By TIOL News Service

MUMBAI, JUNE 01, 2018: THE appeals filed by the assessees were admitted on the following two substantial questions of law:

1) Whether in the facts and circumstances of the case, the CESTAT erred in confirming the duty invoking the extended period of limitation when the finding on suppression by the CESTAT falls way short of the requirements of proviso to section 11A(1) of the Central Excise Act, 1944?

2) Whether in the facts and in the circumstances, the CESTAT erred in demanding duty both from the appellant (M/s. Shansuk Industries) and also M/s. Shandar Products after holding that the clearances of both the units are to be clubbed, contrary to the decision of Supreme Court in Gajanan Fabrics Distributors - 2002-TIOL-2708-SC-CX.

Infoar as the allegation of clubbing of clearances is concerned, the SCN alleges –

"…It is therefore established that both M/s. Sansuk Industries Ltd. and M/s. Shandar Products do not have the facility to independently manufacture a single piece of any of the products shown to independently manufacture a single piece of any of the products shown to have been cleared under their respective invoices. Thus both M/s. Sansuk Industries Ltd. and M/s. Shandar Products are not independent manufacturers having independent factories. So far as the said finished goods cleared under the invoices of M/s. Sansuk Industries Ltd. and M/s. Shandar Products are concerned, the premises of both M/s. Sansuk Industries and M/s. Shandar Products have to be collectively treated as one factory and not as two independent factories in terms of Section 2(e) of CEA, 1944. The clearances of the said finished products will therefore have to be treated as clearances as two manufacturers from one factory ..."

The Appellate Tribunal found that both the units have claimed SSI exemption under Notification No.1/93-CE which provides for aggregating the value of clearances from a factory even if the clearances are on behalf of one or more manufacturers. It was observed that though the appellants are two different manufacturers, since the finished goods are produced using the machinery and production facilities in the unit of the appellant [ M/s Sunsuk Industries ], the clearances are required to be aggregated in terms of the exemption notification.

On the issue of extended period of limitation, the Appellate Tribunal held that in the declarations filed from time to time by the appellants seeking exemption from registration, they have described the goods in question as "Articles of Plastics:Plastic water filter elements, cylinders, discs". However, at no point of time, they disclosed that the goods manufactured by them are vent plugs of various types.

Though the demand of duty was confirmed, the penalty amounts were considerably reduced by the Appellate Tribunal. The Appellate Tribunal held that confiscation was not warranted and proceeded to set aside the same along with redemption fine. The Appellate Tribunal observed that in view of confirmation of duty demand against the appellants, they should be allowed to take credit of input duty which was not taken by them earlier in view of exemption availed by them. It was also found that while quantifying the demand, the Commissioner has not taken into account the fact that the value realized by the appellants is to be taken as cum-dutyprice for computing the duty demand. For this purpose, a limited order of remand was made by the Appellate Tribunal.

Before the High Court, the appellant submitted that extended period of limitation cannot be applied as there is no suppression of material facts with the intention of evading tax; that they had declared that they manufacture articles of plastic and had also mentioned headings or subheadings. Reliance is placed on the decisions in Cosmic Dye Chemical - 2002-TIOL-236-SC-CX-LB, Pushpam Pharmaceuticals Company - 2002-TIOL-235-SC-CX, Densons Pultretaknik - 2003-TIOL-46-SC-CX and H.M.M. Limited - 2002-TIOL-120-SC-CX.

Insofar as clubbing of clearances is concerned, the appellants rely on the apex court decision in Gajanan Fabrics Distributors - 2002-TIOL- -SC-CX and submit that even assuming that clubbing is correct, CE duty cannot be demanded from the appellant M/s Shandar Products .

The High Court considered the submissions made by both sides and after reproducing the allegations leveled in the SCN and the findings of the adjudicating authority inter alia observed –

Clubbing of clearances:

“19. As regards clubbing, the Appellate Tribunal held that the appellants in these appeals are two different manufacturers, but finished goods are produced using the machinery and product facilities in the unit of the appellant in appeal no. 196 of 2006. We must note here that even in the reply of the appellants in both the appeals to the show cause notice, this factual allegation is not disputed. Therefore, it was rightly held that the clearances are required to be aggregated in terms of the Notification No.1/93-CE. We have perused the decision in the case of Gajanan Fabrics relied upon by the appellants. The said decision deals with the peculiar facts of the case before it. In the present case, in view of the admitted facts, clause 3 of the amended Notification No.1/93-CE will apply. Hence, on the aspect of clubbing, it is not possible to find fault with the finding in the impugned Judgment."

Limitation:

After extracting the decisions of the Supreme Court in the cases cited (supra), the High Court observed –

“…Thus, in this case, the finding of fact based on the material on record is that in the declarations made by the appellants there is an omission to mention the fact that various battery parts were being manufactured by them. If we see the description of the goods manufactured in the declarations filed by the appellants, the case made out in the show cause notice is substantiated that the appellants did not disclose that they were manufacturing the battery parts. As the Battery parts were not disclosed, appellants did not disclose the classification of the said Battery parts in their declarations. There is a specific allegation in the show cause notice that the goods actually manufactured were not declared which amounts to willful suppression of material facts with the intention of evading the duty on Battery parts. The show cause notice is based on what was revealed in the visit of the Preventive Section to the factories and investigation carried out thereafter. The Appellate Tribunal held that it was not merely a question of wrong classification, but it was a case of suppression. We agree with the findings of fact recorded by the Appellate Tribunal on this issue."

The appeals were dismissed.

(See 2018-TIOL-1032-HC-MUM-CX)