Clubbing of units requires notice to every affected entity, and a show cause notice must be timely and issued by the competent authority.

Where the department seeks to club two allegedly interlinked units, each affected unit must be put to notice and heard before any adverse finding is recorded; failure to issue notice to the separately existing unit makes the proceedings bad in law. The text also states that a show cause notice must comply with the applicable limitation framework and be issued by the competent authority; a notice issued beyond the permissible period and by an officer not empowered to issue it is invalid. On these grounds, the appeal is described as succeeding and the orders below being set aside with consequential relief.

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Issues: (i) whether the demand and adjudication were vitiated for failure to issue a show cause notice to the separately existing unit alleged to be linked with the appellant, and (ii) whether the show cause notice was invalid because it was issued beyond the permissible period and by an officer not empowered to issue it.

Issue (i): whether the demand and adjudication were vitiated for failure to issue a show cause notice to the separately existing unit alleged to be linked with the appellant

Analysis: The notice was confined to one unit even though the department itself proceeded on the basis that manufacturing activity and movement of work-in-process involved another separately functioning unit. Before the authorities could decide whether the units were independent or whether one was a dummy of the other, both units had to be put to notice and afforded an opportunity of hearing. A pre-determined finding against one unit without notice to the other offended fair procedure and the requirement of effective opportunity.

Conclusion: The failure to issue notice to the other unit rendered the proceedings bad in law and the objection succeeded in favour of the assessee.

Issue (ii): whether the show cause notice was invalid because it was issued beyond the permissible period and by an officer not empowered to issue it

Analysis: The demand related in part to a period beyond six months. Rule 9(2), as applied at the material time, attracted the limitation framework under Section 11A and the requirements governing issuance of notice by the proper authority. Since the notice was issued by the Superintendent instead of the Collector, it did not satisfy the statutory requirement and was treated as invalid.

Conclusion: The notice was held to be invalid on limitation and competency grounds, in favour of the assessee.

Final Conclusion: The appeal succeeded on both grounds, the orders below were set aside, and consequential relief followed.

Ratio Decidendi: Where the department proceeds on clubbing of units or other interlinked activity, every affected entity must receive notice and hearing before adverse findings are recorded, and a show cause notice must also comply with the statutory limitation and be issued by the competent authority.

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