Separate unit identity and no suppression defeat clubbing of clearances and extended limitation under small scale exemption rules.

Separate units with independent legal existence, different locations, separate machinery and separate tax registrations were treated as distinct for small scale exemption under Notification No. 75/87, because mere family relationship between owners and a temporary loan between units did not establish mutuality of interest or common control. The clearances therefore could not be clubbed, and the exemption remained available for the goods manufactured by the units. On limitation, prior declarations, departmental awareness of the units' activities, and the absence of any proven intent to evade duty meant that suppression was not established, so the extended period could not be invoked and the demand was time-barred.

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Issues: (i) Whether the clearances of the three units could be clubbed to deny the benefit of small scale exemption under Notification No. 75/87 dated 01.03.1987. (ii) Whether the demand was barred by limitation in the absence of suppression with intent to evade duty.

Issue (i): Whether the clearances of the three units could be clubbed to deny the benefit of small scale exemption under Notification No. 75/87 dated 01.03.1987.

Analysis: The units were found to be separate legal entities with independent existence, different locations, separate machinery and separate sales tax and income tax registrations. A temporary loan transaction between one unit and another did not establish mutuality of funds or mutuality of interest. Mere relationship between the owners was held insufficient to justify clubbing where the entities functioned independently. The notification was found applicable to the goods manufactured, namely parts of refrigerators and air-conditioners produced by small scale units.

Conclusion: The clubbing of clearances was unsustainable and the appellants were entitled to the exemption.

Issue (ii): Whether the demand was barred by limitation in the absence of suppression with intent to evade duty.

Analysis: The appellants had filed declarations at the commencement of operations and the department was aware of the units' existence and activities. Since the duty payable, if any, was available as Modvat credit to the buyers, there was no incentive to evade duty. On these facts, no suppression with intent to evade duty was established.

Conclusion: The demand was barred by limitation.

Final Conclusion: The duty demand and the penalties were set aside, and the appeals were allowed.

Ratio Decidendi: Separate units with independent existence, infrastructure, registrations and no proven mutuality of interest cannot have their clearances clubbed merely because their owners are related; in the absence of suppression with intent to evade duty, the extended period cannot be invoked.

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