SSI exemption requires exclusion of exempt clearances from turnover, keeping the remaining dutiable sales within the threshold.

Clearances that were nil-rated or exempt under another notification had to be excluded from the aggregate turnover for SSI exemption under the notification's Explanation II. After excluding supplies made to ICDS, the appellant's dutiable clearances in each financial year remained within the prescribed threshold, so the registration condition in paragraph 4 was not attracted. On those facts, the proviso and Explanation II together made the appellant eligible for SSI exemption, and the duty demand with consequential penalty could not be sustained.

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Issues: Whether the appellant was entitled to the benefit of the small scale industry exemption notifications and, if so, whether the duty demand and equal penalty confirmed in the impugned order could stand.

Analysis: The appellant's clearances substantially comprised goods supplied to ICDS, which were already exempt or nil-rated and were required to be excluded while computing the aggregate value of clearances under Explanation II to the exemption notification. After excluding those clearances, the value of dutiable clearances in each financial year remained within the Rs. 7.5 lakh threshold. The registration condition in paragraph 4 of the notification was therefore not attracted. The notification's proviso and Explanation II together made the appellant eligible for exemption on the facts found in the order.

Conclusion: The appellant was entitled to SSI exemption and the duty demand and consequential penalty could not be sustained.

Ratio Decidendi: While computing eligibility for SSI exemption, clearances that are nil-rated or exempt under another notification must be excluded from the aggregate turnover, and if the balance clearances remain within the prescribed threshold, the registration condition does not apply.

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