1. M/s. Swastika Metal Works, Jagad-hari (Haryana), is a partnership firm started in 1944. This firm produces non-ferrous alloys and sheets.
In February 1976, Swastika Metal Works (Utensils Division) came into existence. It was intended for the manufacturing of utensils. M/s.
Swastika Metal Works (Jagadhari) have given a portion of their premises on rent of Rs. 2,500/- per month to M/s. Swastika Metal Works (Utensils Division). On 25-7-77, a letter to that effect was communicated to the Superintendent, Central Excise, Yamunanagar. According to the appellants, Swastika Metal Works (Utensils Division) and Swastika Metal Works are two separate, independent and distinct partnerships. On 1-8-77, a letter was received from the Supdt., Central Excise, Yamunanagar, stating that the Asstt. Collector, Central Excise, Chandigarh, has held that both the units are to be treated as of the same manufacturer. The appellants sent a reply on 11-8-77 urging that they should be given an opportunity to explain the matter in person.
Thereafter, on 30-1-1978, the Assistant Collector, Chandigarh, held that M/s. Swastika Metal Works and M/s. Swastika Metal Works (Utensils Division) were two different firms with separate constitutions. He also held that the Utensils Division was entitled to exemption under Section 176/77-C.E., dated 18-6-77 if the total investment on plant and machinery was less than Rs. 10 lakhs. On 31-1-78, the appellants wrote to say that the value of plant and machinery installed in the Utensils Division was less than Rs. 3 lakhs. Thereafter, the Collector issued show cause notices on 14-5-82 and 20-5-82, respectively, to the Metal Works and the Utensils Division, alleging that they were working jointly as one industrial unit and as one manufacturer. Reliance was placed on the application for Industrial Licence dated 25-3-58, the application for import quota to M.M.T.C. dated 23-5-80 and the letter addressed to the Secretary, Ministry of Industry, dated 14-11-80.
Ultimately, the sum total of the capital investment made on the plant and machinery were valued as more than Rs. 10 lakhs, upto 31-3-81 and more than Rs. 20 lakhs thereafter. Excise duty of Rs. 5,16,048.13 was demanded for the clearances from the Metal Works and the Utensils Division as they were disentitled to the exemption being availed of.
The appellants sent a reply repudiating the allegation. They also pointed out that the show cause notice was barred by limitation. The Collector, by his order 31/83 dated 13-9-83, held against the appellants. He rejected the ground of estoppel stating that the matter was looked at after fresh evidence came to light and he was not bound by the decision of the Assistant Col-. lector. He found that M/s.
Swastika Metal Works should be deemed to be the owner of the entire industrial unit and the demarcation of the machinery on a rental basis was nothing but an eye-wash. He found that both the firms were family's concerns and they could hardly be separate entities for Central Excise duty purposes. Accordingly, duty amounting to Rs. 5,16,048.13 was demanded in respect of clearances from 1976-77 to 31-3-82. In view of the earlier order of the Asstt. Collector, no penalty was imposed.
Hence the appeal.
2. Shri M. Chandrasekharan, Advocate, argued that there are two independent partnership firms. Originally, there were 9 partners in Swastika Metal Works, but now there are 10 partners. Though the partners are identical in the Utensils Division, some of the partners represent their family as 'Karta'. Shri Chandrasekharan, therefore, argued that the two partnerships are separate. They have separate licences. He placed reliance on the Deed of Partnership dated 13-6-80 wherein some of the partners are described as representing their Hindu un-divided family. The Registrar of Firms has recognised Swasitka Metal Works (Utensils Division), Jagadhari, under the relevant provisions for registration of Firms. On 5-5-76, Swastika Metal Works, Jagadhari, have leased to the Utensils Division part of their plant and machinery comprising the machineshop, power presses, spinning lathes, scrapping machines, buffing spindles, dies, electric motors, oil engines, etc., required for the manufacture of utensils and installed in the building, according to the plan attached to the agreement. Shri Chandrasekharan pointed out that the Central Sales Tax authorities have recognised the Utensils Division as dealers for the purpose of Central Sales Tax. The Factory authorities at Chandigarh have registered the Utensils Division under the provisions of the Factories Act. He stated that the Collector has mainly relied on the application for licence under the Industrial Undertaking Rules, dated 25-3-58 by Swastika Metal Works. According to him, this application was submitted long prior to the constitution of the subsequent partnership. The Swastika Metal Works (Utensils Division) have also applied for import quota on 23-5-80, wherein they have referred to the Industrial Licence aforesaid. Shri Chandrasekharan argued that this statement would be irrelevant as regards the assessment in question. The Industrial Licence was granted to Swastika Metal Works, and since they % have rented out a portion to the Utensils Division, the import quota application, referred to that Registration Number. He referred to the terms of the application, wherein Swastika Metal Works (Utensils Division) have undertaken to utilise the goods allocated only in their factory. The partnerships though identical, according to him, were different and distinct legal entities. He relied on 1983 (14) ELT 1994 (G.D. Industrial Engineers, Faridabad v.Collector of Customs & Central Excise, Chandigarh) where it was held that a partner in any of the three firms is distinct from each of the three firms and vice-versa. Each of the three firms is separate and distinct from the other two and also distinct from the individual partners composing them, although they are identical. The goods cleared by them could not be treated as a collective entity. Reliance was also placed on 1981 ELT P. 62 and 1981 ELT P. 59. He argued that the show cause notice was not valid because-of the earlier findings of the Assistant Collector and unless it is superseded by another order, there cannot be a retrospective demand for duty. He also raised the question that resort to Section 11A could only be from November, 1980, and not earlier. The absence of review proceedings was also pointed out by him.
According to him, the Assistant Collector alone had a right to issue a show cause notice under Section 11A(2) and the show cause notice issued by the Collector was vitiated for this reason. He relied on 1984 (16) ELT 30 (Devi Dayal Electronics & Wires Ltd. and Anr. v. Union of India & Anr.), where the Hon'ble Bombay High Court has held that an industrial Unit must mean a separate or isolable part, concerned with the industry or a complex. A unit exclusively manufacturing varnish was held to be an industrial unit, even though the factory was intended for manufacturing electric wires, cables and varnishes. The value of the plant and machinery under the industrial unit where the goods on which exemption is claimed, should be properly understood, and in the case of two separate industrial units, the value of plant and machinery should be taken in isolation. He said that there was no dispute that the value of plant and machinery in the Utensils Division was Rs. 3 lakhs. This should not be clubbed with the value of plant and machinery of Rs. 19 lakhs in the Swastika Metal Works.
3. Shri Khanna, JDR, appeared in the earlier stages and Shri Kunhikrishnan, represented the Department at a later stage. On behalf of the Department, it was argued that there was one firm and the industrial licence was applied for as if it was a composite unit. In their application to the M.M.T.C., the Utensils Division have referred to the Metal Works as "our own factory". This application refers to the licence number in regard to the Swastika Metal Works. Again, in their application to the Government of India for Industrial Licence, they have submitted the value of machinery as Rs. 22,56,670.29. They have derived the benefit of the industrial licence. The partnership has apparently been constituted only with a view to avoid the payment of appropriate Excise duty. There was supersession of material facts. The show cause notice is valid. The raw materials have been applied for as if it was one unit. In 1983 (13) ELT1212 (Spencer & Company Limited, Madras v. Collector of Central Excise, Madras) the Tribunal has held that the term "Industrial Unit" would refer to the entire industrial complex embracing the manufacture of all the excisable goods. He, therefore, urged that the order of the Collector cannot be assailed.
4. In order to appreciate the respective contentions of the parties, it is necessary to advert to the actual wordings of Notification 176 of 1977 dated 18-6-77. The Notification reads as follows :- "In exercise of the powers conferred by Sub-rule (I) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), and cleared for home consumption on or after the first day of April in any financial year, by or on behalf of a manufacturer from one or more factories from the whole of the duty of excise leviable thereon, if an Officer not below the rank of an Assistant Collector of Central Excise is satisfied that the sum total of the value of the capital investment made from time to time on plant and machinery installed in the industrial unit in which the goods, under clearance, are manufactured, is not more than rupees ten lakhs : Provided that this exemption shall not be applicable to a manufacturer if the total value of all excisable goods cleared by him or on his behalf in the preceding financial year had exceeded rupees thirty lakhs : Provided further that the exemption contained in this notification shall apply only to the first clearances for home consumption by, or on behalf of, the manufacturer referred to in this notification, from one or more factories, upto a value not exceeding rupees thirty lakhs during a financial year subsequent to 1977-78, and upto a value not exceeding rupees twenty-four lakhs during the period commencing on the 18th day of June, 1977, and ending on 31st day of March, 1978.
For the purposes of determining the value of any capital investment, only the face value of such investment at the time when such investment was made shall be taken into account." From the above notification, it is clear that the exemption cannot be availed of if the value of the capital investment on plant and machinery installed in the industrial unit in which the goods are under clearance, are manufactured is more than Rs. 10 lakhs. It is common case that in respect of Swastika Metal Works the value of the capital investment on plant and machinery is Rs. 19 lakhs. In regard to the Utensils Division, the value of the plant and machinery is Rs. 3 lakhs.
If both are taken together, the appellant would not be entitled to the exemption. Per contra, if the two Units are considered in isolation as independent Units, then the exemption would be applicable to the Utensils Division. So it is purely a question of fact to find out whether they constitute a single unit or two independent and distinct entities.
5. The JDR pointed out that on 23-5-80 when an application for allotment of canalised items was made by M/s. Swastika Metal Works (Utensils Division) they have adverted to the licence obtained by Metal Works. Even in respect of the plant and machinery they have indicated the total value as Rs. 23,56,875.29. As against this we find that the appellants have produced the deed to partnership of the Utensils Division. The Utensils Division has been separately registered for the purpose of income-tax, sales-tax, registrar of firm, etc. A rental agreement between Metal Works and the Utensils Division has been produced. Most of the partners are identical in both the firms. But the question is whether the Utensils Division would be an Industrial Unit for the purpose of the notification. The Metal Works produces non-ferrous alloys and sheets. The Utensils Division manufacture utensils of copper alloys and stainless steel. The decision in 1984 (16) E.L.T. 30, the Bombay High Court had to consider the fact of Notification of 74/78. The words are almost identical. In that case the petitioners had a factory situated at Thane in which they manufactured electric wires, cables and varnishes. The petitioners claimed exemption provided by the notification. They contended that the company manufactured varnishes, which fall under Item 14 of the First Schedule to the Central Excise Act. The company did not manufacture any other goods covered by the said notification. They also stated that varnishes were manufactured in a separate independent building. The entire plant and machinery for the manufacture of the said varnishes were located only in that building. They urged that the manufacturing activity in regard to varnishes was confined to this independent compact unit. The Hon'ble High Court interpreted the words 'industrial unit' to mean "a separate or isolable part, concerned with the industry, of a complex".
They held that the plant and machinery within the petitioners factory at Thane used exclusively for the manufacture of varnishes must be held to be an industrial unit. On the facts of the present case it is obvious that the utensils which come under Item 68 are manufactured in this independent and separate building and for the purpose of the notification it should be considered as an industrial unit. The separate Central Excise Licences have been obtained for both the units.
The mere fact that on an earlier occasion both the units were projected as a composite entity will not avail, in the face of the interpretation given to an industrial unit under the judgment of the Hon'ble Bombay High Court. The Swastika Metal Works and the Swastika Metal Works (Utensils Division) are two different industrial units. The value of the plant and machinery in Utensils Division which is less than three lakhs should alone be taken into consideration to arrive at the value of the plant and machinery for accord of the benefits of the exemption notification.
6. In the view taken by us, the other points taken by the learned Counsel of the appellants in respect of applicability of Section 11A, show cause notice being issued by the Additional Collector do not arise.