L.R. INDUSTRIES Vs. COLLECTOR OF CENTRAL EXCISE

JUDGEMENT

(1.) THESE three inter -related appeals were heard together and are disposed of by the present order.

(2.) THE issue relates to clubbing of the production of three units viz., (a) M/s. Supreme Washers (P) Ltd., (b) M/s. L.D. Industries and (c) L.R. Industries (P) Ltd. By the impugned Order -in -Original passed by the Collector of Central Excise, Pune dated 22 -4 -1991, duty demand of Rs. 14,92,190.99 was confirmed against appellants M/s. Supreme Washers (P) Ltd. Penalties of Rs. 3 lakhs, one lakh and Rs. 50,000/ - were also imposed on M/s. Supreme Washers (P) Ltd., M/s. L.D. Industries (P) Ltd. and Shri Shyamsundar Raheja respectively.

(3.) BRIEF facts are : Preventive Officers of Central Excise, Pune visited the factory premises of M/s. L.D. Industries and M/s. L.R. Industries situated at 66/65, Lonawala Co -operative Industrial Estate on receipt of information that the said two units were in fact only one unit and they were availing the benefits of tax exemption for Small Scale Industries which they were not entitled to. During the visits to their premises on 14 -12 -1988 and 22 -12 -1988, certain documents and unaccounted goods were seized under Panchanama and statements of the partners of the two units and Employees were recorded Under Section 14 of the Central Excise Act, 1944. After further investigation, a show cause notice was issued to the present appellants, among others, alleging that the three units had mutuality of interest among themselves by way of common overall control of the three units by Shri S.L. Raheja, common procurement of raw material by virtue of which the three units got the raw materials at lower price with 90 to 120 days' credit facility instead of normal credit facility of 30 days available to other persons, common stock accounting and planning, interdependence in manufacturing operations, common stock of raw -materials and semi -finished goods, common use of machinery between the three units, common marketing arrangements and free flow of finance between the three units. After considering the parties' reply to the show cause notice denying the allegations, and after providing personal hearing to the parties, the Collector by the impugned order held that factors such as the sharing of the common Head Office facilities in the premises, common telephones etc., would not by themselves be determinative for clubbing. However, he found that common raw -material procurement was co -ordinated by Shri S.L. Raheja for all the three units though payments were received from the three units separately. Inasmuch as the co -ordination of interest between the three units was being conducted by Shri S.L. Raheja of M/s. Supreme Washers for the other two units viz., M/s. L.D. Industries and M/s. L.R. Industries, this led to financial gains for both L.D. Industries and L.R. Industries. This showed that M/s. Supreme Washers had control over the procurement of principal raw -material viz., Wire Rods for both L.D. Industries and L.R. Industries. Collector also found that if each of the units were to act independently, they would not have been able to procure the raw -materials at such a low rate. He, therefore, held that there was indirect mutuality of interest involving flow of funds among the three units. Collector also found that though in reply to the show cause notice, the three units had stated that no heat treatment or any other manufacturing work is being carried out by L.D. Industries for M/s. Supreme Washers as alleged in the show cause notice, and material to this effect would be produced at the time of personal hearing, no such evidence had been produced. Collector referred to page 28 of the appellants' reply to the show cause notice dated 12 -4 -1991 in which though they had claimed that they would be producing evidence to deny the charge of heat treatment and other manufacturing activities were not being carried out by L.D. Industries for and on behalf of M/s. Supreme Washers, no such evidence was produced. As against the said claim of the appellants, the Collector relied on the statement dated 30 -1 -1989 given by Shri Ramesh Dhakre stating that heat treatment of goods made by Supreme Washers was done by M/s. L.D. Industries and invoices were not issued to M/s. L.D. Industries nor any payment was made to them. The Collector observed that no independent unit would undertake heat treatment work on the product of another unit without charging any money. The charges relating to heat treatment was therefore a flow back of monetary benefit from M/s. L.D. Industries to M/s. Supreme Washers, according to the Collector. He further found that one machine of M/s. Supreme Washers had been kept at the premises of M/s. L.D. Industries. There was no evidence to show that the said placing of machine was a purely innocent arrangement. Collector also found that the appellants had not given any explanation for the stock of manufactured goods belonging to M/s. Supreme Washers lying in the premises of M/s. L.D. Industries. He relied on the statement given by Shri S.L. Raheja on 6 -2 -1989 admitting that the product manufactured at the premises of M/s. Supreme Washers was delivered in loose condition without any Central Excise documents. Collector also found that there was substantial flow of funds from M/s. L.D. Industries to M/s. Supreme Washers as evidenced from Bank records and account books. Shri Shyamal Raheja, who was the Director of M/s. Supreme Washers and also partner of M/s. L.R. Industries in his statement dated 9 -6 -1989 had admitted that M/s. L.R. Industries and M/s. L.D. Industries were the shareholders of M/s. Supreme Washers and therefore, they gave loan to M/s. Supreme Washers. Shri S.L. Raheja had also stated that interest was being charged only for long term loans and temporary loans are arranged mutually depending upon the liquidity position. Collector had also found evidence of mutuality of interest between the three units inasmuch as the stocks of finished goods were being monitored at the head office in one single document for all the three units. These documents had not been denied by any of the appellants. Shri S.L. Raheja had also admitted the position that all the three units were maintaining combined accounts showing stock of both raw -materials and finished goods. Further, the three units had also been adopt -ing common strategy for marketing. Having regard to these factors, the Collector held that there was strong mutuality of interest between the three units, especially between M/s. Supreme Washers and M/s. L.D. Industries which would not have existed if the units were dealing with each other on principal to principal basis. Accordingly, the Collector held that the production and clearances of all the three units would be liable to be clubbed for purposes of computing their duty liability and for purpose of their claim for the benefits of Notification No.175/86. He also held that there was sufficient justification in the circumstances of the case for invoking extended period of limitation under proviso to Section 11A(1) of Central Excise Act.