TaxTMI 
TaxTMI 
1993 (8) TMI 199
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....s are independent one and incorporated separately under the Indian Companies Act, 1956. 3.ii However, the department by their show cause notice dated 12-6-1989 has alleged that M/s. Avcon Controls (P) Ltd. Bombay (hereinafter referred to as M/s. Avcon) holders of Central Excise licence and M/s. Prima Controls (P) Ltd. (hereinafter referred to as M/s. Prima) by their common directors namely Sh. A.N. Kawale, and Mrs. Pramila A. Kawale (both are directors in both the companies) and the Rajan A. Kawale (Director of Prima only) had contravened various provisions of the Central Excise Act and Rules (as mentioned in the show cause notice). Inasmuch as M/s. Avcon and M/s. Prima and their Directors have misused the concessions granted to the Small Scale Units vide the above noticed notifications during the progressive periods, when these notifications were in force, by suppressing the fact that M/s. Prima is split up unit of M/s. Avcon. The same having been floated by them with a view to avail the benefits of SSI exemptions and M/s. Prima is a related company of M/s. Avcon within the meaning of Section 4(4)(c) of the Central Excises and Salt Act, 1944. They thus availed the value ba....
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....ciation and Articles of Association of M/s. Avcon, it is inferred that : (i)  The main objects of the company were to manufacture different types of valves and control equipments and to deal in them. (ii) It was promoted by Mr. and Mrs. Kawale. (iii) Mr. and Mrs. Kawale were to be permanent Directors of the company. This has been compared with the Memorandom of Association and Articles of Association of M/s. Prima, incorporated on 29-1-1980, it is inferred that they are totally identical inasmuch as :- (i) The main objects use the same i.e. to manufacture different types of valves and control equipments and to deal in them. (ii) It is also promoted by Mr. and Mrs. Kawale only. (iii) Mr. and Mrs. Kawale are the permanent Directors. 3.vi On the examination of the project report of M/s. Prima submitted to Bank, it is alleged it is inferred that : (1) (11.1, para 2 of the report). This manufacturing unit is established as Small Scale Unit to avail with all the facilities which are given by various government authorities such as excise etc. (2) At 11.2, para 2, regarding technical competence it is stated that the "Directors are with experienc....
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....es (13,14) under item 2 against capacities and production, it is seen that from April 1982, the production of modulating rotors was completely stopped and the production is nil against 361 Show Cause Notice during the previous year. It is exactly during this period that M/s. Prima started full scale production and those items was diverted to it. (ii) and also from M/s. Prima's letter No. PCPL/PNA 8303/A.N./Bby/119/87 dated 12-7-1987 to M/s. Apptach Engineering Pvt. Ltd. (14.1) stating that our parent company has been manufacturing actuators for past 17 years (now we are manufacturing), and also from (iii) M/s. Prima's letter No. PCPL/A.N./Bby/83/86 dated 25-7-1986 to M/s. M.B.M. Associates (15.1) stating that "we are manufacturing electric actuators (modulating motors earlier supplied by M/s. Avcon). It is alleged that Mr. Kawale could not give proper clarification in this behalf in his statement. 3.x The department have also referred to several letters viz letter No. 83/JI/MB/478, dated 12-6-1984 to M/s. Jocomatic International, France (16.2) and from it is alleged that it appears that M/s. Avcon are their agents in India. Further M/s. Prima have submitted th....
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....eged to have been admitted by Sh. Kawale, in his statement. It is also stated that even M/s. New Burn Thermal Plants (P) Ltd. is firm held entirely by the other Kawale's only. 3.xiii It is infered from the statement of Mr. Kawale that the entire finance of both the Units are controlled by him only, as he is signing all the cheques. It is, therefore, alleged that both M/s. Avcon and M/s. Prima are under the exclusively control of Mr. and Mrs. Kawale and under the exclusive management of Shri Kawale as can be seen from their statements. 3.xiv It is also inferred from the sales chart that M/s. Prima was flouted in 1950 and when M/s. Avcon had exceeded the exemption limit of 0.5 lakhs. It is further alleged that the major sales of M/s. Prima are to M/s. Avcon as can be seen from a letter to Bank of India which shows that the sales of Avcon are about 1 to 2 lakhs per Unit. 3.xv Further it is alleged that they are giving discounts to the tune of 30% to M/s. Avcon whereas in normal taxes, the same is between 10% to 15%. Extra discount is granted to M/s. Avcon above the normal discount and hence the sales transaction do not appear to be at an arm's length. Sh. Ka....
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....uld hold more than half of the normal value of equity share computed of the subsidiary company or shared have the right to appoint or remove a majority of the number of Directors of the subsidiary company. They contend that in their case none of the above situations exist since they are not holding a single share in M/s. Prima Controls nor do they have any right to remove any of the Directors of M/s. Prima. In support of this plea they filed the Certificate of their chartered accountant. 4.v They further pleaded that the concept of 'relative' has no application to impersonal bodies like limited companies (relied on Hind Lamps Ltd. v. Union of India 1977 (1) E.L.T. (J 1). They further pleaded that even if one company hold 50% or more shares of another company then that company can be at the most said to be having an interest in the another company as a shareholder, but for this reason it cannot be said that the first company has any interest, direct or indirect in the business carried on by one of its shareholder even though the shareholding of such shareholders may be 50% or more [Union of India v. Atic Industries Ltd. 1984 (17) E.L.T. 323]. Dawn Apparels Ltd. v. Union of I....
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.... which they have developed their own supplies are of which is M/s. Prima. They buy the actuators from M/s. Prima, under the purpose orders just like other suppliers and these purchases are on the basis principle to principle and get the quantity discount from M/s. Prima. The purchase from M/s. Prima is on the same terms of as of other customers if they have their own marketing setup to market their goods throughout India. 4.viii Referring to the statements made in the project report, they deny the imputation made by department. They state it is normal practice in the trade to minimise the cost of a product by availing maximum legitimate benefits available to the industry. This does not imply that every statement made in the routine correspondence of an industry will be with an intention to evade taxes. They state that effective utilisation of resources i.e. experience of directors by itself does not prove that two companies are one and the same. They relied on the ruling of M/s. Jagjivandas and Co., Thane v. Collector - 1985 (19) E.L.T. 441. 4.ix It is stated that M/s. Prima are manufacturing their products into the technical know how from M/s. Jocomatic Internation....
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.... which had been arrived at only after negotiations and thus by itself cannot be a ground for clubbing the clearances of the companies. (a) They denied the charge of suppression and contended that the department was aware of the facts and hence the demands were all time barred. 5. The learned Collector has rejected all their contentions and confirmed the order. The learned Collector as the out set has clarified that once the department is able to show that M/s. Prima and M/s. Avcon are one and the same or the manufacture by M/s. Prima was for and on behalf of M/s. Avcon then allowing any discount from the price under Section 4 of the Act for any sales to M/s. Avcon does not arise, since the transaction between tin company ceases to be a sale and purchase. He has held that it is for this limited purpose that Section 4(4) (c) of the Act had been mentioned in the Show Cause Notice. Further the discount of 25% given to just one another customer of M/s. Prima cannot be considered since such a single transaction cannot labelled as "in the ordinary course of business". Quoting Section 4 the learned Collector has observed that the case against the assessee is not on the alle....
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....heets and not even a project report in any sense. The learned Collector had totally misunderstood the concept of clubbing of units and also totally misapplied the ruling besides rejecting the catena of case law relied by the appellants. The learned senior advocate pointed out that although the Collector initially stated that Section 4 is being referred for limited purpose, but ultimately has gone on to decide the case on that basis only. Further, the confusion of learned Collector had been on the basis of Shareholdings of the Mr. and Mrs. Kawale in both the companies. This, the learned senior advocate argued cannot be the basis for clubbing the two companies. The directors of a company are mere servants and each company is a separate corporate body and juristic person, who can sue and be sued. The holding in a company by individuals in forms of share would not make the company as their personal assets. Each corporate company, being a separate juristic person and therefore is independent of the other. The department has not placed any evidence to show that one company is totally a dummy unit of the other, inasmuch as the entire operations are controlled by M/s. Avcon in the case. Th....
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.... Tribunal is certainly entitled to lift mask of corporate entity if the conception is used for tax evasion or to circumvent tax obligation or perpetrating fraud, this is to be resorted to only in exceptional cases. In absence of evidence that profits made by Telester flowed back to Meteor or evidence of control or supervision of Meteor over Telstar, we are not inclined to do so. The rulings do not help the respondent." 7.1 Now, we have to see, as to whether there existed any such circumstances for lifting the corporate veil. In this case Collector has found two circumstances to hold that the unit M/s. Prima is a subsidiary of M/s. Avcon and the clearances are to be clubbed. One is the holding of shares by the common directors and other is the alleged project report of M/s. Prima, with due respect to the learned Collector, both the grounds cannot be the reason for clubbing the units. As these reasons have long been examined by the Tribunal in a series of judgments and overruled the same. A company is an independent juristic person with its own seal and it can sue and be sued. The directors are mere servants and that the contributors towards the share capital, by their mere c....