Arijit Pasayat, J. - (1.) The Custom, Excise and Gold (Control) Appellate Tribunal, New Delhi (for short CEGAT) by the common impugned judgment held that there was no inter-dependence so far as the respondent No.1-company and respondent Nos. 2-4 companies are concerned.
(2.) Background facts in a nutshell are as follows : Respondent No.1 - M/s. Modi Alkalies and Chemicals Ltd. (in short MACL) is engaged in the manufacture of caustic soda of which Hydrogen gas is a by-product. The Central Excise Authorities noticed that in reality MACL was engaged in the manufacture of Hydrogen gas falling under sub-heading 2804.90 of the schedule of the Central Excise Tariff Act, 1988 (in short Tariff Act). But with a view to evade payment of excise duty it floated three front companies, namely, respondent Nos. 2 to 4 i.e. M/s. Maha-baleshwar Gas and Chemicals Pvt. Ltd. (for short MGCPL), Shri Chamundi Gas and Chemicals Pvt. Ltd. (for short SCGCPL) and M/s. Nippon Gas and Chemicals Pvt. Ltd. (for short NGCPL). All the three front companies were in vicinity of the factory of MACL. What in reality happened was that through pipelines Hydrogen gas was sent to the three front companies for compressing and bottling the gas. The sole object was to avail benefit of exemption given to small scale industries under the Central Excise Notification No. 1/93 dated 28-2-1993 and thereby evade payment of central excise duty. With a view to unravel the truth, Director General of Anti-Evasion (for short DGAE) searched the factory and office premises of MACL and the three front companies on 27-9-1996. It was found that all the three bottling units were located in one single shed and were separated from each other by small brick walls of about 4 ft. height. The Directors of the three front companies were employees of either MACL or other Modi Group of companies and they were frequently changed. They had common staff for maintenance of records, and operation of the units. The main plant and machinery i.e. cylinders had been supplied only by MACL and the total finance was provided by MACL as unsecured loans or had been arranged by finance companies whose whereabouts were not even known to the Directors of the three front companies. Marketing of the products was done by one Ritesh Beotra, a so-called Director of SCGCPL who was working as Deputy Manager (Marketing) in M/s. Modi Gas and Chemicals Sales Depot at Delhi. He was marketing various gases manufactured by a Modi group concern and was answerable as an employee of MACL. It was, therefore, concluded that MACL had control over Hydrogen gas even after the stage of bottling till it was sold to the customers. The Balance-Sheets and other financial statements of the three units revealed that whatever income they earned had gone to MACL in the form of lease rent of cylinders. One Mr. Sita Ram Goswami, Accountant of MACL and Mr. Ashok Kumar, Chief Operating Officer of MACL admitted that some amount of cash was also collected by MACL over and above the invoice prices of Hydrogen gas supplied by three companies. It was noted that while front companies were being supplied gas by MACL @ 0.50 per unit, till August 1996, the same gas was sold by the three companies @ Rs. 5/- per unit. Keeping in view all these factors the authorities were of the view that MACL had created the three companies with the fraudulent intention to avail benefit of exemption granted under Central Excise Notification No. 1/93 dated 28-2-1993 and has mis-declared the assessable value in the invoices with the intention to evade central excise duty.
(3.) Show-cause notice was issued requiring MACL to show-cause as to why the central excise duty of Rs. 20,58,732.65 for the concerned period i.e. 9-5-1995 to 27-9-1996 should not be recovered from it under the provisions of Rule 9(2) of the Central Excise Rules, 1945 (in short the Rules) read with Section 11 of the Central Excise Act, 1944 (in short the Act) by invoking the extended period of limitation. Further, penalty in terms of Rules 52A and 173Q of the Rules and Section 11 of the Act along with interest to be determined under Section 11 A(2) was to be levied. It was also required to show cause as to why the land, building, plant and machinery installed in the three front units were not to be confiscated in terms of Rule 173Q of the Rules. Three officials were asked to show cause as to why penalty should not be imposed under Rule 209A of the Rules on each of them. On receipt of the show-cause, MACL replied that the three companies were independent entities with corporate existence and were using their own machinery. The loans have been returned and on the cylinders lease rent had also been paid. Merely because MACL had taken the cylinders on lease and had supplied to the three companies, no adverse inference was to be drawn. Even if common staff maintained the records and operated units that would not prove that the companies did not exist or that MACL was the company having manufacturing activities in their premises. Similar replies were filed by the three companies who denied that they were fake units or front companies. It was pointed out that all requisites of central excise laws were followed. There was nothing suspicious in the transactions entered into by them with MACL.;