Clubbing of small-scale unit clearances requires proof of dummy functioning, common control, or financial flow-back beyond similar brand names.

Two separately registered small-scale units could not have their clearances clubbed for exemption purposes merely because they used similar brand names, had related partners, or purchased inputs commonly. The units were separate partnership firms with distinct premises, plant and machinery, registrations, banking arrangements, fiscal set-up, manufacture, and sales. Clubbing required the department to prove, on the totality of circumstances and on a preponderance of probability, that the units were in substance one, a dummy arrangement, or involved common control, commonality of interest, or financial flow-back. That burden was not discharged, and the units were to be treated independently for exemption.

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Issues: Whether the clearances of two separately registered small-scale units could be clubbed for the purpose of exemption under Notification No. 175/86 on the ground of similar brand names, related partners, and common purchase of inputs.

Analysis: The units were found to be independent partnership firms having separate premises, plant and machinery, separate registrations, separate banking and fiscal arrangements, and independent manufacture and sale. Similarity of brand name by itself was held not enough to justify clubbing. The burden lay on the department to establish that the two units were in substance one, or that one was a dummy of the other, or that there was common control, commonality of interest, or financial flow-back. On the material available, the department failed to discharge that burden; a mistaken address in invoices and related partners did not establish that the units were not separate. The standard to be applied was proof on a preponderance of probability, which was not satisfied here.

Conclusion: The clearances could not be clubbed and the units were entitled to be treated independently for the purpose of the exemption.

Ratio Decidendi: Similar or closely resembling brand names and relationship between partners do not justify clubbing of clearances unless the department proves, on the basis of the totality of circumstances, that the units are not truly separate and that there is common control, dummy functioning, or financial flow-back.

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