SC upholds excise order against Modi Alkalies

The Supreme Court on Thursday upheld the penalty and confiscation of assets of three dummy companies floated by Modi Alkalies & Chemicals Ltd to evade central excise. The company had moved five appeals before the Customs, Excise and Gold [Control] Appellate Tribunal and it had set aside the order of the Commissioner of Central Excise.

The commissioner appealed to the Supreme Court which upheld his order. The Supreme Court said: "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 main company manufactures caustic soda of which hydrogen is a byproduct. The excise authorities noticed that in reality, the company was manufacturing hydrogen, but to evade duty, floated three front companies.

All the dummies were near the main company. They sent hydrogen through pipelines which were compressed and bottled by the front companies. The objective was to avail benefits given to small scale units in the Central Excise notification and evade duty.

According to the commissioner, the directors of the dummy companies were employees of Modi Alkalies or other Modi group of companies. They had common staff for operations. The plant and machinery were supplied by the mother company and the total finance was supplied by it.

The whereabouts of the finance companies were not known even to their directors. Therefore the commissioner, after inspection of the units, sent showcause notice to the company. Dissatisfied with the explanations of the company, the commissioner imposed duty and penalty on it.