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Issues: (i) Whether the units in the common compound were separate and independent or constituted a single composite factory set up to avail of exemption; (ii) whether the demand was liable to be sustained when the calculation basis and valuation details were not clearly disclosed in the notice and adjudication materials; (iii) whether the demand could be disturbed on the grounds of limitation, scope of the notice, and invocation of Rule 9(2) read with Section 11A.
Issue (i): Whether the units in the common compound were separate and independent or constituted a single composite factory set up to avail of exemption.
Analysis: The units were controlled by closely related family members, were located in the same compound, used common facilities such as water, electricity, steam, security and servicing arrangements, and their activities were complementary in the sequence of processing. The arrangement was found to be a facade of separate existence and a device to secure exemption under the relevant notifications. The fact that some units were separately assessed under other fiscal laws did not alter the real nature of the arrangement.
Conclusion: The units were treated as one composite set-up and not as truly independent concerns.
Issue (ii): Whether the demand was liable to be sustained when the calculation basis and valuation details were not clearly disclosed in the notice and adjudication materials.
Analysis: The figures in the annexures to the notice, the revised annexures, the adjudication order and the corrigendum did not disclose with sufficient clarity how the duty demand had been worked out or the source of the figures adopted. In a case involving a large fiscal liability, the assessee had to be informed of the basis of computation so as to meet the charge effectively. The absence of such particulars affected the sustainability of the quantified demand.
Conclusion: The demand could not be sustained in its then form and required fresh adjudication with proper disclosure of the computation basis.
Issue (iii): Whether the demand could be disturbed on the grounds of limitation, scope of the notice, and invocation of Rule 9(2) read with Section 11A.
Analysis: The notice alleged suppression of facts, the demand was based on clandestine removal and the extended period was therefore available. The challenge that the order travelled beyond the notice and that the longer period could not be invoked was rejected. The demand under Rule 9(2) read with Section 11A was held valid in principle, although the quantified demand had to be reworked.
Conclusion: The invocation of the extended period and the validity of the demand mechanism were upheld.
Final Conclusion: The appeals succeeded only to the extent that the quantified duty demand was set aside and the matter was sent back for fresh adjudication with proper computation details, while the substantive findings on composite manufacture and liability were maintained.
Ratio Decidendi: Where several ostensibly separate units operate under common family control, in the same , with shared facilities and complementary processing, the real nature of the arrangement may be treated as a single composite factory for excise purposes; however, a quantified duty demand must still disclose a clear and intelligible basis of computation to satisfy the requirements of fair adjudication.
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