V. Padmanbhan ORDER
V. Padmanbhan, Member (T)
1. These two appeals have been filed against order in original No. 17/2012 dated 23.11.2012 passed by the Commissioner of Central Excise, New Delhi. On 28.11.2009, the Central Excise officers carried out such operations simultaneously in the following premises.
• M/s. Anil Sales Corporation B-2406, Narela Industrial Area, Delhi;
• 14/21, Shakti Nagar, New Delhi, Residential premises of Sh. Pawan Kumar Jain, proprietor of M/s. Jain & Company;
• Office of M/s. Anil Sales Corporation at E-2/245, Shastri Nagar, Delhi 52;
• M/s. SUraj Transport Co. FC-II, Shop No. 29, E-Block, DSIDC Industrial Area, Narela, Delhi and;
• M/s. Shakti Industries , D-89, Peeragarhi Industrial Area, New Delhi. "
2. During search, relevant records were resumed including certain Kachi Parchis and delivery challans. Statements were recorded by the officers from connected persons of M/s. Anil Sales persons (ASC) as well as M/s. Jain & Co. (Jain) and also others. Upon completion of investigations, SCN dated 20.10.2011 Was issued proposing to (i) Club the value of clearances made in the name of ASC as well as Jain and to restrict the benefits in terms of SST Notifications No. 08/2013 dated 01.03.2003. (ii) Value of clearances made without accounting finished goods and clearing them clandestinely without payment of duty also to be included. (iii) In terms of the above Central Excise duty amounting to Rs. 1,58,42,752/- was demanded along with interest. Penalty of an equal amount was also proposed.
3. Upon completion of adjudicating proceedings, the Ld. Commissioner, vide the impugned order confirmed all the above proposals and also appropriated the amount of Rs. 10 Lakh voluntarily deposited by the appellant. Further a penalty of Rs. 10,000/- was imposed on M/s. Suraj Transport Co. accrued by the impugned order, the present appeal has been filed.
4. With the above background, we heard Sh. Naveen Mullick, Ld. Advocate representing both these applicants. Revenue was represented by Sh. Suchitra Sharma, Ld. DR.
5. The Ld. Advocate arguing the case of the appellant mainly emphasized to the following points in appeal:
"(a) Clubbing of the clearances of ASC with Jain is not justified inasmuch as both units which situated in totally separate premises, each unit has its own plant and machinery as well as separate workers. Both firms have independent legal existence and have separate registrations for sales tax and file independent income tax returns. The raw material for both firms are procured separately and clearances are made separately.
(b) ASC who is proprietor of M/s. Jain was being helped by Mr. Pawan Jain in carrying out the activities. The accounts were also being maintained by the same accountant Mr. Vijay Jain. On this basis, it cannot be concluded that ASC is a dummy unit of Jain.
(c) The only evidences cited by Revenue is that as it was Acid Wash belonging to Jain was being carried out in the premises of ASC without charge and no rent was paid by ASC to Mr. Jain for his office premises owned by him. These do not indicate that ASC is a dummy unit of Jain.
(d) The charge of clandestine clearance has been made against ASC as well as Jain on the basis of several inculpatory statements given by employees of both firms as well as those given by Mr. Pawan Jain as well as Mrs. Jain. However, more struck the statement passed on which the Revenue's case has been built by Mr. Pawan Jain after his arrest. The Hon'ble ACMM has severely criticized the manner of investigation and has recorded that the statements do not bear the signatures of the officers who recorded those statements accordingly, it was submitted that such statements have no evidentiary value and should be disregarded. Further, cross examination sought by the appellants of the witnesses whose statements have been used was denied by the adjudicating authority. In view of the above, the charge of clandestine clearance cannot be upheld.
(e) It has been alleged that there was free flow of funds between the two firms but it is on record that whatever funds were operated by one firm from the other firm has been subsequently returned, even if without interest."
6. The Ld. DR supported the impugned order. She submitted that Mr. Pawan Jain was one person who was completely controlling the activities of both firms, even though there were separate premises and plant and machinery. She emphasized that buyers of the finished products have confirmed that all orders were made only to Mr. Jain. It is further revealed from the fact that he has also signed as much as 100 invoices in the name of ASC. The mutuality of interest between the two firms is also evident from the fact that no rent was being charged for the office occupied by ASC, which belonged to Mr. Jain and the premises of Acid Wash belonging to Jain was regularly being carried out at the facility of ASC but without any charge.
The Ld. DR further submitted that even that the Hon'ble ACMM has pointed out that signatures of the recorded officers, which was absent in many of the statements, she emphasized and subsequent statement have confirmed the facts stated in the earlier statements. Squarely the charges of clandestine clearance made on the basis of such statements needs to be upheld.
7. Heard both the sides and perused the records.
8. It is the case of the department that there is no mutuality of interest and financial flow back between Jain and ASC. It has further alleged that Sh. Pawan Jain had allegedly suppressed the aggregate value clearances and bifurcated the clearance between the two firms in order to keep the turnover within the prescribed limits for SSI Notification 08/2003 : MANU/EXCT/0060/2003 dated 01.03.2003. On the basis of kucha parchis and delivery challans recovered and the statements recorded, allegations of clandestine clearance without payment of duty has also been made and in the total demand, such value of clandestine clearances have also been included. At the outset, we examine the proposal to club the value of clearances of the two firms. The Hon'ble Supreme Court in the case of Modi Alkalies & Chemicals Ltd. MANU/SC/0638/2004 : 2004 (171) ETL 155 SC has laid down that the two basic features which prima facie show interdependence between two units and whether another unit is a dummy unit, are pervasive financial control and management control, this has further been reiterated by the Apex Court in the case of Parle Bisleri Pvt. Ltd. MANU/SC/1065/2010 : 2011 (263) ELT 15 (SC). Hence, it is necessary to assess the evidence in the present case in the light of these yardsticks prescribed by the Apex Court.
9. The main evidences stand out as follows:
"(i) The suppliers of raw materials as well as buyers of finished goods have categorically stated that they dealt with Mr. Pawan Jain in respect of both the firms. It is further seen from such statements that it was the discretion of Mr. Jain as to which firm out of the two would sent the finished goods to the buyers.
(ii) The investigation has detected several incidences when payments were made by the one firm for material or the other. It is further seen that no rent has been charged by Mr. Jain for the premises owned by him and occupied by ASC. Even in respect of the Acid wash at warehouse belonging to Jain was carried out without any charge."
From the above evidences, the picture which emerges is that Mr. Pawan Jain is the proprietor of Mr. Jain and is also the de facto owner of ASC. The suppliers and buyers considered Mr. Jain as the owner of both funds. The evidences also indicate all the pervasive Role of Mr. Pawan Jain in the affairs of ASC. The free flow back of finance between the two firms establishes that there was mutuality on interest between the two firms and that the two were inter joined in their management and flow of funds.
10. In terms of the para 2 of Notification 8/2003 : MANU/EXCT/0060/2003 dated 1.3.2003, the correct vale of clearances intended to nil rate of duty should include the value of clearances of one arm factory belonging to the same manufacturer. In the facts and circumstances of the present case, we are inclined to upholding the findings of the adjudicating authority that the clearance of two firms are to be clubbed for the period 2006-2007 to 2008-2009 and the benefit of SSI exemption is to be determined barringly.
11. Now we turn to the charge of clandestine clearances. Various employees of both firms have in their statements confirmed that goods were being cleared without payment of duty on the basis of only delivery challans/kachi parchis. Many of the buyers who have been interrogated have also confirmed the fact in their statements that the goods were received without invoice but only under the cover of Kachi parchis. Even though Mr. Pawan Jain as well as Mrs. Jain in their respective statements had admitted the said fact and confirmed the statements of their employees, but have subsequently retracted such statements. It is also relevant to take note of the observations of the Hon'ble ACMM in his order dated 13.10.2010 passed at the time of consideration of the bail application filed by Mr. Pawan Jain after his arrest on 06.10.2010. The Hon'ble ACMM has observed that the statements recorded from as many as 13 persons do not bear the signature of the officer regarding such statements. He has strongly criticized this aspect and has observed that it cannot be presumed that these statements were recorded by competent officers of the Central Excise department under Section 14 of the Central Excise Act. These are very serious observations which need to be taken note of.
12. Ld. Advocate has also argued that such statements do not have any evidentiary value and should be discarded. The adjudicating authority has also denied the cross examination of the makers of such statements. Even the officers who are purported to have recorded this statement have not been identified by the Commissioner in this adjudicating order. For the above reasons, we are of the view that the charge of clandestine clearance upheld by the adjudicating authority on the basis of these statements cannot be upheld and needs to be set aside.
13. We find from the impugned order that the total demand for central excise duty has been calculated by including the value of clearances evidenced by the kachi parchis in addition the turnover of both firms have been clubbed. The impugned order is set aside and remanded to the original adjudicating authority with the direction to re-quantify the demand by excluding those attributable to clandestine clearance. However, the clubbing of the value clearances of both the firms is upheld.
14. The duty demand as well as penalties are required to be dropped out in the de novo proceedings after giving an opportunity of hearing to all the appellants.
15. Appeal is disposed of in the above terms.
[Pronounced in the open Court on 21.06.2017.]
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