2018 (9) TMI 271 - AT - Central Excise

Court upholds Revenue's decision on entity independence for SSI benefits; Procedural arguments rejected

M/s Alpha Converting Machines Pvt. Ltd., Rajan M David Versus C.C.E. – Ahmedabad-I

M/s Alpha Converting Machines Pvt. Ltd., Rajan M David Versus C.C.E. – Ahmedabad-I - 2018 (364) E.L.T. 141 (Tri. - Ahmd.) Issues Involved:1. Clubbing of clearances of various units.2. Common use of land, building, and machinery.3. Non-maintenance of separate records for raw materials.4. Common electrical power connection.5. Interest-free flow of funds.6. Non-issuance of Show Cause Notice (SCN) to all units.7. Validity of retracted statements.8. Applicability of SSI exemption under Notification 08/2003-CE.Detailed Analysis:1. Clubbing of Clearances:The appeals were filed against the confirmation of demand of Central Excise and imposition of penalty by clubbing the clearances of M/s Alpha Converting Machines Pvt. Ltd., M/s Alpha Flexible Machinery, and M/s Alpha Convert Machines Industries. The Revenue's position was that all three entities were essentially operating as a single unit, sharing common premises and machinery, and thus, their clearances should be clubbed for excise duty purposes.2. Common Use of Land, Building, and Machinery:During the search, it was found that all three entities were using the same premises and machinery. Sh. Rajan David, in his statements, admitted that the machinery was used commonly and no rent was paid for the use of the factory shed, land, building, and machinery. This indicated that the entities did not operate independently.3. Non-Maintenance of Separate Records for Raw Materials:The entities did not maintain separate records for raw materials issued for production. This lack of separate documentation further supported the Revenue's claim that the entities were not operating independently.4. Common Electrical Power Connection:There was only one electrical meter installed in the factory premises, which was used commonly by all three entities. This commonality was another factor indicating that the entities were not separate.5. Interest-Free Flow of Funds:Financial transactions between the entities were not explained satisfactorily, and no interest was charged for these transactions. This free flow of funds without proper documentation or interest indicated a lack of independent operation.6. Non-Issuance of SCN to All Units:The appellant argued that SCNs were not issued to M/s Alpha Flexible Machinery and M/s Alpha Convert Machines Industries, which was a procedural lapse. However, the court found that since these entities were considered dummy units, issuing SCNs to them would be counterproductive. The court relied on the decision of the Hon’ble Apex Court in the case of Gajanan Fabrics Distributors, which supported the view that demand can only be confirmed against the actual assessee.7. Validity of Retracted Statements:The appellant retracted the statement made by Sh. Rajan David after 2½ years. The court, however, did not place reliance on the retracted statement, emphasizing that the initial admissions made by Sh. Rajan David were consistent with the findings during the search.8. Applicability of SSI Exemption under Notification 08/2003-CE:The court examined the applicability of SSI exemption under Notification 08/2003-CE, which requires clubbing of clearances from one or more factories by one or more manufacturers. Given the common use of premises, machinery, and financial transactions, the court concluded that the entities were not independent and thus, their clearances should be clubbed for the purpose of SSI exemption.Conclusion:The court dismissed the appeals, upholding the Revenue's position that M/s Alpha Flexible Machinery and M/s Alpha Convert Machines Industries were not independent entities but were created on paper to avail small-scale industry benefits. The clearances were rightly clubbed, and the demand for excise duty was confirmed. The procedural argument regarding the issuance of SCNs was also rejected, as the court found that the dummy units did not require separate notices. The judgment emphasized the importance of actual operational independence for claiming SSI exemptions.