Colourable device in small-scale exemption claims fails where a purported second unit is not a genuine independent manufacturer.

Small-scale exemption notifications applied only to clearances by or on behalf of a manufacturer from one or more factories, so separate exemption could not be claimed where two concerns were in substance one manufacturing arrangement. The Tribunal found that the units shared premises, machinery, electricity connection and trade name, with no reliable proof of a genuine partition or independent infrastructure for the later unit. On those facts, the second unit was treated as a sham and colourable device created to obtain additional duty-free clearances, and the exemption was denied. The decision confirms that tax planning is permissible, but exemption cannot be multiplied through a fictitious division of business.

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Issues: Whether the appellants were entitled to separate exemption under the small-scale exemption notifications for the two units, and whether the second unit was a genuine independent manufacturer or merely a sham created to obtain additional duty-free clearances.

Analysis: The exemption notifications extended only to clearances by or on behalf of a manufacturer from one or more factories. On the facts, the two concerns operated from the same , shared the same machinery and electricity connection, had no reliable evidence of partition, and used the same trade name. The later unit had been brought into existence without independent infrastructure consistent with a separate manufacturing entity. The surrounding circumstances showed that the arrangement was not a real and genuine division of manufacturing activity, but a device to secure multiple exemption benefits. Tax planning may be legitimate, but colourable devices and sham arrangements cannot be accepted for claiming exemption.

Conclusion: The appellants were not entitled to separate exemption, and the second unit was held to be a sham and a subterfuge. The demand of duty was sustained.

Final Conclusion: The appeal failed on merits because the Tribunal treated the two concerns as one manufacturing arrangement for exemption purposes and upheld denial of the notifications.

Ratio Decidendi: Where surrounding facts show that a purported separate unit is only a facade created to obtain additional exemption, the exemption meant for a manufacturer cannot be multiplied by a colourable or sham arrangement.

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