1994 (3) TMI 203 - AT - Central Excise

Common management and interest-free loans alone don't justify clubbing clearances without evidence of financial control or profit sharing

CEGAT, AT dismissed the department's challenge and allowed the appeals, setting aside the impugned order. The Tribunal held that common management, shared ... SSI Exemption - Clubbing of clearances - Whether the clearances of all the five units can be clubbed on the basis of interest free loan granted by the M/s. Alpha Toyo Ltd. to other four units - HELD THAT:- In this case there is no allegation that M/s. Alpha Toyo Ltd. had financial control or that there was financial flow back in terms of profit sharing and that the first unit M/s. Alpha Toyo Ltd. had gained control of entire business. Therefore, in the absence of any evidence or charge on this aspect of the matter, the question of clubbing of clearances does not arise. The ld. senior advocate pointed out that the ld. Collector had mis-applied the law on the basis of a wrong understanding. The mere fact of management control and a few directors being common and also by the fact that interest free loans are being given to the other units by the first unit, these factors, by itself, is no ground for holding them as dummy units and for ordering clubbing of all their clearances, and to deny the benefit of the exemption Notification. There is no dispute in all these cases that all the four units are independent in existence, with independent transactions, without any profit sharing, management control or money flow back to the main unit. Each unit is having independent bank transactions, loans, sales, purchase & tax registrations. Therefore, on the facts and circumstances of this case, the ground taken by the department is not sustainable. The concept of related persons, as envisaged under Section 4 of the Central Excises and Salt Act, 1944, is for the purpose of valuation. This is a independent concept by itself. It has no relationship with the concept of dummy units and units set up as a facade to evade taxes. As pointed out by the ld. senior advocate, the ld. Collector has confused this aspect of the matter with the aspect of creation of dummy units. The ground taken by the Revenue in this case is already answered against them in the case of Jagjivan Das & Co., Bhagwan Das Kanodia and Others, Prabhat Dyes and Chemicals, Bapalal & Co. and Prima Control referred before us. The other judgments cited before us also deals on the same aspect of the matter. Applying the ratio of these rulings, we have to hold that the mere fact of management control or of grant of interest free loans is not sufficient to hold the four units as dummy units of M/s. Alpha Toyo Ltd., in the absence of any money flow back, profit sharing and total control on other four units by M/s. Alpha Toyo Ltd. In the result the appellants succeed in all these appeals. The impugned order is set aside and appeals allowed. Issues involved:The judgment deals with the issue of whether the clearances of multiple units can be clubbed based on financial assistance and common management, and whether the units can be considered as dummy units for the purpose of availing tax exemptions.Clubbing of Clearances:The case involved determining whether the clearances of five units could be clubbed due to interest-free loans granted by one unit to the others, despite each unit having separate licenses and independent functioning in various aspects. The department alleged that the units were dummies created to evade duty and avail irregular exemptions. The Collector held that all units were related and under the same management, justifying the clubbing of clearances and invoking a larger period for duty determination.Arguments and Citations:The appellants argued that mere financial management does not make the units dummy units, citing various judgments that settled the issue. They emphasized the distinction between related persons and dummy units, stating that the units in question were independently functioning entities with no evidence of control or profit sharing. The appellants also relied on rulings regarding the time bar for invoking duty.Decision and Analysis:Upon considering the submissions and citations, the Tribunal found that the mere provision of interest-free loans and common management did not warrant treating the units as dummy units. The concept of a dummy unit involves non-existence in reality and manipulation for tax evasion, which was not evident in this case. The Tribunal clarified that related persons under the law are distinct from dummy units created for tax evasion purposes. The judgment highlighted that the absence of money flow back, profit sharing, and total control by the main unit negated the claim of clubbing clearances. Consequently, the impugned order was set aside, and the appeals were allowed in favor of the appellants.