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Issues Involved:
1. Liability of individual directors for excise duty. 2. Threat of imposing personal penalty on individual directors. 3. Legitimacy of lifting the corporate veil. 4. Applicability of Section 9AA in adjudication proceedings. Detailed Analysis: 1. Liability of Individual Directors for Excise Duty The petitioners, directors of M/s. Duncans Agro Industries Ltd., argued that neither the Central Excises and Salt Act, 1944, nor the Central Excise Rules, 1944, provide for individual directors to be personally liable for excise duty or penalties. The court referred to Section 11A of the Act, which allows proceedings if excise duty has not been levied or paid due to fraud, collusion, or wilful misstatement. The duty is levied on the manufacturer or producer as per Section 3 of the Act. Rule 178 grants licenses to named persons for manufacturing excisable goods, and Rule 7 mandates that the producer or manufacturer pay the duty. The court noted that the Act and Rules form a self-contained code for excise duty chargeability and recovery, making it impermissible to impose liability without express legal authority. 2. Threat of Imposing Personal Penalty on Individual Directors The petitioners contended that none of the penal provisions in the Rules apply to individual directors. Penalties can only be imposed on persons specifically liable for excise duty. The court examined several rules, including Rules 9(1), 9(2), 52A(1), 53, 210, and 226, and concluded that penalties are imposed on those directly responsible for duty payment. The court cited Union of India v. Rai Bahadur Sreeram Durga Prasad (P) Ltd., emphasizing that it is not legitimate to stretch the language of a rule beyond its ordinary meaning to impose penalties. 3. Legitimacy of Lifting the Corporate Veil The respondents argued that the corporate veil should be lifted to hold directors liable, as they are the real manufacturers or producers controlling the company. The court referenced CIT v. Sri Meenakshi Mills Ltd. and Assistant Registrar of Companies v. Southern Machinery Works Ltd., supporting the principle of lifting the corporate veil in cases of fraud or evasion. The court stated that the adjudicating authority must determine the extent of each director's involvement in the alleged evasion of excise duty. The court noted that directors could be personally liable if they were parties to fraud or other wrongful acts, as discussed in Palmer's Company Law and Pennington's Company Law. 4. Applicability of Section 9AA in Adjudication Proceedings The petitioners asserted that Section 9AA, which pertains to criminal liability, cannot be invoked in adjudication proceedings. The court agreed, noting that Section 9AA, introduced on December 27, 1985, relates solely to criminal proceedings. The respondents conceded that they would not rely on Section 9AA in the adjudication process. Conclusion The writ petition was dismissed, with the court emphasizing that the adjudicating authorities must investigate and determine the individual liability of directors based on their involvement in the alleged evasion of excise duty. The court also clarified that Section 9AA is not applicable in adjudication proceedings, and the respondents conceded this point. The dismissal was made with no order as to costs.
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