2013 (4) TMI 561 - AT - Central Excise

Financial connection key in clubbing clearances: Tribunal emphasizes evidence over presumption

The Tribunal held that without evidence of mutuality of interest or financial flow back between the two private limited companies, the clubbing of their ... SSI Exemption - Clubbing of clearance - Holding and subsidiary company - Notification No. 175/86-CE & Notification No.1/93-CE - Held that - We find that in the present case the issue is whether the appellants are entitled for the benefit of Notification 175/86-CE and subsequently Notification 1/93-CE, therefore the ratio of the decision of the Hon'ble Gujarat High Court in CCE, Surat-II vs. Catalco Chemicals (P) Ltd. reported in [2011 (9) TMI 774 Gujarat High Court] is fully applicable on the facts of the present case. Revenue has to establish that there was mutuality of interest or financial flow back of the funds and in such cases the clearances of the holding and subsidiary private limited companies can be clubbed. In the present case we find that even in the show cause notice there was no such allegations. In the show cause notice the only allegation is that the holding company has share capital in the subsidiary company. There is no evidence regarding financial flow back on record. In these circumstances the impugned order is set aside and the appeals are allowed. - Decided in favor of assessee. Issues:- Whether the clearances of two private limited companies can be clubbed under the Small Scale Exemption Notification.- Whether there is mutuality of interest or financial flow back between the holding and subsidiary private limited companies.Analysis:The case involved appeals against a common adjudication order where the appellants, two private limited companies engaged in manufacturing excisable goods, contested the demand raised due to the clubbing of their clearances. The Revenue alleged that one company was a wholly-owned subsidiary of the other, indicating mutuality of interest. The appellants argued that there was no evidence of financial flow back between the companies, citing statutory balance sheets as proof. The Hon'ble Supreme Court's decision in a similar case was referenced by both parties to support their arguments.The Tribunal analyzed the provisions of various exemption notifications, particularly focusing on the interpretation of conditions related to aggregate value of clearances. It was noted that while the Revenue relied on a Supreme Court decision to support clubbing clearances of subsidiary companies, the absence of mutuality of interest or financial flow back negated the necessity for such clubbing. The Tribunal emphasized the importance of establishing such mutual interest or financial transactions for clubbing clearances, as highlighted in the Gujarat High Court's decision.Ultimately, the Tribunal held that in the absence of evidence demonstrating mutuality of interest or financial flow back between the companies, the clubbing of clearances was not justified. The decision was based on the principles outlined in the Gujarat High Court's judgment, emphasizing the need for concrete allegations and proof of financial connections between the holding and subsidiary companies for clubbing of clearances to be valid. As a result, the impugned order was set aside, and the appeals were allowed, with the Revenue's cross objections being disposed of accordingly.