2024 (9) TMI 914
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....uipments, Mr. Pradeep A., Proprietor, M/s. Pack Spin Industries, Mr. Geevar Paul, Proprietor, G-Tech Industries, Ms. Elizabeth, Proprietor, M/s. Isaacs Industries, Mr. Eldho Varghese, Proprietor, M/s. World Pack Industries, Ms. Solly, Proprietor, M/s. Crown Industries and Ms. Bini Aji, Proprietor, M/s. Pol Mart HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS R BHAGYA DEVI, MEMBER (TECHNICAL) Mr.Ravi Raghavan and Mr. Himanyush Chopra, Advocates for the Appellants Mr. H. Jayathirtha, Superintendent (AR), for the Respondent ORDER PER : DR. D.M. MISRA These appeals are filed against the impugned Order-in-Original No. COC-EXCUS-000-COM-052& 053/15-16 dated 23.12.2015 passed by the Commissioner of Central Excise, Customs & Service Tax, Cochin Commissionerate. Since common issues are involved, these appeals are taken up together for hearing and disposal. The details of the appeals are as tabulated below:- SL. No. Appeal Nos. Appellants Period of Dispute OIO Nos. /OIA No. & Date Duty demanded Penalty imposed 1 E/20509/2016 Sepack India December 2009 to March 2014 OIO No. 052 & 053/2015- 16 dated 23.12.2015 Rs. 5,21,39,369/- Rs. 5,18,69,926/- Rs.1,....
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....s of M/s. Global Pack Industries. A show-cause notice was issued on 14.06.2013 proposing confiscation of the goods seized under Rule 25 of the Central Excise Rules, 2002; proposed imposition of penalty on the appellant and other notices under Rule 26 of the Central Excise Rules, 2002. On completion of the investigation, show-cause notice was issued to Sepack on 06.01.2015 alleging that they had adopted the modus operandi of manufacturing the goods through dummy units called mother units in or around Kizhakkambalam by splitting the turn-over among the said so called mother units and consequently proposed for recovery of the duty amounting to Rs. 5,77,88,539/- for clubbing the clearance of excisable goods manufactured by all mother units during the period December 2009 to March 2014 along with interest and proposal for penalty. Also, notices were issued to the Managing Director of Sepack and the Proprietor/partner of various dummy units proposing penalty under Rule 26 of the Central Excise Rules, 2002. On adjudication, the seized goods released provisionally has been confiscated with an option to pay redemption fine of Rs. 20.00 lakhs by Sepack, Rs. 3.50 lakhs by M/s. Global Pack Ind....
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....e already stopped supplies to Sepack and closed down their business at different points of time. M/s. Angel Tech has, in fact, diversified into a different business altogether. ➢ The discussion in the monthly meetings in mainly to keep up with the constant change in the cost of raw materials and is essential to ensure the smooth and efficient conduct of business. ➢ From the statements of various persons recorded by the department it is clear that Sepack has a negligible role to play in the day-to-day functioning and operations of the DMUs. Therefore, it is clear that the DMUs operate independently without any effective control from Sepack. ➢ The Appellant submits that the courts have consistently in similar circumstances laid the tests/principles for ascertaining the independent existence of DMUs/other units. Reliance is placed on (i) CCE v. Ravi Batteries [2009 (244) ELT 167 (ii) CCE v. Meco Tronics, [2003 (159) ELT 628 (Tri. Chennai) (iii) Motor Industries v. CCE, Bangalore [1999 (111) ELT 163 (Tri. - Chennai)]. ➢ As regards financial flow back, it is submitted that the department had summoned all the key personnel and proprietors of the DMUs t....
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....udhiana [2014 (309) ELT 301 (Tri. - Del.)] which categorically held that when the units that are alleged to be dummy units were in existence much prior, clubbing of clearances cannot be effected. ➢ As far as the allegation regarding manufacturing taking place at the hands of Sepack due to quality control and affixing of label by Sepack, it is submitted that Sepack deploys freelance quality engineers for pre-delivery inspection. The same is similar to the pre-delivery inspection done by a car dealer before delivering the car to the customer. It is submitted that merely by performing the above activity of pre-delivery inspection, Sepack cannot be considered to be the manufacturer. Reliance in placed on the decision in (i) CCE v. Cosme Farma Laboratories [2015 (318) ELT 545 (SC)], (ii) CCE v. Innocorp [2013 (289) ELT 173 (Tri. - Bang.)] ➢ With regards to the reliance on Note 6 to Section XVI of the Central Excise Tariff Act, 1985, it is submitted that the said reliance in the impugned order is completely misplaced inasmuch as the sealing machines manufactured by the DMUs are already complete manufactured products and not incomplete products. The machines received fro....
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....procures the sealing machines from the DMUs and sells them after adding a significant amount of margin. Therefore, there is price or value addition by Sepack and this price fixation results in manufacture. The said contention is incorrect as evident from the judgment of the Hon'ble Supreme Court in CCE vs. SR Tissues, [(2005) 186 ELT 385] and Maruti Suzuki India vs. CCE, AIRONLINE [2015 SC 477]. ➢ Further It is submitted that the decision of the Hon'ble Supreme Court in CCE v. MM Khambatwala [1996 (84) ELT 161 (SC)] squarely covers the issue at hand. The department has itself, in the instant case, recognized the independent existence of each of the DMUs and has attributed separate and distinct recognition to the DMUs. The goods seized from the premises of Sepack vide Mahazar dated 07.01.2013 and 28.01.2013 were subsequently released provisionally to the respective parties. Thus, by releasing the seized goods to the respective parties, the department has impliedly admitted that the DMUs are manufacturers and have separate and independent existence. Moreover, the impugned order has imposed penalty under Rule 25 of CER,2002 to all the DMUs, even though Rule 25 is applicable o....
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....rein it was reiterated that the condition for imposition of penalty under Rule 26 is physically handling the excisable goods. Reliance is placed on the decision in Anil Kumar Saxena v. CCE, [2001 (129) ELT 351], wherein penalty was set aside on the same grounds mentioned above 4. Per contra, the learned AR for the Revenue reiterated the findings of the learned Commissioner and has submitted the following:- ➢ The Department would like to place the factual matrix/details with reference to the situations under which Sepack and DMUs are related in a way that Sepack controls the DMUs right from the procurement of raw materials to the clearance of finished goods. The same is based on the documents available on record and statements drawn during the investigation. ➢ There is no written agreement between Sepack and the DMUs. As per the facts of the case and the documents on record, it is observed that though Sepack contends that the agreement between them and DMUs is on principal-to- principal basis, there is no such evidences have been furnished by them. It is clear that the appellants have not made/entered into any written agreements to show that the contract between t....
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....chase from the raw material supplier should be one of the reasons for Sepack to negotiate the rate directly with such suppliers. Sri Biju Philipose, Managing Director, in his statement has deposed that they identified suppliers of raw materials required to manufacture sealing machines, negotiate price with them and instruct DMUs to purchase raw materials from such suppliers for the purpose of minimising the cost of raw materials of the BMUs, itself proves that fact. By effecting purchases of raw materials/ inputs from units identified by Sepack, the DMUs get inputs satisfying requirement and specification of buyer at the least possible price and they will not have to bear blame of using inferior quality raw materials as the same is purchased from suppliers recommended by the buyer. It is clear that the negotiations of raw material price is done by Sepack and not by the individual DMUs and also that the DMUs are bound to procure the raw materials from the suppliers recommended by Sepack. ➢ Transfer price fixed by Sepack-reduction in cost of raw material is immediately passed on to Sepack - not principal to principal transaction: there is no written agreement for fixing of t....
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....tured goods from DMUs to Sepack. The said transaction cannot be considered to be a sale in terms of Section 4(1) and the value cannot be accepted to be a transaction value. ➢ Sepack is the sole buyer of the sealing machines manufactured by majority of the DMUs. It is a fact that entire goods processed by majority of the DMUs are given to Sepack against recovery of agreed transfer price. This fact has been accepted by the DMUs as well as Sepack. Majority of the DMUs have confirmed that they manufacture and sell goods only to Sepack vide their statements recorded under Section 14 of CEA. From the statements it revealed that Sepack, procures the sealing machines from their DMUs and after carrying out quality inspection & branding, clears them to the market for final sales. Accordingly, it becomes very clear that Sepack depends on the DMUs for manufacture and clearance of sealing machines and without the DMUs manufacture, the sales business of Sepack would be hard to imagine and may actually be reduced to null. On the other hand, it is also an undoubted & undeniable fact that majority of the goods manufactured by DMUs are cleared to Sepack only. This gives rise to a situation ....
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....achines, the machine are subjected to thorough quality checking in the premises of DMUs by quality checking inspectors engaged by Sepack. Only after clearance from the said Inspectors, the goods are transferred to Sepack. It has been stated that the DMUs used to keep the machines manufactured by DMUs without the bottom cover and the quality inspectors of Sepack will inspect the quality and working condition of the machines and put the sticker on which QC passed, part number, etc. by ink print or paper sticker are there. After that the bottom cover is fixed and then the printed sticker on the machine are put on which QC passed, VC[Vencor Code], IVC(Inspector Vendor Code], Sign are printed. After completing details against VC and IVC, the machines whose quality inspection is completed are ready for billing and dispatch to Sepack. It is seen that the DMUs were not affixing the brand name. ➢ The goods being electrical goods, they are marketable only after branding, without which the said goods are not bought & sold in the market. This is because safety checks & testing and the branding carries important aspect in marketability of electrical goods. Here, the goods at the premis....
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....Tri.-Del.] - BRITISH SCAFFOLDING INDIA PVT LTD iv. 2015 (323) E.L.T. A124[S.C.] - EURO SCOFF (INDIA) LTD. ➢ On the issue of limitation, the judgment in Sparr Engineering vs CCE Bangalore II reported at 2007(207) ELT 545 [Tri.Bang.] and the Apex Court in the case of Kalvert Foods India Pvt. Ltd. [2011 (270) ELT 643 (S.C.)] is applicable to the present case. ➢ With regard to the proceedings under SCN dated 14.06.2013, the adjudicating authority has rightly found that by floating manufacturing units, by holding non- marketable goods assembled by the DMUs as finished goods and by undertaking processes indispensable for completion of manufacturing by deputing their own staff to premises of DMUs and by fixing the transfer price, they have deliberately attempted to camouflage the DMUs as real manufacturer. It is also found that M/s Sepack have wilfully misstated the facts and intentionally suppressed the value of goods produced by colluding with the DMUs, so as to evade payment of Central Excise duty. ➢ It is a settled law that when the suppression of facts/mis- declaration/intention to evade payment of duty has been noticed, the necessary notice under provisi....
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....Sepack) during the relevant period engaged in trading, inter alia, of sealing machines. These sealing machines were manufactured by various independent units (DMUs) and supplied to Sepack at the price mutually agreed. The appellant after affixing their brand name and packing the sealing machines cleared to the end consumer at a price higher than the price at which the same were purchased from different units. Each of the DMUs engaged in the manufacture of sealing machines was registered with the respective village panchayats, but not registered with the Central Excise Department claiming SSI exemption under Notification No.08/2003-CE dated 01.3.2003 up to the aggregate value of clearances in the respective financial years being less than Rs. 150 lakhs. The relevant portion of the said Notification reads as: SSI Exemption to manufacturers not availing Cenvat - Notification No. 8/2002-C.E. superseded In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) (herein after referred to as the Central Excise Act) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue)....
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....lled by Sepack only for the purpose of claiming SSI exemption benefit under Notification No.8/2003-CE dated 01.03.2003 on the turnover of each of the said Units. Secondly, it is also alleged by the Revenue that the product sealing machines at the premises of the DMUs were not fully finished and attained the character of a marketable commodity; the sealing machines became complete and emerge only after the quality checking, and other processes in the premises of Sepack including the processes of branding, labelling, warranty agreement which enriches its value as well as make the sealing machines marketable. Thus, manufacturing of sealing machines becomes complete only after these incidental and ancillary processes undertaken by the appellant at their premises. Hence, Sepack is the manufacturer of the sealing machines. On the other hand, the contention of the appellant is that each of the said units are independent, assessed separately under the Income Tax Act; invested their own capital/finance in building manufacturing infrastructure and working capital; managed and controlled the day to day affairs by the respective Proprietors and partners; therefore, clubbing the value of the cl....
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....ind that the approach of the Department is ambivalent. At the first instance, it is alleged that the DMUs are dummy units i.e. effective control of the DMUs are in the hands of the Sepack; therefore the sealing machines manufactured and cleared by each of the DMUs to Sepack be considered as if the said sealing machines are manufactured by Sepack and the turnover of each of the DMUs be considered to be the turnover of the appellant for the purpose of calculating the aggregate value of clearance of good under SSI Notification No. 08/2003CE dated 01.3.2003. The second line of argument of the Department is that the sealing machines manufactured by each of the dummy units were not fully manufactured and only after carrying out the processes of packing, sealing and affixing the brand name of the Sepack, it results into a complete machine and the 'manufacture' is completed; hence the appellant being the manufacturer of sealing machines that were cleared by the DMUs, the sale price at which the sealing machines were sold by Sepack during the relevant period be chargeable to duty. 12. Now, let us analyse each of the said issues raised by the Revenue in denying the benefit of SSI exemption ....
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....n the same property. The respondent No. 1 was situated at Plot No. B- 15, while respondent no. 2 was situated on Plot No. B-16 of MIDC, Shiroli. Merely because both the firms were dealing in the same type of production and because one of the partners in both the firms was same, it could not be concluded that respondent no. 2 was a dummy unit of respondent No. 1. In view of these reasons, the Tribunal rejected the contention of the Revenue and allowed the appeals by majority of two against one. The findings of the Tribunal are clearly based on facts, In view of some of the salient facts noted above, it is impossible to hold that the findings of fact given by two of the Members are perverse. 15. Further, this Tribunal in the case of CCE, Chennai Vs. Meco Tronics (P) Ltd. [2003(159) ELT 628 (Tri. Chennai) confronted with the issue whether clearance of 9 units be clubbed with that of MTPL in confirming the demand against MTPL. Referring to the earlier judgments, it is observed as follows:- 15. Further, we notice that the issue of common premises, common Directors, supply of raw materials have all been the subject matter of several Tribunal orders as in the case of Cheryl Laboratori....
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....g of cost data with the buyer militates against the doctrine of "Indoor Management". He has held that determination of price or the profit level (or loss) should be the policy decision of the Management in-charge of the company. In such a policy matter, if determined by somebody else, it demonstrate that such somebody is incharge of the management. He states that this is precisely what the show cause notice alleges, i.e. the goods are manufactured under the management, direction and control of MICO. Thus the show cause notice is substantially correct when it alleged that the goods are manufactured under the management, direction or control of MICO. 20. With due respect, we are unable to agree with this conclusion of ld. Commissioner. This is not a new concept which the Commissioner or the department has tried to bring out in the order. But this has been gone into again and again by several courts and they laid down what managerial control means and in these cases it has been well laid down that managerial control should be such as to lead to the flow back of the profits to Principal manufacturer. In this particular case, admittedly the ancillaries prepare the cost estimate and t....
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....roceeding on the basis of ancillary units being related persons but as Commissioner has analysed, they have proceeded on the basis that the goods are manufactured under the management, direction and control of MICO. All units being ancillaries manufacture goods according to design and specifications, therefore, MICO getting such goods manufactured as per their specification does not make MICO as the manufacturers in terms of Section 2(f) of Central Excises and Salt Act. This has been further analysed by the Hon'ble Supreme Court in the case of C.C.E. v. M.M. Khambhatwala as reported in 1996 (84) E.L.T. 161 (S.C.) where goods produced by household ladies in their own premises out of the raw material supplied by the respondents who paid wages on the basis of number of pieces manufactured and there was no supervision over the manufacturing of the goods by the respondents, and the goods sold from the premises of such household ladies, but sale proceeds sent to the respondents. Such household ladies, the Hon'ble Supreme Court held, are to be treated as "manufacturers" of the goods and not as "hired labourers". In this regard Hon'ble Supreme Court relied on its earlier judgment in the ca....
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.... others in the market as sub-standard goods at a lower price or the goods are destroyed. It is significant to note that the buyer is not obliged to purchase the goods manufactured by the seller regardless of their quality and that in the event of rejection by the buyer the alternatives present before the seller extend to the sale of the manufactured goods to others or even to the very destruction of the goods. It is apparent that the seller cannot be said to manufacture the goods on behalf of the buyer. Further the Supreme Court observed in para 7 that the appellant relies on the circumstances that under the agreements the seller is required to affix the trade- marks of the buyer on the manufactured goods and, it is said, that indicates that the goods belong to the buyer. The Supreme Court observed that it seems to them clear from the record that the trade-marks of the buyer are to be affixed on those goods only which are found to conform to the specifications or standard stipulated by the buyers. All goods not approved by the buyer cannot bear those trade-marks and are disposed of by the sellers without the advantage of those trade-marks. The trade-marks are affixed only after the....
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....said reasoning of the learned Commissioner has been rebutted by Sepack in their Director's statement and also by adducing evidence of reduction in the cost price of the sealing machine by procuring raw material at a cheaper price benefits both DMUs as well as Sepack, all negotiations on price reduction on the basis of the cost of production of each of the DMUs since benefits both the parties and the benefits derived are more or less equally shared by both cannot be construed as financial flow-back and be construed the benefit is derived only by Sepack. We find merit in the argument of the learned advocate for the appellant that the mutual benefit derived from various efforts leading to cost reduction in the manufacture of sealing machines by DMUs, cannot be said a financial flow-back by way of sharing the benefits of cost reduction resulted from meticulous planning and execution of the lower cost of production through monthly meetings and sharing of the cost data. Also, it is pertinent to note that the price at which sealing machines are purchased from the respective DMUs by Seapack were not uniform but rests on the methodology of the cost reduction followed by the individual DMUs.....
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....flow-back from the DMUs to the appellant, are issues/factors considered by the Tribunal in its various judgments as insignificant factors in deciding whether Units are dummy or otherwise. Also, it is not brought on record that there is common workforce or supervising staff shared between Sepack and the DMUs in carrying out the day-to-day operation of the manufacturing unit. 18. Further, we find that some of the DMUs were in existence much before the incorporation of Sepack (i.e. Sevana Traders and Services Pvt. Ltd.) and hence it is difficult to accept the reasoning of the Commissioner that all the DMUs are created by Sepack to evade excise duty. In his statement dated 24.12.2012, the Managing Director of the appellant Mr. Biju Philipose explained the scheme of manufacture involving the DMUs disclosed that he had undergone a training in Germany on Negotiations in the year 2011 and implementing the idea of 'Co- operative Negotiations' and promoting entrepreneurship and industrial activities in or around Kizhakkambalam. The DMUs were set up with the said objective and he has been organising joint actions with the DMUs in identifying suppliers of raw materials for cost reduction whic....
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....existence as a separate entity and not a dummy unit of the Sepack. In support, the learned advocate referred to the judgment of the Hon'ble Supreme Court in the case of Gajanan Fabrics Distributors Vs. CCE, Pune [1997(92) ELT 451 (SC)]. We find merit in the contention of the learned advocate as dummy units were considered to be in existence and allowed to redeem the goods on payment of redemption fine whereas as per the allegation, the goods ought to have been released to the Sepack who has been saddled with the duty involved in the seized goods. In view of the above, we do not find merit in the findings of the Commissioner that all the DMUs are dummy units of the Sepack and hence each of the said DMUs is not eligible to avail SSI exemption under relevant notification. 20. The Ld. AR for the Revenue placed reliance in the case of Parle Bisleri Pvt. Ltd. (supra), where the appellants were manufacturers of soft drinks, availed the benefit of SSI exemption notification No.175/86 and No.1/93 which is the holding company of M/s. Parle Exports Ltd. The said company sells its products to the holding company M/s. Parle International Ltd. and franchise bottlers of M/s. Parle Exports Ltd. A....
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....es become complete and marketable after carrying out the processes of packing and affixing the brand name of the appellant would result into manufacture cannot be sustained. The Hon'ble Bombay High Court in Rafique Malik's case observed as follows:- 10. Thus, it is not in dispute that the respondent- assessee received footwear in its finished form in the labelled boxes bearing M.R.P. The work carried out for the respondent is of affixing its brand name on the manufactured footwear. As admittedly, the footwear in finished form was received by the respondent, it is impossible to say that in the form in which the footwear was received, it could not be marketed or sold in open market by the respondent-assessee. Even without carrying out the activity of putting its brand name, the final product namely the footwear could have been marketed and sold to the consumers. Even assuming that one or two brand names affixed by the respondent are very popular, by affixing the brand name, at highest the value of the footwear will increase. However, it is impossible to accept that by giving a treatment to the footwear which is in finished form by affixing brand names renders the product marketable....