2008 (5) TMI 139 - AT - Central Excise

Tribunal upholds decision on clubbing clearances for family-owned units

The Tribunal upheld the decision of the Original Authority to drop proceedings regarding the clubbing of clearances of nine units associated with one ... SSI exemption - nine units belong to seven members of one/same family – SCN issued proposing clubbing of clearances - revenue not discharged that these units are dummy - Each of the 9 units is found to have separate Central Excise, Income Tax & Sales Tax registration with independent manufacturing capability – clubbing of clearance cannot be done mere for mutuality o interest among units – group of 9 units itself is not a legal entity – clubbing of clearances to raise demand is not sustainable Issues Involved:1. Clubbing of clearances of nine units.2. Financial flow-back and mutuality of interest.3. Separate registration and independent existence of units.4. Adherence to Tribunal and Supreme Court guidelines.5. Validity of Show Cause Notices and extended period invocation.6. Review Order's timing and legality.Detailed Analysis:1. Clubbing of Clearances of Nine Units:The Revenue conducted investigations into nine units associated with one family and issued Show Cause Notices proposing clubbing of their clearances, demanding a duty of Rs. 4,27,11,520/-. The Original Authority, upon de novo adjudication, dropped the proceedings, finding that none of the nine units were dummies and each had separate registrations and independent manufacturing capabilities. The Tribunal upheld this decision, noting that mutual interest among family members does not justify clubbing clearances unless units are proven to be dummies or shams, which was not the case here.2. Financial Flow-back and Mutuality of Interest:The Adjudicating Authority found evidence of financial transactions among the units, such as financing, credit accommodation, and intra-firm adjustments, indicating mutual interest. However, these transactions were within the legal framework and did not violate Central Excise Law. The Tribunal emphasized that mutuality of interest among family members cannot be a reason for clubbing clearances unless it is shown that one unit is the principal and others are dummies, which was not established.3. Separate Registration and Independent Existence of Units:The Original Authority observed that each unit had separate Central Excise, Income Tax, and Sales Tax registrations and independent manufacturing capabilities. The Tribunal agreed, noting that the law does not prohibit family members from establishing different proprietary and partnership concerns. The CBEC's Circular dated 29-5-1992 also supported treating units with different partners as separate entities for exemption purposes.4. Adherence to Tribunal and Supreme Court Guidelines:The Tribunal's remand order required the case to be re-examined in light of the Supreme Court's observations in the Gajanan Fabrics Distributors case and the CBEC's guidelines. The Original Authority adhered to these guidelines, finding that clubbing clearances of units with independent identities was barred. The Tribunal upheld this adherence, noting that the Original Authority's decision to drop the proceedings was correct.5. Validity of Show Cause Notices and Extended Period Invocation:The respondents argued that the Show Cause Notices recognized the separate existence and independent manufacturing facilities of the units, and the extended period invocation was unjustified. The Tribunal found that the mutual interest among units did not justify clubbing clearances, and the Show Cause Notices did not establish the units as dummies. Therefore, the extended period invocation was not sustained.6. Review Order's Timing and Legality:The respondents contended that the Review Order dated 5-11-2004 was communicated only on 25-11-2004, suggesting it was not passed within the stipulated one-year period. The Tribunal did not explicitly address this issue but focused on the substantive findings of the Original Authority, ultimately dismissing the Revenue's appeal.Conclusion:The Tribunal upheld the Original Authority's decision to drop the proceedings, finding that the nine units had independent existences and manufacturing capabilities, and mutual interest among family members did not justify clubbing clearances. The Revenue's appeal was dismissed, and the Original Authority's adherence to Tribunal and Supreme Court guidelines was affirmed.