The main legal point established in the judgment is that the use of front companies to evade duty through under-valuation and financial control constitutes inter-dependence and is subject to the applicable provisions of the Central Excise Act and Rules.

ARIJIT PASAYAT, J.

The Custom, Excise and Gold (Control) Appellate Tribunal, New Delhi (for short `CEGAT) by the common impugned judgment held that there was no inter-dependence so far as the respondent No. 1-company and respondent Nos. 2-4 companies are concerned.

2. Background facts in a nutshell are as follows:

Respondent No. 1- M/s. Modi Alkalies & Chemicals Ltd. (in short `MACL) is engaged in the manufacture of caustic soda of which Hydrogen gas is a by-product. The Central Excise Authorities noticed that in reality MACL was engaged in the manufacture of Hydrogen gas falling under sub-heading 2804.90 of the schedule of the Central Excise Tariff Act, 1988 (in short `Tariff Act). But with a view to evade payment to excise duty it floated three front companies, namely, respondent Nos. 2 to 4 i.e. M/s. Mahabaleshwar Gas & Chemicals Pvt. Ltd. (for short `MGCPL), Shri Chamundi Gas and Chemicals Pvt. Ltd. (for short `SCGCPL) and M/s. Nippon Gas and Chemicals Pvt. Ltd. (for short `NGCPL). All the three front companies were in vicinity of the factory of MACL. What in reality happened was that through pipelines Hydrogen gas was sent to the three front companies for compressing and bottling the gas. The sole object was to avail benefit of exemption given to small scale industries under the Central Excise Notification No. 1/93 dated 28.2.1993 and thereby evade payment of central excise duty. With a view to unravel the truth, Director General of Anti-Evasion (for short `DGAE) searched the factory and office premises of MACL and the three front companies on 27.9.1996. It was found that all the three bottling units were located in one single shed and were separated from each other by small brick walls of about 4 ft. height. The Directors of the three front companies were employees of either MACL or other Modi Group of companies and they were frequently changed. They had common staff for maintenance of records, and operation of the units. The main plant and machinery i.e. cylinders had been supplied only by MACL and the total finance was provided by MACL as unsecured loans or had been arranged by finance companies whose whereabouts were not even known to the Directors of the three front companies. Marketing of the products was done by one Ritesh Beotra, a so-called Director of SCGCPL who was working as Deputy Manager (Marketing) in M/s. Modi Gas & Chemicals Sales Depot at Delhi. He was marketing various gases manufactured by a Modi group concern and was answerable as an employee of MACL. It was, therefore, concluded that MACL had control over Hydrogen gas even after the stage of bottling till it was sold to the customers. The Balance-Sheets and other financial statements of the three units revealed that whatever income they earned had gone to MACL in the form of lease rent of cylinders. One Ms. Sita Ram Goswami, Accountant of MACL and Mr. Ashok Kumar, Chief Operating Officer of MACL admitted that some amount of cash was also collected by MACL over and above the invoice prices of Hydrogen gas supplied by three companies. It was noted that while front companies were being supplied gas by MACL @ 0.50 per unit, till August 1996, the same gas was sold by the three companies @ Rs. 5 per unit. Keeping in view all these factors the authorities were of the view that MACL had created the three companies with the fraudulent intention to avail benefit of exemption granted under Central Excise Notification No. 1/93 dated 28.2.1993 and has mis-declared the assessable value in the invoices with the intention to evade central excise duty.

3. Show-cause notice was issued requiring MACL to show-cause as to why the central excise duty of Rs. 20,58,732.65 for the concerned period i.e. 9.5.1995 to 27.9.1996 should not be recovered from it under the provisions of Rule 9(2) of the Central Excise Rules, 1945 (in short the `Rules) read withSection 11 of the Central Excise Act, 1944 (in short the `Act) by invoking the extended period of limitation. Further, penalty i