:- Whether two units sharing common electricity connection, common factory can be treated as different assessee?

Case:-COMMISSIONER OF CENTRAL EXCISE, JALANDHAR VERSUS M/s MUKERIAN PAPERS LTD.

Citation:-2014-TIOL-807-CESTAT-DEL

Brief Facts:-The facts leading to filing of this appeal by the Revenue are, in brief, as under:-

The respondent, M/s Mukerian Paper Ltd., Distt. - Hoshiapur (hereinafter reffered to as 'MPL') are manufacturers of papers and paper board (writing & printing papers) chargeable to central excise duty. The period of dispute in this case is from April, 1997 to July, 2001 and from April, 2002 to 15.1.2003. Sometime in the year 1994, they made a declaration to the jurisdictional central excise authorities that they have set up another factory - Oswal Papers & Allied Industries (hereinafter referred to as "OPAI") for manufacture of the same products and applied to the jurisdictional central excise authorities for separate excise registration. The plot location of both, the MPL and the OPAI is the same. The jurisdictional Superintendent of Central Excise, after verification issued central excise registration no.21/SGP/MK/CH/48, 47 and 28/94 to OPAL. Thus factory in the name of OPAI had been set up in same compound in which the old unit, MPL was located. The unit of OPAI started production in the year 1994.

Both the units, as mentioned above, MPL and OPAI were manufacturing the same final products and both of them were availing of exemption under notification no. 47/97-CE dated 1.3.97 and its successor notifications no. 5/98-CE dated 2.6.98, no. 6/2000-CE dated 1.3.2000 and no. 3/2001-CE dated 1.3.2001 respectively which exempted paper and paper board and articles made thereof in a factory starting from the stage of pulp, which contains not less than 75% by weight of pulp other than bamboo, hardwoods, soft wood, reeds (other than sarkanda) or rags. This exemption was available in respect of first clearance in a financial year upto a specified limit as mentioned in the notification.

The unit set up with the name OPAI in 1994 was renamed as M/s. Mukerian Papers Unit No.II by a decision taken in the board meeting of MPL held on 30.11.1994. Thus, in November, 1994, the OPAI was got renamed as Mukerian Paper Mills Unit No.II.

Sometime in the year 2001 investigations were started to ascertain as to whether the MPL
Unit No.II is actually a separate factory or not and in this regard, investigating officers visited the factory premises, studied the manufacturing process of both the units and conducted inquiry with their various officials. The inquiry revealed that -

a)    Both the units were located within a common compound wall and as such, there was no wall/boundary dividing the two units and there was a common entry gate and a common exit gate;
b)    There was a common electricity connection for both the units;
c)    There was a common boiler for generation of steam;
d)    There was common raw materials' storage;
e)    There were a common mechanical workshop and electrical workshop;
f)     Water tank and common pump house; and
g)    There was common foam tank, common hypo plant and common lime mud washer, primary clarifier and effluent treatment plant for both the units.

These facts were revealed by Shri Govind Ram, Personnel Manager of the respondent and according to Department, the same were also found to be correct on verification. It thus, appeared that the manufacturing process of the two units was inter-connected and was not independent and these two units could not be treated as separate factories and hence the decision to grant separate registration to these two units did not appear to be correct. Accordingly, the department was of the view that the two units - MPL Unit-I and MPL Unit-II were not separately eligible for exemption under notification no.4/97-CE dated 1.3.97 and its successor notification no.5/98-CE dated 2.6.98, 6/2000-CE dated 1.3.2000 and 3/2001 -CE dated 1.3.2001 and that the clearances of the two units must be clubbed for the purpose of these notifications as the two units cannot be treated as separate factories.

On this basis, a show cause notice dated 6.6.2002 was issued to the respondent for demand of central excise duty of Rs.3,87,90,616/- for the period from April, 1997 to July, 2001 along with interest thereon under Section 11 AB and also for imposition of penalty on them, under Section 11 AC. The show cause notice also sought cancellation of the registration certificate no.21/GSP/MK/Chapter 48-47 and 28 /98 issued to OPAI (subsequently renamed as Mukerian Paper Unit II). Besides this, the show cause notice also sought imposition of penalty on Shri H.R. Darwesh, Executive Director and Shri Ramesh Jain, Manager Excise under Rule 209A of the Central Excise Rules, 1994/Rule 26 of the Central Excise Rules, 2001.

Thereafter another show cause notice dated 1.7.2003 was issued on the same ground for demand of differential duty amounting to Rs.1,30,80,291/- in respect of clearances of paper and paper board during the period from 1.4.2002 to 15.1.2003 along with interest thereon under Section 11 AB. This show cause notice also sought imposition of penalty on the appellant company under Rule 25 of the Central Excise Rules, 2002 and on Shri H.R. Darwesh, Executive Director and Shri Ramesh Jain, Manager Excise under Rule 26 of the Central Excise Rules, 2002. This show cause notice also sought cancellation of the separate registration given to Mukerian Papers Unit No.II.
Both the show cause notices were adjudicated by the Commissioner of Central Excise Jalandhar by a common order-in-original no.87/88/CE/JAL/04 dated 30.06.2004 by which the Commissioner upheld the issue of separate registration certificate to the Mukerian Paper Unit II and accordingly, dropped the proceedings initiated by the two show cause notices against the Respondent for denial of exemption notification no.4/97-CE dated 1.3.97 and its successor notifications and for demand of duty along with interest. In this order the Commissioner held that these two units of the Respondent are to be treated as separate factories, and that the exemption under notification no.4/97-CE dated 1.3.97 and its successor notifications, is factory-wise and is not assessee-wise.
The above order of the Commissioner was examined by the Committee of Chief Commissioners
for its legality and propriety and since the Committee was of the view that the above mentioned order passed by the Commissioner is not legal and proper, the Committee exercising the powers under Section 35 E(1) of the Central Excise Act, 1944, passed an order dated 23.06.2005 directing the Commissioner to file an application before the Tribunal for correct determination of the points as mentioned in the review order. In the review order, the Committee expressed the view that both the units cannot be treated as separate factories and hence, exemption notification no.4/97-CE dated 1.3.1997 and successor notifications cannot be availed separately. In pursuance of this order of the Committee of the Chief Commissioners, the Commissioner of Central Excise, Jalandhar filed an application before the Tribunal under Section 35 E(4) of the Central Excise Act, 1944, which has been treated as an appeal against his order.

Appellant Contentions:- Ld. Departmental Representative, assailed the impugned order by reiterating the grounds of appeal in the Revenue's appeal and pleaded that both M/s. Mukerian Paper Mills Unit No.I and Unit II are owned by the same person, M/s. Mukerian Papers Mill, a private limited company, that both the units are located within the same compound and there is no boundary wall separating the two units, that entry gate and exit gate of both the units is common, that as stated by Shri Govind Ram, Personal Manager of the appellant company and confirmed on verification by the investigating officers, that storage facility for raw materials of both the units is common, that there is common laboratory, common chemical preparation room, common boiler, common form tank, common water storage tank and common pump house, common lime godown, common hypo plant and clorine plant, common primary clarifier, common lime mud washer and common liquid clarifier and common effluent treatment plant for both the units, that there is only one electricity connection, that production of both the units is inter-linked and one unit cannot function without the other unit, that facilities for the workers like canteen, cycle stand, scooter stand, car parking, ESI dispensary is common, that there is common mechanical workshop and electrical workshop, that sales organization of both the units is common, that the workers of both the units were common and similarly, the administrative control on personnel and payment of wages was common, that in the application dated 8.7.95 made to Regional Provident Fund Commissioner, the new unit of OPAI was not presented as a separate factory but the Respondent had stated that they may be issued separate code number for the new unit for administrative convenience, as the unit has been started by the same management as that of MPL and accordingly, a separate code number had been allotted to OPAI, that the two units cannot be treated as separate "factory" in terms of the definition of this term as given in Section 2(e) of the Central Excise Act, 1944, that when the manufacturing process of the two units is interlinked and one unit cannot function without the other unit inasmuch as the boiler for generating steam of the two units is common and the facility for production of calcium hypochlorite is common and similarly the facility for bleaching and imparting brightness to the pulp in order to manufacture writing and printing papers is common, it cannot be said that the two units are separate factories, that in terms of the guidelines regarding registration issued by the CBEC as supplementary instructions, separate registration is required in respect of separate premises, except in cases where two or more premises though separated by a public road, canal or railway line are the part of the same factory, whose processes are interlinked and that the point as to whether the two factories are the part of the same factory is to be decided by the Commissioner on the basis of factors such as inter-linked manufacturing processes, large number of raw materials being common, common electricity connection, common labour force/work force, common administration and works management and common income tax and sales tax assessment, that all these factors for issue of common registration certificate are present in this case and, in view of this, issue of separate registration certificate to MPL Unit II (earlier UPAI) was totally wrong, that in view of this, the Respondent have wrongly availed separate exemption under notification no.4/97-CE and successor notification in respect of their MPL Unit MPL Unit II, while for the purpose of these exemption notifications, the clearances of both the units were to be clubbed together, that the Respondent in order to wrongly avail the duty exemption have mis-represented the facts to the department and hence, the longer limitation period would be applicable for demand of duty along with interest thereon under Section 11 AB and penalty would be imposable on them under Section 11 AC, that besides this, imposition of penalty on Shri H.R. Darwesh, Executive Director and Shri Ramesh Jain, Manager (Excise) under Rule 209 A of the Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001 would be warranted and that in view of the above, impugned order is totally incorrect. He, therefore, pleaded for setting aside the impugned order and confirmation of duty demand as made in the show cause notices and imposition of penalty on the Respondent.

Respondent Contentions:-Ld. Counsel for the Respondent, defended the impugned order by reiterating the findings of the Commissioner and pleaded that the exemption notification no.4/97CE dated 1.3.97 and its successor notifications is available factory-wise and not assessee wise, that if a person has more than one factory manufacturing paper and paper board and each factory satisfies the conditions for exemption no.4/97-CE/ its successor notifications, each unit would be separately eligible for exemption, that in this regard, he relies upon the judgment of the Tribunal in the case of Rollatainers Ltd. Vs. CCE, Delhi-III reported 2002 (150) ELT 383 (Tribunal-Delhi), which has been upheld by the Apex Court vide judgment reported in 2004 (170) ELT 257 (SC) = 2004-TIOL-67-SC-CX, that the two units of the respondent have to be treated as separate factories, that separate registration to unit II has been granted by the jurisdictional central excise officers in the year 1994 after due verification, that just because there is common electricity connection and water storage and some common manufacturing facilities, it cannot be said that two units are not separate factories but are one factory, that in any case, since the separate registration had been granted to the Respondent in respect of their second unit by the jurisdictional central excise officers and thereafter, the Respondent company started availing exemption under notification no.4/97-CE and its successor notifications separately in respect of both the units and was declaring this fact in the ER-1 Returns being filed by each unit separately, the Respondent, cannot be accused of suppressing the relevant facts from the department or committing a fraud and hence longer limitation period under proviso to Section 11A(1) would not be available, that for the same reason, interest on duty under Section 11 AB would not be chargeable for the period prior to 11.5.2001 as during this period, the charging of interest on duty, short paid/not paid under Section 11 AB was linked with fraud, wilful mis-statement, etc., which are not there in this case and that for the same reason, no penalty can be imposed on the Respondent under Section 11AC of Central Excise Act, 1944/Rule 173Q (1)(d). He accordingly emphasized 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 undisputed facts are that -
a)    the second unit had been started with the name - Oswal Paper and Allied Industries (OSAI) in the year 1994 and had been granted a separate registration by the jurisdictional central excise officers by treating the same as separate manufacturing unit;
b)    subsequently, the name of OPAI was changed to "Mukerian Papers Ltd., Unit No.II"; and
c)    both the units - unit no.I and unit no.II of M/s. Mukerian Papers Ltd. are manufacturing same product and are owned by the same company - Mukerian Papers Ltd.
The point of dispute is as to whether both the units, Unit No.I and Unit No.II of the Respondent company would be eligible for exemption under notification no.4/97-CE dated 1.3.97 and successor notification no.5/98-CE dated 2.6.98, 618 dated 1.3.2000 and 3/2001-CE dated 1.3.2001 separately. Each of these exemption notifications prescribed a concessional rate of duty subject to quantity limits in a financial year as mentioned in the notifications in respect of paper and paper board manufactured from the stage of pulp in a factory when such pulp contains not less than 75% by weight of pulp made from materials other than bamboo, hardwoods, soft wood, reeds (other than Sarkanda) or rags. There is no dispute that the conditions regarding paper and paper board or articles made therefrom having been made from pulp containing not less than 75% by weight of the pulp made from materials other than bamboo, hardwoods, soft wood, reeds (other than Sarkanda or rags) are satisfied and the availment of exemption by each unit was within the quantity limit specified in the exemption notification. The only point of dispute is as to whether each unit could separately avail the exemption under these notifications even though the same were owned by the same company, M/s. Mukerian Papers Ltd. and linked with this dispute is the dispute as to whether MPL Unit I and MPL Unit II both owned by the Respondent could be treated as separate factories.
Notification no.4/97-CE and its successor notification exempted paper and paper board or articles made therefrom manufactured starting from the stage of pulp in a factory subject to condition that such pulp contains not less than 75% by way of pulp made from materials other than bamboo, hardwoods, soft wood, reeds (other than Sarkanda) or rags and these exemptions are subject to quantity limit as specified in these notifications. There is no condition in any one of these notifications, that when such goods are manufactured and cleared from more than one factory of the same manufacturer, the exemption would be available only in respect of the aggregate quantity of the goods cleared from all the factories and not separately in respect of each factory. In view of this, we hold that this exemption would be available separately to each factory owned by a manufacturer if the conditions of the notifications are satisfied. The dispute in this case would thus go down to as to whether the Mukerian Papers Unit No.I and Unit No.II can be treated as separate factories. The Respondent in this regard rely upon the separate registration certificate issued by the jurisdictional central excise authorities to M/s. OPAI (subsequently re-named as Mukerian Papers Unit No.II). They also emphasize that the two units are separate and just because the two units share some facilities and have common electricity connection, they cannot be treated as one factory. However, on going through the records, it is found that not only the two units are situated at the same plot of land, within the common boundary walls with common entry and exit gates, but the units also have -
a)    common electricity connection;
b)    common water storage tank and pump house;
c)    common go down for storage of raw materials;
d)    common testing laboratory;
e)    common foam tank, facility for manufacture of production of calcium hypochlorite and clorine;
f)     common mud washer, liquid clarifier and effluent treatment plant;
g)    Common electrical and mechanical workshops;
h)    Common boiler for generation of steam;
i)      Common facilities for staff; and
j)     Common sales to organization.
Besides this, evidence on record also indicates that the workers were also common. There is no wall separating the two units and as mentioned above, both the units are located within the same compound with common entry and exit gate. It is also seen that the products being manufactured by both the units are also same. From the above facts it is clear that the manufacturing process in the two units is interlinked and as such, the second unit - MPL Unit II cannot function without the first unit as facility for production of chlorine and Calcium hypochloride and a number of other chemicals processes are common. In terms of the Board's supplementary instructions issued under Central Excise Rules 1944/Central Excise Rules, 2001 separate central excise registration is required in respect of separate premises except when two or more premises are actually the part of the same factory where the processes are interlinked and in the latter cases a common registration is to be given even if the two premises are separated by a public road, canal or railway line and that for this purpose, manufacturing processes would be treated as inter linked if-
a)    A product manufactured/produced in a premises is substantially used in other unit for manufacture of another final product;
b)    a large number of raw materials are common and received commonly for both the premises,
c)    There is common electric connection;
d)    There is common labour force/work force;
e)    There is common administration/works management; and
f)     There is common sales tax, registration assessment and income tax assessment.
In this case, the two units are not divided by any public road, canal or railway line and there is no boundary wall reporting the two units and on the contrary, the two units are within the same compound wall and have only one entry and exit gate. Not only this, their electricity connection, water storage and water pump is common and besides this, storage of raw materials; facilities of boiler for generation of steam, production of chlorine and hypochloride and also the lime mud washer, liquid clarifier and effluent treatment plant are common for both the units. We are, therefore, satisfied that the two units cannot, by any stretch of imagination, be treated as separate factories, as in terms of Section 2 (e) of the Central Excise Act, 1944, the terms "factory" means 'any premises including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on" and in this case there is only one premises where the manufacturing of paper and paper board and articles therefrom is being carried on and the manufacturing process of the so called separate units MPL unit I and MPL Unit II are integrally connected and both the units are located on the same plot of land within same compound wall with only one entry gate and one exit gate and these facts are not disputed. This Tribunal in the case of Dhampur Sugar Mills Ltd. reported in 2001 (129) ELT 73 (Tribunal) = 2002-TIOL-476-CESTAT-DEL held that the number of registrations under Rule 174 G of Central Excise Rules would not decide the number of factories unless they are situated in different premises and that different units are to be regarded as one factory if all the excisable goods are manufactured in the same premises and accordingly within the same factory and accordingly duty exemption notification no.67/75-CE cannot be denied. This judgment of the Tribunal has been upheld by the Apex Court vide judgement reported as 2007 (216) ELT A23 (SC). The Apex Court while upholding the Tribunal's judgement observed as under:-
"We do not find any merit in this civil appeal filed by the Department. Apart from the reasons given in the impugned judgement by the Tribunal, we find that in the present case, the show cause notice given by the Department itself proceeds on the basis that the factory of the assessee consisted of different unit (plants); that it was one single factory consisting of separate units; that sugar and molasses came under one of the units, paper and paper board came in the other unit and that chemicals came in the third unit. In the circumstances, the assessee-respondent was entitled to the benefit of exemption notification. It is not even alleged in the show cause notice that there are three factories as submitted on behalf of the Department."
Thus, in terms of the above judgement of the Tribunal affirmed by the Apex Court, facilities for manufacture of different excisable goods in the same premises are to be treated as single factory, even if separate central excise registrations have been issued in respect of different final products.
The Tribunal in the case of Balrampur Chini Mills Ltd. reported in 2002 (149) ELT 286 (Tribunal-Delhi) also held that two divisions of assessee manufacturing sugar and chemicals have to be granted a common registration under central excise rules even if the same are separated by a road as their processes are inter-linked. Same view was taken by the Tribunal in the case of Escorts Limited reported in 2011 (273) ELT 415 (Tribunal-Delhi) = 2011-TIOL-1514-CESTAT-DEL wherein relying upon the Apex Court's judgement in the case of Lohia Sheet Products reported in 2008 (224) ELT 349 = 2008-TIOL-38-SC-CUS, it was held that common registration to different premises of the same manufacturer is to be granted even if the same are divided by canal, road if their manufacturing processes are interlined and there is common staff, raw materials, common procurement, etc. even if the different units are manufacturing different excisable goods.
In this case, the two units are manufacturing the same excisable goods, there is not even a dividing walls between the two units. On the contrary the same are within the same compound and with one entry and exit gate and the two units share a common electricity connections and pump house, common boiler and a number of other processes. Therefore, in this case, issue of separate registration for the two units is wrong and notwithstanding the issue of separate excise registration, in view of the Apex Court's judgement in case ofDhampur Sugar Mills Ltd. (supra) mentioned in para 6 above, both the units are to be treated as one single factory.

We, therefore, hold that the two units have to be treated one factory and a common registration certificate issued to them was absolutely incorrect. Since the two units have to be treated as one factory only, they cannot avail the exemption notification no.4/97-CE and its successor notification separately and for the purpose of availment of these exemptions, the clearances of the two units will have to be clubbed. Therefore, the impugned order dropping the duty demand by treating the two units as two separate factories is not correct.

However, we find force in the appellant's plea regarding limitation, as the common registration certificates had been granted in the year 1994 after due verification and thereafter each unit was submitting separate RT-12 Return wherein the availment of exemption under notification no.4/97CE and its successor notification was being shown. There is no allegation that there was collusion between the assessing officers and the assessee or that any disciplinary action on vigilance grounds has been taken against the assessing officers. In view of this, we hold that the only normal limitation period would be available to the department for recovery of short paid duty which must be quantified by the Commissioner. Since the allegation of wilful mis-statement, suppression of facts or fraud, contravention of provisions of Central Excise Act, 1944 or of the Rules made thereunder with intent to evade the payment of duty is not sustainable, neither penalty under Section 11 AC of the Central Excise Act 1944 or under Rule 173 Q(1)(d) would be sustainable nor the interest on duty under Section 11AB would be attracted for the period prior to 11.5.2001 as during the period prior to 11.5.2001, demand of interest under Section 11AB on the duty short paid, not paid or erroneously refunded was linked with such non-payment, short payment or erroneous refund having taken place due to wilful mis-statement, suppression of facts or fraud etc. on the part of the assessee. The interest on short paid duty would be chargeable under Section 11AB only in respect of clearances w.e.f. 11.5.2001.
In view of the above discussion, while holding that the Unit No.I and II of the Respondent company are to be treated as one factory and not separate factories and for this reason, they would not be separately eligible for the exemption under Notification no.4/97 and its successor notification, and that for the purpose of these exemptions, the clearances from the two units are to be clubbed, we set aside the impugned order and confirm the duty demand only for the normal limited period. The interest under Section 11AB on the short paid duty would be chargeable only in respect of clearances w.e.f. 11.5.2001. No penalty under Rule 173 Q(1)(d) of Central Excise Rules, 1944 or under Section 11AC of the Central Excise Act, 1944 would be imposable on the appellant. The duty demand within normal limitation period and the interest thereon under Section 11AB, if any chargeable, is to be quantified by the Commissioner. The appeal is partly allowed.

Decision:- Appeal partly allowed.

Comment:-The gist of this case is that as the two units of respondent have common connection of electricity, common boiler for generation of steam; etc. and there is no boundary wall and on the contrary, the two units are within the same compound wall and have only one entry and exit gate, the two units cannot be treated as separate assessee for Central Excise Laws. Therefore, in this case, it was concluded that the respondent is not entitle to avail the benefit of the exemption notification no. 4/97-CE dated on 1.3.97 separately for the two units. However, as the fact of separate registration was intimated and approved by the revenue department, it was held that there cannot be suppression of facts so as to invoke extended period of limitation.

Prepared by: Hushen Ganodwala

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