Clubbing of clearances requires proof of dummy units; separate registrations and operations defeated denial of small scale exemption.

Clearances of related units cannot be clubbed with a company's clearances for denying small scale industry exemption unless the department proves that the other units are merely dummies or have no real independent existence. Here, takeover of one unit meant it had no separate existence after acquisition, while the other unit showed separate excise, tax and sales tax registrations, bank account, electricity connection, workforce and machinery; common partners or directors alone were insufficient to establish dummy character. The absence of notice to the alleged dummy units also vitiated the proceedings. The result was that clubbing was not justified and the exemption denial, demand and penalties could not be sustained.

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Issues: Whether the clearances of M/s. Packers India and M/s. AGK Packers could be clubbed with those of the appellant-company so as to deny small scale industry exemption and sustain the demand and penalties.

Analysis: The appellant-company had taken over M/s. Packers India and, after such takeover, the unit had no separate existence for the purpose of clubbing its clearances with those of the appellant. As regards M/s. AGK Packers, the record showed separate excise registration, income tax and sales tax registrations, separate bank account, electricity connection, workforce and machinery. Clubbing of clearances requires proof that one unit is merely a dummy of another or that the alleged independent unit has no real existence. Mere common partners or directors, or the fact that some persons did not contribute capital or share profits in the manner suggested by the department, was insufficient by itself to establish dummy character. The department also failed to issue notice to the alleged dummy units, which vitiated the proceedings. The Board circular relied on supported the view that clearances of a partnership firm cannot be clubbed with those of a company merely because of common management.

Conclusion: The clearances were not liable to be clubbed and the denial of exemption, demand and penalties could not be sustained.

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