Piercing corporate veil :
Legally, company has identity which is independent of its members. However, if company is only a facade, Court can look behind the scene and see the real state of affairs. This is called ‘lifting of corporate veil’.
In Calcutta Chromotype Ltd. v. CCE AIR 1998 SC 1631 = 1998 AIR SCW 1379 = 1998 (3) SCC 381 = 25 RLT 866 = 99 ELT 202 (SC), it was observed – ‘If persons behind manufacturer and buyer are same, authorities can lift the veil of a company, to see it was not wearing that mask. – . – As to when the veil should be lifted will depend upon facts and circumstances of each case’.
Thus, if Court finds that company is only a facade and actually there is unity of interest between two companies and two companies are really one, Court can lift the corporate veil and treat the two companies as ‘related’ even if legally, two companies cannot be ‘relative’ of each other.
In CCE v. ‘J’ Foundation (2015) 324 ELT 422 (SC), buyer and seller companies were of same group. Selling pieces to such group companies was much lower compared to prices charged to others. Hence, corporate veil was torn and it was held that test of mutuality of interest is established. The group companies were held as ‘related persons’.
In CC v. East African Traders 2000 (115) ELT 613 (SC), it was held that authorities can pierce the corporate veil to ascertain whether the buyer and seller are indeed related persons within the meaning of the rule.