Clubbing of clearances requires proof of mutuality of interest or fund flow, not mere holding-subsidiary status.

Clubbing of clearances of holding and subsidiary private limited companies for denial of small scale exemption was not justified where the Revenue relied only on common shareholding. The governing principle under Notification No. 175/86-CE and later Notification No. 1/93-CE is that clubbing can be sustained only on proof of mutuality of interest or financial flow back between the units. As no such allegation or evidence was shown, mere holding-subsidiary status did not disqualify the assessees from exemption. The exemption benefit therefore remained available on the facts stated.

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Issues: Whether the clearances of the holding and subsidiary private limited companies could be clubbed for denying small scale exemption under the relevant notifications in the absence of evidence of mutuality of interest or financial flow back.

Analysis: The exemption claims were governed by Notification No. 175/86-CE and subsequently Notification No. 1/93-CE. The controlling principle applied was that mere existence of a holding-subsidiary relationship or common shareholding, by itself, does not justify clubbing of clearances. Clubbing can be sustained only where the Revenue establishes mutuality of interest or flow back of funds between the units. On the facts, the show cause notice proceeded only on the basis that one company held the share capital of the other, and there was no allegation or evidence of financial flow back.

Conclusion: Clubbing of clearances was not permissible on the facts found, and the assessees were entitled to the exemption benefit.

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