Rex Arts Castors Pvt. Ltd., Rex ... vs Commissioner Of Central Excise on 24 June, 2003 - Free Judgements of Supreme Court & High Court

Customs, Excise and Gold Tribunal – Mumbai

Rex Arts Castors Pvt. Ltd., Rex … vs Commissioner Of Central Excise on 24 June, 2003

Equivalent citations: 2004 (177) ELT 179 Tri Mumbai

Bench: S T Gowri, G Srinivasan

ORDER

G.N. Srinivasan, Member (J)

1. This bunch of six appeals (Appeals E/4596 to 4601/95) have been filed by the assessee against the decision dated 18.4.1994 made by the Collector of Central Excise-II, Mumbai-I, in Order-in-Original No. 53/1994, confirming the duty. By the said order, he has confirmed the duty and penalty as indicted below:-

Name

Demand

Penalty

Period

Rexello Castors Pvt.

Ltd.

42,12,860.42

10,00,000/-

1.11. 1986 to 31.7.1988

Rex Rubber Works

Nil

5,00,000/-

-do-

Rex Builders & enggrs.

Nil

5,00,000/-

-do-

Crown Rollen

Nil

5,00,000/-

-do-

Rex Arts Castors Pvt.

Ltd.

Nil

5,00,000/-

-do-

Rex Arts

Nil

5,00,000/-

-do-

2. Four appeals (Appeals E/1405 to 1408/00) have been filed by the department against the common order by the Commissioner of Central Excise (Appeals), Mumbai, made in Order-in-Appeal Nos. GKP(2340)31-M-IV/2000 (43 M-IV/98), GKP(2341)32-M-IV/2000 (44-M-IV/98), GKP(2342)33 M-IV (45-M-IV/98) and GKP(2343)34/M-IV-/2000 (46-M-IV/99) dated 20th January, 2000 allowing appeals of the assessee made against Order-in-Original No. K-III 752-771/98 dated 9.11.1998 passed by the Assistant Commissioner of Central Excise, Div. K-III, Mumbai-IV, in and by which he denied the exemption claimed by the assessee under notification 1/93 (SSI Exemption).

3. A show cause notice dated 6.12.1991 was issued calling upon the appellant assessees as to why duty should not be demanded from them denying exemption under notification 175/86, and penalty should not be imposed on each of them. Detailed replies were given by the appellant assessees. After hearing the parties, the adjudicating authority confirmed the demand, denying the exemption under notification 175/86. Hence these appeals by the assesses.

4. The brief facts of the case are these. Rexello Castors Pvt. Ltd. (RCPL) is a company registered in the year 1976 under Indian Companies Act, 1956, which was originally a partnership concern as Rexello Industries and it is situated at 23/D, Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Mumbai 400 093 and was engaged in the manufacture of various types of castor wheels, trolley wheels and other material handling products etc. Rex Rubber Works (RRW) is a partnership firm registered in 1964. Earlier it was situated at Sussex Industrial Estate, Byculla, Mumbai, having the required machineries for manufacturing rubber goods and trolley wheels. Later, in the year 1981 RRW was shifted to a rented premises at 1st floor, 23/D, Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Mumbai 400 093. Rex Builders & Engineers (RBE) is a partnership unit existing since 1985, at 26/6, Mittal Industrial Estate, Andheri (E), Mumbai 400 059, having the required infrastructure to manufacture various types of castor wheels and trolley wheels etc. Crown Rollen (CRN) is a partnership firm registered in 1980 and is situated at 115/3, Mittal Industrial Estate, Andheri (E), Mumbai 400 059, having the required infrastructure to manufacture various types of castor wheels and trolley wheels. Rex Arts Castors Pvt. Ltd. (RACPL) is a company constituted in the year 1984 and is situated at 85/5, Mittal Industrial Estate, Andheri (E), Mumbai 400 059, having the required infrastructure to manufacture various types of castor wheels and trolley wheels. Rex Arts (RA) is a partnership firm registered in 1950 at 48, Nishanpada Road, Dongri, Mumbai and was engaged in the manufacture of wooden nursery furniture and allied products.

4. The Factory premises of the following Companies/firms were searched by the Officers of the Central Excise, Mumbai and the various documents were seized on 4th August 1998 as mentioned in the annexures to the panchnama dated 4th August 1988. The statement of Shri G.H.M. Merchant, a Director of RCPL was recorded on 4th August 1988 and statements of others were also recorded during the course of the investigation. After the investigations, a Show Cause Notice dated 6.12.1991 was issued proposing to deny SSI exemption to the Units specified at Sr.No.(ii) to (vi) above on the ground that they are dummies of Sr.No.(i) above. SSI exemption was also proposed to be denied to RCPL also on the ground that value of clearances would exceed the eligibility criteria of Rs. 2 crores, specified u/n 175/86-CE, as value of clearances of all the aforesaid nits, in view of their manufacture under the brand name “REXELLO”, owned by RCPL, has to be clubbed together. The SCN demanded duty from all the aforesaid assessees and also proposed to penal action on the assessee and their Partners/Directors.

5. The allegations against various appellants and their replies are extracted below:-

“(a) The allegations as stated against RCPL in para 32(IV) of the Order-In-Original dated 18.04.1994 are as under:

“Para 2, 1, 1 of the Show Cause Notice refers to the statement of Shri Gulam Hassan Mohamadali Merchant, Director of M/s. RCPL recorded on 4.8.1988. In this, an admission has been made that M/s. RCPL had not received any royalty amount from any of the 5 companies……” It has, therefore, to be inferred that the formal agreements entered into, permitting the 5 other units to use the brand name of M/s. Rexello owned by M/s. RCPL was a sham and a colourable device to show separate entities.”

The Appellant RCPL filed their Reply to the Show Cause Notice and in paragraph 13.2 and 16.7 of the Reply of the RCPL has submitted as under:

” 13.2 Shri G.M. Merchant clarified that the he is neither a Director nor a partner, nor a Proprietor in any of the other companies mentioned in the Show Cause Notice. About royalty required to be paid by the other companies. Shri G.M. Merchant has clarified that because the accounts were yet to be finalised the royalty amounts were yet to be received from these units. He had also clarified that no packing materials were supplied by us to any other units and that the components of some of the items manufactured by us were sometimes sent only to M/s. RRW for jobwork under proper documents.”

” 16.7 With reference to para 5.7.3 about unilateral termination of the Agreement by us we have already given our submissions in above paras. About non payment of royalty amounts as required under Agreement, we submit that as we were yet to scrutinize the monthly statements of M/s. RA and as our accounts which were running accounts were yet to settled to arrive at the liabilities of each other, we did not insist upon M/s. RA to pay the royalty amounts Immediately. It is therefore not true that the Agreement was only on the paper and the practice followed by the companies was entirely different.”

M/s. RCPL also submitted that Shri G.M. Merchant, in his statement dated 04.08.1988 at 313 of the appeal compilation Internal Page 4 (313 D) has stated as under:-

“Ans: Yes, M/s. Rexello Castors Pvt. Ltd. are entitled to receive Royalty amounts from all the five parties. However so far no amounts have been received as the complete accounts are yet to be finalized.”

The allegations as stated against RCPL in para 32 (V) of the Order-In-Original dated 18.04.1994 are as under:

“In the Show Cause Notice, it has been held that expenditure towards advertisement was incurred only by M/s. RCPL who at the same time, maintained that sales were made independently of the branded products by M/s. RCPL on advertisement were about 15.8 Lakhs.”

The Appellant, RCPL in Reply to the Show Cause Notice in paragraph 14.3 has submitted as under:

“With reference to para 3.4.1 and 3.4.2, we submit that advertisement of the products was done by us in our own interest so that our brand name “Rexello” becomes popular and we get more royalty. In para 3.4.2, the Deptt itself admits that the said different companies were producing and selling their goods.”

The allegations as stated against RCPL in para 32 (VI) of the Order-in-Original dated 18.04.1994 are as under:

“In has been cited at length in the Show Cause Notice that orders for the products made by any of the six companies were being received by M/s. RCPL. Instances have been cited specifically in paragraphs 6, 7.2, 9.7, 9.8, 10.1, 10.5, 10.7, 10.7.3 and 10.10. The sum and substance of this citation is that M/s. RCPL was acting as a focal point in receiving orders from the customers and stockists. The requirements of the clients were being distributed to the various manufacturing units as the per the convenience of M/s. RCPL and thus, it was not that there were six different companies but that M/s. RCPL had five additional manufacturing partners.

M/s. RCPL, in Reply to the Show Cause Notice in Paragraph 16.12 has submitted as in under:-

“With reference to paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/ bill collector in order to help the customer, would collect the orders and had them over to the respective concerned manufacturing unit. It is not true that we were deciding about the orders and that we were manufacturing the goods and were clearing them in the name of M/s. RA.”

The allegations as stated against RCPL in para 33 of the Order-in-Original dated 18.04.1994 are as under:

“Paragraph 7.2 of the Show Cause Notice cites a letter written by the Director of M/s. RCPL to a trader which shows that after having received the orders from them, M/s. RCPL had diverted the supply to M/s. Rex Rubber Works (R.R.W.)…..”

M/s. RCPL, in Reply to the Show Cause Notice in Paragraph 18.1 has submitted as in under:-

“With reference to para 7.2, we submit that there was nothing wrong if we give advice to out clients so that their burden of payment of duty is lessened. Regarding the wordings in the last four sentences in this para. We would like to explain and clarify here that M/s. RRW for manufacturing the product mentioned in this para were required to buy some of the components from us and on such components whatever duty is payable by us was naturally ultimately required to be recovered by M/s. RRW from their customers viz. M/s. UNIVERSAL HARDWARE AND TOOLS CORPORATION, as it was an input cost for M/s. RRW.”

(b) RRW in Reply to the Show Cause Notice in Para 23.9 as submitted as under:-

“With reference to para 7.2 we clarify that the goods supplied to M/s. Universal Hardware were actually manufactured by us buying components from M/s. RCPL. Only the duty paid by us on the components purchased from M/s. RCPL was included in the cost of our products supplied to the above party. However, no duty was charged on the final product supplied to them as the same was not paid by us because we were within the exemption limit specified in the Notification No. 175/86 CI.”

The allegations as stated against RCPL in para 34 of the Order-In-Original dated 18.04.1994 are as under:

“Paragraph 7.7 disclose another letter, presumably in reply to a puzzled query from a client. The word used in the RCPL’s letter we know internally what we are doing is very revealing. Of course, they would not put the entire scheme in writing and therefore, the client is assured in these words. These could be explained to you in person when we net meet…..”

The RCPL in Reply to the Show Cause Notice in Para 18.6 as submitted as under:-

“With reference to para 7.7, we may point out that the letter in question does not indicate any malafide intention to evade C.Ex. Duty. It is very clear from this letter that our intention was to pass on maximum benefit to our client.”

The allegations as stated against RCPL in para 36 of the Order-In-Original dated 18.04.1994 are as under:

“In paragraph 9.7 of the Show Cause Notice is the statement of the stockists who placed orders on plain paper on which the name of the company was not mentioned. M/s. RCPL used to collect these orders and confirmation was given by any of the six units. The supplies were sent from a single godown that was of M/s. RCPL. Similar admission was made by another dealer as disclosed in paragraph 9.9 of the Show Cause Notice.”

The RCPL in Reply to the Show Cause Notice in Para 16.9, 16.12 and 21.1 submitted as under:-

16.9 “With reference to para 5.8 we invite attention to our submissions made against paras 3.4.1 to 3.4.14 and deny that any financial assistance was given to M/s. R.A. Regarding monitoring of orders received from customers, we may clarify that due to our common brand name “REXELLO” many customers used to book orders initially with us as they were not knowing as to who were actually manufacturing the products required by them. Therefore, we were required to guide the customers and send the orders to the concerned company instead of sending back the order to the customers and asking them to book with the relevant manufacturers and causing inconvenience to them.”

16.12 “With reference to paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/ bill collector in order to help the customer, would collect the orders and had them over to the respective concerned manufacturing unit. It is not true that we were deciding about the orders and that we were manufacturing the goods and were clearing them in the name of M/s. RA.”

21.1 “With reference to para 10.1, we may point out that the very request made in the said letter to place orders with the firms directly who will confirm and execute the orders, proves that all the firms in question are separate legal entitles doing their manufacturing activities independently. The letter referred to in this para is dt.27.6.1986 i.e. after the issue of the Notf. No. 175/86 CE. This notification carries a condition that for availing the exemption contained therein the units are required to be registered as S.S. Industries with proper authorities or they should have availed exemption under the notification mentioned in para 4(b) of the notification. Due to this condition may S.S. industrial units were in unstable conditions. We have referred to this uncertainty in our said letter while the department has brought out distorted meaning to say that the excise uncertainties mentioned are that if these orders would not have been transferred to other firms M/s. RCPL i.e. ourselves would have to exceed the turn over of exemption limit and would have been required to pay duty @ 15% right from the beginning of the year. We may point out that in our said letter. We have nowhere asked the buyers to transfer the orders to other firms and that the question of exceeding turnover did not arise due to issue of Noft.No. 175/86 CE earlier corresponding notifications were also based on the annual turnover.”

The RA in their reply to the show cause notice in para 18.12 submitted as under:-

“With reference to para 3.4.5 to 3.4.9 the details of our accounts appearing in the records of M/s. RCPL and the entries there in are admitted facts. We further submit that the advances received by M/s. RCPL for the goods manufactured by us were being transferred to us and whenever payments were made by M/s. RCPL on our behalf those payments were made to help us by M/s. RCPL; Since we had a running business dealing with M/s. RCPL, such advance payments made were being adjusted subsequently”.

Further allegations as stated against RCPL in para 36 of the Order-In-Original dated 18.04.1994 are as under:

“Not only was the supply distributed, but also that the security deposits received from the authorised dealers were transferred freely between units without prior approval of or request from the concerned dealers.”

The RCPL in Reply to the Show Cause Notice in Para 14.7 submitted as under:-

“With reference to para 3.4.9, we submit that the advances received by us were never used for our own operations but were transferred to concerned companies who were to manufacture the goods required by the customers giving those advances. It is true that some payments were made by us on behalf of the other companies mentioned in the para, but it is not true that these payments were made so as to help these companies. Since we had running business dealings with these companies, such advance payments made were being adjusted regularly.

Further allegations as stated against RCPL in para 36 of the Order-In-Original dated 18.04.1994 are as under:

“Paragraph 1.7.3 gives another example where goods were supplied by RBE but payment was received in full by M/s. RCPL”

The RACPL in their reply to the show cause notice in para 21.5 submitted as under:-

“With reference to para 10.5 & 10.6 we may submit that the contents to the letters of M/s. RBE addressed to M/s. K.B. Trading Co. Delhi referred to in the para clearly indicates that deposits/advances received by us from the customers were being transferred and that those deposits/advances were not being retained by us. This proves the separate legal entities of each of the unit and that each of them have principal to principal business with us and that they were not dummy units.

Further allegations as stated against RCPL in para 36 of the Order-In-Original dated 18.04.1994 are as under:

“Paragraph 1.7.3 (10.7.3) gives another example where goods were supplied by RBE, but the payment was received in full by M/s. RCPL.

The RCPL in their reply to the show cause notice in para 21.5 submitted as under:-

“With reference to para 10.7.3 we submit that the order in question received from M/s. Mahindra & Mahindra was transferred by us to RBE in Jan’88 due to problems in our factory. The amount of Rs. 37375/= was paid to us by M/s. Mahindra & Mahindra as the original order was placed with us. However, this amount was transferred by us to M/s. RBE. As mentioned in the para, the differential amount of Rs. 1875/= was refunded by M/s. RBE to M/s. Mahindra & Mahindra.

(e) The RBE in their reply to the show cause notice in para 9.19 submitted as under:-

“With reference to para 10.7.3 we confirm that the order received from M/s. Mahindra & Mahindra was executed by us. The goods were manufactured as per their drawings and no samples were sent but the goods were supplied after inspection done by the representative of M/s. Mahindra & Mahindra. The amount received by M/s. RCPL) Rs. 37375/=) initially was later transferred to us and the difference to Rs. 1875/= being the excess amount was refunded to M/s. Mahindra & Mahindra, as also admitted by the Deptt. in the para. This shows that we were doing our business independently.

The allegations as stated against RCPL in para 38 of the Order-In-Original dated 18.04.1994 are as under:

“Two vital points have already been discussed above. The first was that the other five units were permitted the use of their brand name “Rexello” by M/s. RCPL. Although agreements had been entered into and the fields of 1/2% subject to a minimum of Rs. 15,000.00 per year had been prescribed, no consideration has been shown to have flowing from the respective units to M/s. RCPL during the material period. The second point established during the discussions above is that the advertisement charges for all the products were paid only by M/s. RCPL and not by any other units. It is pertinent to note here that in defence of this pattern, M/s. RCPL had claimed that this was designed to promote brand equity and the benefit would have flown back to M/s. RCPL by way of royalty payments in pursuance of higher sales. But this argument become fallacious when no royalty has been paid.”

The RCPL in their reply to the show cause notice in para 13.2 & 14.3 submitted as under:-

” 14.3 With reference to para 3.41 and 3.4.2, we submit that advertisement of the products was done by us in our own interest so that our brand name “Rexello” becomes popular and we get more royalty. In para 3.4.2, the Deptt. itself admits that the said different companies were producing and selling their goods.”

The allegations as stated against RCPL in para 39 of the Order-In-Original dated 18.04.1994 are as under:

“The SCN discusses several other instances where payments were made from one factory for the liability of another factory without any subsequent flow back of funds.”

The RCPL in their reply to the show cause notice in para 11 (iii) submitted as under:-

“No financial assistance was given to any of the units. However, sometimes there were involvement of funds of us and other said concerns with each other. However, the department has failed to appreciate that such involvements were official involvements since they figured in the accounts of each of the concerns and were bound to be subject to official adjustments. In any case the department has not brought any evidence to show that such financial involvements resulted in flow back of the profit to our account. Regarding other assistance given, such assistance mentioned in the agreements with the units were only rendered.”

The allegations as stated against RCPL in para 40 of the Order-In-Original dated 18.04.1994 are as under:

“Para 2.1.12 shows that M/s. Rex Arts (RA) did not have any machines of their own. The premises in which they were situated belonged to M/s. RCPL. The machinery and the premises were shown to have been hired from M/s. RCPL by M/s. RA but the agreement did not contain any provisions regarding rent of machines.

The RCPL in their reply to the show cause notice in paragraphs 12.2. 13.12 & 16.2 submitted as under:-

” 12.2 With reference to para 1.2, 1.8 and 1.9 which are concerned with us we would like to submit that since the facts are admitted there is no need to give any submissions on these paragraphs. With reference to para 1.5 giving details of M/s. RA. We will like to mention here that the machinery detailed in this par belong to us but M/s. RA have been allowed to make use of then as the machinery was already in gala when the same was rented out to them.”

“13.12 With reference to paragraph 2.1.12 we submit that rent fixed with M/s. RA was both for premises and machinery an had remained to be mentioned in the agreement about the fact that this rent includes rent for machinery also.”

” 16.2 With reference to para 5.1 & 5.2, we would like to submit that none of our directors are partners in M/s. RA and as long as ourselves & M/s. RA are separate legal entities as explained in the foregoing paras, the allegations that we are having vested interest in M/s. RA cannot survive. As mentioned in para 5.1 we have rented our premises to M/s. RA on monthly rent of Rs. 2500/= with casual permission to use our machinery if necessary, although this was not mentioned in the agreement. Above rent of Rs. 2500/= cannot said to be nominal if it is taken into account that this rent was fixed in the year 1982. We deny that our actual production are shown as manufactured by M/s. RA with the intention to evade C.Ex. Duty by suppressing our own production/turnover.”

We may invite the Honourable Collector’s attention to the statement made by the department in para 5.2 which is reproduced below:-

“It further appears that under procedural exemption provided for small scale units, M/s. RCPL (i.e. ourselves) were trusted by the Government and their declarations were accepted as such to be true and correct and no verification of such declaration either from M/s. RA or M/s. RCPL was needed to be done by the officers of the department in respect of actual transaction made by them.”

“With reference to the above statement we submit that it is not true that no verifications of our declarations were made. Our records were audited by CERA & Internal audit party during the period in question. However without admitting but assuming that our declarations were accepted as such to be true and correct without verifications by the department it is submitted that in that case the fault if anu lies with the department and hence the charge of suppression of any fact caused by us cannot survive.”

(f) The RA in their reply to the show cause notice in para 18.8 submitted as under:-

“With reference to para 2.1.12 we submit that the rent fixed by M/s. RCPL was both for the premises and machinery and had remained to be mentioned in the agreement about the fat that this rent includes rent for machinery.

The allegations as stated against RCPL in para 41 of the Order-In-Original dated 18.04.1994 are as under:

“In paragraph 3.4.5 of the show cause notice, details, of accounts of M/s. RA in the ledger of M/s. RCPL is shown. A debit entry is made towards rent of Rs. 18000/= payable but there is no contra-entry witnessing the payment by M/s. RA on the debit side.”

The RA in their reply to the show cause notice in paragraph 7 b-2nd. Para, 7 c and 18.12 submitted as under:-

“It is not true that we were floated by M/s. RCPL. We have paid rent of Rs. 1500/= per month for the premises and for use of machinery which cannot be said nominal. The allegations that we were not capable of manufacturing the goods for which we received the payments or raised the invoices has been made without taking into consideration that we could get the goods manufactured on job-work basis from other manufacturers and therefore the question of our capacity to manufacture does not arise. The Deptt. has not made proper investigation into this aspect as a result of which a wrong conclusion has been drawn.”

“7 C It is not true that M/s. RCPL was giving financial assistance to us. However the Deptt. has failed to appreciate that such involvements were official involvements since they figured into our accounts as well as of M/s. RCPL and therefore were bound to be subject of official adjustments. In any case the Deptt. has not brought any evidence to show that such financial involvements resulted in flow back of the profit either to our account pr to the account of M/s. RCPL. Regarding the assistance given, only such assistance mentioned in the agreement made with M/s. RCPL were rendered by them.”

“18.12 With reference to para 3.4.5 to 3.4.9 the details of our accounts appearing in the records of M/s. RCPL and the entries there in are admitted facts. We further submit that the advances received by M/s. RCPL for the goods manufactured by us were being transferred to us and whenever payments were made by M/s. RCPL on our behalf those payments were made to help us by M/s. RCPL; Since we had a running business dealing with M/s. RCPL, such advance payments made were being adjusted subsequently.”

The allegations as stated against RCPL in para 43 of the Order-In-Original dated 18.04.1994 are as under:

“In the Show Cause Notice, several instances have been shown where orders and advances were received by M/s. RCPL. The actual manufacturing was done by another unit and the goods were supplied by them and yet the remaining amount was taken by M/s. RCPL carried forward debit balance of the sister units in their case. This in effect, amounted to custody of funds not belonging to them. Financially speaking, these were temporary advances or loans made to M/s. RCPL but there is no indication of any payments made to the manufacturing units towards interest. In the case of M/s. RRW, their balance was debit balance with M/s. RCPL.”

The RCPL in their reply to the show cause notice in paragraph 14.7, 14.8 and 14.9 submitted as under:-

“14.7 With reference to para 3.4.9, we submit that the advances received by us were never used for our own operations but were transferred to concerned companies who were to manufacture the goods required by the customers giving those advances. it is true that some payments were made by us on behalf of the other companies mentioned in the para, but it is not true that these payments were made so as to help these companies. Since we had running business dealing with these companies, such advance payments made were being adjusted regularly.

” 14.8 With reference to para 3.4.10, 3.4.11 and 34.12, we submit that the amounts mentioned in this para were not taken as loan by us but were usual advance received during the course of normal business, therefore there was no question of payment of any interest on these amounts. Moreover in business with nearest relatives usually any amount advanced are treated as personal loan for which no interest is charged.”

” 14.9 with reference to para 3.4.13, we agree that the payments made to them were purely in the course of business. However, it is very strange that the Department makes it convenient to decide what is prudent and what is not for a manufacturing concern of our size, without having a first hand knowledge of business.”

The RACPL in their reply to the show cause notice in paragraph 12.6 submitted as under:-

“12.6 with reference to 3.4.14, we deny that ours and all other companies were running like one business.”

(g) The RRW in their reply to the show cause notice in paragraph 23.6 submitted as under:-

” 23.6 With reference to para 3.4.13 & 3.4.14 we deny that ours and all other companies were running like one business as alleged in the para and without prejudice we agree with the findings, but with only one difference that the payments received were purely in the normal course of business.”

(h) The RA in their reply to the show cause notice in paragraph 18.12 submitted as under:-

The allegations as stated against RCPL in para 44 of the Order-In-Original dated 18.04.1994 are as under:

“The Show Cause Notice has cited instances where there was free flow between the component units of semi finished components without documents and therefore, without payment of duty. It has also been revealed that goods manufactured by one unit were sold under the invoices and challans of another unit. It has been disclosed that goods manufactured by one unit have been packed in cartons purporting to show production by another unit. Instances have been cited on these lines to show that the five units were in fact satellite or dummy units of M/s. RCPL. The relationship of each company and with each other has been brought out in the Show Cause Notice from paragraph 5 onwards.”

The RCPL in their reply to the show cause notice in paragraph 18.2 and 18.3 submitted as under:-

” 18.2 with reference to para 7.3 we submit that the event mentioned in this para is that we were supplying raw material to M/s. RRW for getting moulded parts manufactured by them on job work basis. This practice is followed everywhere in the Industries and is not objected to in the C.Ex. Rules and Regulations but on the contrary is accepted as envisaged in the Provisions of Rules 57F (2) of the C.Ex. Rules, 1944 or the Provisions of the Notfn. No. 214/86 C.E.

” 18.3 with reference to para 7.4, we deny that we have supplied finished parts such as metal body of Castors/Trolley and Axle/Nut Bolt as the case may be as components in set as substantially low price to M/s. RRW. However, these parts were supplied on regular payment of duty by us to them and therefore there was no evasion of duty on our part. Regarding supplying the final goods manufactured out of such parts by M/s. RRW to their customers we deny that these goods were supplied by M/s. RRW at our directions. M/s. RRW probably supplied the said goods as per the orders received by them from their customers.”

(j) The RACPL in their reply to the show cause notice in paragraph 12.16 submitted as under:-

” 12.16 The allegation in para 8.2 that we were manufacturing the branded goods of M/s. RCPL are denied. We are manufacturing our own goods independently. Regarding our goods being sent to M/s. RBE without any documents. We submit that as we are situated in the same industrial estate and as the records were prepared and maintained by Shri M.H. Merchant who was sitting in the premises of M/s. RBE, he or in his absence Shri S.G. Warang or Smt. Mable sitting in the same premises were intimated verbally so that they can prepare the necessary documents and the goods were sent to the premises of M/s. RBE as the goods of all the companies could be transported for onward journey by hiring a common tempo/truck.”

(k) The RBE in their reply to the show cause notice in paragraph 9.13 submitted as under:-

” 9.13 With reference to para 8.5 & 8.6 we submit that the cartons purchased by us from the supplier, were already printed with the name of M/s. RCPL and brand name “Rexello”. As we were badly in need of them. We accepted the printed cartons and after packing goods manufactured by us in these cartons. Struck of the name of M/s. RCPL. However, some time we might have forgotten to strike out the name of RCPL. The brand name of M/s. RCPL was not struck off as our goods were manufactured in the brand name of “Rexello”.

(l) The RRW in their reply to the show cause notice in paragraph 23.11 submitted as under:-

“23.11 with reference to para 7.4 we deny that M/s. RCPL supplied finished parts such as metal body of castor/ trolley and axle/ nuts/ bolts as the case may be as components in sets at substantially low price during the period November 87 to March 88 on payments of Cen. Excise duty. The Deptt. has not given any comparable rates/prices of the said components to prove their case. As we were within the limits. We supplied our products manufactured by using components purchased from M/s. RCPL to our customers without payment of duty of Excise. These goods were supplied to our customers on the orders received from them and not at the directions of M/s. RCPL.”

(m) The RA in their reply to the show cause notice in paragraph 7 (a) submitted as under:-

” 7(a) We i.e. M/s. RA were established even before M/s. RCPL was conceived and thought of in 1940’s at 48, Nishanpada Road, Bombay 400 009, holding Bombay Municipal Licence & Permit, manufacturing wooden baby furniture. Toys etc. As the above premises were situated in the Non-conforming zone specified by the BMC, we shifted some of our activities to 2nd floor, 23D, Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Bombay 400 093; after obtaining N.O.C. from D.O.I. and getting electrical connection from B.S.E.S. this premises belonged to Rexellor Industries. However, we continued our activities also at 48, Nishanpada Road. We restricted our activities only to labour work and got our stationary printed with the address as 23/D, Mahal Industrial Estate later when we acquired the rented premises at 114, Mittal Industrial Estate, the activities at 23/D, Mahal Industrial Estate, was stopped some time in 1983-84. After shifting to the above rented place. We continued to use the old stationary by canceling the address of 23/D, Mahal Industrial Estate and writing/typing the new address. However at times it was left out to cancel the old address.

(n) The allegations as stated against RCPL in para 45 of the Order-In-Original dated 18.04.1994 are as under:-

“Paragraph 5 speaks of the relationship of M/s. R.A. with M/s. RCPL and the other group companies. It has already been brought out above that M/s. RA did not have any premises or machinery and that the claim that these two facilities were taken on hire from M/s. RCPL was false as no valuable consideration had flown from M/s. R.A. to M/s. RCPL. The Show Cause Notice cites the statement of Shri M.G. Shinde, a worker with the group for over 12 years which prove that M/s. R.A. did not have any manufacturing facility upto August 1988. This shows that the production of various articles shown on paper by M/s. RA was actually the manufacture of M/s. RCPL Shri M.H. Merchant in his statement dated 4-8-1988 virtually admitted that these goods were shown as manufactured by M/s. RA and were cleared under the gate passes of M/s. RA.

The RCPL in their reply to the show cause notice in paragraph 12.2, 16 to 16.13 and 13.11 submitted as under:-

“16.1 with reference to para 5, we deny that the units mentioned in the Show Cause Notice are our satellite units depending entirely on us. Facts on records prove that all the units including our unit are separate legal entity independent of each other and their transactions with each other are on principle to principle basis.”

” 16.2 With reference to para 5.1 & 5.2, we would like to submit that none of our directors are partners in M/s. RA and as long as ourselves & M/s. RA are separate legal entities as explained in the foregoing paras, the allegations that we are having vested interest in M/s. RA cannot survive. As mentioned in para 5.1 we have rented our premises to M/s. RA on monthly rent of Rs. 2500/= with casual permission to use our machinery in necessary, although this was not mentioned in the agreement. Above rent of Rs. 2500/= cannot said to be nominal if it is taken into account that this rent was fixed in the year 1982. We deny that our actual production are shown as manufactured by M/s. RA with the intention to evade C.Ex. Duty by suppressing our own production/turnover.

We may invite the Honourable Collector’s attention to the statement made by the department in para 5.2 which is reproduced below:-

“With reference to the above statement we submit that it is not true that no verifications of our declarations were made. Our records were audited by CERA & Internal audit party during the period in question. However without admitting but assuming that our declarations were accepted as such to be true and correct without verifications by the department it is submitted that in that case the fault if any lies with the department and hence the charge of suppression of any fact caused by us cannot survive.”

” 16.3 with reference to para 5.3. We deny that the raw materials purchase by M/s. RA were actually delivered to us.”

” 16.4 With reference to para 5.4. We submit that in view of the several judgments of the authorities such s Supreme Court, High Courts, CEGAT and Quasi-judicial authorities like Collector, it is now well settled law that common office equipments etc. cannot be considered as grounds to clubbing the units of any group.”

” 16.5 With reference to para 5.5. we submit that M/s. RA have their own premises at 48, Nishanpada Rd. Bombay 400 009, which has been declared by us in our application made for Exhibit “H” permission under Rule 57F(2) as Exhibit “H” and enclosed.”

” 16.6 with reference to para 5.6 & 5.7, we submit that the very fact that we had entered into an Agreement with M/s. RA proves the case that ourselves and M/s. RA are two separate legal entities. The authorities such as CEGAT have held that giving the technical know how needed for manufacture of product does not prove the case of clubbing. In our Agreement, it was made clear that M/s. RA may display the model numbers as assigned by us in order to identify the models manufactured by them otherwise if they display model numbers of the products manufactured by us, it would not be possible to identify our products and their products.

Since the brand name “Rexello” was our brand name and since the technical know how including drawings, designs, specifications etc. of the products were to be provided by us, it was but natural that we reserved our rights to terminate the Agreement so that in case the products manufactured by M/s. RA are not found up to the standard, we could stop the above facilities and avoid our reputation from getting spoilt in the market. The said Agreement does not indicate M/s. RA manufactures of “Rexello” branded goods ever prior to the date of Agreement.”

” 16.7 With reference to para 5.7.3, about unilateral termination of the Agreement by us, we have already given our submissions in above paras. About non payment of royalty amounts as required under Agreement, we submit that as we were yet to scrutinize the monthly statements of M/s. RA and as our accounts which were running accounts were yet to settle to arrive at the liabilities of each other. We did not insist upon M/s. RA to pay the royalty amounts immediately. It is therefore not true that the Agreement was only on the paper and the practice followed by the companies was entirely different.”

” 16.8 With reference to para 5.7.4 we submit that as per our submissions given in foregoing para it is not true that M/s. RA were used by us as a dummy unit in order to divide our production and turnover to remain within the limits of SSI exemption.”

16.9 “With reference to para 5.8, we invite attention to our submissions made against paras 3.4.1 to 3.4.14 and deny that any financial assistance was given to M/s. R.A. Regarding monitoring of orders received from customers, we may clarify that due to our common brand name “REXELLO” many customers used to book orders initially with us so they were not knowing as to who were actually manufacturing the products required by them. Therefore, we were required to guide the customers and send the orders to the concerned company instead of sending back the order to the customers and asking them to book with the relevant manufacturers and causing inconvenience to them.”

” 16.10 With reference to para 5.9.1 we deny the allegations made in this para that we manufactured the goods and supplied the same in the name of M/s. RA.”

” 16.11 With reference to para 5.9.3, we have already given above, the explanation as to why the orders were received by us and distributed among other units as per the requirements of the customers.”

“16.12 With reference to paras 5.9.4 to 5.9.5, we repeat our submissions made above. As initially the buyers did not know which manufacturing unit was given the licence to manufacture which models, our representative/ bill collector in order to help the customer, would collect the orders and had them over to the respective concerned manufacturing unit. It is not true that we were deciding about the orders and that we were manufacturing the goods and were clearing them in the name of M/s. RA.”

” 16.13 With reference to paras 5.9.6, we deny to have floated M/s. RA as dummy unit. As submitted in para 11 vii above, wherein we have quoted the judicial pronouncements, each of us to whom the Show Cause Notice in question has been issued alleging that all other units are our dummy units are separate legal entities and are entitled to the benefit of the Notfn. No. 175/86 dt. 1.3.1986 as amended on the basis of their individual clearance.”

“13.11 With reference to para 2.1.11 we submit that Shri Riaz Ahmed H. Merchant was paid for looking after Central Excise work. A copy of the certificate for such payment by us is Exhibit “D” marked as Exhibit “D” and annexed.

(o) The RA in their reply to the show cause notice in paragraph 18.7, 18.8 and 18.23 submitted as under:-

” 18.7 With reference to para 2.1.11 we submit that the statement of Shri M.H. Merchant to the effect that the monthly rent was not paid by us is not correct. We have paid Rs. 18000/00 P.A. @ Rs. 1500/- P.M. towards rent of premises and machinery to M/s. RCPL. A copy of the receipt passed Exhibit “C” by M/s. RCPL is marked as Exhibit “C” and annexed herewith.”

“18.8 With reference to para 2.1.12 we submit that the rent fixed by M/s. RCPL was both for the premises and machinery and had remained to be mentioned in the agreement about the fat that this rent includes rent for machinery.”

” 18.23 with reference to para 5.9.1 we deny that the goods manufactured by M/s. RCPL were supplied in our name.”

(p) The allegations as stated against RA in para 46 of the Order-In-Original dated 18.04.1994 are as under:

“M/s. R.A. have filed classification lists for manufacturing certain products. The Show Cause Notice re-narrates and claims that the machinery installed in M/s. R.A. was not at all sufficient to manufacture the products.”

The RA in their Written Submission filed before Ld. Commissioner on 11.01.1993 at Page No. 2 submitted has as under:-

“To refute the allegations that RA were floated by RCPL as they were not in a position to manufacture the goods, the copies of the statement dt. 6.8.90 of Shri Riyaz Merchant, partner in both the above companies giving the details of manufacturing on job work basis of RA were handed over to the Hon’ble Collector. Copies of these statements are also enclosed as Exhibit RA-5 and RA-6 respectively. These statements have not been mentioned in the Show Cause Notice with the ulterior motive of the Deptt. as to not to bring forward the evidence that RA were having their own independent manufacturing activities.

In view of the above submissions and those made in the replies of the above units viz. RA and RBE it is submitted that the allegations that RA and RBE were floated by RCPL did not sustain in law as well as in view of the fact that enough evidence has been produced before the Hon’ble Collector to show that they were existing independently even before the issue of the Notification No. 175/86 dt. 1.3.1986.”

(q) The allegations as stated against RCPL in para 47 of the Order-In-Original dated 18.04.1994 are as under:

“Whereas M/s. R.A. was not manufacturing some products, and whereas M/s. RCPL were manufacturing those products for the sake of sustaining the facade, is had been to be shown that there was manufacturing activity in M/s. R.A. This was done by creating challans under Rule 57F(2) showing movement of semi finished components between the two units. However, the premises shown in the challans as belonging to M/s. R.A. were actually godown premises where, as per the panchnama, as well as the admission of the various persons, no machinery ever existed. When Shri M.H. Merchant was asked to explain this phenomenon he was unable to do it.”

(r) The RCPL in their reply to the show cause notice in paragraph 13.14 submitted as under:-

“13.14 With reference to para 2.1.15 we may clarify that the rectification and repair works were being done by M/s. RA in the premises at 48. Nishanpada Road, and not by us. Shri G.M. Merchant has given the statement that M/s. RCPL have been carrying out repairs or rectification at the said premises in confused state of mind. In fact, the officer recording the statement of Shri G.M. Merchant questioned him about some challans issued by us under Rule 57F (2) to M/s. RA which shows that M/s. RA were doing job work at the above premises. A copy of application under Rule 57F (2) Exhibit “F” enclosed as Exhibit “F” and annexed herewith”

(s) The allegations as stated against RCPL in para 48 of the Order-In-Original dated 18.04.1994 are as under:

“As per the Agreement between M/s. RA and M/s. RCPL dated 30.3.1987, M/s. RA were given by M/s. RCPL various technical assistance and were permitted to use their brand name with the condition that the name plate be affixed of their products, making it appears as if the goods were manufactured by M/s. RA evidence has been led in the Show Cause Notice in the subject parts of paragraph 7, showing that even before the Agreement subject assistance was being rendered and even after the Agreement, M/s. R.A. neither affixed their name on the products, nor did they pay any royalty to M/s. RCPL. Evidence is also disclosed in the Show Cause Notice to the effect that products made by M/s. RCPL were cleared in the name of M/s. R.A. without payment of duty.

The RCPL in their reply to the show cause notice in paragraph 16.7 submitted as under:-

“16.7 With reference to para 5.7.3 about unilateral termination of the Agreement by us we have already given our submissions in above paras. About non payment of royalty amounts as required under Agreement, we submit that as we were yet to scrutinize the monthly statements of M/s. RA and as our accounts which were running accounts were yet to settled to arrive at the liabilities of each other, we did not insist upon M/s. RA to pay the royalty amounts Immediately. It is before not true that the Agreement was only on the paper and the practice followed by the companies was entirely different.”

(t) The further allegations as stated against RA in para 48 of the Order-In-Original dated 18.04.1994 are as under:

“Reference has been made to documentary evidence seized from M/s. RBE in paragraph 5.9.3 which clearly shows that goods were cleared from their factory under delivery challans purported to be issued by M/s. R.A.

The RA in their reply to the show cause notice in paragraph 7(a), 18.9 and 18.24 submitted as under:-

” 7(a) We i.e. M/s. RA were established even before M/s. RCPL was conceived and thought of in 1940’s at 48, Nishanpada Road, Bombay 400 009, holding Bombay Municipal Licence & Permit, manufacturing wooden baby furniture. Toys etc. As the above premises were situated in the Non-conforming zone specified by the BMC, we shifted some of our activities to 2nd floor, 23D, Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Bombay 400 093; after obtaining N.O.C. from D.O.I. and getting electrical connection from B.S.E.S. this premises belonged to Rexello Industries. However we continued our activities also at 48, Nishanpada Road. We restricted out activities only to labour work and got our stationary printed with the address as 23/D, Mahal Industrial Estate later when we acquired the rented premises at 114, Mittal Industrial Estate, the activities at 23/D, Mahal Industrial Estate, was stopped some tine in 1983-84. After shifting to the above rented place. We continued to use the old stationary by cancelling the address of 23/D, Mahal Industrial Estate and writing/typing the new address. However at times it was left out to cancel the old address.

“18.9 With reference to para 2.1.13 we submit that the premises at 48, Nishanpada Road, Bombay 400 009, belong to us and were being used by us for doing job work as well as manufacturing activities since 1940. About our delivery challans showing the address as 23/D Mahal Est. Mahakali Caves Rd. Andheri (E) Bombay 400 093, we submit that these premises were being temporarily used by us and therefore our challans shows that address. In this connection, our submissions made in para 7(i) of this reply is self explanatory. WE enclosed a copy of the letter No. C.Ex/VIII/K/81 dtd. 13.2.81 of the Suptd. C. Ex. Range VIII, Divn. KII addressed to us at the 23.D Mahal Industrial Estate, which proves that we were existing at this address. Exhibit “D”. The copy of the letter is marked as Exhibit “D”.

” 18.24 “With reference to para 5.9.2 we submit that the goods supplied under challans showing the address 23/D, Mahal Industrial estate were manufactured by us as the premises at this address were being temporarily used by us. The old challans used for transport of the goods showed that address. In this context, we may refer to our submissions made in para 7 I of this reply.

(u) The further allegations as stated against RACPL in para 49 of the Order-In-Original dated 18.04.1994 are as under:

“The contents of paragraph 6 of the Show Cause Notice and its subject parts show the interrelationship of M/s. RAPL and M/s. RCPL. The evidence shows that M/s. RAPL did not have their own letter heads but were using modified letter heads of M/s. R.A. It also shows that their records were maintained in the premises of M/s. RBE M/s. RACPL were shown to be in existence and were shown to be selling branded goods during the period 1986-1987 and 1987-1988, whereas the actual manufacturing started sometime after April 1988 only.

The RACPL in their reply to the show cause notice in paragraph 12.10 submitted as under:-

“12.10 with reference to para 6.4.2, we submit that as the documentation of all the units viz. M/s. RA, M/s. RACPL, M/s. RBE and M/s. CRN was being done in the premises of M/s. RBE by Shri M.H. Merchant, as he used the stationery of was not received then.

(v) The further allegations as stated against RACPL in para 50 of the Order-In-Original dated 18.04.1994 are as under:

“Paragraph 7 speaks of M/s. Rex Rubber Works (R.R.W.). They were manufacturing moulded products from 1984 onwards and were shown to be manufacturing castor Wheels and Trolley wheels etc., from March 1988. The evidence disclosed in this paragraph and the Sub-paragraphs says that M/s. RCPL used to received the orders, diverts the orders to M/s. RRW used to receive component parts from M/s. RCPL at a substantially lower price and the manufactured goods used to be sold to customers of M/s. RCPL without payment of Central Excise duty.”

The RCPL in their reply to the show cause notice in paragraph 18.7 and 18.8 submitted as under:-

” 18.7 with reference to para 7.8, we submit that, the said goods were manufactured by M/s. RRW as the orders were given away to them since those goods were being manufactured by them only.”

“18.8 With reference to para 7.9, we submit that the department has not considered the fact about incidence of C.Ex. Duty paid by us on the components and the C.Ex. Duty paid on the finished products by M/s. RRW while comparing the price. We deny that we had supplied components as substantially low price to M/s. RRW.

(w) The RRW in their reply to the show cause notice in paragraph 23.14 submitted as under:-

” 23.14 With reference to para 7.8, we submit that the order received and confirmed by M/s. RCPL were subsequently given away to us and the advances if any received were transferred to us. As per these orders, the goods were manufactured by us and supplied to the customers. There is no allegation made in the para that the goods were actually manufactured by M/s. RCPL and were supplied in our name. Since the said goods were manufactured by us. Our packing slips & delivery challans were used.

(x) The further allegations as stated against RCPL in para 52 of the Order-In-Original dated 18.04.1994 are as under:

“M/s. RBE is another unit of the same group. The documents seized from the premises on 4.8.1989 show that the statutory records of all the six units were kept in the premises of M/s. RBE and were maintained there. The branded goods manufactured by M/s. R.A., M/s. RACPL and M/s. C.R. were sent to the premises controlled by M/s. RBE and were stored there without any documentation. The raw materials used by all the group companies were stored in the premises of M/s. RBE. The goods, which were manufactured by M/s. RBE were packed in cartons printed with the name of M/s. RCPL. These facts narrated in the Show Cause Notice, which go to establish the commonality, have not been rebutted by the Respondents.

The RCPL in their reply to the show cause notice in paragraph 13.4 submitted as under:-

“13.4 With reference to para 2.1.3, we submit that the statement of Shri M.H. Merchant itself very clearly indicates that the goods were being manufactured independently by M/s. RBE. About pkg. Of the goods in cartons bearing our name on our enquiries with M/s. RBE revealed that cartons printed with our name were purchased by them from the supplier. However goods packed in such cartons were directly sold by them to their customers and not through us.

(y) The RACPL in their reply to the show cause notice in paragraph 12.15 submitted as under:-

“12.15 Para 8.1 alleged that our records and the records of other units maintained, prepared and kept at the premises of M/s. RBE i.e. in a common premise and are maintained by a common person viz. Shri M.H. Merchant. The reason for this is obvious which is Shri M.H. Merchant is a common persons being partner/director/signatory of these concerns and had undertaken the responsibility of maintaining the records of these companies which were situated in the same industrial estate i.e. Mittal Industrial Estate. For convenience sake, he is attending to this work in the premises of M/s. RBE as these premises are suitable for him. However, as mentioned above, it has been held by various authorities that common partner/director/premises and common staff cannot be the ground to club the units.”

(z) The RBE in their reply to the show cause notice in paragraph 9.12 submitted as under:-

“9.12 Para 8.1 alleged that our records and the records of other units viz M/s. RACPL, M/s. RA, and M/s. RBE were maintained, prepared and kept at the premises of M/s. RBE i.e. in a common premise and are maintained by a common person viz. Shri M.H. Merchant. The reason for this is obvious which is Shri M.H. Merchant is a common persons being partner/director/signatory of these concerns and had undertaken the responsibility of maintaining the records of these companies which were situated in the same industrial estate i.e. Mittal Industrial Estate. For convenience sake, he is attending to this work in the premises of M/s. RBE as these premises are suitable for him. However, as mentioned above, it has been held by various authorities that common partner/director/premises and common staff cannot be the ground to club the units.”

(aa) The CRN in their reply to the show cause notice in paragraph 14.10 submitted as under:-

“14.10 Para 8.1 & 8.3 alleged that our records and the records of other units viz. M/s. RACPL, M/s. RA, and M/s. RBE were maintained, prepared and kept at the premises of M/s. RBE i.e. in a common premise and are maintained by a common person viz. Shri M.H. Merchant. The reason for this is obvious which is Shri M.H. Merchant is a common persons being partner/director/signatory of these concerns and had undertaken the responsibility of maintaining the records of these companies which were situated in the same industrial estate i.e. Mittal Industrial Estate. For convenience sake, he is attending to this work in the premises of M/s. RBE as these premises are suitable for him. However, as mentioned above, it has been held by various authorities that common partner/director/premises and common staff cannot be the ground to club the units.”

The CRN in their reply to the show cause notice in paragraph 18.26 submitted as under:-

“18.26 The allegation in para 8.2 that we were manufacturing the branded goods of M/s. RCPL are denied. We are manufacturing our own goods independently with the brand name “Rexello” of M/s. REPL. Regarding our goods being sent to M/s. RBE without any documents. We submit that as we are situated in the same industrial estate and as the records were prepared and maintained by Shri M.H. Merchant who was sitting in the premises of M/s. RBE, he or in his absence Shri S.G. Warang or Smt. Mable sitting in the same premises were intimated verbally so that they can prepare the necessary documents and the goods were sent to he premises of M/s. RBE as the goods of all the companies could be transported for onward journey by hiring a common tempo/truck.”

(bb) The further allegation as stated against RCPL in para 55 of the Order-In-Original dated 18.04.1994 are as under:

“Para 10.7.1 shows an example of warranty given to the customers. In this case, M/s. Osha Engg. Works had placed an order with M/s. RCPL. The clients were informed by M/s. RCPL verbally to shift the order to M/s. RACPL and to acknowledge the same. When the goods were in dispatch, the warranty was given by M/s. R.A. and not by the manufacturer, viz. M/s. RACPL.

The RCPL in their reply to the show cause notice in paragraph 21.6 submitted as under:-

” 21.6 With reference to para 10.7.1 7 10.7.2, we repeat our submissions made above in para 8.82, regarding warranty is of M/s. REXELLO CASTORS PVT. LTD. which is the group of all the units manufacturing goods of brand name “Rexello”. As this brand name is basically owned by us and in order to ensure the quality of the goods of the brand, the warranty is given by us and in case of any defective goods, those are repaired/replaced by the concerned unit who has manufactured the goods are cleared on payment of duty which is borne by that unit and not borne by us or thrust upon the customers. Although we give warranty. We only in respect the goods if any complaint is received and ask the concerned unit to do the rectification if possible or to replace the same, and all this is done only to maintain the prestige of the goods manufactured with our brand name.

(cc) The further allegation as stated against RCPL in para 56 of the Order-In-Original dated 18.04.1994 are as under:

“Apart from the warranty, guarantees were also given by the sister units for products manufactured by another unit. Paragraph 10.13 shows that in one case, when the goods were manufactured by M/s. RCPL had given the guarantee.

The RCPL in their reply to the show cause notice in paragraph 21.6 submitted as under:-

” 21.6 With reference to para 10.7.1 7 10.7.2, we repeat our submissions made above in para 8.82, regarding warranty is of M/s. REXELLO CASTORS PVT. LTD. which is the group of all the units manufacturing goods of brand name “Rexello”. As this brand name is basically owned by us and in order to ensure the quality of the goods of the brand, the warranty is given by us and in case of any defective goods, those are repaired/replaced by the concerned unit who has manufactured the goods are cleared on payment of duty which is borne by that unit and not borne by us or thrust upon the customers. Although we give warranty. We only inspect the goods if any complaint is received and ask the concerned unit to do the rectification if possible or to replace the same, and all this is done only to maintain the prestige of the goods manufactured with our brand name.

(dd) The further allegation as stated against RCPL in para 57 of the Order-In-Original dated 18.04.1994 are as under:

“Although each unit was created and was sustained on record to be independent corporate entity, in practice, the directors/Partners merrily transgressed their self imposed limits. Paragraph 10.16 cites numerous examples where letters were signed by persons on behalf of the company in which they did not hold and legal or corporate position…..”

The RCPL in their reply to the show cause notice in paragraph 11 (vii) submitted as under:-

“11(vii) We further submit that various units having separate legal entities cannot be treated as one manufacturer merely because the transactions or dealings between them are beyond the normal course of business. Since close relationship is very much material for the success of business and for achieving close relationship one may do some favour to the other with a view to get business advantage in return. Keeping this in view the Hon’ble appellate Tribunals in number of cases have taken the stand that use of common premises, common address, common telephone, financing without interest, keeping common Manager, joint storage of salable goods, supply of raw material by common supplier or common purchase of raw materials are no grounds for treating units having separate legal entities as one manufacturer, when the profit of one unit do not flow back to another, but are to be treated as independent units.”

(ee) The further allegation as stated against RCPL in para 58 of the Order-In-Original dated 18.04.1994 are as under:

“Para 15 of the Show Cause Notice summarizes the various methods by which the unity among the six units was evident. The content of this Paragraph show that, the six units were separately shown only for the sake of record and were created facades for the outside world including the Government Departments like Central Excise.

The RCPL in their reply to the show cause notice in paragraph 18.1, 18.6 and 21.10 submitted as under:-

“18.1 “With reference to para 7.2, we submit that there was nothing wrong if we give advice to out clients so that their burden of payment of duty is lessened. Regarding the wordings in the last four sentences in this para. We would like to explain and clarify here that M/s. RRW for manufacturing the produce mentioned in this para were required to buy some of the components from us and on such components whatever duty is payable by us was naturally ultimately required to be recovered by M/s. RRW from their customers viz. M/s. UNIVERSAL HARDWARE AND TOOLS CORPORATION, as it was an input cost for M/s. RRW.”

“18.6 With reference to para 7.7, we may point out that the letter in question does not indicate any malafide intention to evade C.Ex. Duty. It is very clear from this letter that our intention was to pass on maximum benefit to our client.”

” 21.10 With reference to para 10.10 to 10.15, we submit that the deptt. has brought out distorted meaning of the contents of our letter dt. 25.2.88 addressed to M/s. Universal Hardware and Tools Corpn. And letter dt. 24.2.88 to M/s. M.N. Hyssen & Co. of Bangalore referred to these paras. We deny that with an intention to keep our turnover below Rs. 1.5 Crore for the reasons explained above. We arranged to supply the components to M/s. RRW at very reduced value as alleged in the para, and M/s. RRW manufactured the goods ordered for by the said party by assembling the components and supplied them to the party. The duty payable on the components was paid by us and charged to M/s. RRW who charged the party for the said good taking into account the value of raw material, components, duty aspect and their profit which naturally was not less than the value that would have charged by M/s. RRW being not Licenced but declarant, the question of payment of duty by them did not arise. It is therefore not true that the said goods were completely manufactured by us and were supplied through M/s. RRW.”

6. The learned departmental representative reiterated the impugned order.

7. We have considered the rival submissions. When we go through the submissions and the evidence which are extracted above,it will be very clear that the finding given by the adjudicating authority that there has been a clubbing as contained in paragraph 60 of the impugned order is wrong. The main reason for clubbing which appears to be for treating the units as one is that there has been commonality of interest and non-payment of royalty by other appellants to RCPL. This has been rightly explained by RCPL in the statement of G.A. Merchant at page 313 where he specifically states that they have shown as outstanding which have been reflected in paragraph 13.2 of the reply of RCPL. As far as advertisement expenses incurred by RCPL is concerned, this has been properly replied in paragraph 14.3 of the reply in which they have stated that it was done in their interest so that their brand names become popular and they would get more royalty. This has been admitted to by the department in its show cause notice at paragraph 3.4.2. The entire basis of the show cause notice does not show specifically that there has been any financial flow back to the appellant, RCPL, from other units. In the absence of the same, it will be difficult for us to hold that there has been any clubbing. In one of the cases decided by the Tribunal that just because there are common directors related to each other in limited companies which are separate legal entities have any significance in clubbing the value of clearances. That is the decision given by the Tribunal in Padma Packages (P) Ltd. v. CCE, Coimbatore 1997 (90) ELT 175. As far as the other charges viz. the ownership of various appellants is concerned, the chart,which is extracted below, clearly indicates that the charge of clubbing cannot be upheld.

Sr No.

Director/Panners

RCPL

RRW

RBE

CRN

RACPL

Direcfors

Partner

Directors

Shri A. M. Merchant

Shri G. M. Merchant

Shri -f. H Merchant

Shri T. A. Merchant

Shri R. li. Merchant

Shri M H Merchant

Sh« Y, A. Merchant

Mrs. J G. Merchant

Mrs- Z 11 Merchant

Mrs R. A. Merchant

Mrs, S G. Merchant

Mrs, S. T Merchant

Mrs G. R. Merchant

The confirmation of duty on RCPL is wrong as the product was never manufactured by it, but by other appellant assessees. When that is the case, the confirmation of duty on RCPL is wrong. In view of this, the question of imposition of penalty on others is also wrong as the confirmation of duty and imposition of penalty are inextricably connected with each other. Once duty is held not to be leviable, then the question of imposing penalty in these cases does not arise. It will be illogical for us to impose duty. If the charge against the appellant assessees that they would have been related persons, perhaps the cases will reveal different colour. But, that is not the charge here. We are therefore of the view that the case of the department lacks merits.

8. Hence the impugned order is set aside and the appeals of the assessees allowed with consequential relief.

9. As far as the department’s appeals are concerned, the show cause notice alleged that Rexello Art Castors Pvt. Ltd. and other 3 units (Respondents in Appeals 1405 to 1408/00) had hence floated by Rexello Castors Pvt. Ltd., Appellants in Appeal 4601/95 with an intention to avail exemption under notification 1/93. These units were alleged to have been manufacturing excisable goods of Rexello Castors Pvt. Ltd. who accepted purchase orders and transferred to these respondents – dummy units. In paragraph 10 of the Order-in-Appeal, it is stated that these respondents have been filing necessary returns, classification lists, RT12 returns and observing other formalities in law. The Appellate Authority following the Government of India letter No. 350/57/77-TRU dated 20.1.1978 extracted at paragraph 17 of its order. The grounds of appeal filed by the department simply stated that the goods were supplied by RBE and payments were received by Rexello Castors Pvt. Ltd.; no royalty regarding brand usage was given by the units to Rexello Castors Pvt. Ltd.; financial transactions between the units were not correctly shown as per statement of G.M. Merchant, Directors. Lastly, letters were issued to the clients, stating that they were likely to cross 1.5 crores and the goods would be supplied by one of the sister units and quality was assured.

10. We have considered the grounds raised in the grounds of appeal. The dummy unit is alleged to have been created by Rexello Castors Pvt. Ltd. If it is so, then it is no unit in existence at all. It has been held at page 10 of the impugned order that necessary declarations, classification lists and RT12 returns have been filed. If they are dummy units, how such formalities in law could be done. The main point is regarding financial flow back from the 4 units to Rexello Castors Pvt. Ltd. This is specifically and demonstrably not proved by means of proper evidence. Apart form that, in paragraph 17 of the impugned order, it has been specifically held as follows:-

“17. The Central Board of Excise and Customs has also accepted the above legal position in its Circular Letter No. 5, dated 10.8.1956 which has subsequently been confirmed by Government of India in their Letter No. 350/57/77-TRU, dated 20.1.1978, by observing as under:

“Different firms will be treated as different manufacturers for purposes of the exemption limit. But if a firm consisting of certain partners say, A, B & C has got more than one factory, all the factories should, of course, be combined; limited companies whether public or private are separate entities distinct from shareholders composing it. Hence, each limited company is a manufacturer by itself and will be entitled to a separate exemption limit.

As mentioned above, if there are two firms with only some of the partners in common, each firm is entitled to a separate exemption limit, and hence the question of distributing the exemption does not arise.”

This has not been controverted to by the department in its grounds of appeal. Moreover, in paragraph 20, it has been held that except taking the technical assistance of the manager of one firm, there is no evidence to suggest that one unit is connected to the other in any manner. The impugned order passed by the Commissioner (Appeals) has been based on the evidence which has been fully discussed. In fact in paragraph 25 of the impugned order, there is no proof of common funding. This has not been controverted to by the department in the grounds of appeal. In paragraph 26 of the impugned order, it has been specifically held that there was no evidence that the sale proceeds of one unit was going to another unit. The impugned order, in our view, has been based on the proper understanding of the evidence of the case. Hence, in our view, the grounds cannot be faulted with. Moreover, the department is bound by the order of the Board referred to in paragraph 17 of the impugned order and it cannot be argued against the same. Hence the appeals of the department are devoid of merits and are dismissed.

Rex Arts Castors Pvt. Ltd., Rex … vs Commissioner Of Central Excise on 24 June, 2003

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Rex Arts Castors Pvt. Ltd., Rex … vs Commissioner Of Central Excise on 24 June, 2003

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