TaxTMI 
TaxTMI 
1994 (4) TMI 352
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....) Ltd. during the period from 1-8-1986 to 30-11-1989 and by M/s. Steel Treaters (Mysore) Pvt. Ltd. during the period from June, 1989 to July, 1989 are to be treated as goods actually manufactured and cleared by M/s. Vishnu Forge (Mysore) Pvt. Ltd. The learned Collector has also held that M/s. Vishnu Forge (Mysore) Pvt. Ltd. is ineligible for the duty exemption under Notification No. 175/86-C.E., dated 1-3-1988 as amended, the clearances effected by them through M/s. Metal Cutters (Mysore) Pvt. Ltd. during the period 1-8-1986 to 3-11-1989 through M/s. Steel Treaters during the period from June, 1989 to July, 1989 are chargeable to duty without extending the benefit under the said Notification. Consequently, the learned Collector has confirmed the duty de­mand of Rs. 24,02,746.73 against M/s. Vishnu Forge (Mysore) Pvt. Ltd. He has imposed penalty of Rs. 2 lakhs on Vishnu Forge (Mysore) Pvt. Ltd. under Rule 173Q(1) of C.E Rules, 1944 and penalty of Rs. 20,000/- each on Metal Cutters (Mysore) Pvt. Ltd. and M/s. Steel Treaters (Mysore) Pvt. Ltd. under 209A of the Central Excises Rules, 1944. Aggrieved by the said order, the appellants have filed these three appeals which have been h....
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....as been summarised by the learned Collector in Para 2 of his Order as follows : "2. The scrutiny of records and investigation revealed the following :- (i) that the 3 units viz., M/s. Vishnu Forge, M/s. Metal Cutters and M/s. Steel Treaters are located in the same premises on the land of about 10 acres which belongs to M/s. Vishnu Forge. There is no lease agreement whatsoever between M/s. Vishnu Forge and other 2 units and no rent is paid for the said land by M/s. Metal Cutters and M/s. Steel Treaters; (ii) of three units, M/s. Vishnu Forge is a medium scale limited company, while M/s. Metal Cutters and M/s. Steel Treaters are the small scale Private Units registered as such. All the 3 companies are having common Directors, viz., Shri M.S. Ramaiah, Shri M.R.S Ramaiah and Shri M.R. Jayaram, all residing at Gokul House, Bangalore-54. There is one more Director Shri R. Chandra Shekara Shetty residing at 94, 1st Main Road, 10th Cross, West of Chord Road, Rajajinagar, Bangalore. Shri M.S. Ramaiah, Shri M.R.S. Ramaiah and Shri M.R. Jayaram appear to be related persons as father and sons and Shri M....
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....the other units. Further, M/s. Vishnu Forge have themselves issue direction to their customers to place orders with their sister concerns viz., M/s. Metal Cutters and M/s. Steel Treaters; (xii) Regarding certain job work undertaken from side units, the materi­als received are cut at M/s. Metal Cutters and lateron transferred to Vishnu Forge for final operation. No documents were available in the transfer of goods from M/s. Metal Cutters to M/s. Vishnu Forge." 3. The investigating authorities recorded the statement given by Shri Anand, Accounts Manager, M/s. Vishnu Forge by his statement dated 31-8-1990 (2) Shri R. Subba Rao, Commercial Manager of M/s. Vishnu Forge. His statement was recorded on 31-8-1990 (3) Shri M.R.S. Ramaiah, Managing Director whose statement was recorded on 9-1-1991. 4. M/s. Vishnu Forge filed their reply to the show cause notice and their reply has been summarised in the impugned order which is noted below : "(i) that the averment made in the show cause notice that M/s. Metal Cutters and M/s. Steel Treaters are related units floated and created by the assessee with an intention to wrongl....
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....RGI registers and other statutory records which were being verified by the departmental officers from time to time; (iv) that therefore it was clear that the other 2 units were manufacturing the excisable goods independently and clearing the same on their own in accordance with the licence granted to them and hence such clear­ances cannot be attributed to have been made by M/s. Vishnu Forge; (v) that besides being registered as separate Pvt. Ltd. Companies all the 3 units were being dealt with separate entities by Government Departments such as Sales Tax, Income-tax, Factories Act, ESI, Provident Fund and Professional Tax Authorities that all the 3 companies had separate electricity connections given by the K.E.B., that in view of those facts the charges in the show cause notice that all the 3 units are not independent entities since there were common Directors related to one another, was not sustainable; (vi) that as regards the averments made in the show cause notice that the other two units were situated on the same land as that of M/s. Vishnu Forge, absence of lease agreement for su....
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.... manufacture of DTH rock roller and allied drill bits and at that point of time M/s. Vishnu Forge was not at all under excise control; that M/s. Vishnu Forge obtained the Central Excise licence only after steel forgings came under excise levy with effect from 1-3-1988, that M/s. Vishnu Forge never had any industrial or Central Excise licence to manufacture DTH rock rollers and allied drill bits; (iv) that the assessee was manufacturing DTH rock roller and allied drill bits and open hammer forged articles in their factory and was maintaining RGI register and other statutory records and was submitting RT 12 returns to the department and the same were being assessed, that the statutory records were verified by the officers of the department and the Audit parties during their visit to the factory of the assessee, that even the annual stock taking was being conducted by the departmental officers who noticed no discrepancy in that regard, that therefore it was not open to the department to allege that the excisable goods cleared by the assessee were manufactured by M/s. Vishnu Forge, that consequently they were not liable to a penalty under Rule 209A of the Cen....
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.... M/s. Steel Treaters and the other two companies were given separate electricity connections by the KEB, that in view of those facts the charge .in the show cause notice that M/s. Steel Treaters and the other two companies are not independent entities because there were common directors related to one another was not sustainable; (v) that to the averment in the show cause notice that there was no lease agreement between the M/s. Steel Treaters and the said two companies that no rent had been paid by M/s. Steel Treaters to M/s. Vishnu Forge, that the office and managerial cadre officers were common; that the tool room belonging to M/s. Vishnu Forge was used by the other two companies without payment of any charges, it was submitted that even though individual job wise or transaction-wise settlement of accounts has not been done, the amount due for the services rendered facilities extended and also for the payments made by one company to the other two companies were debited/credited periodically to the accounts of the respective companies and at the end of the accounting year the same were reflected in the Balance Sheet of the respective compani....
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....companies was not indicative of the fact that one company was dummy of the other but they were distinct legal entities carrying on business on their own account and one could not be held to be controlled by the other, that the ratio of the decisions and the Board Circular referred to, was apply applicable to the facts and circumstances in the present case and therefore M/s. Metal Cutters and M/s. Steel Treaters were distinct and independent companies even though there were common directors for all the three companies; (iii) that the averments made in the show cause notice as regards the facili­ties commonly used by all the three factories and the absence of any payment of rentals (in cash) by the other two companies to M/s. Vishnu Forge were admitted; (iv) that separate Memoranda of Understanding (MOU) were entered into on 13-3-1985 between M/s. Vishnu Forge and M/s. Metal Cutters and between M/s. Vishnu Forge and M/s. Steel Treaters, that in the MOU with M/s. Metal Cutters it was agreed that M/s. Vishnu Forge would let out the factory premises and also would provide administrative ser­vices viz., utilisation of office b....
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....at since M/s. Metal Cutters were manufacturing only open hammer forgings, M/s. Steel Treaters were manufacturing components by turning in lathes, the question of the two companies using the tool room of M/s. Vishnu Forge did not arise; (iii) that the tempo vehicle belonging to M/s. Metal Cutters was used only occasionally by M/s. Vishnu Forge since the latter had their own trolly and fork lifts for internal movement and that the occasionally use of the vehicle by M/s. Vishnu Forge had no bearing on the distinct and independent character of the three companies; (iv) that the procedural lapse in the movement of raw materials amongst the three companies by itself neither vitiates the independent and dis­tinct character of the companies nor does it come in the way of availment of separate exemption by M/s. Metal Cutters and M/s. Steel Treaters under Notification No. 175/86; (v) that M/s. Vishnu Forge was declared as sick company by the BIFR on 22-10-1989 and if the averment that all the three companies are one entity, were to be true, then all the three companies would have been declared si....
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....the CBEC relating to certain clarifications on Notification No. 175/86-C.E.; (iv) that M/s. Metal Cutters entered into a Memorandum of Understanding (MOU for short) with M/s. Vishnu Forge under which for utilising com­mon facilities of the latter the former had to carry- out the work of cutting metal belonging to latter free of cost and any additional expenditure was adjusted by raising debit notes on each other and the sum total of such credit/debit were reflected in the balance sheet of the companies for that year; that a copy of the MOU was being enclosed to the letter as Annexure 'C'; (v) that copies of balance sheet and the profit and loss account for the years 1988-89 and 1989-90 were being enclosed to the final reply Annexures D1 and D2 that sample acknowledgement for having submitted the Income-tax returns for the year 1988-89 and 1989-90 were also being enclosed as Annexures E1 and E2; (vi) that as proof of separate registrations of M/s. Metal Cutters by the Income-tax, Sales Tax, ESI, Provident Fund Authorities and as an SSI unit and as unit under Central Excise and separate b....
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....ndustries certificate obtained by M/s. Metal Cutters on 28-2-1984 for steel forgings and steel cutting jobs was got amended to manufacture DTH rocks rollers and allied drill bits on 22-7-1986, that lat­ter on obtaining the Central Excise licence the Classification List No. 1/86-87 effective 5-8-1986 was filled and approved and that a copy of the approved classification list and the covering letter are enclosed to the final reply marked Annexures P1 and P2, and that the copies of the classifica­tion lists filed and approved subsequently including therein the DTH rocks roller and allied drill bits, were also being enclosed as Annexures Q1 and Q2 and R1 and R2; (xiii) that the Departmental officers visited the factory of M/s. Metal Cutters regularly, had checked the RGI register and also had conducted stock taking in the factory, that sample copies of extracts of the same were being produced along with the final reply marked as Annexures S1, S2, S3, S4, S5 and T1, T2, T3 and that hence the demand for differential duty of Rs. 13,80,386.13 was not sustainable; (xiv) that as regards the differential duty of Rs 7,45,550.47 demanded in respect of goods....
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....n - Annexure 'G' (e) Provident Fund Commissionerate - Annexure 'H' (f) Profession Tax department - Annexure 'J' (g) KEB - Annexure 'K' (h) Department of Factories and Boilers - Annexure 'L'; (v) that they were enclosing a copy of the letter of the Assistant Director, DIC Mysore; showing the description of the end products, as Annexure 'M'. (vi) that the transaction between them and M/s. Vishnu Forge was on a principal to principal basis, that there was no financial flow back and that there was a memorandum of understanding a copy of which was being enclosed as Annexure 'N'. (vii) that they were enclosing the balance sheet for three years as Annexure 'O', that the charges payable by each unit for the work done and for re­ceipt of supplies of fuel and stores was accounted on a daily basis for which debit/credit notes were raised at the end of the month and that they were enclosing copies of the same as Annexure 'P'. (viii) that they had charged and collected charges for heat treatment ....
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....th and that the balance in the ledger account were transferred to annual final accounts showing the debtor/creditor position of each company; (xiv) that M/s. Vishnu Forge vide their letter VFM/Accounts/CED, dated 21-7-1989, informed the Superintendent of Central Excise Range 'C', Mysore, that they were taking up forging labour jobs from them (M/s. Steel Treaters) and that a copy of the said letter was being enclosed as Annexure 'W'; (xv) that the statement of S/Shri Anand and Subba Rao, also do not contain anything to refer that the goods were manufactured by M/s. Vishnu Forge and cleared in the name of M/s. Steel Treaters; (xvi) that since they had intimated to the department about the process of manufacture vide their letter dated 12-6-1989 and therefore the extended period under Section 11A of the Central Excises and Salt Act, 1944 was not available to demand duty from them, and in that regard they relied upon the decisions of the Tribunal in the case of Mattel Toys (India) Ltd. v. Collector of Central Excise and Ashwini Vanaspati Industries (P) Ltd. v. Collector of Central Excise; (xvii) that the department had not giv....
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....held that M/s. Vishnu Forge have sought to accomplish their exercises in duty evasion by creating and flouting the two units by mutual purchase of orders from their customers and exercise total and complete control over the affairs of the said unit flouted under the camouflage of the documents of Memorandum of Understanding through suppression of facts involved in modus operandi from the department and the contravention of the provisions of the Central Excise Act and Rules, in that view of the matter, learned Collector has held that the extended period under Section 11A of the Act can be invoked and thus he has confirmed the duty demand in the show cause notice and imposed penalties as stated. 12. We have heard Shri K Parameswaran, learned Advocate for appellants and Shri. K.K. Dutta learned JDR for the Revenue. Learned Advocate took us through the order and pointed out to the allegations and the replies filed by the appellants. Learned Advocate's submission is that there is no allegation of financial flow back or common funding in the case that there was no allegation to subterfuge or the units are set up as a facade or that they have been set up as a sham. He pointed out ....
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....ined to the period sub­sequent to the period in issue and its reliance would vitiate the order. He sub­mitted that the learned Collector had not gone through the entire pleas raised by the appellants nor given any finding on the pleas and the evidence placed before him. He submitted that merely because the purchase orders received by M/s. Vishnu Forge were directed to other two units that by itself is no ground for clubbing the clearances. It is merely a business arrangement and such business arrange­ment is a common feature in the trade world. He submitted that the non-com­pliance of rules of Central Excise Rules may only call for penal action but that would not be a ground for clubbing the clearances of three independent and separately incorporated units, in the absence of any evidence of financial flow back. He submitted that common business arrangement and common business managements are different terms than financial flow back and financial man­agement. He submitted that the ruling in Balamurgan and Balamurli was in the control of two units held by husband on behalf of his wife, by virtue of a power-of-attorney. Therefore, the Tribunal had held that the wif....
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.... Instruments (P) Ltd.'s case has not been followed in the case of M/s. Prasad Engineering Works & Others v. Collector of Central Excise, Hyderabad as reported in [1987 (31) E.L.T. 247 (T) = 1987 (13) ECR 307 (CEGAT SRB)] and Super Printers, Hyderabad v. Collector of Central Excise, Hyderabad as reported in [1987 (30) E.L.T. 745 (T) = 1987 (10) ETR 1]. Undoubtedly, units can be clubbed, if they are dummy ones and have been created as a camouflage of the other. But, in this case, there is no allegation that the three units are dummy units or camouflage of the other. Also there is no allegation in this case that there is a financial flow back or common funding and common sharing of profits. The allegation made is that there are common Director and are related persons, besides utilising of machineries for sharing the technical know-how and diversion of purchase orders. This by itself is not sufficient to club the clearances and deny the units the benefit of notification. In similar cases coming up before this Tribunal, with same charges, the Tribunal has disagreed with the Revenue's contentions and has set aside the orders. In the case of M/s Alpha Toyo Ltd. and others v. Collector of ....
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....to evade taxes and that the first main unit totally controls its activity in terms of profit sharing, management control, decision making and acts of such nature. The dummy unit would be a mere façade one and in reality it is one and the same with the main unit. In this particular case, there is no such evidence at all, to show that such an arrangement is in existence. 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, purchases and 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 Sect....
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....related persons, the clearances are being clubbed together. Both these concepts have been negatived in a number of rulings by this Tribunal as cited by the learned Counsel. More recently, the Tribunal has also decided in the case of Fusion Polymers Ltd. v. Collector of Central Excise - 1991 (56) E.L.T. 665, Cheryl Laboratories v. Collector of Central Excise - 1993 (65) E.L.T. 596 and Rathinam Prop. Micheal Match Works v. Collector of Central Excise - 1992 (60) E.L.T. 451." The Tribunal has also noted in Paras 11 to 17 of the rulings rendered in M/s. Meteor Satellite Ltd. and Tele Star Electronics v. Collector of Central Excise, Baroda as reported in [1985 (22) E.L.T. 271 (T) = 1985 (ECR) 1247]. The ratio of Meteor Satellite Ltd. also apply to the present case. 16. In the case of Jagjivan Das Company v. Collector of Central Excise, Bombay-II reported in 1985 (19) E.L.T. 441, the Tribunal has considered the innocuous circumstances such as use of common premises, telephone, telegraphic address, common use of some machinery and commonness of partners etc. and has held that such mutual use are not conclusive circumstances to show that the clearances of the Appellants were "fo....