ORDER
A.C.C. Unni, Member (J)
1. By his Order-in-Original dated 18.6.91, Collector of Central Excise, Bombay demanded and confirmed various amounts of duty against (1) M/s Process Plant (India) Bombay. (2) M/s. Industrial Products, Bombay and (3) M/s. Neelam Industries, Bombay under Section 11A(2) of the Central Excise Act, 1944 and Rule 9(2) of the Central Excise Rules, 1944. He also imposed penalties of Rs. 50,000 each on the three aforesaid units and on M/s. Troika Processes Pvt. Ltd., apart from ordering confiscation of land, building, plant and machinery of all the units under Rule 173Q(2) of the Rules with redemption fine of Rs. 50,000 on the said units in lieu of confiscation. Penalties of Rs. 25,000 each on (1) Shri R.K. Chopra, Director of M/s. Troika Processes Pvt. Ltd., and proprietor of M/s. Process Plant (India), (2) Shri R.S. Jhaveri, Director of M/s. Troika Processes Pvt. Ltd., (3) Shri Arvind R. Chopra, partner of M/s. Industrial Products and M/s. Neelam Industries, (4) Shri O.P. Agarwal, Director of M/s. Troika Processes Pvt. Ltd., (5) Shri P.G. Bhandari, Director of M/s. Troika Processes Pvt. Ltd., (6) Shri Ravindra Agarwal, Partner of M/s. Neelam Industries, and (7) Shri S.G. Bhandari, Partner of M/s. Neelam Industries were also imposed under Rule 209A of the Central Excise Rules, 1944. The present appeals challenge the said order. The issue relates to clubbing of clearances of the various units and eligibility to benefits of exemption Notification No. 85/85 and 175/86-CE.
2. By Show Cause Notice dated 5.10.1990 M/s. Troika and the other three units were charged with clearance of excisable goods viz., machinery having specific function for vegetable oil refining plant, hydrogenation plant etc., by wrongly claiming the benefits of exemption Notification No. 85/85 and Notification No. 175/86 on the pretext of operating as independent entities whereas the units were run under common management consisting of S/Shri Chopra/Bhandari/Jhaveri and Agarwal families. It was alleged that the three units other than M/s. Troika were run, controlled and managed by the same persons viz., Directors of M/s. Troika. The profit earned jointly by them was shared by the family members of Shri R.K. Chopra, and his family, that family getting the lion’s share. In the adjudication order passed by the Collector, the Collector after considering the replies given by the notice observed that the thrust of the Show Cause Notice was to club the clearances of goods manufactured and cleared by the three units viz., M/s. Process Plant (India), M/s. Industrial Products and M/s. Neelam Industries during the period 1985-86 to 1989-90 and to deny them exemption as envisaged in Notification Nos. 85/85 and 175/86. The second proposal in the show cause notice was to take the values of goods charged by M/s. Troika Processes Pvt. Ltd., to their customers as the assessable value of goods manufactured and cleared by all the units. Collector noted that the three units other than Troika had no doubt three separate premises, separate registrations with Government Authorities such as Income Tax and Sales Tax, Shops and Establishment Act, Factories Act etc. It was also a fact that some of the Partners/Directors were common among the three units and they belonged to the same three families. The aforesaid facts, however, did not give them independent existence since there were several other factors which gave positive indication that the said units had avoided the Central Excise duty. For this he relied on the statements given by Shri D.M. Malker, Supervisor of M/s. Process Plant (India), Shri S.G. Bhandari, Partner of M/s. Neelam Industries, Shri P.G. Bhandari, Director of M/s. Troika, Shri Arvind R. Chopra, Partner of M/s. Industrial Products and M/s. Neelam Industries, Shri R.S. Jhaveri, Director of M/s. Troika, Shri R.K. Chopra, Director of M/s. Troika. He found that the material for the manufacture of products by the three units other than M/s. Troika were provided by Troika; that the materials were transferred to each other by the units when required; that the drawing, specifications, technical know-how and Supervision for the products quality was provided by M/s. Troika and that financial assistance like working capital was provided by M/s. Troika free of charge/interest to the three units and lump sum amounts were also provided as working capital which were subsequently adjusted against products manufactured and supplied by the three units to M/s. Troika Processes Pvt. Ltd. He also found that the prices of products supplied by the three units were fixed by M/s. Troika Processes Pvt. Ltd., taking into consideration the cost of raw material and other over-heads which indicated that the other three units do not have any independent pricing system on the lines of transactions between units dealing on a principal to principal basis. He further found that the three units were exclusively manufacturing products for M/s. Troika and they were dependent on Troika in respect of procurement of raw materials, technical know-how, design, specifications, working capital, supervision over production and quality control, sale of products, etc. The Collector also observed that the products sold to M/s. Troika by the three units were subsequently sold by Troika at much higher price, the profit accrued out of such transactions is shared by the very same persons i.e., Directors of M/s. Troika Processes Pvt. Ltd., and their relatives. He noted that the raw materials were supplied to all the three units by M/s. Troika to maintain the quality of the finished goods. There was also a big price difference between the price charged by Troika from the three units and the price at which M/s. Troika sold the products. As regards financial transactions between the units, the Collector, relied on the statement of Shri S.G. Bhandari stating that M/s. Neelam Industries depended on M/s. Troika for financial assistance and technical guidance for which M/s. Neelam Industries paid no fees or charges to Troika. The statement given by Shri P.G. Bhandari, another Director of M/s. Troika admitted that apart from providing of help including raw material, technical guidance, equipment etc., M/s. Troika also provided funds by paying on account as and when required to M/s. Process Plant (India), Industrial Products and M/s. Neelam Industries and that the price or value is fixed by M/s. Troika after considering discount and other expenditure on account of the three units and the three units worked for M/s. Troika was also relied on, Collector also observed that the scrutiny of the balance-sheet of Troika since 1985 indicated that M/s. Troika had been purchasing equipment from M/s. Process Plant which was a proprietary concern of one of the Directors of M/s. Troika. The price charged by Troika could therefore not considered as normal price under Section 4 as the transaction has been vitiated by a colourable device. Collector therefore held that all the four units were owned/controlled and managed by the very same Directors of M/s. Troika Processes (P) Ltd.
3. Arguing the case of the appellants, Shri R. Jawaharlal, Ld. Advocate submitted that the issue involved relates only to the question of clubbing of the clearances of the three units other than M/s. Troika Processes Pvt. Ltd., (Troika for short). There was no aspect of valuation involved in the present batch of appeals. M/s. Troika were only buyers of products from the three other independent units. The goods or machinery parts were manufactured by the other three appellants as per the specifications given by Troika. The other three units were independent legal entities in their own right and each one of them was, as such, entitled to the benefits of Notification Nos. 85/85 and 175/ 86. He submitted that it was pertinent to point out that the three units had been in existence even before the issue of Notification Nos. 85/85 and 175/86. The department itself had not disputed the fact that the three units had separate premises, separate Income Tax and Sales Tax registrations, separate Labour Unions and separate financial arrangements. He referred to the Annexures to the appeal which showed that the turn-over of the three units did not constitute more than 20% of the turn-over of M/s. Troika. In other words, the purchases from the three units by Troika constituted only 10 to 20% of Troika’s total purchases. Apart from the said grounds which showed that there was no basis for alleging commonality of interest between Troika and the other three units financially or otherwise, Ld. Counsel submitted that duty demand was also barred by limitation. He submitted that right from 1986, the Excise Authorities were aware that the three units were fabricating equipment and parts for M/s. Troika. As regards the duty demand made on the three units other than M/s. Troika, Ld. Counsel submitted that neither the show cause notice nor the Order-in-Original had made any allegation against the said appellants that they had been fragmented units established for the purpose of availing consessional rates of duty under the exemption notifications. If the demand was to be raised on the ground of clubbing different units, then the recovery was to be made only from such unit which derives benefit of the concessional rate of duty by floating different manufacturing units. When there was no allegation against the three units that they were created by M/s. Troika, then the demand relating to assessable value cannot be recovered from the three independent units and, therefore, the demand for recovery of duty from the three appellant units other than Troika was bad ab initio. He also drew attention to Paragraph 12 of the impugned order in which the Collector has accepted the fact that all the units mentioned in the show cause notice are separate units and not created for availment of the benefit of Notification No. 85/85. Thus, the fact that the units mentioned in the show cause notice were not created for availing the benefit of concessional rate of duty is admitted by the Collector himself and still the final order passed by the Collector had resulted in denying such benefits to the three appellant units. Ld. Counsel also submitted that the Collector had erred in clubbing the clearances of the three units on the ground that they were controlled and managed by the very same Directors. Ld. Counsel submitted that there was no justification for coming to such conclusion since the three appellant units (other than Troika) were for all legal purposes separate entities and the transactions between them inter se and that of M/s. Troika were on principal-to-principal basis and on purely commercial lines. He relied on the following case law in support of his above contentions:
(i) Bhagavanji Morarji Gokuldas v. Alembic Chemical Works Co. Ltd. AIR 1948 P.C. 100;
(ii) Rice & Oil Mills, Partnership Firm v. Deputy Superintendent 1981 ELT 59-Kerala High Court;
(iii) Jag]ivandas & Co. v. Collector .
4. On the question of supply of raw material by Troika to the three appellant units, Ld. Counsel submitted that only in a few cases where it was necessary for M/s. Troika to supply the raw materials, such raw material was supplied and in all other cases the three units were procuring their raw materials without reference to Troika. On the aspect of financial assistance, Ld. Counsel submitted that though it was on record that certain lump sum amounts were paid by Troika to the three appellant units, these were adjusted against the products manufactured and supplied by them to Troika. The so-called financial assistance was not more than advances paid for the products viz., parts, equipments manufactured by the three independent units on job work basis for Troika. Ld. Counsel submitted that the findings given in Paragraph 7 of the impugned order was not maintainable in law since the profit earned by a Private Limited Company or a partnership firm cannot be shared by an individual or by the relatives or Directors of the Private Limited Company. Summing up the arguments, Ld. Counsel submitted that the impugned order is liable to be set aside both on questions of fact as well as on questions of law. He therefore prayed for the setting aside of the impugned order and for allowing all the 11 appeals including that of the various individuals on whom penalties had been imposed under Rule 209-A.
5. Shri K. Shiv Kumar, Ld. JDR submitted that the statements given by various persons who are concerned with the management and operation of M/s. Troika Processes Pvt. Ltd., and the three units had brought out that M/s. Troika and the other three units were closely inter-connected units. They had commonality of interest by way of the same persons having management control of the various units as well as M/s. Troika. There was also evidence on record to show that the three units were receiving raw material from M/s. Troika that there was financial adjustments between Troika and the other units by way of advance on account by M/s. Troika and later adjustments of the amounts through bills raised by the three units. Such financial assistance was being used by the three units for their day to day working; that Troika was providing technical assistance to the said three units and there was overall common management consisting of the members of the families related to each other. It was in fact the Directors of Troika viz., S/Shri R.K. Chopra, R.S. Jhaveri, O.P. Agarwal, and P.G. Bhandari, who were also separately Proprietors/Partners of the other three appellant units viz., M/s. Process Plant (India) of which Shri R.K. Chopra was the sole Proprietor, Shri Arvind Chopra was Partner in M/s. Industrial Products as well as M/s. Neelam Industries. Likewise, Shri Ravindra Agarwal and Shri S.G. Bhandari were Partners of M/s. Neelam Industries. All these persons were also related by way of family ties making Troika and other three units managed and controlled by the 4 families viz., Chopra family, Jhaveri family, Bhandari family and Agarwal family. The Collector had given clear findings as to the nature of the assistance given by Troika to the three units. Moreover the statements given by S/Shri P.G. Bhandari, Aravind Chopra, R.S. Jhaveri and R.K. Chopra referred to in the show cause notice clearly brought out the fact that M/s. Troika had created three different units in the name and style of M/s. Process Plant (India), M/s. Industrial Products, and M/s. Neelam Industries with the intention of evading payment of Excise duty by availing SSI exemption and concesional rate of duty separately though in fact all the four units were one manufacturer and therefore not entitled to claim independent exemptions. He submitted that the impugned order which was based on decumentary evidence as to the relationship between the parties and the statements given by the concerned individuals called for no interference and therefore the same may be upheld and all the 11 appeals may be rejected.
6. We have considered the rival submissions and have perused the records. On the question of limitation raised by the Ld. Counsel for the appellants, we find that the show cause notice had alleged that M/s. Troika and the three other units had by wilful mis-statement and suppression of facts with intention to evade Central Excise duty wrongly availed of exemption Notification No. 56/ 84 dated 1.3.84 and Notification No. 175/86 dated 1.3.86 as amended during the period 1985-86 to 1989-90. The show cause notice was issued on 5.10.1990. Ld. Counsel had in this connection submitted that the allegation of wilful misstatement and suppression of facts had no basis. He had submitted that it was on record that M/s. Troika was established in the year 1973 whereas M/s. Process Plant (India) was formed in the year 1966. Likewise M/s. Industrial Products and M/s. Neelam Industries were formed in 1981 and 1984. Ld. Counsel had submitted that in a case where all the concerned units were established prior to 1985, the allegation that one of the units established in 1973 had floated further units between 1966 and 1984 for availing the benefit of exemption Notification Nos. 85/85 and 175/86 did not arise. All these units established and were in existence even before the time of coming into force the two exemption Notifications. They had been operated as independent legal entities and their Income-Tax, Sales Tax registrations and also obtained recognition from the Central Excise Department. These could not have been done in anticipation of availing exemption Notification Nos. 85/86 and 175/86 by showing these as independent units even though they were a single manufacturer as alleged by the Department in the show cause notice. He had submitted that whatever co-operation existed between M/s. Troika and the three other units were based purely on business and commercial considerations and the fact that some of the Directors of Troika had also business interest in the other three units by way of
Proprietorship/Partnership did not by themselves make the other three units as dummy units disentitling them from their status as independent legal entities eligible for duty concession as Small Scale Units under the relevant notifications. The Department had therefore erroneously sought to invoke the extended period under Section 11A(1) as there was no mis-statement or suppression of facts on the part of any of the units.
7. We find that the above contentions raised on behalf of the appellants have great force. The Department has not disputed the fact that M/s. Troika and the three other units had come into existence much before the issuance of the two exemption notifications. It has also not been disputed that all the four units had independent registration with the Income Tax and Sales Tax and other Government Authorities as also with the Central Excise Department. We, therefore, find that the allegation of wilful mis-statement and suppression of facts justifying the extended period of limitation for making the duty demand cannot be sustained in the admitted facts of the case.
8. As regards the allegations of commonality of interest by way of common management by Troika, Directors of the other three units, we find that the case law relied on by the appellants support their contentions inasmuch as it has been held by the Tribunal in Jagjivandas Co. v. Collector that commonness of partners do not conclusively establish that a manufacturer who is producing excisable goods was doing so for and on behalf of one another. In Meter Satellite Ltd. & Telestar Electronics, Ahmedabad v. C.C.E., Baroda , the Tribunal had held that where a Public Limited Company and the registered partnership firm had common Directors/ Partners and where the partnership firm manufactured and sold excisable goods to the Company, it cannot be said that the firm is a dummy or a camouflage for the Company. We also find merit in the appellants’ contention that amounts given by M/s. Troika to the three appellant units do not necessarily prove that there was financial flow back between the parties or that the said financial assistance had gone beyond normal commercial consideration on a principal-to-principal basis. The Department has not disputed the fact that such advances were adjusted towards bills raised by the three units. Even the absence of payment of any interest by the three units does not make such advances working capital provided by Troika to the three units.
9. In the light of the above discussions, we find that the impugned order does not sustain either on law or on facts. The same is therefore set aside and all the 11 appeals allowed with consequential benefits to the appellants.