Corporate veil in excise law lifted for dummy unit arrangement; clubbing upheld, limitation failed, and penalty sustained.

A corporate arrangement set up as a separate unit was treated as a mere facade for excise purposes, because the facts showed common control, no genuine transfer of assets and liabilities, and a device to secure separate small-scale exemption; the units were therefore clubbed and exemption under Notification No. 77/85-C.E. was denied. The duty demand for the relevant period was held time-barred because departmental knowledge, prior filings, and earlier litigation meant wilful suppression or misstatement was not established, so the extended limitation period could not apply. Penalty was nevertheless sustained on the footing that the arrangement amounted to deliberate evasion of duty.

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Issues: (i) whether the Ghaziabad unit was a dummy unit of the Calcutta company and whether their clearances could be clubbed so as to deny separate small-scale exemption; (ii) whether the duty demand for the period 1-10-1983 to 25-7-1985 was barred by limitation; (iii) whether the penalty imposed on the appellants was sustainable.

Issue (i): whether the Ghaziabad unit was a dummy unit of the Calcutta company and whether their clearances could be clubbed so as to deny separate small-scale exemption.

Analysis: The arrangement by which the new unit was set up at Sahibabad, the failed transfer by sale, the later lease documents, the common managing director, the flow of substantial sale proceeds to the founder company, and the absence of a genuine transfer of assets and liabilities showed that the corporate form was being used to create a separate facade. In such circumstances, the corporate veil could be lifted where the structure was adopted to evade excise duty and to obtain exemption separately for what was in substance one unit.

Conclusion: The Ghaziabad unit was treated as the same as the Calcutta company, and separate exemption under Notification No. 77/85-C.E. was not available; this issue was decided against the assessee.

Issue (ii): whether the duty demand for the period 1-10-1983 to 25-7-1985 was barred by limitation.

Analysis: The departmental officers were aware of the setting up and functioning of the unit, the relevant statement of the works-in-charge had been recorded, and classification and declaration papers had been filed from time to time. The earlier demand on the same grounds had also already been litigated. On these facts, wilful suppression or misstatement was not established, so the extended period could not be invoked.

Conclusion: The duty demand was held to be time-barred; this issue was decided in favour of the assessee.

Issue (iii): whether the penalty imposed on the appellants was sustainable.

Analysis: Once the unit and the founder company were found to be one and the same for excise purposes and the arrangement was held to be a device for evading duty, the penalty followed from the confirmed finding of deliberate evasion. The Tribunal treated the conduct as sufficient to justify penal consequences.

Conclusion: The penalty was sustained; this issue was decided against the assessee.

Final Conclusion: The appeal succeeded only on limitation, but the finding of clubbing and the imposition of penalty were upheld, leaving the overall relief only partial.

Ratio Decidendi: Where a corporate arrangement is found to be a mere facade created to secure excise exemption and evade duty, the corporate veil may be lifted and the units clubbed for exemption purposes; however, absence of wilful suppression defeats the extended limitation period.

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