SSI exemption and clubbing of clearances fail where independent manufacturers clear goods on their own account despite brand use.

Independent registered manufacturers and loan-license or job-work units clearing goods on their own account were not treated as the assessee's manufacturers merely because the assessee's brand name was used. Their clearances were therefore not clubbed with the assessee's turnover for Small Scale Exemption under Notification No. 8/2003-CE, because the decisive factor was whether the goods were manufactured on behalf of the assessee or by separate units acting independently. Where those units were independently registered and paying duty, their value could not be added to the assessee's aggregate clearances. On that basis, SSI exemption remained available and clubbing was impermissible.

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Issues: (i) Whether the value of goods manufactured by independent job workers or on loan-license basis was includable in the assessee's turnover for the purpose of Small Scale Exemption under Notification No. 8/2003-CE dated 01.03.2003. (ii) Whether such manufacturers were to be treated as the assessee's manufacturers so as to deny exemption and club their clearances with the assessee's own clearances.

Issue (i): Whether the value of goods manufactured by independent job workers or on loan-license basis was includable in the assessee's turnover for the purpose of Small Scale Exemption under Notification No. 8/2003-CE dated 01.03.2003.

Analysis: The decisive question was whether the goods manufactured outside the assessee's own factory were manufactured on behalf of the assessee or were cleared by independent manufacturers on their own account. The Tribunal applied the ratio that where the other units were independently registered, were clearing goods on payment of duty, and the assessee itself was not the manufacturer of those goods, their clearances could not be added to the assessee's aggregate value merely because the assessee's brand name was involved. The exemption notification denied benefit only where the specified goods bore the brand name or trade name of another person in the manner contemplated by the notification, and not where the assessee's turnover was sought to be inflated by clubbing independent manufacturers' clearances.

Conclusion: The value of clearances from the independent manufacturers was not includable in the assessee's turnover, and the assessee remained entitled to SSI exemption.

Issue (ii): Whether such manufacturers were to be treated as the assessee's manufacturers so as to deny exemption and club their clearances with the assessee's own clearances.

Analysis: The Tribunal accepted the view that the independent manufacturers and loan-license/job workers were the actual manufacturers for the goods produced by them, and that the assessee was not the manufacturer of those goods merely because the goods were marketed under the assessee's brand name. The majority followed the binding effect of the Supreme Court's ruling in the analogous Cosme Farma line of cases and held that the factual and legal position did not justify treating the assessee as the manufacturer of the goods produced by others. The contrary view, based on distinguishable authorities and on the later insertion of Rule 10A of the Central Excise Rules, 2002, did not prevail.

Conclusion: The independent manufacturers were not to be treated as the assessee's manufacturers, and clubbing of their clearances with the assessee's clearances was impermissible.

Final Conclusion: The majority held that the assessee was entitled to succeed, the Revenue's challenge failed, and the impugned order dropping the demand was sustained while the assessee's connected appeals were also allowed.

Ratio Decidendi: Where goods are manufactured by independent registered units on their own account and not as agents or alter egos of the assessee, their clearances cannot be clubbed with the assessee's turnover for SSI exemption, even if the assessee's brand name is used.

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