Separate manufacturing units and unproved substitution allegations defeat exemption denial, duty demand, penalty, and confiscation.

Denial of exemption under Notification Nos. 105/80 and 77/83 was unsustainable because the evidence showed separate manufacturing units occupying an adjacent shed, with one unit leasing part of the premises and machinery to the other; common boundary wall and a single power connection were insufficient to prove one manufacturer, financial interlocking, or complete identity of interest. The duty demand on 3,463 crank shafts also failed because the substitution allegation was not supported by the panchnama or contemporaneous statements, and no satisfactory enquiry established clandestine removal. As the duty demand failed, the related penalty and confiscation also could not stand. The impugned order was set aside in full.

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Issues: (i) Whether the two units were carrying on manufacturing activity from one and the same factory premises so as to justify denial of exemption under Notification No. 105/80 and Notification No. 77/83. (ii) Whether the demand of duty on 3463 pieces of crank shafts, together with the related penalty and confiscation, was sustainable.

Issue (i): Whether the two units were carrying on manufacturing activity from one and the same factory premises so as to justify denial of exemption under Notification No. 105/80 and Notification No. 77/83.

Analysis: The lease deed showed that one unit had given a portion of the factory with some machinery on rent to the other unit, and the record also showed that the second unit had acquired its own machinery. The evidence indicated occupation of a separate shed in adjacent open land rather than the same factory building. The fact that both units were within the same boundary wall and that the power connection stood in the name of one unit was treated as insufficient to establish that both were one manufacturer or that there was financial interlocking or complete identity of interest.

Conclusion: The denial of exemption was not sustainable and the finding that both appellants were manufacturing from the same factory premises was set aside.

Issue (ii): Whether the demand of duty on 3463 pieces of crank shafts, together with the related penalty and confiscation, was sustainable.

Analysis: The demand was based on an alleged substitution theory, but the panchnama and the contemporaneous statements did not support the allegation. The seizure memo accounted for the detained and seized crank shafts, and no satisfactory enquiry established clandestine removal or substitution of goods. Since the duty demand itself failed, the penalty and confiscation founded on the same allegation could not stand.

Conclusion: The duty demand, penalty, and confiscation were unsustainable and were set aside.

Final Conclusion: The appellants succeeded on both the unit-identity question and the duty-demand question, resulting in complete relief against the impugned order.

Ratio Decidendi: Denial of exemption and related fiscal demands cannot be sustained unless the department proves by satisfactory evidence that the units are not separate manufacturing entities and that clandestine removal or substitution of goods actually occurred.

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