Customs, Excise and Gold Tribunal - Delhi
Dayal Laminates Pvt. Ltd. vs Collector Of Central Excise on 31 July, 1995
Equivalent citations: 1996(86)ELT401(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. These appeals arises from a common order-in-original passed by the Collector of Central Excise, Indore dated 16-7-1993. By this order, the Learned Collector has confirmed a duty demand of Rs. 20,09,487/- + 7,363.65 under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of Central Excises and Salt Act, 1944. A penalty of Rs. 2,00,000/- (Rupees two lacs only) each has been imposed on both the appellants. However, he has dropped the proceedings against duty demand made on 92 pieces of decorative laminated sheets.
2. The facts of the case are that on receipt of intelligence that M/s. Dayal Laminates Pvt. Ltd. of Maksi Nagda, a manufacturer of paper surfaced hard board and decorative laminates falling under sub-heading No. 4410.90 and 4823.90 of Central Excise Tariff Act, 1985 and M/s. Rubber Products, manufacturer of rubber foam sheets and plywood falling under Heading 4008 and 4408.30 of Central Excise Tariff Act, 1985 (5 of 1986), have been indulging in evasion of duties of excise by way of suppression of productions and clandestine removal as well as by indulging in under valuation of the excisable goods manufactured and cleared by them. Therefore, simultaneous raids were conducted on 9-3-1991 and 10-3-1991 at various premises by the preventive officers of Central Excise Hqrs., Indore.
3. The searches resulted in the recovery of a number of incriminating documents. Officers came across, in the premises of M/s. Dayal Laminates, 35 paper surfaced hardboard sheets, not accounted in RG 1 and noticed a shortage of 92 decorative laminated sheets. The paper surfaced hardboard sheets were subsequently related to the party as being an exempted item.
4. M/s. Dayal Laminates are said to be a medium scale unit, controlled by Shri Sahebdas Satsangi, paying duty on decorative laminated sheets and routing their sales through M/s. Kapoor Enterprises and M/s. Woodweld Panelling Co., both trading concerns, owned respectively by S/Shri R.N. Kapoor and M.M. Gupta.
5. M/s. Rubber Products is a proprietary concern owned by Shri R.N. Kapoor, enjoying the benefit of Notification No. 175/86, as amended, who sells its products mostly to M/s. Dayal Agencies, a trading concern owned by Shri Sahebdas Satsanghi and to M/s. Ekta Sales Agency in Gujarat. The unit functions from the second floor of the shed housing M/s. Dayal Laminates.
6. It appears from the perusal of the documents relating to M/s. Rubber Products, which in fact were recovered and seized from the residential premises of Shri Sahebdas Satsanghi, Director of Dayal Laminates and working partner in associate concerns that M/s. Dayal Laminates had controlling financial interest in it and Shri R.N. Kapoor shown as proprietor, was so only in name. It also appeared that since M/s. Rubber Products, functioning under Notification No. 175/86, was in fact owned and controlled by Dayal Laminates, themselves are not eligible for SSI exemption under Notification No. 175/86. Therefore, it was alleged that the benefit of Notification is to be denied to them.
7. It was also seen by the raiding officers after investigation that M/s. Rubber Products originally was a partnership firm, which had S/Shri R.N. Kapoor, Sahebdas Satsanghi and Gurucharandas Satsangi as partners, which was dissolved on 18-6-1984 and became a proprietary unit with Shri Kapoor. However, the amounts belonging to S/Shri Satsanghis remained with the new concern, without yielding them any interest as provided by Indian Partnership Act, which showed that they continued to have financial interest in the new firm, a fact proved by the correspondence between M/s. Rubber Products and Rubber Board and the statements by a few of the employees who have been working for both the units and also Kapoor Enterprises.
8. Further, the following points were also emerged from the fact held out during the investigation :
(i) Finished products from M/s. Rubber Products are sent to local parties and transport office through vehicles owned by Dayal Laminates free of cost.
(ii) M/s. Rubber Products originally situated in Sejwaya, Ghatabillod, enjoying power subsidy, S.S.I, registeration and own power connection shifted in 1989 to the premises of M/s. Dayal Laminates, but did not get a power connection, but used the own available to the latter. Though a generator was installed in the premises by them, expenditure on fuel was incurred by M/s. Dayal Laminates.
(iii) Power connection, generator, steam plant, security and store for raw materials are the same for both the units.
(iv) A number of workers are common.
(v) Considerable items of expenditure, recorded in the documents of M/s. Rubber Products recovered from the premises of M/s. Dayal Laminates or Shri Sahebdas Satsangi, have been admitted by him to be concerning M/s. Dayal Laminates.
(vi) Shri R.N. Kapoor of M/s. Dayal Laminates could not explain clearly any of the items, in the records.
(vii) Though Shri R.N. Kapoor owning M/s. Rubber Products admittedly resides in different premises, the records pertaining to his unit were recovered from the bedroom in Shri Sahebdas Satsangi house and Dayal Laminates' premises.
(viii) There were considerable entries in the seized documents on financial transactions, between the two units, which were inconsistent with Shri Sahebdas' contention that Shri Kapoor's financial conditions were not sound.
(ix) Statement given by Shri Kapoor, indicated that he was hardly able to explain the entries concerning his unit which he would have known, unless he was a dummy owner.
All the above appeared to point the fact that M/s. Rubber Products was a unit run and controlled by M/s. Dayal Laminates and Shri Sahebdas, but shown separately, to enjoy the benefit of Notification No. 175/86.
9. Perusal of the seized documents relating to Rubber Products also showed considerable discrepancies, as far as they related to clearances. Shri Kapoor indicated his ignorance about them and referred the matter to his accountant Shri Bhardwaj, who in turn held the plant incharge Shri Shantaram responsible. Shri Shantaram, however, is found to have been disabled in hand and could not have made them. Further, Shri Bhardwaj himself admitted in his statement dated 13-9-1991, that sales values for 1989-90 and 1990-91, that ledger were Rs. 7,92,462/- and Rs. 2,44,700/- as against Rs. 8,20,138/- and Rs. 2,72,600/- respectively shown in the chart and that the differences remained to be entered by his mistake. The above clearly appeared to point to suppression in production and clandestine removals aided by two as per documents, which brought out the 'mens rea' in the party. Though Shri Kapoor promised to produce the stock register, for the period prior to 6-6-1988 and subsequent to 22-9-1990, he did not do so.
10. In terms of Explanatory Notes to Notification No. 175/86, Brand name or Trade name, is described, as a name or mark, such as symbol, monogram, label, signature or invented word which is used in relation to such specified goods for the purpose of indicating or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person. It was seen that M/s. Rubber Products were using the brandname 'Dayal' by embossing the word 'Dayal Foam' and 'Dayal foam deluxe' on their products, a fact brought on record and admitted. The embossing was done in respect of sales to Dayal Agencies and at latter's instance. This was agreed by Shri M.M. Gupta, Manager of Dayal Laminates dated 9-3-1991 but subsequent summons to him were not honoured and Shri Sahebdas disowned that Shri Gupta was ever their Manager, though it was against facts. S/Shri Sahebdas and Kapoor contended that as they belonged to 'Dayalbagh' and followed 'Radhaswamy', they were using insignia 'Dayal' and 'Rs' on their registers and products. This appeared to be incorrect as the name was meant to connect the product with the owner of the brand name. Subsequently also the word 'DR Sheets' meaning 'Dayal Rubber Sheets' were used by them.
11. Para 7 of Notification No. 175/86, envisages that the benefit of Notification was not available when the specified goods were affixed with a brand name of another person who is not eligible for exemption under the Notification. In view of the above it appeared that the benefit would not be available to goods produced by M/s. Rubber Products, a unit floated with the purpose of circumventing the conditions of Notification.
12. The products manufactured by M/s. Rubber Products are Rubber Foam Sheets, cavity sheets, Scooter Seats, pillows and cushions. They are thus moulded, vulcanised products but at the same time they are not ready for use and need working on. They would therefore, merit classification under subheading 4008.11 of Central Excise Tariff Act attracting effective duty of 60% ad valorem.
13. In view of the above, it appeared that:
(a) M/s. Rubber Products had suppressed real production and removed rubber foam sheets valued at Rs. 6,46,697/- without paying duty during 1990-91.
(b) They wrongly availed themselves of the benefit under Notification No. 175/86 in collusion with M/s. Dayal Laminates by fraud, wilful, mis-statement and suppression of facts to gain the benefit of inadmissible exemption.
Duty of Rs. 20,09,4877- + 7,363.65/- on plywood thus incorrectly evaded as well as Rs. 2,907.66 on 92 sheets of decorative laminates cleared surreptitiously was recoverable from them under Rule 9(2) of Central Excise Rules, 1944 read with Proviso of Section 11A of Central Excises and Salt Act, 1944.
(c) Both the parties had contravened the provisions of Rules 9(1), 52A, 173G, 173F and 226 of the Central Excise Rules, 1944, to evade duty and have rendered themselves liable to penalty under Rules 9(2), 52A(5), 173Q, 209(2) and 226 ibid.
(d) The land, building, plant, machinery held by them also became liable to confiscation.
14. In view of the above, M/s. Dayal Laminates and M/s. Rubber Products were issued a Show Cause Notice on 16-1-1992 proposing :
(1) Recovery of Rs. 20,19,758/-, in terms of Rule 9(2) read with Section 11 A;
(2) Imposition of penalty under Rules 9(2), 52A(5), 173Q, 209(2) and 226 on them; and (3) Confiscation of land, building, plant, machinery, materials belonging to them, under Rules 173Q and 209(2) of the Rules.
15. M/s. Dayal Laminates and M/s. Rubber Products filed their detailed replies to the show cause notice on 7-8-1992 and 10-8-1992. They had denied the charges raised in the show cause notice. They had contended that they are two different and separate entities and had different business. Therefore, they have stated that there was no justifiable ground for clubbing them together on the basis of certain allegations made in the show cause notice. They have pleaded that mere presence of two units as one and the same and that the same premises with common facilities did not automatically lead to the conclusion that the units are one and the same and that their clearances could be clubbed. They have taken the plea that the benefit of Notification No. 175/86 had been correctly availed and the same cannot be denied on the basis of allegations brought out in the show cause notice. In support of their plea, they had relied on a number of rulings of the Tribunal and Higher Courts to plead that commonality of use of telephones, premises, employees by itself is no ground to conclude that both the units are one and the same.
16. The Learned Collector granted them a personal hearing and after careful consideration of the pleas rejected their contentions and upheld the charges made out in the show cause notice except in respect of clandestine removal of 92 decorative laminated sheets found short vis-a-vis RG 1 Account. The Learned Collector has held that although the dissolution of the partnership controlling M/s. Rubber Products which took place in 1984 preceding the Notification in question, the facts, brought out in the records that the dissolution of the partnership did not at all formally end the relationship among the partners. Shri R.N. Kapoor became the proprietor of Rubber Products in its new form, S/Shri Sahebdas Satsanghi and Gurucharan Das Satsanghi, erstwhile partners, continued to keep their financial stakes in the unit, by retaining their capital. The statement of Shri Sahebdas Satsanghi dated 6-9-1991 was also taken into consideration to come to this conclusion. The statement was that the amount was deposited in the dissolved partnership continued with Shri R.N. Kapoor as a loan without accruing any interest. The Learned Collector had found that there was no indication of payment of interest in the register and that the payment of interest had not been correctly shown in the register.
17. The Learned Collector had observed that Rubber Products operating from the same premises .as M/s. Dayal Laminates with all the common facilities like power connection, generator, staffing etc. and it was also found that Shri Sahebdas Satsanghi, who has been rendering all sorts of assistance and advice to Rubber Products, was hardly knowing what exactly was happening in M/s. Rubber Products. The Learned Collector has held that the explanation given by them that common facility shared by them was not sufficient and it do not lead to a conclusion of financial interest was not convincing. The Learned Collector after detailed discussion of few facts pertaining to the utilisation of services of employees, disbursement of bills for urea consumed by M/s. Rubber Products, which had been incorrectly made in the name of M/s. Dayal Laminates; and seizure of documents like cash books and ledger from the residence of Shri Sahebdas Satsanghi has come to the conclusion that there was definite financial flowback between the units during the years 1988-89, 1989-90 and 1990-91. The Learned Collector has further strengthen his finding on the basis of statement given by Shri Sahebdas Satsanghi on 6-9-1991 and the trading entries and monetary transactions in terms of need, but Shri Kapoor had expressed his ignorance in his statement dated 5-9-1991 regarding the financial transactions. The Learned Collector has found that transactions running to thousands of rupees assume significance. He has also noted about the unsound financial straits of Shri Kapoor. Therefore, the transaction facilitated by Shri Sahebdas, who was controlling both the units indicated that Shri Kapoor who was one of the original partners and was hardly aware of the financial transactions concerning his own proprietary concern. Therefore, the Learned Collector has held that the allegations made by the department was substantially proved. He has not accepted the explanation pertaining to the entries in the registers. The Learned Collector has relied on the statement of Shri M.M. Gupta, Work Manager, Dayal Laminates. The Learned Collector has also relied on the common use of brand name 'Dayal Foam' and 'Dayal Foams Deluxe' on the goods cleared by M/s. Dayal Agencies. The Learned Collector has come to the conclusion that M/s. Rubber Products, the proprietary unit owned by Shri R.N. Kapoor is nothing but a front company for M/s. Dayal Laminates owned by S/Shri Sahebdas Satsanghi and Gurucharandas Satsanghi, who retained their controlling financial interest in the original partnership, long after its dissolution and this arrangement they converted it to their advantage of the said Notification. The Learned Collector has merely indicated that he has perused citations on the subject and the same were clearly distinguishable. However, he has not given reasons as to how these rulings are distinguishable from the facts of the present case.
18. We have heard the Learned Advocate, Shri V. Sridharan for the Appellants and the Learned DR, Shri J.P. Singh for the Revenue.
19. The Learned Advocate very strongly putforth his submissions and submitted that in Dayal Laminates the extent of share was only to the extent of 75% in which 51% was upheld by Shri Sahebdas Satsanghi and Gurucharan while 51% of the shares in Dayal was held by M/s. Weldekor Laminates (P) Ltd. The findings of the Learned Collector are unsustainable and therefore, it cannot be said that the control of the entire Dayal Laminates (P) Ltd. is held by the appellants and that they also hold similar interest in the proprietary concern of Rubber Products owned by Shri R.N. Kapoor. He submitted that merely because there was affinity between these three persons based on their religious identity and belonging to "Radhaswamy" religious group that by itself cannot be a reason for coming to the conclusion that there was financial interest between the two concerns, as one unit is a private limited company and another a proprietary concern. He submitted that the directors of the company namely, Shri Sahebdas Satsanghi, Shri Gurucharan Satsanghi had an independent identity vis-a-vis the private limited company, which was an independent by itself in the eye of law. He submitted that the Learned Collector had failed to appreciate these points and had come to the conclusion that the actions of a private individual as in the present case, being the actions of the private limited company. There was no basis for such a conclusion and the law on this point has been laid down in the case of Prima Control (P) Ltd. v. Collector of Central Excise, as reported in 1994 (72) E.L.T. 62, wherein it has been held that the shareholder is an independent person from a private limited company which had a separate existence as a legal juristic person. He submitted that merely because there was some sharing of common interest in the form of building, equipment, labour and some loans, that by itself cannot lead to a conclusion that there was financial flowback from one or the other unit. He relied on page 157 of Volume 1 answer 22 in support of his statement that there was no flowback as the entries would clearly show about the payment of land purchased for generating set. Therefore, it cannot be said that there was profit sharing and financial flowback. It is his argument that the evidence on record had not been scrutinised by the Learned Collector to come to the conclusion that there was a financial flowback and that M/s. Rubber Products was merely a front of the private limited company. He submitted that the private limited company was fully controlled by Weldekor Pvt. Ltd. Therefore, the conclusion arrived at by the Learned Collector is totally unsupportive of any facts on record. He submitted that there existed common staff, premises and series of common workers were (sic) but they had been paid by the respective units. He submitted that the accounts books clearly reflected about the payments towards these accounts, sales, lands and interest payments, but yet the Collector had come to a wrong understanding about the interest payments not having been reflected in the account books. He submitted that merely because there was a common use of the name "Dayal" which was only to indicate about the brotherhood of a religious sect, it did indicate common use of trade name of the products and hence this finding is also incorrect. He submitted that there was no clandestine removal and the Learned Collector had checked wrong entries and also had referred to an invoices of a different variety and such incorrect checking and wrong verification had led to this conclusion. He submitted that if the records had been properly scrutinised and the entries crossed checked, then such a conclusion would not have arisen. He submitted that the party had submitted all the invoices and stock registers showing correct entries. The same had not been looked into by the Learned Collector. The department had asked for detail accounts and the same had been furnished and the general ledger had also been produced. He submitted that general ledger disclosed the entries, which tallies with the cash books and without proper reconciliation of accounts, the conclusion had been arrived at, hence it is erroneous. He also referred to the Challan No. 178 and about its entry in the registers and argued that the Learned Collector had come to his own conclusion and had held that there is duplicate entry when in fact there is no such duplication in the challans or invoices. In this regard, he relied on the pages 416-492 of the paper book. He submitted that the Learned Collector had referred to the statements without going into great detail to verify the facts of the non-existence of financial flowback. The Learned Counsel further submitted that the Tribunal and the Higher foruma have now well drawn the law by a series of judgments on the question of clubbing of clearances and if the entire evidence is examined in the light of these rulings, then the department's case would not survive at all.
20. The arguments of the Learned Advocate was very effectively dealt with by the Learned DR and he pointed out to various facts and circumstances of the case which clearly clinch the issue and if the admissions made by Shri Sahebdas in the statement and also statement of Shri M.M. Gupta along with worker's statement were examined in the light of the entire evidence on record, then it would clearly show about the financial flowback. He also pointed out from the statement that Shri R.N. Kapoor, proprietor of Rubber Products, was a very aged person and was totally dependent on Sahebdas and has absolutely no knowledge about the detail working of the Rubber Products at all. This clearly showed the skill of Sahebdas in manipulating the affairs of both the units, was functioning Director of Dayal Laminates and also controlled the affairs of the Dayal Agencies. Therefore, Weldekor's holding of 51% would not have any significance, in view of the working director involving the company with the affairs of proprietary concern. Therefore, clubbing the proprietary concern with the Private limited company in a situation like this is permissible as they were both manufacturing, supplying and distributirg the goods through a common agent. The transcations clearly showed the financial interest of Dayal Laminates and Rubber Products, and this arrangement had been alone to evade duty. In this context, he referred to the statement of Shri Ashok Sihare (page 320), statement of Shri Kishan Pise (page 293), and statement of Shri Sunil Chawda (page 325) of the paper book along with the statement of Shri Sahebdas Satsanghi. The Learned DR strongly relied on the following ratios wherein the Tribunal had found mutuality of interest for the purpose of clubbing the units :
(i) Shri Gajanan Fabrics Distributors v. Collector of Central Excise 1992 (43) ECR 172
(ii) Unique Resin Industries v. Collector of Central Excise 1992 (68) E.L.T. 230
(iii) String Haven v. Collector of Central Excise 1994 (72) E.L.T. 934
(iv) Gaman Far Chems Ltd. v. Collector of C. Excise 1994 (71) E.L.T. 59
21. The Learned Advocate replying to the arguments of the Learned DR submitted that the statements made by these persons only indicated about commonality of use of premises and employees but it did not indicate any hold, control and management by Dayal Laminates at all. He submitted that the Dayal Laminates was incorporated in 1994, while Rubber Products is existed from 1964 therefore, both having independent registration under various statutes cannot be considered as one unit. He submitted that Rubber Products had been paying for freight charges for using the vehicles of the agents; water and electricity charges were also paid. The statement of Shri Kapoor was quite elaborate, lengthy and it indicate that Shri Kapoor was fully aware of the working of the Rubber Products.
22. We have carefully considered the submissions made by both the sides and have perused the grounds of appeal, evidence, ratio of the judgments cited and the findings given by the Learned Collector. The department has made a specific allegation that Rubber Products is a front of Dayal Laminates in as much as both the directors after retiring from the partnership firm continued to hold the interest of the Rubber Products without settling their accounts. The facts and circumstances leading to the conclusion of financial flowback and total utilisation of Rubber Products as a front of M/s. Dayal Laminates has been clearly brought out in the show cause notice. The only question is as to whether evidence and explanations putforthby the appellants would show independence of both the units. As can be seen from enormous evidence and the original reply submitted by the appellants, it is clear that the Learned Collector has checked one or two instances only for coming to the said conclusion of financial flowback. These circumstances alone cannot be accepted to hold financial interest, as the counsel before us has shown from the record about the reconciliation of the accounts. This aspect requires a detailed factual verification of the accounts and evidence on record by the adjudicating officer himself. It has been held by the Tribunal in the case of Prima Control (supra) that holding of shares by common directors in two different companies, one being a subsidiary of another by itself is no ground to club the clearances. The Tribunal had held that the department had not produced any evidence of financial flowback and one company being a dummy unit of another. The ratio of this citation is in the light of evidence on record and also about the failure of the department to produce the evidence of financial flow-back. It only laid down that the common directors by itself is no ground of clubbing the clearances of the companies. The facts in the present case are totally different in as much as that it is seen that Shri Sahebdas Satsanghi and Shri Gurucharan Satsanghi were also partners in Rubber Products and after dissolution, they have not taken their share and had retained their interest in the proprietary concern. Both of them had continued to perform their duties in the Rubber Products by ignoring its affairs and besides being director of Dayal Laminates, wherein were the sole persons to control and manage the interest of the Dayal Laminates. Therefore, it has to be appreciated as to whether the dissolution of firm was a genuine one. So long as the dissolved partners have not settled their accounts and their interest had apparently continued besides their business involvement, then a link is established. This aspect of the matter is required to be addressed by the Learned Collector in the light of evidence brought out by the investigating agencies. In case of String Haven (supra), such a situation did arise and it had noticed that members of same family had manipulated to creating three different firms to manufacture goods from the same premises. After appreciation of the evidence, the Tribunal upheld the Revenue's case. It was also held by the Tribunal that the separate registration in sale tax and income tax Act had in fact not brought into existence two or three factories as claimed but admittedly there was a single factory and single machinery. Therefore, the Tribunal upheld the Revenue's contention. In the present case also, the revenue has found allowed common store room, and common machinery also in as much as machinery had been utilised by both the units and no sharing of electricity, water bill have been shown in the record. The Learned Advocate has seriously contested this finding and pointed out to some material evidence, which according to him has not looked into by the Learned Collector. According to him if the evidence is appreciated then different conclusion would arise to show the independence of the units. Therefore, in the light of the submissions referred by both the sides and particularly in the light of judgments cited by the Revenue wherein the Tribunal has upheld the clubbing of a Limited company and Private Limited Company and also with that of a proprietary concern on account of financial flowback, it is but proper to refer back this matter for readjudication. As it requires verification of facts and detailed analysis of evidence, which could only be gone into by the original authorities and it is not permissible to so at the appellate stage. We also notice that the Tribunal has confirmed the demands by clubbing the clearances in the case of Gaman Far Chems Ltd. (supra), String Haven (supra), Shri Gajanan Fabrics Distributors (supra), Unique Resin Industries (supra) and Auto Industries v. CCE, as reported in 1995 (76) E.L.T. 325. The judgment of Auto Industries is also a detailed one wherein the clearances of a company has been clubbed with that of another company. These judgments which are in favour of the Revenue are required to be looked into by the Learned Collector in the facts and circumstances of the present case and also taken into account the judgments rendered by the Tribunal, wherein the Tribunal has held that the clearances cannot be clubbed in the absence of financial flowback. As we have noticed that the Revenue has made specific allegation of financial flowback and has also relied on evidence on record, it is but proper that a reappreciation of evidence is undertaken to enable the appellants to disprove the allegation, based on available evidence alone. Therefore, we are of the view that the impugned orders is required to be set aside in so far as the demand have been confirmed and we direct the Learned Collector to readjudicate the case de novo on the directions given by us. We direct that the Bank Guarantee furnished by the appellants should be retained till final adjudication of the case in order to safeguard the Revenue's interest, as we find prima facie evidence against the appellants. The appeals are, therefore, allowed by remand.