Is it necessary for the goods to be stamped with a trade/brand name for considering them as branded goods under SSI notification?

Case: COMMISSIONER OF CENTRAL EXCISE, CHENNAI-II V/S M/S AUSTRALIAN FOODS INDIA (P) LTD

Citation: 2013-TIOL-03-SC-CX

Brief Facts: - The assessee was engaged in the manufacture and sale of cookies from branded retail outlets of “Cookie Man”. The assessee had acquired this brand name from M/s Cookie Man Pvt. Ltd, Australia (which in turn acquired it from M/s Auto- bake Pvt. Ltd., Australia). The brand name used the words “Cookie Man” accompanied with a logo depicting the smiling face of a mustachioed chef. The assessee was selling some of these cookies in plastic pouches/containers on which the brand name described above was printed. No brand name was affixed or inscribed on the cookies. Excise duty was duly paid, on the cookies sold in the said pouches/containers. However, on the cookies sold loosely from the counter of the same retail outlet, with plain plates and tissue paper, duty was not paid. The retail outlets did not receive any loose cookies nor did they manufacture them. They received all cookies in sealed pouches/containers. Those sold loosely were taken out of the containers and displayed for sale separately. Even though no separate register was maintained to account for the sale of the cookies sold loosely, their numbers were calculated from the number of empty pouches/containers left behind at the end of day. On scrutiny of the documents recovered from the said outlet and on the basis of the statement of the Executive Director, a notice dated 20th December, 2012 was issued to the assessee by the Commissioner to show cause as to why (i) the cookies sold by the assessee at its outlets be not classified under Chapter sub-heading 1905.11 as biscuits and (ii) in view of their use of brand name “Cookie Man” on sale of cookies in plastic pouches/containers, S.S.I. exemption should not be disallowed. Upon consideration of the explanation furnished by the assessee, the Commissioner inter-alia came to the conclusion that unless the specified goods or the packaging in which these are sold, bear the brand name or the logo, prescribed S.S.I. exemption cannot be denied. Thus, the Commissioner held that since there was neither any material evidence nor averment to prove that the brand name was embossed on the cookies, the assessee was eligible to avail of the benefit of small scale exemption in respect of cookies sold loosely from the counter of the retail outlet. Being aggrieved by the order, both the Department and the assessee filed cross appeals before the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Chennai. The decision of the Commissioner having been affirmed by the Tribunal, the revenue is in this appeal under Section 35L (b) of the Central Excise Act, 1944. There is no dispute that the specified good is to be classified under sub-heading 1905.11 as Biscuits, manufactured with the aid of power. The controversy revolves around para 4 of S.S.I. notification No. 1/93-C.E. dated 28th February, 1993.

Respondent’s Contention: - The respondent assessee argued that a combined reading of Para 4 and Explanation IX of the notification, along with Para J of the Budget Changes, would lead to the conclusion that only specified goods bearing an affixed brand name, or in other words, those goods that physically display the brand name, are not covered by the exemption. He relied on the decision of this Court in the case of Commissioner of Central Excise, Jamshedpur Vs. Superex Industries, Bihar (2005) 4 SCC 207 = (2004-TIOL-100-SC-CX) for the proposition that a physical manifestation of a brand name on a good is a necessary requirement for disqualification from the exemption granted by the concerned notification. He also relied on the same decision to urge that this Court cannot look into the surrounding circumstances of a good, especially the specific outlet from which it is sold, to construe if it is branded or not; scrutiny, in his opinion, must be limited to the specified good itself. They are unable to appreciate as to how a compulsory requirement of physical manifestation of a brand name on the specified good, for it to be construed as branded goods, can be derived from the order. The decision in the above case simply recognizes that the benefit would be lost only if a manufacturer affixes the specified goods with a brand or trade name of another who is not eligible for the exemption under the notification. It does not state that the specified good must itself bear or be physically affixed with the brand or trade name. Such an interpretation would lead to absurd results in case of goods, which are incapable of physically bearing brand names. For instance, the goods, which, due to their very nature and structure, are incapable of bearing brand names, would always be deemed unbranded. Liquids, soft drinks, milk, dairy products, powders, edible products, salt, pepper, sweets, gaseous products, perfumes, deodorants etc., to name a few, are either liquids, gases or amorphous/brittle solids, making it impossible for the good to be affixed with a brand name. In some situations, such an affixation may be impossible, in which case, it would be permissible for the specified good to continue being a branded good, as long as its environment conveys that it is branded. By environment they mean packaging and wrapping of the good, accessories it is served with, uniform of vendors, invoices, menu cards, hoardings and display boards of outlet, furniture and props used, the specific outlet itself in its entirety and other such factors, all of which together or individually or in parts, may convey that a good is a branded one, notwithstanding that there is no physical inscription of the brand or trade name on the good itself. Further, a specific, dedicated and exclusive outlet from which a good is sold is often the most crucial and conclusive factor to hold a good as branded. The decision referred to above only made a limited point that invoices alone cannot be the sole basis of construing whether a good is a branded good or not; it does not hold that a specified good itself must be stamped with a brand name.
It is therefore, permissible to look into the environment of the good. However, like in the case of Kirloskar generators [Superex Industries (supra)], invoices bearing brand name could not be the sole basis of construing whether goods are branded or not. That decision would depend on the facts and circumstances of the case. There can be no precise formula for such a determination; in some cases certain factors may carry more weight than in other situations. However, in most circumstances, an exclusive branded outlet from which the good is sold would be a crucial factor in determining the question. He strongly relied on another decision of this Court in Kohinoor Elastics (P) Ltd. Vs. Commissioner of Central Excise, Indore (2005) 7 SCC 528 = (2005-TIOL-120-SC-CX), for the proposition that only the “specified good” in question must be scrutinized and the expression cannot be expanded to mean “specified outlets” or other surrounding circumstances.

Reasoning of Judgment: - The Hon’ble Supreme Court held that to hold that every good must be physically stamped with a brand or trade name to be considered a branded good in terms of the notification, and that, one is forbidden to look beyond the specified good into the surrounding environment of the good in construing if it is a branded good or not, would be a complete misunderstanding of the relied judgment and a distortion of the concept of a brand or trade name. The judgment makes no such observation and was delivered on a completely different set of facts and circumstances. It involved a case of undergarments manufactured by a producer P2, which used branded elastics produced by P1, and retained the brand name of P1 in the final product. P2 was denied exemption under the same notification involved in the present case because of the appearance of brand name of another i.e. P1, not covered by the same notice. P2 argued that the presence of P1’s brand name should not be taken as a basis for disqualification from the benefits of the exemption since the customer buying the good would continue to associate the good with P2 and not P1, thus making it a branded good of only P2. This Court rejected the contention and held that P1 is providing a stamped input for captive consumption to P2 “because he wants the ultimate customer to know that there is a connection between the product and him”. The Court further observed that the term “specified goods” is used without any caveats and hence rejected the contention that some consideration should be given to the fact that P1 was used only as an input in the making of the final product of P2. It is in this background that this Court observed that the requirement of the notifications must be adhered to strictly and cannot be diluted by substituting the term “specified goods” with the nature of goods or the manner of disposal. In case the specified good clearly exhibits a brand name of another not covered by the notification, it would squarely fall within the confines of Para 4 of the notification; looking beyond the specified good to consider whether it is an input or not is not necessary in case of a conspicuous brand name. However, to apply this principle to the scenario of a specified good that does not contain a brand name at all would be equivalent to fitting a square peg in a round hole. If a final product is marked or stamped with a brand name, it is clearly a branded good; to stretch this principle to imply that one not marked by any brand is an unbranded good, is untenable. In case a scrutiny of the good itself fails to reveal a brand name then the search must not end there; one ought to look into the surrounding circumstances of the good to decipher, if it is in fact branded or not. In their view, such an approach is necessary to maintain the essence of the concept of a brand name. A brand/ trade name must not be reduced to a label or sticker that is affixed on a good. The test of whether the good is branded or unbranded, must not be the physical presence of the brand name on the good, but whether it, as Explanation IX reads, “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 the person.” Therefore, whether the brand name appears in entirety or in parts or does not appear at all cannot be the chief criterion; primary focus has to be on whether an indication of a connection is conveyed in the course of trade between such specified goods and some person using the mark. This principle was observed by this Court in Commissioner of Central Excise, Trichy Vs. Rukmani Pakkwell Traders (2004) 11 SCC 801= (2004-TIOL-51-SC-CX). Similarly, in Commissioner of Central Excise, Chandigarh-I, Vs. Mahaan Dairies (2004) 11 SCC798 = (2004-TIOL-52-SC-CX), the same principle was observed.
As aforesaid, once it is established that a specified good is a branded good, whether it is sold without any trade name on it, or by another manufacturer, it does not cease to be a branded good of the first manufacturer. Therefore, soft drinks of a certain company do not cease to be manufactured branded goods of that company simply because they are served in plain glasses, without any indication of the company, in a private restaurant. The good will continue to be a branded good of the company that manufactured it. The same principle would apply in the case of potato chips, chocolates, biscuits, wafers, powders and other such goods often sold from various locations. In case of goods sold from exclusive single brand retail outlets or restaurants or stores, the fact that a good is sold from such a store ought to be a relevant fact in construing if the good is its branded good or not. In the case of such goods, perhaps a rebuttable presumption arises in favour of such goods being branded goods of the specified store. Such a presumption can be rebutted if it is shown that the specified good being sold is in fact a branded good of another manufacturer. Thus, branded potato chips, soft drinks, chocolates etc. though sold from such outlets, will not be considered to be goods of such outlets. However, all other goods, sold without any appearance of a brand or trade name on them, would not be deemed unbranded goods; to the contrary, they may be deemed to be branded goods of that outlet unless a different brand or trade name appears. Hence, they hold that it is not necessary for goods to be stamped with a trade or brand name to be considered as branded goods under the SSI notification. A scrutiny of the surrounding circumstances is not only permissible, but necessary to decipher the same; the most important of these factors being the specific outlet from which the good is sold. However, such factors would carry different hues in different scenarios. There can be no single formula to determine if a good is branded or not; such determination would vary from case to case. Also, their observations must be limited to this notification and not supplanted to other laws with similar subject matter pertaining to trade names and brand names. Applying the said principles on the facts at hand, they are not able to see how the same branded cookies, sold in containers, can transform to become unbranded ones, when sold from the same counter, or even from an adjoining counter, without packaging carrying the brand name. Admittedly, on the same cookies, physically bearing brand “Cookie Man” sold in containers carrying brand name duty is paid. It is interesting to note that learned counsel appearing on behalf of the assessee first argued that to determine if the cookies sold from the counter are branded or not, scrutiny must be limited to the case of the cookies themselves without looking at the surrounding circumstances; yet went on to argue that the tissues and plates they were served on did not bear the brand of the specified good. Either the environment of the goods can be looked into, or cannot be taken into consideration at all. Once it is established, as in the instant case, that the environment of the goods can be gone into to construe if it is branded or not, they do not see why the environment of the goods should be limited to the plates and tissues, on which they are served. As aforesaid, in the instant case, the cookies were sold from a dedicated outlet of “Cookie Man” where no other products but those of the assessee were sold. The invoices carry the name of the company and the cookies were sold from a counter of the store. The store’s decision to sell some cookies without containers that are stamped with its brand or trade name does not change the brand of the cookies. They are convinced that the cookies sold even without inscription of the brand name, indicate a clear connection with the brand name, in the course of assessee’s business of manufacture and sale of cookies under the brand name “Cookie Man”. They continue to be branded cookies of “Cookie Man” and hence cannot claim exemption under the SSI Notification.

Decision: - The appeal was allowed.

Comment:-The substance of this case is that to ascertain whether goods are branded or not for the purposes of SSI exemption notification when they do not contain any mark or brand name is not inscribed on them. It was held that merely because the goods are not stamped with brand name, they do not become unbranded goods. The environment is also required to be observed and if the circumstances indicate that the said goods are connected or linked to the brand owner, the goods will be considered as branded goods and will be ineligible for SSI exemption.

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PJ/Case Laws/2012-13/1408

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