TaxTMI 
TaxTMI 
1995 (5) TMI 110
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....at on 7-1-1989, the Headquarters Preventive Unit along with other officers of this Collectorate visited M/s. Santha Industrials and the other ten units and scrutinised the records and recovered certain documents. On further scrutiny and investigation conducted by M/s. Santha Industrials, the following facts are said to have come to light : (1)  Shri R. Doraiswamy, Proprietor of M/s. Santha Industrials had designed a Tilting Type Wet Grinder and registered the same in his name and the same is patented under the Indian Patents and Designs Act, 1911 in his name. The patent number is 156166. The brand name and the Logo embossed on the wet grinders were applied for registration by him as proprietor of M/s. Santha Industrials. These patented tilting type wet grinders were manufactured only from his own unit till 1985. In this connection, it was found that Shri R. Doraiswamy had given advertisement in newspapers prohibiting the use of his design, trade name and Logo by others without his consent. (2) These goods were classified under TI 68 prior to 1-3-1986. From 1-3-1986 onwards, it was contended by the Department that it fell under sub-heading No. 8509.00. All the 11 units were s....
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....basis by supply of raw-materials processed from M/s. ABS Plastics Ltd. for which Shri R. Doraiswamy had placed orders, given schedule of supply and also confirmed the prices on behalf of all the units. (e) For procurement of Stainless Steel tubes required for the stand of the Wet Grinders Shri R. Doraiswamy had undertaken placing of orders by fixing the prices on behalf of all the units. Similar involvement of Shri R. Doraiswamy in procurement of various parts of Wet Grinders such as Knurling Bush, Rubber, Gasket, D'Ring etc. were found. The evidence showing the involvement of Shri R. Doraiswamy in procuring the raw-materials was also listed out in the schedule of the show cause notice. (f) The machining and fabrication of wet grinder parts for all the units were done by the three units viz. D.K.B. Fabricators, Balaji Industrial Feeders and Sangeetha Machine Works set up by the workers and partners of Shri Doraiswamy using machineries belonging to M/s. Santha Industrials. (g) Financial accommodations were made by M/s. Santha Industrials for the payments to be made by the other units in respect of their dues to raw-material suppliers and others as detailed in the A....
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....to misuse the exemption under the said notification with an intention to evade payment of duty. Therefore, all the clearances made through the said units were alleged to be clubbable with the clearances of M/s. Santha Industrials and the appropriate duty on these clearances is demandable under Rule 9(2) invoking the extended period of 5 years under Section 11A of Central Excises & Salt Act. Therefore, a show-cause notice, dated 17-7-1989 was issued to M/s. Santha Industrials and calling upon them as to why the duty amount of Rs. 1,26,03,022.03 on the goods manufactured and cleared during the period from 1-4-1986 to 31-5-1989 without payment of duty as worked out in Annexure IV Duty Work Sheet to show-cause notice should not be demanded from them under the said proviso and also why penalty should not be imposed on them under Rule 9(2), 173Q of Central Excise Rules, 1944. 6. Other 10 units were also issued show-cause notice to explain [as to why] penalty should not be imposed on them under the said Rules. A show-cause notice dated 11-7-1989 was issued to M/s. Deepalakshmi Industries, Coimbatore, asking them to show as to why duty amount of Rs. 4,00,424.25 should not be demanded from....
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....lling agreements with M/s. Santha Industrials marketing division. viii. Mere fact that the brand name or the logo is affixed by the respective manufacturer would not make the brand name holder Shri R. Doraiswamy, the manufacturer of tilting type wet grinders actually manufactured by one of the remaining ten units covered in the show-cause notice. The conventional type of wet grinders manufactured by the respective units of their own name plate and sold directly to respective dealers and through marketing division of M/s. Santha Industrials. ix. The allegation that the entire production of tilting type wet grinders was totally removed to M/s. Santha Industrials and sale thereafter by them is incorrect, and entirely several of the units manufacturing such tilting type wet grinders as well as motors have been selling part of their manufacture directly to customers without reference to M/s. Santha Industrials and part of their production in pursuance of the selling agency agreement. x. The allegation is incorrect that the raw materials were entirely procured by M/s. Santha Industrials and manufactured FRP bodies were being supplied on principal to principal basis. xi....
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....as they do not accept order for supplies less than one metric ton at a time and due to selling agency agreement with M/s. Santha Industrials and in order to avoid short supply to dealer or over-stocking, a consolidated order was placed with ABC Plastics and this should not lead to any other inference. xviii. Tubes were being used by all the units, M/s. Decora Tubes (P) Ltd., Indore was willing to manufacture stainless tubes provided a minimum off-take was assured, hence a consolidated order was placed. The allegation that the price was arrived at between M/s. Santha Industrials and M/s. Decora Tubes is incorrect. xix The manufacturer and supplier do not accept orders of small quantity in respect of Knurling Bush. M/s. Santha Industrials on selling agency agreement with other units placed two orders in their letter dated 4-3-1988 & 13-5-1988 for supply of required quantity to each unit functioning each unit independently without reference to M/s. Santha Industrials. xx.  In order to avail special discounts and bulk orders they placed consolidated orders in consultation with other units, payments were made by each unit. M/s. O.K.B. Fabricators (2) Balaji Industrial ....
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....sp;The assumption is totally incorrect and based on misconstruction of the documents as the 11 units are distinct from each other having separate identity, dealers, contractors, suppliers, transactions. The only connection among units is selling agency agreement in which product manufactured, marketed through marketing division of M/s. Santha Industrials, interested in production schedule to be kept up. xxix. M/s. Equipment Agencies and M/s. Ramakrishna & Co. were suppliers of raw-materials and dealers of goods manufactured by M/s. Santha Industrials and other units. xxx. The transactions were on principal to principal basis and never have been single occasion, the payment made by M/s. Santha Industrials without subsequent recovery from the concerned units. The fact that the payments made by M/s. Santha Industrials is entirely wrong. xxxi. The value of clearance for the year 1986-87 in respect of wet grinders against M/s. D.J. Industrials figure is incorrect and it is Rs. 14,80,280.00 only borne out by R.T. 12 returns themselves. xxxii. All the 11 units had filed necessary declarations, classification list, price lists, R.T. 12 and observed all the formalities re....
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....ure the raw-materials and get them manufactured for all the ten units and therefore, they were not independent of each other. He has rejected the argument advanced that this arrangement is only in the nature of financial accommodation, on the ground that it is only a myth and not a reality. The reasons given by the appellants to purchase plastic granules in bulk from M/s. ABS Plastics Ltd. were also rejected by the ld. Collector on the ground that it is a travesty of truth and likewise, the supply of stainless steel stands, Knurling Bush or brass inserts, rubber gaskets and ball bearings, which had been procured in bulk and supplied to each unit by Shri R. Dorai-swamy and advances taken by them was rejected and has been held that nexus between Shri R. Doraiswamy and the other units stands established on account of bulk raw-materials and supplied to the other appellants. Ld. Collector has also held that there is a good amount of financial accommodation between them. Therefore, it means that 10 units were not only using common design, logo of Shri Doraiswamy but also, because of the group concept adopted by them, enjoyed among themselves a good lot of financial support and therefore,....
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....ndustrials. Ld. Collector had referred to the close relationship of all the 11 units inasmuch as the relationship is that of (1) wife (2) wife's father (3) wife's brother and (4) sister's sons. Therefore, he has held that 11 units are managed by people who are closed relatives of Shri Doraiswamy. Therefore, he has held that the fragmentation of manufacturing facilities has been done with a view to evade duty by taking exemption under the said notification. He has held that Shri Doraiswamy not only owned Santha Industrials but was also a partner of Santha Enterprises and Santha Engineers besides Shri Doraiswamy directing and controlling the production of all the units involved in this case. He has held that the manner in which he controls, namely, by issue of internal memo, by placing orders for procuring raw-materials, parts and components would prove the case of the department. [He] has rejected the plea that the Department cannot proceed against each of the 10 units mentioned in the show cause notice. He has held that all the 10 units are liable for penalty for the simple reasons that they have abetted in the scheme of evasion of duty through a novel method of fragmentation. He h....
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.... for the appellant and Shri A.K. Singhal, ld. JDR for the Revenue. Ld. Advocate made submissions on each of the points raised by them in the memo of appeal. The first point raised by him was pertaining to the classification of the product. Ld. Advocate pointed out to the tariff entries and submitted that the ld. Collector has not given any reasons for classifying the goods under sub-heading 8509.00 which reads : "Electro-mechanical Domestic appliances with self-contained electric motor 30% He submitted that the correct classification of the product will be under Chapter sub-heading 8479.00 which reads : "Machines and mechanical appliances having individual functions, not specified or included elsewhere in this chapter 15% He submitted that the item wet grinder is without electric motor and therefore, sub-heading 8509.00 is clearly ruled out. He also referred to the Madras High Court judgment rendered in the case of Collector of Central Excise v. Alco Industries as reported in 1991 (55) E.L.T. 184, wherein it has been held that wet grinder is not an electrically operated machine. He submitted that in a wet grinder, the electric motor is separately fixed and connected by a sepa....
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....ufacturers using the brand name or trade name of the manufacturer and the denial of benefit on that account. He submitted that "by on behalf of manufacturers was incorporated by amending notification subsequent to 1986, therefore, each of the unit has to be seen as an independent entity". He submitted that notwithstanding the fact that each of the unit was held by a person who is related to Shri Doraiswamy yet they were to be considered as an independent entity. He submitted that other 10 units were independently incorporated and registered units in several legislations and they were not dummy units as held by the ld. Collector. He submitted that the concept of dummy units has already been gone into by the Tribunal in several of its orders. Therefore, mere financial arrangements or supply of raw-materials or commonness of partners or commonness of few employees would not give rise to a conclusion that the 10 units are dummy units. What was required to have been proved by the Department was that these 10 units had been set up with a view to defraud the revenue and there is a financial flow-back to Shri Doraiswamy. He submitted that it is a well settled law that when the transactions....
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....ector and therefore, it could not be said that the order of the Collector is a speaking order. He submitted that each of the allegation had been made with detailed replies supported by evidence and each of the item of supply and amount had been explained. None of the factors or allegations would show that the 10 units were dummy units and had been fragmented for the purpose of evasion of duty. He also submitted that ABS Plastics Ltd. were not willing to accept the order for supplies for lesser than one m.t. at a time. Therefore, each of the manufacturing unit had directed Santha Industrials to supply the raw-materials. Hence, they had obtained suitable quantities of this material from M/s. ABS Granules, for utilisation by the different manufacturing units. He submitted that the accounts had been maintained in respect of these aspects and the ld. Collector has not looked into it, therefore, it showed pre-meditated mind on the part of the Collector, to uphold the allegations. He further submitted that even if all the clearances are clubbed, if proper computation of duty and classification is adopted then no duty liability would arise in this case. On the aspect pertaining to time ba....
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....rest of Shri Doraiswamy on three units. He also submitted that many new facts had emerged, which had not come to light during previous investigations and hence the allegation of supression of facts had been fully established. 14.  Ld. Advocate countered the arguments by submitting that the matter cannot be remanded for determination of fresh classification, as fresh show-cause notice would be barred by time. In this context, the ld. Advocate relied on the ruling rendered in the case of Jyothi Laboratories as reported in 1994 (72) E.L.T. 669 (Tri.) = 1994 (50) ECR 36. 15. We have carefully considered the submissions made by both the sides and have perused the records and the citations referred before us. The questions that arise for our consideration are as to (i) whether the classification of the product `Tilting Type Grinder' can be confirmed under sub-heading 8509.00 (ii) whether the clearances of all the appellants can be clubbed for the purpose of considering the eligibility or denying the benefit of the Notification No. 175/86-C.E., dated 1-3-1986, on the grounds urged in the show-cause notice ? (iii) whether the demands are barred by time? (iv) whet....
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.... fact that indisputably the manufacturer of wet grinder and the trade have purchased electric motors from third parties and thereafter fitted the latter into the steel frame of the wet grinder and connected the motor with the wet grinder by `V'-Belt, the article in question cannot be treated to be an electrical appliance which is an essential pre-requisite to make it fall within Item 33-C of the Central Excise Tariff in addition to the same being a domestic appliance. Though excise duty is levied on the incidence of manufacture or production and removal of the goods for consumption, there is no need so far as the case on hand is concerned to detain ourselves to dwell in detail the aspect as to the nature of the process involved in fitting the electric motor to the steel frame, of the wet grinder in the space allotted for the same, in as much as prima facie we consider that by mere process of assembling the electric motor in the already existing grinder no commercially new product as such emerges by [any] manufacturing process. That apart, we are also concerned more about the identity of the commodity and as to whether it answers the description of the domestic electrical appliance ....
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....io of the above ruling would apply, if the department raises a fresh show-cause notice for changing the classification. (ii) whether the clearances of all the appellants can be clubbed for determining the eligibility of the benefit or denying the benefit of the Notification No. 175/86, dated 1-3-1986 on the grounds urged in the show-cause notice? (i) The ld. Collector has held that Shri Doraiswamy has not collected royalty from the ten units and hence the close relationship with the units is established. There is no denial about the persons managing the ten units being blood relatives of Shri Doraiswamy. This relationship is a different aspect than the collecting of royalty. It was explained that there was a judgment of Principal Distt. Judge, Coimbatore against Shri Doraiswamy and he was in appeal before Madras High Court. Ld. Collector has noted this point but has rejected this plea and held that as the royalty is not claimed, hence the charge is proved. This is a strange finding. We have perused the copy of the judgment of Principal Distt. Judge. It is clear from the finding of the Court that Shri Doraiswamy has no exclusive rights under the Patent and Designs Act. I....
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....981 3/EM/85 27-2-1978 SBI Rs. 3.90 lakhs 7-8-1989 1978 & 1985 7-9-1983 SBI cash credit Rs. 1 lakh Machinery Loans Rs. 1 lakh 24-3-1989 7-9-1983 1983 14-2-1983 SBI loan Rs. 1.70 lakhs + Rs. 1 lakhs Not stated 14-2-1983 1986 1-7-1987 SBI 24-1-1989 14-2-1983 1989 24-11-1984 SBI loan Nil Not stated 24-11-1983 1986 12-8-1988 SBI 28-1-1989 17-8-1988 1989 1964 SBI loan Rs. 9 lakhs 30-9-1978 1-4-1981 13-1-1986 As can be seen from above, the dates of registration of each unit are different, and so also the persons owning them. The loans on each unit from bank are independent transactions, so also its independent registrations under SSI, Sales Tax, Income Tax and CE Licences. Therefore, to conclude, that these fragmentation of units had been done with a view to avail the benefit of the notification as held by ld. Collector, does not stand to reason, in the light of enormous evidence produced before us. 16. The ld. Collector has examined the sales agency agreement and the control and supply of inputs from M/s. Plastic Craft Industries and M/s. ABB Plastics Ltd. This has been sufficiently explained and the explanation accepts credence and acceptance. T....
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....urden of showing the units have been created or fragmented, solely to evade payment of taxes is very heavy on the Revenue and it is required to be proved by cogent, acceptable, believable and reliable evidence. Normal business dealings and routine business practices of arranging the schedule of purchases, payments, inter se loans either of materials or dues; supply of raw-materials, financial arrangements, keeping of accounts, common premises, telephones or employees, are, therefore, not the factors for clubbing the clearances of the goods manufactured by each individual independent units, more so in a case where transactions are on principal to principal basis. 17. We have examined the Annexures III to XIV produced by the appellants running to several hundred pages. Each of the units have produced enormous evidence to show their independent transactions of sales with various parties for different periods. There is independent separate payments for purchases of inputs to M/s. Plastic Craft Industrials as well as to M/s. ABB Plastics Ltd. Santha Industrials has merely made arrangements for procuring the same, as is clearly seen from the documents produced. The various accounts....