Case: Commnr. Of Central Exice, New Delhi Vs. M/S. Modi Alkalies &amp; Chem. Ltd. &amp;Ors

respectively. Penalty of Rs. 1 lakh was imposed on each of the three companies and Rs. 50,000/- on each of the three employees and the Director of the Company.5. Eight appeals were filed before the CEGAT, which by the common judgment set aside the order of the Commissioner. It came to hold, inter alia, that (1) there was no manufacture involved in the process and, therefore, question of evasion of duty did not arise; (2) there was no inter-dependence as alleged by the Central Excise Authorities. Three companies had independent existence and the factual position did not indicate that they were front companies as alleged by the authorities. 6. In support of the appeals, learned counsel for the appellant submitted that the CEGAT has fallen into grave error both while analyzing factual position and the applicable principles of law. Telltale features which clearly prove that the three companies were front companies have been lightly brushed aside by the CEGAT. It even failed to notice that transactions were done by companies with share capital of Rs. 200 each. The CEGAT has also recorded wrong findings as regards the management and marketing. Though the issue as to whether there was manufacture was never agitated before the Commissioner, the CEGAT on its own came to hold that there was no manufacturing. The conclusion is not supportable on facts and in law. 7. In response, learned counsel for the respondents submitted that the CEGAT has rightly analysed the factual background and came to the right conclusions. It was submitted that the three companies have separate corporate existence, are assessed separately to sales tax and income tax and have central excise registration. They submitted records to the Central Excise Authorities which were being verified by them. In any event, the question of any clubbing was not permissible in view of circular no. 6/92 dated 25.5.1992 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs, New Delhi. The same was, in fact, continuation of the notification No. CER 8(5) Central Excise continuation of the notification No. CER 8(5) Central Excise dated 1.3.1956. It was pointed out that there was no suppression or evasion for applying extended period of limitation. The show-cause notice was issued on 26.6.1997 and the order was passed on 23.10.1998 relating to the period from 9.5.1992 to 27.9.1996. The whole proceedings were, therefore, beyond the prescribed period of of limitation. 8. Whether there is inter-dependence and whether another unit is, in fact, a dummy has to be adjudicated on the facts of each case. There cannot be any generalization or rule or universal application. Two basic features which prima facie show inter-dependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly, the share capital of each of the three companies was Rs. 200/-. Though it was claimed that financial assistance was availed from the financial companies, it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1.4.1998. NGCPL received an amount of Rs.1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about Rs.52 lakhs while to SCGCPL it was about Rs. 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that, the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis and the need for introducing MACL as the lessee and then the three companies becoming sub-lessees. As noted by the Commissioner, entire receipts were paid as lease amount to MACL. Here again, the under-valuation aspect assumes importance. While the supply by MACL to three companies was Rs. 0.50 per unit, the sale price by the three companies was Rs. 5 per unit. It is on record that accounts were kept by common staff and marketing was done under the supervision of a person who belongs to the same group of concerns. The amounts have been collected by an employee of MACL. The so-called Directors of the companies were undisputedly employees of MACL. Almost the entire financial resources were made by MACL. The financial position clearly shows that MACL had more than ordinary interest in the financial arrangements for companies. The statements of the employees/Directors show that the whole show was controlled, both on financial and management aspects by MACL. If these are not sufficient to show inter-dependence probably nothing better would show the same. The factors which have weighed with CEGAT like registration of three companies under the sales tax and income tax authorities have to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The circular no. 6/92 dated 29.5.1992 has no relevance because it related to notification no. 175/86-CE dated 1.3.1986 and did not relate to notification no. 1/93. The extended period of limitation was clearly applicable on the facts of the case, as suppression of material features and factors has been clearly established. If in reality the three companies are front companies then the price per unit to be assessed in the hands of MACL is Rs. 5 and not Rs. 0.50 as disclosed. The question whether there was manufacture or not was not in issue before the Commissioner. The plea that there was no manufacture has also to be rejected in view of the fact that exemption was claimed by the three companies as manufacturers to avail the benefit of Central Excise Notification No. 1/93.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. Whether there is inter-dependence and whether another unit is, in fact, a dummy has to be adjudicated on the facts of each case. There cannot be any generalization or rule or universal application. Two basic features which prima facie show inter-dependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly, the share capital of each of the three companies was Rs. 200/-. Though it was claimed that financial assistance was availed from the financial companies, it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1.4.1998. NGCPL received an amount of Rs.1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about Rs.52 lakhs while to SCGCPL it was about Rs. 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that, the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis and the need for introducing MACL as the lessee and then the three companies becoming sub-lessees. As noted by the Commissioner, entire receipts were paid as lease amount to MACL. Here again, the under-valuation aspect assumes importance. While the supply by MACL to three companies was Rs. 0.50 per unit, the sale price by the three companies was Rs. 5 per unit. It is on record that accounts were kept by common staff and marketing was done under the supervision of a person who belongs to the same group of concerns. The amounts have been collected by an employee of MACL. The so-called Directors of the companies were undisputedly employees of MACL. Almost the entire financial resources were made by MACL. The financial position clearly shows that MACL had more than ordinary interest in the financial arrangements for companies. The statements of the employees/Directors show that the whole show was controlled, both on financial and management aspects by MACL. If these are not sufficient to show inter-dependence probably nothing better would show the same. The factors which have weighed with CEGAT like registration of three companies under the sales tax and income tax authorities have to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The circular no. 6/92 dated 29.5.1992 has no relevance because it related to notification no. 175/86-CE dated 1.3.1986 and did not relate to notification no. 1/93. The extended period of limitation was clearly applicable on the facts of the case, as suppression of material features and factors has been clearly established. If in reality the three companies are front companies then the price per unit to be assessed in the hands of MACL is Rs. 5 and not Rs. 0.50 as disclosed. The question whether there was manufacture or not was not in issue before the Commissioner. The plea that there was no manufacture has also to be rejected in view of the fact that exemption was claimed by the three companies as manufacturers to avail the benefit of Central Excise Notification No. 1/93.