Customs, Excise and Gold Tribunal - Delhi
Commissioner Of Central Excise vs Amar Plast Industries on 6 October, 1999
Equivalent citations: 2000(115)ELT482(TRI-DEL)
ORDER P.S. Bajaj, Member (J)
1. In these three appeals the Revenue had challenged the validity of the order dated 21-7-1993 of the Collector of Customs and Central Excise only to the extent of his disallowing the clubbing of the clearances of the three units, namely M/s. Amar Plast Industries, M/s. Avon Plast Industries and M/s. Film Plast Packaging.
2. According to the Revenue, M/s. Amar Plast Industries (respondents), M/s. Avon Plast Industries on reaching the exemption limit deliberately and wilfully fragmented their units by sharing finance, shed, machineries etc. and created a new unit, namely, M/s. Film Plast Packaging with the sole and mala fide intention of evading Central Excise duty on the goods manufactured by them by taking advantage of Notification 175/86-C.E., dated 1-3-1986 as amended. They deliberately suppressed the material facts about the formation of M/s. Film Plast Packing from the Central Excise department. All these three units exchanged loans and utilised machines of one another. The newly created unit, M/s. Film Plast Packaging did not possess sufficient machinery and funds to manufacture their goods independently and this unit removed its semi-finished product to another unit without any permission. All the three units rearranged shares so as to make it uniform in each of the units and one active partner was kept by them in each unit for monitoring the manufacturing process. The statements of the partners of all the units were recorded during the investigation. A panchnama was also drawn on 19-12-1988 by the Central Excise Officers regarding factual position in all the three units and machinery fixed therein. All the three units were situated in the same building with common passage and two common telephones. It also revealed that one power generator was connected with the extruder machine of all the three units, for common use in case of electricity failure. Thereafter, a show cause notice was issued to them for illegally enjoying the benefit of Notification No. 175/86-C.E., dated 1-3-1986. They, however, contested the correctness of that notice by alleging that they are all independent units having separate licences and are registered with the Sales Tax and Income Tax Departments and have also got separate SSI certificates. They also alleged that M/s. Amar Plast Inds. was manufacturing goods even before purchase of the mixture machine from M/s. Film Plast Packaging. They had, however, only one cutting machine which was owned by M/s. Amar Plast Industries.
3. The Collector of Customs through the impugned order disallowed the clubbing of the clearances of these units by holding that there was no reliabale evidence to prove that these units were in fact one and the same in the eyes of law. However, he imposed penalty of Rs. 50,000/- on each of these units for contravention of provisions of Rule 173Q and 209A.
3. The Revenue has filed the present appeals against the above referred impugned order of the Collector only for challenging its correctness to the extent of not allowing the clubbing of clearances of three units.
4. We have heard the learned Counsel and the learned JDR.
5. The clubbing of the clearances of the three units named above had been sought by the Revenue mainly on two grounds. Firstly, these units had been very frequently exchanging loans of various amounts from each other and the shares in the units have been so arranged as to make it uniform in each of the three units. Secondly all the three units had common office premises, common telephone, common electric generator and machines.
6. Learned JDR has contended that both these grounds stand fully proved on the record but the Collector has wrongly not accepted the same for ordering clubbing of the clearances of the three units. But in our view this contention of the learned JDR is wholly misconceived and not liable to be accepted.
7. To substantiate the first ground, there is no evidence whatsoever on the file to prove the financial flowback among M/s. Film Plast Packaging and newly created unit and two other units M/s. Amar Plast Industries and M/s. Avon Plast Industries. The simple plea of the Revenue that all the three units had frequently given and taken loans of various amounts from each other and that the partnership had been so arranged that they earn share in proportion of 75%, 25% from each unit, had been rightly not accepted by the Collector. The newly created unit M/s. Film Plast Packaging had taken the stand categorically that it was being controlled by its own management and has got independent identity. Similarly, the other two units had also taken the same stand before the Collector and stated that they are working under independent partnership deeds and there exists neither flowback of the profit nor the control of any one person over the management of the units. To corroborate this plea they have also adduced the evidence to prove that they had been charging interest at the rate of 18% on differential amounts and that interest was settled by issuing debit notes to the respective accounts. They had also produced evidence to show the receipt of deposit/finance from various individuals, banks at the annual rate of 18%. Their version had, therefore, been rightly accepted by the Collector for holding that they are all independent units.
8. It has not been disputed by the learned JDR that proof of financial flowback was essential for claiming the clubbing of the clearances of all the three units. But the department had failed to produce the same. That being so, mere taking of loans of various amounts from each other and rearranging of the shares in the units had been rightly held to be insufficient evidence for ordering the clubbing of the clearances of the units by the Collector. In Viovmed Labs. (P) Ltd. -1991 (53) E.L.T. 152 while examining the clubbing of the clearances of various units, the Tribunal was pleased to hold as under :-
"Where the units are registered separately under the Income Tax & Sales Tax having separate C.Ex. Licences and also financed through separate application for loan from financial institutions, the clubbing of clearances of these units is not maintainable in law in the absence of conclusive evidences of financial flowback among them.
9. Therefore, in the light of discussion made above, the first ground put forth by the Revenue had been rightly not accepted by the Collector for ordering the clubbing of the clearances of the three units.
10. This takes us to the second ground.
11. This ground of Revenue that all the three units have common office premises, common telephones, common electric generator and cutting and mixture machines and as such clubbing of their clearances deserves to be allowed is legally not tenable in the light of the law laid down by the Tribunal in Jagjivandas & Co., Thane v. CCE, Bombay, 1985 (19) E.L.T. 441 (Tribunal) where in a similar situation it has been ruled as under:
"Giving of a common telephone as address by the three firms which consist of relations, when telephones are difficult to get in bigger cities, use of table space by one firm in the shop cum office of another, which is a common practice in commercial terms; use of common telegraphic address, which is used by a number of shops in the same complex, location of the three factories in the same compound within the knowledge of the excise authorities, commonness of partners; occasional use of buffing machine of one firm by other and mutual financial transactions without charging of interest etc. are not conclusive circumstances to show that the clearances of the appellants were for and on behalf of the others. While some of the circumstances are innocuous others are inconclusive. The parties have separate income tax assessment, registration of Small Scale units, separate electric metres. The Deptt. has, therefore, failed to bring home the allegations against the appellants."
12. Therefore, the Collector has rightly concluded that the factors such as use of common premises, telephones and mutual financial transactions, with or without charging interest etc. are not enough to conclude that the new unit M/s. Film Plast Packaging is working on behalf of the other two units M/s. Amar Plast Industries and M/s. Avon Plast Industries. The findings of the Collector to this effect are perfectly valid and need no interference by the Tribunal.
13. Resultantly there is no merit in the appeals of Revenue and the same are ordered to be dismissed.