Loan licence manufacturing and SSI exemption: outside clearances cannot be clubbed without supervision or control.

Medicaments manufactured at another factory under a loan licence cannot be clubbed with the loan licensee's own clearances for small scale industry exemption unless the licensee exercised supervision or control over the manufacture. Where raw materials were supplied by the loan licensee but the process remained outside its supervision, the Tribunal treated the arrangement as falling within the settled rule that such outside clearances are not attributable to the licensee. On those facts, clubbing of clearances was unjustified and the demand could not be sustained.

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Issues: Whether the value of medicaments manufactured at another factory on loan licence basis, without supervision or control by the loan licensee, could be clubbed with the loan licensee's own clearances for computing eligibility to small scale industry exemption.

Analysis: The manufacture was undertaken at the premises of another unit using raw materials supplied by the loan licensee, but the loan licensee did not exercise supervision or control over the manufacturing process. The Tribunal applied the settled principle that, in a loan licence arrangement, clearances from the other factory cannot be added to the loan licensee's clearances where such control is absent. On the facts, the case was treated as identical to the earlier decision relied upon.

Conclusion: The clubbing of clearances was not justified and the demand could not be sustained.

Ratio Decidendi: In a loan licence arrangement for medicaments, goods manufactured in another factory cannot be included in the loan licensee's clearances for SSI exemption unless the loan licensee has exercised supervision or control over that manufacture.

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