AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 686
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....M/s Sanj Pharma Engineering Pvt. Ltd. is a private limited company whose 99% shares are owned by Mrs. Reema Madhavan. The impugned order also observed that M/s Sanj Pharm Engineering Pvt. Ltd. had loaned money to M/s Pharma Chem Services in the year 1999-00 for development and construction of a factory premises of M/s Pharma Chem Services. The said amount was paid back in the year 2001-02. It has also been observed that Shri Sameer Nair, son of Mrs. Reema Madhavan was holding Power of Attorney of his mother and was looking after day to day affairs of both the units. It has been argued in the grounds of appeal that impugned order is vague inasmuch as it does not mention on whom the duty liability has been fastened. Reliance has been placed on the decision of the Tribunal in the case of Starlite Corporation Vs. Commissioner of Central Excise, Mumbai - 2006 (201) ELT 23 (Tri-Mum). It has been argued that both the plants were located at different location and had separate factory, separate workers, separate telephone connection, separate registration of Service Tax, Sale Tax etc. Hence, the same should be treated as an independent unit. It has been argued that since they are independen....
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....ly owned by appellant Mrs. Reema Madhavan and M/s Sanj Pharma Engineering Pvt. Ltd is owned to the extent of 99% by appellant Mrs. Reema Madhavan. Revenue has also argued that appellant M/s Pharma Chem Services was fully funded by appellant M/s Sanj Pharma Engineering Pvt. Ltd by way of loan, although he same was repaid back. In these circumstances, whether two legal entitles can be considered as one or not is a question, which needs to be decided. The Hon'ble Apex Court in the case of Calcutta Chromotype (supra) has observed as follows: - "12. The principle that a company under the Companies Act, 1956 is a separate entity and, therefore, where the manufacturer and the buyer are two separate companies, they cannot, than anything more, be 'related persons' within the meaning of clause (c) of sub-section (4) of Section 4 of the Act is not of universal application. Law has traveled quite a bit after decision of the House of Lords in the case of Salomon v. Salomon [1897 AC 22]. This is how this Court noticed in Tata Engineering and Locomotive Company Ltd. v. State of Bihar & Ors. [(1964) 6 SCR 885]: "The true legal position in regard to the character of a corporation or ....
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....law on the principle of separate legal personality of companies. By far the most extensive of these has been made by legislation imposing taxation. The Government, naturally enough, does not willingly suffer schemes for the avoidance of taxation which depend for their success on the employment of the principle of separate legal personality, and in fact legislation has gone so far that in certain circumstances taxation can be heavier if companies are employed by the taxpayer in an attempt to minimise his tax liability than if he uses other means to give effect to his wishes. Taxation of companies is a complex subject, and is outside the scope of this book. The reader who wishes to pursue the subject is referred to the many standard text books on Corporation Tax, Income Tax, Capital Gains Tax and Capital Transfer Tax. The other inroads on the principle of separate corporate personality have been made by two sections of the Companies Act, 1948, by judicial disregard of the principle where the protection of public interests is of paramount importance, or where the company has been formed to evade obligations imposed by the law, and by the Courts implying in certain cases that a compan....
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....ry assessee is entitled to arrange his affairs as to not attract taxes. The Court said that tax planning may be legitimate provided it is within the framework of law. Colourable devices, however, cannot be part of tax planning. Dubious methods resorting to artifice or subterfuge to avoid payment of taxes on what really is income can today no longer be applauded and legitimised as a splendid work by a wise man but has to be condemned and punished with severest of penalties. If we examine the thrust of all the decisions, there is no bar on the authorities to lift the veil of a company, whether a manufacturer or a buyer, to see it was not wearing that mask of not being treated as related person when, in fact, both, the manufacturer and the buyer, are in fact the same persons. Under sub-section (l) of Section 4 of the Act, value of the excisable goods shall not be deemed to be normal price thereof, i.e., the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, if the buyer is a related person and price is not the sole consideration for sale. As to who is a related person, we have to see ....
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.... arrive at the value of the excisable goods for the purpose of levy of duty of excise." It is seen that the decision in the case of Calcutta Chromotype (supra) has been given with reference to the concept of related person. It clearly recognizes that such artificial creation of legal entity for the purpose of tax avoidance or rather the legitimacy of the art of dodging tax without breaking the law. In that context, it made a departure from the Westminster principle. The Hon'ble Apex Court observed that tax planning may be legitimate provided it is within the framework of law. Colourable devices, however, cannot be part of tax planning. Dubious methods resorting to artifice or subterfuge to avoid payment of taxes on what really is income can today no longer be applauded and legitimised as a splendid work by a wise man but has to be condemned and punished with severest of penalties. 5.3 In the instant case, it is seen that the appellants raised claim of small scale exemption and have created a fresh legal entity in order to avail the additional benefit of the SSI exemption. The entire funding of new unit was done by the old unit although on loan basis. While in normal course, e....
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....dently unless the Revenue is able to establish that the two units are not fully complete independent units and do not have the complete machinery for the manufacture of their final product and one unit is a dummy unit of another and the goods of one company are being cleared by using name of such dummy unit. 4. On going through the impugned orders I find that the main reason for Commissioner (Appeals) to decide the issue against the assessee is that M/s Sanj Pharma Engineering Pvt. Ltd. has loaned money to M/s Pharma Chem Services for the construction and development of the factory. It is also a fact that the said money was paid back by M/s Pharma Chem Services. Whether such factor is sufficient to treat the two units as dummy of the other and to club their clearances. I note that the said issue of clubbing of clearances of two units have been the subject matter of umpteen numbers of precedent decisions of the Tribunal as also of various High Courts and it is a settled law that as long as two units are capable of manufacturing the final product on their own, the clearances of one unit cannot be clubbed with the clearances of the other unit. The law does not prohibit float-ng of va....
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....ds from one to another and occasional financial accommodation are now usual features business activities nor can common supervisory system be designated as out of the ordinary. For arriving at the above finding Tribunal has taken into account the precedents decisions and held that unless one factory is incomplete and used as a camouflage to clear the goods being actually manufactured by the other factory, there can be no clubbing of clearances. Further the fact that one unit is a proprietary unit and the other is a private limited company are also relevant factors. The grant of loan by the private limited company to one of its share holders for creating the proprietary unit, which loan also stands admittedly paid back in subsequent years, can have no aspersions on the Revenue's allegation that the two units were indulging in financial inter-twining. Merely because Mrs. Reema Madhavan was share holder in M/s Sanj Pharma Chem Engineering Pvt. Ltd., cannot be made a ground for limiting her rights to create another proprietary unit out of the funds made available by the private limited company. Such factor, in my views, cannot lead to the clubbing of clearances of both the units a....