ORDER
C.N.B Nair, Member (T)
1. All these appeals are directed against a common order passed by Commissioner (Appeals) in order in Appeal No. 585-587-CE/DLH/2001, dated 10-7-2001. The appeals of the as-sessees contest demand of duty and interest and imposition of penalty while the revenue appeal contests the exclusion of cost of packing from the assessable value and reduction of penalty in the case of M/s. Superior Products.
2. The basic issue for consideration in these cases is whether value of the manufacture of both the appellant manufacturers, namely, M/s. Superior Pet Pvt. Limited and M/s. Superior Products are to be clubbed together for determining the eligibility of each of the units to small scale exemption as available under Notification No. 9/98, dated 2-6-98.
4. The exemption under Notification No. 9/98 is value based, is to a manufacturer and is in respect of a manufacturer’s production from one or more factories or from a factory by one or more manufacturers. The impugned order has held that the production from both the factories of the appellants should be held as the production of one manufacturer. The demand
for duty and interest and penalty etc. proceeds from this finding.
3. Facts relevant to the dispute in this case are that M/s. Super Products, is a Partnership between M/s. Rita Dutta and Dr. Mrs. Tripta Dutta. The investment being Rs. 10,21,650/- by the former and Rs. 5,07,750/-by latter. This Partnership firm started producing pet bottles from 1997. The other appellant M/s. Superior Pet Pvt. Ltd. started production of the same goods from the next year i.e. 1998. In this company Mrs. Rita Dutta has an investment of Rs. 7,77,000/- and Dr. Mrs. Tripta Dutta has a investment of Rs. 29,17,000/-. There are four other share holders with lesser amounts of investment. Both the units were being managed by Mrs. Rita Dutta. It is in this background that the impugned order has been passed holding both the units to be of the same manufacturer (Mrs. Rita Dutta). The finding as to who is the manufacturer in respect of the two units is to be seen in para 9.5 to 9.7 of the impugned order. These paras are extracted below for ease of consideration of points raised :-
“9.5. The conditions restricting the availment of SSI benefit by any unit as under :-
(i) The aggregate value of clearances of all the excisable goods for home consumption by a manufacturer from one or more factories or from a factory by one or more manufacturer does not exceed rupees three hundred lakhs in the preceding year. (ii) Where a manufacturer clears the specified goods from one or more factories, the exemption in this case shall apply for the total value of clearances mentioned against each of the serial numbers in the said table and not separately for each factory. (iii) Where the specified goods are cleared by one or more manufacturer from a factory, the exemptions shall apply for the total value of clear- ances mentioned against each of the serial numbers to the said table and not separately for each manufacturer.
9.6. From the above conditions, it is seen that the SSI exemption is deniable if two manufacturers operate from one factory or one manufacturer operates from two factories. In the strict legal sense, in terms of Section 2(0 and the judicial pronouncements on the subject, a manufacturer is necessarily required to engage himself in the manufacturing activity. Now the question comes whether the Directors in the Company or the partners in the partnership should actively involve themselves for managing the manufacture. I believe this should be the intention. Here in this case Dr. Tripta Dutta is not at all concerned with any manufacturing or managerial activities in both the units. I find that Plot No. D-32, in DLF Industrial Area has been cut into two parts to make an appearance of two separate units working. This is nothing but “Colourable devices of tax planning”, with a view to avail SSI exemption which admittedly was not available otherwise. I therefore take a view that Ms. Rita Dutta, continues to be a manufacturer in both the units. Hence, I hold that the condition No. I in Paragraph 9.5 hits exemption in this case. It is also seen that the Registration Certificates for both the units have been given in her name, I therefore treat her as one manufacturer operating from two units.
9.7. Thus, I hold that in the light of the Hon’ble Supreme Court findings in the case mentioned above as well as by the text of the exemption notification, the values of the two companies should be clubbed for arriving at the clearance figures”.
4. The submission or the appellants is that the learned Commissioner’s findings are not sustainable in law or on facts of the case. With regard to the Commissioner’s finding that Directors in a company or Partners in a Partnership firm should actively involve themselves in managing the manufacture and in the present case “Dr. Tripta Dutta being not at all concerned with any manufacturing or managerial activities in both the units”, makes Mrs. Rita Dutta the manufacturer in both the units,” is a clear misunderstanding of the legal position. It is submitted that management and supervision of two units by the same person, would not make that person the owner or the manufacturer in both the units. Learned Counsel for the appellants has submitted that the finding of the Commissioner completely goes against the concept of juridical personalities. Companies are juridical persons, separate from their share holders and managers. Partnerships are also legal entities. Similarly, share holding by one person in a partnership as well as in a limited company cannot make that person owner of the partnership and limited company. The status of each will depend upon the local arrangement. Learned Counsel points out that the finding recorded by the Commissioner cuts at the root of the legal provisions on the subject. He also pointed out that treating Mrs. Rita Dutta as a manufacturer in both the units would amount to denial of rights of the other partner in M/s. Superior Products and Dr. Tripta Dutta and other share holders in M/s. Superior Pets. He also pointed out that the finding regarding issue of registration certificate for both the units in Mrs. Rita Dutta’s name is also not correct or of any relevance to the dispute. The learned Counsel has pointed out that the registrations had been issued in favour of the partnership as well as the limited company. Mrs. Rita Dutta has applied for the registration in her capacity as the authorized person and not in her personal capacity.
5. The appellants have strongly contested the Commissioner’s finding regarding “colourable devices of tax planning”. It has been pointed out that both the manufacturing units are separate entities in law as well as in their operation. Both have separate capital, separate accounts, separate machinery, separate premises and separate work force. There is no financial accommodation between the two, leave alone flow of funds from one to another and each unit bears its loss or enjoys its profit. The commonality is in respect of product and management only. Learned Counsel has pointed out that it is well settled that the production of two units cannot be clubbed on account of the fact of common management or a common product. He has cited much case law in support of this submission [1994 (71) E.L.T. 689, 1993 (66) E.L.T. 375, 1997 (90) E.L.T. 175].
6. Specific to the finding that setting up of the two units was a colourable device of tax planning, the learned Counsel pointed out that the facts of the present case pointed in the opposite direction. It was in evidence that in the first year of its existence M/s. Superior Pets did not claim any small scale exemption at all. It is also in evidence that M/s. Superior Pet Pvt. Ltd. was formed as a separate Private Limited company only because of the advice of financial institution (Small Industry Development Bank of India) that they would prefer a limited company for the purpose of financial support. Learned Counsel for the appellant pointed out that this position has been specifically noted by the Commissioner in para 92 of the impugned order.
The learned Counsel also submitted that the findings in this case are also not in accordance with the scheme of lifting of corporate veil, even though the Commissioner has not put forth such a case. Learned Counsel for the appellant emphasized that lifting of the corporate veil is resorted to in order to ascertain who is the real beneficiary from the corporate character of the business and whether the real beneficiary is getting out of tax liabilities by assuming a mythical corporate personality. Learned Counsel emphasized that in the present case there was no allegation or finding that Ms. Rita Dutta was the source of funding for both the units or that she is the beneficiary from the manufacturing activities carried out by both the units. There is nothing on record to show that she got any extra benefit by way of tax or otherwise.
7. As against the aforesaid submissions on behalf of the appellants, learned SDR pointed out that in the present case it is clear that both the units are manufacturing the same product. Both the units are also getting their goods partially manufactured from each other. Learned SDR therefore, submitted that both the units were operating in a complementary manner and therefore the finding that they are to be treated as one unit for the purpose of small scale exemption cannot be faulted. She also submitted that legal provisions are required to be interpreted keeping in mind their purpose. Small scale exemption should not be allowed to be enjoyed by ineligible persons by fragmenting their production. In this connection, she referred to the decision of this Tribunal in the case of Supreme Engineering Works v. CCE, Pune – 1996 (82) E.L.T. 102. She also pointed out that in the case of Supreme Engineering Works there were two partners in a Partnership firm and they were the only Directors and main share holders in the Limited company also. Further, same persons managed both the units. The Tribunal upheld the treating of both the units as of one manufacturer. The Learned SDR submitted that facts are very closely similar in the present case. Further, performs for M/s. Superior Products was supplied by the other unit.
8. In his reply, learned Counsel for the appellant stated that the case of Supreme Engineering Works bore no resemblance to the case on hand. In Supreme Engineering Works the Tribunal observed that financial transactions were taking place between the two units managed by two brothers. Transactions between the two units were being falsified by fabrication of records for the purpose of tax evasion. The Learned Counsel emphasized that these were the reasons which justified the piercing of corporate veil in that case. In contrast to those facts, in the present case, there is no allegation of any accounts being falsified. The only transaction between the two units were that M/s. Superior Products were purchasing preforms from M/s. Superior Pet. This was no financial favour. M/s. Superior Pets produced performs in excess of their capacity to convert to pet bottles. Therefore, they sold their excess production of performs to many buyers. M/s. Superior Products was only one such buyer. There is no financial favour in this. That the transaction in preforms was no favour was also clear from the fact that M/s. Superior Products was in manufacture of pet bottles even prior to coming into existence of M/s. Superior Pet Pvt. Limited.
9. Upon perusal of the records and consideration of the submissions made on behalf of both the sides, we are of the opinion that the finding in the impugned order that Mrs. Rita Dutta is the manufacturer in both the units is
not sustainable. The two assessees in this case are legally understood juridical persons. One is a registered Partnership firm and other is a limited company. The Commissioner’s finding goes beyond stating that one entity belongs to the other. His finding that directors of a company or Partners in a Partnership should actively involve themselves in managing the manufacture and since Dr. Tripta Dutta is not at all concerned in manufacturing or managerial activities in both the units, the other person, namely Mrs. Rita Dutta who manages both the units is the manufacturer in both units is clearly erroneous. Not all directors or partners have to be engaged in managing companies or partnerships. It all depends upon the management structure and responsibilities agreed upon. In fact, management remains entirely separated from ownership in professionally managed business. Therefore, this finding of the Commissioner is not sustainable at all. Even otherwise, a finding that Mrs. Rita Dutta is the manufacturer in both the units is not viable at all in the facts of this case. Such a finding takes away the legitimate rights of others and is not warranted by the ownership pattern. In M/s. Superior Pet Pvt. Ltd. Mrs. Rita Dutta’s share holding is only over 18%. The company cannot be held to belong to such a person. The principle involved in lifting corporate veil is clear. An identifiable person should be found to enjoy the benefits not due to him upon lifting of corporate veil. The reality should be different from what is covered by the veil. There is no finding that Mrs. Rita Dutta is the beneficiary of the corporate arrangement and that the tax evasion facilitated by this corporate facade benefited her. It is also on record that either entity is not a dummy. Both have separate capital, premises, machinery and labour. Both are carrying out separate operations. The commonality of share holders and Partners and a common manager do not destroy the sepa-rateness of the two units. That they are manufacturing the same product or that one unit purchases a material from the other on commercial terms also do not go against their separate identity as manufacturers. The decision in Supreme Engineering case has no application to the present case. In that case tax evasion was being carried out under the garb of corporate entities. No such situation is brought out here. In these facts and circumstances, we hold that treating Mrs. Rita Datta the manufacturer in both the units and consequent denial of exemption to the units is not sustainable.
10. As already stated, appeal of the Revenue is in regard to issue of the inclusion of cost of packing material in assessable value of the pet bottles and reduction in penalty. That the value of packing materials supplied by the buyer is not includible in the assessable value of goods which are packed in such packing remains settled by the decision of the Supreme Court in the case of Hindustan Polymers v. CCE -1989 (43) E.L.T. 165 (S.C.) = 1990 (26) ECR 153. The Revenue in the present appeal has contented that that decision applies only to secondary packing. We find no ground to accept this submission. In view of our findings that there was no short levy, the Revenue’s submission regarding quantum of penalty has no relevance. Accordingly, Revenue’s appeal fails on both grounds.
11. In view of our findings above, the appeals of the assessees and Mrs. Rita Dutta are allowed and the appeal of the Revenue is rejected.