ORDER
Jeet Ram Kait, Member (T)
1. All these four appeals are directed against the order in Original SI No. 59/94 dated 18.7.1994 passed by the Commissioner of Central Excise, Coimbatore) by which the Commissioner has ordered clubbing of the clearances of all the other units, and confirmed a duty demand of Rs 17,10,073/- on the proprietor of M/s Jothiprabha Industries, Coimbatore, under the proviso to Section 11A(1) of the CE Act, 1944,. He has also confirmed a duty of Rs 5,48,975.49 on the 1209 wet grinders clandestinely removed, under the proviso to Section 11A(1) of the Act, besides imposing consolidated penalty of Rs. 2,00,000/- on P. Natarajan, proprietor of M/s Jothiprabha Industries under Rule ((2), 173 and 226 of the CE Rules, 1944. He has also confiscated 16 Nos of Wet Grinders seized from M/s Wash House equipments and 4 Nos from M/s Swathi Equipments under Rule 173Q of the CER, 1944 with option to redeem the same on payment of fine of Rs. 1000/- each. He has also confiscated 69 Wet Grinders seized from M/s Dynamic Marketing Agencies, who are not in appeal before us, under Rule 173Q with option to redeem the same on payment of fine of Rs 25,000/- besides imposing penalty of Rs 1000/- on them under Rule 209A of the CER.
2. Brief facts of the case are that on the basis of intelligence, officers of the Headquarters, Preventive, Coimbatore along with other officers conducted searches at the factory premises as well as residential premises of the appellants herein and also at the premises of one M/s Mani Equipment, M/s Multi Commercial Traders and M/s Dynamic Marketing Agencies. Searches were also conducted at the units of M/s Dheen & Sons, Pune who were having dealing with the above appellants. All the above appellants are engaged in the manufacture of wet grinders. M/s Wash House Equipments Ltd. (M/s WHE for short) also manufacture washing machines. All the above units have SSI certificates and have filed necessary declaration with the Central Excise, Department for availing exemption in terms of Notification No. 11/CE-88 dated. Shri P. Natrajan is the proprietor of M/s Jothiprabha Industries (M/s JPI for short). He is also the power of attorney holder for all other units. The partners of all other units are very close relatives of Shri P. Natarajan. It was found on search of the factory premises of the appellants that only M/s JPI were fully equipped with machinery required for manufacture of wet grinders and the other units were deficient of machinery for the manufacture of wet grinders. It was also found during the search that M/s JPI received raw materials from other units and manufacturing activities were carried out in the other units without any documents. M/s WHE were also found manufacturing parts of wet grinders without any documents. 16 Numbers of wet grinders fitted with electric motor having brand name of “Jothiprabha” were found in the premises of M/s WHE and the power of attorney holder could not satisfactorily explain or produce any document in respect of these goods. Similarly four numbers of wet grinders were also found in the premises of M/s Swathi Equipments (M/s SE for short) and out of this, two were found fitted with the brand name of “Jothiprabha” and fitted with the motors of Swathi and Wash House equipments. In the other two grinders one was found fitted with Electric motor of Jothiprabha and other one without the brand name of any one. The officers also searched the premises of M/s Mani Equipments, whose proprietor is Shri Manikandan. Shri Natarajan, is the power of attorney holder of this Unit also. Search of the residential premises of P. Natarajan, Proprietor of M/s JPI resulted in seizure of some documents and private accounts pertaining to illicit removal of wet grinders and motors and also some name plates of various brand names. Search of the residential premises of M/s Wash House Equipments (M/s WHE) one of the appellants herein, did not result in recovery of any incriminating documents. The officers also searched the business premises of various other Commercial Traders such as M/s Dynamic Marketing Agencies, Belgaum and found wet grinders, washing machines and motors manufactured by M/s JPI, M/s WHE and M/s PE and M/s SE therein. M/s Dynamic Marketing Agencies could not produce any document or proof evidencing payment of central Excise duty for 69 wet grinders and hence the same were subsequently seized on 5.5.1992. Officers conducted investigations with suppliers of raw materials at Coimbatore, and recovered documents for the supplies made to M/s JPI and the other units. Statements were also recorded from the Shri P. Natarajan, proprietor of M/s JPI on three occasions. Statements were also recorded from various other persons such as partners of other appellants herein and also employees of Traders who were alleged to have purchased wet grinders from the appellants. In the above background show cause notice was issued to all the appellants herein and also to various dealers in wet grinders and the show cause notice culminated in the order of adjudication passed by the Commissioner as noted above. Aggrieved by the said order, the appellants have filed these appeals.
3. Shri PS Raman, learned Counsel appeared for all the appellants and the appeals were finally heard on 15.7.2003 and the order was reserved. After the hearing was over, Shri Rajaram, R. Advocate of the M/s Raman Associates, vide his letter received by the Registry on 23 July 2003 submitted copies of various case laws in support of the appellants and these case laws along with the covering letter have been placed in the file as per the orders of the Members in the Noting sheet, dated 24.7.2003.
Shri Raman, learned Counsel referred to the grounds of appeal in appeal No. E/5401/1994) filed by P. Natarajan, Proprietor M/s JPI, (Appeal No. E/5401/1994) and submitted that the impugned order has fastened the entire liability on the appellant herein and has dropped even penalty proceedings against the others and the impugned order is not consistent with the allegations made in the show cause notice inasmuch as duty has been proposed to be demanded from all the appellants herein while it has been confirmed on the appellant. He has submitted that all the appellants have replied to the show cause notice stating that they were not dummy units and they were capable of manufacturing wet grinders and in fact they had manufactured the goods in question. He has pleaded that clubbing the clearances of all the other units was totally unwarranted. He has also contested the classification adopted by the lower authority in classifying the goods. According to him, wet grinders are classifiable under heading No. 8479 instead of 8509 inasmuch as wet grinders are to be classified as machinery and mechanical appliances having individual functions, not specified or included elsewhere in Chapter 84, not specified or included elsewhere in Chapter of the CETA. His contention is that Wet grinder is used for making pasty for preparation of ‘Idly’ and it falls outside the scope of heading 8509 and it has to be classified as ‘machinery and mechanical appliances having individual functions, not specified or included elsewhere in Chapter 84 of the CETA.
3.2 He has further pleaded that all the appellants are SSI Units having their own premises and are separately registered under the Sales Tax Act and the Income Tax Act and necessary declarations have also been filed under Notification No. 11/88 dated 15.4.1988 and there is separate balance sheets for all the units and all the Units are equipped with the machinery required for the manufacture of the goods in question and were capable of manufacturing the goods in question. He has further pleaded that simply because Shri P. Natarajan looked after the affairs of the other appellants and he was the power of attorney holder of the other appellants, that cannot be reason to hold that the other units were dummy units. He has pleaded that P. Natarajan has only lent a helping hand to their family members in running the affairs of the company and the other units are owned by his family members and the law does not prohibit that family members cannot undertake and run the same type of activity. He has further pleaded that there was no financial flow back among the various units. Further, there is neither any allegation in the show cause notice nor in the finding reached by the lower authority that the said Natarajan was the person getting financial flow back from the profits etc., nor has he enjoyed the fruits of the other units. He vehemently argued that when the units are in fact in existence, how can it be concluded that they are dummy unit? The learned Counsel has also invited our attention to the following case laws in support of his plea for setting aside the order:
(1) . In the case of Santha Industries v. CCE
(2) in the case of Renu Tandon v. UOI
(3) in the case of Alco Industries v. CCE.
(4) in the case of Prima Controls (P) Ltd. v. CCE.
(5) 1995 (XC2) GJX – 1368 in the case of Padma Packages (P) Ltd. v. CCE.
(6) 1995 (XC2) – GJX 0552 in the case of Santha Industrial v. CCE.
(7) 2002 (XC3) GJX-0364 : 2002 (101) ECR 555 (T) in the case of DM Gears Pvt. Ltd. and Ors v. CCE.
4. As regards the other appellants viz. M/s Wash House equipments, M/s Prema Enterprises M/s Swathi Enterprises, are concerned, he submitted that the relief they claimed is for setting aside the order in original.
5. Smt Bhagyadevi, learned SDR appearing for the department defended the impugned order and submitted that in this case, a very detailed investigation has been carried out by the department and the investigation, apart from Coimbatore where the premises are situated, extended to Bangalore, Pune etc. Extensive evidence has been collected by the department to come to the conclusion that all the other units have been created by Shri P. Natarajan, to evade payment of Central Excise, duty. She has pleaded that the matter has been gone into in great detail by the Commissioner and he has recorded his finding from paras 41.0 to 74. She has invited our attention to the order in the case of by which the Hon’ble Apex Court dismissed the appeal filed by the department against the order of the Tribunal and is was dismissed not on merits but on account of delay in filing the appeal by the Department. She has pleaded that tariff heading 8509 covers ‘Electro Mechanical domestic appliances with self contained electric motor. In the present case, Wet grinders involved were with self contained electric motors and therefore, the classification as held by the lower authority is correct. Further, in the case of Santha Industries (supra) relied upon by the party, self contained motors were not present in the tilting wet grinders and it was in that circumstances, the Tribunal had ruled out classification under heading No. 8509. She has further pleaded that the Commissioner has clearly noted the difference between the terminology ‘electrical appliances’ and ‘electro mechanical appliances’ and has clearly held that with effect from 1.3.1986, electric mechanical appliances with self contained electric motor are classifiable under Chapter heading 8509 and since Wet grinders as in the instant case undisputedly have self contained electric motors, their classification under 8509 is correct, as held by the lower authority in para 64.0 of the impugned order. She has invited our attention to the order of the Tribunal in the case of Industrial Supplies & Services v. CCE, Jaipur wherein in similar case, the plea of separate registration under different taxation statutes was rejected when there was no evidence of independent purchase of raw material or sale of manufactured goods, etc. It was also held therein that proof of flow back of money from dummy unit to principal unit not required when dummy character proven by overwhelming evidence as money transaction would not be transparent and out of reach of the department and impossible to prove. Further, in the instant case, there was proof of financial flow back between the units as admitted by P. Natarajan, Proprietor of M/s JPI. She has further pleaded that longer period of limitation for demand of duty has been correctly invoked as Shri P. Natarajan has held back information with regard to his looking after the affairs of the other units, clearance of wet grinders under various brand names etc. as noted by the Collector in the impugned order.
6. The learned Counsel for the appellants in counter invited our attention to the order of the Tribunal in the case of DM Gears Pvt. Ltd. v. CCE, Delhi (supra) wherein it was held that in the absence of specific evidence of mutuality of business interest between the two units, or common funding and financial flow back, the clearances of the two units cannot be clubbed.
7. The learned SDR in the rejoinder submitted that the nature of placement for orders for purchase of raw materials and sales undertaken by Shri P. Natarajan for all the four units, his admission of inter-utilization of funds belonging to the various units itself is sufficient proof that the other three units were created as dummy units for evasion of Central Excise duty.
8. We have carefully considered the submissions made before us. In the present appeals, we are called upon to answer the following questions:
(1) Whether clearances of all the three units are to be clubbed with the clearances of the Main Unit M/s Jothi Prabha Industries, of Shri P. Natarajan?
(2) Whether Wet grinder is classifiable under heading No. 8509 as held by the lower authority or under heading No. 8479?
(3) Whether longer period of limitation invocable or not?
(4) Whether the value to be treated as cum-duty price?
(5) Whether the appellants are eligible for the benefit of Modvat Credit on the duty paid on inputs used in the manufacture of wet grinders?
9. As regards the first question viz. whether the clearances of all the units are to be clubbed for the purpose of demand of duty, we find from the records that apart from the fact that the main unit viz. M/s P. Jothiprabha Industries and the other three dummy units, who are also appellants herein, are situated at one place i.e. Pattallaman Koil Street, Peelamedu, Shri P. Natarajan proprietor of the main unit is stated to be the power of attorney holder of the all the other units. In his statement dated 7.4.1992 Shri P. Natarajan has clearly admitted that all the other three units belonged to his family members and that he was the Manager of all the units and that there was free movement of labourers from one unit to the other unit. He has clearly admitted in his statement given on the next day (8.4.1992) that they utilize money from one unit’s account to other unit’s account; that adjustment of such cash transactions were being done as per the advice received from their auditors, and that he was looking after the production and sales from all the units and that wet grinders manufactured were sold from the respective company’s bills and that the sales were made either directly or through the branches of these units situated at various places in Bangalore, Mysore, Secunderabad, Trichur (Kerala). He has also stated that he was not receiving any salary for his services, since all the units belonged to his family members. He has further stated that though raw materials were purchased in the respective unit’s account, they were not stocked with the respective units. He has also clearly admitted that all the units were manufacturing wet grinders with the brand name of ‘JP’ of Jothiprabha Industries. In his further statement dated 21.4.1992 he had also stated that they were also affixing the brand name of ‘Herculese’ which belonged to M/s Multi Commercial Traders who are traders. They had also sent wet grinders to another trader viz M/s Souza Electronics with the brand name ‘Souza’. Shri Natarajan’s statements are corroborated by the statements recorded from various other persons such as Shri Chandrasekharan of M/s WHE, who apart from corroborating the statement given by Shri P. Natarajan also stated that M/s WHE was started by P. Natarjan. Shri P, Ponnuswamy Gounder, Partner of M/s Prema Enterprises, Rajiv Babu, sales representative of M/s Bhimi Steel Corporation dealers of SS Rods, and SS pipes which are used for manufacture of wet grinders have corroborated the statements of Natarajan. Further, suppliers of parts of wet grinders such as SS drums, name plates, V belts, springs etc. have also categorically stated that orders were placed by Natarajan and payments were also made by the said Natarajan either by cash or by Cheque. Natarajan sought to retract the statements not immediately, but only at the time of reply to the show cause notice. Therefore, the retractions have to be rejected as an afterthought. It is not the case of P. Natarajan that he wanted to cross-examine the various persons who have given corroborative statements. The silence on the part of P Natarajan not to seek cross-examination of the persons who gave statement against him is understandable. We, therefore, find no infirmity in the conclusion reached by the Collector that there was lack of infrastructural facilities to manufacture wet grinders in other units, stocking raw materials in one unit, usage of raw materials & labourers belonging to the other units, common superintendence, direction and control of all the units in regard to production and clearance, purchase of raw materials and payment of bills by one person i.e. Shri Natarajan of the main unit viz. M/s JPI, removal of goods without documents, clearance of goods by affixing different brand names and according to the requirement of the traders and utilization of funds belonging to one unit by other unit. Therefore, the Collector has correctly held that the clearances of all the units have to be clubbed. A plea has been taken by the learned Counsel for the appellants, that while show cause notice has been issued to all five units, duty has been confirmed and penalty has been imposed only on one unit. This plea has been dealt with by the Collector in para 61.0 of the impugned order that it was with a view to provide opportunities to all the units that show cause notice has been issued to all of them and merely because show cause notice has been issued to all the units, it does not mean that they should also be penalised. Based on extensive investigation carried out by the Department which spread to various other places outside the State of Tamil Nadu also, and based on the material evidence collected, a conclusion was reached that all the other units have been created as dummy units for the purpose of availing the benefit of Notification, 175/86, as amended. Once it was found that the other units are dummy units, the question of demand of duty from dummy unit and imposition of penalty on them does not arise. Therefore, this plea of the appellants has no force and is rejected. Further, in the grounds of appeal filed by the other appellants herein who have been found to be dummy units, there is no substantial counter by them except generally saying that their units are independent units. We note that in the case of Industrial Supplies & Services v. CCE, Jaipur , the Tribunal has held that plea of separate registration, under different taxation Statutes has to be rejected when there is no evidence of independent purchase of raw materials, or sale of manufactured goods. It was also held therein that proof of evidence of flow back from dummy unit to principal unit was not required when dummy unit character has been proven by overwhelming evidence and that money transaction in such case would not be transparent and out of reach of the department. In the cited case, the Bench has also clearly distinguished the various case laws relied upon by the party therein. In the instant case, as could be seen from our discussion above, overwhelming evidence has been brought on record in support of the case of the department that all other units are dummy and P. Natarajan of M/s JPI was the person behind the whole operations and apart from that fact of managerial control over the other units, there was flow back of money also. The facts and circumstances in the various decisions relied upon by the party such as in the matter of Renu Tandon v. UOI , in the case of Prima Controls (P) Ltd. v. CCE , Padma Packages (P) Ltd. v. CCE, Coimbatore reported in 1995 (XC2) GJ 1368 are not similar to the facts in the present case and are distinguishable from the facts of the present case inasmuch as in those cases there was absence of mutuality of business interest and the department’s case was built up on the ground of close relatives running the affairs, Whereas in the present case, overwhelming evidence has been led in by the Department against the appellants and not based on mere fact of relatives running the dummy units as discussed above. We, therefore, answer this question in favour of the Revenue.
10. The next question is regarding classification of wet grinder. The claim of the Appellants is that it should be classified under heading 8479 instead of 8509. We find from HSN that chapter 85.09 covers a number of domestic appliances in which an electric motor is incorproated and the term ‘domestic appliances’ in this heading means appliances normally used in the household. Further, Chapter Note A(3) of this chapter also covers, food grinders and mixers including multi-purpose grinders. It is not the case of the appellants, that the grinders involved in the present appeals are not domestic grinders (meant for normally household). Further, we find that as noted by the Collector, with effect from 1.3.1986, electro mechanical appliances with self contained electric motor are classifiable under Chapter heading 8509 and inasmuch as wet grinders involved in the present case have self contained electric motors, they are rightly classifiable under heading 8509, as held by the Department. The appellants have pressed into service the judgement of the Hon’ble High Court of Judicature of Madras in the matter of Alco Industries v. CCE reported in 1987 (32) ELT wherein it was held that domestic electrical appliances not having built-in motor for instant operation not covered under item 33C of the CETA. It was also held therein that Wet grinder without motor or with external motor connected with V belt is not covered under item 33C ibid. In that case the Hon’ble High Court was concerned with excisability of Wet grinder when electric motor was not in-built and motor was fitted at the time of sale. This case law is therefore, distinguishable and does not help the appellants.
11. As regards the next question whether longer period of limitation has been correctly invoked in this case, the fact of superintendence, direction and control of all the units by P Natarajan, placement of purchase orders for raw materials and payment of bill by him, the fact of clearance of goods without any document as noted in the note books maintained by him and his inability to explain the various entries in the note book on page Nos 15/2, 16/1, 16/2, 17 to 20 etc. as noted by the Collector in para 49.0 of the impugned order, were all suppressed by him from the department and hence longer period of limitation for demand of duty has been correctly invoked by the lower authority. This point is also thus answered in favour of the Revenue.
12. The next question is regarding cum-duty price. The plea of the appellants is that the impugned order has taken the cum-duty price as the value of the goods and the element of duty has to be reduced from the assessable value. We find force in the plea of the appellants in this regard. The duty demanded subsequent to the sale of goods has to be abated from the cum-duty price actually received under Section 4(4)(d) (ii) of the Central Excise Act, 1944 as held by the Larger Bench in the case of Srichakra Tyres Ltd. v. CCE, Madras . In view of the above, this question is answered in favour of the appellants and the assessable value has to be re-worked out. This aspect of the matter is therefore remanded for de novo consideration.
13. The next point is regarding admissibility of Modvat Credit. The Commissioner has rejected the prayer on the ground of absence of proper declaration. We observe that it is not the case of the Department that the appellants have not filed any declaration. The allegation is that there is no proper declaration. It is settled law that substantive benefit of Modvat Credit cannot be denied merely on the ground that the declaration and the documents did not contain all the details. We are, therefore, of the considered opinion that the appellants are entitled to benefit of Modvat Credit of duty paid on the inputs used in the manufacture of Wet grinders which have been cleared on payment of duty, if otherwise eligible, subject to verification of the duty paying documents. Therefore, this aspect of the matter is remanded for de novo consideration of the claim of the appellants regarding grant of benefit of Modvat Credit.
14. So far as imposition of penalty is concerned, since we have remanded the matter on two aspects viz (i) Modvat Credit and (ii) cum-duty price, we leave open the aspect with regard to imposition of penalty also, to be decided by the adjudicating authority in the de novo proceedings, after adjudging the amount of duty liability.
15. The other appellants herein such as M/s Wash House Equipments, M/s Prema Industries, M/s Swathi Equipments have come in appeal against the impugned order on the ground that they are independent manufacturers and the findings arrived at by the Collector that they are dummy units created by P. Natarajan of M/s Jothiprabha Industries is not correct and excepting this plea, there is no serious challenge to the impugned order. No penalty or fine has been imposed on M/s Prema Industries who are one of the appellants herein. The other two appellants, viz. M/s Wash House equipments and M/s Swathi Equipments have been imposed fine of Rs 1,000/- each in lieu of confiscation of wet grinders. However, from the EA-3 form filed by these two appellants, it is seen that though they have been imposed fine as noted above, the entry against serial No. 8A of the EA-3 form, what is mentioned is “not relevant”. No duty has been demanded nor any penalty imposed on them, as we have held above that these units are dummy units. In view of the above, the appeals filed by all these three units are dismissed being devoid of merits.
16. In the result, the appeal filed by M/s Jothi Prabha Industries is partly allowed by remand for the limited purpose of verification of the claim of the appellants for Modvat Credit and also re-working out the assessable value after allowing permissible deductions from the cum-duty price and adjudging the duty payable and thereafter fixing the quantum of penalty. All other appeals are dismissed.
(Pronounced in open Court on 30.9.2003)