Small-scale exemption applies where preceding-year clearances stay within the threshold, even without SSI registration.

Notification No. 175/86 extended small-scale exemption to units whose clearances in the preceding financial year did not exceed the prescribed limit, even if they were not registered as an SSI unit. The Tribunal found that the appellants began manufacture only in March 1989, had acquired plant and machinery in February 1989, and that no reliable material showed preceding-year clearances of Rs. 7.5 lakhs or more. On that basis, the appellants fell within proviso (a) to paragraph 4 of the notification and were entitled to the exemption for 1989-90; the duty demand and penalties were therefore unsustainable.

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Issues: Whether the appellants were entitled to the benefit of Notification No. 175/86 for the relevant period on the footing that the value of clearances in the preceding financial year did not exceed the prescribed limit.

Analysis: The notification carved out an exception for units whose clearances in the preceding financial year did not exceed Rs. 7.5 lakhs, even if they were not registered as an SSI unit. The record showed that the appellants started manufacturing only in March 1989, that the plant and machinery had been purchased in February 1989, and that no reliable material established clearances of Rs. 7.5 lakhs or more in the preceding year. On that basis, the Tribunal held that the appellants fell within the exception contained in proviso (a) to paragraph 4 of the notification.

Conclusion: The appellants were entitled to the benefit of Notification No. 175/86 for the financial year 1989-90.

Final Conclusion: The demand of duty and penalties could not be sustained, and the impugned order was set aside with consequential relief.

Ratio Decidendi: Where the preceding financial year's clearances do not exceed the prescribed threshold, exemption under the small-scale notification is available under the exception even if the unit was not registered as an SSI unit during the relevant period.

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