Corporate veil lifting for SSI exemption denial upheld where group units were financially and managerially controlled as one

Clearances of separately incorporated group units may be clubbed for denying small scale industry exemption where the evidence shows common directors, substantial common family shareholding, and pervasive financial and managerial control by one concern over the others. On the stated facts, one company controlled finance, procurement, production planning, quality control, sales, and fund transfers, while the other units depended on it for operations and supplied most or all of their output to it. Separate registrations and balance sheets did not prevent aggregation where the corporate structure was used to split activity and secure exemption. The corporate veil could therefore be lifted, and the exemption denied on an aggregated basis, with duty demand and penalties sustained.

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Issues: Whether the clearances of the group companies could be clubbed by lifting the corporate veil for denying small scale industry exemption, and whether the resulting duty demand and penalties were sustainable.

Analysis: The units, though separately incorporated and separately registered, had common directors and substantial common shareholding by the same family and group concerns. The record showed that one company controlled finance, procurement of raw material, production planning, quality control, sales, and fund transfers for the others, while the other units supplied most or all of their production to that company and were dependent on it for funds and operations. The fact that separate balance sheets or registrations existed did not prevent clubbing where the evidence established pervasive financial and managerial control and splitting of activities to obtain exemption. On those facts, the corporate veil could be lifted and the exemption denied on an aggregated basis.

Conclusion: The clearances were rightly clubbed, the small scale industry exemption was correctly denied, and the duty demands and penalties were sustainable against the units and the concerned individuals.

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