Dummy unit treatment: clearances can be clubbed where the alleged separate unit lacks independent manufacturing capability.

A purportedly separate unit will be treated as a dummy concern, and its clearances clubbed with the main assessee's clearances for small scale exemption purposes, where it lacks independent manufacturing capability and the evidence shows the goods were actually produced by the assessee. In this matter, the unit had only crude distillation equipment, was non-functional during inspection, and the assessee's own staff indicated it did not operate regularly. Laboratory reports and expert evidence supported the conclusion that the goods described in its invoices could not have been manufactured there and must have come from the respondent's plant. Common water supply, common labour, and absence of independent operations confirmed the dummy nature; duty, interest, and penalty were therefore sustainable.

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Issues: Whether M/s. Satish Industries was a dummy unit of the respondent and whether the clearances shown in its name were liable to be clubbed with the respondent's clearances for determining eligibility for small scale exemption.

Analysis: The unit shown as M/s. Satish Industries had only crude distillation equipment, was found non-functional at the time of inspection, and the statements of the respondent's own managerial staff showed that it was not working regularly. The invoices described the goods as pine oil, but the evidence, including laboratory reports and the statement of the expert witness, showed that goods with the stated terpineol content could not be manufactured in that unit and could be produced only in the respondent's plant. The evidence also showed common water supply, common labour deployment, and no independent operational existence of M/s. Satish Industries.

Conclusion: M/s. Satish Industries was a dummy unit and the clearances in its name were rightly clubbed with the respondent's clearances; the duty demand, interest, and penalty were sustainable.

Ratio Decidendi: Where a purportedly separate unit lacks independent manufacturing capability and the evidence shows that the goods attributed to it were actually manufactured by the assessee, its clearances may be clubbed with the assessee's clearances for exemption purposes and the duty demand, interest, and penalty may be confirmed.

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