Clubbing of clearances and clandestine removal require corroborated evidence; separate units and unverified records were insufficient here.

Clearances of separately incorporated and independently registered units could not be clubbed for denying small scale industries exemption where each unit had separate machinery, manufacturing set-up and no proved financial flowback or dummy structure. Common management, overlapping directors, inter-unit payments and shared marketing were insufficient by themselves to establish mutuality of interest. A charge of clandestine manufacture and removal also required tangible, corroborated evidence such as excess raw material, excess electricity use, unaccounted goods, transport proof and reliable linkage of documents to factory activity. On the facts described, private records and third-party statements without adequate corroboration were insufficient, so the duty demand and consequential penalties failed.

---

---

Issues: (i) whether the clearances of the two private limited units could be clubbed for denying small scale industries exemption; (ii) whether the allegation of clandestine removal of goods without payment of duty was established on the basis of private records and third-party material.

Issue (i): whether the clearances of the two private limited units could be clubbed for denying small scale industries exemption.

Analysis: The units were separately incorporated, separately registered with the statutory departments, maintained separate machinery and separate manufacturing set-ups, and there was no common gate or proved financial flowback. Common management, some overlapping directors, payment of commission or salary by one unit for another, and shared marketing arrangements by themselves did not establish mutuality of interest or render one unit a dummy of the other. In the absence of proof that one unit was merely a fac ade or that the clearances were not genuinely independent, clubbing was not justified.

Conclusion: The clearances could not be clubbed and the denial of SSI exemption on that basis was unsustainable.

Issue (ii): whether the allegation of clandestine removal of goods without payment of duty was established on the basis of private records and third-party material.

Analysis: A charge of clandestine manufacture and removal requires tangible and corroborated evidence such as excess raw material, excess electricity consumption, recovery of unaccounted finished goods, proof of actual transport and sales, and reliable links between the recovered documents and factory activity. Here, the material relied upon was largely from employees or third parties, cross-examination was denied in respect of key statements, and no adequate corroboration of excess production, procurement or removal was produced. The evidence therefore fell short of the standard required to sustain a demand for clandestine removal.

Conclusion: The allegation of clandestine removal was not proved and the duty demand on that count was unsustainable.

Final Conclusion: The duty demands and consequential penalties failed on both counts, and the assessees were entitled to relief.

Ratio Decidendi: Clubbing of clearances is permissible only on proof of mutuality of interest or financial flowback, and clandestine removal must be supported by tangible, corroborated evidence of unaccounted manufacture and clearance.

---