Small scale exemption adjustment principle allows pre-exemption duty payments to be set off against later duty liability.

Amounts paid on clearances made before availing small scale exemption were treated as deposits with the Government, not as duty of excise, and were therefore available for adjustment against the duty ultimately payable. The Tribunal noted that although earlier precedent required first-day-of-financial-year clearances to be counted for aggregate value, the same line of authority and the Board's circular supported adjustment of pre-exemption payments. On that basis, where the assessee had already remained within the prescribed exemption limit, the demand could not be sustained on the approach adopted in the impugned order and was set aside.

---

---

Issues: Whether the value of clearances made on payment of excise duty before availing small scale exemption was to be treated as duty and adjusted, and whether the demand confirmed by including such clearances in the aggregate value could be sustained.

Analysis: The Tribunal noted that although the Larger Bench had stated that clearances from the first day of the financial year were relevant for computing aggregate value, it had also held that the amounts paid on cotton yarn cleared before the benefit of the notification was availed could not be treated as duty of excise and were only deposits with the Government. Those amounts, as clarified in the Board's circular and followed in later Tribunal decisions, were liable to be adjusted against the duty ultimately found payable. As the assessee had already availed exemption only up to the prescribed limit, the demand could not be upheld on the approach adopted in the impugned order.

Conclusion: The demand was set aside and the appeal was allowed in favour of the assessee.

---