in the deed i.e., Smt. Hemlata R. Mehta. I also do not know whether, 1 was to get any remuneration of amount for signing the said deed."
Shri S.P. Bhayani, one of the two partners of M/s. K.B. Chemicals, in his statement given to the Central Excise Officers has stated as under :
"When I was staying at Ghatkopar, I came to know one Shri Bharat Mehta in the course of travelling from Ghatkopar to Dadar in II Class compartment. This Bharat Merita has got chemical factory at Bassein in District Thane. I do not know the owner of the factory. About 5/6 months back I had gone to meet Bharat Mehta to his office at Anand Deep Chambers, Narsi Natha Street, Bombay-9. During the course of our talk Bharat Mehta proposed that he intends to start new business in the name of his wife and asked me whether I would like to join as a partner. He told me that I was not required to give any capital and that he himself was to look after all the work relating to this business. He did not tell me the nature of the business. He however told me that I would be getting some share out of the profits if any earned on that business. Since I was not to invest any amount and was not required to look after the business. I gave my consent. He thereafter one day brought one agreement for my signature. At that time there was no other signature on this agreement. I did not read the agreement and put my signature wherever they were required as per the directions from Bharatbhaj. I also did not ask Bharatbhai as to the contents of the agreement. I was however told by Bharatbhai that the business will be run in the name of M/s. K.B. Chemical Enterprises and that his wife Mrs. Usha Bharat Mehta would be another partner in the said business. Thereafter I never signed any documents in the name of K.B. Chemical Enterprises and never attended to any of the work relating to the business conducted in that name. I do not know who was looking after the business."
Smt. Hemlata Mehta, partner in M/s. Dyes & Chemicals and also partner of M/s. Mehta Dye-Chem Industries in her statement has stated as under :-
"My name and address is as given above. My husband is having a factory owned by name M/s. Mehta Dye-Chem Industries at plot No. 8/7, Bassein Taluka Industrial Cooperative Society Limited Achole, Bassein, District Thane, manufacturing S.O. Dyes. I am one of the partners in the above factory besides myself and my husband my son "Bharat Kumar" is the third partner. I however do not look after any work of this factory. I am also a partner in M/s. Hema Dyes & Chemicals who only deals in dyes. There is also another partner in M/s. Hema Dyes & Chemicals by name Shri Ajay Modi, who resides at Poulnagar, Ghatkopar and known to my son, Bharat Kumar. Shri Ajay Modi comes to our house often. He and myself decided to start the said business with our office at Block No. 3 Kailash Mahal, R.B. Mehta Marg, Ghatkopar. This premises stands in the name of my daughter Nirupama. We entered into a partnership deed on 2-11-1979. I produce before you photostat copy of the partnership deed executed between me and Shri Ajay Modi. We started this company with initial involvement of Rs. 1,300/-(thirteen hundred only) which were credited in the Account of M/s. Hema Dyes & Chemicals opened in the branch of Bank of Maharashtra of Ghatkopar. This investment was made by me only as Shri Ajay Modi did not offer any amount for investment and I also did not ask for the same. The said amount of M/s. Hema Dyes & Chemicals is being operated under the signature of Shri Ajay Modi. As Shri Ajay Modi was to look after all outside work I at my own will decide to give due 70% share of profit and accept remaining 30% for my own. The nature of our business was to purchase raw materials from open market and sold the same to M/s. Mehta Dye-Chem Industries, Bassein for getting Acid Dyes manufactured on job work basis and send the same to the market for sale. We had not entered into any written agreement with M/s. Mehta Dye-Chem Industries. The sale of the goods got manufactured by us from M/s. Mehta Dye-Chem Industries was being done through M/s. Lac Enterprises who are having office at Masjid Bunder. We have got no agreement in writing with M/s. Lac Enterprises. No commission was being given to them and the goods were out right sold to M/s. Lac Enterprises on immediate payment. In fact we had orally authorised M/s. Mehta Dye-Chem Industries to purchase raw materials on our behalf, get the finished products viz. Acid Dyes manufactured in their factory at Bassein and sale the same through their transport to M/s. Lac Enterprises for sale. As per the bills for purchase of raw materials. We are making payments through our cheques. Similarly, the charges for job work of M/s. Mehta Dye-Chem Industries are being paid by cheques for job work of M/s. Mehta Dye-Chem Industries are being paid by cheques from our account. I however do not know such payments have so far made or otherwise we have not appointed any staff to look after daily official correspondence and writing accounts of M/s. Hema Dyes & Chemicals."
Shrimati Usha Bharat Kumar Mehta, one of the partners in M/s. K.B. Chemical Enterprises has stated as under :
"However, I am also one of the partners in M/s. K.B. Chemical Enterprises. The other partner is Shri Satish Panachand Bhayani residing at Malad (E). This M/s. K.B. Chemical Enterprises deals to Dyes. We started this business in the month of October, 1979. Shri S.P. Bhayani is friend of my husband. In order to avail of the facilities of loan licensees as with Shri S.P. Bhayani started the business to Dyes. From my husband I came to know that one can purchase raw materials in open market, get the same manufactured in finished product such as Dyes and sale them in market without investing good amount of capital. Abovementioned Shri Bhayani used to come our house very often and hence myself and Shri Bhayani decided to go in for the said facility since my husband has already having above mentioned manufacturing unit and he was also known dealers in raw materials. To start with the business I invested initial on account of Rs. 301. This was deposited in the Bank of Maharashtra at Ghatkopar (East) against current account opened in the name of M/s. K.B. Chemical Enterprises under my signature, the other partner Shri Bhayani did not invest any account subsequently. We obtained loans of Rs. 10,000 from M/s. Rushabh Textiles and Rs. 15,000/- from M/s. Mahavir Traders. All this amount received by us by cheque. These loan amounts were arranged by my husband Shri Bharatbhai. I do not remember to have signed any loan agreement papers in connection with the abovementioned loan, f am not in possession on any such agreement" papers. These loan amounts were deposited in our account in the above said bank. I produce before you a photostat copy of the partnership deed between me and Shri S.P. Bhayani dealing to Clause 10 mentioned in this partnership deed. J was to receive 20% of the share of profit while Shri S.P. Bhayani is to get 75% of the share of the profit. In this connection, I have to state that as Shri Bhayani was to look after at outside work. At my own will I offer him 75% of the share. The nature of our business was to purchase raw materials from the market with the help of my husband, send the same to my husband's factory and get it manufactured into Dyes and sale them through my husband to M/s. Lac Enterprises. In fact, we had authorised verbally M/s. Mehta Dye-Chem Industries to purchase raw materials on our account, get the goods manufactured in our factory and sale them in the market. We were to pay job charges according to the rates. I do not remember now the rates fixed for such payments for job charges. We have got our office at 304, Anand Deep Chambers, Narsi Natha Street, Masjid, Actually, this premises belongs to M/s. Mehta Dye-Chem Industries and we have got a table space in this premises, for this we pay Rs. 100/- p.m. by cheque. We have got no office staff for attending to day to day work and all our official correspondence is looked after by M/s. Mehta, Dye-Chem Industries' staff. We have not yet made any payments to their staff."
It is seen from the facts on record that office addresses given for the three Joan licensees were either residential premises belonging, to the family members of Shri R..R. Mehta or office of M/s. Mehta Dye-Chem Industries. We find also that none of the loan licensees had their own staff doing any work on their behalf. There is also nothing on record to show that any one of the partners or the persons owning loan licensee firms were engaged in work relating to manufacturing activity including purchase of raw materials, manufacture of the goods or sale thereof. Nor were they concerned with the excise formalities relating to the goods in any way. Nothing has been shown that they were also financially involved in the transactions relating to the manufacture or sale of the goods. In fact, it has been admitted that Shri R.R. Mehta was the person controlling all the operations alongwith his son Admittedly finances for all the loan licensees were arranged by M/s. Dye-Chem Industries. Statements of only outsiders who were partners alongwith family members of Dr. R.R. Mehta, Shri Bhayaru and Shri Mody clearly go to show that the partnership was created to show that these were independent legal entities with a view to persuade the authorities into believing that independent loan licensee firms were engaged in getting the goods manufactured. No doubt, some book entries have been made showing financial transactions in the books as if these were between the loan licensees and the appellants". These entries can only be taken as in the nature of paper entries with a view to mislead authorities to believe that the transactions were between independent parties.
7. We observe that there were no contracts or agreements entered into between M/s. Mehta Dye-Chern Industries and the said loan licensees as to the modalities of the operations and the rights and obligations of different parties concerned in the matter of procurement of raw materials and manufacture of goods and sale thereof. Nothing has been shown to us that the transactions between them were in the nature of Principal to Principal basis. In fact even their buying agents were also not made aware of the change of ownership of the goods manufactured and they were merely informed that the bills would be issued for supplies in the name of the said loan licensee firms. M/s. Mehta Dye-Chem Industries alone were issuing the intimations regarding price of the goods. The buying agents all along dealt with M/s. Mehta Dye-Chern Industries for all the goods received by them during the year 1979-80. In the facts and circumstances of the case, therefore, it has to be held that the firms of M/s. N.R. Dyes & Chemicals, M/s. K.B. Chemical Enterprises and M/s. Hema Dyes & Chemicals were ail created on papers by M/s. Mehta Dye-Chem Industries while continuing operation of manufacture, sale of goods themselves by providing the necessary finances and handling all aspect of the said business concerns. M/s. Mehta Dye-Chem Industries therefore have to be held to be manufacturers for the purposes of excise and all clearances made from the factory have to be held on their account.
8. The appellants have pleaded that extended period beyond six months in terms of proviso to Section 11A cannot be invoked in their case inasmuch as they had placed all the facts as required under the excise law before the Central Excise /authorities and they made clearances only after their approval and they did not hold back any information which was required to be furnished under the law. Suffice to say that the appellants for the purpose of availing of benefit of Notification No. 71/78 filed the classification lists on behalf of the loan licensees. As we have already observed above since the goods were being manufactured and cleared on their own account, the endorsement on the classification list to the effect the same had been filed on account of the said loan licensee firms itself tantamounts to mis-declaration. We hold in view of this, that the appellants were guilty of a mis-statement with intent to evade payment of duty. They with fraudulent intention set up loan licensees. This fact has been clearly brought out in the show cause notice also laying the basis for applying the extended time limit of five years for raising the demand. We therefore hold that the demand has been correctly raised.
9. In view of the above, we hold that the duty demanded by clubbing the clearances of all the units is correct under the law and also hold that in view of facts and circumstances of the case, the penalty levied is not excessive and we uphold the levy of the same. M/s. N.R. Dyes & Chemicals, M/s. K.B. Chemical Enterprises and M/s. Hema Dyes & Chemicals also filed appeals. In view of what we have held above, their appeals are also rejected.