[Order per : M.V. Ravindran, Member (J)]. - All these appeals are directed against Order-in-Original No. 02/MP/DAMAN/2006, dated 31-1-06.

2. The relevant facts in brief that arise for consideration are by a show cause notice dated 18-12-91, Revenue Authorities called upon M/s. Balsara Hygiene Products Ltd. (hereinafter referred to as BHPL), M/s. Besterna Chemicals (hereinafter referred to as BC) and M/s. Besta Labs (hereinafter referred to as BL) to show cause as to differential duty be not demanded from them for availing ineligible benefit of SSI exemption and penalty be not imposed on them. All the three assessees contested the show cause notice before the authority and Collector, Vadodara vide his Order-in-Original dated 4-2-94 was pleased to confirm duty of Rs. 34,24,435.43 and Rs. 22,59,041.04 from the said M/s. BC and M/s. BL respectively and imposed penalty of Rs. 2 lakh on both the assessees. No duty was demanded from M/s. BHPL but a penalty of Rs. 5 lakhs was imposed on M/s. BHPL. Aggrieved by such an order, all the assessees preferred an appeal to the Tribunal and Tribunal vide its final order dated 24-3-99 set aside the impugned order and remanded the proceedings to the adjudicating authority to reconsider the issue afresh. The impugned order today is in de novo proceedings wherein the adjudicating authority has, after considering the submissions made by the appellants before him has passed the following order :

(i)      I, under Section 11A(2) of Central Excise Act, 1944, confirm the duty demanded in the impugned Show Cause Notice amounting to Rs. 34,24,435.43 (Rupees Thirty Four Lakhs Twenty Four thousand Four Hundred Thirty Five and Paise Forty Three only) on M/s. Balsara Hygiene Products Ltd. & M/s. Besterna Chemicals Ltd., GIDC. Vapi and direct them to pay the confirmed duty amount forthwith.

(ii)     I under Section 11A(2) of Central Excise Act, 1944 confirm the duty demanded in the impugned Show Cause Notice amounting to Rs. 22,59,041.94 (Rupees Twenty Two Lakhs Fifty Nine Thousand Forty One and Paise Ninety Four only) on M/s. Balsara Hygiene Products Ltd. and M/s. Besta Laboratories G.I.D.C. Vapi and direct them to pay the confirmed duty amount forthwith.

(iii)    I impose penalty of Rs. 2,00,000 (Rupees Two Lakhs only) on M/s. Besterna Chemicals Ltd., Vapi under Rule 173Q(1) of Central Excise Rules, 1944,

(iv)    I impose penalty of Rs. 2,00,000 (Rupees Two Lakhs only) on M/s. Besta Laboratories, GIDC, Vapi under Rule 173Q(1) of Central Excise Rules, 1944.

(v)     I impose penalty of Rs. 5,00,000 (Rupees Five Lakhs only) on M/s. Balsara Hygiene Products Ltd., under Rule 173Q(1) of Central Excise Rules, 1944.

Aggrieved by such an order as hereinabove reproduced, the appellants are in appeal.

3. Ld. Counsel appearing on behalf of the appellants at the outset would submit, the duty liability confirmed by the adjudicating authority in the de novo proceedings from M/s. BHPL is incorrect as in the first order dated 4-2-94, the adjudicating authority had not confirmed any duty from M/s. BHPL. It is his submission that against such an order dated 4-2-94, Revenue had not filed any appeal. It is his submission that Tribunal in the case of Anil Products Ltd. in a similar issue was pleased to set aside the demand for extended period and penalty imposed on remand on the ground that department had not appealed against Order-in-Original which limited the demand for the normal period. It is also his submission that in the judgment of Pathikonda Balasubba Shetty (Deceased) v. Commissioner of Income Tax - (1967) 65 ITR 252 (MYS) the Hon’ble High Court of Mysore has categorically laid down the law wherein it is held that the result of appeal should not place the appellant in a position worse than at the time of final appeal and this ratio has been followed by the Tribunal in the case of Gautam Diagnostics Centre v. C.C. Mumbai - . It is his submission that the duty is sought to be demanded from M/s. BHPL, M/s. BC and M/s. BL on the ground that M/s. BC and M/s. BL are dummy units of M/s. BHPL and were created by M/s. BHPL for the purpose of claiming of exemption of Notification No. 175/86. It is his submission that the impugned order purports demand of duties from the M/s. BHPL, M/s. BC and M/s. BL for the respective clearances, it shows that the adjudicating authority having demanded duty from alleged dummy units for the respective clearances would recognize their independent existence. It is his submission that on this ground itself the impugned order is liable to be set aside. He would rely upon the judgment of the Apex Court in the case of Gajanan Fabrics Distributors - (S.C.) for this proposition. He would submit that this ratio was followed by the Tribunal in the following decisions :

·        Commissioner of C. Ex., Chandigarh v. Shiva Exim Enterprises reported in (Tri. - Del)

·        Commissioner of Central Excise, Meerut v. Varco Sara India Private Limited reported in (Tri. - Del)

·        Electro Mechanical Engg. Corpn v. Commissioner of Central Excise, Jaipur reported in (Tri. - Del)

·        Commissioner of Central Excise, Jaipur v. Electro Mechanical Engg. Corpn reported in (S.C.)

·        Bentex Industries v. Commissioner of Central Excise, New Delhi reported in (Tri. - Del)

·        Commissioner v. Bentex Industries reported in (S.C.)

·        Rao Industries v. Commissioner of Central Excise reported in (Tri. - Bang.)

·        P.K. Industries v. Commissioner of C.Ex., Chandigarh-I - (Tri. - Del.)

3.1 It is his further submission that M/s. BHPL is a Public Ltd. Company and M/s. BC & M/s. BL are separate registered partnership firms and M/s. BC & M/s. BL are in existence and manufacture goods out of their own respective factories and it cannot be said that they were created for purpose of availing exemption under Notification No. 175/86. It is his submission that M/s. BHPL is also a small scale unit and M/s. BC & M/s. BL were in existence prior to 1986, would go to prove that they were not created on paper for availing benefit of SSI exemption. He would rely upon the judgment of the Tribunal in the case of Process Plant (India) Ltd. - and Annapoorna Mills - . It is his submission that the adjudicating authority’s finding as regards the financial transaction that took place between all the three units were not in ordinary course of business is incorrect, as all the transactions were properly accounted for in the financial accounts. It is his submission that M/s. BHPL did not have any financial or manager control over M/s. BC and M/s. BL and the clubbing of clearances cannot be done merely because some common individuals were directors, partners or employees. It is his submission that there is no material brought on record by the department to prove that there was mutuality of interest or financial flow back between the three units and mere providing of loan whether with or without interest is not sufficient proof to say that there was mutuality of interest. He would rely upon the following judgments for the purpose of this proposition.

·        Commissioner of C.Ex Hyderabad-I v. Agarwal Rubber Pvt. Ltd. reported in (Tri. - Bang.)

·        Commr. of C. Ex, Mangalore v. Sushil Chemicals reported in (Tri. - Bang.)

·        Universal Industries v. Commissioner of Central Excise, Pune reported In (Tri. - Mumbai)

·        Special Machines v. Commissioner of Central Excise, Delhi reported in (Tri. - Del.)

·        Bright Gems Company v. Commissioner of Central Excise, Madurai reported in (Tri. - Chennai)

·        Alpha Toyo Ltd v. Collector of Central Excise, New Delhi reported in (Tribunal)

·        K.R. Balachandran v. Commissioner of C. Ex., Coimbatore reported in (Tri. - Chennai)

3.2 It is his submission that in any case the extended period on limitation cannot be invoked as all the appellants were granted separate registration and their clearances during the earlier period were never sought to be clubbed and the appellants have been filing regular returns with the authorities. It is his submission that no penalties can be imposed on the appellants.

4. Ld. SDR on the other hand would submit that the adjudicating authority has in his findings clearly recorded how the financial transactions have taken place between the three companies in order to club their clearances for the purpose of denying the benefit of SSI exemption. He would submit that there is an absolute financial and managerial control of M/s. BHPL on all the three units and due to which, the judgment of the Tribunal in the case of Supreme Engineer Works - as upheld by the Apex Court reported at 1993 (67) E.L.T. A 156 would squarely cover the issue in favour of the Revenue. He also reiterates the findings of the adjudicating authority in the impugned order.

5. We have considered the submissions made at length by both sides and perused the records.

6. The issue to be decided by us in this case is :

(1)     Whether differential duty can be demanded from M/s. BHPL by clubbing the value of clearances made by M/s. BC and M/s. BL.

(2)     Whether benefit of exemption Notification No. 175/86 be denied to M/s. BC & M/s. BL and in effect the differential duty can be demanded from M/s. BHPL, M/s. BC & M/s. BL.

7. At the outset, we would like to record that the adjudicating authority while coming to the conclusion that M/s. BC and M/s. BL are not eligible for the benefit of Notification No. 175/86 being extended arms of M/s. BHPL, has held so based upon the financial transactions which he has recorded in his Order-in-Original in para 27.5, 27.6, 27.7, 27.8, 27.9 & 27.10. On perusal of the said paragraphs, we find that there is no dispute that M/s. BHPL was purchasing the products manufactured by M/s. BC & M/s. BL. It is also seen that the adjudicating authority has accepted and recorded a finding that M/s. BC was started in 1975 and M/s. BHPL had invested in the said firm M/s. BC, in the year 1977 & 1978. The entire investment of M/s. BHPL was reduced and returned and he has noted that no interest was paid by M/s. BC and M/s. BHPL. We are unable to accept the reasoning given by the adjudicating authority in asmuchas, when it is a fact that the appellant M/s. BHPL had invested in M/s. BC and the said investment was rebated back to M/s. BHPL in the year 1977 & 1978 itself goes to prove that the transactions between the two appellants M/s. BHPL and M/s. BC, were common business transaction on commercial terms. Ld. adjudicating authority has recorded that M/s. BC had given loan to M/s. BL, Besta Cosmetics Ltd., Balsara Research Products, etc. Commercial Pvt. Ltd., and several other companies. It is his findings that three units are either directly managed or controlled by M/s. BHPL and hence there is an interlink between M/s. BHPL, M/s. BC and M/s. BL. We find that the said findings recorded by the adjudicating authority are shorn of evidence which could indicate that M/s. BHPL exercised summary control over M/s. BC in any form. Giving of loan by M/s. BC to any company, the said company whether it is controlled, directly managed by M/s, BHPL is not proved on record and the said loans given by M/s. BC to various people cannot be called in question as they were clearly indicative of transactions which were sought to be made by M/s. BC. The learned adjudicating authority has tried to justify the clubbing of the clearances by indicating that M/s. Besta Cosmetics Ltd., was a case of advance for supply of goods to M/s. Besta Lab and the said M/s. Besta Cosmetics Ltd. being controlled or managed over by M/s. BHPL but the transaction between M/s. BL and M/s. BHPL needs to be clubbed together. We are afraid to agree to such proposition made by the adjudicating authority in his Order-in-Original, as it is not brought on record that M/s. Besterna Chemicals Ltd. were in fact controlled or managed by M/s. BHPL and that M/s. Besterna Chemicals was directed to give loan or advance at the behest of M/s. BHPL. In the absence of any such evidence, the findings of the adjudicating authority are incorrect. In the finding recorded by the adjudicating authority to come to the conclusion that M/s. BHPL has control over M/s. BC and M/s. BL is on the basis that the office of M/s. BC and M/s. BL are situated wherein office of M/s. BHPL is also situated. These findings that the administrative control of M/s. BC and M/s. BL was in the hands of M/s. BHPL cannot be accepted as that as there is nothing on record to indicate that M/s. BHPL had exercised administrative control over M/s. BC and M/s. BL.

8. We find that the adjudicating authority in his Order-in-Original at para 27.29 has admitted that M/s. BC and M/s. BL were in existence prior to Notification No. 175/86-C.E.; if it is so, then there is no reason for the said units to be considered as dummy unit, has been discarded by the adjudicating authority on the ground that as these units were availing benefits of SSI exemption prior to 1986 in one form or other. We find no substance in such a reasoning given by the adjudicating authority which flies on the face of the decision of this Tribunal in the case of Process Plant (India) Ltd. (supra) and Annapoorna Mills (supra). We may reproduce the ratio which has been laid down by this Tribunal which is as under :

“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.”

“As it is the two units were in existence before the Notifications came into force and this has been accepted by the learned Collector and in this background it was necessary for the department to establish with evidence that in fact the operations of the two units were part of the same business event. While the operations of the appellants may be entirely colourable, we cannot say that the case against the appellants has been established beyond a reasonable doubt. We, therefore, give the benefit of doubt to the appellants and hold that the case against them has not been proved by the authorities with requisite evidence and set aside the order of the lower authority with consequential relief. We, therefore, allow the appeal in the above terms.”

9. In our considered view, the adjudicating authority should have followed the law laid down by the higher judicial fora i.e. Tribunal on this point.

10. Another point on which the adjudicating authority has confirmed the demands raised on the appellant is on the ground that the entire products of the units of M/s. BL and M/s. BC were sold to M/s. BHPL. We find that in an identical situation, the following decisions squarely cover the issue in favour of the assessee wherein it is held that clubbing of two units cannot be made on the premise that the assessee sold/cleared their entire production to other units.

(1)     C.C.E., Surat v. Besta Cosmetic Ltd. - (S.C.)

(2)     Kanchan Industries - which has been upheld by the Hon’ble Supreme Court as reported at .

11. We find that the adjudicating authority has held against the assessee that there is a management control or there being grant of interest free loan of the three units are to be considered as one unit and duty demand can be raised against them. These findings of the adjudicating authority are incorrect as in the following case laws, the Tribunal has categorically held that mere fact of management, control or grant of interest free loan is not sufficient to hold the units as a dummy unit in the absence of any money flow back and/or profit sharing and total control on another unit.

(1)     Alpha Toyo Ltd. -

(2)     Techno Device -

(3)     Kemtrode Pvt. Ltd. - (Kar.)

12. Since we have disposed of the three appeals on the merits of the case itself, we are not recording any findings on various other points argued by both sides during the course of the submissions before the bench.

13. In view of the foregoing, in peculiar facts and circumstances of this case, we set aside the impugned order and allow all the appeals with consequential relief, if any.

(Pronounced in Court)