Clubbing of clearances denied small scale exemption where common premises, shared infrastructure, and lack of independent operation were proved.

Clearances from the two units were clubbed for small scale industry exemption because the record showed common premises, shared storage and infrastructure, no effective demarcation, fund and goods transfers, common brand use, and insufficient independent machinery and power consumption to establish separate manufacture. The explanation that common facilities and inter-unit transactions were merely incidental or clerical was not supported by adequate material, and the concerns were not shown to function independently or to be capable of independent operation. The denial of exemption was therefore upheld.

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Issues: Whether the clearances of the two units were liable to be clubbed for determining eligibility to the small scale industry exemption under Notification No. 175/86-C.E. dated 1.3.86, and whether the demand founded on the alleged common operations and wrongful availment of credit was sustainable.

Analysis: The units were found to operate from the same compound with common storage, common use of land and buildings, no effective demarcation of premises, shared infrastructure, transfer of funds and goods between the units, common brand usage, and insufficient independent machinery and power consumption in one unit to establish separate manufacture. The explanation that the units were separate, that common storage or infrastructure was incidental, and that the transfers and inter-unit transactions were clerical or isolated was not supported by adequate material. The record did not show that the two concerns were functioning independently or were capable of independent functioning.

Conclusion: The clearances were rightly clubbed and the denial of the exemption was justified. The appeal failed.

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