Common manufacturing entity doctrine upheld, with duty recomputation on cum-duty price and Modvat credit, and partial confiscation relief.

Substantial functional integration between two units, including common management, shared funds, labour and materials, common storage, the same brand name, and coordinated execution of orders, justified treating them as one manufacturing entity and the appellant as the real manufacturer liable to duty. The duty demand was confirmed, but quantification required recomputation by treating the sale price as cum-duty price and allowing Modvat credit on verification of duty-paying documents, with penalty to be redetermined on remand. Confiscation of seized goods was upheld, while confiscation of the land, building, plant and machinery was set aside as disproportionate.

---

---

Issues: (i) Whether the two units were one common manufacturing entity and whether the appellant was the real manufacturer liable to duty; (ii) whether the duty demand required recomputation by extending cum-duty price and Modvat credit benefits; (iii) whether confiscation of the seized goods and of the land, building, plant and machinery was sustainable.

Issue (i): Whether the two units were one common manufacturing entity and whether the appellant was the real manufacturer liable to duty.

Analysis: The record showed substantial interlinking between the units, including common management, exchange of funds, men and material, common store for raw materials, collective receipt and execution of orders, common source of power, use of the same brand name, and execution of orders beyond the capacity of one unit by the other. The evidence also supported the finding that the arrangement was adopted to split clearances and secure SSI exemption. In the absence of documentary proof to support the plea of separate financial settlement, the finding of commonality was sustained.

Conclusion: The appellant was held to be the real manufacturer and the duty demand was upheld.

Issue (ii): Whether the duty demand required recomputation by extending cum-duty price and Modvat credit benefits.

Analysis: While the duty liability was confirmed, the quantification required adjustment by treating the sale price as cum-duty price and by extending Modvat credit on verification of duty-paying documents. For this limited purpose, the matter had to go back to the original authority for fresh computation, with penalty also to be redetermined after recalculation.

Conclusion: The duty was directed to be recomputed after granting cum-duty price and Modvat credit benefits, and the matter was remanded for that limited exercise.

Issue (iii): Whether confiscation of the seized goods and of the land, building, plant and machinery was sustainable.

Analysis: Confiscation of the seized goods was justified on the facts. However, confiscation of the land, building, plant and machinery was considered excessively harsh, particularly against a first offender, and was therefore not sustained.

Conclusion: Confiscation of the seized goods was upheld, but confiscation of the land, building, plant and machinery was set aside.

Final Conclusion: The duty liability was confirmed, the quantification was remitted for fresh computation with appropriate abatements and credit, and the confiscation orders were only partly sustained.

Ratio Decidendi: Where the evidence establishes functional integration of two units and a device to fragment clearances for SSI exemption, the units may be treated as one for central excise liability, while penalty and confiscation must still be proportionate to the proven facts.

---