Corporate veil in excise evasion may be lifted to identify responsible directors, but liability must be shown on facts.

In alleged excise-duty evasion, show-cause notices may be issued to company directors where the department seeks to identify who is statutorily liable and responsible for the alleged evasion; individual liability cannot be fastened unless the director's role and extent of responsibility are shown on the facts. In cases involving fraud, collusion, wilful misstatement, suppression of facts, or statutory contravention with intent to evade duty, the corporate veil may be lifted to identify the real persons concerned, subject to adjudication on evidence and natural justice. Section 9AA of the Central Excises and Salt Act, 1944 was not to be relied upon in the adjudication proceedings.

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Issues: (i) whether individual directors of a company could be proceeded against through show-cause notices for excise duty and penalty in respect of alleged evasion of central excise duty; (ii) whether the corporate veil could be lifted to examine the real persons responsible for the alleged evasion; and (iii) whether section 9AA of the Central Excises and Salt Act, 1944 could be relied upon in adjudication proceedings.

Issue (i): whether individual directors of a company could be proceeded against through show-cause notices for excise duty and penalty in respect of alleged evasion of central excise duty

Analysis: The liability to pay excise duty arises under the statutory scheme governing manufacture and removal of excisable goods. The notices were issued to afford the petitioners an opportunity to explain who was liable for the duty and who was responsible for the alleged evasion. The Court noted that under the relevant rules, a corporate body making the required declaration may render the signatory and the corporation liable for duties, penalties and confiscation. It also observed that personal liability of a director cannot be fastened unless the department establishes how and to what extent that director is liable.

Conclusion: The challenge to the show-cause notices on the ground that directors can never be proceeded against was rejected.

Issue (ii): whether the corporate veil could be lifted to examine the real persons responsible for the alleged evasion

Analysis: The Court accepted that in cases of alleged fraud, collusion, wilful misstatement, suppression of facts, or contravention of the statute with intent to evade duty, it is permissible to look beyond the separate legal personality of the company. The adjudicating authority must determine on evidence which directors, if any, were concerned with the alleged evasion and to what extent, and the opportunity of hearing through a show-cause notice was consistent with natural justice.

Conclusion: Lifting of the corporate veil was held to be permissible for adjudicating the alleged excise evasion.

Issue (iii): whether section 9AA of the Central Excises and Salt Act, 1944 could be relied upon in adjudication proceedings

Analysis: The respondents conceded that section 9AA was not correctly invoked for adjudication proceedings and stated that it would not be relied upon in the adjudication.

Conclusion: No operative relief was granted on this point, and the respondents were not to rely on section 9AA in the adjudication proceedings.

Final Conclusion: The writ petition was held not to disclose any ground for interference, and the impugned notices were left to be worked out in adjudication according to law.

Ratio Decidendi: In excise matters involving alleged evasion, the corporate veil may be lifted to identify the responsible persons, but individual director liability can be pursued only where statutory liability is shown on the facts and within the relevant rules.

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