Denial of SSI exemption for affixing brand name not relevant when process does not amounts to manufacture.

PJ/Case law/2014-15/2210

Case:- TELA EQUIPMENTS PVT. LTD. VERSUS COMMISSIONER OF C. EX., MUMBAI-V

Citation:- 2011 (273) E.L.T. 545 (Tri. - Mumbai)

Brief facts:-The appellant was engaged in the manufacture of industrial valves. On the ground that the appellant had manufactured and cleared industrial valves with the brand names ‘Audco’, ‘BHEL’, ‘AIL’, etc. and, therefore, in respect of the clearance with these brand names were not eligible for SSI exemption, investigation was taken up and after scrutiny of documents, recording of statements, etc. a show cause notice was issued proposing to demand duty on the industrial valves with brand names of others, cleared by them, proposing confiscation of seized goods and imposition of penalty. Proceedings were dropped by the original adjudicating authority on the ground that appellant had, in fact, repaired and reconditioned old valves and the process did not amount to manufacture and when the process did not amount to manufacture the question of payment of duty did not arise. On an appeal filed by the Revenue, the learned Commissioner (Appeals), in the impugned order, set aside the original adjudicating authority’s decision and allowed the appeal filed by the department and remanded the matter to the original adjudicating authority with a direction that the process adopted by the appellants amounts to manufacture and on that basis demand has to be re-worked.

Appellant’s contentions:-The learned counsel, on behalf of the appellants, submitted that appellants were procuring/purchasing old valves from the open market and thereafter repaired the same and sold them to their sister-company, who affixed the brand names of other firms and disposed of the goods. He submits that the process did not amount to manufacture since it was only repairing and reconditioning of valves which was accepted by the original adjudicating authority and, therefore, he submits that the impugned order is not sustainable. He also relies upon the decision of the Tribunal in the case of Crompton Greaves Ltd. v. Commissioner of Central Excise, Gwalior, 2006 (201)E.L.T.302 (Tri. - Del.) to support his contention that substantial repairing and replacing of damaged parts would not amount to manufacture. He relies upon the Tribunal decision in the case of Commissioner of Central Excise, Pune v. Dattanand Refrigeration Services Pvt. Ltd., 2001 (132)E.L.T.748 (Tri. - Mumbai) wherein repairs/reconditioning/remaking of compressor was held to be not amounting to manufacture. In the case of Metro Tyres Ltd. v. Collector of Central Excise, Chandigarh, 1996 (84)E.L.T.485 the Tribunal took a view that repairing and reconditioning of old defective electric fans by replacing parts, rewinding of motors, etc. does not amount to manufacture.

Respondent’s contentions:- The learned DR submitted that in this case the appellants had actually floated a dummy firm. Further, old valves which were purchased underwent some process which was undertaken in the case of their other inputs. Further, he also submits that appellants have affixed the brand names of other companies and further, in order to avoid payment of duty, they had set up a sister-company to affix brand names.

Reasoning of judgment:- The Hon’ble tribunal have considered the submissions made by both the sides. There is no dispute about the fact that the appellants had purchased old and used industrial valves which underwent processes such as machining, welding, drilling, grinding, gas cutting, assembling, painting, etc. depending upon the extent of wear and tear of the used valves purchased by them and thereafter transferred to their sister- company who affixed brand names of various other companies and disposed of the goods. The basis on which duty was demanded is that these processes would amount to manufacture. Before the learned Commissioner (Appeals) several decisions were cited which were taken note of by the Commissioner (Appeals) in the following paragraphs :

“However, before this examination on the duty liability and penalties could be considered, it is to be seen whether under the position of law, as decided by the courts and Tribunal and referred by the Respondent in support to claim that no manufacturing process was involved in the repair of old Industrial valves, has to be examined. In the case of M/s. Metro Tyres Ltd. reported in 1996 (84)E.L.T.485, the Tribunal had held that repairing and reconditioning of old and defective electrical fans by replacing parts, rewinding of motor, refixing of old/new number plates with new guarantee card does not amount to manufacture as it does not result in production of a new article. In the case of Reliance Storage Energy System Pvt. Ltd. [2001 (131)E.L.T.210 (Tri. - Kol.)],Tribunal had held that repairing, remaking, reconditioning of old and damaged goods does not amount to manufacture even where major parts are changed. The Tribunal was considering reconditioning of old batteries whether amounting to manufacture. Also, in the case of M/s. Namita Gautam reported in 2002 (141)E.L.T.814 (T), it has been held by CEGAT that it is a settled law that affixing of brand name does not change the character of the goods manufactured. The Tribunal followed the reasoning given by Bombay High Court in the case of Bush India Ltd. [1980 (6)E.L.T.258 (Bom.)]that the manufacturer was complete even without the brand name being put on the specified goods and that the marketing of the specified goods under the trade name made no difference as they still remain the same article irrespective of the name under which they are sold. These decisions have been examined by the adjudicating authority in reaching his findings that the processes conducted on the old Industrial valves did not amount to manufacture, even when brand name of another person was fixed, and that these were not liable to pay duties under SSI exemption.”

However, he has stated that he is not in agreement with the decisions cited and his observations in this regard are as under :

“I am not in agreement with the said finding. In the impugned show cause notice, it has been clearly stated that the Respondent are acquiring old scrap valves and carry out different processes like cleaning, machining, grinding, shot blasting, assembling of various parts like spindles, seats etc. Thereafter, the product is tested and painted and also placed with the brand name with specification. It is not the Respondents case that they were following the procedure of Rule 173H in reprocessing, reconditioning of already manufactured goods. In fact, the evidence on record can only lead to conclusion that old valves were procured by the Respondent from the market as one of the input materials which were subjected to a complete process in manufacture into another set of Industrial valves by the several processes referred in the show cause notice. Respondent have not denied conducting these processes. However, there is no dispute on the fact that the appellant had capability of manufacturing Industrial valves which in fact were being marketed also under their own brand name “Progress” and “Pei”. Also what was recovered from the common godown of the appellant firm shared with their sister concern were new Industrial valves bearing the brand names of the appellant unit or other persons.”

They find that the reasoning adopted by the Commissioner (Appeals) for not following the decisions cited before him are not very convincing. One of the reasons seems to be that the appellant had the capability of manufacturing valves. When there is no dispute that the appellant was not manufacturing industrial valves, the question does not arise. Further, they also find that several decisions cited by the learned counsel are also applicable to the facts of this case. Under these circumstances, they find that the impugned order is not sustainable.

Accordingly, the impugned order was set aside and the appeal was allowed.

Decision:- The appeal was allowed.

Comment:- The analogy of the case is that when repairing, re-conditioning, remaking and branding of old and defective industrial valves does not amount to manufacture, it is immaterial to ascertain whether the assessee is eligible to avail the benefit of SSI exemption or not. When there is no excise duty liability, the question of eligibility of SSI exemption does not arise.

Prepared by: Monika Tak

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PJ/Case law/2014-15/2210

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