Whether common registration has been correctly granted to appellant so as to allow duty exemption and deemed modvat benefit?

Case:- GRASIM INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, ROHTAK

Citation:- 2013(295) E.L.T. 620 (Tri.-Del.)

Brief Facts:-The appellant unit are engaged in manufacture of spun yarn falling under Chapter 55 of Central Excise Tariff and also the manufacture of woven fabrics falling under same Chapter of the Central Excise Tariff. The unit for manufacture of spun yarn and unit for manufacture of fabrics are separated by a road. During period prior to 1-4-1996, the appellant had separate Central Excise Registration. On 1-4-1996, an application was made for single registration for both the units, which was accepted by the Jurisdictional Central Excise Authorities. With effect from 3-9-1996, the facility of Modvat credit was extended to textiles by Notification No. 29/96-C.E. (N.T.), dated 3-9-1996 issued under Rule 57A of Central Excise Rules, 1944. With effect from 23-7-1996, in terms of exemption Notification No. 22/96-C.E. issued under Section 5A(1) of Central Excise Act, the yarn cleared by a composite textile mill within the factory for manufacture fabrics became fully exempt from duty. Prior to 23-7-1996 this exemption was not available. Since, the appellant since April, 1996 had obtained common registration for both the units - the unit manufacturing yarn and the unit manufacturing fabrics and the yarn division started clearing the yarn to the fabric division by availing full duty exemption under Notification No. 22/96-C.E. However, a small quantity of yarn, which was being sold outside to independent buyers, was being cleared on payment of duty. The department has alleged that the Jurisdictional Central Excise Inspector and Superintendent in connivance with the appellant, have issued a back dated common registration to enable the yarn division to avail of the duty exemption under Notification No. 22/96-C.E., as according to the Department, the appellant's application for common registration for both the units had been made only in August, 1997, while it was shown to have been made in April, 1996. On this basis, it was alleged that the permission for common registration is invalid and the appellant would not be eligible for duty exemption in respect of clearances of yarn from the yarn division to fabric division for its captive consumption and beside this, would also not be eligible for benefit of Cenvat credit facility. On this basis, a show cause notice was issued to the appellant-company for -
(a) recovery of Central Excise duty amounting to Rs. 3,76,38,745/- in respect of clearances of spun yarn from the yarn division to the fabric division during the period from 1-12-1996 to 1-6-1998 along with interest and imposition of penalty on the appellant company under Section 11AC;
(b) recovery of allegedly wrongly taken Cenvat credit amounting to Rs.
6,64,04,235/- under Rule 57-I of Central Excise Rules, 1944 along
with interest and also for imposition of penalty on the appellant company (weaving division) under Rule 57-I of Central Excise Rules, 1944 readwith Section 11AC of Central Excise Act, 1944; and
(c) imposition of penalty under Rule 209A of Central Excise Rules, 1944 on Shri Vimal Arora, DGM (Accounts), Shri R.K. Sharma, Manager (Excise) and Shri L.S. Chandelle, the then Superintendence, Shri Ram Kishan, the then Inspector.
The above show cause notice was adjudicated by the Commissioner vide order-in-original dated 18-5-2006 by which -
the total duty and Cenvat credit demand of Rs. 10,40,42,980/- was confirmed against the appellant company along with interest on it under Section 11AB and penalty of equal amount was imposed on them under Section 11AC; and
penalty of Rs. 5,00,000/-, Rs. 2,50,000/- and Rs. 50,000/- were imposed under Rule 209A of Central excise Rules, 1944 on Shri Vimal Arora, DGM (Accounts), Shri L.S. Chandalia, the then Superintendent and Shri Ram Kishan, the then Inspector, Range Bhiwani. Against the above order of the Commissioner (Appeals) these appeals have been filed.
Appellant Contentions:-The learned Counsel representing the appellant company, Shri R.K. Sharma and Shri Vimal Arora and Dr. G.K. Sarkar, Advocate, representing Shri Ram Kishan, pleaded that the department's allegation that the appellant's application for issue of single registration had been received in August, 1997 while it had been back dated by the Jurisdictional Central Excise officers, is without any basis, that the appellant from the very beginning have a single registration under the Factories Act and with other statutory authorities like ESL, PF etc., that in April, 1996 they had applied for common central excise registration for their yarn and fabric divisions and the same had been granted at that time, that since the manufacturing process of the yarn division and the fabric division is interlinked and not only this, the power source is also common, a common registration has been correctly granted, that in terms of the clarification issued in pare 3.2 of C.B.E. & C's. Manual and Supplementary Instructions, common registration can be granted to two units of the same assessee separated by public road, canal or railway line, if the product manufactured in one unit is substantially used for production of finished product in the other unit and the units have common electricity supply, common sales tax registration, common income tax assessment etc., that all these conditions for common registration are satisfied in the appellant's case, that in view of this, the common registration had been correctly allowed and hence, the benefit of exemption under Notification No. 22/96-C.E., dated 23-7-1996 has been correctly claimed in respect of clearances of yarn by the yarn division and the Modvat credit had been correctly taken by the fabric division in terms of Notification No. 29/96-CE. (N.T.), dated 3-9-1996 and that in view of the judgment of the Tribunal in the case of Escorts Limited v. CCE, Delhi reported in 2011 (273) E.L.T. 415 (Tri.-Del.), when common registration to the two units had been allowed after due verification of details in the application, its retrospective withdrawal is not appropriate It was, therefore, pleaded that the impugned order demanding duty and allegedly wrongly taken Cenvat credit from appellant company and imposing penalty on the appellant company as well as on its employees is not sustainable. As regards, Shri Ram Kishan, the then Inspector, Central Excise, it was pleaded the there is absolutely no basis for allegation that the common registration had been granted from a back date, that the application for registration had been received in April, 1996 and since the two units of the appellant company were inter-connected and the criteria prescribed in this regard in the Board's instructions was satisfied, the common registration was allowed. It was, therefore, pleaded then was absolutely no justification for imposition of penalty of Rs. 50,000/- on Ram Kishan, under Rule 209A of Central Excise Rules.

Respondent Contentions:-The learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner in it. Sr Verma emphasized that the spinning unit and weaving units are two separate units and the same cannot be said to be interconnected and there was no justification for common registration. He further pleaded that since the common registration had been wrongly granted, the two units have to be treated as separate units and not as a composite mill and, hence, neither the spinning division was eligible for duty exemption under Notification No. 22/96-C.E., nor the fabric division was eligible for Modvat benefit under Notification No. 29/96-C.E. (N.T.), dated 3-9-1996. He, therefore, pleaded that there is no infirmity in the impugned order.

Reasoning of Judgment:-We have carefully considered the submissions from both the sides and perused the records.
The key question in this case is as to whether during the period of dispute, common central excise registration had been correctly granted to the appellant or not. In this regard, the department's allegation is that the appellant's application for common registration had been received in the Range Office only in August, 1997 and the Range staff Shri LS. Chandalia and Shri Ram Kishan, Inspector in connivance with the appellant, issued common central excise registration certificate from back date. On going through the records, we find that there is absolutely no evidence in support of this allegation. The records show that the application for common registration had been received in the range in April 1996 and thereafter the common registration had been allowed.
In terms of para 3.2 of C.B.E. & C's. Manual of Supplementary Instructions, separate registration is required in respect of separate premises of the same manufacturer except in the cases where two or more premises are actually part of the same factory [where process are interlinked but are separated by public road, canal or railway line] and that the fact that the two premises are part of the same factory to be decided by the Commissioner based on the factors such as the product being manufactured in one premises being substantially used in the other premises for manufacture of final products, large number of raw materials being common, common electricity supply, common labour force, common administration/work management, common sales tax registration and assessment, common income tax assessment etc. In this case, the bulk of the yam manufactured in the yarn unit is used in the fabric unit for manufacture of fabrics. It is also not denied that the electricity supply of the two units is common and the sales tax assessment and administration is also common. Beside this, we also find that the appellant have one single registration under the Factories Act and Pollution Control Act and that other statutory authorities like ESL-PP etc. In view of this, we hold that the two units of the appellant company have to be treated as one factory and hence common registration certificate has been correctly granted to them. Since, during the period of dispute, they had already been issued a common registration, they have to be treated as composite mill and, hence, the benefit of Notification No. 22/96-C.E., dated 23-7-1996 for the purpose of duty exemption in respect of yarn cleared by the yam division to fabric division and the benefit of Notification No. 29/96-CE. (NT), dated 3-9-1996 for the purpose of Modvat credit to fabric division had been correctly availed and, as such, the demands for duty and Modvat credit against the appellant company are not sustainable. Since the duty and Modvat credit demand are not sustainable, there would be no case for imposition of penalty either on the appellant or on its employees or on the range staff. In view of this, the impugned order is set aside. The appeals are allowed.

Decision:-The appeals are allowed.

Comment:-The gist of this case is that as the conditions and pre-requisites for granting common registration to two factories such as common electricity supply, common registration under Factories Act, common labour force, product being manufactured in one premises being substantially used in other premises for manufacture of final products etc. was satisfied, the common registration granted to the appellant was held to be legal and proper. Consequently, the benefit of duty exemption and deemed modvat credit was extended to them.

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