Clubbing of clearances fails where records show separate units, disclosed operations, and no basis for hired-labour treatment.

Separate registrations, bifurcated premises, and RT-12 returns accepted by the department supported the view that two manufacturing units operated on a disclosed basis, so clearances could not be clubbed on a hired-labour theory. The contract and purchase orders indicated a principal-to-principal arrangement rather than a mere labour arrangement. Because the department was already aware of both units through contemporaneous records, suppression could not be alleged to justify extended limitation. The text also notes that where adverse reliance is placed on another entity's clearances, that entity should be given notice before any adverse finding is recorded against it, and any penalty founded on an unsustainable demand cannot survive.

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Issues: (i) whether the clearances of the two units could be clubbed on the footing that one unit was merely hired labour, and (ii) whether the demand and penalty were sustainable in the absence of suppression and without notice to the entity treated as hired labour.

Issue (i): whether the clearances of the two units could be clubbed on the footing that one unit was merely hired labour.

Analysis: The record showed separate registration certificates, separate layout plans showing bifurcation of premises, and RT-12 returns filed by both units and accepted by the department. The agreement and purchase orders indicated that the manufacturing arrangement was on a principal-to-principal basis and not a mere labour arrangement. The conclusion that the other unit was hired labour was not supported by the terms of the contract or by the contemporaneous departmental records.

Conclusion: The clubbing of clearances on the premise that the other unit was hired labour was not sustainable.

Issue (ii): whether the demand and penalty were sustainable in the absence of suppression and without notice to the entity treated as hired labour.

Analysis: The department had knowledge of the existence and operations of both units through separate registrations, approved layout plans, and RT-12 returns. In those circumstances, suppression could not be alleged for invoking the extended period. Since the other unit's clearances were relied upon to sustain the demand, it ought to have been put on notice before any adverse finding was recorded against it. The penalty, being based on the same unsustainable foundation, could not survive.

Conclusion: The demand for the extended period and the penalty were not sustainable.

Final Conclusion: The order confirming duty, invoking the extended period, and imposing penalty was set aside in full, with the appeal succeeding on merits and limitation.

Ratio Decidendi: Where the contemporaneous records show separate registration, disclosed bifurcation, and departmental awareness of the arrangement, clearances cannot be clubbed on a hired-labour theory, and extended limitation cannot be invoked absent suppression; an adverse finding based on another entity's manufacture requires notice to that entity.

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