Customs, Excise and Gold Tribunal - Mumbai
Surface Graphics Pvt. Ltd. vs Commissioner Of C. Ex. on 13 March, 2000
Equivalent citations: 2000(119)ELT622(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. M/s. Surface Graphics Private Limited, the appellant in appeal before us is the registered unit manufacturing printed cartons. In the order impugned in this appeal the Commissioner has found that M/s. Surface Graphics Pvt. Ltd. (SGPL for short) is the manufacturer of the goods which were excisable, manufactured by Classic Cartons Pvt. Ltd. (Classic for short) and M/s. Trinova Graphics (Trinova for short). He has found that the other two companies were dummies or shells created by H.G. Shetty and S.M. Shetty; he has therefore directed clubbing together the clearances of each of the three firms, the total of which he finds exceeds the limit provided under notification 175/86, demanded duty payable, without the benefit of notification with interest on the delayed payment and imposed penalty on SGPL, H.G. Shetty and S.M. Shetty.
2. The contentions of the advocate for the appellants are these: The constitution of each of the firms in question is different. SGP and Classic are private limited companies with H.G. Shetty, S.M. Shetty and S.G. Hegde with its directors and there being no common director. Trinova is a partnership firm. The fact of some of the partners of SGPL or Classic or the directors and partners being related itself is insufficient to hold these two to be dummies. Loans given by the appellant to Classic are in accordance with the normal business. The Commissioner has gone into the project report made to the bank and made inferences, which were not justified. He has also relied on the lack of facilities for manufacture of cartons by Trinova.
3. The departmental representative emphasises the various reasons in the Commissioner's order, which he says, clearly establishes that S.M. Shetty and H.G. Shetty had, knowingly created all these units in order to obtain the benefit of notification 175/86 for each of them. Both sides cited case laws, which will be dealt with at the appropriate stage.
4. The constitutions of the three units in question are as follows: SGPL is a private limited company, its directors at the relevant time being H.G. Shetty, S.M. Shetty and S.G.Hegde. Classic was also private limited Company with its directors being Mrs. Jyoti A. Shetty (S.M. Shetty's wife), Mrs. Sridevi Hegde (S.G. Hegde's wife) and H.G. Shetty. Trinova was a partnership firm, the partners being Shanta Shetty (H.G. Shetty's wife), S.S. Hegde HUF, S.M. Shetty HUF, Jyoti Shetty and Sridevi Hegde. S.M. Shetty and S.G. Shetty are brothers. H.G. Shetty and members of his family holds 1/3 share in each of these companies.
5. This position as indicated above thus suggests that a majority of the stock holding was in the hands of three families, two of Shetty's and one Hegde. The material also does not show that the actual control and running of the firms was in the hands of H.G. Shetty and S.M. Shetty, as the Commissioner has concluded. The Commissioner has relied upon the statement of Jyoti Shetty, director in Classic and Sridevi Hegde, partner of Trinova, that the control of affairs of these firms are in the hands of S.M. Shetty. Sridevi Hegde has said that she was not looking after the day-to-day affairs of the two units for the reason that she is not technically qualified. She however, indicated her participation in meetings for planning business where important decisions were to be taken. Jyoti Shetty has said something about her participation in the affairs of Trinova and Classic. She has said that S.M. Shetty was looking after the day-to-day affairs of the Trinova. However, she also makes it clear that neither of these solely looks after day-to-day affairs. She said, M. Taraporewala, General Manager Marketing in Classic was also helping Trinova in marketing. Jaykar Kanchan, Manager was looking after the production in Trinova. She also emphasized that she attends meetings of board of directors where important decisions were taken.
6. It is not possible to conclude on the basis of these statements alone that the entire planning and control over the affairs of these firms were in the hands of the two Shetty brothers. In a large number of concerns owned by individuals and families the management of day to day affairs may be entrusted to professionals, with the owners participating in the affairs of the concerns only where crucial or significant decisions concerning the business were involved, such as for planning in the future are taken. Running of the day-to-day affairs of a Company cannot be equated with exercising control over crucial affairs of that enterprise. The fact that there were two persons in addition to Shetty's who were also looking after the day-to-day affairs of the firm is also of significance.
7. In this context it cannot be said that the pattern of stock holding, in the course of limited companies and extent of partnership in the case of partnership firm itself constitute control by two individuals or of one particular family group. The judgment of the Rajasthan High Court in Renu Tandon v. Union of India, 1993 (66) E.L.T. 375 that such a factor alone cannot justify clubbing, is relevant.
8. Another factor, which the Commissioner has found, is that all the firms shared a common office at 180 Raja Industrial Estate, Mulund, and Mumbai. The appellant does not deny this fact, but says that this was purely a commercial arrangement, rent having been paid by other users for their office. If rent was in fact paid it is difficult to see how the sharing of the office itself would lead to the conclusion that other three were dummies or non-existent. The fact that the appellant permitted others to have space in its office may perhaps establish at least some kind of friendship between the appellant and the other firms or even a relationship. It can, in fact, be argued, as the appellant has, that letting out premises but for fair rent is a purely commercial activity. Whatever the position it falls far short of establishing that the others are dummies. The Tribunal's decisions in Kinjal Electricals (P) Ltd. v. Collector, 1989 (43) E.L.T. 327 and CCE v. Ambika Scale Manufacturers, 1996 (86) E.L.T. 229, have held that sharing of office by itself is insufficient to justify clubbing.
9. The Commissioner cites as evidence, lack of machinery in Trinova to print cartons. It is not disputed that this firm has other machinery required for fabrication of cartons such as punching, varnishing, blowing machine, etc, which are required at the stages of manufacture of cartons. The contention is that printing was done as a job worker outside, that too not only by Surface Graphics, but by firms to which no connection with Surface Graphics had been alleged. This is not disputed by the Commissioner. In that event we do not see how the fact of this firm not having some machinery for the manufacture of its finished product can lead to clubbing.
10. The Commissioner's next contention is that the project report that was submitted to the bank for setting up of Trinova stated that it was an expansion of Surface Graphics. This fact is not disputed by the appellants. It is further stated that this was a commercial tactics to mislead the bank into believing that Trinova had secured foundation; so as to make easier for the loan from the bank to be obtained. In support of the contention that this claim made by a person could not conclusive of the fact, and hence cannot lead to clubbing, decisions of the Tribunal in Prima Controls Pvt. Ltd. v. CCE -1994 (72) E.L.T. 62 and Vivomed Labs. v. CCE, 1991 (53) E.L.T. 152 was cited. We find that these decisions support this contention.
11. The next feature relied upon by the Commissioner is that there was an interest free loan of Rs. 2 lakhs given by Surface Graphics to Classic and this fact shows the fact of there being a financial interest by Surface Graphics in Classic. It is the contention of the appellant that it has not been shown that the loan was interest free. It is contended that the loan was advanced and repaid. It is contended that Rs. 2 lakhs was advanced by Surface Graphics before the latter was set up; and that this was not interest free and it was returned by Classic with interest. While no evidence in support of the claim that the loan was interest free has been produced; there is equally no evidence in support of the claim that it was an interest free loan. The notice to show cause does not specifically advance this contention. It however cited as one of the pieces of evidence relied upon, the statement of S.M. Shetty recorded on 5-4-1995. In this statement S.M. Shetty merely says while setting up of Classic Cartons Private Limited, M/s. Surface Graphics Private Limited had given loan and the exact amount, will be able to say after checking the records. This is insufficient to conclude that the loan given was free of interest.
12. The next basis the Commissioner cites that an investment of Rs. 25 lakhs was given by Surface Graphics to Trinova and stood as guarantor for Trinova and Classic Cartons for obtaining loans from the bank. Notice to show cause does not cite any pieces of evidence nor we are able to find any material indicating of the evidence cited in the show cause notice. The appellant's denial of the loan therefore has to be accepted. S.M. Shetty had also agreed that Surface Graphics stood as guarantor for the loan given to Classic by Shamrao Vithal Co-operative Bank. However, we are unable to see how this would lead to the conclusion that Classic was a dummy or even that the two are related. It is no means a strange or uncommon practice for one company to act as a guarantor for loans to be used for another, even though they may not be the one and the same or even related, financially or otherwise.
13. The Commissioner also relies upon the fact that Classic diverted an order of cartons received by it from M/s. Wonder Ox Laboratories for execution to Surface Graphics. We are unable to see how this fact establishes that Classic Cartons was a dummy. On the contrary it tends to show that classic Cartons were an independent firm which could negotiate with customers and procure orders. It would have been different if the diversion of the order has been done by Surface Graphics; one could then perhaps say that although Surface Graphics was the actual manufacturer, it showed the manufacturer on record to be Classic, thus indicating the possibility that the latter was a dummy.
14. The Commissioner does not advance any material in support of his view that these units had a common marketing networking and a common pricing policy. The fact that these units were adjacent to each other suggests in fact its separate existence otherwise they could not be adjacent. In any case proximity of the units alone is not enough justification for clubbing.
15. The Commissioner has relied upon the decisions of this Tribunal in Unique Resin Industries v. CCE -1993 (68) E.L.T. 230 and Supreme Engineering Works v. CCE, -1996 (82) E.L.T. 102. The first decision cited was on a clear finding of fact that the separateness of the various units were only a facade. In both these decisions the Tribunal on facts found that the units, which were sought to be clubbed, were in fact one. In the first decision the Tribunal justified clubbing of clearance on its finding that the units had a common sales network, common pricing and salaries were being drawn by office bearers from other than the one which they were employed. In the second the Tribunal found that one of the primary considerations which was required to be taken into account in such matters that financial inter-relationship of a nature of other than normal commercial transaction was established.
16. It would be necessary, at this point, to refer to the decision of the Tribunal in J.N. Marshall v. CCE - 1997 (96) E.L.T. 149. After analyzing various decisions of the Courts and the Tribunal with regard to clubbing, the Tribunal said.
"what we understand from the above decisions is that regard must be had to all the circumstances established in a given case but emphasis must be on common control of production and sales or on management control and special financial relationship existing between the units or profit sharing or financial flow back. If the combination of circumstances create a pattern indicative of the clearances from the plurality of units being made by 'a manufacturer' clubbing is warranted".
17. The case therefore requires examination from this angle. The finding of financial flow back based on loans stated to have been given has already been dealt with. It is not possible to say there was common control of production and sales or common management. We have preferred in this regard to the statements of Sridevi Hegde and Jyoti Shetty. Thus, it is not possible to say that the crucial requirement, which has to be satisfied, exist.
18. The case of Colorica, has in addition to be considered separately. It is this. The activities carried out by Colorica consist of developing photo-graphic plates required for offset printing. Such development of plates by itself does not amount to manufacture; nor is that the allegation in the notice or the finding in the Commissioner's order that it is manufacture; irrespective of the other considerations. There will be no value of clearances of dutiable goods of this firm, which could be included in the clearance of Surface Graphics.
19. We therefore hold that the clubbing could not be established, allow the appeals and set aside the impugned order.