[Order per : Ashok K. Arya, Member (T)]. - These eight appeals have been filed by the following appellants :

(a)     Amar Enterprises

(b)     Mr. J.S. Jain

(c)     Mr. Amar Kumar Jain

(d)    India Rubber & Chemicals

(e)     Lotus Chemicals

(f)      Ceyenar Chemicals

(g)     Arun Chemicals

(h)    Atlantic Chemical Industries.

2. These appeals are against common impugned order dated 25-6-2004 passed by the Commissioner, Central Excise (Adjudication). In the impugned common order, there are demands of Central Excise duty confirmed along with imposition of penalties against M/s. Foamsil Chemicals also but presently before us there is no appeal by the noticee, namely Foamsil Chemicals.

3. The operative part of impugned order mentions the confirmation of demands and imposition of penalties “for wrong availing Exemption benefit” of  Notification No. 175/86-C.E. under Rule 9(2) of Central Excise Rules, read with Section 11A of the Central Excise Act, 1944 as follows :

(i)	Against Atlantic Chemicals	-	Rs. 38,45,363/-
(ii)	Against Foamsil Chemicals	-	Rs. 31,39,343/-
(iii)	Against Arun Chemicals	-	Rs. 1,21,360/-

3.1 For the above confirmation of demands of Central Excise duty, following penalties have also been imposed under Rule 9(2) of the Central Excise Rules read with Rule 173Q of the Central Excise Rules :

(i)      Penalty of Rs. 35 lakhs on Atlantic Chemical Industries;

(ii)    penalty of Rs. 27 lakhs on Foamsil Chemicals;

(iii)   penalty of Rs. 22 lakhs on Arun Chemicals.

3.2 The impugned order also confirms the demand of Central Excise duty under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excise Act, 1944 with reference to “unaccounted manufacturing and clearance of RBA” against the following noticees as under :

(i)      Duty of Rs. 35,08,005/- against Atlantic Chemical Industries;

(ii)    Duty of Rs. 27,53,062/- against M/s. Foamsil Chemical;

(iii)   Duty of Rs. 22,51,582/- against M/s. Arun Chemicals.

3.2.1 In this regard, penalties imposed under Rule 9(2) of Central Excise Rules, read with Rule 173Q of the Central Excise Rules by the impugned order are given below :

(i)      Penalty of Rs. 35,50,000/- on Atlantic Chemical Industries;

(ii)    Penalty of Rs. 27 lakhs on Foamsil Chemicals;

(iii)   Penalty of Rs. 22 lakhs on Arun Chemicals

4. Further, by the impugned order duty of Central Excise of respective amount has been confirmed for “unaccounted manufacturing and clandestine removal of RBA in the guise of soda bicarbonate (Soda bi carb)” under Rule 9(2) of CER read with Section 11A of the Central Excise Act. The said confirmed duty is given below :

(a)     Duty of Rs. 29,42,754/- against M/s. Atlanic Chemicals

(b)     Duty of Rs. 6,87,381/- against M/s. Arun Chemicals

4.1 In this regard, penalties have been imposed under Rule 9(2) of the CER read with Section 173Q of the Central Excise Act as under :

(a)     Penalty of Rs. 29 lakhs on Atlanic Chemical Industries; and

(b)     Rs. 6 lakhs on Arun Chemicals

4.2 The impugned order has also imposed additional penalties under Rule 209A of the Central Excise Rules as under :

(a)     Penalty of Rs. 25 lakhs imposed on Shri J.S. (Jagjot Singh) Jain;

(b)     Penalty of Rs. 10 lakhs imposed on Shri Amar Kumar Jain;

(c)     Penalty of Rs. 2,50,000/- on M/s. Amar Enterprises

(d)    Penalty of Rs. 1,50,000/- M/s. India Rubber & Chemicals;

(e)     Penalty of Rs. 60,000/- on M/s. Ceyenar Chemicals;

(f)      Penalty of Rs. 85,000/- on M/s. Lotus Chemicals;

5. The period involved in this case is 1989-90 to 1990-93 and show cause notice is dated 16-3-94.

6. These eight appellants have been represented by the ld. Advocate Shri Rahul Tangri, at the strength of written submission he submits as under :

6.1 Appellants’ main pleadings on ‘denial of SSI notification and consequent demand on the ground of clubbing of value of clearances’ :

(a)     It is submitted that once the clearances are to be clubbed then it is necessary to identify one manufacturer and the demand has to be confirmed against such manufacturer. In the present case no such exercise has been carried out and the impugned order does not hold one person as the manufacturer and the others as dummies. In such a situation the demand on account of clubbing of clearances is not sustainable in view of the judgment of the Hon’ble Supreme Court in the case of Gajanan Fabrics Distributors v. CCE - (S.C.).

(b)     The appellants further rely on the Circular No. 6/92, dated  29-5-1992 where in the context of Notification No. 175/86-C.E.,  dated 1-3-1986 it has been clarified that different firms are treatable as separate manufacturers and each eligible for exemption.

(c)     This circular was considered by the Hon’ble Supreme Court in the case of Supreme Washers (P) Ltd. v. CCE - (S.C.) to lay down the criteria to club the value of clearances of different units.

(d)    The appellants further rely on the following decisions of the Hon’ble Tribunal in support of the above contentions that the clearances of all the units are not to be clubbed.

•        Techno Device v. CCE, ;

•        CCE v. Limca Flavours & Fragrances, ;

•        Summerking Electricals (P) Ltd. v. CCE, 2004 (65) RLT 481 = (Tri. - Del.);

•        Premium Moulding & Pressing v. CCE, 2004 (65) RLT 143 = (Tribunal);

•        Bright Gems Company v. CCE, 2004 (65) RLT 186 = (Tri. - Chennai).

(e)     In view of the above decisions and the circular and taking into account the facts and circumstances in the present case it is submitted that the impugned order of the Commissioner clubbing the clearances and thereafter confirming the duty demand against all the units separately is not sustainable and liable to be set aside.

6.2 Appellants’ pleadings on ‘demand of Rs. 22,51,582 against Arun Chemicals on the ground of clearance of clandestine removal of RBA’ :

(a)     The Commissioner has also confirmed duty of Rs. 22,51,582 on the ground that Arun Chemicals purchased 2,12,150 kgs. of sodium bicarbonate, converted the same into 4,51,166 kgs. of RBA and cleared the same clandestinely. The demand has been confirmed as per para 152 of the impugned order. This demand has been confirmed on the formula given the test report of the sample drawn from the other two manufacturing units.

(b)     The Commissioner at para 108 of the impugned order has relied on the report of the Sales Tax authorities and categorically held Arun Chemicals had no facility or capacity to manufacture RBA. He has further held at para 111 that Arun Chemicals did not manufacture RBA, which in fact was manufactured by Atlantic Chemicals. This finding given by the Commissioner clearly shows that Arun Chemicals did not have any facility to manufacture RBA and was merely trading in various chemicals including sodium bicarbonate.

(c)     The demand confirmed is on the basis of the percentage of sodium bicarbonate contained in the RBA which was arrived at based on the test of samples of product drawn from Atlantic Chemicals and Foamsil Chemicals. The Commissioner has confirmed the demand on the ground that Arun Chemicals purchased 2,12,150 kgs. of sodium bicarbonate and converted the same into 4,15,166 kgs. of RBA and sold the same clandestinely. The quantity of RBA assumed to have been manufactured has been determined based on the test report of the sample drawn.

(d)    It is submitted by the ld. Counsel for the appellant that Arun Chemicals admittedly did not have any facility to manufacture as is evident from paras 108 and 111 of the impugned order. Further, there is no specific finding given in the entire order as to how the demand of Rs. 22,51,582 is to be confirmed against Arun Chemicals. Only at para 152 the duty demand confirmed has been indicated, which is based on the test report of the sample of RBA drawn from the premises of Atlantic Chemicals and Foamsil Chemicals. The adoption of this test report to Arun Chemicals is not sustainable, since no sample was drawn from their premises as no RBA was manufactured by them.

(e)     There is no evidence whatsoever to show the removal of RBA without payment of duty. There is also no evidence to show the procurement of raw materials required for the manufacture of the quantity of 4.15 lakh kgs. of RBA. There is also no evidence of the flowback of the money consideration for the quantity of RBA alleged to have been clandestinely removed. Thus, the demand of Rs. 22,51,582 confirmed by the Commissioner in the impugned order is unsustainable and liable to be set aside.

6.3 Appellants’ main pleadings on demand of Rs. 35,08,005 against Atlantic Chemicals on the basis of test report’ :

(a)     The Commissioner has also confirmed an amount of Rs. 35,08,005/- on Atlantic Chemical Industries on the ground of alleged clandestine removal of the final product on the basis of test report. The demand on the basis of the percentage of sodium bicarbonate contained in the RBA which was arrived at based on the test of samples of product drawn from Atlantic Chemicals and Foamsil Chemicals. The quantity of RBA assumed to have been manufactured has been determined based on the test report of the sample drawn.

(b)     The department during the course of visit to the premises of the appellants drew sample of the RBA and sent it to CRCL for testing. The test report dated 20-4-1993 indicated that the sample composed of hexamine and sodium bicarbonate and the percentage of sodium bicarbonate was 51.1%. The test report was challenged by the appellants since the beginning and had sought cross-examination of the Chief Chemist.

(c)     The demand has been raised on the basis that the appellants had added 1200 kgs. of sodium bicarbonate to the pure rubber blowing agent (DNPT) and obtained 2350 kgs. of the RBA as against  1750 kgs. claimed by the appellants. The demand has further not been worked out on the basis of actual consumption of sodium bicarbonate but on the basis of the percentage of RBA obtained by using 1000 Kgs. of Hexamine. On the basis the demand has been worked out on the ground that the appellants by using 1000 kgs. of hexamine as per the formula obtained 2350 kgs. of RBA.

(d)    The submissions made by the Chemical Examiner during the course of cross-examination, has been rejected by the Commissioner on the ground that the said cross-examination which was made after a lapse of 10 years cannot be preferred since the Test Report which was given immediately after the trial of the sample clearly indicated the contents of the products and that the appellants had not challenged the same.

(e)     The appellants have always sold RBA with the minimum quantity of pure blowing agent ranging from 60-80%. The price of the RBA accordingly varies based on the content of pure blowing agent. The demand in the present case has been raised on the ground that the appellants manufactured the RBA with around only 48.9% of the pure blowing agent and that the balance quantity comprised of the sodium bicarbonate. On this basis the demand has been worked out assuming that, the appellants, manufactured extra quantity of the RBA from the DNPT obtained and that this extra quantity has been removed clandestinely.

(f)      The entire basis of the demand is erroneous, inasmuch as there is no evidence whatsoever by the department to show that the appellants had used only 48.9% of the pure blowing agent in the final product during the entire period of dispute. On the basis of the test report of one sample the department has worked out that the demand for the total period of 5 years from 1989-90 onwards which is not permissible.

Appellants’ main pleadings on ‘demand on the ground of removal of RBA in the guise of sodium bicarbonate’ :

(a)     The Commissioner confirmed a duty amount of Rs. 6,87,381 on Arun Chemicals and Rs. 29,42,754 on Atlantic Chemical Industries on the ground that they cleared RBA in the guise of sodium bicarbonate. This demand was proposed in the show cause notice based on the statement of the buyers in Kerala who in their statements had indicated that the sodium bicarbonate as such could not be used for the manufacture of the hawai rubber sheets. These persons were cross examined, during the course of which they had admitted that their statements were recorded under coercion. These persons also admitted that it is technically possible to use sodium bicarbonate as such for the manufacture of rubber sheets.

(b)     The demand relates to the quantity of sodium bicarbonate traded by Arun Chemicals and Amar Enterprises. The entire quantity was purchased from the authorized distributors of Tata Chemicals and traded as such. There is no evidence whatever, to show that the entire quantity of sodium bicarbonate was converted into RBA and sold. Further, there is no evidence to show purchase of other raw materials or employment of labour, etc. Further, there is also no evidence of flowback of consideration for the said quantity of RBA alleged to have been cleared in the guise of sodium bicarbonate.

(c)     It is further submitted that there is no evidence whatsoever to show the removal of RBA without payment of duty. There is also no evidence to show the procurement of raw materials required for the manufacture of the quantity of the entire quantity of RBA alleged to have been cleared. There is also no evidence of the flowback of the money consideration for the quantity of RBA alleged to have been clandestinely removed. Hence, the demand of Rs. 6,87,381 and Rs. 29,42,754 confirmed on the ground of clearance of RBA in the guise of sodium bicarbonate is unsustainable and liable to be set aside.

Appellants’ main pleadings on ‘demands are time-barred’ :

(a)     The demands are time-barred. The demand confirmed by the Commissioner relates to the period of 1889-90 to 1993-94. The demand has been confirmed by invoking the extended period of limitation on the ground that the appellants had suppressed the fact of using the brand name of other persons not eligible for the SSI benefit and that the appellants had suppressed the fact that the unit was being run by Shri J.S. Jain and Shri Amar Kumar Jain. The extended period of limitation has also been invoked on the ground that the appellants did not inform the departmental authorities about the existence of other units being run by the members of the same family. In regard to the confirmation of the duty demand on the alleged clandestine removal of the goods, demand has been confirmed on the ground that the appellants had suppressed the ratio of Sodium Bicarbonate consumed in the final product which resulted in suppression of production which has been clandestinely removed.

(b)     The appellants had set up their unit in 1984/1988 and since then were manufacturing RBA under the brand name Foamtax and Foamsil. The fact of manufacture of these goods under the brand name of Foamtax and Foamsil indicated by the appellants in the classification lists filed from time to time. The fact of using the brand name of other manufacturers was also indicated in their classification list and these manufacturers were also working under the jurisdiction of the same Officer. Thus, the departmental authorities at all times had verified the owner of the brand name and as to whether the appellants were entitled for the benefit of SSI exemption.

(c)     The existence of all the units and the fact of all the family members running of the units was also known to the departmental authorities in view of the various declarations filed from time to time. The appellants submit that the departmental authorities could have verified the actual position and the eligibility of the SSI notification to each of the units on receipt of such declarations from the appellants. The Department having not conducted any enquiry as to the eligibility of the SSI notification cannot now turn around against the appellants to contend that the appellants suppressed the use of brand name of other persons not eligible for the SSI benefit.

7. Revenue has been represented in these appeals by the ld. AR, Shri R.K. Manjhi, who at the strength of note submits as under :

Revenue’s submissions on ‘cogent Reasons to club the clearances, both factual and under provision of

(a)     In the SCN dated 16-3-1994, it is alleged to club the clearances of excisable goods made by M/s. Atlantic Chemicals, M/s. Foamsil Chemicals, and M/s. Arun Chemicals.

(b)     Shri Praveen Kumar Jain, proprietor of M/s. Atlantic Chemicals and Shri Naveen Kumar Jain, Proprietor of Foamsil Chemicals are son of Shri Jagjot Singh Jain (Shri J.S. Jain) r/o E-10, Preet Vihar, Delhi. Further, Mrs. Babita jain, proprietress of M/s. Arun Chemicals is the wife of above said Shri Naveen Kumar Jain. All of them are living together. Further, M/s. Amar Enterprises is a trading firm whose proprietress is Smt. Kiran Mala jain, w/o above said Shri J.S. Jain. (Para 92 of OIO).

(c)     The customers were placing orders of ‘Rubber Blowing Agent’ (RBA) falling under Ch. Sub Head No. 2942.00, with Shri J.S. Jain who was supplying such excisable goods from M/s. Arun Chemicals. M/s. Amar Enterprises and M/s. Atlantic Chemicals, i.e., the firms essentially controlled by him. M/s. India Rubber and M/s. Ceyenar Chemicals were consignment agent of M/s. Atlantic Chemicals for this purpose. (Para 92 of OIO).

(d)    Shri R.N. Mittal was doing taxation work of M/s. Amar Enterprises, M/s. Atlantic Chemicals, M/s. Foamsil Chemicals, M/s. Arun chemicals and M/s. Arvind Rubber Mills, under the direction of Shri J.S. Jain and his elder son Shri Amar Kumar Jain, though he was an employee of M/s. Amar Enterprises only. All these firms were operating from registered address of M/s. Atlantic Chemicals. (Para 93, Para 96 and Para 97 of OIO).

(e)     M/s. Foamsil Chemicals was using water, electricity and machinery of M/s. Atlantic Chemicals without making any payment therefor. (Para 99 and Para 100 of OIO).

(f)      M/s. Atlantic Chemicals, M/s. Foamsil Chemicals and M/s. Arun Chemicals had a common financial management, without any interest liability to each other.(Para 103 and Para 105 of OIO).

(g)     M/s. Arun Chemicals, shown as manufacturer of RBA was found nonexistent on the date of visit by the officers of DGCEI. (Para 106, Para 108 and Para 111 of OIO).

(h)    All the units are proprietary concern, owned by three members of one family, engaged in the manufacture of common single goods namely ‘RBA’ and having common brand names, ‘foamsil’, ‘foamtax’

7.2 Revenue’s submissions on ‘procurement of raw material and disposal of finished excisable goods members of one family played active and decisive role’ :

(a)     M/s. Arvind Rubber Mills (owned by Father Shri J.S. Jain and another brother Shri Amar Kumar Jain) and M/s. Amar Enterprises (owned by mother Ms. Kiran Mala Jain) played active role in disposal of the goods manufactured by three units.

(b)     Three units, situated at a piece of land, were under common management and financial control of one family living in one house and all the business was being conducted jointly from one office/premises mainly by Sh. J.S. Jain and Shri Amar Kumar Jain.

(c)     These firms/units were artificially fragmented for the sake of availing exemption under Notification No. 175/86-C.E., dated 1-3-1986 (later 01/93-C.E.) and therefore the benefit of SSI exemption to these units/firms was not available.(Para 124 of OIO).

(d)    The list of firms floated by Shri J.S. Jain in the name of his family members is detailed below :

•        M/s. Atlantic Chemicals, under the proprietorship of his son Shri Praveen Kumar Jain.

•        M/s. Foamsil Chemicals, under the proprietorship of his another son Shri Naveen Kumar Jain.

•        M/s. Arun Chemicals (India) under proprietorship of his daughter in law Smt. Babita jain w/o Shri Naveen Kumar Jain.

•        M/s. Arvind Rubber Mills Pvt. Ltd., manufacturer of Aluminum Silicate with himself and his son Shri Amar Kumar Jain as Director.

•        M/s. Amar Enterprises, for trading of Rubber Chemicals under the proprietorship of his wife Smt. Kiran Mala Jain.

(e)     Above said points clearly establish contravention of Para 3(a) and Para 3(b) of the Notification No. 175/86-C.E., dated 1-3-1986, thus attracting clubbing of value of ‘RBA’/’Soda bi carb’ cleared by the appellants in the garb of SSI exemption, which is not admissible to them.

7.3 Revenue’s submissions on “whether the appellant can take shelter under Paras 3 and 4 of the exemption Notification : Not admitted on following grounds” :

(a)     The brand name ‘Foamtax’, ‘Foamsil’, ‘Lotus’ and ‘Blow Foam’ being used by Shri Praveen Kumar Jain, Proprietor of M/s. Atlantic Chemicals without paying any royalty for such brand names, belong to his brother Shri Amar Kuamr Jain. (Para 113 and Para 114 of the impugned order (OIO).

(b)     Further, for trademark ‘Foamsil’ and ‘Foamtax’ being used by M/s. Atlantic Chemical, Shri Amar Kuamr Jain was not availing exemption under Notification No. 175/86-C.E., dated 1-3-1986 as he was not having any manufacturing concern. (Para 16 of the impugned order O-I-O).

(c)     For the quantity of ‘RBA’ having trademark ‘Lotus’ being used by M/s. Atlantic Chemicals, which belongs to M/s. Lotus Chemicals, Ernakulum, the appellants failed to produce any evidence that this brand name/owner was eligible to avail SSI exemption. (Para 117 of the impugned order O-I-O).

(d)    Any person not having any unit to manufacture goods is not eligible for SSI exemption under Notification No. 175/86-C.E., dated  1-3-1986, for the brands owned by him. (Para 120 of O-I-O).

(e)     M/s. Arun Chemicals was not registered with the directorate of Industries or the Development Commissioner (SSI Industries). It is un-disputed fact that this firm had cleared RBA without payment of Central Excise duty availing exemption. Thus, there is a clear contravention of Para 3 and Para 4 of Notification No. 175/86-C.E.,  dated 1-3-1986. (Para 112 of OIO).

8. We heard the parties at length and gone through submissions; case laws cited carefully.

9. It may be mentioned that duty demands and penalties confirmed by the impugned order on respective noticees firms and personnel are as under :

Sl. No.	Name	Duty Demand (Rs.)	Penalty (Rs.)
1.	Atlantic Chemicals	Total Rs. 1,02,96,122/- (3845363+3508005+2942754)	Total Rs. 1,02,00,000/- (3800000+3500000+2900000)
2.	Foamsil Chemicals	58,92,405/- (3139343+2743062)	58,00,000/- (3100000+6000000)
3.	Arun Chemicals	30,60,323/- (121360+2251582+687331)	29,20,000 (120000+2200000+600000)
4.	Shri J.S. Jain	-	25,00,000/-
5.	Shri Amar Kumar Jain	-	10,00,000/-
6.	Amar Enterprises	-	2,50,000/-
7.	India Rubber & Chemicals	-	1,50,000/-
8.	Ceyenare Chemicals	-	60,000/-
9.	M/s. Lotus Chemicals	-	85,000/-

10. The impugned matter is being considered in four parts, which are mentioned in brief below :

10.1 The 1st part relates to clubbing of manufacturing and clearances of three units during 1989-90 to 1993-94 by availing benefit of Notification Nos. 175/86 and 1/93-C.E. and confirming the duty of Central Excise under Rule 9(2) of Central Excise Rules read with Section 11A of the CEA, 1944 and imposition of penalties against (i) M/s. Atlantic Chemicals, (ii) M/s. Foamsil Chemicals and (iii) M/s. Arun Chemicals.

10.2 The 2nd part of the impugned matter concerns with confirmation of Central Excise duty and imposition of penalties against (i)) M/s. Atlantic Chemicals, (ii) M/s. Foamsil Chemicals and (iii) M/s. Arun Chemicals on account of unaccounted manufacturing of RBA, which was cleared clandestinely in the guise of soda bi carb.

10.3 The 3rd part of the impugned matter relates to confirmation of duty of Central Excise and imposition of penalties on account of unaccounted manufacturing of RBA and clearance thereof without payment of duty of Central Excise by declaring wrong formula of manufacture of RBA against (i)) M/s. Atlantic Chemicals (ii) M/s. Foamsil Chemicals and (iii) M/s. Arun Chemicals.

10.4 The 4th part of the impugned matter concerns with imposition of separate penalties under Rule 209A of the Central Excise Rules on the following :

(i)      Shri J.S. Jain

(ii)    M/s. Amar Kumar Jain

(iii)   M/s. Amar Enterprises

(iv)   M/s. India Rubber & Chemicals

(v)     Ceyenar Chemicals

(vi)   Lotus Chemicals.

11. Our views on above four parts of the impugned matter are as  below :

11.1 1st Part : Manufacturing of RBA & clearance thereof during  1989-90 to 1993-94 by availing exemption benefit of Notification Nos. 175/86-C.E. & 1/93-C.E. :-

11.1.1 In respect of this issue, the Commissioner (Adjudication) in the impugned order inter alia observes as under :

96. It is observed that all the firms, namely, (i)) M/s. Atlantic Chemicals, (ii) M/s. Foamsil Chemicals and (iii) M/s. Arun Chemicals, (iv) Amar Enterprises and (v) Arvind Rubber Mills were operating from A 1/11-B,  Pahwa Mansion, Asaf Ali Road, New Delhi (hereinafter referred as Pahwa Mansion Office) which was declared registered office of Atlantic Chemicals. Shri J.S. Jain in his statement dated 20-4-93 admitted that the sale and purchase work of Atlantic Chemicals, Amar Enterprises and Arvind Rubber Mills was being carried on from the said premises; that the rent of the said office and electricity bills were paid by Amar Enterprises; that payment of bills 2 & telephone installed in the said office was made by Atlantic Chemicals and sometimes by Arvind Rubber Mils. The correspondence in File No. 4 of Foamsil Chemicals pertaining to sundry debtors for the year 1992-93 recovered from their Pahwa Mansion Office, contained several letters addressed by different customers to Foamsil Chemicals in which the address of Foamsil Chemicals is of their Pahwa Mansion office. SCN fists out names of a few of the firms who had mailed their letters on the said address for Foamsil Chemicals, also recovered file containing vouchers in course of the search of the office premises on 20-4-93 which pertained to Arun Chemicals and which showed the Pahwa Mansion office as the address of Regd. Office of the firm. Further, in course of search of the residential premises of Shri J.S. Jain, situated at E-10, Preet Vihar, Delhi on 20-4-93, the records of Atlantic Chemicals and Foamsil Chemical and Arvind Rubber Mills Pvt. Ltd. were also recovered from the ground floor of the said house. The Central Excise records and also other records pertaining to Atlantic Chemicals and Foamsil Chemicals were recovered from the room at 1st Floor of the said house. All the records were kept together and there was no segregation of records pertaining to different units.

From the records, it appears that “SCN states that records of all the units i.e. Atlantic Chemicals, Amar Enterprises and Arvind Rubber Mills as well as that of Arun Chemicals and Foamsil Chemicals were recovered from the same premises. Further, a cheque book of Foamsil Chemicals signed by Shri Naveen Kumar was also found in the in the Almirah kept in Shri J.S. Jain’s room. Besides above, a file containing trade mark registration papers of ‘Foamsil’ and accident claim papers pertaining to truck, which was in the ownership of Foamsil Chemicals, were also recovered from the said office premises. A common letterbox showing the name of Foamsil Chemicals was also found affixed in the Pahwa Mansion office building. The above facts are not disputed by the Noticees. Their contention, however is that sharing of office premises & telephoney the noticees firms and no-demand of rent does not constitute evidence that Shri J.S. Jain was owner of Arun Chemicals and Foamsil Chemicals. It is observed that in the reply dated 9-1-95 of Atlantic Chemicals was admitted that Shri J.S. Jain, being MD of Arvind Rubber Mills remained stationed at this office premises and being the head of the family, he was respected by the customers who used to place orders with him which he passed on to the respective companies who executed the orders. Further, it was also stated that J.S. Jain being head of the family and by virtue of his senior position he was rendering advice to the various proprietors of the firms which obviously belong to the same group. The admitted position about the above facts and the role played by Shri J.S. Jain lend support to the allegations made in the SCN in respect of clubbing proposition”.

11.1.2 Further, the Commissioner (Adjudication) in the impugned order, inter alia in Paras 103 and 124 observes as under :

“103. The SCN refers to specific instances and entries in the financial accounts of Atlantic Chemicals and Foamsil Chemicals which indicate that the said firms also had a common financial management. These cases include transactions under which money was transferred through cheque by Foamsil Chemicals to Atlantic Chemicals; payment made to UPSEB on behalf of one another, etc. However, no records was found indicating payment of interest by Atlantic Chemicals to Foamsil Chemicals or Arun Chemicals for keeping and utilizing their amounts in their business. Similar instances of fund transfers from Arun Chemicals to Atlantic Chemicals, Arvind Rubber Mills (P) Ltd. to Atlantic Chemicals and by Amar Enterprises to Foamsil Chemicals have been pointed out in the SCN. These monetary transactions from one firm to another and outstanding huge sums as credit balance with no interest liability indicate amply that the firms were freely utilizing the money or other firms in their business and without payment of any interest. The above facts including use of funds of one unit by other without payment of interest is not denied by the noticees.

124. In this case, there are certain outstanding facts. The 3 units, all proprietary concerns, are owned by three members of one family i.e. Sh.  Parveen Kumar Jain (brother), Sh. Naveen Kumar Jain (brother) and Ms. Babita Jain (wife of Shri Naveen Kumar Jain). The goods manufactured are the same, that is RBA. There is use of one common brand names, i.e., ‘Foamsil’ and ‘foamtax’ which are owned by Shri Amar Kumar Jain who is brother of Sh. Parveen Kumar Jain and Sh. Naveen Kumar Jain, modus  operandi adopted for disposal of manufactured goods and is also same, that is, all the three units claim to be manufacture and also dealer in RBA and soad bi carb and their customers including those of Kerala and Maharashtra States concerned in this case are common. In procuring raw materials, such as, soda bi carb for manufacture of RBA and disposal of RBA, Shri Amar Kumar Jain (brother) and Sh. J.S. Jain (father) continued to play active and decisive role. Apart from claimed manufacture and sale of goods from these units Arvind Rubber Mills (owned by father Shri J.S. Jain and another brother Shri Amar Kumar Jain) and Amar Enterprises (owned by mother Ms. Kiran Bala Jain) play active role in the disposal of the goods manufactured by the three units. These units, that is, Atlantic Chemicals, Foamsil Chemicals and Arun Chemicals were situated in a piece If land purchased from the brother of Shri J.S. Jain at a nominal price; they were under the common management and financial control of only one family living in one house, and the business of all the firms was conducted jointly from one and the same office premises. On record, the firms were under the proprietorship of different person, but the whole show was being managed by Shri J.S. Jain and Shri Amar Kumar Jain. As per the noticees submissions, Foamsil Chemicals came into existence in June, 1987, and Arun Chemicals in April, 1988 or Jan., 1989 (about inconsistency regarding precise period of Arun Chemicals being in operation refer Para 110 supra). There was no distinction in the management of the firms and these firms were artificially fragmented only for the sake of availing exemption under the Notification No. 175/86-C.E. (later 1/93-C.E.). Thus, the clearances of all the units were required to be clubbed for computing the value of clearances for the applicability of Notification No. 175/86-C.E. (later 1/93-C.E.).When this is done, the value of clearances of RBA from the said 3 units exceeded the eligibility limit in a financial year and hence the benefit of Notification No. 175/86-C.E. was not available to any the said units. They were, therefore, required to clear the RBA manufactured by them on payment of full rate of duty. This was not done. It is therefore, held that Atlantic Chemicals and Foamsil Chemicals have contravened the provisions of Rules 9(1), 173B, 173F, 173G of CER and cleared RBA manufactured in their factories without payment of appropriate duty amounting to Rs. 38,45,363.59 and Rs. 31,39,143.16 respectively during the period from 1989-90 to 1993-94. Simiarly, Arun Chemicals are also held to have manufactured and cleared RBA without payment of duty amounting to Rs. 1,21,360/- in violation of Rule 9(1), 173B, 173G of the CER. As this short/non-payment of duty was done by suppression of facts, such as, not disclosing true nature of the ownership, control and management of firms and their activities, misdeclaration of lads, such as, the brand names not owned by them in the classification lists and availment of exemption on the branded goods, etc. the same is held recoverable from them under proviso to Section 11A(1) of the Act read with Rules 9(2) of the CER. For the aforesaid violation, they are also held liable to penalty under Rule 9(2) and 173Q of the CER.

11.1.3 After having gone through the facts on record and the submissions of both sides, we are of the considered view that manufacture and clearances made by the respective noticees/appellants - M/s. Atlantic Chemical Industries, M/s. Foamsil Chemicals (not appellant here) and M/s. Arun Chemicals for the item namely RBA availing the benefit of Notification No. 175/86-C.E. (1/93-C.E. later) have to be clubbed together as we hold that these units are one and the same, when their operations are under common management and financial control and have mutuality of financial interest with each other. When it is so, then we agree with the findings of the impugned order.

11.1.4 Hon’ble Supreme Court’s decision in the case of Calcutta Chromotype Ltd. v. C.C.E., Calcutta - (S.C.) had observed that depending upon the facts and circumstances of the case, veil of the company has to be lifted to find the real facts. In the present case also, three units namely, M/s.  Atlantic Chemical Industries, M/s. Foamsil Chemicals and M/s. Arun Chemicals, whatever is their constitution, (these are proprietary concerns), are under common management and closely controlled by only one person Shri J.S. Jain, who is one of the appellants here. The facts and circumstances have warranted to examine the reality of these units; and after going behind the mask of these entities, it has been revealed that activities of these units i.e. manufacture, clearance, etc. has to be clubbed together. In this regard, we take support from the Hon’ble Supreme Court’s observations in the above case of Calcutta Chromotype Ltd.  (supra) which are given below :

14. In M/s. Mcdowel and Company Ltd. v. Commercial Tax Officer [(1985) 3 SCC 230 = (1985) 154 ITR 148], this Court examined the concept of tax avoidance or rather the legitimacy of the art of dodging tax without breaking the law. This Court stressed upon the need to make a departure from the Westminster principle based upon the observations of Lord Tomlin in the case of IRC v. Duke of Westminster [(1936) AC 1] that every assessee is entitled to arrange his affairs as to not attract taxes. The Court said that tax planning may be legitimate provided it is within the framework of law. Colourable devices, however, cannot be part of tax planning. Dubious methods resorting to artifice or subterfuge to avoid payment of taxes on what really is income can today no longer be applauded and legitimised as a splendid work by a wise man but has to be condemned and punished with severest of penalties………..

(emphasis supplied)

11.1.5 We do not agree with the appellants’ contentions that impugned order has fixed liabilities of Central Excise duty separately on the noticee/appellant, namely, M/s. Atlantic Chemical Industries, M/s. Foamsil Chemicals (who is not the appellant) here and M/s. Arun Chemicals and have held that their clearances are to be clubbed whereas the impugned order concludes that M/s. Arun Chemicals had no manufacturing facilities and if it is so, how liability could be fixed against M/s. Arun Chemicals.

11.1.6 In the peculiar facts and circumstances of the case, we agree with the conclusion of the impugned order that these three firms are one and the same; their clearances are to be clubbed, as discussed earlier. Regarding the submission that M/s. Arun Chemicals had got no manufacturing activity, it may be mentioned that both M/s. Foamsil Chemicals and M/s. Arun Chemicals have been actively involved in the operations of wrongly availing exemption under Notification No. 175/86-C.E. by ‘artificial fragmentation when there was no distinction in management of the firms’. Therefore, M/s. Arun Chemicals (who is one of the appellants) deserves to be penalized under Rules 9(2) and 173Q of Central Excise Rules. We are giving no specific findings on M/s. Foamsil Chemicals as they are not the appellant here.

11.1.7 From the facts (impugned order Para 99), it is clear that noticee appellants M/s. Atlantic Chemicals played a major role in the manufacturing of the item RBA. Many of the machinery items and facilities for manufacturing are available only with M/s. Atlantic Chemicals. Therefore, after clubbing of clearances of the subject three units, liabilities for payment of duty of Central Excise is hereby fixed on M/s. Atlantic Chemicals. Consequently, the appellant M/s.  Atlantic Chemicals is to pay total duty of Central Excise of Rs. 71,06,066/- (i.e. Rs. 38,45,363/- + Rs. 31,39,343/- + Rs. 1,21,360/-) for the RBA manufactured and cleared during 1989-90 to 1993-94. In this regard, corresponding penalty of Rs. 70,20,000/- is also imposed on M/s. Atlantic Chemicals under Rules 2(2) and 173Q of C. Excise Rules. Further M/s. Arun Chemicals have been involved in continuing this operation of wrongly claiming exemption Notification No. 175/86-C.E.; therefore, the penalty of Rs. 1,20,000/- imposed on them is hereby sustained.

11.2 2nd Part : The impugned order at Paras 155(v) and (vi) confirms the demands and imposes penalties against M/s. Atlantic Chemical Industries, M/s. Foamsil Chemicals and M/s. Arun Chemicals in respect of RBA manufactured and not accounted for and removed clandestinely in the guise of soda bicarbonate.

11.2.1 After hearing interested parties and on careful examination of all the facts on records, it appears that the appellants have unsuccessfully tried to convince that they did not unaccountedly manufacture and clandestinely remove RBA in the guise of soda bicarbonate. In this regard, there are clear facts on record mentioned in the show cause notice as well as in the Order-in-Original issued by the Commissioner (Adjudication). It has come out clearly that soda bicarbonate (soda bi carb) was available in Kerala at hugely cheaper rate for anyone to buy and use; whereas the appellants have claimed that they sold and sent soda bi carbonate when there was no commercial or other reason available to such sale/dispatch of soda bi carb to Kerala or any other place. There have been enough number of corroborative evidences in the form of statements by respective persons concerning the subject matter to disprove the appellants’ averments that they sold/sent soda bi carb and not the RBA. The appellants have also  argued that a few of the statements were later on retracted or modified. However, we are of the considered view that those retractions and modifications do not matter when overall evidences conclusively prove that appellants in fact cleared their product RBA in the guise of soda bi carb thus evading Central Excise duty. It has also come on record that soda bi carbonate cannot be technically used by the manufacturers concerned, who are using RBA as one of the raw materials for their products in Kerala. In other words, soda bi carb is not the substitute for the use of RBA in the respective rubber or other industries. In this regard, we entirely agree with the findings given by the Commissioner (Adjudication) in the impugned order and, therefore, we refer to some of the observations of the Commissioner (Adjudication) given in the impugned order. Commissioner (Adjudication) in the impugned order has inter alia observed as under :

“145. It is observed that as per the SCN, Soda bi carb was freely available in Kerala during the material period at the rates prevailing in  Meerut/Delhi, that is, between PMT Rs. 5984/- PMT in 1989-90 to Rs. 7515 PMT in 1992-93. The price of such goods, when transported from Delhi to Kerala (Cochin) was costlier by Rs. 1529 PMT on account freight charges. This addition cost would further go up if the forwarding, loading and unloading charges were also added in it. These facts are not disputed. The explanation of Sh. N. Rajagopal of India Rubber & Chemical that he had purchased Soda bi Carb on higher prices from Meerut and Delhi due to their business relation with Sh. Jain does not seems to be convincing especially when one considers the cost-profit consideration as determinative force being any business transactions. This is equally relevant in respect of all the consignments supplied by Amar Enterprises, Arun Chemicals and Atlantic Chemicals to India Rubber & Chemicals, Ceyenar Chemicals and Lotus Chemicals.

146. From the discussion in the foregoing paras it is evident that Soda bi Carb was supplied by Laxmi Commercial Corpn. In bags of 50 bags of 50 kgs. Each as received from Tata Chemicals. The delivery of Soda bi Carb was taken by representatives of Atlantic Chemicals from Laxmi Commercial Corpn. The over-writing on bills/invoices issued by Laxmi Commercial Corpn. in the weight of the packages was done from 50 kgs. to 25 kgs. The bills/invoices issued by Amar Enterprises also showed that standard packing had been shown as 25 kgs. each bag. There is no evidence that Amar Enterprises had sold the so called Soda bi Carb after repacking the same as they neither had the facility of godown nor any expenditure on labour, etc., for repacking purposes has been shown in the accounts and ledgers of  Amar Enterprises. Besides the bills in all cases have been issued for bulk quantities and never for less than 1,000 kgs. And as such there was no necessity for incurring expenditure and wasting labour on repacking of 50 kgs. bags to 25 kgs. It is also evident that Atlantic Chemicals were arranging collection of Soda bi Carb billed to India Rubber & Chemicals from the godown of Laxmi Commercial Corp. and were taking the same to their factory situated at Dundahera and in its place they dispatched the consignments of RBA manufactured in their factory without payment of duty. They also dispatched RBA from their factory and the bills of Soda bi Carb were raised from Amar Enterprises, Arun Chemicals and also sometimes from their own factory. Arun Chemicals also cleared clandestinely RBA to India Rubber & Chemicals, Ceyenar Chemicals and Lotus Chemicals without payment of Central Excise duty leviable thereon. It is therefore, held that in this way Atlantic Chemicals and Arun Chemicals manufactured and cleared RBA in the guise of Soda bi Carb without payment of duty amounting to Rs. 29,42,754/- and Rs. 6,87,381/- respectively (ref. paras 2.3, 3, 5 and 7 of SCN) in contravention of the provisions of Rule 9(1), 52A, 53, 173B, 173F, 173G and 226 of the CER. As the said duty had not been levied/paid by them due to the fraud, wilful mis-statement, suppression of facts and in contravention of the provisions of the CER with intent to evade payment of duty, it is held recoverable for extended period under proviso to Section 11A(1) of the Act and Rule 9(2) of the CER. For the said violations they are also held liable to penalty under Rules 9(2), 173Q and 226 of the CER. As Amar Enterprises have been concerned in the clandestine removal of RBA under the guise of Soda bi Carb, they are held liable to penalty under rule 209A of the CER.

11.2.2 It also appears from the record that “the RBA cleared in the guise of Soda bi Carb by Atlantic Chemicals and Arun Chemicals, were received for further disposal by the Ceyenar Chemicals, India Rubber & Chemicals and Lotus Chemicals. From the discussion in preceding paras, it is evident that Ceyenar Chemicals, India Rubber & Chemicals and Lotus Chemicals had sold the said goods to various hawai rubber sheets manufacturers and also collected the differential amount between the price of such supplied RBA and price of Soda bi Carb and arranged then remittance to Atlantic Chemicals and Sh. J.S. Jain. In their defence submissions dated 9-1-95, India Rubber & Chemicals, Ceyenar Chemicals & Lotus Chemicals have denied the allegations and contested the proposed penalty in the SCN. However, these submissions are not supported by any evidence. On the other hand, there is overwhelming evidence indicating the receipt and disposal of RBA transported under the garb of Soda bi Carb as discussed above. It is, therefore, held that they have been concerned in the receipt and disposal of the said offending goods and hence liable to penalty under Rule 209A of the CER”.

11.2.3 After careful consideration, we agree with the findings and the conclusion of the impugned order on the issue of manufacture and clearance of RBA in the guise of soda bi carb. However, as it is on record that M/s. Arun Chemicals did not have required manufacturing facility (though they were actively involved in the clearance of RBA in the garb of soda bi carb) the demand of Central Excise duty of Rs. 29,42,754/- and Rs. 6,87,381/- confirmed against M/s. Atlantic Chemicals and M/s. Arun Chemicals by the impugned order is hereby confirmed against M/s. Atlantic Chemicals only. Thus, duty liability against M/s. Atlantic Chemicals on this account would be Rs. 36,30,135/-. (Rs. 29,42,754/- + Rs. 6,87,381/-) under Rule 9(2) read with Section 11A of Central Excise Act.

11.2.4 Further, considering the findings and conclusion made above, penalties imposed in Para 155(vi) of the impugned order on M/s. Atlantic Chemicals (of Rs. 29 lakhs) and on M/s. Arun Chemicals (of Rs. 6 lakhs) are modified and we instead impose the penalty of Rs. 35,00,000/- (Rupees thirty five lakhs only) on M/s. Atlantic Chemicals only in this regard under Rule 9(2) and Rule 173Q of the Central Excise Rules. Further, it is to be noted that M/s. Arun Chemicals along with M/s. Atlantic Chemicals and others has been actively involved in the clearance of RBA in the guise of soda bi carb and therefore, deserve imposition of penalties. Consequently, penalty of Rs. 6 lakhs imposed on M/s. Arun Chemicals by the impugned order under Rule 9(2) and Rule 173Q of Central Excise Rules is hereby sustained.

11.3 3rd Part : The impugned order in its Paras 155(iii) & (v) has confirmed the duty liability and imposed penalties on M/s. Atlantics Chemicals; M/s. Arun Chemicals and M/s. Foamsil Chemicals saying that it is proved by the test reports of the samples collected for respective noticees that extra quantity of RBA was manufactured by them; it was not accounted for in the production records and was removed clandestinely without payment of duty of Central Excise. The appellants deny this charge of extra production, which is based on test reports of the product. As a proof of extra production, the Department has got only the test reports, which respective assessee-appellants are contesting. We find that the Department does not have any other evidence other than the test report in order to prove its case of extra production of RBA. One of the appellants M/s. Arun Chemicals argues that no sample was drawn from them; therefore, no liability of Central Excise duty can be fixed on them specially when M/s. Arun Chemicals did not have required manufacturing facilities.

11.3.1 From the case records and the submissions of both sides, it is evident that this change of extra production is based solely on the ‘test reports’ and the Revenue has not been able to give any other corroboratory evidence to support this charge of extra production against the respective assesees. Further, when M/s. Arun Chemicals do not have required manufacturing facility available with them there cannot be any production of RBA on record by them. Moreover, unless there are sufficient corroboratory evidences on records to support this charge of extra production of RBA (based on the test reports), we are of the considered view that there would be no sufficient justification to sustain the charge of extra-production of RBA (based on mere test reports), where the Revenue claims that Central Excise duty was not paid by the respective noticees/appellants. In other words, when we do not find any corroborative evidence(s) to sustain the charge of extra unaccountable production of RBA (based on test report), we have no option but to hold that this charge of unaccounted production of RBA (based on sample test reports) by the noticees namely, Atlantic Chemicals, M/s. Foamsil Chemicals and M/s. Arun Chemicals remain unsustainable and hereby dropped. Consequently, the penalties imposed on the respective noticees in Para 155(iv) are also not sustainable and are hereby dropped. The assessees will get the relief accordingly.

11.4 4th Part : In Para 155 (vii), the impugned order imposed penalties of various amounts on the following notices :

(a)     Penalty of Rs. 25,00,000/- on Sh. J.S. Jain,

(b)     Penalty of Rs. 10 lakhs on Shri Amar Kumar Jain,

(c)     Penalty of Rs. 2,50,000/- on M/s. Amar Enterprises,

(d)    Penalty of Rs. 1,50,000/- on M/s. India Rubber & Chemicals,

(e)     Penalty of Rs. 60,000/- on M/s. Ceyenar Chemicals,

(f)      Penalty of Rs. 85,000/- on M/s. Lotus Chemicals.

11.4.1 In respect of above penalties, after considering the totality of facts and circumstances of the case, we are of the considered view that there is no reason to interfere with the above penalties. The impugned order has rightly imposed these penalties on the respective notices-appellants for the reasons mentioned in the impugned order. This ground is dismissed.

12. Since there is no appeal before us from the notices-M/s. Foamsil Chemicals, no specific findings have been arrived at in respect of their liability of Central Excise duty and penalties imposed on them by the impugned order.

13. In the result, the impugned order is modified, and in above terms, all the appeals are disposed off.

(Pronounced in open Court on 9-9-2016)