Investment in Separate Units Under Same Ownership Not Clubbed for MSME Concessional CST Rate: Rajasthan High Court

A notification of 14 February 2008 under Section 8(5) of the CST Act fixed a 0.25% rate on inter-State sales by registered dealers that are micro or small enterprises (para 4). The assessee set up a unit at Sri Ganganagar in 2009 and another at Alwar in 2012, each registered as a small enterprise with investment below Rs 5 crore (paras 5-6). For 2012-13 to 2014-15 the assessing authority clubbed the two investments and levied differential tax, interest and penalty; the first appellate authority upheld the tax but set aside the penalty; the Tax Board allowed the assessee's appeals and dismissed the Revenue's (paras 7-9). The admitted question was whether the Alwar unit was a different enterprise (para 2).

The Commissioner of Industries clarified in 2011 and 2014 that the MSMED Act does not provide for clubbing the investments of different enterprises set up by the same person or company, and on 8 March 2017 an Explanation was added to the notification itself: investment in plant and machinery in different enterprises under the same ownership shall not be clubbed (paras 13.1-15). An explanation becomes part of the enactment and, per Sonia Bhatia, widens the scope of the main provision and does not carve out an exception (paras 17-17.1). Units cannot be clubbed unless mutual dependence is established; in Renu Tandon, without common funding and financial flow-back, blood relationship, shared staff or similar products did not justify clubbing (para 18.1). Under Bharti Teletech, an exemption notification is construed liberally once the entrepreneur meets the eligibility criteria, and no condition is read into it (para 19). The Revenue failed to establish any common business interest, common funding or financial flow-back between the two units; common ownership alone cannot justify clubbing, so the Tax Board rightly treated the investments as separate and, each being below Rs 5 crore, the assessment orders were unsustainable (paras 20-21).