Separate factory clearances cannot be clubbed to deny small-scale exemption; unnotified penalty and interest claims fail.

Clearances of separate factories of a State Electricity Board could not be clubbed to deny small-scale exemption under Notification No. 1/93, so each unit had to be tested independently and could claim the exemption separately. Penalty and interest under Sections 11AC and 11AB of the Central Excise Act could not be sustained where they had not been proposed in the show-cause notice, as liability cannot be imposed on provisions not put to notice. A limited penalty under Rule 173Q was nevertheless sustained on the facts.

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Issues: (i) Whether the clearances of the different factories of the State Electricity Board could be clubbed for denying small-scale exemption under Notification No. 1/93; (ii) Whether the penalty and interest under Sections 11AC and 11AB of the Central Excise Act, 1944 were sustainable when not proposed in the show-cause notice; and (iii) Whether penalty under Rule 173Q of the Central Excise Rules, 1944 could be sustained.

Issue (i): Whether the clearances of the different factories of the State Electricity Board could be clubbed for denying small-scale exemption under Notification No. 1/93

Analysis: The units of the State Electricity Board were treated as separate manufacturing units. The Tribunal followed its earlier view that clearances of separate factories could not be aggregated for the purpose of computing eligibility under the small-scale exemption notification. Once clubbing was impermissible, each unit had to be tested independently for the exemption limit.

Conclusion: The clearances could not be clubbed and the units were entitled to claim small-scale exemption separately.

Issue (ii): Whether the penalty and interest under Sections 11AC and 11AB of the Central Excise Act, 1944 were sustainable when not proposed in the show-cause notice

Analysis: The adjudicating authority invoked the penal and interest provisions, but no such proposal had been made in the show-cause notice. A penalty or interest founded on provisions not put to notice cannot be sustained in such circumstances.

Conclusion: The penalty and interest under Sections 11AC and 11AB were not sustainable.

Issue (iii): Whether penalty under Rule 173Q of the Central Excise Rules, 1944 could be sustained

Analysis: Having regard to the facts and circumstances, a limited penalty was considered justified notwithstanding the failure of the larger penal and interest demand.

Conclusion: The penalty of Rs. 5,000 under Rule 173Q was sustained.

Final Conclusion: The appeal succeeded on the principal issue of separate treatment of factory clearances, while the larger penalty and interest demands were set aside and only the limited penalty was maintained.

Ratio Decidendi: Clearances of distinct factories of a State Electricity Board cannot be clubbed for denying small-scale exemption, and penal or interest liability cannot be sustained on provisions not proposed in the show-cause notice.

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