TaxTMI 
TaxTMI 
1986 (9) TMI 328
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.... under the name Shree Mahesh Containers but that the said Shree Mahesh Containers existed in name only. The show cause notice further mentioned that the 2747 containers seized on 23-11-1981 as well as 4266 fully manufactured containers which were found in the factory but without entry in the RG-1 register were liable to confiscation and duty demanded thereon. In respect of a shortage of 263 containers it was alleged that they have also been cleared without payment of duty and duty was payable thereon also. The appellants were called upon to show cause why confiscation as above-mentioned be not ordered and duty should not be demanded on all past clearances inclusive of that shown in the name of Shree Mahesh Containers and why penalty should not be levied. The show cause notice related to the seizure of the vehicle and liability for confiscation thereof also. But since under the order of the Collector no such action was finally taken, the same is not now relevant. The appellants replied denying that Shree Mahesh Containers had been created as a bogus firm for the purpose of evasion of Excise duty. In respect of containers seized from the lorry they admitted that the same had not been....
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....ckaging Corporation (to be referred to as SPC in short for convenience hereafter) for the purpose of evasion of Excise duty by claiming benefits under the small scale industries notifications. The case for the department is that all manufacturing activities were by the appellant firm only though some part thereof was purported to be carried out in the name of SMC and therefore all clearances by SMC was also to be accounted as clearances by SPC only. The Collector has given various reasons in his order to support such a conclusion. Shri Vineet Kumar supported these reasons as proper and correctly arrived at while Shri Gujral contested all these reasons as unsound. 4. The first reason mentioned by the Collector in his order is that though SMC is claimed to occupy a portion distinct from SPC for its alleged manufacturing operations the said separate space is a part of the area disclosed by SPC in obtaining its licence. The Collector observes that after having thus included this portion also in their approved plan submitted to the Central Excise Authorities, SPC subsequently purported to part with a portion of the same in favour of SMC but that the same was neither communicated....
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....ch separate account was not being maintained by the two firms. As earlier mentioned, the proprietors of the two firms were closely connected and the two firms were functioning in practically adjacent premises. If they are able to establish that even materials commonly stored could be properly identified and separated with reference to the separate accounts kept therefor, it would not be proper to draw a conclusion, merely on the grounds of storage in a common place, that the two firms were in reality one. 6. The Collector then observes that the work force for the two firms was common. He refers to the fact that Shri Sriniwas Loya was an Accountant in SPC as also Manager in SMC. He also comments that at the time of inspection some workers of SMC were actually found working on the machines of SPC. This aspect is explained by the appellants by pointing out that on that date SPC, at the specific request of SMC, was manufacturing not merely boards on behalf of SMC but complete containers also. This is said to be for the reason that there was some labour problem in SMC and therefore they could not carry out the operations of manufacture of containers on their own machines, though ther....
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....rm and that the profits, or at least part thereof, flowed back to the first firm it would not be open, merely on the basis of surmises and conjectures, to conclude that the two firms were not distinct. Shri Gujral urges that there is no such proof, of either common funding or financial flow back, in the case before us. We find that the Collector has not even referred to any such common funding or financial flow back in his order. Shri Gujral points out that even in respect of sale or hire of the machinery of SPC to SMC they have been properly paid and accounted for and entered in the accounts of SMC. This aspect is also not challenged by the Department or by the Collector in his order. In the absence of such facts we agree with the appellants that the conclusion of the Collector that SMC was only a fictitious creation of SPC, based on his finding regarding the close relationship between the partners of the two firms, is not acceptable. It has also to be noted that the partners to SMC have separate income tax assessment and their investment in SMC as well as advances from SMC are reflected in their income tax accounts and assessments. That would also show that the functioning of SMC....
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....oints out that the order originally favoured SPC but that this has been subsequently scored out and the name of SMC entered. But here again it does not appear whether any enquiry was made as to whether the supply was by SMC and to whom payment was made and whether the said payment was accounted in the registers of SMC. 13. The next instance relates to a letter from M/s. Adhesive Chemicals addressed to SMC. It is pointed out that the post-script refers to "your Shree Packaging letter dated 23-11-1981 is with us. The undersigned tried to contact you by phone to get full details but phone was not alright. I will contact you to overcome the problems". The Collector comments that the problem obviously was that the supplier wanted to know which of the two Companies they have to show in their documents. This conclusion does not appear to flow from the wording in the post-script. 14.  The last instance referred to by the Collector relates to a Bill raised by M/s. Amzel Cartons in favour of SMC. The Collector comments that the order is noted (in the bill) to have been placed by phone by Shri Vijay Kumar, Works Manager of SPC but an attempt has been made to score out the name....