Clubbing of clearances for SSI exemption where units were artificially split and lacked real business independence

Where two units are found, on the basis of their real working arrangement and common control, to be artificially separated and not genuinely independent, their clearances may be clubbed for deciding eligibility to SSI exemption. The Tribunal noted that the paper separation did not reflect actual business independence; the units functioned as one business in practice, and the memorandum of understanding lacked essential particulars. On those facts, the arrangement was treated as created only to secure the SSI benefit, so the clearances had to be aggregated and separate exemption was unavailable.

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Issues: Whether the two assessees were independent units entitled to separate Small Scale Industry exemption, or whether their clearances were liable to be clubbed on the ground that the units had been artificially split and lacked real independence.

Analysis: The Tribunal found that the factual position remained unchanged and that, despite paper separation, the units functioned as one business in practice. The common control, missing vital particulars in the memorandum of understanding, and the artificial nature of the separation indicated that the arrangement was created only to avail the SSI benefit. On these facts, the units could not be treated as independent for exemption purposes, and the clearances had to be aggregated while examining eligibility under the exemption notification.

Conclusion: The clearances were rightly clubbed and the appellants were not entitled to separate SSI exemption; the appeal failed and the finding was against the assessee.

Ratio Decidendi: Where two units are found, on the basis of their real working arrangement and common control, to be artificially separated and not genuinely independent, their clearances may be clubbed for deciding eligibility to SSI exemption.

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