2012 (5) TMI 881 - AT - Central Excise

Clubbing of clearances and clandestine manufacture of air conditioners -- clubbing rejected for one appellant; limited clandestine demands upheld.

Clubbing of clearances was contested: Tribunal found clubbing all four proprietory units unjustified because Revenue failed to prove mutuality of interest ... - Issues: (i) Whether the clearances of multiple proprietary units should be clubbed for denial of SSI exemption/Notification and consequent confirmation of duty and penalties against M/s. Thermotech and Shri Pradeep Khanna; (ii) Whether confiscation and duty demand in respect of air-conditioners (including 24 ACs seized from residential premises) and related penalties against M/s. Flevel International are supported by evidence; (iii) Whether the duty demand of Rs.58,44,825/- for alleged clandestine manufacture and clearance of 606 air-conditioners by M/s. Flevel International is supported by admissible and sufficient evidence.Issue (i): Whether clearances of the units owned/managed by members of the same family can be clubbed to deny SSI exemption under Notification No.175/86 and confirm duty and penalties against M/s. Thermotech and Shri Pradeep Khanna.Analysis: The Tribunal examined the totality of facts including separate registrations, separate locations, absence of demonstrated financial flow back or mutuality of interest, prior adjudication in which clubbing of M/s. Thermoking with another unit had been disallowed by the Commissioner, and the procedural requirement of issuing notices to units proposed to be clubbed. The adjudicating authority's reasoning that family relationship and assistance alone justify clubbing was scrutinised and found lacking independent evidence of facade units or financial intertwinement. The Tribunal applied principles requiring substantive evidence for clubbing and the need to put affected units on notice.Conclusion: In favour of the Assessee. The demand of Rs.83,60,821/-, matching penalty and related confiscations against M/s. Thermotech and the penalty on Shri Pradeep Khanna are set aside.Issue (ii): Whether confiscation and duty demand in respect of specific seized air-conditioners (notably the 24 ACs recovered from the residential premises of Shri Pradeep Khanna/Mrs. Neera Khanna) and related penalties against M/s. Flevel International are supported by the record.Analysis: The members differed. The majority found insufficient independent corroborative evidence to sustain confiscation and duty for certain seized goods where records or credible corroboration were absent, and allowed release or set aside confiscation where entries/register evidence or job-work/third-party production explanations were plausible. The dissenting view treated the original statements recorded under Section 14 as reliable unless vitiated and accepted departmental evidence to uphold confiscation and duty for the 24 ACs. The majority concluded absence of positive evidence for some seizures; the majority also found specific deficiencies in the investigation and lack of buyer corroboration in several instances.Conclusion: Mixed. Confiscation of 36 air-conditioners, 60 air-conditioners and certain other seized goods and related redemption fines are set aside. Confiscation of the 24 air-conditioners and the duty demand of Rs.3,16,800/- together with penalty in respect of those 24 ACs is upheld by the majority decision of the full Bench.Issue (iii): Whether the demand of Rs.58,44,825/- for alleged clandestine manufacture and clearance of 606 air-conditioners by M/s. Flevel International (for 1988-89 and 1989-90) is supported by admissible and sufficient evidence.Analysis: The Tribunal weighed ledger entries, supplier statements, investigation findings, and explanations of the appellants. The majority found that ledger entries, statements (including retracted statements) and corroborative material such as compressor supply records and purchaser inquiries collectively supported an inference of clandestine clearance on a preponderance of probability applicable to tax disputes. The minority considered the evidence insufficient and emphasised the need for positive, tangible proof of clandestine manufacture (raw material consumption, power usage, buyers identification). The majority concluded that the standard of proof in tax matters permits drawing reasonable inferences from cumulative evidence where direct proof may be lacking.Conclusion: Against the Assessee. The duty demand of Rs.58,44,825/- for 606 alleged clandestinely cleared air-conditioners is confirmed and penalty under Rule 173Q is upheld.Final Conclusion: The Tribunal allowed the appeals of M/s. Thermotech and Shri Pradeep Khanna (set aside demand, penalties and confiscations) and disposed M/s. Flevel International's appeal partially -- setting aside certain demands and confiscations while upholding confiscation and duty/penalty in respect of 24 seized air-conditioners and confirming the clandestine-clearance duty demand of Rs.58,44,825/-. The decision results in partial relief to the assessees and partial confirmation of departmental demands.Ratio Decidendi: Clubbing of clearances and confirmation of excise demands require substantive evidence of mutuality, financial intertwinement or facade operations beyond familial relationship or incidental assistance; in tax/duty disputes the standard of proof is preponderance of probability and cumulative ledger entries, supplier records and admissible statements under Section 14 can sustain an excise demand where such evidence, taken together, reasonably establishes clandestine manufacture or clearance.