ORDER
Jyoti Balasundaram, Member (J)
1. The following points arise for determination in this appeal:
(A) Whether the Unit of M/s. P.J. Texdyes can be clubbed with the appellants unit on the grounds mentioned in the show cause notice.
(B) Whether the appellant firm have by reason of fraud and wilful suppression of facts wrongly availed of exemption of duty under Notification No. 71/78, with intent to evade the duty.
(C) Whether the appellant have manufactured any unaccounted dyes in the years 1978-79 and 1979-80 and liable to pay any duty on it.
2. The facts of the case are as under :-
(i) Appellant firm started the business of manufacture of Synthetic Organic Dyestuff covered under Central Excise Tariff Item No. 14(D) of the First Schedule to the Central Excises and Salt Act, 1944, now Chapter No. 32 of the Central Excise Tariff Act, 1985 from 12-10-1970 and a licence was granted on 24-6-1971. Particulars of partners and their retirement arc noted in it. One of the partners, Rajnikant Popatlal Shah was attending the Factory work at Ahmedabad. M.R. Shah, son of Rajnikant Shah, was admitted to the partnership from 27-10-1976 and retired from 5-7-1978. From 5-7-1978, Rajnikant Popatlal Shah and Rameshchandra Popatlal Shah, two brothers, remained as partners of the appellant firm. Rajnikant continued to attend the work at Ahmedabad and Rameshchandra continued to attend the business at Bombay.
(ii) Shri M.R. Shah after experience of about two years in the appellant firm and after retirement from the partnership, started his own independent business in the name of M/s. PJ. Texdyes to manufacture Synthetic Organic Dyestuff. He hired a pucca constructed separate premises adjacent to the appellants’ factory, installed all the necessary machinery and equipments for the manufacture of Synthetic Organic Dyestuff and obtained independent electric supply, employed his own workers, filed a declaration on 7-9-1978 about the manufacture of the Synthetic Organic Dyestuff and after full inquiry and satisfaction of the Central Excise Officers incharge of the said unit was given permission on 7-10-1978 to start the manufacture of Synthetic Organic Dyes. A separate code number was given on 31-3-3979 and he was advised to file a declaration for the next year i.e. 1979-80. Accordingly on 12-4-1979 a declaration was filed and the particulars of production and clearance of the year 1978-79 were submitted with it.
(iii) The appellant firm had employed a technical man named Kanaiyalal Panchal and three others to look after the work of manufacture of dyes. Each were making notes in a separate note book to pass on to the subsequent shift employee. Shri M.R. Shah had not engaged any technical person as he himself is a technical man. In his absence, the employees of the appellants’ factory were looking after his work and making notes in the lower half of the same note books.
(iv) On 12-10-1979 the Central Excise Officers from H.Q. Office visited the factory of the appellants and verified Raw Material Register, Batch Register, Gross Tare and Net Weight Registers, R.G.I. Register, Gate Passes alongwith the physical stock lying at different stages. No irregularity of any kind was noticed. Similar examination was carried out in respect of M/s. P J. Texdyes and there also no irregularity of any kind was noticed. The four note-books in question and other records were seized on 12-10-1979. Appellants and M/s. P.J. Texdyes were allowed to continue their production upto June 1984 and 28-2-1981 respectively. Further investigation was carried out and statements of Shri Rameshchandra, Rajnikant, Kayurbhai and employees were recorded. A Panchnama dated 8-11-1979 Page 10 of the Second Paper Book was drawn about their premises, machinery, equipments, situation, etc. of both the factories and it was observed that both the units have separate premises, separate exits, power, machinery, equipments, etc. M/s. P.J. Texdyes had a laboratory to test the goods, while the appellants had no laboratory. There was an open pipe line from appellants’ factory to supply steam of M/s. P.J. Texdyes. After Shri Rajnikant death on 19-4-1980, the investigation was completed on or above 23-4-1980.
3. The adjudicating authority has based his conclusion on certain facts :-
(a) the blood relationship between partners in the appellant firm and the proprietor of P.J. Texdyes,
(b) close proximity of the 2 premises,
(c) use of technical staff of the appellant by P.J. Texdyes,
(d) shiftwise notebooks regarding packing of dyes of both concerns being maintained by employees of the appellant,
(e) lack of co-relation between raw-material purchased by the appellant and finished products.
4. We have heard Shri A.F. Patel, learned advocate and Shri L.N. Murthy, learned DR.
5. From the records, we find that the Department had knowledge of the fact of M.R. Shah, Proprietor of P.J. Texdyes, being the son of Rajnikant Shah, one of the partners of the appellant firm. There is no prohibition against a blood relative of a partner of a firm commencing his own business of manufacture of the same goods. The proximity of the 2 premises and sharing of staff is also not prohibited under the CESA or Rules. Both units were purchasing their own raw material and manufacture was carried on with separate machinery, equipment, power and workers. Separate statutory records were being maintained. There is no evidence to establish manufacture of unaccounted dyes. No show cause notice was issued to P.J. Texdyes, though clearance value of both units has been clubbed for the purpose of eligibility to exemption under Notification No. 71/78 – the value of both taken together exceeds the limit of Rs. 15 lakhs and therefore the appellant has been held to be not entitled to exemption for clearance value of 1st Rs. 5 lakhs during 1979-80, and hence liable to pay duty on the entire clearance value of goods cleared from both units in 1979-80 and duty on value of goods cleared from both units in excess of Rs. 5 lakhs in 1978-79.
6. Several decisions of the Tribunal have taken the view that close relation between partners of one firm and proprietor of another concern, use of staff etc. are not sufficient to hold that both units are one and the same, justifying clubbing of value of clearances. It has been held by the Tribunal in the case of Shree Packaging Corporation, Hyderabad v. CCE, Hyderabad [1987 (27) ELT 94], that “there is nothing in law to prevent close relations of partners of one firm forming themselves into a separate and distinct partnership even for the purpose of carrying on the same type of business. Unless there is some proof that the finances of the 2nd firm flowed out of the 1st firm and that the profits, or, at least part thereof, flowed back to the 1st firm, it would not be open merely on the basis of surmises and conjectures, to conclude that the 2 firms are not distinct”. Applying this test in this case, there is no proof of either common funding or financial flowback. In these circumstances, we set aside the impugned order and hold that the appellants are entitled to exemption in terms of Notification No. 71/78.
7. The appeal is allowed with consequential relief.