TaxTMI 
TaxTMI 
2009 (6) TMI 499
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....tyanarayana Plastic Industries 8. E/183/2007 M/s. Naveen Plastic Industries 9. E/184/2007 M/s. Kiran Plastic Industries 10. E/185/2007 Shri S. Chetan 11. E/186/2007 M/s. S.K. Plast Industries 12. E/332/2007 Shri S. Satyanarayan 2. The relevant facts that arise for consideration are an intelligence was gathered by the Directorate General of Central Excise (Intelligence) that the group of firms/units commonly known as "Satyanarayan Plastics" located at Hyderabad are engaged in the manufacture and sale of excisable goods i.e., plastic moulded articles and plastic moulded furniture, all bearing brand names under "Chetan ®". The said group constituted of the following: (i) Satyanarayan Plastic Industries (SPI) (ii) Sirigir Plastic Industries (SGPI) (iii) Chetan Plast Pvt. Ltd. (CPPL) (iv) Naveen Plastic Industries (NPI) (v) Kiran Plastic Industries (KPI) and (vi) S.K. Plast industries (SKPI) All these firms had manufacturing units of the respective names, are located in the vicinity of each other at IDA, Kattedan, Hyderabad. Intelligence also indicated that the aforesaid units were indulging in evasion of Central Exci....
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....tc., should not be decided in the manner and on the grounds detailed in the foregoing paras; (ii) the total amount of Rs.11,50,29,405/- (Rupees Eleven Crores Fifty Lakhs Twenty Nine Thousand Four Hundred and Five only (as detailed In Annexure-E-2) (being the duty payable on Chetan brand plastic articles and furniture, totally valued at Rs.80,18,64,257/-) (as detailed in Annexure-E-1 and E-2) should not be demanded from them, jointly and severally, towards the Central Excise duties payable, as detailed above, in terms of the proviso to Section 11A(1) of the Central Excise Act, 1944. Totally Rs. 12 lakhs was voluntarily deposited by SPI, KPI, NPI, CPPL & SKPI with reference to the subject case. SPG are required to also show cause as to why this amount should not be adjusted against the amount demanded above. (iii) The Cenvat credit of Rs.21,44,000/- lakhs availed by the manufacturer (in its unit, SGPI) should not be disallowed and the same should not be recovered from them, in terms of Rule 12 of the CENVAT Rules, 2001 for violation of Rules 4 and 6 of CENVAT Rules 2001. An amount of Rs.21,44,000/- was debited by the manufacturer vide PLA entry 24, 25, 26 all dated 21-12-....
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....1944 and Rule 25 of Central Excise (No. 2) Rules, 2001 and Rule 13 of CENVAT Rules 2001 for the aforesaid violation. 2.3 Consequent to issuance of the show cause notice dated 2-5-2002, periodical show cause notices covering the period from November 2001 to December 2005 were issued demanding duty on the SP group of units for the clearances effected by them. The details are as below: Sl. No. O. R. No. Duty involved 1 18/2003-Adjn., dated 31-3-2003 Rs.49,33,095/- 2 160/2003-Adjn., dated 6-1-2004 Rs.9,03,103/- 3 113/2004-Adjn., dated 1-12-2004 Rs.9,40,440/- 4 181/2004-Adjn., dated 30-9-2003 Rs.6,57,820/- 5 53/2005-Adjn., dated 04-10-2005 Rs.9,37,100/- 6 30/2006-Adjn., dated 12-4-2006 Rs.11,03,306/- In reply to the above show cause notices, the appellants moved Hon'ble High Court of Andhra Pradesh for supplying them with the documents seized by the department. The Hon'ble High Court of Andhra Pradesh issued the order that the party can obtain the photocopy of the documents at their cost. The appellants took up the matter with the Directorate informing that show cause notice was received and none of the documents on wh....
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....f the Central Excise Act, 1944 read with Section 38A of the Central Excise Act, 1944. (iii) I appropriate the amount of Rs.12,00,000 (Rupees twelve lakhs only) voluntarily deposited by SPI, KPI, NPI, CPPL & SKPI (SP Group) with reference to the subject case, towards the duty payable against the Sl. No. (ii). (iv) I disallow the CENVAT Credit of Rs.21,44,000/- lakhs availed by the manufacturer (in its SGPI unit) in terms of Rule 12 of the CENVAT Rules, 2001 for violation of Rules 4 and 6 of CENVAT Rules 2001, read with Section 38A of the Central Excise Act, 1944. (v) An amount of Rs.21,44,000/- debited by the manufacturer vide PLA entry 24, 25, 26 all dated 21-12-2001 is confirmed as payable and adjusted against the amount specific I(iv) above; (vi) I order for confiscation to the Government of India the cash of Rs.1,90,40,000/- now in the form fixed deposits along with interest, seized at Sri Satyanarayan's residence under Section 121 of the Customs Act, 1962, made applicable to like matters of Central Excise in terms of Section 12 of the Central Excise Act, 1944 vide Notification No. 68/63, dated 4-5-63; (vii) I order for confiscation of finished goods valued at Rs.....
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....nt of duty mentioned at (ii) above under Section 11AB of the Central Excise Act, 1944. (xiii) I do not impose any penalty under Rule 173Q of erstwhile Rules 1944 and Rule 25 of Central Excise (No. 2) Rules, 2001 and Rule 13 of CENVAT Rules 2001, on SP Group comprising of SPI, SGPI CPPL, NPI, KPI and SKPI as mandatory penalty under Section 11AC of the Central Excise Act, 1944 is imposed. (xiv) I order for confiscation of Chetan brand excisable goods, seized at the premises of M. Satyanarayan Plastic Agency, totally valued at Rs.17,01,459/- under Rule 25 of the Central Excise (No. 2) Rules, 2001, read with Section 38A of the Central Excise Act, 1944. However, I impose redemption fine of Rs. 1,00,000/- (Rupees one lakh only) in lieu of confiscation. (xv) I order for confiscation to the Government of India the cash of Rs.7,95,700/- now in the form fixed deposit along with interest, seized at the premises of M/s. Satyanarayan Plastic Agency under Section 121 of the Customs Act, 1962 ibid. (xvi) I impose a penalty of Rs.50,00,000/- (Rupees fifty lakhs only) each on S/Shri S. Satyanarayan and S. Radhakrishna, under Rule 209A of Central Excise Rules, 1944 (in terms of Sec. 38A ....
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....er Section 11A(2) the adjudicating officer shall determine the amount of duty due from such person and thereupon such person shall pay the amount so determined. (c) Rule 7 of the Central Excise Rules, 1944, stipulates the manufacturer of goods is liable for payment of duty. Neither the notice is served on the person chargeable with the duty i.e. "SP Group" who according to the notice is the manufacturer nor the order determines the person from whom it is due and payable. No order is served on the "SR Group". Therefore, neither the notice nor the order is in conformity with the requirement of Sec. 11A read with Rule 7 of Central Excise Rules, 1944. (iii) As regards whether the benefit of Notification No. 5/98 dated 2-6-98 can be denied to the various manufacturing units, when admittedly the goods are manufactured in different factories, the learned advocate urged the following points. (a) The relevant condition No. 10 of the Notification stipulates that the manufacturer shall not avail credit of duty on the exempted product or any other product manufactured in the same factory. (b) Admittedly as per the Notice each of the manufacturing have a separate factory (Paras 23, ....
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....e value of clearances from each factory in each of the financial year including the alleged clandestine removal. The charge of clandestine removal is relevant only if the value of such clearance exceeded the exemption limit. (vi) He submitted that in the facts of the present case, the proposal for clubbing the value of clearance of alleged six fictitious units is not sustainable for the reason: (a) If all the constituents of the so-called "SP Group" are fictitious, "SP Group" itself cannot exist as few non existent fictitious entities can not create/result in emergence of a real entity. (b) All the alleged six fictitious units came into existence and were engaged in manufacturing activities much prior to plastic household articles became dutiable on exceeding prescribed limits vide Notification 5/98-C.E. and were registered with and recognized by the different organizations departments of the government, including the Central Excise Department. Accordingly the charge of fragmentation with a view to avail separate exemption limits cannot be sustained. (c) The units had filed declaration before the Jurisdictional Central Excise officers giving details of the firms more sp....
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....ents of the statements. Copy of record of Cross-Examination of dealers is collectively enclosed herewith at Exhibit 'I'. (f) During the cross examination of investigating officers, it was also established that the documentary evidence recovered from these dealers contradicted their oral statements which alone was pressed to drive home the allegation of clandestine removal. Question No. 68 to 92 of record of Cross Examination of Shri P.V.S.S. Srinivas refers. (Exhibit 'H' refers). (g) Sale of raw material which is alleged to be fictitious was taking place for so many years prior to the goods became liable to duty on 2-6-98. Previous years sale of raw material is well documented and assessed to Sales Tax by the Sales Tax Dept. Evidence to this effect were adduced before Adjudicating Authority, but were dismissed without any cogent reason. (Copies of Assessment orders pertaining to years 1989-90, 1990-91, 1991-92 and 1994-95 are collectively enclosed herewith at Exhibit 'J'. (h) In respect of the sale of granules during the years 2000-01 and 2001-02 also the Sales Tax authorities recognized the sales and assessed the Sales Tax returns by orders e.g. dated 7-2-2004 for the yea....
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....gicity and factual inaccuracies were brought out during the combined gross examination of Shri G. Rajashekhar Reddy and M.N. Charyuly, IOs during their cross examination. (Question Nos. 4 to 21) Record of combined Cross Examination of these officers is annexed herewith at Exhibit-'N'. (o) These investigating officers could not vouch for or substantiate the industrial average of Rs.70/- as the value of turnover per unit consumption of electricity as proposed in the notice. (viii) Finally, the learned counsel would submit that in any case the present demand confirmed under the impugned order rendering all the six manufacturing units jointly and severally liable for the demand confirmed on the goods manufactured by "SP Group" is legally unsustainable inasmuch as the Hon'ble Supreme Court in the case of Gajanan Fabrics Distributors as reported in 1997 (92) E.L.T. 451 S.C. has held that confirmation of duty demand jointly and severally on all manufacturing units whose turnover is held liable to be clubbed is legally unsustainable. Adjudicating authority fastened the duty liability jointly and severally on all concerned, as separate existence of individual units is not recognizable....
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.... premises was in the possession and control of the appellant was demonstrated by way of: (a) Lease deed dated 19-6-1999 executed by and between SGPI and SKPI for acquiring the piece of land on lease. (b) Books of Accounts (Balance Sheet) which show that the shed was constructed on this said leased land by the appellants out of their own funds which, is reflecting in the Books of Accounts of the appellant. (c) Since power supply was not sufficient (Additional Power was not sanctioned by APSEB/APTRANSCO), the appellants got the Plastic Furniture manufactured at the said premises by using the labour and power of SKPI on Job work basis. (d) Raw material required for manufacture of the goods of appellants was supplied by the appellants and the goods after manufacture were brought back to the premises of the appellant and were cleared on payment of duty. Documents showing supply of raw materials, moulds and receipt back of finished goods and payment of job charges were available with the investigating officers having been seized during the investigations. These were also placed before the Commissioner. Further, during the Cross Examination SIO shed P.V.S.S. Srinivas having pe....
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....Commissioner as well as in these appeals is that the term "SP Group" as alleged in the Show Cause Notice and the impugned order is imaginary, illusory and hypothetical creation based on assumptions and presumptions of the Department as there exists nothing in the name of SP-Group. The Commissioner has dealt with this aspect in Para 267 of his Order which is reproduced below: "In their reply, on the issue of clubbing, all the units including SGPI, a registered unit, at the outset, strenuously contested that the term 'SP Group' as alleged in the Show Cause Notice and the impugned order is imaginary, illusory and hypothetical creation, based on assumptions and presumptions of the Department and the noticees went on to contest that 'SP Group' is created in air since nothing exists in the name of 'SP Group'. The notices also placed lot of reliance on the concept of the 'SP Group'. However, contrary to this claim, it is on record that the term 'SP Group' emanated on the very first day of search operations carried out at the residential premises of Shri Satyanarayan on 7-11-2001, from the versions of Sri Satyanarayan and other family members. As per panchanama dated 7-11-2001, when ask....
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....that unlike invoices bearing certain codes issued by SPA for sales therefrom, such printed computerized invoices relating to removal of goods from each manufacturing unit did not bear any code. That such computerized invoices showing removal from the manufacturing units to the trading firm SPA did not reflect the correct quantity and value of the goods removed from a particular manufacturing unit could be established only after the Department had been able to lay its hands on some of the handwritten invoices before their destruction. When these invoices were correlated to; respective computerized invoices, it was noticed that the computerized, invoice did not reflect the quantity and value of goods covered under handwritten invoice. For the sake of illustration, a copy of handwritten invoice No. 168/2001-02 dated 7-9-2001 issued by NPI and the connected Computerized Invoice No. F-168 dated 7-9-2001 are enclosed-(Annexure-A). It would be noticed that as against "12 doz" i.e., 144 pcs of 'Tara Basket No. 1', the computerized invoice shows a quantity of only '36' pcs. Similarly, while in handwritten invoice, the rate per piece works out to Rs.30/-, in the computerized invoice, the rat....
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.... manufacturer within the meaning of the Central Excise Law. Commissioner, as pointed out earlier, has dealt with the rationale for using the expression 'SP Group' in the SCN. 'SP Group' is not a legal entity so as to make it obligatory for the Department to issue a notice to 'SP Group' for demanding duty or imposing penalty. Since all such manufacturing units as well as trading firm SPA are commonly known and referred to as 'SP Group', the SCN as well as the Order has merely used this expression. However, it is significant to point out that duty has been demanded in the order severally and jointly from manufacturing units named therein and not from SP group per se. Therefore, the use of the word 'SP Group' cannot be considered fatal to the sustainability of the demand. Nor the reference to "SP Group" by itself has vitiated the demand. (viii) It is not an uncommon practice in the Trade and Industry to refer certain companies/firms etc., as belonging to a 'Group'. For the sake of illustration, business card including a letter head of M/s. Bhagyanagar India Ltd., Secunderabad is enclosed (Annexure - B). On both letter-head as well as business card, below the company's logo is menti....
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....e of clearances in a financial year. In this also while some units were both partnership firm as well as corporate body set up at different points of time between period (1968, 1972 & 1978). It had also been urged by the appellants that a corporate body and partnership firms cannot be clubbed together especially when it has been shown the three appellants had separate identities, were holding separate SSI Registration and were assessed separately for Income Tax. After considering the arguments from both sides and relevant facts on record, the Hon'ble Tribunal observed that the Collector had brought out and relied upon ample evidence on this aspect to show that the three units were acting in tandem. He had therefore, aptly relied upon the Tribunal decision in the case of Bhagwandas Kanodia & Others as reported in 1987 (32) E.L.T. 204 wherefrom he had quoted that: "to establish the case of fastening duty liability, something more would be required, for example, the existence of a person or a body of persons, who in reality, owned directed and controlled the production in the four separate units which would show that the four units were only a facade to avail of exemption" The H....
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....ly Rs.12.75 crores. 5. In the rejoinder, the learned advocate urges the following points: (i) As regards the confirmation of demand jointly and severally, the demand in the impugned Order is confirmed in respect of the "Chetan Brand" goods manufactured and cleared jointly and severally by "SP Group" allegedly comprising of the six manufacturing units. Appellant's objection with regard to such confirmation of the demand has been set out in page 8 of the synopsis filed by the Appellants at the commencement of the hearing. (ii) While elaborating the above submissions, reliance was placed on the following decisions: * Shree Gajanan Fabrics Distributors v. CCE, Pune as reported in 1997 (92) E.L.T. 451 (S.C.) * Sushil Chemicals as reported in 2008 (230) E.L.T. 117 (T) (iii) In reply to the above arguments, the Special Counsel for the Department contended that such confirmation of demand is upheld by the Tribunal in its decision in the case of Supreme Engineering Works as reported at 1996 (82) E.L.T. 102 (T) and that the Hon'ble Supreme Court dismissed the appeal filed against this Order and hence, attained finality. On the main argument that no demand as required under ....
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....f the revenue, the learned counsel in rejoinder submits the following points. (i) As the grounds at (a), (b) and (c) are concerned, Tribunals in plethora of decision have held that units cannot be clubbed on these grounds, few of which are (i) Jagjivandas & Co. - 1985 (19) E.L.T. 441 (Tri.), Para 6 of the Order, (ii) Sushil Chemicals - 2008 (230) E.L.T. 117 (Trib.) and (iii) Aggarwal Rubber - 2002 (149) E.L.T. 81 (T). (ii) So far as ground (d) above is concerned, it was submitted that the premises where the capital goods of Sirigiri Plastic Industries was found, was obtained on lease by M/s. SGPI from M/s. S.K. Plast Industries and regular lease rentals were being paid. These payments were accounted and entries were found in the seized record, which fact was reconfirmed by the Sr. Intelligence Officer during cross-examination (Q.120 - page 119 of the Synopsis submitted by appellants). (iii) As regards ground (e) above is concerned, the Hon'ble Bench was taken through the seized records and record of cross-examination of SIO establishing that wherever one unit was manufacturing for the other, regular job charges/shift charges were being paid, the requisite raw materials and....
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.... removals, it is necessary to determine the value of clearances by each of the manufacturing units/factories for each of the financial years as exemption upto Rs. 85/- lakhs/Rupees one crore was available to each of the unit under Notification (No. 5/98 and later i.e. with effect from 1-4-2000 under the regular 5Sf exemption notification. (ii) At pages 12 to 16 of the Synopsis the Appellants elaborated their arguments on the charge of clandestine removal. Several of the detailed submissions on each of the aspects made in reply to the Show Cause Notice were not considered by the Ld. Commissioner. B.Multiplication of cash sales (i) No codes whatsoever are available in the cash bills. Several of the sales under the cash bills were to different Institutional buyers. Without making any kind of enquiry whatsoever, these sales also are multiplied for arriving at the demand. SIO was questioned during cross-examination, who gave evasive replies. However, two IOs, who were cross-examined, have categorically admitted that no verification was carried out. (Q. No. 22 at page 184 and Q. No. 64 to 68 at pages 107 and 108 of Synopsis refers). Further, though the Commissioner records ....
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....edgement of manufacture by SGPI in both the premises vide Acknowledgement dated 30-3-00. Address of Unit II of SGPT is at Plot No. 116 IDA Kathedan which is the address of the land allotted to SKPT. (iv) It is also specifically submitted that the said machinery was exclusively used for the manufacture of finished products of the appellants, which are received back and thereafter, cleared on payment of duty from Unit No. 1 of the Appellant. 7.2 It was further submitted that while the advocate was relying on the decision of the Hon'ble Tribunal in the case of Pooja Forge Ltd., as reported in 2006 (196) E.L.T. 18 (T) = 2007 (8) S.T.R. 318 (Tribunal), Special Counsel in reply also did not advance any arguments except showing a copy of correspondence of M/s. Winsor Ltd. that the three machines were installed in S.K. Plast Industries. In rejoinder, it was pointed out that the letter of M/s. Winsor Ltd., no way advance the case of the department, inasmuch as, right from day one the appellants had stated that the Second unit/Shed of M/s. Srigiri Plastic Industries was constructed on a piece of land obtained on lease from M/s. SKPI. 8. We have considered the submissions made at gre....
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.... partners addressed letters dated 19-4-02 in response to the summons issued seeking their presence, stating that they were not looking after the business and requested to get clarification only from the male members who were active partners. This shows pointer towards the dummy nature of the lady partners. In the case of Ruby Rubber Industries v. Commissioner of Central Excise, Calcutta-II reported in 2002 (149) E.L.T. 970 (Trib.) Calcutta, the Hon'ble CEGAT while discussing the above case referred to Apex Court's rulings in Mohanlal Mangalal Basweswar v. Union of India and others reported in 1986 (23) E.L.T. 3 (S.C.), wherein it was held that the firm of M/s. M.B. Basweswar & Sons, though a separate partnership firm was in fact a firm in which not only the original appellant and others were partners but a son of each of them was also a partner and thus there was identity of interest between the two firms. It was further noted that both these firms had their offices in the same premises and these two firms can not be said to be at arms length or independent parties. In the case of Precision Tool Room v CCE., Ahmedabad reported in 1997 (96) E.L.T. 57 (Tribunal.), Hon'ble Tribunal he....
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....r financial flow back, profit sharing, distribution of income and mutuality of interest, throughout the entire period of the demand, thereby warranting clubbing of their clearances as held in the decisions cited above." The above conclusions and the observations of the Adjudicating Authority in Paras 95, 96 and 97 are shockingly inconsistent. Anybody reading the findings till Paragraph 94 would anticipate that the Adjudicating Authority would confirm the proposals in the show cause notice. However, in the subsequent Paras, there is a volte face. No doubt Revenue is justified in filing its appeal against the impugned order. 8.4 It is also on record in the cases before us that all the evidences regarding the land lease deeds, TDS certificate, Sales Tax and Central Sales Tax certificates were produced before the lower authorities. The entire gamut of confirming the demand of duty on the 'SP Group' entity was done by the lower authorities only on the ground that all these units are being floated and controlled by Shri S. Radhakrishna and Shri Satyanarayan and that there was always an exchange of materials and capital goods. We find that an identical issue was considered by the Tr....
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....as a group which is rare in business transactions between units with genuine separate identities." All the transactions enumerated by the Adjudicating Authority are available in the ledger accounts of the concerned units. It is also on record that the transactions have been reflected in the Income Tax Returns and accepted by the Income Tax Authorities. The proposal in the Show Cause Notice is for clubbing of the clearances of all the units for duty purposes. In that case the combined clearances would exceed Rs.1/- crore and there would be duty liability. But this can be done only when there is a principal unit and all the others are dummies or Sham. Here we have nine units A1, A2 to A9. It is the burden of the Revenue to show that A1 is the real unit and A2 to A9 exits only in paper. Unless such a finding is there, the clearances cannot be clubbed at all. All the transactions, which are cited by the learned Adjudicating Authority are within the framework of law. For example, in Para 61 it has been stated that M/s. P.G. Plywood Company through the money lending concern M/s. Dhirajlal Vithalji Co., pumped enormous funds during 85-86 and 86-87 for financing the new small scale unit in....
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....on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder], a Central Excise Officer may, within [one year] from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if] for the words [one year], the words "five years" were substituted. Explanation - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period [one year] or f....
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....nce with law. We having held that 'SP Group' is non-entity, we find that the lower authorities have erred in confirming the demand against the non-existent 'SP Group. 9. As regards the benefit of Notification No. 5/98 dated 2-6-1998, we find that the said Notification gives benefit of exemption upto turnover of Rs.85/- lakhs/Rupees one crore for a factory during a financial year. In these cases before us, we find that the Adjudicating Authority has come to a conclusion that clearances all the units are to be clubbed together and 'SP Group' should be charged with the demand of differential duty, hence, did not give benefit of notification to individual units, while arriving at duty liability which we find is inconsistent with the settled law. Since in our findings, we have held that there is no 'SP Group' and there is no legal entity, the benefit of Notification No. 5/98 needs to be given to the individual assessee/appellant in these cases. Since the entire exercise of the lower authorities was confirming the demand against a group, they have not given the benefit of the Notification No. 5/98 to anyone. In view of this, we hold that the benefit of Notification No. 5/98 has to be ....