Legal fiction for duty recovery cannot be extended to claim small scale industry exemption for Khandsari molasses procurers.

A procurer of Khandsari molasses deemed to be the manufacturer under Rule 7A and the amended Rule 9/Rule 9C only for duty recovery cannot extend that legal fiction to claim small scale industry exemption under Notification No. 7/97. The fiction operates solely for collection and recovery of duty and does not convert the procurer into an actual manufacturer for exemption purposes. Because the notification conditions require manufacture in a factory, the procurer does not satisfy the scheme's eligibility requirements. The stated principle is that a legal fiction must be carried to its logical purpose but no further, and the exemption is therefore unavailable to the procurer.

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Issues: Whether a procurer of Khandsari molasses, deemed to be the manufacturer only for recovery of duty under Rule 7A and related provisions, is entitled to small scale industry exemption under Notification No. 7/97.

Analysis: The liability scheme under Rule 7A and the amended Rule 9/Rule 9C creates a legal fiction by treating the procurer as the manufacturer only for the limited purpose of collection and recovery of duty on Khandsari molasses. That fiction cannot be extended beyond its intended field to claim exemption benefits meant for actual manufacturers operating from a factory. The notification conditions require manufacture in a factory and the procurer does not satisfy that requirement on the facts of the scheme. The reasoning accords with the settled rule that a legal fiction must be carried to its logical purpose but no further.

Conclusion: The procurer is not entitled to the small scale industry exemption and the issue is decided against the assessee.

Ratio Decidendi: A legal fiction deeming a person to be a manufacturer for duty recovery cannot be extended to confer exemption benefits unless the exemption scheme itself covers that person.

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