The Allahabad bench of Customs, Excise And Service Tax Appellate Tribunal ( CESTAT ) has held that clearance of plastic in both units owned by members of the same family cannot be clubbed in the absence of mutuality of interest.
M/s TSM Plastics, the Appellant-I is engaged in the manufacture of Plastic caps & Other plastic articles falling under Chapter Hearing No.39 of the Central Excise Tariff Act, 1985. Appellant-II and Appellant-III are partners in the partnership firm functioning under the name of Appellant-I. Appellant-II was looking after all the business affairs of Appellant-I. Specific information was received that Appellant-I was engaged in the manufacture of excisable goods without having Central Excise registration and clearing them without payment of duty, though turnover of the company was approximately Rs.3.00 crores in the financial year 2012-13 and approximately Rs.6 crores in the financial year 2013-14. Thus, they had crossed the exemption limit of Rs.1.5 crores in a financial year as stipulated in Notification No.08/2003-CE dated 01.03.2003 as amended meant for small-scale industries.
Investigations were initiated and a search was conducted in the factory premises of Appellant-I on 01st December 2014 in the presence of Appellant-II. During the investigation, it was observed that appellants procured the raw materials namely 11DPE & PP Plastic granules from different suppliers such as M/s Kailashpati Polyplast Pvt. Ltd. and M/s Yashu Plastics all from Noida. Some invoices and bills issued by M/s TSM were also seen and it was observed that they had cleared the excisable goods such as Plastic Bottles with or without caps to their different customers. One of the major customers was M/s G.D. Foods Manufacturing India Pvt. Ltd., Delhi and Neemrana.
It was observed that appellants were maintaining their financial account in a computer system loaded with Tally (software). On examination, it was revealed that besides the accounts of Appellant-I, accounts of another company by the name of M/s L.S. Plastics were also being maintained in the same computer system. Appellant-III who is one of the partners in Appellant-I was the proprietor of the said unit, which was engaged in the manufacture of similar goods and they were indulging in evasion of duty by resorting to claiming exemption under Notification No.08/2003-CE dated 01.03.2003.
During the search, it was found that M/s L.S. Plastics started production in August 2014 and were manufacturing plastic bottles and clearing the same to their customer M/s G.D. Foods Manufacturing India Pvt. Ltd., Delhi and Neemrana.
The appellant-I has claimed the benefit of exemption under Notification No.08/2003CE dated 01.03.2003 even after crossing the exemption limit as provided by the said notification. Accordingly, the goods found in the premises of the appellant-I and M/s L.S. Plastics were detained/ seized by the officers vide seizer memo dated
19.05.2015. A Show cause notice dated 25.05.2015 was issued for confiscation of the seized goods and imposition of penalty under Central Excise Rules, 2002.
These units were engaged in the manufacturing of plastic caps and other articles of plastic of complementing nature. The units were controlled by Shri S.K Sharma with the tacit support of Shri Sanjeev Sharma Raw materials for both the units were purchased by Shri S.K Sharma as a partner of the appellant and details of raw material available in each of the units were maintained only at the premises of the appellant.
The authorized person of both the units was on the payroll of the appellant. Scrutiny of evidence and through statements recorded it became apparent that the entire manufacturing activity was divided over two manufacturing premises under the supervision of the same set of persons belonging to the same family. The entire manufactured goals were meant for common customers and marketing was also controlled by the directors of the appellant. The separate banking and commercial identities were created as a facade to show their separate and independent existence/entity with the intent to keep the value of clearances of their units within the prescribed SSI exemption limit individually.
It was observed that both the units were registered separately with Central Excise Income Tax. Sales Tax, Industries Deptt and are located on separate premises and both maintain Independent bank Accounts however, no accounts or records were being maintained at the premises of M/s L S Plastics and all this activity was being controlled centrally in the premises of M/s TSM Plastics. Moreover, Shri Sanjeev Sharma was a partner in M/s TSM Plastics and proprietor in M/s LS Plastics Further Shri Binod Bharti was the common accountant for maintaining all the records of M/s LS Plastics and M/s TSM Plastics.
All the units were separately registered with income tax as well as sales tax authorities. Their locations of business were at separate places. One of the units was located in Delhi itself. There was no financial inter-twining and all the units were working with their independent financial resources. There is no evidence on record to show that there was any mutuality of interest between the units except for the fact that Shri Pradeep Khanna was sometimes looking after the affairs of the units belonging to his wife which, as already discussed by us, cannot be made the basis for clubbing the clearances of the units owned by husband and wife.
A two-member bench comprising Mr P K Choudhary, Member (Judicial) and Mr Sanjiv Srivastava, Member (Technical) reduced the penalty on appellant-II to Rs.50,000/- only and on appellant-III to Rs.75,000/-. With the above modification, the CESTAT upheld the impugned order. The Appeal of appellant-I is dismissed and the appeals by appellant-II and appellant-III are partly allowed to the extent of reducing penalties.
Shri Rajesh Kumar Yadav appeared for the Appellants and Shri Manish Raj, Authorised Representative for the Respondent
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