Dummy unit and clubbing of clearances upheld where records showed no genuine manufacturing or job work activity.

Clearances from a Puducherry unit were clubbed with those of another company because the unit was found to be a dummy arrangement used to split turnover and wrongly claim small scale industry exemption. Common brand use, minimal machinery, absence of credible manufacturing activity, and lack of records for job work, transport, or contractual arrangements supported the finding that the unit was only a fac ade. Journal-based ledger adjustments and fund transfers further showed mutuality of interest and flow of funds between the entities. On that basis, the clubbing of clearances was upheld and the exemption claim failed.

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Issues: Whether the clearances of the Puducherry unit could be clubbed with the clearances of the other company on the ground that the Puducherry unit was only a dummy unit created to fragment turnover and wrongfully avail small scale industry exemption under Notification No. 8/2002-CE dated 01.03.2002.

Analysis: The units were found to be using the same brand names, and the Puducherry premises had only two machines, with the stitching machine in dismantled condition and no credible evidence of effective manufacturing activity. The explanation that the units were carrying on genuine job work was not supported by records showing payment or receipt of job charges, any agreement for the work, or transport documents evidencing movement of materials and semi-finished goods. The ledger entries were made through journal adjustments and reflected financial transfers between the units, indicating mutuality of interest and flow of funds. On the evidence, the arrangement was held to be a fac ade to split clearances.

Conclusion: The clearances were rightly clubbed and the Puducherry unit was treated as a dummy unit; the demand and penalties were sustained against the appellants.

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