Small Scale Unit (SSI) and Clubbing of Turnover

CA Lalit Munoyat

While presenting his budget proposals for 2011-12  on 28th February 2011 the Finance Minister Shri Pranab Mukherjee proposed certain changes in the Central Excise rate structure to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. He accordingly withdrew the exemption on 130 of these items and levied a  nominal Central Excise duty of 1 per cent on these 130 items that entered the tax net. The manufacturers of these items were granted the benefit of the SSI exemption. The scheme of SSI exemption is governed by notification 8/2003 the salient features of which are discussed hereunder.

SMALL SCALE INDUSTRY (SSI) – EXEMPTION NOTIFICATION 8/2003 CE w.e.f. 01-03-2003

The salient features of this notification in brief, are as under:

a. The exemption contained in this notification shall not apply to goods which are chargeable to nil rate of duty or are exempt from the whole of the duty of excise leviable thereon.

b. There is no excise duty (subject to some conditions) on the specified goods on the first clearances up to an aggregate value not exceeding Rs. 150 Lakhs made on or after the 1st day of April in any financial year.

c. There is no excise duty on all clearances of the specified goods which are used as captive consumption for further manufacture of any specified goods within the factory of production of the specified goods.

d. The turnover of Rs. 150 Lakhs shall not include the following:-

i. Clearances, which are exempt from the whole of the excise duty leviable thereon (other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason;

ii. Clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption.

iii. Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods;

e. However the above exemption is subject to the following conditions:

I. This exemption is OPTIONAL. It is upto the manufacturer to decide whether to   avail the benefit of this notification or not. However Such option shall be exercised before effecting his first clearances at the normal rate of duty. Such option shall not be withdrawn during the remaining part of the financial year;

II. If a manufacturer decides TO AVAIL the benefit of this notification then he  shall not avail the cenvat credit of duty on inputs used in the manufacture of the specified goods cleared for home consumption till the aggregate value of first clearances of which does not exceed Rs. 150 Lakhs

III. The manufacturer shall also not utilise the cenvat credit of duty on capital goods for payment of duty, if any, till the aggregate value of first clearances of which does not exceed Rs. 150 Lakhs. However there is no bar on accumulation of Cenvat credit of capital goods during the exemption period.

IV. If a manufacturer decides NOT TO AVAIL the benefit of this notification and instead pay the normal rate of duty on the goods cleared by him, then he shall be entitled to avail the cenvat credit of duty on inputs and capital goods used in the manufacture of the specified goods right from the first transaction.

V. The benefit of this notification is NOT AVAILABLE to the inputs used in the manufacture of specified goods bearing the Brand Name Or Trade Name Of Another person, which are not ineligible for the grant of this exemption due to restriction provided  in terms of this notification itself. In such a case full credit of cenvat duty on inputs and capital goods will be available.

VI. The aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed Rs. 400 Lakhs in the preceding financial year.  For this calculation, the following clearances shall not be taken into account, namely:

(i) Clearances of excisable goods without payment of duty to notified area, undertakings and projects.

(ii) Clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption under other provisions of this notification.

(iii) Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods;

(iv) Clearances, which are exempt from the whole of the excise duty leviable thereon on removal for Job Work.

VII. The exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases: –

a. Components of specified machinery removed under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.

b. The Brand name is of a government sponsored industry or a factory located in a rural area etc.

c. Where the specified goods are account books, registers, writing pads and file folders.

d. Where the specified goods are in the nature of  packing materials and are meant for use as packing material by  or on behalf of the person whose brand name they bear. However in case of plastic containers and plastic bottles this exemption shall be allowed only when they are used as packing materials by the owner of the brand name .

 2) CLUBBING OF TURNOVER

All the SSI exemption notifications are mired with innumerable controversies about the scope and application of these exemptions because what is given as an incentive is misused as a tool of tax planning such that those SSI who are not eligible for concession also avail the same by resorting to creation of front or dummy Units, which, by themselves, have no proprietary interest in production and sale of excisable commodities. In certain exceptional cases the legal personality of a company was misused for tax evasion or for circumventing tax obligation. In such cases the Supreme Court held that tax authorities and courts were entitled to pierce or lift the corporate veil to find out the economic realities behind the legal façade.

In order to bar such unfair practices provisions have been made for CLUBBING of turnover in cases where the turnover appears to have been fragmented or distributed in order to avail the benefit of SSI exemption. Such clubbing of turnover is the subject matter of this article.

a) Where a manufacturer clears the specified goods from one or more factories, the exemption in his case shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each factory;

Financial Year 31st March 2011	Factory “A”	Factory “B”	Factory “C”	Factory “D”
Manufacturer “A”	Rs. 50 Lakhs	Rs. 40 Lakhs	Rs. 30 Lakhs	Maximum upto Rs. 30 Rs. 30 Lakhs

 b) where the specified goods are cleared by one or more manufacturers from a factory, the exemption shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each manufacturer;

Financial Year 31st March 2011	Turnover by manufacturer “A”	Turnover by Manufacturer “B”	Turnover by manufacturer “C”	Turnover by manufacturer “D”
Factory “X”	Rs. 50 Lakhs	Rs. 40 Lakhs	Rs. 30 Lakhs	Maximum upto Rs. 30 Rs. 30 Lakhs

Thus for manufacturer “D” who wants to take on rent factory “D” for his excisable activities, it is very necessary for him to know the previous turnover from the same factory and if he finds that the previous turnover by different manufacturers has already reached 120 Lakhs then he will get SSI exemption only for the balance amount i.e. Rs. 30 Lakhs and not for the whole amount of Rs. 150 Lakhs.

c) The aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed Rs. 400 Lakhs in the preceding financial year.

3) CLUBBING OF TURNOVER – DUMMY UNITS, BRANDED GOODS, CORPORATE  VEIL: -JUDICIAL ANALYSIS

Value of clearances — Clubbing of Clubbing of clearances of various firms – Different firms to be treated as different manufacturers for exemption limit Circular No. 6/92, dated 29-5-1992

1) Different firms will be treated as different manufacturers for the purpose of the exemption limit. But if a firm consisting of certain partners say, A, B, & C has got more than one factory, all these factories should, of course, be combined. Limited companies whether public or private are separate entities distinct from shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit.

2) As mentioned above, if there are the two firms with only some of the partners in common each firms is entitled to separate exemption limit, and hence the question of distributing the exemption does not arise. If one firm or one individual owns several factories he or it gets exemption only in respect of one and the manufacturer being only one entity there is no question of distributing the exemption.

3) If there are more than one mill under the control of one manufacturer there is no question of choosing any ‘mill’ for the purposes of exemption. The Central Excise department is concerned with a manufacturer which may be an individual, a firm a limited company etc.

4) The question whether different partnerships having common partners, are treatable as separate manufacturers of the same manufacturer, would be a question of fact in each case to be determined on the basis of such factors among other, like composition of the partnership, existence of the factory, licence, nature of goods manufactured etc.

4) General principles laid down by many judgments of the Apex Court for determining the status of an undertaking – Principal or Dummy- are summarised hereunder.

DUMMY UNITS: CLUBBING OF TURNOVER

1) AGARWAL RUBBER PVT. LTD.  2009 (238) E.L.T. 336 (Tri. – Bang.)

SSI Exemption – Clubbing of clearances to be done only when there is an interdependence – Two basic features which prima facie show “interdependence” are pervasive financial control and management control – Mere financial accommodation in form of loans, would not by itself be construed as pervasive financial control exercised by one company over other. Thus the Value of clearances of 4 Units being  independent legal entities and having manufacturing units, plant and machineries, labour force and were  separate assessees can’t be clubbed.

2) MODI ALKALIES & CHEMICALS LTD. 2004 (171) E.L.T. 155 (S.C.)

SSI Exemption – Clubbing of clearances – Pervasive financial and management control are prima facie indicators of interdependence –

The Supreme Court in its impugned order had held that gas manufacturing company had extraordinary interest in financial and management arrangements of bottling companies as the latter took from former large unsecured loans, sub-leased cylinders, and paid its entire proceeds as sub-lease amount; all companies had common staff for accounting, marketing and supervision and directors of latter were found to be employees of former. The Supreme Court held the latter were front companies for the manufacturing company irrespective of having separate sales tax, income tax and central excise registration.

The Supreme Court further had held that pervasive financial and management control are prima facie indicators of interdependence but adjudication that a unit is dummy has to be on the facts of each case and there could not be any generalization or rule of universal application.

In this case Company manufacturing gas sending it for bottling to nearby facilities, housed under one shed, allegedly owned by three companies, each having share capital of Rs. 200/- only – Latter taking from former large unsecured loans, sub-leased cylinders, and paying its entire proceeds as sub-lease amount – All companies having common staff for accounting, marketing and supervision, and directors of latter found to be employees of former – Large difference in price at which gas sold by former to latter, and price at which latter sold it in market indicating substantial undervaluation .The accounts were kept by common staff and marketing was done under the supervision of a person who belongs to the same group of concerns. The fact that each unit  had separate sales tax and income tax number is to be considered in the background of factual position noted above. When the corporate veil is lifted what comes into focus is only the shadow and not any substance about the existence of the three companies independently.

HELD : Gas manufacturing company had extraordinary interest in financial and management arrangements of bottling companies, and irrespective of latter having separate sales tax, income tax and central excise registration, they were front companies for manufacturing company. Value of clearances to be clubbed.

3) SUPERIOR PRODUCTS     2008 (230) E.L.T. 3 (S.C.)

SSI Exemption – Clubbing of clearances – Demand based on two units having common Directors and one person looking after affairs of both and second unit not having complete machinery to manufacture final product Alleged that the second unit was floated only to avail bank loan. However the accounts of both units managed separately and capital, premises, machinery, labour and operations separate. Pervasive financial and management control was not evident – No Dummy Unit– Value of clearances NOT  to be clubbed

4) ELECTRO MECHANICAL ENGG. CORPN.  2008 (229) E.L.T. 321 (S.C.)

The case of the Department is that these firms have been clubbed together as certain employees of the three firms were common or that their premises were adjoining each other. The Tribunal, while setting aside the order of the Commissioner, has held that there is no evidence on record to prove that there was mutuality of business interest or there was flow back of funds from one unit to another. The finding recorded by the Tribunal, being a finding of fact, does not call for any interference. – Value of clearances can’t be clubbed.

5) KANCHAN INDUSTRIES 2006 (195) E.L.T. A91 ( SC)

Sale of entire production of goods by the manufacturing units to one buyer at a mutually agreed price who also bears responsibility of advertisement and publicity, is only a business transaction not establishing mutuality of interest in the business of each other to hold the buyer a ‘related person’ within the meaning of Section 4(4)(c)(i) of Central Excise Act, 1944. Moreover normal commercial terms in agreement between buyer and manufacturer do not constitute mutuality of interest between them; moreover, buyer is not even a natural relative for the purpose of Section 4(4)(c)(ii) ibid as former is a partnership concern and later a company under the Companies Act.

Value of clearances NOT to be clubbed

6) ATIC INDUSTRIES LTD     1984 (17) E.L.T. 323 (S.C.)

If the transactions between the manufacturer and his customer were on principal to principal basis and the wholesale price charged by the assessee to the customer was the sole consideration for the sale and no extra commercial considerations entered in the determination of such a price, the customer cannot be held to be a ‘related person’ merely because he holds 50% shares in the manufacturing Company. A person who is so associated with the assessee that they have interest directly or indirectly in the business of each other.  The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect, but that would not make any difference so long as each has got some interest direct or indirect in the business of the other. In cases, where 50% share of the manufacturing Company is held by the customer Company, the customer Company can be said to be having interest in the manufacturing Company as a shareholder but for this reason, it cannot be said that the manufacturing Company has any interest direct or indirect, in the business carried on by one of its shareholders even though the shareholding of such shareholders may be 50%. In the absence of mutuality of interest in the business of each other, the customer Company holding shares in the manufacturing Company cannot be treated to be a ‘related person’. Value of clearances NOT to be clubbed

7) SSI Exemption — Value of clearances — Clubbing of

The Supreme Court. Shiva Exim Enterprises:-. While admitting the appeal,  the Supreme Court passed the following order :

The Appellate Tribunal in its impugned order had held that clubbing of clearances of two unit, can be ordered only if one unit is the principal unit while other is dummy one which had been floated with a view to camouflage clearances of principal unit. Duty in that event can be only demanded from principal unit and not from both units. Where duty is demanded from both units, it would lead to an inference that Revenue has recognized implicitly both of them as independent units.

8) PARLE BISLERI PVT. LTD. 2011 (263) E.L.T. 15 (S.C.)

The distinct legal nature of Companies cannot be used as eyewash to portray its independent nature. Where the companies are indeed interdependent and possibly even related through financial control and management, the value of clearances has to be clubbed together in the interests of justice. Clubbing to be done

9) HARNIK FOOD INDUSTRIES  : 2009 (243) E.L.T. 322 (Bom.)

Some of the circumstances wherein one unit may be treated as a DUMMY UNIT of another Unit.

1) Both the appellants have their premises in the same block

2) The property tax, water charges and other charges relating to the entire premises occupied by both the appellants are paid by the appellants

3) The office staff is common for both the appellants and their salary is paid by the appellants

4) The products of both the appellants are sold through a common marketing agent.

5) Trademark belongs to  the appellants for which the other Unit did not pay any royalty and used by both.            –

6) Both the appellants are controlled by one single family and, therefore, there is identity of interest.

7) All the production activities were carried out in the premises of one Unit and raw materials and packing materials were stored in the other premises.

8) Both the appellants were having common office in respect of the work of documentation

10)  SUPREME ENGINEERING WORKS   1996 (82) E.L.T. 102 (Tribunal)

Value of clearances – Clubbing of value of clearances of separate units – Units established at different point of time – Common Partners having close relationship, sharing of common facilities and financial transactions between the units – Clearances of partnership firms and corporate bodies whether clubbable even if holding separate SSI registration and Sales tax registration and separately assessed for Income Tax- HELD – Value of clearances clubbable since various units were only facade and only two brothers and their wives owned them and controlled the  production and having financial relationship and sales between the units not on principal to principal basis  not available.

Tribunal in various cases of clubbing has laid down that one of the primary consideration for the resolution of clubbing disputes is whether there were any financial inter-linking of a nature other than normal commercial transactions. In the instant case, the department has brought out and relied upon ample evidence on this aspect to show that the three units were acting in tandem, It has further been noticed that a group of persons consisting of two brothers and their wives are controlling factor in all the three units. Hence department’s conclusion, based on ample evidence regarding common control of production and sales among the units, having special financial relations shown to be not on a principal to principal basis is well founded and there is no scope for not clubbing the value of clearances of the three units for the purpose of exemption.

11)  TECHNO DEVICE : 2009 (243) E.L.T. 79 (Tri. – Chennai)

SSI Exemption – Value of clearances – Clubbing of – some more reasons

1) Maintenance of accounts of various units by a single person and at one office

2) If different firms operated with its own machinery in separate premises leased from appellant:

3) A single security guard was in charge of security of all units

4) The above grounds do not justify  clubbing.

5) Units engaged in production and transactions assessed to sales tax and income tax separately is a pointer to different entities.

6) Mutuality of interest, financial integrity among various units and unit of control are sine qua non for clubbing of clearance of units involved.

12) V. DEVARAJ  2003 (162) E.L.T. 894 (Tri. – Chennai)

Value of clearances can’t be clubbed on the ground that one unit paid the electricity charges for both the units – There being two separate electricity connections for the two units, records shows that name of one unit have been mistaken for other unit – Geographical existence of both units and filing of declarations periodically by both the units not disputed – Both the units having different Sales-tax, professional tax, Income-tax accounts and separate assessments – No evidence, direct or circumstantially brought on record to establish any financial interest inter se between the units

It is now a well settled proposition of law that if one resorts to subterfuge and artful evasion of payment of tax under an apparent legal facade, it is always open to the authorities to look to the real state of affairs by piercing the ‘corporate veil’. The court is entitled to lift the mask of corporate entity if the conception is used for tax evasion or to circumvent tax obligation or to perpetrate a fraud. One must find out the true nature of the transaction. Mere proximity of relationship of owners of two units would not be determinative of the oneness ‘but a host of circumstances and factors which alone decide whether the units are separate or masquerade as independent units when they are in fact the same unit.

Value of clearances NOT  to be clubbed

13)  Legal facade of different units created for availing SSI exemption . Clearance of these units clubbed as these were created with intention to evade duty and there existed mutuality of interest and financial control – Upon clubbing, benefit of  Cenvat credit to be allowed and if total value did not exceed exemption limit, then benefit thereof to be allowed as well. Traders have floated different units with intention to evade payment of duty of Excise and value of clearances HAS TO BE clubbed

14) STATFIELD EQUIPMENT PVT. LTD.  2001 (137) E.L.T. 929 (Tri. – Mumbai)

The fact that Sites and business of each of the Appellants not contagious but exist independently. They are not adjacent would itself go to show that they are independent units. Another important ingredient of the law of clubbing is the financial flowback. In the absence of financial flowback and the existence of independent legal individuality amongst the Appellants clearly goes to show that the charge of wrongful claiming of SSI exemption are not established in the group of companies.

15) H.T. BHAVNANI CHEMICALS (P) LTD.  1997 (92) E.L.T. 502 (Tribunal)

Four units were having two common Directors one of them being the Chairman of all the four units who controls the production, procurement of raw materials of all the units – Three units located in one common plot and fourth at another place. Three units produce same goods. Common employees controlling the various activities of the four units – Flow back of finances. Identity of interest amongst the units which are all under the effective control and direction of two common partners established – Units though separate are not independent parties – Two common directors in reality owned, directed and controlled the production of all the units which served only as a facade to avail of the exemption – The firms are private limited companies which are owned and controlled by appellant husband & wife . Management of the firms is by the same two persons, and finances by way of share capital is provided by them only in differing proportions in each firm. It is not so much the flow back of finances only which is to be considered, but also the identity of interest amongst the firms and the intention of the partners which is established in this case. Clubbing of the value of clearances of units justified.

16) COIMBATORE ENGINEERING WORKS : 2009 (239) E.L.T. 366 (Tri. – Chennai)

SSI Exemption – Dummy units – Value of clearances – Clubbing of – In absence of any finding of there being any common funding and financial flow-back, clubbing of clearances is not permissible, merely on the premise of familiarities between partners of units and other administrative commonalities – Borrowing funds in need is not barred between two units eligible for SSI benefit and arrangement was mutual.

To put it differently mutuality of interest among two units or several units of a group of family members cannot be a reason for clubbing of clearances. Moreover, the law does not prohibit family members from establishing different proprietary and partnership concerns and working for the common benefit of the group. The group itself is not a legal entity.

Clearances of two units can be clubbed if one unit is the real manufacturer and the other a dummy floated to camouflage as an independent unit to divert clearances of the main unit through dummy to remain within SSI exemption.

The ratio of a plethora of judicial authorities in this regard is that in the absence of any finding of there being

1) Mutuality of interest of the units

2) Financial  flowback and distribution of profit amongst the Units

3) “Separate entity-only a facade”

4) Common management.

clubbing of clearances is not permissible, merely on the premise of familial ties between the partners of the units and other administrative commonalities.

17)  S.C. PATEL 2011 (264) E.L.T. 414 (Tri. – Ahmd.)

SSI Exemption – Clubbing of clearances – Units having proximity, common passage and storage of raw materials, and inter-relationships between their partners – No evidence of flow back between units, and major part of interest free loan, taken on principal to principal basis, paid back – Both units having separate income/sales tax, import and export code numbers, bank accounts etc. – HELD : Clearances of such units cannot be clubbed – It was  more so as one of the units had orders for supply from government agency, and could not be said to be set up for evading duty . Department cannot plead that as the offence was committed in secrecy, they cannot prove Financial flow back.

18)  SERVOKON SYSTEMS PVT. LTD. 2010 (262) E.L.T. 735 (Tri. – Del.)

Split of manufacturing activity for availing SSI exemption – One unit private limited company and other a proprietorship company – Both units managed by one director – Free supply of power by one unit to the other and common staff and labour pool – Goods manufactured in both units sold under brand name ‘SERVOKON’ under bills and kachha challan – Categorically stated by Director that second unit created to keep sales of first unit within exemption limit and second unit fully dependent on first unit – No evidence produced to establish two units really independent units  Value of clearances to be clubbed.

19)  NARINDERA PULP & PAPER MILL LTD.  2010 (261) E.L.T. 833 (Tri. – Del.)

SSI Exemption – Four units owned by members of same family, common purchase of raw material and common attendance register of employees common tool room/workshop for maintenance of plant and machinery – Production of excisable goods shown for the period when there was no electricity consumption – Thus prima facie four units which are companies owned and controlled by members of same family were for all practical purposes being run as one factory and same had been split into four entities only to avail duty exemption. Value of clearances to be clubbed.

20)  VISWAAT CHEMICALS LTD.  2010 (261) E.L.T. 602 (Tri. – Mumbai)

SSI exemption – Dummy units – Related person – SSI benefit cannot be denied on sole ground of some of assessee’s top functionaries being related to some top functionaries of the leaser-company – Assessee paying rental to the leaser-company not only in respect of the factory but also in respect of work force, electricity, water, etc., which were covered by the lease arrangements – Thus assessee-company undertook such manufacture and clearance in their own independent capacity vis-à-vis the leaser-company – SSI exemption allowable.

21)  WONDERPACK INDUSTRIES PVT. LTD.  2010 (260) E.L.T. 289 (Tri. – Mumbai)

The SSI notification is applicable to a manufacturer for the goods manufactured from one or more factories or from a factory by one or more manufacturers. As far as the manufacturer is concerned it is his option to pay duty or claim the benefit of SSI notification in respect of the goods. In the present case, as the appellant started paying duty at the normal rate in respect of one unit and started clearing SSI exemption for second unit in respect of the same goods. NOT ALLOWED

22)  DELTA AROMATICS PVT. LTD.  2010 (255) E.L.T. 449 (Tri. – Del.)

SSI Exemption – Clubbing of clearances – If during a particular financial year from a particular factory, more than one manufacturers have cleared specified goods the eligibility for SSI exemption would be determined on the basis of aggregate value of clearances of all the manufacturers –If a manufacturer A uses a factory and makes clearances during the period from April to June, manufacturer B uses the factory and make clearances during the period from July to August and thereafter in September the manufacturer C starts the using the factory and making the clearances, for determining the eligibility of the manufacturer C the clearances of manufacturer A and B will have to be clubbed with the clearances of C and, if, the clearances of manufacturers of A and B have crossed Rs. 1,50,00,000/-, the manufacturer C would not be eligible for SSI exemption benefit.

23)  NAVRANG ART PRINTERS    : 2010 (251) E.L.T. 267 (Tri. – Mumbai)

The very fact that same factory was used and shown as manufacturing unit by different units and the fact that two units actually had partners who are husbands and wives and the third unit was a limited company with two wives as directors, coupled with the fact that both the wives have stated that they had no knowledge of any business carried out either in the name of the company of which they were directors or in the name of the firm of which they were partners, shows that the other two units were only dummies and in reality all the activities were carried out by the two main partners and the names of wives were used only for the purpose of saving the tax. Wives were only silent observers in the activities of husbands. This is a fit case for lifting the corporate veil and treating all the units as one and the same.

24)  MUNJAL GASES   2003 (156) E.L.T. 1006 (Tri. – Del.)

SSI Exemption and Modvat credit – Simultaneous availment but in different units – Notification No. 1/93-C.E. does not debar assessee from availing exemption in respect of goods manufactured in one unit while availing of Modvat credit in other unit –

We have considered the submissions of both the sides. The Respondents are having two units – unit no. I and unit No. II. Merely because of the fact that Modvat credit is availed of by the Respondents in unit No. I it will not make them ineligible from availing the exemption from payment of duty in respect of goods manufactured in unit I. The words “by a manufacturer, from one or more factories” have been mentioned in Notification No. 1/93-C.E. for the purpose of computing the value of clearances in the preceding financial year. These words do not debar the Respondents from availing of exemption from payment of duty in one unit while availing of Modvat credit in the other unit. Further this very issue stands decided in favour of the Respondents in their own matter [M/s. Munjal Gases v. CCE, Chandigarh, Final order No. 500-501/99-C, dated 21-6-99].

25)  RAVI BATTERIES : 2009 (244) E.L.T. 167 (Bom.)

SSI Exemption – Dummy unit, proof of – Demand as firm situated adjacent to each other, dealing in same type of production and having a common partner – Remaining partners different though related – Both units independently taken bank loans, submitted separate declarations about production – Independent account books maintained – Units not situated on same property – Merely because both firms dealing in same type of product and because one of the partners same in both firms, it cannot be concluded that one was dummy of another – Findings of Tribunal based on facts, impossible to hold them per- verse – No question of law – Revenue’s appeal dismissed.

26)  MODERN ENGINEERING PLASTICS PVT. LTD. : 2009 (243) E.L.T. 289 (Tri. – Chennai)

SSI Exemption – Clubbing of clearances – Husband being Managing Director of a unit and his wife being proprietor of another unit – No clear cut  demarcation between the two factories and inputs stored in one room without identification to which unit they belonged – Both units having only one electricity meter – One unit not having minimum machinery for manufacture of final product – HELD : One unit was a dummy, floated only for improper availment of SSI exemption, and clubbing of clearances upheld – Notification No. 1/93-C.E.

SSI Exemption – Clubbing of clearances – Son being proprietor owner of one firm, and in another firm, partner with his mother – Only cosmetic differences between constitution of two firms, same persons being at helm of their affairs and manufacture also being same – Bills of purchase of materials of one firm settled by the other – Mutuality of interest and financial flow back not disputed – HELD : One unit was a dummy, floated only for improper availment of SSI exemption, and clubbing of their clearances upheld – Notification No. 1/93-C.E.

27)  AGARWAL RUBBER PVT. LTD.: 2009 (238) E.L.T. 336 (Tri. – Bang.)

SSI Exemption – Value of clearances – Clubbing of clearances to be done, when there is an interdependence – Two basic features which prima facie show “interdependence” are pervasive financial control and management control . Mere financial accommodation in form of loans, would not by itself be construed as pervasive financial control exercised by one company over other –

The revenue can’t seek to club the clearances of two private limited companies and two partnership companies when the partners of both the partnership firms are different, though there may be common partners. The allegation that the Directors of the private limited companies are common and the partners are common is not sufficient for clubbing.

The direction of the CBEC vide its Circular No. 6/92 dated 29-5-1992 clarifies certain issues  for the purpose of ensuring uniformity of levy of duties of excise and laid down the following general principles for determining clubbing of turnover:

1)      The question whether different partnerships having common partners are treatable as separate manufacturers or the same manufacturer, would be a question of fact in each case to be determined on the basis of such factors among other, like composition of the partnership, existence of the factory, licence, nature of goods manufactured etc.

2)      Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners say A, B & C, has got more than one factory, all these factories should of course be combined. Limited companies whether public or private are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit.

3)      If there are two firms with only some of the partners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or individual owns several factories, he or it gets exemption only in respect of one individual owns several factories, he or it gets exemption only in respect of one lot and the manufacturer being only one entity there will be no question of distributing the exemption.

4)      Whether or not in the expression ‘by or on behalf of a manufacturer, the expression ‘from one or more factories’ is added, the effect would be the same if the manufacturer is also the same. The expression ‘one or more factories’ only further clarifies that whether the factory is one or more, it is the clearances by or on behalf of the same manufacturer which is to be taken into consideration for purposes of interpreting the exemption notification’.

28)  RAO INDUSTRIES: 2009 (237) E.L.T. 128 (Tri. – Bang.)

SSI Exemption – Clubbing of clearances – Dummy unit – Show cause notice issued to both units without identifying as to which one is dummy – Real and dummy units have to be identified clearly – Fundamental flaw in SCN and impugned order – Not possible to cure flaw at this stage when demand is raised and confirmed on both the impugned units separately – Demand set aside – Section 11A of Central Excise Act, 1944.

Whenever there is a proposal of clubbing of clearances and deny SSI exemption on the ground that the clearances exceeds maximum value allowed then there should always be a correct identification of the real unit or the dummy unit. Raising of demand on both the Units means the Revenue has failed to identify real and dummy units and when the demand has been confirmed on both the units, such an order of Clubbing of clearances cannot be legally sustained.

29)  HARNIK NUTRIENTS PVT. LTD.: 2009 (238) E.L.T. 235 (Bom.)

SSI Exemption – Value of clearances – Clubbing of – Dummy unit – Both units have their premises in same block – Property tax, water charges and other charges relating to entire premises occupied by both the units paid by appellant – Office staff is common for both and salary paid by appellants – Products sold through a common marketing agent – Fact that appellants were to share 2% of their sale turnover with other unit confirms financial flow back – Benefit of SSI exemption not available.

30)  TIGHTWELL FASTNERS: 2008 (230) E.L.T. 163 (Tri. – Ahmd.)

If there is no intertwining of finances between the two units being run separately by husband and wife – Merely because husband looks after his wife’s unit, or there is broken common wall between the two units or there is common staff, it cannot be held that the units are one – Revenue not disputing that units are having their own finance and machinery – No infirmity in impugned order –

31)  ARBUDA INDUSTRIES : 2008 (230) E.L.T. 159 (Tri. – Ahmd.)

Demand and penalty – SSI Exemption – Clubbing of clearances – Two units, one owned in individual capacity and other as Karta of HUF – No evidence showing that the two units were not having independent existence found – Both the units having separate machineries, separate income-tax PAN No., separate sales tax, separate professional tax registration and separate electric meters, clubbing of clearances not appropriate – Notification No. 8/98-C.E.

32)  SUSHIL CHEMICALS: 2008 (230) E.L.T. 117 (Tri. – Bang.)

SSI unit – Clubbing of clearances – Value of clearances of nine units of a group of seven persons belonging to same family – Burden to prove that only one unit is real unit and others are dummy units is on Revenue – Transactions made by all units are within the framework of law – Mutuality of interest among two units or several units of a group of family members cannot be a reason for clubbing of clearances – Law does not prohibit family members from establishing different proprietary and partnership concerns and working for the common benefit of the group – The group itself is not a legal entity – Duty not demandable

33)  PARKMAN POLYMER INDUSTRIES: 2008 (226) E.L.T. 356 (Tri. – Mumbai)

SSI Exemption – Clubbing of clearances – Principal manufacturer (‘A’) cannot be dummy unit of job worker (‘B’) when goods returned after processing by job worker were further processed by principal manufacturer – Providing of machinery by ‘A’ to ‘B’ held not to make any difference as ‘A’ had independent factory, machinery and workmen – It was immaterial that machinery of ‘A’ was lying idle for a number of years or that one of partners of ‘B’ provided interest free loan to ‘A’ – Also, closeness of relationship or partners being common between ‘A’ and ‘B’ was immaterial as both had separate legal entities, central excise/SSI registration, machinery, workmen, power connection, storage facilities etc. –

34)  RASAYAN UDYOG: 2007 (220) E.L.T. 184 (Tri. – Ahmd.)

SSI Exemption – Clubbing of clearances – Proprietrix of one unit who is wife of partner of appellant-unit admitted that her unit does not have any machinery and goods got manufactured from appellant – Impugned statement not retracted – Trade name of both units same – Letter heads and symbols of both companies identical leading to conclusion that all activities were done at the appellant-unit bifurcated in the name of 2 units to avail undue benefit of small scale exemption – Mere separate registration with Income-tax and Sales Tax authorities not proves that the two units are separate since benefit of cum-duty price allowed – Matter remanded to original authority for re-calculation of duty – Question of imposing penalty on unit held to be dummy unit also to be examined – Proviso to Section 11A of Central Excise Act, 1944.

35)  SERVO PACKAGING (P) LTD.: 2007 (210) E.L.T. 355 (Tri. – Chennai)

SSI Exemption – Dummy units – Two units, viz. SE and JIC alleged to be dummies, have separate registration required under Income-tax Act, Sales Tax Act, Central Sales Tax Act, Directorate of Industries etc., have necessary infrastructure and electricity connection to manufacture excisable goods and filed statutory returns and declarations periodically with Department – No evidence by Department to show that there was any transaction among three units which cannot be termed as commercial in nature or at arms length – Each unit independently managed, no evidence of control of any type by assessee over either of two units – Units not to be held as dummies.

36)  JIFCON TOOLS PVT. LTD.: 2007 (208) E.L.T. 345 (Tri. – Mumbai)

SSI Exemption – Clubbing of clearances – Limited company is separate entity from its shareholders and cannot be clubbed with an independent partnership firm – Mere incidences of common business relationship between the two would not conclude that one is dummy of another – Clubbing of clearances set aside and exemption allowed – Board Circular No. 6/92, dated 29-5-1992 – Notification No. 80/80-C.E., dated 19-6-1980.

37)  LORD CHLORO ALKALI LIMITED:  2006 (204) E.L.T. 442 (Tri. – Del.)

SSI Exemption – Clubbing of clearances – Board of directors of three companies all employees of another company, and sharing with it staff and records of operation – Main plant, machinery and financial assistance by way of unsecured loans provided by that company which also took their incomes in form of lease rent for equipments – All companies located in single premises separated by brick walls – Held : Prima facie there was misuse of SSI Exemption –

SSI Exemption – Clubbing of clearances – Entities having independent identity – Legal position well-settled and clearances cannot be clubbed – If all the units are considered as one, confirmation of demands separately is contradictory.

38)  BALSARA EXTRUSIONS PVT. LTD.: 2001 (131) E.L.T. 586 (Tri. – Mumbai)

Value of clearances – Clubbing of – Dummy – A unit can be a “dummy or extended arm” of only one company and not of two companies at the same time when in particular there is no material to indicate the extent to which it was a dummy of each unit and the extent also of the control each of them exercised over the dummy nor any charge or finding that the two acted in concert – Section 2(f) of Central Excise Act, 1944.

Value of clearances – Clubbing of – Dummy – Evidence – When there is no material to show that assessee did not have independent existence or there was a financial flow-back to the other companies nor anything about the transfer of loss incurred or profit accrued, principles laid down by Tribunal in Marshall’s case – 1997 (96) E.L.T. 149 (Tribunal) for clubbing of clearances not satisfied – Section 2(f) of Central Excise Act, 1944.

Demand – Duty payable – Dummy – When duty demanded from the assessee after holding it to be a dummy, and not from the real manufacturer of whom assessee is held to be dummy, observations of Hon’ble Apex Court in Gujanan Fabrics – 1997 (92) E.L.T. 451 (S.C.) that by confirming demand on the so called dummy the adjudicating authority has implicitly recognized its existence, are relevant – Sections 2(f) and 11A of Central Excise Act, 1944.

39)  SATYANARAYANA PLASTIC AGENCY:  2010 (249) E.L.T. 433 (Tri. – Bang.)

SSI Exemption – Clubbing of clearances – Fragmentation of units – Demand confirmed on the ground that units floated and controlled by two persons and materials and capital goods exchanged and cash seized – All six units were independent units having own manufacturing facility – Sales tax and CST and SSI registration available with units separately – Units considered as dummy without considering case laws – Evidences not strong to conclude manufacture and clearances were on behalf of another person – Clearances of existing units clubbed and duty confirmed on non-existing unit – Law cannot prevent unit or group working for common benefit – Units may be common in present case but evidence not produced to show “SP Group” as a legal entity – Mere controlling of operations of six units by few persons not make group as “SP Group” – Duty not demandable from such non-existent entity –

SSI Exemption – Clubbing of clearances – Show cause notice served to all six units and duty not demanded from them independently – Demand on “SP Group” jointly – Annexures showing year-wise clearances by all independent units – Demand ought to have been confirmed against each independent unit based on figures in SCN – “SP Group” being non-existent, demand confirmed on it not sustainable – Benefit of Notification No. 5/98-C.E., to be given to individual assessee and duty demand to be re-determined – Matter remanded to adjudicating authority for confirmation of demand against individual units

40)  GAJANAN FABRICS DISTRIBUTORS   1997 (92) E.L.T. 451 (S.C.)

In this case there were 7 units except Gajanan Weaving Mills which was held as only a corporate facade although registered with various authorities with a view to Camouflage their actual identity and thereby avail of the SSI exemption which otherwise would be inadmissible to them . However demand was confirmed on all seven units and their partners or Directors – Demand ought to have been confirmed only against Gajanan Weaving Mills which was the assessee and liable – By confirming the demand upon all the seven units, the department  treated them all as assessees and implicitly recognised their independent existence.

41)  NEBULAE HEALTH CARE LTD. 2007 (209) E.L.T. 125 (Tri. – Chennai)

a)      Goods manufactured on own account- SSI benefit available

b)      Goods manufactured on Job work bearing brand name of third parties – Normal duty to be paid after availing benefit of Cenvat

c)      value of clearances of goods bearing brand name of third parties, not to be taken into account in determining aggregating value of clearances

d) separately under Income-tax and Sales tax – Value of clearances not to be clubbed.

CLUBBING- USE OF BRAND NAME OF OTHER

42)  ASIAN POLYMERS    :  2011 (264) E.L.T. 285 (Tri. – Del.)

The primary responsibility to show that the brand name belongs to someone else is on the Revenue. It is Settled law that assessee claiming exemption under Notification to establish compliance with condition for availment. The provisions of the notification clearly require the manufacturer to establish that they are using the brand name, which does not belong to any other person .The Apex Court in Rukmani Pakkwell Traders’ case while referring to the Condition of trade mark ruled that the SSI exemption will not apply if the specified goods  bears a brand or trade name of another person. Nowhere in the notification is it provided that the specified goods must be the same or similar to the goods for which the brand name or trade name is registered. It is to be seen that there may be an unregistered brand name or an unregistered trade name. These might not be in respect of any particular goods. Even if an unregistered brand name or trade name is used the exemption is lost. This makes it very clear that the exemption would be lost so long as the brand name or trade name is used irrespective of whether the use is on same goods as those for which the mark is registered.”

Manufacturers cannot be denied the benefit of exemption under Notification No. 1/93-C.E. merely on the ground that they are using marks, labels, etc. used by other manufacturers, so long as such marks, etc. do not belong to a particular person. in case of brand name used by different manufacturers, which constitute common brand name, would not disentitle the manufacturer from claiming benefit under the said notification on use of such brand name. them were common brand names.

43)  UNIVERSAL PACKAGING  :  2011 (264) E.L.T. 147 (Tri. – Mumbai)

SSI Exemption – Export through another party – Cartons/Packaging material cleared to exporters who provided documentary proof of their actual export, viz. Bills of Lading and Sales Tax Forms – HELD : Goods could not be said to be cleared for home consumption and their value was excluded from computation of limit of aggregate value of clearances. CBEC themselves had accepted “Form-H” certificates as proof of export vide Circulars No. 212/46/96-CX., dt. 20-5-1996. H-Forms or equivalent Sales Tax form are further supported by furnishing a proof of  export in the form of presentation of the Shipping Bill duly completed by the customs, bill of lading, foreign exchange remittance certificates etc. It is clarified that this facility is available only in respect of the exempted units which undertake exports themselves or through merchant exporters directly from the unit itself. The facility is not available for the supplies made to any other domestic manufacturer who may or may not export its finished products.

44)  LIFE STYLE INTERNATIONAL PVT. LTD.2011 (263) E.L.T. 565 (Tri. – Chennai)

SSI exemption – Value of clearances – Computation of – ‘whether on payment of duty or otherwise’ has application only to a physical manufacturer or to a merchant-manufacturer who also had physical manufacturing facility – Assessee being retail traders with no physical manufacturing facility, value of clearances of ready-made garments made by them on job work basis not to be clubbed with value of clearances of assessee themselves which is otherwise exempted.

Even after May-2001 that is when the merchant manufacturer concept was introduced the value of clearance is attributed to only one, namely to the merchant manufacturer and not both to physical manufacturer of readymade garments and merchant manufacturer at the same time.

The words “whether on payment of duty or otherwise” occurring in the proviso is to be understood in its perspective Garments with registered brand names were dutiable and those with unregistered brand names were exempted. So there could be both duty paid as well as exempted clearances in the hands of physical manufacturers of garments. Such clearances, whether on payment of duty of otherwise was required to be included while computing the aggregate value of clearances to decide the status and eligibility of actual manufacturers for SSI exemption. This is the real purport and meaning of the words ‘whether on payment of duty or otherwise’.

45)  PARLE BISLERI PVT. LTD.      2011 (263) E.L.T. 15 (S.C.)

Goods are Branded

Code names used to denote a particular product manufactured by the  appellant could in fact be termed as ‘brand names’ because a mere difference in nomenclature cannot take away the import of the Explanation from its applicability to the present case. The product manufactured by the appellant fall within the ambit of the ‘code names’ and it is a fact that these codes are key to identifying the product which are commercially transferable.

46)  ACE AUTO COMP. LTD.   2011 (263) E.L.T. 3 (S.C.)

Brand Name merely means that by looking at a particular brand name or trade name an association between the brand name owner and the product should get established. In fact this is the very purpose of using a brand name. The object of the exemption notification is to grant benefits only to those industries which otherwise do not have the advantage of brand or trade name and  who do not associate their products with some other person.

a. It is settled law that to claim exemption under a notification one must strictly comply with the terms of the notification. It is not permissible to imply words into the notification which the legislature has purposely not used.

b. The framers of the law were aware that use of a brand/trade name is generally to show to a consumer a connection between the goods and a person.

c. The framers were aware that goods may be manufactured on order for captive consumption by that customer and bear the brand/trade name of that customer.

d. The framers were aware that such goods may not reach the market in the form in which they were supplied to the customer.

e. The framers were aware that the customer may merely use such goods as an input for the goods manufactured by him.

f. Yet clause 4 provides in categorical terms that the exemption is lost if the goods bear the brand/trade name of another.

g. Clause 4 does not state that the exemption is lost only in respect of such goods as reach the market.

h. It does not carve out an exception for goods manufactured for captive consumption.

i. The exemption was to be available only to goods which did not bear a brand/trade name of another.

j. The reason for this is obvious. If use of brand/trade names were to be permitted on goods manufactured as per the orders of customers or which are to be captively consumed then manufacturers, who are otherwise not entitled to exemption, would get their goods or some inputs manufactured on job-work basis or through some small party, freely use their brand/trade name on the goods and avail of the exemption. It is to foreclose such a thing that clause 4 provides, in unambiguous terms, that the exemption is lost if the “goods” bear a brand/trade name of another.”

k. However  if the assessee is able to satisfy the department that there was no such intention, or that the user of the brand name was entirely fortuitous, it would be entitled to the benefit of the exemption.

l. Based on the above premises it was held by the Apex Court that using brand name “TATA ACE” is equivalent to “TATA” as  any person buying the product will naturally assume the product to have the quality, specification etc. associated with products of TATA group. It is not necessary to actually sell the product to TATA companies to establish any connection between the product and the brand name owner.

47)  GLARE CUTLERY PVT. LTD.   2011 (266) E.L.T. 197 (Tri. – Ahmd.)

Scissors with brand name ‘Glare’ supplied free with gas lighter with brand name ‘Ace’ inscribed on it – Retail pack mentioning that it was a quality product from Glare Cutlery Pvt. Ltd., which was also name of noticee’s company – HELD : Noticee was not disentitled from taking benefit of Notification No. 8/2003-C.E. – ‘Glare’ brand name was used in respect of scissors and could not be associated with ‘Ace’, used for gas lighters – One product could be marketed with one brand name only, and not two – Also, mentioning ‘Glare Cutlery Pvt. Ltd.’ on retail pack was legal requirement, which could not mean use of brand name on product.

48)  2010 (261) E.L.T. 1019 (Tri. – Del.)   JANARDAN PLYWOOD INDUSTRIES LTD.

Clause 2(vii) of the SSI notification specifically provides that the aggregate value of clearances of all excisable goods from any factory by one or more manufacturers as well as from one or more factories by one manufacturer shall not exceed Rs. 200 lakhs (now 400 lakhs) in the preceding financial year as the same would disentitle the manufacturer to claim the benefit under the notification. The expression “one or more factories by a manufacturer” and “from any factory by one or more manufacturers” would disclose that while considering the aggregate value of clearances of all excisable goods in order to ascertain whether the assessee will be entitled to claim the benefit under the notification or not, the authority will have to take into consideration the production from all the units of a manufacturer. However, no similar expression has been used in Clause 2(i) of the notification which deals with the right of the manufacturer to claim option for benefit under the notification. The expression in para 1 of the notification discloses the intention of the framers of the notification to leave it to the discretion of the manufacturer to make the choice regarding the unit or units which will be availing the benefit of the notification and the unit or units those will be kept out of such benefit of the notification. There is no compulsion prescribed under the notification for manufacturer having more than one unit to avail the benefit necessarily for all the units. It is entirely in his discretion to decide whether such benefit should be availed for all the units or one or more of the units owned by him.

49)  SWIFT FINVEST PVT. LTD.  2010 (260) E.L.T. 461 (Tri. – Del.)

SSI Exemption – Brand name – Right of the appellants to use brand name pursuant to agreement between the parties cannot entitle the party to contend that it ceased to be the brand name of another person or that it would become an exclusive brand name of manufacturer – Agreement between manufacturer and owner of brand name may entitle manufacturer to use such brand name for his product without any objection from the owner of brand name – But that by itself will not result in amending conditions of exemption notification – Notification does not make any exception when such use is permitted by the owner of brand name.

50)  KUBER INDUSTRIES   : 2010 (249) E.L.T. 78 (Tri. – Del.)

We have carefully considered the submissions. The Commissioner (Appeals) has given a clear finding that it was a case of mere affixing of brand name of others in the letter head and invoices which cannot held to be clearance of goods with the brand name of others. Against this factual finding, no evidence has been cited by the Revenue. While the conduct of the respondents in affixing the brand name in letter head and mentioning the brand name in the invoices may raise doubts, the same may not be considered as evidence enough to hold that the respondents have cleared the goods with the brand name of third parties. Under these circumstances, we do not find any valid grounds to interfere with the finding and reasoning adopted by the Commissioner (Appeals).

51)  BHAVNA INDUSTRIAL CORPORATION: 2009 (248) E.L.T. 660 (Tri. – Ahmd.)

Further, demand of duty of Rs. 9,827/- stands confirmed against the appellants on the findings that they have used the brand name “Anil” which belongs to M/s. K. Rasiklal & Company. The appellants have contested that “Anil” was their family Brand Name and upon distribution of work, as per the agreement, all the three parties were allowed to use the same. This fact does not stand disputed by the Commissioner (Appeals) but he has rejected it on the ground that Central Excise law does not permit such mutual bestowing upon right to use the brand name. However, we find that with the Memorandum of Understanding entered between various family members, the said brand name did not belong to any one person but was to be used by all the three parties. In these circumstances, to hold that it was belonging to another person, thus debarring the use of the same by the appellant would be against the factual position. It is well settled that for denying the benefit of small scale exemption, the Revenue has to establish that the brand name which stands used by the assessee was belonging to another person, who was not entitled to use the same. In the present case, the Memorandum of Understanding allows all the three family members to use the same brand name, thus ousting the scope of one of them being the owner of the same. The Hon’ble Supreme Court in the case CCE, Chandigarh v. Bhalla Enterprises [2004 (173) E.L.T. 225 (S.C.)] has observed that brand name belonging to assessee himself although someone else equally entitled to use such name, will not result in the denial of the benefit of exemption. Reliance in this regard can also be placed to the Tribunal decision in the case of Bentex Motor Control Industries v. CCE, New Delhi [2002 (139) E.L.T. 679 (Tri.- Del.)] wherein it was held that trade mark belonging to a partnership firm, which was dissolved, can belong to all the partners upon dissolving of the firm and can be used by each party in respect of any goods under the agreement, and the same would not attract mischief of Para 7 of Notification No. 175/86-C.E. or Para 4 of Notification No. 1/93-C.E.

SMALL SCALE INDUSTRY – CENVAT CREDIT ELIGIBILITY

52)  J.R. HERBAL CARE INDIA LTD.   2010 (253) E.L.T. 321 (Tri. – Del.)

a)      Capital goods received during the period 2003-04 and 2004-05 when the manufacturer was  availing full duty exemption under SSI Notification No. 8/03-C.E.

b)      Full Cenvat credit of capital goods could be taken in 2005-06

1. Provided the capital goods are used in the manufacture of final product which are excisable.
2. No  Cenvat credit was taken at the time of receipt of capital goods during 2003-04 and 2004-05.

c)      Nowhere in CCR, 04 there is any provision that Cenvat credit would not be available to a manufacturer of excisable goods who is not registered.

d)      A manufacture manufacturing excisable goods but exempt from registration formalities under Rule 9(1) for the reason that he is availing SSI exemption and the value of his clearances during the financial are within the full exemption limit, does not cease to be a manufacturer of excisable goods and therefore, capital goods Cenvat credit in terms of the provisions of Rule 3(1) read with Rule 4 of CCR, 2002 is allowable

e)      The bar of  Rule 6(4) (i.e. reversal of proportionate duty when goods manufactured are excisable as well as well exempt) not applicable when manufacture of goods wholly exempt from duty under an exemption notification based on the value of the clearances during a financial year i.e. SSI exemption

53)  PROGRESSIVE SYSTEMS    2010 (251) E.L.T. 536 (Tri. – Bang.)

An SSI unit can accumulate capital goods credit till it exhausts the exempted value of clearances and starts paying duty. As per the CBEC’s clarification  SSI units can accumulate credit of duty paid on capital goods which can be used after it crosses the aggregate value of exempted clearances as per the notification. An assessee can avail capital goods credit upto 50% in the year of receipt of the goods and balance in the subsequent financial years. There is no prescription that credit to any extent has to be availed in the year of receipt of capital goods. In the instant case entire credit has been availed in 2007-08, the year following receipt of the goods. This availment is not inconsistent with the legal provisions and fully allowable.

54)  TYRE TOPS : 2010 (250) E.L.T. 338 (H.P.)

“It can be seen from yet another angle. In case inputs are received in factory and used in manufacture of end product. But the end product is destroyed by fire before stage of its removal from factory premise. In such circumstances, no excise duty becomes payable on end product. Yet Modvat credit availed on inputs used in destroyed goods is not to be recalled. This is also suggestive of the fact the relevant date for considering exemption from duty of the end product in or in relation to which inputs are used is the date of its receipt in factory and condition is its actual use in or in relation to manufacture of end product by the manufacturer. The chargeability to duty or non-chargeability due to exemption or notified nil rate is to be considered at the stage before goods are actually produced, but on receipt of inputs intended to be used in manufacture of such goods. That being so ultimate clearance of goods at nil rate due to contingency existing at the time of removal does not affect the entitlement that legally arises long before that date.”

55)  VAIBHAV ACQUA FRESH LTD. : 2009 (242) E.L.T. 144 (Tri. – Mumbai)

SSI Exemption – Cenvat credit, simultaneous availment of, when some goods cleared on payment of duty – Condition 2(iii) under Notification No. 8/2003-C.E. was to the effect that, Cenvat credit was not available on inputs when full exemption claimed for specified goods – No question of availing input duty credit where no duty of excise needs to be paid – Provision of Condition 2(iii) made in Notification ibid for SSI Unit which might choose to manufacture both specified and non-specified goods or clear under brand name of another – Proviso added to clause (iii) of much aid to correct understanding of said clause – Proviso can be considered as clarificatory – Even without proviso, condition 2(iii) to mean that SSI unit entitled to avail Cenvat credit on inputs used in manufacture of goods cleared on payment of duty.

56)  RAMESH FOOD PRODUCTS  2004 (174) E.L.T. 310 (S.C.)

Simultaneous availment of cenvat for some products and availment of full exemption for others under small-scale exemption is not permissible. The manufacturers have the choice of choosing one of the two concessions, i.e. either The Cenvat Scheme or SSI Notification .

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