Corporate Veil of Company will be Lifted when Fraud or Improper Conduct Results in Tax Evasion under Excise Act, 1944: Delhi HC [Read Order}

The Delhi High Court corporate veil of the company will be lifted when fraud or improper conduct results in tax evasion under the Excise Act, 1944. Punjab Expo Breweries Pvt Ltd, the appellant was granted an L-1 license by the Government of NCT of Delhi for the year 201314 for wholesale vend for sale of brands of liquor, i.e., Courier Napoleon Brandy and Savoy Club Gin and Fresh Lime.

The said license was valid till 15th June 2013.  The appellant applied to the Assistant Commissioner (Excise) for permission to transfer to itself the leftover stock from two erstwhile licensees namely, M/s Tilak Nagar Industries Private Limited, which had a license for the year 2010-11 and M/s Patiala Distilleries and Manufacturers Private Limited, which had a license for the year 2011-12.

The Assistant Commissioner (Excise) allowed the request of the appellant partly and granted permission to transfer the leftover stock of only “Courier Napoleon Brandy” lying with M/s Tilak Nagar Industries Private Limited and M/s Patiala Distilleries and Manufacturers Private Limited.  Even after the grant of permission as aforesaid, the appellant did not transfer the leftover stock of “Courier Napoleon Brandy” from the aforesaid two companies. Further, the appellant also did not take steps to declare its leftover stock to the Deputy Commissioner (Excise) on the expiry of its license on 15th June 2013 in terms of Rule 56 of The Delhi Excise Rule, 2010.

The appellant again applied on 07th February 2014 to the Excise Department for permission to transfer to itself the leftover stock of the aforesaid companies, i.e., M/s Tilak Nagar Industries Private Limited and M/s Patiala Distilleries and Manufacturers Private Limited. The second request of the appellant was rejected by the Assistant Commissioner (Excise) vide communication dated 07th March 2014 and the appellant was directed to destroy the leftover stock after depositing a sum of    Rs. 39,02,845.91/- on account of applicable excise duty on leftover stock.

The appellant filed a writ petition before the Court being W.P.(C) 4666/2016 was allowed the writ petition remanded the matter back to the Financial Commissioner to examine whether any liability could be imposed upon the appellant for payment of excise duty. The Excise Commissioner rejected the appeal of the appellant thereby holding that the appellant is liable to pay excise duty before the leftover stock is destroyed.

Appeal before the Financial Commissioner filed by the appellant against the order dated 08th March 2019 passed by the Excise Commissioner, was also dismissed vide order dated 26th April 2022. The Single Judge that liquor has been sold by the appellant by different companies incorporated over the years and that the appellant had the stock as a purchaser and thus, liable to pay the excise duty.

The division bench comprising Acting Chief Justice and Justice Mini Pushkarna observed that the “doctrine of the lifting of the corporate veil is well recognized and the face of the company can be examined in substance in appropriate matters.  The Supreme Court has held that where fraud or improper conduct is intended to be prevented a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be in reality part of one concern, the corporate veil may be lifted. “ In light of various judgments, the court dismissed the writ petition.

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