Clubbing of clearances requires proof of dummy character or real control; separate companies got pre-deposit waiver and stay.

Separate incorporated limited companies with independent manufacturing facilities, staff, raw materials and units at different locations cannot have their clearances clubbed for denial of Small Scale Industry exemption unless the department first establishes, with convincing evidence, that one entity is the real controlling manufacturer or a dummy concern. Common shareholding, some fund transfers and movement of raw materials, by themselves, are insufficient to justify clubbing. On these facts, the record supported a prima facie case against clubbing, so complete waiver of pre-deposit of duty and penalties was granted and recovery was stayed pending the appeal.

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Issues: Whether the clearances of two separately incorporated limited companies could be clubbed for denial of Small Scale Industry exemption and demand of duty, and whether the appellants had made out a prima facie case for complete waiver of pre-deposit and stay of recovery.

Analysis: The companies had independent existence, manufacturing activity, raw materials, staff, and units situated in different places. Mere common shareholding, some transfer of funds, and movement of raw materials did not by itself establish that one company was a dummy or that one belonged to the other. For clubbing, the department had to identify the real manufacturer or the main unit controlling the other entity. The notice and adjudication failed to do so and instead proceeded to demand duty from both units separately, which was inconsistent with the theory that only one was the real manufacturer. The Board circular on separate legal existence of limited companies and the cited precedent supported the view that, on these facts, a prima facie case existed against clubbing.

Conclusion: The appellants were entitled to complete waiver of pre-deposit of duty and penalties, and recovery was stayed pending disposal of the appeal.

Final Conclusion: The order granted interim protection to the appellants by suspending enforcement of the demand during the pendency of the appeal.

Ratio Decidendi: Separate incorporated limited companies with independent manufacturing set-up and operations cannot have their clearances clubbed for SSI exemption denial unless the department first establishes, on the facts, the real controlling manufacturer or dummy character with convincing evidence.

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