Commissioner Of Central Excise vs ) A.Natesan, Prop. Arasan Company

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI

Appeal No.E/430/2002 & E/431/2002

[Arising out of Order-in-Appeal No.78/2002 (MDU) (GVN) dt. 30.4.2002 and OIA No.80/2002 (MDU) (GVN) dt. 30.4.2002 passed by the Commissioner of Customs & Central Excise (Appeals), Tiruchirapalli]

Commissioner of Central Excise, Madurai Appellant

Versus

1) A.Natesan, Prop. Arasan Company 2) N. Saradhamani, Prop. of Saradha Agency Respondent

Appearance:

Shri M.Rammohan Rao, DC (AR) For the Appellant

None For the Respondent

CORAM :

Honble Shri D.N. Panda, Judicial Member Honble Shri R. Periasami, Technical Member

Date of Hearing/Decision : 30.04.2015

FINAL ORDER No.40497-40498/2015

Per D.N. Panda

Despite notice, the respondents are absent today. The matter being 13 years old, it is not at all desirable to keep that pending. Accordingly, examining the record and also taking assistance of Revenue, both the appeals are disposed in the manner indicated below.

2. Revenue is aggrieved by the order passed by learned Commissioner (Appeals) on 30.4.2002 reverting the adjudication order. He framed the following issues for his consideration :-

1. Whether the seizure of trailer RG 176 found parked in the premises of Arasan Company Firm (ACF) on 16.12.97, would lead to infer that the said trailer was manufactured by ACF.

2. Whether M/s.Rajagiri & Co. (RG) and Saradha Agency (SA) are independent manufacturers of trailers in their respective units at Kurichi and Thatchanallur.

3. Whether there is any common managerial or financial control exercised by ACF or other units and whether any financial flow-back or mutual funding exist amongst the units.

3. So far as issue No.1 is concerned, his conclusion was that just because the trailer was parked in the premises of ACF that does not lead to a conclusion that ACF manufactured the trailer. Most strangely, he ignored the entire evidence what that is culled out by Revenue in their grounds of appeal bringing out categorically about placement of order, no manufacturing facility available with Rajagiri & Co. (RG). So also statement recorded from different persons to demonstrate that ACF was intimately connected with manufacture. ACF supplied the tractor. Therefore, it brought the trailer to its campus when RTO was not present for grant of registration. This simply leads to the inference that had ACF not been the concern, it would not have brought trailer to its premises and provided space to that in its premises. It was manufacturer of excisable goods. Apart from these observations, there are various grounds raised by Revenue in the ground of appeal which has logical reasons to appreciate adjudication consequence.

4. So far as the issue No.2 is concerned, Revenue's grievance is that raw materials were parked at the place of ACE and mere book entries were made to show clearance to other units which had no manufacturing facility with plant and machinery. Therefore, conclusion drawn by learned Commissioner (Appeals) as to no basis of allegation is unsustainable.

5. Against the third issue, Revenue's grievance is that whole transaction being done by one man show as has been made out very categorically in different paragraphs of grounds of appeal, conclusion of learned Commissioner (Appeals) does not appear to have been based on any evidence and appears to be pretence to merely discharge his duty to grant relief to the respondents.

6. For convenience of reading, it is considered proper to reproduce the grounds of appeal of Revenue which specifically brings out evidence on record to discard the conclusion of the learned Commissioner (Appeals) :

"1. The Tribunal, in the case of U.K. Machine Tools Pvt. Ltd., Vs CCE, Chandigarh reported in 1999 (114) ELT 1009 (Tribunal) has observed as follows:-

"No Cut and dry formulae could be established to arrive at the decision whether a group of units could or could not be considered as a single manufacturer / manufacturing entity for the purpose of small scale exemption. From the various decisions of the Tribunal, it is seen that while with reference to isolated facts, the units may appear to be distinct and separate, but when the facts and circumstances are seen in totality, a new picture may emerge where the seemingly distinct and separate units merge into one common manufacturing entity".

If the facts and circumstances of the subject case are seen in totality, the units ACF, RC and SA merge into one common manufacturing entity, namely ACF. The Commissioner (Appeals), Trichy without considering the totality of the facts and circumstances of the case has passed Order-in-Appeal on the basis of some isolated facts. ACF was engaged in the manufacture of trailers, but in order to avail SSI exemption separately RG and SA were floated solely for the purpose of evading payment of duty.

2. The statements given by Shri. A. Natesan, Proprietor of ACF, Smt. N. Saradhamani (w/o Shri.A. Natesan) Proprietrix of SA and partner of RG, Shri. V. Nambi, Manager of ACF, shri. B. Amaresan, Manager of RG, Shri. G. Ravindran, Manager of SA, Shri. N. Annamalai, Proprietor of Shanmugapriya Iron Works, Shri. M. Chellaperumal, Proprietor of Vinayaga Iron Works, Shri. A.N. Avudai Nayagam alias Karthik, Store Keeper of ACF and Shri. S. Perumal, the buyer of the seized trailer were incriminating. Some of the statements were retracted at a later stage. In the case of Collector of Customs (Prey.) Vs Kamala Ranjan Saha [1990 (31) ECR 27 (T)], the Tribunal has observed that the affidavits produced at a later stage do not have much evidentiary value. In the case of U.K. Machine Tools Pvt. Ltd. Vs CCE, Chandigarh, the Tribunal has observed that 'We find that the retraction was very late and no satisfactory explanation had been adduced by the witnesses for such a long time gap in retracting their version if the initial version was not correct". In said case, the Tribunal has not accepted the retracted version. In the subject case, the Commissioner (Appeals), Trichy has ignored the statements recorded earlier. He has taken into consideration only the retracted versions, though the retraction was very late and no satisfactory explanation had been adduced for such a long time gap in retracting their version.

3. In the case of Lotus Chemical Industries and Aurobindo Chemical Industries, the Tribunal in their Final Order Nos.458-459/91-C, dt 21.5.1991 has observed that the mere fact that units were separately registered as small scale units or that they were separately assessed for the Income tax or Sales tax purposes, would not make any difference for clubbing the clearances of the two firms. Any person who attempts to evade payment of duty would also create some fictitious records to conceal his act. In the subject case, the Commissioner (Appeals), Trichy has passed orders based on such evidence produced by ACF and totally ignored the other evidences that prove the contrary.

4. SS1 benefits are denied to the manufacturer using the brand name of other person. Because, in such cases, the general public would consider the other person as the manufacturer. And so, some big manufacturers might try to avail the SSI benefits through fragmentation. Hence, such restrictions has been made. The facts and circumstances of the subject case not only show that ACF was the only unit that manufactured trailers (while RG and SA were dummy units) but also that in the eyes of the public too all these units were one and the same. This perception of the public ought to have been given due weightage. However, the main contention of the department is not based solely on this ratio (of public perception) alone.

5. The following facts has not been taken into consideration by the Commissioner (Appeals), Trichy:-

(i) Shri.S. Perumal, the buyer of the trailer with chasis No.RG.176, in his statement dated 6.2.96 has stated that he placed order only with ACF for supply of RG Trailer, the draft for payment favouring RG was handed over to one individual of ACF; the information that the vehicle was ready for delivery was given by ACF. Further, the said trailer has been seized at the premises of ACF. The guarantee Card of ACF has been issued to the said trailer.

(ii) Shri.B. Amaresan, Manager of RG in his statement dated 23.12.97 stated that the suppliers of raw materials to RG, SA and AA and buyers of trailers from RG have addressed ACF for payments for the pending bills and for rectification of defects in the trailers supplied by RG.

(iii) The facts shown at (i) and (ii) above, show that all the three units were one and the same in the perception of the public.

(iv) When the officers made a visit to the declared premises of RG located at No.3-A, Nethaji Road, Kurichi on 17.12.97, they found the premises locked. The premises was thereafter opened by the owner Shri.Mohammed Tharnbi and the officers did not find any machinery or equipment for manufacture of trailers. He also informed them that the premises had remained vacant after September 1996. Shri Annamalai, owner of MIS Shanmughapriya Iron Works in his Statement dated 06.01.98 deposed that, he was manufacturing trailers for RG on job-work basis since inception; as he had no convenient space, the manufacturing activities were carried on at No.3-A, Nethaji Road, Kurichi (the premises of RG) ; and there had been no manufacturing activity for the past one year since RG vacated the premises. However at the time of cross-examination he said that after September 96 he was manufacturing trailers for RG at his premises. In the Statement given by him on 06.01.98, he was categorical in his assertions that the manufacturing activity was carried on by him only in the premises located at No.3.A, Nethaji Road, Kurichi (held by RG) and there had been no manufacturing activity by him after vacation of the said premises by RG.

This apart, Shri.S.Perumal, the buyer of the trailer with chassis No.RG-176, in his Statement dated 06.02.98 said that, he placed order only with ACF for supply of Rajagiri & Co Trailer (the impugned item under seizure) ; the Draft for payment favouring RG was handed over to one individual of ACF the information that the vehicle was ready for delivery was given by ACF ; and as registration could not be done on that day in RTO's office, the trailer was moved to the premises of ACF using the tractor from ACF. The above versions of the buyer of the impugned trailer remain un-controverted. Besides, nothing has been brought on record by RG to show that what were the machines used by them for manufacture of trailers and to whom the machines were sold or where they were kept after allegedly vacating the premises at Nethaji Road, Kurichi. It was on record that Shri.Annamalai was allegedly receiving job charges for manufacture of each trailer in a specific sum. However on a specific question that 36 trailers were shown to have been manufactured by Shri.Annamalai for RG during the year 1997-98 whereas ledger entries for payments were made only for 3 trailers in the account of RG for the said financial year, Shri. B.Amaresan, Manager, in his Statement dated 16.12.98 merely said that the manufacture by Shri Annamalai in fact took place and payments were also settled.

That should be contrasted with the version of Shri Annamalai in his Statement dated 06.01.98 that for the past one year he had not done manufacture of any trailer. No manufacture of trailers took place at the premises of RG and the theory that the manufacturing activity of trailer for RG was carried on by Shri Annamalai, Proprietor of M/s Shanmugapriya Iron Works was merely concocted to deceive the department with the sole objective of evading payment of duty. The trailers shown and alleged as manufactured by RG were in fact manufactured in the premises of ACF.

(v) Shri G.Ravindran in his statement dated 15.12.98 admitted that the premises occupied by SA were owned by ACF and the power connection was also in the name of ACE In his statement given on 05,01.98, Shri Ravindran deposed that Shri Natesan, proprietor of ACF would at times check the over time accounts of SA and would sign the over time register in as much as the proprietrix Smt Saradhamani is his wife. Those facts had not been denied either by Shri Natesan or by Smt Saradhamani. In his Statement dated 05.01.98 Shri.Ravindran, inter alia, said that, in the application for renewal made by them to the Inspector of Factories every year, the mention related only to repair and service of tractor and trailer ; and the Certificate issued by the Consulting Engineer would show that SA had machinery only for repair of tractor and trailer. These versions were accepted by Smt.Saradhamani in her Statement dated 05.02.98. The copy of design approval dated 03.01.96 granted by the Transport Authority was merely a design approval for trailer and it did not throw light as to whether the unit SA possessed facility to manufacture trailers. If in fact SA was really engaged in the manufacture of Trailers then why renewal of licence should be restricted to repair and service of tractor and trailer alone was not known. The Certificate issued by the Consulting Engineer affirmed the fact that SA had no manufacturing facilities for trailer. Even a copy of the Certificate issued by the Commercial Taxes Department and placed on record showed SA only as a dealer. It nowhere indicated that SA was a manufacturer of trailers. The unit SA remained only on paper and the existence was merely to account for production of trailers manufactured in the premises of ACE so as to separately avail 551 exemption.

(vi) The three units viz., ACF, RG and SA are owned by the family of Shri A.Natesan consisting, inter alia, himself as proprietor of ACF, his wife Smt Saradhamani as proprietrix of SA, and his wife Smt Saradhamani and their daughter as partners of RG ; various documents pertaining to RG were found in files kept in the premises of ACF ; in the order book meant for purchase of materials there were notings commonly for all the three units ; there was common procurement of raw materials for all the units with common accountal for receipts as well as issues ; the raw materials required for manufacture of trailers for all the units were kept in the store room of ACF ; accounts for all the units were maintained at ACF ; Shri 13,Amaresan, Manager of RG, in addition, was also a technical adviser to ACF ; there were payments for wages / over time by one company with reference to the work done for other unit ; the suppliers of raw material to RG and SA have addressed ACF for payment of pending bills ; the buyers of trailers from RG had addressed ACF for rectification of defects ; Shri Amaresan, Manager of RG as well as technical adviser to ACF had signed labour bills raised by two outside job workers for the units SA and ACF.

Shri Ravindran, Manager of SA had signed the tender forms on behalf of ACE; the over time work performed in SA was occasionally supervised by Shri Natesan ; being sister units, Shri Natesan called for details of production and sales of all the units so as to know their performance and he would also offer his valuable suggestions born out of his business experience for all the units ; the stock position of other units was maintained by ACF so as to know the physical stock and also to avoid pilferage ; the materials required for RG and SA were issued through gate passes signed by the Manager of ACF Shri V.Nambi ; (as per the deposition of the store-keeper in his statement dated 28.01.98) the entries relating to raw materials for all the units were made only in one register at ACF, and the raw materials received in the name of one company were issued to any other unit amongst the group ; (as per the deposition of Shri M.Chellaperuamal, Proprietor of M/sVinayaga Iron Works) he had earlier worked in ACF for 10 years, he was doing job work for ACF and also welding work for ACF and RG, the welding work was normally done by him at the workshop of ACF, he would not engrave the chassis Number on the trailer since he did not know for whom it was meant ; the chassis number would be engraved in the Tirunelveli Junction workshop of ACF and the payments would be received only in cash from ACF ; (as per the version of Shri S.Perumal, buyer of the impugned chassis, in his statement dated 06.02.98) he held a guarantee card issued by ACF for the impugned trailer (shown to have been manufactured by RG) ; and despite the quantum of consumption of electricity being higher during the year 1995-96 compared to 1994-95 the production of trailers shown in the accounts of ACF was much less.

6. The adjudicating authority has mentioned in his Order-in-Original that "this is coupled with the fact that there could have been no manufacture of trailers by RG and SA". The Commissioner (Appeals), Trichy has given undue importance to the language used by the adjudicating authority. The three units were functioning as a homogenous entity without any distinction whatsoever. In view of CEGAT's ruling in the case of MIS U.K.Machine Tools Pvt. Limited reported in 1999(114) ELT 1009 (T), all the three units are to be treated as a single entity. The facts of the said case show that the Proprietor of one firm floated two other units showing his employees as Directors. The floated units had no full facility to manufacture the excisable goods. The machines were used without distinction and there was transfer of materials amongst the units also. There was one common cashier for all the units. The name of the operator working in a particular unit was not found either in the attendance or salary register but he was paid in cash by the cashier. Storekeeper was also common to all the units. It was therefore held that the three units were not separately eligible for SSI exemption and the clearances of the two units should be clubbed with the parent unit. While taking the decision, the Hon'ble CEGAT relied on a catena of decisions rendered by the CEGAT and Supreme Court in various cases earlier. The CEGAT in the order aforesaid, has inter alia observed as under :

'For the purposes of small scale exemption, the manufacturer did not mean the separate excise Licence holder. Even when there were different licences, there could be one manufacturer' (Para 6)

'Whether a group of units is to be treated as a single manufacturer for the purpose of small scale exemption is a question of fact to be decided on the basis of all the related facts and circumstances'.

The facts on record establish that the three units were ....... inter connected in several respects, and their activities were inter-laced. For assuming the role of a manufacturer, they were dependent on each other, in their operations, dominant role was of Shri R.K.Luther, Proprietor of .......'

The facts and circumstances dealt with in the order of CEGAT bear close relation to the facts of the subject case.

7. In the case of M/s Akay Filtips Pvt. Ltd., reported in 2000 (122) ELT 761 (T), the CEGAT has observed that "................. The Commissioner finds this to be correct and concludes the unity in the financial management of both these companies. He further finds that the electricity bills, water connection, chief executive and other managerial staff or Asahi were in fact provided by Akay. In view of these factors, and particularly the common financial control for which there was no answer by the advocate for the appellant, it is not possible to conclude that they were separate entity. In the light of the fact of common managerial control, the absence of evidence of specific flow back from one to the other does not advance the appellants case. Such common financial control and management would necessarily not present features of flowback; it would, in fact, render such a requirement unnecessary

8. The contention of the assessee that in as much as AA had been excluded from the purview of the proceedings, the other forms RG and SA should also be freed from the case did not have any legal support. 881 declaration filed by them were nothing but mis-declarations for the purpose of cheating the department. Under the said circumstances, the proviso to Section 11 A (1) was rightly invokable. By their acts of commission in the offence committed by ACF, Shri.A. Natesan, Proprietor of Arasan Company and Smt.Saradhamani, the proprietrix of SA and Partner of RG had rendered themselves liable for penalty. The charges levelled in the three Show Cause Notices were sustainable. Hence, the Order-in-Original of the adjudicating authority is legal and proper."

[Emphasis Supplied]

6. When the record itself indicates categorical statements recorded from different persons under Section 14 of Central Excise Act against assessee and there was one man show by Shri Natesan which is evident from different materials gathered by Revenue, both the units are exposed to be dummies of ACF.

7. Revenue has also brought out that there is certificate issued by Consulting Engineer to the effect that SA had no manufacturing facility for manufacture of trailers on record. That is established from record which was not examined by Commissioner (Appeals). The order of the learned Commissioner (Appeals) is therefore liable to be interfered and set aside.

8. The stock position of the raw materials were also under the control of ACF. That clearly indicates that without ACF, both the two dummies were inoperative.

9. When what that is apparent is not real, it is compelling reason that the order of Commissioner (Appeals) is to be set aside and OIO to be restored. Accordingly, both the appeals of Revenue are allowed.

(Dictated and pronounced in open court)

(R. PERIASAMI) (D.N. PANDA) TECHNICAL MEMBER JUDICIAL MEMBER

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