2025 (4) TMI 1183 - AT - Central Excise

Holding company clearance value cannot be clubbed with subsidiary for denying SSI exemption benefits

Dasharath Pranjivan Chauhan and Aquathane Chemicals Pvt. Ltd. Versus Commissioner of Central Excise, Thane-II

CESTAT Mumbai held that clearance value of holding company cannot be clubbed with subsidiary's clearance value for denying SSI exemption benefits. The ... SSI Exemption - clubbing of value of clearances of a holding company, with the value of clearances of its subsidiary for the purpose of determining eligibility for exemption - applicability of concept of ‘interconnected undertaking’, ‘holding and subsidiary’ etc. for denial of benefit of SSI exemption - HELD THAT:- Since, the appellants are recognized as an independent manufacturer of excisable goods, which are distinctively different from the final products of M/s. Parle Products and upon satisfaction, the jurisdictional Central Excise authorities have issued the Central Excise Registration certificate in their behalf, the clearance value of holding company M/s. Parle Products Pvt. Ltd., cannot be clubbed with the clearance value of the appellants for the purpose of denying the benefit of SSI exemption provided under the Notification dated 01.03.2000. The issue arising out of the present issue is no more res integra, in view of the order passed by the Tribunal in the case of Aschem Agrotech [2015 (10) TMI 1937 - CESTAT BANGALORE] where it was held that 'For all purposes the holding company would be having more than 50% of the shares of the subsidiary company and in this case admittedly 100% of the shares are held by the holding company. When 100% of the shares are held, Interest is paid on the loan or not does not really make a difference for the transaction between the two. Because in any case the holding company would have to bear the entire amount or profit or loss, whatever be the result of the activity of the subsidiary.' The judgement of Hon’ble Supreme Court, in the case of Parle Bisleri Pvt. Ltd., [2010 (12) TMI 26 - SUPREME COURT], relied upon by the learned AR for Revenue are distinguishable from the facts of the present case inasmuch as the issue considered in those decided cases is in context with affixation of the brand name of another manufacturer(s) and the judicial forum have held that in the case, where brand name of another manufacturer is affixed with the product manufactured by the assessee governed under SSI, then the claim of the benefit provided to the SSI unit, shall not be available. Contrary is the situation in the present case, inasmuch as the appellants are recognized as an independent manufacturer of excisable goods and for that purpose, were also issued with the registration certificate by the jurisdictional Central Excise authorities. Conclusion - The value of clearances of the holding company, under such circumstances, cannot be clubbed with the value of the goods cleared by the appellants, for denying the benefit provided under the Notification dated 01.03.2000. The impugned order iss et aside - appeal allowed. The core legal questions considered in this case are:1. Whether the value of clearances of a holding company should be clubbed with the value of clearances of its subsidiary for the purpose of determining eligibility for Small Scale Industrial Unit (SSI) exemption under Notification No. 9/2000-C.E., dated 01.03.2000.2. Whether the concept of 'interconnected undertaking' or 'holding and subsidiary' companies, as used under Section 4 of the Central Excise Act, 1944 for valuation purposes, can be applied to deny SSI benefits under the said Notification.3. The relevance and applicability of judicial precedents regarding the clubbing of turnover or clearances of holding and subsidiary companies for SSI exemption.Issue-wise Detailed AnalysisIssue 1: Clubbing of clearance values of holding and subsidiary companies for SSI exemptionLegal framework and precedents: Notification No. 9/2000-C.E. provides exemption benefits to SSI units based on prescribed threshold limits of turnover or clearances. The notification does not explicitly address the treatment of holding and subsidiary companies or interconnected undertakings for the purpose of calculating turnover.The Revenue relied on judicial pronouncements, including the Supreme Court judgment in Parle Bisleri Pvt. Ltd. and the Allahabad High Court ruling in Premium Suiting (P) Ltd., which denied SSI benefits where the brand name of another manufacturer was affixed on the product, thereby linking the turnover of different entities.The appellants relied on a coordinate bench decision in Aschem Agrotech (P) Ltd., which held that mere shareholding or holding-subsidiary relationship does not warrant clubbing of turnover for SSI benefits if the companies are independent legal entities with separate registrations and accounts.Court's interpretation and reasoning: The Tribunal noted that the Notification dated 01.03.2000 does not deal with the concept of interconnected undertakings or holding-subsidiary relationships. The appellants were recognized as independent manufacturers with separate Central Excise registration certificates and maintained separate accounting records. The Tribunal emphasized that the holding company's clearance value cannot be clubbed with that of the appellants for denying SSI exemption.The Tribunal distinguished the Supreme Court and High Court judgments relied upon by Revenue, clarifying that those cases involved affixation of another manufacturer's brand name on products, which is not the case here. The appellants manufacture distinct excisable goods and have separate legal and commercial identities.The Tribunal extracted relevant paragraphs from the Aschem Agrotech decision, which highlighted factors such as different locations, independent legal entities, absence of commercial transactions between the companies, separate profit and loss assessments, and no administrative control interference. The Tribunal found these factors applicable in the present case, supporting non-clubbing of turnover.Key evidence and findings: The appellants' separate Central Excise registration certificate, distinct manufacturing activities, separate accounting records, and incorporation certificate under Company Law statutes were key evidences establishing their independent status.The Revenue did not dispute the separate accounting records or registration certificates.Application of law to facts: Since the Notification does not mention interconnected undertakings and the appellants are independent legal entities manufacturing distinct products, the Tribunal applied the principle from Aschem Agrotech and held that the turnover of the holding company cannot be added to the appellants' turnover for SSI exemption purposes.Treatment of competing arguments: The Tribunal carefully considered Revenue's reliance on Supreme Court and High Court judgments but found them distinguishable on facts. The Tribunal gave precedence to the coordinate bench decision, which is directly on point concerning the treatment of holding and subsidiary companies for SSI benefits.Conclusion: The Tribunal concluded that the appellants are entitled to SSI exemption under Notification No. 9/2000-C.E. and the value of clearances of the holding company cannot be clubbed with theirs for denying such benefit.Issue 2: Applicability of 'interconnected undertaking' concept under Section 4 of the Central Excise Act for SSI exemptionLegal framework and precedents: Section 4 of the Central Excise Act, 1944, governs the determination of transaction value for excise duty purposes and includes provisions for interconnected undertakings. However, the Notification providing SSI exemption is a separate statutory instrument and does not incorporate these provisions.Court's interpretation and reasoning: The Tribunal agreed with the appellants that the concept of interconnected undertakings under Section 4 is relevant only to valuation of goods for excise duty and cannot be borrowed to deny SSI exemption benefits. The Tribunal held that such an interpretation would be contrary to the plain language and intent of the Notification.Key evidence and findings: The absence of any mention of interconnected undertakings or holding-subsidiary relationships in the Notification was a critical factor. The appellants' separate registration and accounting records further supported their independent status.Application of law to facts: The Tribunal applied the statutory interpretation principle that a specific exemption notification must be construed according to its terms and not by importing unrelated legal concepts from other provisions.Treatment of competing arguments: Revenue's argument to apply Section 4 concepts to SSI exemption was rejected as inconsistent with the Notification's scope and purpose.Conclusion: The interconnected undertaking concept under Section 4 is inapplicable for denying SSI exemption under Notification No. 9/2000-C.E.Significant Holdings'The clearance value of holding company M/s. Parle Products Pvt. Ltd., cannot be clubbed with the clearance value of the appellants for the purpose of denying the benefit of SSI exemption provided under the Notification dated 01.03.2000.''The concept of 'interconnected undertaking', 'holding and subsidiary' etc., had not been dealt with by the Central Government in the Notification dated 01.03.2000 and the said concept cannot be borrowed or applied for the purpose of consideration of issue of availment of the SSI exemption.''The appellants are recognized as an independent manufacturer of excisable goods, for which separate registration certificate was issued by the jurisdictional Central Excise authorities and have maintained separate accounting records reflecting their financial particulars.''The judgments relied upon by Revenue are distinguishable as they relate to cases where the brand name of another manufacturer is affixed on the product, which is not the case here.''In view of the foregoing discussions, we do not find any merits in the impugned order, insofar as it has upheld confirmation of the adjudged demands on the appellants. Therefore, the impugned order is set aside and the appeals are allowed in favour of the appellants.'