Manufacturing Without Proper Manufacturing Facilities: CESTAT Upholds Excise Duty Demand, Penalty

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that manufacture and clearances made by the four units availing the benefit of Notification No. 8/2003-CE have to be clubbed together as these units are one and the same. Their operations are under common management/family members and financial control, and they have mutual financial interests with each other.The bench of Ramesh Nair (Judicial Member) has observed that the appellant/assessee failed to show that all four units were functioning independently and were capable of functioning independently.The intelligence gathered indicated that the appellant was indulging in evasion of duty. A search was carried out on the factory premises of M/s Orkay Gears, M/s Orkay Transmission, M/s Hitesh Engineering, and M/s Omkar Technologies. An investigation conducted by the department has revealed that out of four units, none of them have full-fledged machinery to carry out the complete manufacturing process of gears, gearboxes, and parts on their own.Though clearance of manufactured goods for a substantial amount has been shown from M/s. Omkar Technologies, the unit did not have any machinery installed in its shed. The cycle of the manufacturing process is completed when the goods travel through all three units. Therefore, it was felt that all three units cannot be considered independent units manufacturing gears, gearboxes, and parts, and so as to avoid duty liability, four units have been created on paper without having proper manufacturing facilities.The department noted that four units are not separately eligible for the SSI exemption contained in Notification No. 8/2003-CE dated March 1, 2003. The clearances shown to have been made in the names of the other three units have to be clubbed with the value of the clearances of the appellant so as to determine their eligibility for exemption contained in Notification No. 8/2003-CE dated March 1, 2003.On completion of the investigation, a show cause notice was issued, proposing the demand of central excise duty and imposing a penalty on the appellants. In adjudication, demand was confirmed.The assessee contended that the department has failed to discharge its burden to demonstrate that there is an evasion of duty. Even at the time of the visit, it was clarified beyond doubt that some of the activities are carried out in all units, and all units send goods out for job work. It was for the department to substantiate the case that the nature of job work and activities on the machinery of the unit was sufficient to make final products. However, no such investigation is carried out despite knowing that job work is being done.The tribunal, after going behind the mask of these entities, held that the activities of these units, i.e., manufacture, clearance, etc., have to be clubbed together.Case Title: Orkay Gears Versus C.C.E.-Ahmedabad-iCase No.: Excise Appeal No. 737 of 2011- SMDate: 02.06.2023Counsel For Appellant: Devan ParikhCounsel For Respondent: G. Kirupanandan Assistant CommissionerClick Here To Read The Order

Manufacturing Without Proper Manufacturing Facilities: CESTAT Upholds Excise Duty Demand, Penalty

Mariya Paliwala

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Manufacturing Without Proper Manufacturing Facilities: CESTAT Upholds Excise Duty Demand, Penalty

Mariya Paliwala

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INR 1099+GST

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