TECHNO DEVICE, Vs. CCE

JUDGEMENT

(1.) On 06.2.98, central excise officers attached to the Chennai -IV Division visited the premises of M/s. Techno Device (TD), a small scale unit engaged in the manufacture of idlers and parts thereof for M/s. Neyveli Lignite Corporation (NLC), at 45, SIDCO Industrial Estate, Chennai. The officers observed that two other units M/s. Sri Ranganatha Industries (SRI), and M/s. Industrial Engineering Works (IEW) also functioned in the same premises. Another unit M/s. Excel Industries (Excel), had functioned in the same premises till January'98 before it shifted to 98, SIDCO Industrial Estate, Chennai -98. Another unit M/s. Industrial Fasteners (IF) had functioned at 98A, Sidco Industrial Estate till 1992 and moved to 45 Sidco Industrial Estate in 1993. This unit was wound up in August'96. Statements were recorded from Shri R. Vasudevan, partner of Excel and Shri N. Sanjay, proprietor of IEW. After completing the investigation, the authorities came to the tentative conclusion that members of the families of S/Sh. R. Vasudevan and his brother Shri R. Rajagopal had formed partnerships TD, Excel, IF and SRI and engaged in the production of excisable goods from the same factory and availed inadmissible exemption extended to SSI units. The premises 45, SIDCO Industrial Estate had been allotted to TD by Tamilnadu Small Industries Corporation (TANSIDCO); the other units operated without clearance from TANSIDCO. All the units used the power connection allowed to TD without separate meters. TD allowed other units to operate in 45, SIDCO premises under lease agreements charging nominal rents. Clearance of excisable goods manufactured by SRI and IEW were a camouflage as they had not made clearances to NLC. Clearances under invoices raised by TD and Excel only represented clearances to NLC. It appeared that TD manipulated the records of clearances of excisable goods manufactured by it so as to show that goods were cleared by sister units thereby contravening provisions of the Central Excise Rules and evading excise duty to the tune of Rs. 49,04,454/ - due on the clearances made during the period 1994 -95, 95 -96, 96 -97, 97 -98. After due process of law, the Commissioner passed the impugned order demanding an amount of Rs. 23,26,303/ - from TD under Section 11A of the Central Excise Act, 1944 (the Act), along with applicable interest in terms of Section 11AB of the Act. A penalty of Rs. 72,438/ - was imposed on TD under Section 11AC of the Act and imposed another penalty of Rs. two lakhs under Rule 173Q of the Central Excise Rules, 1944(CER). Plant and machinery used for manufacturing the offending goods were confiscated under Rule 173Q and were offered redemption on payment of a fine of Rs. One lakh by TD. A penalty of Rs. 20,000/ - each was imposed on S/Sh. Vasudevan, Rajagopal and IEW represented by Sanjay under Rule 209A of CER. The subject appeals have been filed by TD, S/Sh. Vasudevan, Rajagopal and Sanjay.

(2.) In the impugned order, the Commissioner found that the four units namely, TD, Excel, SRI and IF functioned from TANSIDCO, 45, SIDCO Industrial Estate were partnership firms comprising S/Sh. Vasudevan and/or Rajagopal and their relatives. The family members of S/Sh. Vasudevan and Rajagopal dominated the business. Shri R. Vasudevan fixed labour charges for the units which under took job work for either TD or Excel. Whereas, Excel and IF functioned from 1.4.93 to 9.8.96, other units continued to function on the date of detection and had started in 1982 (in the case of TD) and in 1986 (in the case of SRI and IEW). Only TD had power connection. As per the mahazar, the records of all units were kept at one place at shed No. 45 SIDCO Industrial Estate. One Shri Vaidynathan, clerk maintained the accounts. All the units functioned from a common shed with demarcation made by a line painted on the floor; that some machines were attributed to each unit did not mean that all of them functioned separately. From the letters of Chief Manager, NLC dated 14.9.96, 20.8.98, it was seen that orders were placed only on TD and Excel and not on others. The job relating to these orders was distributed among the various units floated by S/Sh. Vasudevan and Rajagopal with their family members. By doing this, the income from sales and the profit got distributed among these units enabling them to avoid taxes. Shri Sanjay, proprietor of IEW had not invested any amount as a proprietor. A single security guard handled security and safety of all the units. It was evident that all the units pooled the space for their manufacturing activity besides men and machinery. All the units took registration on 4.3.98 as directed by the Assistant Commissioner. Proprietorship of Shri Sanjay was dubious as he drew Rs. 3500/ - as salary from SRI. The units had address as 45A, 45B, 45C, SIDCO Industrial Estate which had not been authorized by the municipal authorities. The Commissioner relied on the decision of the Tribunal in Simplex Expeller Works v. CCE, Chandigarh reported in , to conclude that SSI exemption was not separately available to the parties involved. In the said decision, the Tribunal had held that the SSI exemption would be deniable when all the partners of different units were members of the same family and no material to suggest any independent source of income or nucleus to start business for manufacturing activity carried out in a common hall with no partition; machinery for manufacture found only in the premises of Unit No. 1 while other units did not possess sufficient machinery and the power connection for carrying out the manufacturing activities; and the contents of the statements were not denied by the partners concerned. SSI exemption was not available on the basis of separate registration as SSI unit or separate sales tax number if manufacturing activities were carried out collectively as members of one family at one place with one office. Tribunal held that the flow back of money from one unit to another being in the private knowledge of the assessee, it was never expected to be transparent. It was for the assessee to prove that they had independent money transactions with no sharing of loss and profit of the business.

(3.) The impugned order has been challenged by TD, S/Sh. Vasudevan, Rajagopal and Sanjay. TD submitted that the finding that TD and four other firms functioned in one big hall demarcated by painted lines and were not functioning separately to be incorrect. Each factory had four walls and separate doors. The yellow line was in the open yard where the raw materials of each unit were kept. This position was obvious from the mahazar. It was an admitted fact that all the four units were engaged in manufacturing activity as per the show cause notice; it was not a case where they merely existed on paper. When separate machinery was found along with separate labour, clearances of the units could not be clubbed. Excel existed since 1982, it functioned from 98 Sidco Industrial Estate for a short period of three years. They leased out the premises to TD and hired a portion on lease. It had its own plant and machinery. Partners of Excel were different from partners of TD. Excel moved to their own premises at 98 Sidco Industrial Estate in August'96. Therefore, clearances by Excel were excluded from the impugned demand. A separate firm with its own manufacturing premises, machinery and labour could not become a dummy for an interim period, for the reason that it had functioned from a portion of the premises leased from TD. That the Assistant Commissioner directed each unit to take registration certificate and the issue of registration certificate to each of them showed that the department was satisfied about each unit having walls on four sides and separate entrances. They could not be treated as dummies. The firms were separate legal entities for sales tax and income tax purposes. The sales tax returns of Excel showed that SRI, IEW and IF were not mere job workers but had sold goods to Excel. A firm could validly procure goods on purchase from other firms; that could lead to distribution of profit was not a ground to treat all the firms as one and the same. In the absence of common funding and flow back of profit there could not be clubbing. The circumstances of partners being related and running units in adjacent premises was not a ground for clubbing. The appellants relied on the following case law and CBEC Circular No. 6/92 dated 29.5.1992.