Tribunal upholds clubbing of clearances for evading duty, penalties imposed

M/s. Vijaylaxmi & Co., Balarajeshwar & Co., Ganesh Enterprises, Shreenath Enterprises, B.N. Enterprises, Venkateshwara Enterprises, Shree Engineering Works and Gee Kay & Co. Versus Commissioner of Central Excise, Mumbai-III

M/s. Vijaylaxmi & Co., Balarajeshwar & Co., Ganesh Enterprises, Shreenath Enterprises, B.N. Enterprises, Venkateshwara Enterprises, Shree Engineering ... Issues Involved:

1. Clubbing of clearances of various entities.
2. Validity of extended period of limitation for demand.
3. Imposition of penalties under Section 11AC and Rule 26 of Central Excise Rules, 2002.
4. Denial of cross-examination.
5. Legitimacy of the entities involved in the manufacturing process.

Summary:

Clubbing of Clearances:

The Tribunal upheld the Commissioner's finding that M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. had floated multiple dummy units to distribute their actual turnover and avail benefits under Notification No. 8/2003-CE dated 01.03.2003. The Commissioner established that these units were under the financial and managerial control of Shri G. Nandgopal and Shri Prakash Pandya, and thus, their clearances should be clubbed. The Tribunal supported this by lifting the corporate veil, revealing that the same persons were behind the manufacture and clearance of goods, thus justifying the clubbing of clearances.

Extended Period of Limitation:

The Tribunal agreed with the Commissioner that the appellants had suppressed their turnover to evade duty, thereby justifying the invocation of the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944. The Tribunal noted that the appellants' actions constituted suppression and misstatement with the intent to evade duty, thereby validating the extended period for demand.

Imposition of Penalties:

The Tribunal upheld the penalties imposed on M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. under Section 11AC, aligning with the Supreme Court's ruling in Rajasthan Spinning and Weaving Mills, which mandates penalties when the extended period under Section 11A(1) is invoked. However, the Tribunal set aside the penalties imposed on the proprietors, Shri G. Nandgopal and Shri Prakash Pandya, under Rule 26, as equivalent penalties had already been imposed under Section 11AC. The penalties on other appellants under Rule 26 were upheld due to their active participation in the evasion scheme.

Denial of Cross-Examination:

The Tribunal found the Commissioner's decision to deny cross-examination justified, citing Supreme Court rulings in K I Pavunny and Telestar Travels Pvt Ltd., which held that statements recorded under Section 14 of the Central Excise Act, 1944, are substantive evidence and do not necessitate cross-examination unless specific prejudice is shown.

Legitimacy of Entities:

The Tribunal confirmed that entities like M/s B.N. Enterprises, M/s GEEKAY & Co., and others were fictitious firms created to suppress the actual turnover of M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. The Tribunal found substantial evidence, including statements and documentary proofs, indicating that these entities were mere fronts used to evade central excise duty.

Conclusion:

The appeals by M/s Vijaylakshmi & Co. and M/s Balarajeshwar & Co. were partly allowed by setting aside penalties on their proprietors under Rule 26, while the penalties under Section 11AC were upheld. Appeals by other appellants were dismissed, affirming the penalties imposed under Rule 26 for their roles in the evasion scheme.