ORDER
Shri S.L. Peeran
1. All these appeals arise from a common Order-in-Original No.20/2000 dated 24.11.2000 by which the Commissioner of Central Excise, Hyderabad has passed by final order in para-27 as follows:-
ORDER
(i) All the four units namely, ARPL,TMTTPL, MR and RE shall be treated as one entity and the value of clearances of all the units shall be clubbed for the period from 1995 to November, 1999 for arriving at the aggregate value of clearances for payment of Central Excise Duty and the benefits of Notification Nos. 1/93, 16/97, 8/98, and 8/99 are denied to ARPL, TMTTPL, MR and RE for the period from 1995 to November, 1999.
(ii) An amount of duty of Rs. 6,25,000/- shall be paid by M/s Agarwal Rubber (P) Ltd, Patancheru being the Central Excise Duty short paid by them during the year 1996-97 in terms of proviso to Section 11A(1) of Central Excise Act, 1944.
(iii) An amount of penalty of Rs.6,56,250/- shall be paid by M/s. Agarwal Rubber Pvt. Ltd. under Section 11AC of Central Excise Act, 1944 read with Rule 173-Q of entral Excise Rules, 1944 as discussed in para (22) supra
(iv) Interest @ 24% per annum on the duty determined as above at (ii) shall be paid by M/s Agarwal Rubber (P) Ltd under Section 11AB vide Notification No.8/2000-C.E.(N.T.), dt.1-3-2000.
(v) An amount of duty of Rs.54,38,792/- shall be paid by M/s TM Tyres and Tubes Pvt. Ltd, Kallakal Village being the Central Excise Duty short paid by them during the period from 1997-98 to 1999-2000 (upto 11/99) in terms of proviso to Section 11A(1) of Central Excise Act, 1944
(vi) An amount of penalty of Rs.57,10,732/- shall be paid by M/s TM Tyres and Tubes Pvt. Ltd. under Section 11AC of Central Excise Act, 1944 read with Rule 173-Q of Central Excise Rules, 1944 as discussed in para (22) supra.
(vii) Interest @ 24% per annum on the duty determined as above at (v) shall be paid by M/s TM Tyres and Tubes Pvt. Ltd under Section 11AB vide Notification No.8/2000-C.E. (N.T.), dt.1-3-2000.
(viii) An amount of duty of Rs.22,48,460/- shall be paid by M/s Maruti Rubbers, Patancheru being the Central Excise Duty not paid by them during the period from 1995-96 to 1999-2000 (up to November, 1999). in terms of proviso to Section 11A (1) of Central Excise Act, 1944.
(ix) An amount of penalty of Rs.23,60,883/- shall be paid by M/s Maruti Rubbers under Section 11AC of Central Excise Act, 1944 read with Rule 173-Q of Central Rules, 1944 as discussed in para (22) supra.
(x) Interest @ 24% per annum on the duty determined as above at (vii) shall be paid by M/s Maruti Rubbers under Section 11AB vide Notification No.8/2000-C.E. (N.T.),dt. 1-3-2000.
(xi) An amount of duty of Rs.8,92,263/- shall be paid by M/s Robot Engineering, Patancheru being the Central Excise Duty not paid by them during the period from 1995-96 to 1999-2000 (upto November, 1999) in terms of proviso to Section 11A(1) of Central Excise Act, 1944
(xii) An amount of penalty of Rs.9,36,876/- shall be paid by M/s Robot Engineering under Section 11AC of Central Excise Act, 1944 read with Rule 173-Q of Central Excise Rules, 1944 as discussed in para (22) supra.
(xiii) Interest @ 24% per annum on the duty determined as above at (xi) shall be paid by M/s Robot Engineering under Section 11AB vide Notification No.8/2000-C.E.(N.T.), dt.1-3-2000.
An amount of Penalty of Rs.2,00,000/- (Rupees two lakhs only) is imposed on Shri Deendayal Agarwal, Managing Director of ARPL, under Rule 209(A) of Central Excise Rules, 1944.
An amount of Penalty of Rs.1,00,000 (Rupees one lakh only) is imposed on Shri Ashok Kumar Agarwal, Director of ARPL under Rule 209(A) of Central Excise Rules, 1944.
2. Ld. Counsel Shri B.V. Kumar arguing for the appellant points out to the gist of show cause notice which has been extracted in paras-3 to 7 and submits that in terms of these paragraphs, the show cause notice demands independent duties from each of the units at the same time alleging that all the four units are required to be clubbed and benefit of SSI examination notification denied on the ground which is brought out in para-24 of the order. He submits that there is fundamental error in the show cause notice in as much as that once the revenue have proceeded on the basis that all the four units are not independent and required to be clubbed as there was mutuality of interest and its main unit who is alleged to be the king pin in floating other four units, then demand ought to have been raised against the principal unit i.e. Agarwal Rubber Pvt. Ltd., as has been held by the Apex Court in the case of GAJANAN FABRICS DISTRIBUTORS Vs CCE Pune reported in 1997(92) ELT 451(SC). On this prima facie consideration, and on the plea that the Commissioner in para-10 has stated that large number of judgments are not applicable, itself shows total non-application of mind as the law on the aspect of clubbing of various units have been explicity expounded by the Tribunal and the Apex Court and High Courts in large number of judgments. The Commissioner ought to have applied his mind further in the matter. The order is totally a non-speaking order and in view of fundamental error in the show cause notice itself appeals are required to be allowed at this prima facie stage by grant of waiver of duty and stay of its recovery.
3. Ld. DR Shri V. Ramakrishnan points out that the demands have been independently made against each of the unit as they were not entitled to the benefit of the notification. The revenue is not disputing about their existence but as there is mutuality of interest between each other, they do not get benefit of notification and each of the clearances made by the units are required to pay duty without the benefit of notification for the grounds delineated in para-24 of the order impugned which is noted herein below:-
24. Apart from having common management and directors, sharing of office premises and other facilities and common utilisation of services of personnel among all the units which are conspicuous by their presence and on the exclusive basis of which the Hon’ble Tribunal had disallowed the clubbing the clearances of the units and denial of SSI exemption, the following ingredients have been proved irrefutably in this case.
manufacturing activities of the four units are not independent of each other,
There is mutual transfer and sale of raw material among all the units
common sales by ARPL of the products and related products of TMTTPL and MR,
exclusive and special financial relationship among all the units,
extension of interest-free loans and advances by ARPL to MR, TMTTPL and RE,
centralised and common marketing by ARPL of the products of MR, TMTTPL and RE,
undertaking of export of products of MR and TMTTPL by ARPL,
utilisation of godown premises of ARPL by MR and TMTTPL,
undertaking of job work of ARPL by MR and TMTTPL,
usage of brand names of MR and TMTTPL by ARPL,
technical and engineering support to ARPL, MR, TMTTPL by RE,
Total procurement of raw materials as well as production and sales are being controller by ARPL,
Centralised control of all the matters of the four companies by Ashok Kumar Agarwal, Director of ARPL and TMTTPL and Partner of MR with the assistance of Ramesh Kumar Agarwal, Executive Director of ARPL and Partner of RE and managers and staff of ARPL,
Supervision and control of Ramesh Kumar Agarwal, Executive Director of ARPL and Partner of RE over procurement of raw material of MR and RE and marketing of products of MR and RE, and
Overall control and supervision of production, sales, finances, and other related matter of all the companies i.e. ARPL, MR, TMTTPL and RE by Deendayal Agarwal, Managing Director of ARPL and TMTTPL and Managing Partner of MR and RE.
4. On a specific query from the Bench and to the arguments on the fundamental error in the show cause notice, in the light of the Apex Court judgment of GAJANAN FABRICS DISTRIBUTORS Vs CCE Pune reported in 1997 (2) ELT 451 (SC) pointed out by Ld. Counsel and various judgments, Ld. DR submits that all these matters are required to be seen only at the final stage, when he will be in a position to get the report from the Commissioner and at this stage, he reiterates the findings recorded by the Commissioner in his order.
5. On a careful consideration of the submissions, we notice from the following allegations are made in the show cause notice in para-3 to 7, which are extracted below:-
3. Whereas it appears that though all the four units are run by the same management and under the overall control & directions of Shri Deendayal Agarwal and Shri Ashok Kumar Agarwal, they have availed the benefits of concessional rate of duties under Notifications 1/93, 16/97, 8/98, and 8/99 individually for each unit by camouflaging the actual identity under the corporate facade, which resulted in short payment of duty and thereby contravened the Rules 9(1), 52A, 173F, 173G, and 226 of Central Excise Rules, 1944.
4. Where as for the reasons discussed in the enclosed Statement of Grounds, it appears that the management of ARPL & family management of Deendayal Agarwal, under the stewardship of Shri Deendayal Agarwal & Ashok Kumar Agarwal have wilfully floated the new units with overall controlling interest (viz., commercial, financial and administrative control) with an intent to evade payment of duty by availing concessional rate of duties under Notification issued from time to time for small scale units by suppressing the information regarding existence of their other sister concerns (TMTTPL, MR, RE)working under their management which are dependent on each other and functioned for the benefit and betterment of each other. The real fact that all the four units (ARPL, TMTTPL, MR and RE)are one and are associated with each other having mutuality of interest came to light only during the course of investigation, land the corporate veil was lifted to see the persons behind who are none other than the family members of Shri Deendayal Agarwal and the Management of ARPI. Thus from the above facts seen in consonance with the evidence enumerated in the Statement of Grounds it appears that ARPL/TMTTPL/MR/RE had suppressed the vital information of common interest and financial flowback among the four units and fraudulently availed SST exemption with an intent to evade payment of duty and wilfully misdeclared and mis-stated the facts of using MARUTI brand by MR. Therefore it appears that it is fit case for invoking the extended time limit under proviso to Section 11A(1) of Central Excise Act, 1944.
5. Therefore, M/s. Agarwal Rubber (P) Ltd., patancheru, are hereby called upon to show-cause to the Commissioner of Central Excise, Hyderabad I Commissionerate, L.B.Stadium Road, Basheerbagh, Hyderabad – 500 004 (herein after referred to as Adjudicating Authority) within thirty days from the date of receipt of this notice as to why:
(i) all the four units namely, ARPL, TMTTPL, MR and RE should not be treated as one entity and the value of clearance of all the units should not be clubbed for arriving at aggregate value of clearances for the purpose of determining the eligibility for extending the benefits under Notifications 1/93, 16/97, 8/98, and 8/99 issued form time to time, and benefits should not be denied for the reasons discussed in the Statement of Grounds;
(ii) an amount of Rs.6,25,000/- being the Central Excise duty short paid by ARPL during the year 1996-97 (as detailed in Annexure A1), should not be paid by ARPL in terms of Rule 9(2) of Central Excise Rules, 1944 read with proviso to sub-section 1 of Section 11A of Central Excise Act,1944;
(iii) a penalty should not be imposed on them in terms of Rules, 9(2), 52A(8), 173Q and 226 of Central Excise Rules, 1944 for contravening the provisions of Rules 9(1), 52A, 173F, 173G, and 226 of ibid;
(iv) penalty equivalent of duty demanded in para (ii) above should not be imposed on them under Section 11AC of Central Excise Act, 1944;
(v) interest as applicable on the duty demanded at para (ii) above should not be levied in terms of Section 11AB of Central Excise Act, 1944.
(vi) interest as applicable on the duty demanded at para (ii) above should not be levied in terms of Section 11AB of Central Excise Act, 1944.
6. Therefore, M/s. TM Tyres and Tubes Pvt. Ltd., Kallakal village, are hereby called upon to show-cause to the Commissioner of Central Excise, Hyderabad I Commissionerate, L.B.Stadium Road, Basheerbagh, Hyderabad – 500 004 (herein after referred to as Adjudicating Authority) within thirty days from the day of receipt of this notice as to why:
(i) all the four units namely, ARPL,TMTTPL, MR and RE should not be treated as on entity and the value of clearances of all the units should not be clubbed for arriving at aggregate value of clearances for the purpose of determining the eligibility for extending the benefits under Notifications 16/97 and 8/98, and benefits should not be denied for the reasons discussed in the Statement of Grounds;
(ii) an amount of Rs.54,38,792/- being the Central Excise duty short paid by them during the period 1997 to 1999 (as detailed in Annexure A2), should not be paid by them in terms of Rule 9(2) of Central Excise Rules, 1944 read with proviso to sub-section 1 of Section 11A of Central Excise Act, 1944;
(iii) a penalty should not be imposed on them in terms of Rules 9(2), 52A(8), 173Q, and 226 of Central Excise Rules, 1944 for contravening the provisions of Rules 9(1), 52A, 173F, 173G and 226 of ibid;
(iv) penalty equivalent to duty demanded in para (ii) above should not be imposed under Section 11AC of Central Excise Act, 1944;
(v) interest as applicable on the duty demanded at para (ii) above should not be levied in terms of Section 11AB of Central Excise Act, 1944.
7. Therefore, M/s. Maruti Rubbers, Patancheru, are hereby called upon to show-cause to the Commissioner of Central Excise, Hyderabad I Commissionerate, I.B.Stadium Road, Basheerbagh, Hyderabad – 500 004 (herein after referred to as Adjudicating Authority) within thirty days from the day of receipt of this notice as to why:
(i) all the four units namely, ARPL, TMTTPL, MR and RE should not be treated as one entity and the value of clearances of all the units should not be clubbed for arriving at aggregate value of clearances for the purposes of determining the eligibility for extending the benefits under Notifications 1/93, 16/97, 8/98, and 8/99 issued from time to time, and benefits should not be denied for the reasons discussed in the Statement of Grounds;
(ii) an amount of Rs.22,48,460/- being the Central Excise duty not paid by them during the period 1995 to Nov, 1999 (as detailed in Annexure A2) should not be paid by them in terms of Rule 9(2) of Central Excise Rules, 1944 read with proviso to sub-section 1 of Section 11A of Central Excise Act, 1944;
(iii) penalty should not be imposed on them in terms of Rules 9(2), 52A(8), 173Q and 226 of Central Excise Rules, 1944 for contravening the provisions of Rules 9(1), 52A, 173B, 173C, 173F, 173G, 174, and 226 of ibid;
(iv) penalty equivalent to duty demanded in para (ii) above should not be imposed under Section 11AC of Central Excise Act, 1944;
(v) interest as applicable on the duty demanded at para (ii) above should not be levied in terms of Section 11AB of Central Excise Act, 1944.
We notice from the above paragraphs that it clearly indicates that Agarwal Rubber Pvt. Ltd. were required to show cause as to why all the four units should not be clubbed and treated as one entity and the value of clearances of all the units should not be clubbed for arriving at the aggregate value of clearances for the purpose of determining eligibility and for denying the benefit. In such circumstances, the Apex Court in the case of GAJANAN FABRICS DISTRIBUTORS Vs CCE Pune (supra) have clearly laid down that demands cannot be independently raised but it has to be made only on the principal unit who has set up other unit when Revenue is proceeding to lift the corporate veil, to find out the real persons who is operating all the units. The findings recorded by the Apex Court prima facie applies to this case, which is at pages 91 and 92 of the paper book are reproduced herein below:-
“The principal factor that leads us to this conclusion is the finding of the Collector, upheld by the Tribunal, that the seven units which re the appellants before us ” are only a corporate facade although registered with the various authorities with a view to camouflage their actual Identity and thereby avail of the exemption which, otherwise, would be inadmissible to them”. The Tribunal failed to give due attention to the fact that the Collector had confirmed, in the sum of Rs.11,84,708.51, the demand made in the show cause notices upon all seven units and their partners or Director. Having regard to his conclusion that all units other than Gajanan Weaving Mills were fictitious units, the sequitur, one would have assumed could only be that it was Gajanan Weaving Mills which was as assessee and liable to satisfy the demand. By confirming the demand upon all the seven units the Collector appear, however, to have treated them all as assessee and, implicity recognised their independent existence.”
6. In the light of above Apex Court’s finding, the allegation centres around the question as to whether the Revenue was required to have clubbed the clearances and sought for duty from the main principal unit, who was alleged to be a king pin and who was operating all the other units with mutuality of interest.
7. The Commissioner has proceeded to hold that all the units to be not independent by giving reasons in para-24 which in noted above. From the above, the sum result will be that Revenue is recognising each of the unit independently, but noticing that there is mutuality of interest the Revenue wants to club the clearances. When this is the position, then the judgment of the Apex Court and the rulings extracted supra would prima facie apply and demands ought to have been raised on the first unit, who is alleged to have floated other units and is operating through them with mutuality of interest.
8. The further argument raised by the Counsel was that the Ld. Commissioner has proceeded to confirm the demands by invoking Section 370 of the Companies Act which has since been omitted in 1999, for the purposes of analysing the concept of “Companies Under the Mismanagement”. Ld. Counsel submits that this Section 370 of the Companies Act is enacted is a different context and cannot be invoked for the purpose of clubbing of clearances. He further submits that even the said section was not in existence as it had been omitted from the statute book and therefore relying on that section is bad in law, and the order is unsustainable.
9. We notices that there is lot of substance and force in the Counsel’s submission. Therefore, we grant waiver of pre-deposit and stay and recoveries.
10. As we find that there is non-applicability of mind in the matter, and the order is not in the light of various judgments recorded by the Apex Court and the Tribunal and the Commissioner in para-10 having held them to be not applicable which, in our opinion, is not a correct finding, we have to proceed with the hearing of the appeal by taking up the same for final decision. We are not agreeable with the suggestion of Ld. DR to call for a report from the Commissioner, as we see apparent and clear contradiction in the order itself. The order being against the principles of natural justice, and not a speaking order and not in terms of the principal laid down with regard to clubbing of clearances, therefore we accept the plea of the Counsel for remanding the matter. We, therefore, take up the appeals and set aside the impugned order and remand the case of the Commissioner with clear directions to re-examine the issue in the light of Apex Court judgment rendered in the case of GAJAMAN FABRICS DISTRIBUTORS Vs CCE Pune (supra). The Ld. Commissioner shall clearly give a finding as to whether or not the first appellant is required to pay the entire duty amounts as alleged when the Revenue has proceeded on the grounds of clubbing of clearances with mutuality of interest and appellant no.1 being the alleged king-pin in the matter. Therefore, the various findings recorded by the Tribunal in several judgments on this issue does not loose its significance and therefore are squarely applicable and not distinguishable as held by the Ld. Commissioner in para-10. But if the flow back is established and if M/s. Agarwal Rubber (P) Ltd. is supposed to be the main king-pin as alleged to have set up the other units and there is mutuality of interest and that it is that person, whose hands are found in all the four units, then appellants are required to pay the entire demands in terms of the Apex Court judgment cited supra. However, we notice that Revenue has contradicted their stand in the show cause notice by demanding duty on each of the unit. It is for the Revenue to reapply its mind to correct the mistake they have done in the show cause notice, in accordance with law, without changing the parameters of the foundation of the show cause notice. Thus, the impugned order is set aside and matter remanded for de novo consideration in terms of law after granting full opportunity to the appellants to establish their case that the units are not clubbable and that demands are barred by time and further grounds taken before the Ld. Commissioner as well as before us. Thus, the Appeals are allowed by remand.
(Pronounced & dictated in open court)