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2003 (6) TMI 431
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.... Nil 5,00,000/- -do- Rex Arts Nil 5,00,000/- -do- 2. Four appeals (Appeals E/1405 to 1408/00) have been filed by the Department against the common order by the Commissioner of Central Excise (Appeals), Mumbai, made in Order-in-Appeal Nos. GKP(2340)31-M-IV/2000 (43 M-IV/98), GKP(2341) 32-M-IV/2000 (44-M-IV/98), GKP(2342)33-M-IV (45-M-IV/98) and GKP(2343)34/M-IV/2000 (46-M-IV/99), dated 20th January, 2000 allowing appeals of the assessee made against Order-in-original No. K-III 752-771/98, dated 9-11-1998 passed by the Assistant Commissioner of Central Excise, Div. K-III, Mumbai-IV, in and by which he denied the exemption claimed by the assessee under Notification 1/93 (SSI Exemption). 3. A show cause notice dated 6-12-1991 was issued calling upon the appellant assessees as to why duty should not be demanded from them denying exemption under Notification 175/86, and penalty should not be imposed on each of them. Detailed replies were given by the appellant assessees. After hearing the parties, the adjudicating authority confirmed the demand, denying the exemption under Notification 175/86. Hence these appeals by the assessees. 4. The brief ....
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.... to be denied to RCPL also on the ground that value of clearances would exceed the eligibility criteria of Rs. 2 crores, specified u/n 175/86-C.E., as value of clearances of all the aforesaid units, in view of their manufacture under the brand name "REXELLO", owned by RCPL, has to be clubbed together. The SCN demanded duty from all the aforesaid assessees and also proposed to penal action on the assessees and their Partners/Directors. 5. The allegations against various appellants and their replies are extracted below :- '(a) The allegations as stated against RCPL in Para 32 (IV) of the Order-In-Original dated 18-4-1994 are as under : "Paras 2, 1, 1 of the Show Cause Notice refers to the statement of Shri Gulam Hassan Mohamadali Merchant, Director of M/s. RCPL recorded on 4-8-1988. In this, an admission has been made that M/s. RCPL had not received any royalty amount from any of the 5 companies .........". It has, therefore, to be inferred that the formal agreements entered into, permitting the 5 other units to use the brand name of M/s. Rexello owned by M/s. RCPL was a sham and a colourable device to show separate entities." The Appellant RCPL filed the....
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....ment itself admits that the said different companies were producing and selling their goods.' The allegations as stated against RCPL in Para 32(VI) of the Order-in-Original dated 18-4-1994 are as under : "It has been cited at length in the Show Cause Notice that orders for the products made by any of the six companies were being received by M/s. RCPL. Instances have been cited specifically in Paragraphs 6, 7.2, 9.7, 9.8, 10.1, 10.5, 10.7, 10.7.3 and 10.10. The sum and substance of this citation is that M/s. RCPL was acting as a focal point in receiving orders from the customers and stockists. The requirements of the clients were being distributed to the various manufacturing units as per the convenience of M/s. RCPL and thus, it was not that there were six different companies but that M/s. RCPL had five additional manufacturing partners." M/s. RCPL, in Reply to the Show Cause Notice in Paragraph 16.12 has submitted as in under :- "With reference to Paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/bill Collector in order to help t....
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....ply to the Show Cause Notice in Para 18.6 as submitted as under :- "With reference to Para 7.7, we may point out that the letter in question does not indicate any mala fide intention to evade Central Excise Duty. It is very clear from this letter that our intention was to pass on maximum benefit to our client." The allegations as stated against RCPL in Para 36 of the Order-in-Original dated 18-4-1994 are as under : "In Paragraph 9.7 of the Show Cause Notice is the statement of the stockists who placed orders on plain paper on which the name of the company was not mentioned. M/s. RCPL used to collect these orders and confirmation was given by any of the six units. The supplies were sent from a single godown that was of M/s. RCPL. Similar admission was made by another dealer as disclosed in Paragraph 9.9 of the Show Cause Notice." The RCPL in Reply to the Show Cause Notice in Paras 16.9, 16.12 and 21.1 submitted as under :- "16.9 With reference to Para 5.8, we invite attention to our submissions made against Paras 3.4.1 to 3.4.14 and deny that any financial assistance was given to M/s. R.A. Regarding monitoring of orders received from customers, we may clarify tha....
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....e RA in their reply to the show cause notice in Para 18.12 submitted as under :- "With reference to Paras 3.4.5 to 3.4.9 the details of our accounts appearing in the records of M/s. RCPL and the entries therein are admitted facts. We further submit that the advances received by M/s. RCPL for the goods manufactured by us were being transferred to us and whenever payments were made by M/s. RCPL on our behalf those payments were made to help us by M/s. RCPL; Since we had a running business dealing with M/s. RCPL, such advance payments made were being adjusted subsequently". Further allegations as stated against RCPL in Para 36 of the Order-in-Original dated 18-4-1994 are as under : "Not only was the supply distributed, but also that the security deposits received from the authorised dealers were transferred freely between units without prior approval of or request from the concerned dealers." The RCPL in Reply to the Show Cause Notice in Para 14.7 submitted as under :- "With reference to Para 3.4.9, we submit that the advances received by us were never used for our own operations but were transferred to concerned companies who were to manufacture the goods required by t....
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....er, this amount was transferred by us to M/s. RBE. As mentioned in the Para, the differential amount of Rs. 1,875/- was refunded by M/s. RBE to M/s. Mahindra & Mahindra." (e) The RBE in their reply to the show cause notice in Para 9.19 submitted as under :- "With reference to Para 10.7.3 we confirm that the order received from M/s. Mahindra & Mahindra was executed by us. The goods were manufactured as per their drawings and no samples were sent but the goods were supplied after inspection done by the representative of M/s. Mahindra & Mahindra. The amount received by M/s. RCPL (Rs. 37,375/-) initially was later transferred to us and the difference of Rs. 1,875/- being the excess amount was refunded to M/s. Mahindra & Mahindra, as also admitted by the Department in the Para. This shows that we were doing our business independently." The allegations as stated against RCPL in Para 38 of the Order-in-Original dated 18-4-1994 are as under : "Two vital points have already been discussed above. The first was that the other five units were permitted the use of their brand name "Rexello" by M/s. RCPL. Although agreements had been entered into and the field....
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....subject to official adjustments. In any case the Department has not brought any evidence to show that such financial involvements resulted in flow back of the profit to our account. Regarding other assistance given, such assistance mentioned in the agreements with the units were only rendered." The allegations as stated against RCPL in Para 40 of the Order-in-Original dated 18-4-1994 are as under : "Para 2.1.12 shows that M/s. Rex Arts (RA) did not have any machines of their own. The premises in which they were situated belonged to M/s. RCPL. The machinery and the premises were shown to have been hired from M/s. RCPL by M/s. RA but the agreement did not contain any provisions regarding rent of machines." The RCPL in their reply to the show cause notice in Paragraphs 12.2, 13.12 and 16.2 submitted as under :- "12.2 With reference to Paras 1.2, 1.8 and 1.9 which are concerned with us we would like to submit that since the facts are admitted there is no need to give any submissions on these paragraphs. With reference to Para 1.5 giving details of M/s. RA. We will like to mention here that the machinery detailed in this para belong to us but M/s. RA have been allowed t....
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....inery and had remained to be mentioned in the agreement about the fact that this rent includes rent for machinery." The allegations as stated against RCPL in Para 41 of the Order-in-Original dated 18-4-1994 are as under : "In Paragraph 3.4.5 of the show cause notice, details of accounts of M/s. RA in the ledger of M/s. RCPL is shown. A debit entry is made towards rent of Rs. 18,000/- payable but there is no contra-entry witnessing the payment by M/s. RA on the debit side." The RA in their reply to the show cause notice in Paragraph 7 b-2nd. Paras 7c and 18.12 submitted as under :- "It is not true that we were floated by M/s. RCPL. We have paid rent of Rs. 1,500/- per month for the premises and for use of machinery which cannot be said nominal. The allegations that we were not capable of manufacturing the goods for which we received the payments or raised the invoices has been made without taking into consideration that we could get the goods manufactured on job-work basis from other manufacturers and therefore the question of our capacity to manufacture does not arise. The Department has not made proper investigation into this aspect as a result of which a wrong conclus....
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....de so as to help these companies. Since we had running business dealings with these companies, such advance payments made were being adjusted regularly." "14.8 With reference to Paras 3.4.10, 3.4.11 and 3.4.12, we submit that the amounts mentioned in this Para were not taken as loan by us but were usual advance received during the course of normal business, therefore there was no question of payment of any interest on these amounts. Moreover in business with nearest relatives usually any amount advanced are treated as personal loan for which no interest is charged." "14.9 With reference to Para 3.4.13, we agree that the payments made to them were purely in the course of business. However it is very strange that the Department makes it convenient to decide what is prudent and what is not for a manufacturing concern of our size, without having a first hand knowledge of business." The RCPL in their reply to the show cause notice in Paragraph 12.6 submitted as under :- "12.6 With reference to 3.4.14, we deny that ours and all other companies were running like one business." (g) The RRW in their reply to the show cause notice in Paragraph 23.6 submitte....
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....such as metal body of Castors/Trolley and Axle/Nut Bolt as the case may be as components in sets at substantially low price to M/s. RRW. However, these parts were supplied on regular payment of duty by us to them and therefore there was no evasion of duty on our part. Regarding supplying the final goods manufactured out of such parts by M/s. RRW to their customers we deny that these goods were supplied by M/s. RRW at our directions. M/s. RRW probably supplied the said goods as per the orders received by them from their customers." (j) The RACPL in their reply to the show cause notice in Paragraph 12.16 submitted as under :- "12.16 The allegation in Para 8.2 that we were manufacturing the branded goods of M/s. RCPL are denied. We are manufacturing our own goods independently. Regarding our goods being sent to M/s. RBE without any documents. We submit that as we are situated in the same industrial estate and as the records were prepared and maintained by Shri M.H. Merchant who was sitting in the premises of M/s. RBE, he or in his absence Shri S.G. Warang or Smt. Mable sitting in the same premises were intimated verbally so that they can prepar....
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....d our activities only to labour work and got our stationary printed with the address as 23/D, Mahal Industrial Estate later when we acquired the rented premises at 114, Mittal Industrial Estate, the activities at 23/D, Mahal Industrial Estate, was stopped some time in 1983-84. After shifting to the above rented place. We continued to use the old stationary by canceling the address of 23/D, Mahal Industrial Estate and writing/typing the new address. However at times it was left out to cancel the old address. (n) The allegations as stated against RCPL in Para 45 of the Order-in-Original dated 18-4-1994 are as under :- "Paragraph 5 speaks of the relationship of M/s. R.A. with M/s. RCPL and the other group companies. It has already been brought out above that M/s. RA did not have any premises or machinery and that the claim that these two facilities were taken on hire from M/s. RCPL was false as no valuable consideration had flown from M/s. R.A. to M/s. RCPL. The Show Cause Notice cites the statement of Shri M.G. Shinde, a worker with the group for over 12 years which prove that M/s. R.A. did not have any manufacturing facility up to August, 1988. This shows tha....
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....RA or M/s. RCPL was needed to be done by the officers of the department in respect of actual transaction made by them." "With reference to the above statement we submit that it is not true that no verifications of our declarations were made. Our records were audited by CERA and Internal audit party during the period in question. However without admitting but assuming that our declarations were accepted as such to be true and correct without verifications by the department it is submitted that in that case the fault if any lies with the Department and hence the charge of suppression of any fact caused by us cannot survive." "16.3 with reference to Para 5.3. We deny that the raw materials purchase by M/s. RA were actually delivered to us." "16.4 With reference to Para 5.4. We submit that in view of the several Judgments of the authorities such as Supreme Court, High Courts, CEGAT and Quasi judicial authorities like Collector, it is now well settled law that common office equipments etc. cannot be considered as grounds to clubbing the units of any group." '16.5 With reference to Para 5.5. we submit that M/s. RA have their own premises at 48, Nishanpada Rd. B....
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....garding monitoring of orders received from customers, we may clarify that due to our common brand name "REXELLO" many customers used to book orders initially with us as they were not knowing as to who were actually manufacturing the products required by them. Therefore, we were required to guide the customers and send the orders to the concerned company instead of sending back the order to the customers and asking them to book with the relevant manufacturers and causing inconvenience to them.' "16.10 With reference to Para 5.9.1 we deny the allegations made in this para that we manufactured the goods and supplied the same in the name of M/s. RA." "16.11 With reference to Para 5.9.3, we have already given above, the explanation as to why the orders were received by us and distributed among other units as per the requirements of the customers." "16.12 With reference to Paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/bill collector in order to help the customer, would collect the orders and had them over to the respecti....
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.... partner in both the above companies giving the details of manufacturing on job work basis of RA were handed over to the Hon'ble Collector. Copies of these statements are also enclosed as Exhibit RA-5 and RA-6 respectively. These statements have not been mentioned in the Show Cause Notice with the ulterior motive of the Department as to not to bring forward the evidence that RA were having their own independent manufacturing activities. In view of the above submissions and those made in the replies of the above units viz. RA and RBE it is submitted that the allegations that RA and RBE were floated by RCPL did not sustain in law as well as in view of the fact that enough evidence has been produced before the Hon'ble Collector to show that they were existing independently even before the issue of the Notification No. 175/86, dated 1-3-1986." (q) The allegations as stated against RCPL in Para 47 of the Order-in-Original dated 18-4-1994 are as under :- "Whereas M/s. R.A. was not manufacturing some products, and whereas M/s. RCPL were manufacturing those products for the sake of sustaining the facade, is had been to be shown that there was manufacturing ....
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....ent, we submit that as we were yet to scrutinize the monthly statements of M/s. RA and as our accounts which were running accounts were yet to settled to arrive at the liabilities of each other, we did not insist upon M/s. RA to pay the royalty amounts immediately. It is therefore not true that the Agreement was only on the paper and the practice followed by the companies was entirely different." (t) The further allegations as stated against RA in Para 48 of the Order-in-Original dated 18-4-1994 are as under :- "Reference has been made to documentary evidence seized from M/s. RBE in Paragraph 5.9.3 which clearly shows that goods were cleared from their factory under delivery challans purported to be issued by M/s. R.A. The RA in their reply to the show cause notice in Paragraph 7(a), 18.9 and 18.24 submitted as under :- "7(a) We i.e. M/s. RA were established even before M/s. RCPL was conceived and thought of in 1940's at 48, Nishanpada Road, Bombay 400009, holding Bombay Municipal Licence and Permit, manufacturing wooden baby furniture. Toys etc. As the above premises were situated in the Non-conforming zone specified by the BMC, we sh....
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....ere using modified letter heads of M/s. R.A. It also shows that their records were maintained in the premises of M/s. RBE M/s. RACPL were shown to be in existence and were shown to be selling branded goods during the period 1986-1987 and 1987-1988, whereas the actual manufacturing started sometime after April 1988 only." The RACPL in their reply to the show cause notice in Paragraph 12.10 submitted as under :- "12.10 With reference to Para 6.4.2, we submit that as the documentation of all the units viz. M/s. RA, M/s. RACPL, M/s. RBE and M/s. CRN was being done in the premises of M/s. RBE by Shri M.H. Merchant, as he used the stationery of M/s. RA indicating our address as our printed stationary was not received then." (v) The further allegations as stated against RACPL in Para 50 of the Order-in-Original dated 18-4-1994 are as under :- "Paragraph 7 speaks of M/s.Rex Rubber Works (R.R.W.). They were manufacturing moulded products from 1984 onwards and were shown to be manufacturing castor Wheels and Trolley wheels etc. from March 1988. The evidence disclosed in this paragraph and the Sub-paragraph says that M/s. RCPL used to received the orde....
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.... 13.4 submitted as under :- "13.4 With reference to Para 2.1.3, we submit that the statement of Shri M.H. Merchant itself very clearly indicates that the goods were being manufactured independently by M/s. RBE. About pkg. of the goods in cartons bearing our name on our enquiries with M/s. RBE revealed that cartons printed with our name were purchased by them from the supplier. However goods packed in such cartons were directly sold by them to their customers and not through us. (y) The RACPL in their reply to the show cause notice in Paragraph 12.15 submitted as under :- "12.15 Para 8.1 alleged that our records and the records of other units maintained, prepared and kept at the premises of M/s. RBE i.e. in a common premise and are maintained by a common person viz. Shri M.H. Merchant. The reason for this is obvious which is Shri M.H. Merchant is a common persons being partner/director/ signatory of these concerns and had undertaken the responsibility of maintaining the records of these companies which were situated in the same industrial estate i.e. Mittal Industrial Estate. For convenience sake, he is attending to this work in the premise....
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....y with the brand name "Rexello" of M/s. REPL. Regarding our goods being sent to M/s. RBE without any documents. We submit that as we are situated in the same industrial estate and as the records were prepared and maintained by Shri M.H. Merchant who was sitting in the premises of M/s. RBE, he or in his absence Shri S.G. Warang or Smt. Mable sitting in the same premises were intimated verbally so that they can prepare the necessary documents and the goods were sent to the premises of M/s. RBE as the goods of all the companies could be transported for onward journey by hiring a common tempo/truck.' (bb) The further allegation as stated against RCPL in Para 55 of the Order-in-Original dated 18-4-1994 are as under :- "Para 10.7.1 shows an example of warranty given to the customers. In this case, M/s. Osha Engg. Works had placed an order with M/s. RCPL. The clients were informed by M/s. RCPL verbally to shift the order to M/s. RACPL and to acknowledge the same. When the goods were in despatch, the warranty was given by M/s. R.A. and not by the manufacturer, viz. M/s. RACPL. The RCPL in their reply to the show cause notice in Paragraph 21.6 submitted as under :- '21.6&e....
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....orate entity, in practice, the directors/Partners merrily transgressed their self imposed limits. Paragraph 10.16 cites numerous examples where letters were signed by persons on behalf of the company in which they did not hold and legal or corporate position........." The RCPL in their reply to the show cause notice in Paragraph 11(vii) submitted as under :- "11(vii) We further submit that various units having separate legal entities cannot be treated as one manufacturer merely because the transactions or dealings between them are beyond the normal course of business. Since close relationship is very much material for the success of business and for achieving close relationship one may do some favour to the other with a view to get business advantage in return. Keeping this in view the Hon'ble appellate Tribunals in number of cases have taken the stand that use of common premises, common address, common telephone, financing without interest, keeping common Manager, joint storage of salable goods, supply of raw material by common supplier or common purchase of raw materials are no grounds for treating units having separate legal entities as one manufacturer, when the prof....
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....ly was not less than the value that would have charged by M/s. RRW being not licenced but declarant, the question of payment of duty by them did not arise. It is therefore not true that the said goods were completely manufactured by us and were supplied through M/s. RRW." 6. The learned departmental representative reiterated the impugned order. 7. We have considered the rival submissions. When we go through the submissions and the evidence which are extracted above, it will be very clear that the finding given by the adjudicating authority that there has been a clubbing as contained in Paragraph 60 of the impugned order is wrong. The main reason for clubbing which appears to be for treating the units as one is that there has been commonality of interest and non-payment of royalty by other appellants to RCPL. This has been rightly explained by RCPL in the statement of G.A. Merchant at Page 313 where he specifically states that they have shown as outstanding which have been reflected in Paragraph 13.2 of the reply of RCPL. As far as advertisement expenses incurred by RCPL is concerned, this has been properly replied in Paragraph 14.3 of the reply in which they have st....
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....p; 9 Mrs. Z.H. Merchant √ 10 Mrs. R.A. Merchant √ √ √ 11 Mrs. S.G. Merchant √ √ √ 12 Mrs. S.T. Merchant √ 13 Mrs. G.R. Merchant √ The confirmation of duty on RCPL is wrong as the product was never manufactured by it, but by other appellant assessees. When that is the case, the confirmation of duty on RCPL is wrong. In view of this, the question of imposition of penalty on others is also wrong as the confirmation of duty and imposition of penalty are inextricably connected with each other. Once duty is held not to be leviable, then the q....