Clubbing of Clearances Requires Proof of Principal-Dummy Arrangement; Mere Common Management Cannot Deny Small Scale Exemption

Clubbing of clearances to deny small scale exemption requires clear proof of a principal-dummy arrangement and a legally sustainable computation of duty liability. Common directors, supervisory overlap, inter-unit supply, or occasional financial accommodation, by themselves, are insufficient to establish mutuality of interest or a sham set-up. Here, the notices and lower orders failed to show the basis of duty computation, how the exemption threshold was crossed, or which unit was the principal unit and which was the dummy. In the absence of such foundational material, the demand based on clubbing of clearances could not be sustained and was set aside in favour of the assessee.

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Issues: Whether the clearances of the two units could be clubbed so as to deny the benefit of small scale exemption and sustain the duty demands.

Analysis: Clubbing of clearances depends on the facts of each case and cannot rest on general features such as common directors, common supervisory arrangements, inter-unit supply, or occasional financial accommodation. The notices and the orders below did not clearly establish the basis of computation of duty, the manner in which the threshold limit was crossed, or which unit was to be treated as the principal unit and which as the dummy. In the absence of such foundational material, the allegation of mutuality of interest and the conclusion that the units were a sham arrangement could not be sustained.

Conclusion: The demand founded on clubbing of clearances and denial of small scale exemption was unsustainable and was set aside in favour of the assessee.

Ratio Decidendi: Clubbing of clearances for denying small scale exemption requires clear proof of a principal-dummy arrangement and a legally sustainable computation of liability; mere common management or inter-unit dealings is insufficient.

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