AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION CENTRAL EXCISE APPEAL NO.229 OF 2008 M/s. Harnik Nutrients Private Limited, a company incorporated under the Companies Act, 1956, having its Registered Office at A-23, (Ground and First floor only), and A-22 (First floor), H-Block, MIDC, Pimpri, Pune – 18. ) ) ) ) ) ) ) .... Appellant Versus Commissioner of Central Excise, & Customs, Pune, 41/A, ICE House, Sasoon Road, Opp. Wadia College, Pune – 411 001. ) ) ) ) ..... Respondent ALONG WITH CENTRAL EXCISE APPEAL NO.230 OF 2008 M/s. Harnik Food Industries, Earlier a registered partnership firm, and presently a proprietary concern, through its sole proprietor Shri Suresh N. Hingorani, adult, Occupation : Business, having his office at A-22, H-Block, M.I.D.C., Pimpri, Pune – 411 018. ) ) ) ) ) ) ) ) .... Appellant Versus AJN 2 Commissioner of Central Excise, & Customs, Pune, 41/A, ICE House, Sasoon Road, Opp. Wadia College, Pune – 411 001. ) ) ) ) ..... Respondent Mr. A.A. Valsangkar i/b Mr. P.J. Das for the appellant. Mr. R.B. Pardeshi for the respondents. CORAM : SMT. RANJANA DESAI & J.P. DEVADHAR, JJ. DATED : 28TH JANUARY, 2009. JUDGMENT :- (Per Smt. Ranjana Desai, J.) Rule. Rule made returnable forthwith. By consent of the parties, taken up for hearing and final disposal. 1. In Central Excise Appeal No.229 of 2008, M/s. Harnik Nutrients Private Limited is the appellant. In Central Excise Appeal No.230 of 2008, M/s. Harnik Food Industries is the appellant. In both the appeals, order dated 21/1/1996 passed by the Commissioner-II, Central Excise & Customs, Pune and order dated 11/7/2008 passed by the Customs, Excise & Service Tax Appellate Tribunal (for short, “the CESTAT”) are under challenge. Since common facts are involved in these two appeals, they can be disposed of by a common judgment and, hence, this common AJN 3 judgment. 2. It is necessary to begin with the facts of the case. On the basis of intelligence, a vehicle loaded with goods was intercepted by Central Excise Officers on 11/10/1993. The vehicle was found loaded with sugar confectionery etc. The gate pass accompanying the vehicle was not sufficient to cover the quantity loaded in the truck. The Officers therefore visited the factory premises of M/s. Harnik Food Industries from where the goods were loaded in the truck and found that the duty was not debited either in PLA or RG23A Part II and that the gate pass prepared was only for the part quantity. The goods i.e. sugar confectionery valued at Rs.1,14,829.94 were therefore seized along with the truck under a regular panchnama. 3. On 12/10/1993, the factory premises of M/s. Harnik Food Industries and M/s. Harnik Nutrients Private Limited were searched and certain incriminating documents were recovered. Investigations were carried out and statements of persons in- charge of the factory were recorded. The investigation revealed that M/s. Harnik Food Industries and M/s. Harnik Nutrients Private AJN 4 Limited were having their manufacturing premises in the same block i.e. Plot No.A-27, N Block, MIDC, Pimpri, Pune – 18. M/s. Harnik Food Industries was having plant and machinery for manufacture of sugar confectionery. In the premises of M/s. Harnik Nutrients Private Limited, sugar confectionery valued at Rs.8,47,538/- was found unaccounted for in the statutory register and was therefore seized. Statements of Mr. Nanik L. Hingorani, partner in M/s. Harnik Food Industries and Director in M/s. Harnik Nutrients Private Limited, Mr. Shivprasad Shankarlal Pandya, Supervisor in M/s. Harnik Food Industries , Mr. Suresh Nanik Hingorani, partner of M/s. Harnik Food Industries and director of M/s. Harnik Nutrients Private Limited were recorded. 4. Investigations further revealed that M/s. Harnik Food Industries had got registered their trade mark as “HARNIK” and “HARNIK PHANTOM” for most of their products including soft toffee and other products vide letter dated 3/12/1993 issued by Deputy Registrar for Trade Marks. From the samples drawn at the time of panchnama dated 12/10/1993 and at the time of release of the goods under seizure, it was observed that all the products bear the trade mark “HARNIK” and that some products bear trade mark AJN 5 “HARNIK PHANTOM” on them. Soft toffee which is said to be manufactured by M/s. Harnik Nutrients Private Limited contained the labels of M/s. Harnik Food Industries . It was noticed that some of the samples showed the name of manufacturer as M/s. Harnik Nutrients Private Limited but the slip inside stated that in case of any complaints M/s. Harnik Food Industries may be contacted. 5. In view of the facts disclosed during investigation, it was felt that M/s. Harnik Food Industries has floated a dummy unit in the name of M/s. Harnik Nutrients Private Limited with an intention to evade duty and take advantage of small scale exemption; that the two units were one and the same and that they were owned by Hingorani family and their relatives. It was also noticed that the plot on which the two units were situated was owned by M/s. Harnik Food Industries . A part of the said plot was allotted to M/s. Harnik Nutrients Private Limited without charging any rent. Both the units were using common trade mark “HARNIK” which was owned by M/s. Harnik Food Industries for which M/s. Harnik Nutrients Private Limited did not pay any royalty. M/s. Harnik Nutrients Private Limited did not have any machinery of its own to manufacture confectionery. Show cause notice was therefore AJN 6 issued to M/s. Harnik Food Industries, M/s. Harnik Nutrients Private Limited and its partners and directors for alleged contravention of various rules specified thereunder and inter alia, demanding duty of Rs.4,54,435/- in respect of excisable goods manufactured and cleared in the name of M/s. Harnik Nutrients Private Limited during the period from 17/1/1991 to 11/10/1993 even though they were actually manufactured by M/s. Harnik Food Industries. 6. The show cause notice was replied to by M/s. Harnik Food Industries and M/s. Harnik Nutrients Private Limited. In their reply, the basic contention was that both the units have always been treated as separate units since they are located in different premises, have separate machinery and are registered as small scale units separately. It was contended that the two units are assessed to Income-tax and Sales-tax as separate entities. It was contended that they are independent of each other as there was no evidence regarding financial flow back. It was further contended that there was no evidence to establish that M/s. Harnik Nutrients Private Limited was a dummy unit created by M/s. Harnik Food Industries. It was pointed out that the issue regarding the denial of exemption of Notification 175/86 and clubbing of the clearances of AJN 7 the two units was taken up by the department in the year 1988 by issue of a show cause notice. However, the said show cause notice was dropped on 29/3/1989 holding that the exemption cannot be denied for use of common brand name and the clearances cannot be clubbed. It was urged that since the issue was already resolved, it cannot be reopened. Several circumstances were enumerated which according to both the appellants clearly indicate that M/s. Harnik Food Industries and M/s. Harnik Nutrients Private Limited are two distinct units and there was no financial flow back. 7. By order dated 24/1/1996, the Commissioner of Central Excise & Customs, Pune, after detailed examination of the submissions advanced by both sides confirmed the demand of Central Excise duty of Rs.4,54,435/- from the appellants relating to the clearance of the goods as quantified in his order. He also imposed penalty of Rs.20,000/- each on both the appellants and penalty of Rs.5,000/- each on the directors and/or partners of the appellants. He ordered enforcement of the bond given at the time of provisional release of the goods by appropriating Rs.1,27,130/- in terms of the bond. He ordered confiscation of the land, plant AJN 8 and machinery levying redemption fine of Rs.1,00,000/-. 8. Being aggrieved by the said order, both the appellants preferred appeals to the CESTAT being Appeal Nos.E/929/R/96- BOM & E/930/R/96/BOM. By order dated 23/7/1997, the said appeals were disposed of by holding that the clubbing of the clearances of the two appellants is sustainable in the facts and circumstances of the case. The order confiscating land, building and machinery was, however, set aside. 9. The appellants preferred Writ Petition No.1607 of 1997 challenging the judgment and order dated 23/7/1997. By order dated 28/4/2005, a Division Bench of this court remanded the matter to the CESTAT for fresh hearing in the light of circulars and documents relied upon by the appellants and the judgments of the Supreme Court mentioned in the said order. After remand, the CESTAT considered the matter afresh as directed by this court and held that clubbing of the clearances of both the appellants is in order. The CESTAT, however, held that the duty demand confirmed by the Commissioner is payable by M/s. Harnik Food Industries only. The confiscation of the land, building and AJN 9 machinery was set aside. Save for this modification, order dated 24/1/1996 passed by the Commissioner was upheld. The appellants are aggrieved by the above order and, hence, have approached this court. 10. We have heard learned counsel appearing for the appellants. He reiterated the grounds raised in the appeals. He submitted that the CESTAT erred in holding that the clubbing of the clearances of M/s. Harnik Food Industries and M/s. Harnik Nutrients Private Limited is in order. He submitted that the Board's Circular dated 29/5/1992 has been misinterpreted. He submitted that merely because the then partners of M/s. Harnik Food Industries are directors in M/s. Harnik Nutrients Private Limited, it cannot be presumed that there is financial flow back. Learned counsel submitted that the CESTAT failed to appreciate that both the units have independent existence and that they are clearly separate units. He further submitted that the two units are manufacturing altogether different items on separate machineries. The machineries of M/s. Harnik Food Industries cannot manufacture biscuits, soft toffees, etc. and similarly machineries of M/s. Harnik Nutrients Private Limited cannot manufacture hard sugar AJN 10 confectioneries. Learned counsel submitted that M/s. Harnik Nutrients Private Limited was paying to M/s. Harnik Food Industries consideration of Rs.12,000/- per annum for use of premises and, therefore, assuming that accommodation was given by M/s. Harnik Food Industries to M/s. Harnik Nutrients Private Limited, that would not suggest that M/s. Harnik Nutrients Private Limited was a dummy unit of M/s. Harnik Food Industries. Assuming that M/s. Harnik Nutrients Private Limited was to share 2% of the sales turnover with M/s. Harnik Food Industries, this fact merely establishes that rest of the 90% turnover remains with M/s. Harnik Nutrients Private Limited. This circumstance should not have led the CESTAT to draw an inference that both the appellants are one and the same unit. Learned counsel submitted that the electricity bills were paid by both the appellants separately. According to learned counsel, the CESTAT erred in recording that the office staff was common for both the appellants. Learned counsel further submitted that the word “HARNIK” being the first name of both the appellants, none was debarred in law from using the said mark “HARNIK” on their products. M/s. Harnik Nutrients Private Limited being in law a SSI unit was entitled to use the name “HARNIK”. Notification No.175/87 did not prohibit the user of the said name AJN 11 “HARNIK” by M/s. Harnik Food Industries. Besides the said trade mark was not a registered trade mark during the subject period. Learned counsel submitted that in fact the Assistant Collector of Central Excise and Customs of the same Division by letter dated 30/3/1989 held that affixing brand name would not be hit by the mischief of paragraph 7 of the Notification No.175/86 dated 1/3/1986. 11. Learned counsel submitted that the CESTAT has proceeded on the basis that the raw materials were stored together by both the appellants but it failed to consider that payments for raw materials were made separately by the appellants. According to learned counsel, a common management does not establish financial flow back or interlinking and no identity of interest between the two units can be established on this ground in the absence of other evidence. Learned counsel submitted that the appellants are separate units whether considered from their constitution angle or operational angle or from their manufacturing activities angle. 12. Learned counsel further submitted that non-filing of AJN 12 declaration by the directors after M/s. Harnik Nutrients Private Limited revived its unit is not fatal. It is at the most a technical lapse. Similarly, the fact that the gate pass in full could not be prepared and the duty could not be debited in the PLA is a mere technical lapse. No dishonest intention can be imputed to the appellants. Learned counsel submitted that the solitary slip found in the goods manufactured by M/s. Harnik Nutrients Private Limited that in case of any complaint M/s. Harnik Food Industries may be contacted would not lead to an adverse inference against the appellants. He further submitted that the appellants were denied the right to cross-examine the witnesses. Thus, there is a breach of principles of natural justice. Learned counsel submitted that the CESTAT has clearly ignored the relevant materials and misconstrued the evidence on record. Learned counsel urged that in the circumstances the impugned judgments be quashed and set aside. Learned counsel for the respondents on the other hand submitted that the impugned judgments are unassailable and deserve to be confirmed. 13. We are not impressed by any of the submissions of learned counsel. There are certain circumstances which are staring in the AJN 13 face of the appellants for which there is no acceptable explanation offered by the directors/partners of the appellants. We shall enumerate those circumstances. 14. It is important to note that both the appellants have their premises in the same block. The property tax, water charges and other charges relating to the entire premises occupied by both the appellants are paid by the appellants M/s. Harnik Food Industries. As per the agreement, appellants M/s. Harnik Nutrients Private Limited were to share 2% of their turnover with M/s. Harnik Food Industries. The office staff is common for both the appellants and their salary is paid by the appellants M/s. Harnik Food Industries. The products of both the appellants are sold through a common marketing agent. Trademark “Harnik” belongs to M/s. Harnik Food Industries for which M/s. Harnik Nutrients Private Limited did not pay any royalty. Trademark “Harnik” is used by both the appellants. Both the appellants are controlled by Hingorani Family and, therefore, there is identity of interest. Investigation disclosed that all the production activities were carried out in the premises of M/s. Harnik Food Industries and in the other premises raw materials and packing materials of M/s. Harnik Food Industries AJN 14 were found stored. Both the appellants were having common office in respect of the work of documentation. 15. It appears that in 1989 M/s. Harnik Nutrients Private Limited was closed down on account of Labour problems and their Central Excise Licence was surrendered in June, 1990. That unit was restarted in January, 1991. However, this fact was not brought to the notice of the department by filing application. This is a serious lapse and not a mere technical lapse as suggested by the appellants. Till the vehicles were seized and investigation was done, this fact did not come to light. 16. All the circumstances narrated above clearly establish that M/s. Harnik Food Industries were the real manufacturers and M/s. Harnik Nutrients Private Limited were only a dummy created for the purpose of availing the benefit of SSI Exemption. After remand, the CESTAT has considered the relevant judgments as directed by this court. It would be useful to refer to the observations of the Supreme Court in Supreme Washers (P) Ltd. v. Commissioner of Central Excise, Pune, 2003 (151) ELT 14 (SC) to which CESTAT AJN 15 has made a reference. While considering the same question, the Supreme Court has expressed that presence of factors like common procurement of raw material, common stock accounting and planning, interdependence in manufacturing operations, common use of machinery, common marketing arrangements and free flow of finance between units cumulatively indicate interrelationship and interdependence with each other. The above observations are clearly attracted to the facts of the present case. The fact that M/s. Harnik Nutrients Private Limited were to share 2% of their sale turn over with M/s. Harnik Food Industries confirms that there was financial flow back. 17. The appellants have denied the respondent's case in all respect. We are not inclined to accept the appellant's version. The concurrent findings of facts recorded by both the authorities inspire confidence. They cannot be characterized as perverse warranting interference by us. We do not find any substance in the grievance that because the appellants' request for cross-examination was declined there was a breach of principles of natural justice. It appears that cross-examination of all the seizing officers and panchas was allowed. There is therefore substantial compliance AJN 16 with the principles of natural justice. The earlier order dated 30/3/1989 will have no relevance to the impugned orders because they will have to be judged on their own merits. 18. In the circumstances, we are of the opinion that clubbing of clearances is justified. There are no questions of law involved in these appeals. No interference is warranted with the impugned orders. The appeals are, therefore, dismissed. [SMT. RANJANA DESAI, J.] [J.P. DEVADHAR, J.]