Varun B Corporation Vs C.C.E. & S.T.-Surat-i (CESTAT Ahmedabad)
CESTAT Ahmedabad held that duty demand unsustainable as charges against appellant of creating dummy units for keeping the value of clearance below SSI exemption not established.
Facts- M/s Varun (appellant) is engaged in manufacturing of printed duplex boxes classifiable under chapter 48 of the CETA, 1985. It was alleged that the appellant has created dummy units in order to keep the total value of clearances below the SSI exemption and not paying duty on their clearances.
It was contended that the aggregate value of clearance by M/s. Varun B Corporation during 2009-10 exceeded Rs. 400 Lakhs, crossing the threshold limit for exemption during 2010-11. SSI benefit won’t be available separately to each factory, and none fulfilled the conditions for exemption, necessitating the payment of Central Excise duty. M/s. Varun B Corporation manufactured excisable goods during 2009-10 and 2010-11 but failed to obtain Central Excise registration, maintain production records, prepare Central Excise invoices, and pay Central Excise duty, totaling Rs. 1,00,06,208/- on Duplex Box clearances valued at Rs. 10,59,02,636/-.
The adjudicating authority confirmed the demand of Rs. 1,00,06,208/- against M/s Varun along with interest and equivalent amount of penalty. A penalty of Rs. 10,00,000/-each was also imposed upon the co-appellants under Rule 26 of Central Excise Rules,2002.
Conclusion- Held that nowhere it can be established that there was mutual flow back of funds amongst the units, control of both financial & management aspect by the same set of persons. There is no point to conclusion that these firms interlinked in their operation and management. In fact, all the three factories are totally independent with no interdependence, no financial flow back, no mutuality of interest between firm, nor any flow back of profit. There is no supporting evidence for common finance and common management and there is no finding that the Varun corporation has floated, financed and incorporated the SSI units.
Held that the charges against M/s Varun of creating dummy units for keeping the value of clearances below the SSI exemption are not sustainable. Hence, we set aside the demand and penalty imposed against M/s Varun.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The present appeals have been filed by M/s Varun B. Corporation (Varun), Shri Varun Aggarwal, Proprietor M/s Varun Corporation, Shri Prashant Aggarwal, Proprietor of M/s Nishoo Arts, Shri Rakesh Aggarwal, Proprietor of M/s Global Integrated Technology against Order in Original No. SUR-EXCUS-001-COM-054-14-15 Dt. 28.10.2014 passed by Commissioner of Central Excise – Surat-I. M/s Varun is engaged in manufacturing of printed duplex boxes classifiable under chapter 48 of the CETA, 1985. The brief facts of the case are that pursuant to investigation against M/s Varun on the ground that they have created dummy units in order to keep the total value of clearances below the SSI exemption and not paying duty on their clearances, the officers visited and carried out search operations at the following premises:
i. Factory premises of M/s Varun situated at Plot No. 24, Sai Leela Industrial Estate, Udhna, Surat
ii. Factory premises of M/s Nishoo Arts
iii. Factory premises of M/s Global Integrated Technology
1.1 During search at factory premises, it was revealed that records/documents pertaining to aforesaid all the three firms were found lying in a common room in the premises of M/s Varun B Corporation. There was no marker or any other distinct identification for demarcating the premises of M/s. Nishco Arts & M/s Global Integrated Technology and all the three entities had common entry & exit gate & common boundary. Thus, Warrant issued against M/s. Varun B Corporation only executed & two other Warrants in name of M/s. Nishoo Arts & M/s Global Integrated Technology could not be executed as explained above. Shri Varun Rakesh Aggarwal Proprietor of M/s. Varun B Corporation informed that the premises consist of two plots i.e. Plot No. 23 & 24, and the manufacturing process of three firms namely M/s. Varun B Corporation, M/s. Nishoo Arts and M/s. Global Integrated Technology was going on. Shri Varun Rakesh Aggarwal further informed the details of machines installed at all the three manufacturing units. The officers seized records/documents related to M/s. Varun B. Corporation, Surat; M/s. Nishoo Arts, Surat; M/s. Global Integrated Technology & M/s. Bela Textiles from the said premises as detailed in the panchnama, under the Central Excise Act, 1944.
1.2 Thereafter, Show Cause Notice No. V(Ch.48)15-03/OA/2014-15 dated 1.5.2014 came to be issued. In this show cause notice it is stated that from the collective analysis of audit reports of M/s. Varun B Corporation, M/s. Nishoo Arts, M/s. Global Integrated Technology, and M/s. Bela Textile for FY 2009-10 & 2010-11 it appears that:
a. M/s. Varun B Corporation, M/s. Nishoo Arts, and M/s. Global Integrated Technology have a single income source from manufacturing Duplex Boxes on contract, job work, and printing & lamination. M/s. Bela Textile is a trading firm without manufacturing facilities. All are proprietorship firms with no distinct separation.
b. The owner of factory premises situated at 136/2, Plot No-24, Sai Leela industrial estate, old petrol pump, udhna, Surat is Shri Varun Aggarwal and Shri Prashant Aggarwal.
c. Manufacturing facilities overlap; premises utilization reveals mutual interest between M/s. Global Integrated Technology and M/s. Nishoo Arts, with evidence suggesting physical location mismatch. No rent paid, indicating a mutual arrangement.
d. M/s. Varun B Corporation lacks declared punching machines in records but has three semi-automated ones. Shared machinery among firms is evident, with machines not matching records.
e. M/s. Bela Textiles trades Duplex Boxes without manufacturing facilities, sourcing products from related firms M/s. Varun B Corporation, M/s. Nishoo Arts, & M/s. Global Integrated Technology.
f. Payments for job charges were made by M/s. Varun B Corporation, M/s. Nishoo Arts, and M/s. Global Integrated to unidentified job workers, lacking details. Records were allegedly destroyed, indicating potential fabrication of job charges in the audit report.
g. M/s. Varun B Corporation, M/s. Nishoo Arts, and M/s. Global Integrated lacked independent manufacturing capability, sharing machinery without payment. Interdependence was evident, and no payment was made for shared facilities.
h. All four firms were proprietorships, related as per Income Tax Act. Owners were family members, indicating close ties.
i. M/s. Varun B Corporation made no payment to related firms during 2009-10 and 2010-11, based on Section 40A(2)(b) declarations in the audit report.
j. M/s. Nishoo Arts also made no payment to related firms during 200910 & 2010-11, as per Section 40A(2)(b) declarations.
k. M/s. Global Integrated Technology made payments for rent and electricity to M/s. Varun B Corporation but none to M/s. Nishoo Arts and M/s. Bela Textiles, indicating selective transactions.
l. M/s. Global Integrated Technology did not compensate M/s. Nishoo Arts for premises and electricity, suggesting indirect enrichment.
m. M/s. Bela Textiles made payments to M/s. Nishoo Arts and M/s. Varun B Corporation for job charges, but none to M/s. Global Integrated Technology, indicating biased transactions. Expenses manipulation was observed in salary & wages, misleading the conversion expenses.
n. Scrutiny of the records/documents produced by the HDFC Bank was done by the proper officer.
o. Scrutiny of M/s. Varun B Corporation’s VAT return for 2010-11 revealed discrepancies. Although Rs. 10,019/- VAT payment was shown, it wasn’t debited from M/s. Varun B Corporation’s account. The payment was traced to M/s. Nishoo Arts account, indicating financial interdependence.
p. M/s. Bela Textiles, engaged in trading, sourced Duplex Boxes on job work basis from M/s. Varun B Corporation and M/s. Nishoo Arts. Central Excise duty on manufactured Duplex Boxes wasn’t paid. Raw material and job charges need to be considered for assessable value.
q. Job charges received from M/s. Bela Textile were taken from the Audit Report. In 2009-10, job charges paid amounted to Rs. 13,46,361/-. Based on the ratio of payment, raw material values for M/s. Nishoo Arts and M/s. Varun B Corporation were Rs. 50,85,625/-and Rs. 27,16,535/-, respectively.
r. M/s. Nishoo Arts & M/s. Varun B Corporation received job charges of Rs. 10,00,727/- and Rs. 17,65,082/- in 2010-11, totaling Rs. 27,65,809/-, for converting Duplex Paper Board into Duplex Boxes. No job charge was paid to M/s. Global Integrated Technology.
s. M/s. Varun B Corporation, M/s. Nishoo Arts & M/s. Global Integrated Technology sold Duplex Boxes without paying Central Excise duty. The value of finished goods is based on the Audit Report.
t. In addition, M/s. Varun B Corporation and M/s. Nishoo Arts manufactured and cleared Duplex Boxes for M/s. Bela Textile on job work basis without paying Central Excise duty. The value of these finished goods should also be considered.
1.3 During the investigation, statements from customers (as listed in Para 24.2 of the SCN) were recorded under Section 14 of the Central Excise Act, 1944. Customers of M/s. Varun B. Corporation, M/s. Nishoo Arts, M/s. Global Integrated Technology, and M/s. Bela Textiles affirmed purchasing Printed Duplex Boxes (Top, Bottom & Tray) from these entities. Buyers stated that they were approached by Shri Varun Aggarwal, Shri Prashant Aggarwal, or Shri Rakesh Aggarwal for selling printed Duplex boxes. Orders were placed telephonically, and payments were made through payee cheques as instructed by the respective individuals. No orders specified manufacturing locations.
1.4 In the show cause notice it is evident that three factories, including M/s. Varun B Corporation, showed the manufacturing of Duplex Boxes, but they utilized each other’s facilities. Considering M/s. Varun B Corporation as the manufacturer, the clearance value of the other two factories needs to be added for calculating the total aggregate clearance value. None of the factories fulfilled the conditions to avail SSI benefit under Notification No. 8/2003-CE, requiring them to pay Central Excise duty from the first clearance during 2009-10 and 2010-11. The aggregate value of clearance by M/s. Varun B Corporation during 2009-10 exceeded Rs. 400 Lakhs, crossing the threshold limit for exemption during 2010-11. SSI benefit won’t be available separately to each factory, and none fulfilled the conditions for exemption, necessitating the payment of Central Excise duty. M/s. Varun B Corporation manufactured excisable goods during 2009-10 and 2010-11 but failed to obtain Central Excise registration, maintain production records, prepare Central Excise invoices, and pay Central Excise duty, totaling Rs. 1,00,06,208/- on Duplex Box clearances valued at Rs. 10,59,02,636/-.
1.5 The adjudicating authority vide impugned Order dt. 28.10.2014 confirmed the demand of Rs. 1,00,06,208/- against M/s Varun along with interest and equivalent amount of penalty. A penalty of Rs. 10,00,000/-each was also imposed upon the co-appellants under Rule 26 of Central Excise Rules,2002. Hence, the present appeals by the above-named Appellants.
2. Shri Anish Goyal, learned Chartered Accountant appearing for the Appellants submits that all the units are different having separate plots number. In fact, the date of incorporation of M/s Nishoo Arts and M/s Global Integrated Technology are prior to date of incorporation of M/s Varun. In support of their contention, the appellant submitted documents of all four firms, namely, CST Certificate, VAT Certificate, MSME Memorandum, IEC Code certificate, Professional Tax Certificate, PAN Card, TAN, Tax Audit Reports, Copy of License to Work at factory of M/s Nishoo Arts, Copy of Gumastadhara, Vera Bills, Net Worth Certificate. Also, he submitted factory layout plans, Light bill, Insurance policy, Standard Fire and Special Perils Policy, Salary register of working employees for all firms, Sample purchase and sale invoice. He further submitted the following:-
a. That all the 3 units have their own shelves to keep records. It is not correct to say that records were found at Pot No. 24. In fact, it was brought by them from other 2 units for verification. Even otherwise, Common records or accountant or common storage of raw materials cannot be made ground for clubbing of clearance. In this regard he relied upon the judgements of:-
