Separate corporate personality defeats dummy-unit allegations, while time-barred demand and unproven brand-name restriction cannot sustain penalty.

A duly incorporated company retains separate legal personality, and exemption cannot be denied by treating it as a facade or dummy unit of the holding company absent exceptional grounds. The record showed only a change in shareholding and long-standing business activity, which was insufficient to disregard corporate identity. Demand and penalty also could not survive because the relevant demand period predated incorporation, suppression or mens rea was not established, and the alleged brand-name bar was not shown to apply as the ABB brand was not proved on the final products. The denial of exemption and penalty were therefore set aside.

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Issues: (i) Whether the assessee company could be treated as a mere facade or dummy of the holding company so as to deny exemption under Notification No. 16/97. (ii) Whether the demand and penalty could be sustained, including on the basis of limitation and the alleged brand-name restriction under Notifications No. 16/97 and 8/98.

Issue (i): Whether the assessee company could be treated as a mere facade or dummy of the holding company so as to deny exemption under Notification No. 16/97.

Analysis: A registered company has a distinct legal personality, and piercing the corporate veil is permissible only in exceptional circumstances. The assessee was an established private limited company carrying on business for decades, and a mere change in shareholding did not establish that it was a sham or dummy unit of the holding company. The facts did not justify disregarding its corporate identity.

Conclusion: The assessee could not be treated as a facade or dummy of the holding company, and exemption could not be denied on that basis.

Issue (ii): Whether the demand and penalty could be sustained, including on the basis of limitation and the alleged brand-name restriction under Notifications No. 16/97 and 8/98.

Analysis: The demand related to a past period and the record did not justify sustaining suppression or mens rea for penalty. The company was incorporated only from 19-6-98, so demands for the period prior to incorporation were not enforceable against it. The record also did not show use of the ABB brand name on the final products, so the brand-name bar under the notifications was not attracted.

Conclusion: The demand was barred by limitation and was not sustainable, and no penalty could be upheld.

Final Conclusion: The order of denial of exemption and imposition of penalty was set aside, and the appeal succeeded.

Ratio Decidendi: A duly incorporated company retains separate legal personality, and exemption cannot be denied by disregarding that personality absent exceptional grounds; where the demand is time-barred and the alleged brand-name restriction is not established, the duty demand and penalty cannot survive.

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