2022 (2) TMI 896 - AT - Central Excise

Tribunal overturns order, grants appeal due to lack of evidence. Penalties vacated. Procedural lapses noted.

M/s. Technico Laboratory Products Pvt. Ltd. Versus Commissioner of GST & Central Excise, Chennai

M/s. Technico Laboratory Products Pvt. Ltd. Versus Commissioner of GST & Central Excise, Chennai - TMI Issues Involved:1. Eligibility for SSI exemption under Notification No. 8/2003-CE.2. Clubbing of clearances of two units (TLPPL and TLGW).3. Mutuality of interest and financial flow between TLPPL and TLGW.4. Imposition of penalties on TLPPL and its Managing Director.Detailed Analysis:1. Eligibility for SSI Exemption:The core issue pertains to whether TLPPL and TLGW are eligible for the Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE. The Department argued that both units were not eligible for SSI exemption for the periods 2011-12, 2012-13, and 2013-14. The notification stipulates that the exemption applies to the aggregate value of clearances from one or more factories, not separately for each factory, and does not apply to goods bearing the brand name of another person.2. Clubbing of Clearances:The Department proposed to club the clearances of TLPPL and TLGW, alleging that both units had common business interests, premises, facilities, and trademarks. The Show Cause Notice (SCN) was issued to TLPPL and its Managing Director, proposing to club the clearances and demand duty on the combined value of clearances.3. Mutuality of Interest and Financial Flow:The Department argued that both units had financial interdependence and common business interests, citing shared premises, common email profiles, and a rental agreement. However, the Tribunal found no substantial evidence of financial flow or mutuality of interest. The Tribunal noted that the products manufactured by TLPPL and TLGW were entirely different, and there was no proof that raw materials purchased by one unit were used by the other.4. Imposition of Penalties:The original authority confirmed the demand along with interest and imposed equal penalties on TLPPL and a personal penalty of Rs. 1 crore on the Managing Director under Rule 26 (1) of Central Excise Rules, 2002. The Tribunal, however, found no grounds for imposing personal penalties on the Managing Director, as there was no evidence of mutuality of interest or financial flow between the units.Tribunal's Findings:- Different Products: The Tribunal observed that TLPPL manufactured laboratory furniture and TLGW manufactured laboratory glassware, which are entirely different products. Therefore, it could not be said that one unit used the trade name of the other for marketing.- No Evidence of Financial Flow: There was no evidence to show that clearances made by TLGW were goods clandestinely manufactured by TLPPL. The rental agreement and payment of rent were found to be legitimate and not indicative of financial flow between the units.- Separate Legal Entities: TLPPL is a Private Limited Company, and TLGW is a Proprietorship firm. The Tribunal emphasized that merely because the owners are family members, it does not imply mutuality of interest.- No Dummy Unit Allegation: The Tribunal noted that the Department did not specifically allege that TLGW was a dummy unit, and no SCN was issued to TLGW, which is a procedural lapse.Conclusion:The Tribunal set aside the impugned order, allowing the appeal with consequential relief. The principles laid down in previous judgments, such as the cases of Vizag Poly Packaging Industries and Coimbatore Engineering Works, were applied, emphasizing the lack of evidence for mutuality of interest and financial flow between the units. The penalties imposed on TLPPL and its Managing Director were also vacated.Pronouncement:The judgment was pronounced in court on 03.02.2022, setting aside the impugned order and allowing the appeal with consequential relief.