1992 (7) TMI 186 - AT - Central Excise

Summary

Issues Involved:
1. Whether the two units could be deemed as one and the same entity for the purposes of the exemption available to Small Scale manufacturers.
2. Whether the financial and operational interconnections between the two units justify the clubbing of their production for tax purposes.

Summary of Judgment:

Issue 1: Single Entity Determination
The primary issue was whether the two units, managed and controlled by the same group of persons, could be deemed as a single entity for the purposes of the exemption available to Small Scale manufacturers. The Collector's order was based on several factors, including common ownership, shared facilities, and financial interconnections. However, the appellants argued that each unit had an independent legal identity, separate registrations, and no flow back of profits. The Tribunal found that the mere existence of an interest-free loan and shared resources did not conclusively prove that the two units were a single entity. The Tribunal cited previous case law, such as Shree Packaging Corporation v. CCE and Jagjivandas & Co. v. CCE, to support the view that close relationships and shared resources alone do not justify clubbing the production of two legally distinct entities.

Issue 2: Financial and Operational Interconnections
The Collector's order highlighted several operational interconnections, such as common workers, shared raw material procurement, and a common effluent treatment plant. The appellants contended that these shared resources were for convenience and did not indicate a single entity. The Tribunal agreed, noting that the shared resources were accounted for separately and did not result in a flow back of profits. The Tribunal also dismissed the relevance of a common inspection note recorded by the Water Pollution Board, stating it was for the officer's convenience and did not affect the separate legal identities of the units.

Conclusion:
The Tribunal set aside the impugned orders and allowed the appeals, concluding that the two units could not be treated as a single entity merely based on shared resources and financial interconnections. The decision emphasized the importance of legal identity and separate accounting in determining the independence of manufacturing units for tax exemption purposes.