SSI EXEMPTION-THE 'BRANDED' ISSUE

SSI EXEMPTION – THE ‘BRANDED’ ISSUE

- Pradeep Jain, C.A.

- Sukhvinder Kaur, LLB(FYIC)

- Preeti Parihar, C.A.

INTRODUCTION:-

Small Scale Industries (SSI) are granted exemption from payment of basic excise duty and from special duty of excise on clearances upto an aggregate value of Rs. 150 Lakhs in the current financial year if the aggregate value of clearances during the preceding financial year did not exceed Rs. 400 lakhs. This exemption to SSI units has been granted under Notification No. 8/2003-CE, dated 01.03.03.

THE DISPUTE:-

SSI Exemption is granted if certain conditions as prescribed in Notification no. 8/2003 are satisfied. One such condition is contained in Para 4 of the Notification that the SSI exemption will not be applicable to specified goods bearing a brand name or trade name of another person, irrespective of the fact whether such brand name was registered or not. However, exceptions were also provided to this condition such as goods cleared as ‘original equipment’, goods bearing brand name or trade name of KVIC or if such goods were manufactured in factory located in rural area. The exceptions in the Notification read as follows:-

“4. 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) ………

(b) ………

(c)…………

The definition of ‘brand name or trade name’ is given in Explanation to Para 5 which reads as follows:

Explanation.- For the purposes of this notification,-

(A) “brand name” or “trade name” means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person;

This Notification denies the SSI exemption to units which are manufacturing goods which has a brand name/trade name of another person. This condition is the root cause of many disputes and litigations continued upto Supreme Court. The Hon’ble Supreme Court in the case of M/s Kohinoor Elastic Pvt. Ltd. [2005 (188) ELT 3 (SC)] held that the benefit of SSI Exemption is not available to the goods bearing a brand name/ trade name of the customer, manufactured by a SSI unit, as per the orders of the customer, for further use by the customer in the manufacture of his final product. The said unit was manufacturing elastic tape and affixing the brand name of his customer who was manufacturer of undergarments. This was done as per specific instructions of the customer.

AFTERMATH:-

In pursuance to this judgement, the Ministry of Finance (Department of Revenue) issued a Circular on 16.07.08 in which the instructions have been given to all chief commissioners to take action wherever SSI units had evaded duty by claiming SSI Exemption but were manufacturing goods bearing brand name or trade name of another person.

The Excise Authorities all over India took cognizance of the Circular and started investigating SSI units and demanding payment of excise duty by alleging that these units had wrongfully availed the benefit of exemption under the above-mentioned Notification. The small scale units engaged in manufacture of flexible packing material on specific directions of their customer were mainly trapped.

These actions of the Department led to a large hue and cry amongst the Small Scale Industries.

LOGICS ON PART OF TRAPPED SSI UNITS:-

The contention of Revenue is that the units engaged in the manufacture of flexible packing material like plastic bags, corrugated boxes, etc. which bear the name of the customer whose goods are to be packed therein, are using the brand name of those customers. But this is not a use of brand name in any situation. One example will clear the situation. Suppose the ‘X’ manufacturer is making packing material for ‘Y’ who is the manufacturer soap. In this case X will be printing ‘Y soap’ on the packing material to be supplied to him. Y will be using it for packing the soap manufactured by it. In this case, if we accept the aforesaid contention of the Revenue then the whole printing industry would be denied from taking the benefit of notification no. 8/2003. The small printing press printing the visiting cards or files of other office will be said to using the brand of other person and as such the exemption will be denied. As such, the interpretation is logically not tenable at all. This would defeat the ultimate purpose of granting this exemption which is of course not the intention of the law makers.

The packaging material will definitely contain the brand name of some other party as it is to be used by that other party for packing their final product. But SSI exemption cannot be denied merely on these grounds as this sale is not in course of normal trade and the goods are to be specifically used by the buyer booking the order. Even the Board has interpreted the like cases in favour of the assessees. The gist of these Circulars is produced as follows:-

(i) Circular no. 52/52/94-CX dated 1-9-1994: In this circular it was clarified that the exemption will not be available in case of a brand name. However, such brand name should indicate a connection between the branded goods and some person using such brand name. This connection should be in course of trade.

(ii) Circular no. 71/71/94-CX, dated 27-10-1994: This clarification was issued in respect of availability of SSI exemption on the castings and on the goods reflecting the names of both buyer and seller of the goods.

(iii) Circular F. no. 213/28/87-CX.6, dated 27-11-1987: In this circular it was clarified that in case of collapsible tubes, crown corks, PP caps, metal containers, HDPE bags, etc. bearing the bearing the brand name of large manufacturers/traders would not be hit by mischief of the denial of SSI exemption.

The above Circulars were issued to clarify that the packing materials made as per specifications of the buyer and bearing their brand name would not be attracting the exception contained in the aforesaid notification of SSI exemption.

The Board Circulars are binding on the department and it cannot take stand contrary to it as decided in the case of Collector of Central Excise, Vadodara vs. Dhiren Chemical Industries [ 2002 (139) ELT 3 (SC)]. In this case it was held that Board Circulars are binding on the department and it cannot take a differential stand on any phrase if the same is interpreted by the Board. This view is also taken in the following cases:-

· Union of India vs. Arviva Industries (I) Ltd. [2007 (209) ELT 5 (S.C.)]

· Commissioner of Customs, Calcutta vs Indian Oil Corporation Ltd. [2004 (165) ELT 257 (S.C.)]

It is even held by hon’ble Gujarat High Court that where there is conflict between the interpretation taken by the Supreme Court and the Board Circular, the revenue is inclined to follow the interpretation taken by the Board. This was held in the case of Milcent Appliances Pvt. Ltd. vs. Union of India [2006 (205) ELt 130 (Guj.)].

As such, since the Board has clarified a fact of similar circumstances, the Revenue cannot take the stand contrary to it merely because hon’ble Supreme Court has given a decision contrary to the Circulars as per above referred decision.

AMENDMENTS IN NOTIFICATION NO. 8/2003:-

Several representations were made by the Trade and Industry relying on the above stated stands. Consequently, CBEC issued Notification No. 47/2008-CE dated 1.09.08 which amends the Main Notification No. 8/2003-CE. With this amendment, exemption has been granted to specified goods which are in the nature of packing materials. The relevant clause (e) of Para 4 is reproduced as under:

“(e) Where the specified goods are in the nature of packing materials, namely, printed cartons of paper or paper board, metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks, metal labels.”

Further, the exemption granted to specified goods in the nature of packing materials was limited to clearances upto Rs 90 lakhs for the remaining part of financial year 2008-09. The relevant clause is reproduced as under:-

“4B Notwithstanding anything contained in the preceding paragraphs, the exemption in respect of goods specified in clause (e) of paragraph 4, contained in this notification, shall be restricted to rupees ninety lakhs for the remaining part of the financial year 2008-09.”

The said amendment is effective from 1st of September, 2008.

ISSUES ARISING OUT OF AMENDMENT:-

The exemption now granted to specified goods in the nature of packing materials by the Notification No. 47/2008-CE is also not problem-free. The exemption is extended only to printed cartons of paper or paper board, metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks, metal labels. But this notification has not included the packaging material (i.e. material for primary packing) like the products of polymers units - pouches and plastic bags.

The use of the word ‘namely’ has restricted the scope of packing materials which are eligible for SSI exemption under Notification No. 8/2003- CE. The notification uses the word “namely” and there are divergent decisions on the interpretation of the word – “namely”. Some appellate authorities have interpreted this word as a restrictive term like held in the case of Wolrem Pvt. Ltd. vs. Collector of Central Excise, Jaipur [1998 (97) ELT 452 (Tribunal)]. Whereas some appellate authorities have held that the word “namely” is an inclusive term like in the case of Ajanta Electricals vs. Collector of Central Excise and Others [1988 (35) ELT 34 (P&H)]. If this word is interpreted as an inclusive word, the similar products not specifically mentioned like plastic pouches and plastic bags will also be included and SSI exemption will be allowed to such items also. But if this word is interpreted as an exhaustive term, the benefit will be limited to the products specified therein. However, Excise department is taking the meaning of “namely” as a restrictive term.

Moreover, this exemption will not be applied to units producing goods which are captively consumed by the industry; for eg, castings, dyes, etc. These goods are manufactured by other units on specific direction of their customers which are to be used by the customer in manufacture of their final product. Of course, these dyes, castings, etc. will be bearing the name of the customer. Therefore, the notification is obviously lacking somewhere to convey the intended meaning of the purpose of amendment.

Further, the exemption granted to specified goods in the nature of packing materials has been granted from 1st of September, 2008. This means that the SSI exemption has been granted from 1st of September, 2008 and not from 1.03.2003 when Notification No. 8/2003- CE was made effective. Consequently, the SSI units manufacturing packing materials of the nature mentioned above have been made liable to pay duty from 1.03.2003 till 1.09.08. The Department will now demand payment of excise duty from such SSI units which have not paid duty by claiming the SSI exemption under Notification No. 8/2003- CE.

CONCLUSION:-

The struggle of SSI units for taking the benefit of SSI exemption under Notification No. 8/2003- CE seems to last long. Though amendment in this notification has brought relief to certain extent but the said relief leaves much to be desired for. Polymer units making plastic bags and pouches and similar units are still looking forward for a further amendment under Section 11C of Central Excise Act.

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SSI EXEMPTION-THE 'BRANDED' ISSUE

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