Investment in separate enterprises under common ownership cannot be clubbed to determine MSME status.

The assessee established a small enterprise at Sri Ganganagar in 2009 and another at Alwar in 2012. Each unit’s investment in plant and machinery was below ₹5 crore, the applicable threshold for small-enterprise status under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

The Revenue aggregated the investments in both units and, by assessment orders dated 26 June 2015 for assessment years 2012–13 to 2014–15, denied the assessee the concessional CST rate under the State notification dated 14 February 2008 and imposed tax, interest and penalties.

The first appellate authority upheld the tax and interest but set aside the penalties; the Rajasthan Tax Board subsequently allowed the assessee’s appeals and dismissed the Revenue’s appeals, holding that the units’ investments should not be clubbed.

The Revenue challenged the Board’s common order in six revisions under Section 84 of the Rajasthan Value Added Tax Act, 2003.

Whether, for determining the assessee’s eligibility for the concessional CST rate as a micro or small enterprise, the investment in plant and machinery of its Sri Ganganagar and Alwar units could be clubbed merely because both were under the same ownership. The Court framed the common question as whether the Alwar factory was a different enterprise such that its investment should not be clubbed with that of the Sri Ganganagar unit.

Section 8(5) of the Central Sales Tax Act, 1956 empowered the State to prescribe a concessional tax rate for qualifying dealers; the Rajasthan notification dated 14 February 2008 granted the specified rate to eligible micro and small enterprises on qualifying inter-State sales.

The notification, as amended on 8 March 2017, expressly provided that, for ascertaining enterprise status under the notification, investment in plant and machinery in different enterprises under the same ownership was not to be clubbed.

The MSMED Act, 2006 did not provide for clubbing investments of different enterprises under the same ownership for classification purposes, as reflected in the Industries Department clarifications dated 8 August 2011 and 31 January 2014.

The Court also relied on Renu Tandon v. Union of India for the principle that separate units should not be clubbed without evidence of common funding, financial flow-back or mutual business dependence.

The Court also relied on State of Haryana v. Bharti Teletech Ltd. for the rule that an exemption notification should be liberally construed where the assessee satisfies its eligibility conditions, without importing conditions not found in the notification.

The Court accepted the Tax Board’s conclusion that the two units’ investments were to be treated separately. The Industries Department clarifications and the 2017 amendment to the 2008 notification supported non-clubbing of investments in separate enterprises under the same ownership.

The Revenue had not established that the units shared common funding, financial flow-back or mutual business interests; common ownership alone was insufficient to justify aggregation.

As each unit’s investment was below ₹5 crore, the assessee met the relevant small-enterprise threshold, and the assessments denying the concessional rate could not stand.

Finding no illegality, perversity or jurisdictional error in the Tax Board’s order, it dismissed all six revision petitions and left the parties to bear their own costs.