1987 (7) TMI 324 - AT - Central Excise

Duty-Free Clearance Limit Upheld for Factory; Loan Licensee Firms Deemed Dummies

MEHTA DYE-CHEM. INDUSTRIES AND 3 OTHERS Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY

MEHTA DYE-CHEM. INDUSTRIES AND 3 OTHERS Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY - 1988 (34) E.L.T. 184 (Tribunal) Issues Involved:1. Availability of Notification 71/78 benefits to the four parties.2. Nature of loan licensees as dummies set up by M/s. Mehta Dye-Chem Industries.3. Applicability of time bar and invocation of the proviso to Section 11A.Issue-wise Detailed Analysis:1. Availability of Notification 71/78 benefits to the four parties:The appellants argued that the three loan licensee firms were legally independent entities and should be eligible for the benefits of Notification No. 71/78. They cited clarifications from various trade notices indicating that loan licensees could be treated as separate manufacturers eligible for the exemption. However, the Tribunal noted that the notification's provisions, particularly sub-para (c), limited the maximum value of duty-free clearances from a factory to Rs. 5 lakhs, regardless of the number of manufacturers involved. The Tribunal referenced the Karnataka High Court decision in Shyam Sunder U. Nichani v. Assistant Collector of Central Excise, which supported the interpretation that the exemption limit applied to the factory's total clearances, not individual manufacturers within the same factory. Therefore, the Tribunal held that the maximum duty-free clearance limit of Rs. 5 lakhs applied to the factory as a whole, and the appellants were not entitled to separate exemptions for each loan licensee.2. Nature of loan licensees as dummies set up by M/s. Mehta Dye-Chem Industries:The Tribunal examined the statements and evidence presented, revealing that the loan licensee firms were essentially controlled by M/s. Mehta Dye-Chem Industries. The partners of these firms, including family members and outsiders, admitted to having no substantial role in the business operations, financial transactions, or manufacturing activities. The Tribunal found that the loan licensee firms were created on paper to avail of the exemption benefits under Notification No. 71/78. The operations, including procurement of raw materials, manufacturing, and sales, were entirely managed by M/s. Mehta Dye-Chem Industries. Consequently, the Tribunal concluded that the loan licensee firms were dummies set up by the appellants to misuse the exemption benefits, and all clearances should be considered on the account of M/s. Mehta Dye-Chem Industries.3. Applicability of time bar and invocation of the proviso to Section 11A:The appellants contended that the demand was time-barred as the show cause notice was issued on 18-8-1980 for clearances made during 1979-80. They argued that they had disclosed all necessary information to the Central Excise authorities, and the extended period of five years under Section 11A could not be invoked. However, the Tribunal held that the appellants had made mis-declarations by filing classification lists on behalf of the loan licensees, which amounted to suppression of facts with intent to evade duty. The Tribunal found that the appellants had fraudulently set up loan licensee firms to avail of the exemption benefits, justifying the invocation of the extended time limit for raising the demand. Therefore, the Tribunal upheld the demand and the penalty imposed by the Collector.Conclusion:The Tribunal concluded that the duty demanded by clubbing the clearances of all the units was correct under the law. The penalty levied was also deemed appropriate given the facts and circumstances of the case. The appeals filed by M/s. Mehta Dye-Chem Industries and the loan licensee firms were rejected.