TaxTMI 
TaxTMI 
2009 (6) TMI 219
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....o Industrial Estate till 1992 and moved to 45 SIDCO Industrial Estate in 1993. This unit was wound up in August '96. Statements were recorded from Shri R. Vasudevan, partner of Excel and Shri N. Sanjay, proprietor of IEW. After completing the investigation, the authorities came to the tentative conclusion that members of the families of S/Sh. R. Vasudevan and his brother Shri R. Rajagopal had formed partnerships TD, Excel, IF and SRI and engaged in the production of excisable goods from the same factory and availed inadmissible exemption extended to SSI units. The premises 45, SIDCO Industrial Estate had been allotted to TD by Tamilnadu Small Industries Corporation (TANSIDCO); the other units operated without clearance from TANSIDCO. All the units used the power connection allowed to TD without separate meters. TD allowed other units to operate in 45, SIDCO premises under lease agreements charging nominal rents. Clearance of excisable goods manufactured by SRI & IEW were a camouflage as they had not made clearances to NLC. Clearances under invoices raised by TD and Excel only represented clearances to NLC. It appeared that TD manipulated the records of clearances of excisable goods....
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....profit got distributed among these units enabling them to avoid taxes. Shri Sanjay, proprietor of IEW had not invested any amount as a proprietor. A single security guard handled security and safety of all the units. It was evident that all the units pooled the space for their manufacturing activity besides men and machinery. All the units took registration on 4-3-98 as directed by the Assistant Commissioner. Proprietorship of Shri Sanjay was dubious as he drew Rs. 3500/- as salary from SRI. The units had address as 45A, 45B, 45C, SIDCO Industrial Estate which had not been authorized by the municipal authorities. The Commissioner relied on the decision of the Tribunal in Simplex Expeller Works v. CCE, Chandigarh reported in 2001 (138) E.L.T. 678 (Tri.-Del.), to conclude that SSI exemption was not separately available to the parties involved. In the said decision, the Tribunal had held that the SSI exemption would be deniable when all the partners of different units were members of the same family and no material to suggest any independent source of income or nucleus to start business for manufacturing activity carried out in a common hall with no partition; machinery for manufactur....
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....s own plant and machinery. Partners of Excel were different from partners of TD. Excel moved to their own premises at 98 SIDCO Industrial Estate in August '96. Therefore, clearances by Excel were excluded from the impugned demand. A separate firm with its own manufacturing premises, machinery and labour could not become a dummy for an interim period, for the reason that it had functioned from a portion of the premises leased from TD. That the Assistant Commissioner directed each unit to take registration certificate and the issue of registration certificate to each of them showed that the department was satisfied about each unit having walls on four sides and separate entrances. They could not be treated as dummies. The firms were separate legal entities for sales tax and income tax purposes. The sales tax returns of Excel showed that SRI, IEW and IF were not mere job workers but had sold goods to Excel. A firm could validly procure goods on purchase from other firms; that could lead to distribution of profit was not a ground to treat all the firms as one and the same. In the absence of common funding and flow back of profit there could not be clubbing. The circumstances of partner....
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.... lakhs and 18.15 lakhs. The demand of duty on traded goods of value of Rs. 3.63 crores was not sustainable. The appellants prayed that the impugned order be set aside. 6. We have heard both sides. We find that the five firms involved are owned by the following partnerships/persons : S.No. Name of the Firm Partners 1. Techno Device Sh. R. Srinivasan (S/o. Sh. Vasudevan) & Sh. V. Raghavan (96-98) 2. Excel Industries Sh. Vasudevan, Sh. Rajagopal, (B/o. Sh. Vasu-devan) Mrs. Vijyalakshmi (W/o. Sh.Vasudevan) Vasudevan and Mrs. Booma (W/o. Sh. R. Srinivasan) Sh. Rajagopal 3. Sri Ranganatha Indus. Sh. V. Raghavan, (S/o/. Sh. Vasudevan) Ms. Gayathri (D/o. Sh. Rajagopal) Sh. Vaidya.rathan (working partner) 4. Industrial Engg. Works Sh. Sanjai (Sole proprietor) 5. Industrial Fasteners R. Vasudevan R. Rajagopal D. Raman (working partner IF) Mrs. Sudha (W/o. Rajagopal) Before the adjudicating authority, the appellants had pleaded that each of them functioned from separate portions in the same premises and that they had separate machinery. The appellants had indicated the various items of machinery owned and possessed by them. We ....
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....has not looked at the aspect of finances/funds operated by each of the units and if there was a common fund and sharing of profits among units to decide if these units were dummies of one main unit. The units considered to be dummy by the Commissioner had engaged in production and transactions assessed to sales tax and income tax. No justification is forthcoming to reject their entitlement to be considered as independent units in their own right. 7. We have also considered the following case law relied upon by the appellants in their defence. We find their ratio relevant to the instant case and support the defence put up by the appellants. (a) Jagjivandas & Co. Thane v. CCE, Bombay-II-1985 (19) E.L.T. 441 (Tri.) In this decision, the Tribunal observed that flow of funds among the three concerns without charging any interest could not be a conclusive circumstance to hold that the clearances of the appellants there in for and on behalf of one another as the partners in the three firms wrere close relatives and the transactions were accounted for in the account book. Moreover, the nature and extent of use of the machinery between one or the other was not clear from the record....
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....and that the work of both these units is being looked after by Shri Avinash Tandon who is the husband of the petitioner and son of Shri S.K. Tandon and that she has been consuming electric power from M/s. Tandon Brothers. These facts which have been mentioned in the show cause notice, in no way, can give rise to a presumption or even an inference that the two units should be treated as one unit. I have already quoted above the various authorities cited by the learned counsel for the petitioner, of various High Courts and the Tribunal wherein it has been held that the value of clearances of the two units cannot be clubbed together and the two units cannot be treated as one unit merely because of proximity of relationship or the situation of the two factories or because there are some common employees unless there is a clear and specific evidence that there is mutuality of business interest between the two units and that both have interest in the business of each other or they have common funding and financial flow-back. In the present case, the most important aspect about having common funding and financial flow-back is missing and therefore, to withdraw the assessment or club the c....
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....ck from one unit to another, the clearances of two units not liable to be clubbed merely because, the two units maintaining common register of stock, clearances, directors, partners of both the units or closely related. (i) Kinjal Electricals P. Ltd. v. CCE - 1989 (43) E.L.T. 327 (Tribunal) This case dealt was one of similar facts as the case on hand. Tribunal observed as follows. "The question whether the two firms are independent would depend much on the question whether they had separate legal identities and functioned independently of each other though they may have transactions between themselves. Although the two firms are located in the same building but in this connection a separate lease deed was executed with the owner of the property and in respect of the machinery leased out to M/s. Naveen Enterprises. There is a proper agreement payment of rent and rent was in fact being paid periodically and properly. The fact of such payment of rent as well as payment of electric charges separately is said to be reflected in the books of account maintained by both firms. As regards the sales of their product by M/s. Naveen Enterprises although most of it was sold to the appe....
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....at the clearances in the name of the respondents remained within SSI limits. It appears from the records that, as rightly pointed out by learned counsel, no common funding or financial flowback was alleged in the show cause notice. According to the ruling of the High Court, in the absence of evidence of common funding and financial flowback, it was not permissible to club the clearances of two units, notwithstanding the fact that the units operated in the same premises with commonalities in respect of management, labour, electric connection, etc. One of the two units considered by the High Court was owned by father-in-law and the other by daughter-in-law and both the units were looked after by the son. Nevertheless, there was no finding of common funding of the units. In the present appeal, the appellant has made an attempt to distinguish the case of M/s. Ranveer & Co. by submitting that both the units considered by the High Court were registered with the Department, whereas, in the present case, only one of the two units was registered with the Department. Since the substantive issue involves the question whether the benefit of SSI notification was available to the goods in questi....
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....lders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. 3. If there are two firms with only some of the partners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or individual owns several factories, he or it gets exemption only in respect of one individual own several factories, he or it gets exemption only in respect of one lot and the manufacturer being only one entity there will be no questing of distributing the exemption. 4. Whether or not in the expression 'by or on behalf of a manufacturer' the expression 'from one or more factories' is added, the effect would be the same if the manufacturer is also the same. The expression 'one or more factories' only further clarifies that whether the factory is one or more, it is the clearances by or on behalf of the same manufacturer which is to be taken into consideration for purposes of interpreting the exemption notification.' We find that the Commissioner has not examined eligibility of the various units to SSI exemption in the light of this Section 37B order of t....
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....ame family had manipulated their accounts to stay within the exemption limit. The firms had also failed to show the source of funds each of them had operated. Commissioner thus wrongly relied on this case law. The Commissioner repeatedly highlighted the fact that the family members of S/Sh. Vasudevan and Rajagopal had dominated the business activities of the firms involved. We find that this is natural when different partnerships comprised members of the same family. The observations of the Tribunal in the Sushil Chemicals (supra), which had dealt with a similar case that "Law does not prohibit family members from establishing different proprietary and partnership concerns and working for the common benefit of the group" is relevant to the case. Transactions made by all units were within the framework of law and mutuality of interest among two units or several units of a group of family members cannot be a reason for clubbing of clearances. Here the partnerships comprised different members of the family and no two partnerships comprised same set of members of the family. Commissioner has failed to appreciate the intent and import of the Section 37B order dated 29-5-92 issued by the....