By TIOL News Service

MUMBAI, DEC 22, 2017: THE appellant M/s NEPL is a Pvt. Ltd company registered with Central Excise and is engaged in manufacture of Air Handling Units and its parts at TTC Industrial Area, MIDC, Mahape since year 1998. M/s NCLP is engaged in manufacture of Centrifugal fans and Air Handling Units at Andheri (E), Mumbai since year 1998.

Consequent upon investigations by the Preventive team of the Commissionerate, two SCNs dated 02.09.2005 were issued to the appellants demanding CE duty on the grounds inter alia that both the factories are belonging to one single manufacturer; that clearances are to be clubbed for the purpose of deciding SSI exemption and also proposing imposition of penalty etc.

Both the SCNs were adjudicated vide O-in-O dt.31.03.2006 and dt. 29.11.2007 respectively confirming the demand and imposing penalties. The adjudicating authority held that both the units are one single entity for purposes including financial transactions; activities have been projected as group activities and the buyers / suppliers / creditors and all those dealing with them have been given to understand that they are dealing with a common entity while they themselves treated as individual entities for SSI. It is also held that there has been transfer of funds based on the financial needs of the two companies and not on the basis of any business transaction; that had the two companies taken loans from banks, they would have incurred heavy interest burden; that there is no need of any evidence for financial flow back and mutuality of interest as the units were controlled by the same family; that employees and customers of the unit did not recognize the two concerns as separate entities; that the final decision in the matter relating to sales, purchase, production, material planning/allocation, quality, valuation, pricing of the products, marketing, future planning / growth concern of both the companies were being taken care by Shri B.N. Khurana, Director of M/s NCPL.

The appellants are before the CESTAT and present detailed submissions coupled with case law support to contend that the charges made by the department were untenable.

The AR supported the order of the adjudicating authority.

After considering the submissions, the Bench inter alia observed -

+ We find that it is an undisputed fact that both the units are private limited companies registered with the Registrar of Companies having separate factory premises, machineries, workers etc. Even their products are different.

+ Both the companies are registered with the Income-tax Dept., Department of Industries, Sales Tax as separate units.

+ Even, M/s NCPL was registered with the Central Excise Department and was filing necessary classification declarations and other declarations and were complying with the statutory requirement. M/s NEPL being unregistered unit were also filing necessary declarations with the departments.

+ There is no dispute about the fact that both the units had separate manufacturing set up and were situated away from each other for more than 25 kms. We also find that the plant & machinery, workmen, staff etc. were separate. Electricity, water, telephone connections of each of the units were separate.

+ The bank accounts of M/s NEPL were operated by Shri Ashok Advani and Shr Vivek Khurana whereas the bank accounts of M/s NCPL were operated by Shri B.N. Khurana and Shri Ashok Kashalkar.

+ The adjudicating authorities has viewed the transfer of funds for few days from one concern to the other to save themselves from crossing the bank overdraft limit or to meet the short-term financial needs as indicator of both the units being one. However, we are of the view that such short terms transfer of amount for few days from one unit to another and which has been properly accounted for cannot lead to the conclusion that there is mutuality of business interest or has common funding. The interest free loan for a short period cannot be held as a ground to club both the units as a single entity.

+ In the present case, we do not find any factor to club the units such as common procurement of raw materials or common stock of raw material. Neither there is any inter-dependence in manufacturing operations, common use of machinery or free flow of finance between two units. Thus in absence of such factors we do not find any reason to club the clearances of the Appellant Units.

+ The value of clearances of independent and separate units and that too of limited companies cannot be clubbed only for the reason that the units belong to same family, controlled by same family members or use of certain common amenities or interest-free loans when both have separate set ups. It is pertinent to note that the persons/share holders of the company are different from company which is an artificial legal person. Hence even if same family members are looking after affairs of two companies, both companies have independent legal entities. [Kores India Ltd - 2015-TIOL-2678-CESTAT-DEL; Krishna Engineering Works - 2016-TIOL-1139-CESTAT-HYD refers.]

+ Appellant companies have been filing classification declarations/returns with the Department during the relevant period. They were under bonafide belief that they are separately eligible for SSI exemption in such case; the demands are also time barred as there is no suppression of facts or mala-fide intention. [Chamundi Die Cast - 2007-TIOL-158-SC-CX, Gopal Zarda Udyog - 2005-TIOL-123-SC-CX-LB, Ugam Chand Bhandari - 2004-TIOL-45-SC-CX relied upon.]

Conclusion: M/s NCPL and M/s NEPL cannot be considered as single entity and their clearances cannot be clubbed. Demands and penalties set aside. Penalty on B.N. Khurana also set aside since there is no case for demand of duty made out.

The Appeals are allowed with consequential reliefs.

(See 2017-TIOL-4509-CESTAT-MUM)