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2015 (11) TMI 1554

Head Note:
Denial of small scale exemption to both units - clubbing of clearances - mutuality of interest in the business of each other - Held that:- there is no ban on the existence of more than one unit in a compound. Likewise, commonality of directors with stake in these several units is again not conclusive proof of mutuality of interest. Supply of goods from one to another, and even occasional financial accommodation, are not unusual features of business activities. Nor can common supervisory system be designated as out of the ordinary. One of the fundamental aspects that appear to have been brushed aside by both lower authorities is the factum of both appellants being limited companies. Such companies may have interest in each other through holding company pattern or group company structure. And such companies may have financial relationship with each other without bearing the stigma of subterfuge for deriving undue advantage of the benefits small scale exemption. This immunity has its origin in the accountability of a company to its shareholders and the status as an 'artificial person" which has neither greed nor the 'wherwithal to induige in a greedy conduct.

Crucial in any proceedings for clubbing is the existence of a principal and a dummy or dummies. The purpose of clubbing is to deny the independent existence of one or more entities on the ground that the subterfuge of physical segregation is intended to avail the benefit of small scale exemption. Consequently, only one of the entities proposed to be clubbed is to bear the burden of duties sought to be evaded thus. No evidence to fasten these roles on either of the two appellants has been brought put in the notices.

The decision to issue two notices followed by two independent proceedings highlight the lack of any investigation in that direction. Furthermore, even after finding reasons to club clearances of the two units, duty liability arises on the clubbed value of clearances to the extent that it exceeds the threshold prescribed for small scale exemption. The failure to identify the principal entity has, therefore, led to denial of this threshold exemption. Therefore, the entire proceedings from issue of notice till the impugned order to be tainted by lack of application of mind. - Decided in favour of appellant with consequential relief

 


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