TaxTMI 
TaxTMI 
1992 (6) TMI 180
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....cern in cotton fabrics. The partners of the firm arc closely related persons born in the same family. The firm is having its business premises within the compound of Shree Gajanan Weaving Mills, 560, Shivaji Nagar, Sangli-- Appellant No. 2--which was established in the year 1908 by Shri V.R. Velankar who died in 1978. His son R.V. Velankar succeeded his father and in course of time, his six daughters started working in textile line. The claim is that these daughters who arc highly qualified are working on their own in the above mentioned different firms and companies which are registered under the Shops Act, Companies Act and Factory Act are regularly taxed under the Income Tax Act and Sales Tax Act from time to time. The status of each of the appellants and the nature of work in which they arc engaged is as under: (A} Shree Gajanan Fabrics Distributors (GFD): Partnership: Partners: (1) Chitra R. Velankar (2) R.V. Vaidya Purchase of grey powerloom cloth, which is manufactured in GWM compound and process it viz. bleaching, applying kanji, folding, packing, baling and selling. While beaching is got done by M/s. Sunshine Bleaching House (SBH), apply....
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....f Shri R.V. Velankar. He is also a partner in Shree Gajanan Fabrics Distributors, Shree Laxmi Trading Company (LTC), Onkar Service Centre (OSC) and Sangli Trading Company (STC). He is also owner of two powerlooms and they arc run under the name of Vijay Yanthrapat, all of which are located in the same compound. (G) M/s. Velankar Weaving Mills. Sangli (VWM): Directors: (1) Shri R.V. Velankar (2) Sow Vijaya Laxmi R. Velankar. This firm itself has no activity of its own but is a partner in the trading firm of M/s. Gajanan Weaving Mills in which Shri R.V. Velankar is a partner in his personal capacity. 3. As a result of investigations undertaken into the activities of these units, all of which are located within the same compound, and are managed by a family consisting of Shri R.V. Velankar and his wife, their six daughters and a couple of other relations, the Collector of Central Excise, Pune issued a show cause notice to all of them on 19th November, 1987, asking them to show cause why duty of Rs. 92,53,778.87 should not be demanded from them on cotton fabrics processed by M/s. Sunshine Bleaching House (SBH) and M/s. Tushar Kanji Kendra (TKK) during the period....
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....lty of Rs. one lakh on M/s. Gajanan Weaving Mills under Rule 173Q. He held the assessee and all the proprietors and partners jointly and severally liable to pay the duly liability as well as the penalty. After passing the order on 30lh May, 1989, the Collector issued a Corrigendum on 10th July, 1989 by which he again made certain alterations in the amount of duty demanded by him. 5. The question that have come up for consideration in the appeal before us are summarised as under: (a) The order holding all the seven concerns jointly and severally liable to discharge the duty liability as well as payment of penalty imposed on M/s. Gajanan Weaving Mills is without jurisdiction. (b) The Collector has failed to give an opportunity to the appellants to put-forth their say on the cost of processing charges at 0.26 paisa arbitrarily determined and allowed by him in respect of value of grey cotton fabrics. (c) The Collector has erred in confirming the demand of Rs. 6,65,082.79 against grey cotton fabrics produced on powerlooms and got subjected to merely plain calendering in the premises of independent processers on payment of job charges. ....
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....n of the appellants who are only engaged in trading activity. (l) So far as M/s. Velankar Weaving Mills is concerned, the Collector has failed to record any specific finding against them to hold them guilty. 6. We have heard Shri B.B. Gujral, the learned Counsel for the appellants and Shri L.C. Chakrabarti, the learned Departmental Representative. The arguments were spread over a number of days and large number of authorities were cited for different contentions raised by both sides. 7. Shri Gujral first raised the question that copy of the adjudication order received by him did not bear the signatures of the adjudicating authority, nor did it bear any date below his name so as to indicate whether he had signed it at all. He further submitted there was no service of a valid order on the appellants as required under Section 37-C of the Act. The learned SDR produced the case file in which the order duly signed by Shri D.S. Solanki, Collector of Central Excise, bearing the date 30th May, 1989 is available; the copy received by the appellants bears the attestation of the order on the stencil by Superintendent (Adjudication) on 6th June, 1989 but docs not show the d....
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....by the Collector attested by Supdt. Adjudication, the demand was further revised as under: Annexure-I Rs. 11,84,654.51 Annexure-II Rs. 5.78.198.17 Total Rs. 17.62.852.68 12. Shri Gujral submitted that the final amount of duly demand in Annexure-I by the Collector had been raised from Rs. 10,93,258.8010 Rs. 11,84,708.51. This meant that the amount finally demanded in the order was in excess of the amount shown in the show cause notice (after the issue of the Corrigendum) by Rs. 91,449.71. Shri Gujral's claim was that the order had been passed without issue of proper show cause notice is violative of the principles of natural justice, is void and of no legal effect in entirety. He also submitted that the basis of how the amounts had been arrived at and subsequently revised had neither been indicated in the show cause notice nor in the adjudication order. He also referred to the decision of the Supreme Court in its Clarificatory Order dated 27.1.1989 in the case of Ujagar Prints v. Union of India 1989 (39) ELT 493 : 1989 (21) ECR 1 (SC) : ECR C 1347 SC and made the further point that the trading profit of the processor should be excluded from t....
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....and given the benefit of Notification 130/82. 14. Shri Gujral also questioned the basis for taking 26 paise per sq. metre as a deduction on account of grey fabrics without first giving the appellants the opportunity to explain what should be the amount for the purpose. On the question of invoking the longer period of five years under the proviso to Section 11A(1), he submitted that in the absence of denial by the Collector of fact of knowledge of facts by the Department, this could not have been done. 15. Referring to the allegations against each of the units, one by one, Shri Gujral submitted that even if the control was in the family group, the units were separate income-tax/sales tax payees and tex marks holders. All the persons managing the units are highly qualified and were competent to run the units in the manner they have chosen to do. By not going into the question of financial flow-back among the units, the Collector had committed a grave error. Although there were 30 units in the same compound, the Collector had taken only seven of them into account and left out the remaining. There were numerous powerloom units with the total of 149 looms (M/s Gajanan Weaving Mill....
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.... was no concept of a main manufacturer the secondary manufacturer and cited the decision of the Tribunal in the case of Collr. of Central Excise, Madras v. Modoplast (P) Ltd., Coimbatore and Super Printers v. Collector of Central Excise, Hyderabad . He also staled that the impugned order was indeterminate and the basis of the duly demanded had not been clearly indicated in the two Annexures. He submitted that no duty was leviable on grey fabrics made on powerlooms up to 1985 and the grey fabrics in question were produced during this material period. He referred to Notification 230/77-CE, dated 15.7.1977 and Notification 231/77-CE, dated 15.7.1977 exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning or processing plants) from the basic and additional duty and submitted that these two Notifications remained in force up to 17.3.1985 were rescinded by Notifications 53/85-CE and 86/85-CE, dated 17.3.1985. Simultaneously, Notification 53/85, dated 17.3.1985 completely exempting unprocessed cotton fabrics from duty and additional duty was issued. He, therefore, submitted that there was no liability to duty on unprocessed fabrics right from 15.7.1977 to 28.2.198....
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....ated 15.7.1977 exempted them from additional duty. These Notifications were rescinded by Notifications 83/85-CE, dated 17.3.1985 and 86/85-CE, dated 17.3.1985 respectively. This resulted in withdrawal of the exemption with effect from 17.3.1985. Thus, after that dale, unprocessed cotton fabrics manufactured in power-looms became liable to duty as well as additional duty. He submitted that since the appellants themselves had slated in their reply dated 22.4.1988 to the show cause notice that they also undertook processes like sizing, winding, warping, doubling etc., they were not entitled to the exemption in terms of the aforesaid Notifications till 17.3.1985. This reasoning was objected lo by Shri Gujral on the ground that there was no such allegation in the show cause notice and the Departmental could not traverse beyond the notice. Shri Gujral brought to our notice the existence of Notification No. 53/85-CE, dated 17.3.1985 which granted unconditional exemption to unprocessed cotton fabrics and submitted that there could be no liability lo duly from 17.3.1985 till 1.3.1986 when the Central Excise Tariff Act, 1985 was introduced. Here again the basic duly was nil. 22. To suppor....
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....on, this also disqualified the processed fabrics from exemption. 24. Referring to the decision of the Division Bench of the Bombay High Court in the case of Swadeshi Dyeing & Bleaching Mills (P) Ltd. v. Union of India , Shri Chakrabarti submitted that separate units had been set up only with a view to availing of the exemption. He referred to paragraph-7 of the judgment and submitted that a "family group" had "nominally set up two separate sets of units--one for the purpose of bleaching and the other for calendering and stentering and this was a camouflage to indicate that the units were independent entities so that exemption from duty could be availed of under Notification 130/82 as well as 253/82. He also submitted that under Section 2(e) of the Act, the definition of 'factory' did not stipulate the concept of ownership and therefore there was no substance in the plea that each of the units was owned and managed by separate individuals. Shri Chakrabarti also referred to conclusions of the High Court recorded in paragraph-8 of the Swadeshi Dyeing (supra) judgment and submitted that identical circumstances existed in the present case. In this view of the matter, the grey....
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....aterial time and cited the decision of the Bombay High Court in Corn Products Co. (India) Ltd. v. Union of India , and the decision of the Delhi High Court in the case of Associated Cement Companies Ltd. v. Union of India 1981 ELT 42 : 1981 ECR 66D (Delhi). Shri Chakrabarti concluded by saying that such an interpretation should be given to the provisions of Rule 9(2) in relation to the time limits as will not render it nugatory. 27. Replying to the arguments of the learned SDR, Shri Gujral cited the decision of the Tribunal in the case of Alcobex Metals (P) Ltd, Jodhpur v. CCE 1992 (38) ECR 569 (Cegat NRB) and submitted that the Tribunal had, by a majority opinion, held that a show cause notice issued under Section 11A of the Act was not severable.... 28. Referring to the amendment of Rule 9(2) on 14th January 1981 by which the time limit specified in Section 11A had been incorporated into it, Shri Gujral contested the argument of the learned SDR and submitted that the show cause notice having been issued on 19/20 November 1987 in the present case, the amended provisions were clearly applicable. Moreover, the Collector has not made any distinction for this purpose in the impu....
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....ankar)--named Velankar Investment Company. Appellant No. 1 & have been advanced loans of Rs. 4 lakhs and Rs. 7 lakhs by the investment company at the rate of 12% per annum against the ruling rate of 18% in 1987. 30. It appears from the way things have happened that the bleaching activities which would disqualify them from the exemption was undertaken in a unit specially set up from 1.1.1983 soon after Notification 253/82, dated 8.11.1982 came into force. Besides, there is little doubt that the other units located within the compound namely Tushar Kanji Kendra and Bright Yarn Doublers were undertaking certain processes which were complementary to the processes of other units and cannot be said to have independent existence for any purpose other than the purpose of availing exemption from duty. The Collector has discussed these matters at length in his adjudication order and, except saying that they were independent units because they were assessed to income tax, sales tax and held their own tex mark, no other evidence has been placed before us which would justify our taking a different view. If we go by the judgment of the Supreme Court in Me Dowell's case (supra), we would h....
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.... well as additional duty when subjected to any process or processes specified in the Table annexed. Provided that the exemption did not apply: (i) If unprocessed cotton fabrics, falling under sub-item I(a) of the said Item No. 19, on which the duly of excise is leviable thereon under any of the aforesaid two Acts, either in whole or in part, arc subjected to any process or processes specified in the said Table, within (he factory in which the said unprocessed fabrics have been produced; or Clause (i) omitted by Notification 54/85 dated 17.3.1985. (ii) If cotton fabrics, falling under sub-item I of the said Item No. 19 are subjected to any process or processes specified in the said Table within the same factory in which they have been subjected to any process other than the processes specified in the said Table. TABLE 1. Calendering (other than calendering with grooved rollers). 2. Flanelette raising. 3. Stentering. 4. Damping on grey and bleached sorts. 5. Back-filling on grey and bleached sorts. 6. Singeing, that is to say, burning away of knots and loose ends in the fabrics. 7. Scouring, that is to say, removing ya....
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.... which these exemptions were given not having been fulfilled in the present case, the exemption was not available. 33. If we examine the true nature of the transaction namely the segregation of the units soon after 8.11.1982, which is the dale of coming into force of Notification 253/82, we notice a purpose in segregating the units. The close family relationship among proprietors, partners, etc. of the units, their location in the same premises, the use of common facilities like water, steam and security arrangements besides the servicing facilities of Onkar Service Centre are factors which taken cumulatively leave no doubt in our mind that these units were separated for the specific purpose of showing their independent existence so as to lake advantage of the exemption Notification. This is what has been termed as camouflage of identity of units by the Bombay High Court in the case of Swadeshi Dyeing case (supra) judgment. 34. As for the plea that the Collector should have been guided by the decision of his predecessor in an identical case in which the demand for duty was restricted to prospective period, we arc unable to accept this contention because the matter would have ....
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.... entitled to exemption under Notification 253/82. We also observe that he has merely made a passing reference to the decision to strengthen his conclusions. We do not notice anything in the order to justify the remark that the Collector has misinterpreted the judgment of the High Court. There is also no merit in the argument that if the adjudicating authority was relying upon a reported decision of the High Court which was given after the hearing had concluded, he had an obligation to re-hear the appellants before passing the order. Since the decision was a reported one, it was open to the appellants to have asked for a fresh hearing when they could have made their submissions on the implication of the decision. We do not consider that there has been any failure of justice on this account and therefore reject this plea. 37. Another pica taken in the appeal is that the Collector has unjustly transgressed the limits of the show cause notice. Although no specific instance has been cited in support of this plea, during the hearing Shri Gujral had submitted that the Collector's finding that even the accounting of financial transactions was handled by a unit created by the same fa....
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....proviso to this Notification (Notification 253/82) required that this exemption will not be available if the cotton fabrics arc subjected to any process or processes listed therein, within the same factory in which they have been subjected to any process or processes not listed in the said Notification." Hence the intent for segregating the processes by setting up separate units is clear. The separate units have been set up only with a view to avail of the said exemption. The various other factors like blood relationship, common premises, common water and electricity connections and security staff etc, although by themselves are not sufficient to prove deliberate fragmentation, they support my view as discussed above." It is an admitted fact that these units have been set up with the same family members as the proprietors, directors, partners etc. and, in addition to this, the processing units sell their goods to common trading firms which looks after all the distribution/sales etc. Hence these various units are only a corporate facade although registered with various authorities with a view to camouflage their actual identity, and thereby avail of the exemption which, otherw....