SSI exemption for mixed manufacturing and trading sales depends on excluding traded clearances from turnover computation.

SSI exemption was available where contemporaneous records showed both manufacturing sales and trading sales, and traded clearances had to be excluded from the turnover computation. The balance-sheet figures could not be read selectively or on assumptions to treat all clearances as manufactured goods; factual verification of trading activity, manufacturing capacity, infrastructure, and supplier or transporter trails was necessary. On the material discussed, the manufacturing turnover remained within the exemption limit, so the duty demand failed and the connected interest and penalties could not be sustained.

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Issues: Whether the appellant was entitled to the benefit of Small Scale Exemption under Notification No. 8/2003-C.E. dated 01.03.2003 on the ground that part of the clearances were trading sales and not manufactured goods, and whether the demand of duty, interest and penalties could be sustained.

Analysis: The appellant's audited balance sheets and contemporaneous records reflected both manufacturing sales and trading sales. The distinction between goods manufactured in-house and goods procured from the market and supplied under T-series invoices required factual verification of trading activity, manufacturing capacity, infrastructure, and the supplier and transporter trail. No investigation was conducted at the supplier's end, the transporter's end, or on the appellant's actual manufacturing capacity. On the material on record, the entire turnover could not be treated as manufacturing turnover merely on assumptions and presumptions. The figures in the balance sheets had to be read as a whole and could not be selectively used to infer that all clearances were manufactured goods. As the traded value was to be excluded, the manufacturing turnover fell within the SSI exemption limit. Once the duty demand was unsustainable, interest and penalties also could not survive.

Conclusion: The appellant was entitled to SSI exemption, the duty demand was not sustainable, and the penalties on the company and its director could not be sustained.

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