ANNAPOORNA MILLS Vs. COLLECTOR OF CENTRAL EXCISE

JUDGEMENT

(1.) THIS is an appeal against the order of the Collector of Central Excise, Coimbatore, dated 13-10-1987. Brief facts of the case are that the officers of the Central Excise Department on a visit to the premises of M/s. Annapoorna Mills, Erode, found evidence of use of power in the processing of textile fabrics in the Mill. The Mill had not taken out a Central Excise licence and the fabric found were seized. The officers also found on a scrutiny of the records that there was another unit functioning in the same premises under the name of M/s. Abirami Mills. Both the units were found to be engaged in the business of processing of fabrics. The power was found to be used in M/s. Abirami Mills unit and held that the benefit of Notification 130/82 and Notification 253/82 availed of by the two units was not available to them. The officers held M/s. Annapoorna Mills as the manufacturing unit and treated M/s. Abirami Mills as shadow unit and issued a show cause notice to M/s. Annapoorna Mills and duty in respect of the past clearances was demanded from them. It was, however, claimed on behalf of the appellants before the lower authority that M/s. Annapoorna Mills was operating without the aid of power and the adjoining Mills M/s. Abirami Mills was processing the textile fabrics with the aid of power and these processings were such as were covered within the purview of the exemption Notification 253/82. A plea was made that the two units are separate entities and there was no warrant in treating the two units as one and disentitling them to the benefit of the Notification. The Collector took note of the fact that both the units were partnership concerns and had common partners and that the creation of separate factories was a matter of convenience. The Collector considered the plea that mere commonality of some partners is not suggestive of interdependence and has stated in his order as under :

(2.) The learned Advocate for the appellants pleaded that the two units were separate and that M/s. Annapoorna Mills is entitled for the benefit of Notification 130/82 inasmuch as they were carrying on the processing without the aid of power and M/s. Abirami Mills were eligible for the benefit of Notification 253/82 inasmuch as they were carrying on the processing as covered under Notification 253/82. He conceded, no doubt, there are common partners between the two units, one of the unit having 3 partners while the other unit has only two partners out of these 3 partners. He pleaded that the learned Collector has conceded that having common partners did not make the two units as one, On a query from the Bench he, however, conceded that there is no partition between the two shed in which the two units were housed and that the units had also a common office as also common electricity meter. He stated that the building belonged to Shri A.K. Shanmugasundaram and the rent was paid by the two units to the said person and on a further query from the Bench it was conceded that there was no agreement regarding the charges to be covered or sharing in respect of common godown as also electricity, etc. The learned Advocate relied on the following two decisions :

(3.) THE short point that falls for our consideration is whether the two units can be treated as one for the Central Excise purposes and in that case whether the benefit of Notification 130/82 and Notification 253/82 as claimed would be available to the appellants. We observe that the learned Collector has recognised that the two units have to be treated as separate concerns by virtue of the two being separate partnership entities. Having recognised the legal status of the two units as such, he has proceeded to hold that so far as manufacture of fabrics in the two units are concerned the same has to be treated as if by one unit. He has placed heavy reliance on the fact that the appellants had common store and the chemicals and grey fabrics were stored for the two units together and also the fact that he could not accept the evidence of rent having been paid regularly. THE learned Collector has not examined the fact nor any investigation has been done to show that the fabrics which had been brought in for the purpose of processing were taken through the processing in the one unit and completed in the other unit or the processing of the fabric was done separately and these processes ended with the operation in each unit. No statements have been recorded from the workers of the units or from the partners to bring home the fact that in fact the operations carried out in the two units were in tandem and that as per the practice of the trade all these had to be carried together for the fabric to emerge in the marketable form. THEre is nothing on record as to the connection between the processing done in one unit and with that done in the other unit and the ultimate nature of the fabrics emerging from each unit. THEre is also nothing on record to show whether the two units were managed by one person and the sale and purchase of the fabrics were also done by the same person and that the two units were only in paper insofar as the total business operations were concerned. An inference has been drawn from the mere fact that the appellants had a common store. THE position as to whether the records for the quantity of the fabrics processed in each unit were common and that the profits which were generated in each unit were reckoned separately or were being dealt with together is not on record. THEre is no investigation also in regard to that on record. After the learned Collector had accepted that the two units legally are separate partnership concerns, it was desirable for him to show that the processing operations and the business operations being carried out were such that these could be treated as the operations of one unit only. When the two concerns are partnership concerns and which have been accepted to be so by the authorities, some convergence of interest apparently can be there by way of accommodation for storing the material etc., but it has to be shown that the convergence is such that the operations of the two units could be taken to have been merged into one. This has not been brought on record. This Tribunal in the case of Mehta Dye-Chem. Industries and Ors. v. Collector of Central Excise, Bombay, 1988 (34) ELT 184 (Tri.) has held that when a number of partnership concerns were set up, the manufacturing operations of all the units had to be treated as that of one unit taking into account the evidence regarding the manufacturing and business transactions etc. having been done by one concern. It was shown in that case with the help of evidence that other units were only dummies. In the present case, while an element of suspicion has been created, no evidence has been brought on record to show in any way that the operations of the two units could be considered as in tandem and that the clearances and management of the two units are in fact such that the operation of the two units can be treated as if that of a single unit. THE suspicion regarding the storage of the materials of the two units at one place cannot take the place of proof that the business transactions of the two units including the manufacturing activity were in fact one operation. As stated earlier, no statement has been recorded from anybody to bring out the nature of the operation of the two units and inference has been sought to be drawn from some common features alone. As it is the two units were in existence before the Notifications came into force and this has been accepted by the learned Collector and in this background it was necessary for the department to establish with evidence that in fact the operations of the two units were part of the same business event. While the operations of the appellants may be entirely colourable, we cannot say that the case against the appellants has been established beyond a reasonable doubt. We, therefore, give the benefit of doubt to the appellants and hold that the case against them has not been proved by the authorities with requisite evidence and set aside the order of the lower authority with consequential relief. We, therefore, allow the appeal in the above terms.