Dummy unit allegations require notice to the related concern, and prior departmental knowledge defeats extended limitation.

Where revenue alleges that one concern is a dummy or integrated unit to deny exemption or sustain duty, the alleged related unit must be put on notice and given an opportunity to meet the allegation; otherwise the demand, confiscation and penalties cannot stand. The record showed separate registrations, returns, statutory compliances, premises and prior departmental dealings, which undermined the claim that the other concern was non-existent. The Department's prior inspections and receipt of declarations also meant suppression or wilful misstatement was not established, so the extended period of limitation could not be invoked and the demand was time-barred.

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Issues: (i) Whether the demand, confiscation and penalties could be sustained when the Department proceeded against one unit as a dummy or interconnected unit without issuing notice to the other unit whose independent existence was accepted in the record; (ii) Whether the extended period of limitation was invocable in view of the Department's knowledge of the existence and separate registrations of the units.

Issue (i): Whether the demand, confiscation and penalties could be sustained when the Department proceeded against one unit as a dummy or interconnected unit without issuing notice to the other unit whose independent existence was accepted in the record.

Analysis: The record showed separate registrations, separate returns, separate statutory compliances, separate premises and prior departmental dealings with both concerns. The finding that one unit was merely on paper was inconsistent with the Department's own treatment of the other unit as an existing entity. Once the adjudication case depended on treating the other concern as non-existent or as part of the same manufacturing arrangement, it was necessary to put that concern to notice and afford it an opportunity to meet the allegation. The absence of notice to the other unit vitiated the proceedings and the finding that the assessee had used another firm's brand name for ineligibility was not sustainable on this record.

Conclusion: The demand, confiscation and penalties were not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the extended period of limitation was invocable in view of the Department's knowledge of the existence and separate registrations of the units.

Analysis: The Department had earlier inspected the units, received RT-12 returns and other declarations, and was otherwise aware of the separate existence of the concern said to be suppressed. On those facts, suppression of material particulars or wilful misstatement for invoking the extended period was not established. The alleged demand was therefore time-barred.

Conclusion: The extended period could not be invoked and the demand was barred by limitation, in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeals succeeded because the proceedings were vitiated by want of notice to the other unit and by failure to establish limitation grounds for the demand.

Ratio Decidendi: Where revenue seeks to deny exemption or sustain duty liability by alleging that another concern is a dummy or integrated unit, that concern must be put to notice and the facts must justify invocation of the extended limitation period; otherwise the demand and consequential penalties cannot stand.

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