2004 (8) TMI 108 - SC - Central Excise

Whether there is inter-dependence and whether another unit is in fact a dummy has to be adjudicated on the facts of each case? Held that - Two basic features which prima facie show interdependence are pervasive financial control and management control. In the present case facts clearly show financial control. Undisputedly the share capital of each of the three companies was 200/-. Though it was claimed that financial assistance was availed from the financial companies it is on record that the unsecured loans advanced by MACL to the three companies were substantially heavy amounts as on 1-4-1998. NGCPL received an amount of 1.55 crores. About 14 lakhs appeared to have been paid after the issue of show cause notice. Loans advanced to NGCPL was about 52 lakhs while to SCGCPL it was about 65 lakhs. The finding of the Commissioner that the financial assistance from the financial institutions were availed with the aid and assistance of MACL has not been seriously disputed. Apart from that the cylinders were brought on lease by MACL from another concern and were sub-leased to the three companies. The cylinders bore the name of MACL. If the three companies had separate standing as contended it could not be explained why they could not get the cylinders directly from the lessors on lease basis and the need for introducing MACL as the lessee and then the three companies becoming sub-lessees. As noted by the Commissioner entire receipts were paid as lease amount to MACL. The financial position clearly shows that MACL had more than ordinary interest in the financial arrangements for companies. The factors which have weighed with CEGAT like registration of three companies under the sales tax and income tax authorities have to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently. The Circular No. 6/92 dated 29-5-1992 has no relevance because it related to Notification No. 175/86-C.E. dated 1-3-1986 and did not relate to Notification No. 1/93. The extended period of limitation was clearly applicable on the facts of the case as suppression of material features and factors has been clearly established. If in reality the three companies are front companies then the price per unit to be assessed in the hands of MACL is 5 and not 0.50 as disclosed. The question whether there was manufacture or not was not in issue before the Commissioner. The plea that there was no manufacture has also to be rejected in view of the fact that exemption was claimed by the three companies as manufacturers to avail the benefit of Central Excise Notification No. 1/93. The inevitable conclusion is that CEGAT s judgment is indefensible. Accordingly the same is set aside and that of the Commissioner is restored so far as it relates on the peculiar facts of the case to levy of duty penalty and interest on MACL are concerned. Appeal allowed.

Summary

Issues:
1. Inter-dependence between respondent no. 1 and respondent nos. 2-4 companies
2. Allegations of evasion of central excise duty by respondent no. 1
3. Confiscation of land, building, plant & machinery of the three front companies
4. Imposition of penalty on the three companies and their employees
5. Appeal against the order of the Commissioner by the three companies
6. Analysis of factual background and conclusions by CEGAT
7. Financial control and management control in determining inter-dependence
8. Applicability of extended period of limitation
9. Relevance of Circular No. 6/92 in the case
10. Assessment of manufacturing activities and exemption claimed under Central Excise Notification No. 1/93

Analysis:

1. The Custom, Excise and Gold (Control) Appellate Tribunal (CEGAT) held that there was no inter-dependence between the respondent no. 1-company and respondent nos. 2-4 companies. The central issue revolved around whether the three front companies were dummies of the main company, engaged in evasion of central excise duty.

2. The Central Excise Authorities alleged that the main company was using the front companies to evade payment of excise duty by mis-declaring the assessable value of Hydrogen gas. The authorities conducted searches and found evidence suggesting that the front companies were controlled by the main company, leading to the issuance of a show cause notice for recovery of duty, penalty, and confiscation of assets.

3. The Commissioner of Central Excise imposed duty, penalty, and directed confiscation of assets, considering the front companies as dummies of the main company. The penalty was also imposed on the companies' employees and Director.

4. The CEGAT, however, set aside the Commissioner's order, stating that there was no manufacturing involved and no inter-dependence among the companies. The CEGAT's decision was based on the independent existence of the three companies and their compliance with central excise laws.

5. The appeals filed against the Commissioner's order highlighted discrepancies in the CEGAT's analysis, emphasizing the telltale signs indicating the front companies' nature. The appellants argued that the CEGAT overlooked crucial evidence and misinterpreted the facts and applicable legal principles.

6. In response, the respondents defended the CEGAT's conclusions, asserting the separate corporate existence of the companies and compliance with tax regulations. They argued against the application of extended limitation period and emphasized the companies' independent status.

7. The judgment emphasized the importance of financial and management control in determining inter-dependence. The financial transactions, loans, and control over assets indicated a significant level of control exerted by the main company over the front companies, supporting the allegations of evasion.

8. The judgment rejected the relevance of Circular No. 6/92 in the case, highlighting the established financial and management control as the basis for determining inter-dependence and evasion of duty.

9. The assessment of manufacturing activities and exemption claimed under Central Excise Notification No. 1/93 was crucial in establishing the main company's control and evasion of duty through the front companies.

10. Ultimately, the Supreme Court set aside the CEGAT's judgment, reinstating the Commissioner's order regarding the duty, penalty, and interest levied on the main company, based on the established inter-dependence and evasion of central excise duty.