Commissioner of Central Excise vs Vidyasagar Textiles Ltd.

A. Selvam, J.—This Civil Miscellaneous Appeal has been directed against the Final Order No. 1291 of 2009, dated 15-9-2009 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai [2010 (252) E.L.T. 127 (Tri.-Chennai)] . The appellant herein has issued a show cause notice, dated 13-3-2001 to the respondent wherein claim of Central Excise Duty has been demanded. On the basis of show cause notice, Additional Commissioner of Central Excise, Madurai has passed the Order-in-Original and the same has been challenged before the Commissioner of Central Excise (Appeals) by the respondent herein and subsequently dismissed. Against the order passed by the Commissioner of Central Excise (Appeals), A. No. E/524/2002 has been preferred before the CESTAT by the respondent herein.

The CESTAT, after hearing both sides and upon relying upon the relevant records, has allowed the appeal by way passing Final Order No. 1291 of 2009, dated 15-9-2009 and against which the present Civil Miscellaneous Appeal has been preferred by the Department as appellant.

On the side of the appellant, the following substantial questions of law have been raised for consideration:-

"(i) Whether the Honourable Tribunal is correct in holding that M/s. VTL, is having separate entity during the period from 1-4-2000 to 23-9-2000 and is entitled to SSI benefit under Notification No. 8/2000 C.E. , dated 1-3-2000, in the context of transfer date being 1-4-2000 (1-4-200 is also called as effective date vide para 3 of the Honourable CESTAT Final Order No. 1291/09) as held by the Court order dated 28-7-2000 and also in the context of the board resolution dated 13-9-2000 of M/s. VTL, and that of M/s. PCSSL, which reads as follows:

"Resolved that the order dated 28-7-2000 from the Honourable HC of Chennai sanctioning the scheme of amalgamation between Vidyasagar Textiles Limited with Palaniandavar Cotton and Synthetic Spinners Limited with effect from 1-4-2000 was received and recorded for the purpose of implementing this scheme",

(ii) Whether M/s. VTL can claim separate entity for the period from 1-4-2000 to 23-9-2000 for the purpose of availing the benefit of notification No. 8/2000 C.E. , dated 1-3-2000 in the context of clause B(5) & B(9)(b) of amalgamation scheme of which contents are as follows:

Scheme B(5) says that with effect from 1-4-2000, the entire business and undertaking including all the property movable and immovable of M/s. Vidyasagar Textiles Limited be vested in M/s. Palaniandavar Cotton and Synthetic Spinners Limited as a going concern so as to become the property of the latter from the date.

Further Clause B(9)(b) of the scheme says that from the transfer date viz., M/s. Vidyasagar Textiles Limited shall be deemed to have carried on and to be carrying on their business for and on behalf of and on account of M/s. Palaniandavar Cotton and Synthetic Spinners Limited until such time the amalgamation becomes effective in terms of the scheme and accordingly from the transfer date, the profit and loss of M/s. Vidyasagar Textiles Limited for all purpose be treated as that of M/s. Palaniandavar Cotton and Synthetic Spinners Limited."

The short point which involves in the present Civil Miscellaneous Appeal is as to whether the Small Scale Industry exemption granted to the respondent can be extended till 23-9-2000, since the respondent has been amalgamated with other Textile Company, by name, Palani Andavar Cotton and Synthetic Spinners Limited on 1-4-2000.

The learned counsel appearing for the appellant has befittingly contended that the process of amalgamation has taken place on 1-4-2000 and the High Court has approved scheme of amalgamation on 28-7-2000 and subsequently, the Board of Directors of the respondent has convened a meeting and passed a resolution to the effect that amalgamation has come into effect from 1-4-2000, but by way of suppressing the subsequent events, the respondent has claimed Small Scale Industry exemption till 23-9-2000. Under the said circumstances, a show cause notice has been issued and the same has been upheld in Order-in-Original and also accepted by the Commissioner of Central Excise (Appeals). But the CESTAT, without considering the subsequent events of amalgamation and also without considering that the resolution of the Board of Directors of the respondent to the effect that amalgamation has taken place from 1-4-2000, erroneously passed the Final Order and therefore, the Final Order passed by the CESTAT is liable to be interfered with.

Per contra, the learned counsel appearing for the respondent has contended that admittedly amalgamation has taken place on 1-4-2000 and the High Court has sanctioned the scheme of amalgamation on 28-7-2000 and subsequently on 28-9-2000 an application has been given to the Registrar, so as to register the amalgamated Company. Under the said circumstances, the respondent is entitled to avail Small Scale Industry exemption till 23-9-2000 and therefore the Final Order passed by the CESTAT is perfectly correct and the same does not require any interference.

It is an admitted fact that after amalgamation and also after sanctioning of scheme by the High Court the Board of Directors of the respondent has passed a resolution to the effect that amalgamation shall come into effect from 1-4-2000.

The CESTAT has relied upon a decision wherein it has been specifically mentioned that transfer taken place on 1-4-1993, but it has been given effect only on 6-3-1994. Under the said circumstances, the CESTAT has given a finding to the effect that the respondent is entitled to get Small Scale Industry exemption till 23-9-2000.

At this juncture, the Court has to rely upon the decision reported in 2002 (145) E.L.T. 296 (Tribunal-Delhi) (Kwality Zipper Limited v. Commissioner of Central Excise, Kanpur), wherein it has been clearly mentioned that transferee company has come into existence with effect from 1-4-1999 i.e., the date of amalgamation.

In the instant case, the High Court has not given specific date with regard to effect of date of amalgamation. But, admittedly the respondent has been amalgamated with Palani Andavar Cotton and Synthetic Spinners Limited on 1-4-2000. Since in the order passed by the High Court no specific date has been given apart from the date of amalgamation i.e., on 1-4-2000 and also on the basis of the decision referred to supra, it is made clear that in the instant case the Court can very well come to a conclusion that the so called amalgamation has been given effect to from 1-4-2000. Since amalgamation is having its effect from 1-4-2000, the Small Scale Industry exemption granted till 23-9-2000 to the respondent cannot be accepted. To put it in short, after 1-4-2000 i.e., from the date of amalgamation the respondent has been clothed a new company. Under the said circumstances, the respondent is not entitled to avail Small Scale Industry exemption which has been granted earlier till 23-9-2000.

The CESTAT, without considering the fact that no specific date is available in the order passed by the High Court with regard to effect of amalgamation and also without considering the resolution passed by the Board of Directors of the respondent to the effect that amalgamation has come into effect from 1-4-2000, has erroneously allowed the appeal and thereby set aside the order passed by the Commissioner of Central Excise (Appeals) and in view of the discussions made earlier, the argument advanced by the learned counsel appearing for the appellant is really having merit, whereas the argument put forth on the side of the learned counsel appearing for the respondent does not hold good and further the substantial questions of law raised on the side of the appellant are having substance and altogether the present Civil Miscellaneous Appeal is liable to be allowed. In fine, this Civil Miscellaneous Appeal is allowed without costs. The Final Order No. 1291 of 2009, dated 15-9-2009 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai is set aside.