COMMISSIONER OF CENTRAL EXCISE, NEW DELHI versus M/S. MODI ALKALIES AND CHEMICALS LTD.

Citation: [2004] SUPP. 3 S.C.R. 619 · Decided: 18-08-2004 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Appeal(s) allowed

Judgment (excerpt)

COMMISSIONER OF CENTRAL EXCISE, NEW DELHI 
A 
v. 
M/S. MODI ALKALIES AND CHEMICALS LTD. 
AUGUST 18, 2004 
B 
[S.N. VARIAVA AND ARIJIT PASAYAT, JJ.] 
Central Excise Rules, 1994: 
Rules 9(2), 52-A, 17 3-Q and 209-A-Excise duty-Clubbing of 
units-Interdependence of units-Determination of-Assessee manufactured C 
caustic soda-Hydrogen gas obtained as a byproduct-Assessee floated 
three companies with a share capital of only Rs. 200 each-Subsequently, 
heavy amounts advanced as loans to these companies by assessee-
Assessee also rendered financial assistance to these companies through a 
finance company-Cylinders were subleased to the said companies by D 
assessee-Assessee piped Hydrogen gas to the said companies at a certain 
rate-The said companies compressed and bottled the same at a much 
higher rate-The profit earned was paid to assessee as lease rent for 
cylinders-There was common staff for maintaining records and operation 
of the units-Directors of the three companies were employees of the E 
assessee-CCE (Adjudication) held the said companies as dummies of the 
assessee and that the assessee evaded duty by resorting to undervaluation-
CCE (Adjudication), therefore, imposed duty and penalty on the assessee 
by clubbing with the three companies, confiscated the assets, and imposed 
penalty on the Directors, of the three companies-Correctness of-Held: F 
Whether there was interdependence of units and whether another unit is 
a dummy has to be adjudicated on the facts of each case-There cannot 
be any generalization or rule of universal application-Two basic features 
which prima facie showed interdependence were pervasive financial 
control and ma_nagement control-Although the three companies were 
registered under the sales tax and income tax authorities but when the G 
corporate veil is lifted then these companies had no independent existence-
The three companies are dummies of the assessee and there is clear 
suppression of facts-Therefore, extended period of limitation for recovery 
of duty clearly applicable-Hence, CCE (Aqjudication) justified in imposing 
duty and penalty on the asses see and penalty on the Directors of the said H 
619 
620 
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R. 
A three companies---Central Excise Act, 1944, Ss. JJA and 11---Central 
Excise Tariff Act, 1985, Sub-Heading 2804.90. 
New plea-Assessee did not raise any plea regarding manufacturing 
before CCE (Adjudication)-But Appellate Tribunal held that there was no 
B manufacturing-But assessee claimed exemption as manufacturer-Effect 
of-Held: Under these circumstances. the said plea rejected. 
The assessee-respondent No. 1 was engaged in the manufacture 
of caustic soda of which Hydrogen gas was a byproduct. The assessee 
floated three companies with a share capital of only Rs. 200 and 
C advanced substantially heavy amounts as loans to the said companies. 
The assessee also arranged loan to these companies through finance 
companies. The assessee obtained cylinders on lease and subleased the 
same to these companies and through pipelines sent lfydrogen gas at 
a certain rate to thei;e companies for compressing and bottling the 
D same. These companies, in turn, sold the bottled gas at a much higher 
rate. The said companies paid the entire profit to the assessee as lease 
rent of the cylinders. The assessee and the three companies had 
common staff for maintaining of records and operation of the units. 
The Directors of the three companies were the employees of the 
asses see. 
E 
The Commissioner of Central Excise (Adjudication) held the said 
companies as dummies of the assessee and that the assessee had evaded 
duty by resorting to under valuation. Accordingly, the CCE 
(Adjudication) imposed duty and penalty on the assessee by clubbing 
F with the three companies, ordered confiscation of the assets of the 
companies and imposed penalty on their Directors. 
In appeal, the Central Excise and Gold (Control) Appellate 
Tribunal (CEGA T) held that there was no manufacture involved in the 
process and, therefore, question of evasion of duty did not arise. The 
G CEGA T further held that there was no interdependence as alleged by 
the Central Excise Authorities and set aside the order of CCE 
(Adjudication). Hence the appeals. 
On behalf of the revenue, it was contended that though the issue 
H whether there was manufacture was never agitated before the CCE 
C.C.E. v. MODI ALKALIES & CHEMICALS LTD. 
621 
(Adjudication), the CEGAT on its

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