ORDER
K.S. Venkataramani, Member (T)
1. These appeals arise out of a common order dated 13-3-1990 passed by the Collector of Central Excise & Customs, Ahmedabad by which the Collector has confirmed the demand of duty Rs. 26,96,577.06 an appellants M/s. Swastik Engineering Works and also imposed penalty of Rs. 3,50,000/- on them as well as penalty of Rs. 25,000/- each on appellants M/s. Suvidha Products and M/s. Saraswati Engineering Works . The facts in brief are that the appellants M/s. Swastik Engineering Works are engaged in the manufacture of Milcent brand Gharghanti falling under Item 68 of Central Excise Tariff. The Department had information that the appellants herein were evading Central Excise duty by showing their production in the name of M/s. Saraswati Engineering Works and M/s. Suvidha Products and were wrongly availing of the exemption under Notification No. 105/80 and 77/83. The Department carried out checks on 25-9-1984 at Plot No. 20 of Vithal Udyognagar where the two appellants Units M/s. Saraswati Engineering Works and M/s. Swastik Engineering Works were shown. The other Unit M/s. Suvidha Products was at No. 213, Vithal Udyognagar and another Plot No. 1105/1-2 was shown for M/s. Saraswati Engineering Works. The Department on investigation came to the conclusion that all the three units worked together in assembling of Gharghanti and no separate independent manufacturing activities were carried out by the two other units M/s. Saraswati Engineering Works and M/s. Suvidha Products. For this conclusion the Department relied upon the following circumstances :-
1. At plot No. 15A, near the premises of M/s. Swastik Engineering Works the etching work of Grinding stones of Gharghanti’s was being carried on for all the units at same place.
2. Casting was carried on in M/s. Swastik Engineering Works in portion behind plot No. 20.
3. All the Gharganti’s were affixed with trademark ‘Milcent’ on the boxes.
4. All the Gharghanti’s found on that day i.e., 123 were affixed with metal plate on box showing M/s. Swastik Engineering Works, V.V. Nagar, Anand Agencies Sales Corporation, Puga Sales Corporation, Anand (W. Rly.) India.
5. In case of premises at survey No. 1605/1 + 2 of M/s. Saraswati Engineering Works only wooden boxes were being manufactured.
6. Shri Rohitbhai J. Patel was common partner in all the three units and was managing the affairs of all the units.
7. Only four workers were shown on muster of M/s. Suvidha Products in year 1983-84, but turn-over shown was of Rs. 23,10,000 during said period.
8. Insufficient machinery i.e., only one Lathe machine, one tool grinder and one drill machine were found in Suvidha Products.
9. All the partners in all the three firms were brothers, sister-in-laws, father and mother of Shri Rohit J. Patel common partner in all the firms. Hence, it was a family affair.
10. In Saraswati Engineering Works except Shri Rohitbhai all other partners were ladies.
11. Some workers in their statement stated that no work of manufacture of complete Gharghanti was carried on in any of two units namely Saraswati Engineering Works and M/s. Suvidha Products, but final work was always done in M/s. Swastik Engineering Works and goods cleared for sale from said unit with label of the said unit.
12. Even goods i.e., 123 Gharghanti found at the time of Panchnama in premises of M/s. Saraswati Engineering Works were having label of M/s. Swastik Engineering Works.
During the investigation statements were recorded from Rohitbhai 3. Patel Managing Partner of M/s. Saraswati Engineering Works on 25-9-1984 and on 13-3-1985 he said therein that he was a partner in all the three manufacturing units and he was looking after the management of all the three Companies; that the Trade Mark ‘Milcent’ was the registered Trade Mark of M/s. Swastik Engineering Works, and that M/s. Saraswati Engineering Works and M/s. Suvidha Products used the same trade mark and paid royalty to M/s. Swastik Engineering Works. Sh. J.D. Patel, Supervisor, M/s. Saraswati Engineering Works said in his statement on 25-9-1984 that they were manufacturing cabinets as for Gharghantis only and such cabinets were removed to Swastik Engineering for stone fitting and testing and the complete Gharghanti was manufactured and sold from M/s. Swastik Engineering Works. Shri N.S. Mistry of M/s. Saraswati Engineering Works in his statement of 25-9-1984 also stated that the cabinets manufactured in M/s. Saraswati Engineering Works were sent to M/s. Swastik Engineering Works for stone fitting and testing and the fully manufactured Gharghantis were sold from M/s. Swastik Engineering Works. Another person Shri N.A. Suthar deposed in his statement that he was working earlier with M/s. Swastik Engineering Works and he also stated that the fully manufactured machine was cleared from M/s. Swastik Engineering Works. Shri C.B. Rana working with M/s. Suvidha Products said that his name was shown in the muster roll as labourer and was engaged in the work of removing complete body on Gharghanti to M/s. Swastik Engineering Works. Shri R.H. Chauhan also deposed on the same fact as stated by Shri Rana. Following further investigation proceedings were initiated against the appellants herein, by issue of show cause notice dated 12-8-1986 as it appeared to the Department that the Gharghanti was manufactured only at M/s. Swastik Engineering Works while M/s. Saraswati Engineering Works and M/s. Suvidha Products were manufacturing only certain parts such as cabinets etc. and were sending the parts to M/s. Swastik Engineering Works for complete manufacture of Gharghanti. On consideration of the reply to the show cause notice and hearing the appellants in the matter during which witnesses were also cross-examined, the Collector ultimately passed the impugned order against which the present appeals have been filed.
2. Shri A.S. Sunder Rajan, the learned Consultant appearing for the appellants alongwith Shri P.N. Dave, the learned Counsel submitted that the demand in this case is barred by limitation as it goes even beyond five years limit under Section 11A of Central Excises and Salt Act, 1944 because duty has been demanded for the period 1-7-1981 to 31-3-1985 by the show cause notice issued on 12-8-1986. This also shows that there has been non-application of mind by the Collector on this aspect when he confirmed the demand totally. It was submitted that the Collector has not considered the facts of the case correctly. M/s. Swastik Engineering Works was established as early as 1946. M/s. Suvidha Products is a Registered Partnership and was established in 1974. M/s. Saraswati Engineering Works another partnership concern was established in 1982. Therefore, it can be seen that the two units M/s. Suvidha Products and M/s. Swastik Engineering Works were established at earlier and M/s. Saraswati Engineering Works only in 1982 and it was the only unit established after the Notification in question 105/80 dated 19-6-1980. These units have filed separate declarations before the Central Excise Authorities and had applied and were granted separate Central Excise Licences. They also were assessed separately for Income tax and Sales tax and held individual certificates as Small Scale Units. The learned Consultant further submitted that the Department had no ground for charging them with suppression of facts because in 1.981 proceedings had been initiated against the appellants M/s. Swastik Engineering Works by the Assistant Collector, Anand Division in which M/s. Swastik Engineering Works was said to be related persons with Swastik Sales Corporation and Puja Sales Corporation which are also the other units concerned in the present show cause notice by the Collector in respect of the valuation of the goods. The Assistant Collector’s order was challenged in appeal and the Collector (Appeals) had held that these firms can not be treated as related persons as it had not been proved that they had interest in each other business. The learned Consultant further contended that the use of the same brand name of Milcent Gharghanti had been clearly explained even in the panchnama stage by Shri Patel who had said that the other units were paying royalty to M/s. Swastik Engineering Works for using the trade mark. The panchnama prepared at the premises of M/s. Saraswati Engineering Works also shows that unit had independent production capacity.
The learned Consultant also relied upon the affidavit of the Panch witnesses to show that other units have independent manufacturing capacity. The statement of Rohit Patel on 25-9-1984 was given when he was not in a mentally steady condition and, therefore, contents of the statement cannot be relied upon. The learned Consultant further pointed out that the subsequent affidavit of the Rohit Patel had given the correct position. He had said therein that he informed the officers that once the process in their premises is over no other process is required for completion of manufacture, but that the officers refused to record the statement on these lines. He had also stated therein that the worker’s statements cannot be relied upon as they were not able to given positive statement being illiterate. It was also pointed out that Shri Ashok Patel was given contract of etching of the stones by all the units. Attention was also drawn to the Panchnama dated 25-9-1984 in the premises of M/s. Suvidha Products wherein it is recorded that the Flour Mills describe therein were found in different stages of production. It was further urged by the learned Consultant that even the statement of the workers would clearly go to show that the three units are different and not one and the same. The Collector in his order has mainly relied upon the statements from the workers and those made by Shri Patel when he was not mentally steady condition. The Collector’s interpretation of the statement have also been shown to be incorrect by the subsequent detailed affidavits and the deposition of witnesses. The Collector has not considered the submissions made by them in their interim reply to the show cause notice. In that they have staled that the Rohit Patel is not a common partner in all the three firms and that he was a partner in M/s. Swastik Engineering Works in his capacity Karta (HUF). The learned consultant also made a fresh point on classification and urged that the Gharghantis are domestic appliances. Domestic Electrical appliances are correctly classifiable on Item 33C of Central Excise Tariff and entitled to the benefit of the Notification No. 33/69. The item is not covered by the dutiable goods within the ambit of that notification. The contention regarding classification had been made before the Collector in written submissions on final reply wherein it has been contended that in any view of the matter the goods are not subject to duty as they are exempted under Notification No. 33/69 being classifiable under Item 33C of Central Excise Tariff as Domestic Electric Appliances. The Collector however, is not considered this contention in the order. The learned Consultant further referred to the cross-examination of witnesses during the hearing before the Collector wherein the workers were given statement have said that they had to give statements under duress. The learned Consultant further referred to the statement in cross-examination of the Superintendent Shri K.M. Patel who had said that he did not find anything adverse regarding the declaration filed by the units. He had also said that he has seen workers doing assembling works for Gharghanti in all the three premises. The deposition of the Superintendent, it was argued clearly support the appellants herein. Thereafter the learned Consultant referred to a series of case law on the subject to say that there was no circumstances in the present case for clubbing of the clearances and for treating all the units as one unit only for manufacture of complete Gharghantis:
1.
1981 (8) E.L.T. 59 (Ker.) – Rice and Oil Mills Partnership Firm Kandassankadavu v. Dy. Superintendent of Central Excise, Trichur
.
2.
1982 (10) E.L.T. 329 (C.B.E. & C.) – In Re: Smt. Shyam Kumari, Baraut and Ors.
3.
1983 (13) E.L.T. 1215 (CEGAT) – Government Ceramic Service Centre, Cannanore v. Collector of Central Excise, Cochin
.
4.
1983 (14) E.L.T. 1994 (CEGAT) – G.D. Industrial Engineers, Faridabad v. Collector of Central Excise, Chandigarh
.
5.
1985 (19) E.L.T. 441 (Tribunal)- Jagjivandas & Co., Thane v. Collector of Central Excise, Bombay-II
.
This decision was subsequently confirmed by the Supreme Court as briefly reported in 1989 (44) E.L.T. A-24.
6.
1985 (22) E.L.T. 271 (Tribunal) – Meteor Satellite Ltd. & Telstar Electronics, Ahmedabad v. Collector of Central Excise, Baroda
.
7.
1986 (25) E.L.T. 90 (Tribunal) – Aroma Apparels, Bombay v. Collector of Central Excise, Bombay
.
8.
1989 (40) E.L.T. 95 (Tribunal) – Shakti Engineering Works v. Collector of Central Excise
.
9.
1989 (43) E.L.T. 775 (Tribunal) – Quality Steel Industries v. Collector of Central Excise
.
10.
1989 (44) E.L.T. 586 (Tribunal) – Collector of Central Excise v. Emkay Glass Works
.
11.
1987 (32) E.L.T. 204 (Tribunal) – Bhagwan Das Kanodia and Ors. Bombay v. Collector of Central Excise, Bombay
.
The learned Consultant urged that the Collector in the impugned order has not at all given a finding as to how the various case law on the above line cited before him were not applicable and, therefore, there was non-application of mind. Further it was pleaded since M/s. Saraswati Engineering Works and M/s. Suvidha Products had not been considered as manufacturers, how could the penalty on them be sustainable. In respect of the penalty on appellants M/s. Swastik Engineering Works, the Collector has not given any finding as to the ground on which this appellant was found to have deserved such penalty.
3. Shri M.S. Arora, the learned Departmental Representative appearing for the Department pointed out that the appellants herein have raised the plea on classification of the Gharghanti as domestic electricity appliances under Item 33C C.E.T. on which Collector has not given any specific finding. It was also pointed out that in all their declaration and Notification No. 2/81 and the appellants had themselves indicated the Tariff Classification of the goods as under Item 68 of Central Excise Tariff. He further submitted that a perusal of the show cause notice especially para-12 thereof highlights essence of the charges against the appellants listing out the pieces of the evidence on which the Department case is based which showed that only M/s. Swastik Engineering Works was producing the fully finished Gharghanti having also the capacity and the machinery necessary for making it and that the other units did not have the machinery to produce fully finished Gharghanti but have the capacity only to make parts thereof evidence is also available to show that Shri Rohitbhai J. Patel as the common partner in all the three units was managing the affairs of all the units and the partners in all the three firms were close relation of Rohitbhai Patel. Hence the Collector was right in concluding that the units other than M/s. Swastik Engineering Works had been created only to evade central excise duty. He referred to the declaration filed by appellants M/s. Suvidha Products and M/s. Saraswati Engineering Works giving the process of manufacture which indicated that they were to make cast iron parts whereas these units do not have the machinery to make these parts which on the other hand was being done only by the other appellants M/s. Swastik Engineering Works.
The learned Departmental Representative urged that it is well settled that deliberate arrangement by which one person controls other units as a design to evade duty is not permissible and also that where it is in evidence that only one unit is having the capacity to manufacture fully finished articles having other sub-units the clearances are to be clubbed. He cited and relied upon the case of
McDowell & Company Limited v. Commercial Tax Officer, reported in 1985 (5) E.C.C. 259
,
Collector of Central Excise v. Paper Packing Industries, reported in 1988 (36) E.L.T. 340 (Tribunal)
,
Bajrang Gopilal Gajabi v. M.N. Balkundri and Ors., reported in 1986 (25) E.L.T. 609 (S.C.)
,
Collector of Central Excise v. Patco Chemical Industries, reported in 1991 (54) E.L.T. 330 (Tribunal)
and
Shree Agency v. S.K. Bhattacharjee and Ors., reported in 1977 (1) E.L.T. (J 168)
. The learned Departmental Representative further argued that the Collector has correctly relied upon the statements of the partners given immediately after the inspection of the premises by the officer on 25-9-1984. The affidavit filed belatedly to retract the position by the appellants was clearly an after thought and no reliance can be placed on such belated retraction for which he relied upon the case of
M.B. Moosa and Ors. v. Collector of Customs, Bangalore, reported in 1986 (25) E.L.T. 804 (Tribunal)
. Belated retraction would require to be gone into detail as it is generally resorted to by persons to extricate themselves. In reply, the learned consultant contended that the affidavits filed cannot be considered as after thought. There is also no finding by the Collector on the deposition of the Departmental Officer namely the Supdt. of Central Excise during the personal hearing which goes to support the case of the appellants.
4. The submissions made by the learned Consultant and the learned Departmental Representative have been carefully considered. The show cause notice as well as the Collector’s order listed out the main pieces of evidence on which the Department’s case is built. The Department’s case is summarised by the Collector in his order as follows :-
Duty is demanded from M/s. Swastik Engineering Works for period 1-8-1981 to 31-3-1985 amounting to Rs. 26,96,577.06 on the ground that M/s. Saraswati Engineering Works and M/s. Suvidha Products have never been engaged in the manufacture of complete Gharghanti’s hence, exemption availed by the said units under Notification No. 105/80, dated 19-6-1980 and Notification No. 77/83, dated 1-3-1983 was wrong.
The Collector’s reasoning and the appellants submissions assailing those reasoning have been examined. Taking up the finding that at the premises of M/s. Swastik Engineering Works etching work of grinding stone for the Gharghanti was being carried on for all the units, it is seen that an explanation thereto is available in the Panchnama made out on 25-9-1984. Shri Jitendrabhai Patel who was present at that time of preparation of the Panchnama had been questioned and his response is recorded therein. The Panchnama states, “Concerning the Gharghanti stones lying in this place Shri Jitendrabhai states that these stones belong to all the three firms. The stones which come from Rajasthan are being heated and etched here. The number of stones lying at different stages of processing are found to be 1700 pairs. The account of the 1700 Flour Mill stones are being maintained by each of the unit individually and separately in their own manner. On being asked Shri Jitendrabhai states that is not possible to make out instantly about how many pairs of stones belongs to each individual units”. Therefore, it has been explained that though the grinding stones for etching had all been found together they were individually accounted for by each unit. The other piece of evidence held against the appellants is that all the Gharghantis were using the same trade mark ‘Milcent’. For this again even on the date of visit the position has been explained by Shri Jitendrabhai Patel in which he has said as recorded in the Panchnama that other unit the M/s. Saraswati Engineering Works is also manufacturing the goods with Milcent trade mark and that they are paying royalty for it to the M/s. Swastik Engineering Works. During the adjudicating proceedings both the M/s. Saraswati Engineering Works and M/s. Suvidha Products have produced evidence from the Balance Sheet indicating amount paid to M/s. Swastik Engineering Works towards royalty. Yet another ground which is the basis for clubbing the three units is that the other units do not have capacity to manufacture the complete Gharghanti and they did not have machinery for doing so. However, while relating this piece of evidence, the Collector has omitted to consider fact that there is clear indication in the Panchnama relating to the M/s. Suvidha Products that the officers found in the premises readymade complete Gharghanti and Gharghanti in various stages of manufacture.
This aspect in the Panchnama clearly does not support the finding that other units did not or could not have manufactured the complete Gharghanti. It is further seen that the appellants have probabilised their claim that each unit was capable of making the complete Gharghanti by producing bills for the independent purchase of components/raw material by these units and if this evidence was not found sufficient by the Department it was open to the Department to have made further probe in the matter to rebut this evidence which does not appear to have been done. Another piece of evidence which is on record and which militates against the finding of the Collector for clubbing the units is the deposition of Shri K.M. Patel, Supdt. of Central Excise during the personal hearing. This officer has stated that he was incharge of all the three units and that they were engaged in the manufacture of Gharghanti for which they had filed Central Excise declaration. He had visited all the three premises and he further deposed “I have found raw material also present”. There is no finding at all by Collector as regards the contents of Supdt.’s deposition which clearly does not support the case of the Department that not all the three units have the capacity to make complete Gharghanti and in such a situation, it is not possible to sustain the Collector’s finding on this aspect based only on the reasoning that the different version regarding the capacity of the other units had emerged only belatedly in the affidavit filed which are, therefore, to be dismissed as after thought. This is because the subsequent version finds support in the deposition of the Supdt. of Central Excise Incharge of these units. Yet another aspect which remains unrebutted by the Collector’s order, is the claim of the appellants that the three units came into existence during different years and that, therefore, it cannot be said that the other units were created as a front to evade duty and to enjoy exemption. It has been stated that M/s. Swastik Engineering Works was established as earliest 1946 and that in 1960 domestic flour mill was invented and the same was registered in the trade namely ‘Milcent’. M/s. Suvidha Products was established in 1974 and also produced Gharghantis in 1976, owing to labour problem and fall in demand for the product manufacturing activity was discontinued. In 1980, they re-started the manufacturing activities. M/s. Saraswati Engineering Works was established in August, 1982 also producing Milcent brand Gharghanti. It is seen from the above, that the units M/s. Swastik Engineering Works and M/s. Suvidha Products had been started much before the Notification No. 105/80-C.E. and also before the year 1975 when Tariff Item 68 C.E.T. was introduced. In the absence of rebuttal of this evidence in the Collector’s order, the appellants must be considered to have given a plausible explanation.
The Collector has also relied upon the fact that Rohitbhai J. Patel was a common partner and that the three units consisted of partners who are all closely related. However, it is not well settled that mere commonality of partners is not sufficient for clubbing of clearances. It has to be shown by evidence that there was also flow back of finance between the main units and its subsidiaries. No such evidence has been referred to or discussed apart from merely pointing out that the three units were partnerships in which all the partners were close relatives. In the case of
Jagjivandas & Co., Thane v. Collector of Central Excise, Bombay-II, reported in 1985 (19) E.L.T. 441 (Tribunal)
, the Tribunal had considered a similar situation. The Tribunal held therein that circumstances such as commonness of partners, use of common premises, occasional use of machinery of one firm by the other will not be sufficient to justify clubbing of clearances or to say it was a case of manufacture for or on behalf of another. It is also noted that the decision of the Tribunal in Jagjivandas & Co., Thane as since been upheld by the Supreme Court which had dismissed on 2-8-1989 Civil Appeal No. 4173 (NM) of 1986 filed by the Collector of Central Excise, Bombay against the Tribunal decision see 1989 (44) E.L.T. A-24. As regards the Collector’s finding that appellants M/s. Suvidha Products had not given correct declaration of their premises here again, the deposition of jurisdictional of Central Excise during the adjudication proceedings does not support such of finding. Shri K.M. Patel, Supdt. of Central Excise had deposed during the cross-examination that he had verified the declaration and thereafter sent his report to the Assistant Collector who approved it on the basis of his report and issued exemption certificate to his unit. Here again, he stated that he has seen Gharghanti manufactured by these three units. The series of case law which has been cited by the appellants on the subject would all goes to show that the Tribunal had held in these decisions that where the units have distinct identities they are not to be treated as one even if there are common or related persons in management inter se relationship and sharing of storage and telephone facilities and common personnel. The clubbing is upheld generally only in such cases where it is shown that one unit is owned by the other or there is financial or production control by the other and there is evidence to show flow back of profit. In the present case no such evidence has been produced and admittedly the units are also separately registered as S.S.I. Units and has separately assessed and licenced under the Sales Tax Law.
In the result, therefore, on the facts and in the circumstances of the case and in the light of the ratio of the case law cited by the appellants herein, it has to be held that various circumstances which have been held against the appellants have been plausibly explained by the appellants and accordingly it is held that the Department has not established their case with satisfactory evidence that appellants M/s. Saraswati Engineering Works and M/s. Suvidha Products have never been engaged in the manufacture of complete Gharghanti and, therefore, the Collector’s order denying exemption to all the three units individually under Notification No. 105/80-C.E. and 77/83 is not sustainable and consequently the demand for duty and penalty on the appellants is bad in law and is set aside. As regards the claim for assessment of the Gharghanti under Item 33C Central Excise Tariff as domestic Electric Appliances, it is seen that there is no finding at all by the Collector and no detailed argument had been put forth before us on this point also and in view of the finding already arrived at on the validity of the demand as above, no separate findings are given on these submissions relating to classification under 33C of erstwhile Central Excise Tariff. The appeals are disposed of in the above terms.
