2017 (8) TMI 1521 - AT - Central Excise

Tribunal overturns denial of Small Scale Industries exemption based on cash flow; firms' separate activities and compliance key

The Tribunal set aside the Department's decision denying Small Scale Industries (SSI) exemption to the appellant company based on cash flow among ... SSI Exemption - dummy units - exemption denied on the ground that there was cash flow among the firms - Held that:- The private limited company was not engaged in the manufacturing of the same item but was engaged in only trading. So, its income cannot be clubbed with the appellant. Regarding the remaining two firms, it appears that their manufacturing premises were separate and separate bills were issued for goods. However, the office is in common building/premises. The cash flow was there among the firms without payment of any interest but the same was properly adjusted in the returns. All the firms have filed independent income tax assessments and as well as indirect taxes returns which were accepted by the Department - It may be mentioned that the Tribunal in the case of Alpha Toyo Ltd. v. CCE, New Delhi, [1994 (3) TMI 203 - CEGAT, NEW DELHI] observed that even though there is a common management control and common Directors and finance of the firm lies with the main unit, SSI exemption cannot be denied - SSI benefit cannot be denied on this ground. Appeal allowed - decided in favor of appellant. Issues: Denial of SSI exemption based on cash flow among firmsIn the case at hand, the issue revolved around the denial of Small Scale Industries (SSI) exemption to the appellant company due to cash flow among different firms associated with the same individuals. The appellant, engaged in manufacturing activities, faced the denial of SSI exemption by the Department, citing cash flow among the firms as the reason for the denial. The appellant challenged this decision by filing the present appeal.Analysis:The Tribunal carefully considered the facts presented by both parties and analyzed the situation in detail. It was noted that during the relevant period, the appellant was involved in manufacturing activities such as PCC poles, SS Structures, and Roaster Switches. The appellant, a proprietary concern of an individual, was linked to three other firms where common individuals held various positions. The Department contended that due to cash flow among these firms, the SSI exemption should be denied to the appellant.Upon examination, the Tribunal observed that one of the private limited companies associated with the appellant was engaged in trading and not manufacturing the same items as the appellant. Therefore, the income of this company could not be clubbed with the appellant. Regarding the other two firms, it was found that although they shared a common office space, they maintained separate manufacturing premises and issued separate bills for goods. Despite the presence of cash flow among the firms, it was noted that the transactions were properly adjusted in the returns, and all firms had filed independent income tax assessments and indirect tax returns, which were accepted by the Department.The Tribunal referred to legal precedents, such as the case of CC, Jaipur v. Electro Mechanical Engg. Corpn., where it was established that common employees and adjoining premises alone were not sufficient reasons to deny SSI exemption. Similarly, in the case of Alpha Toyo Ltd. v. CCE, New Delhi, it was held that common management control and finance arrangements did not warrant the denial of SSI exemption. Applying these principles to the present case, the Tribunal concluded that the impugned order denying the SSI exemption could not be sustained. Therefore, the Tribunal set aside the order and allowed both appeals filed by the appellant.In summary, the Tribunal's decision was based on a thorough analysis of the facts, legal principles, and precedents related to the denial of SSI exemption due to cash flow among associated firms. By distinguishing between the nature of activities, maintaining separate accounts, and ensuring compliance with tax regulations, the Tribunal ruled in favor of the appellant, emphasizing the independent existence and operations of the manufacturing firms despite commonalities in management and premises.