Mere indication of the name of Holding Company (Brand/Trade Name) – whether the same can be the reason for imposing penalty?

Case: COMMISSIONER OF CENTRAL EXCISE, TRICHY V/s GRASIM INDUSTRIES LTD.

Citation:-2005 (183) E.L.T. 123 (S.C.)

Issue: -Mere indication of the name of Holding Company (Brand/Trade Name) – whether can be the reason for imposing penalty?
Course of Action followed by the Assessee based on the judgment of the Tribunal – No penalty can be imposed.

Brief Facts: -Respondents are a subsidiary of M/s. Grasim Industries Ltd. On the bags of cement manufactured by them Respondents were using the following words:
“Manufactured by Dharani Cements Ltd.
A. Subsidiary of Grasim Industries Ltd.”

Respondent claimed SSI exemption under Notification No. 5/98-CE dated 02.06.1998. Department proceeded against the respondent to deny the SSI exemption on the ground that the respondent were using the brand name of another person.

It was held by the Commissioner that the purpose of using the above mentioned words was with an intention of indicating a connection between the product i.e. the cement and M/s. Grasim Industries Ltd. In such cases, clearly the Respondents were using a trade name of some other company with the purpose of indicating a connection in the course of trade between the product and that person. As according to the commissioner of Central Excise the Respondents were therefore clearly not entitled to the benefit of the Notification. The Commissioner held that the Respondents were liable to pay a differential duty and a penalty of Rs. 10,00,000/- under Rule 173Q of the Central Excise Rule, 1944.

In appeal, the Tribunal followed the earlier judgments given in the case of Chemguard Coatings Pvt. Ltd. v. Commissioner of Central Excise, Chennai [2000 (116) E.L.T. 43] and Nippa Chemicals (Pvt.) Ltd. v. Collector of Central Excise, Madras [1998 (100) E.L.T. 490] and a Judgment of the Supreme Court in the case of Astra Pharmaceuticals (P) Ltd. v. Collector of Central Excise, Chandigarh [1995 (75) E.L.T. 214 (S.C.)], and held that the benefit of Notification No. 5/98-CE dated 2.06.1998 is not lost by the Respondents because they show on their product the name of the holding company, namely M/s. Grasim Industries Ltd.

Revenue is in appeal against the order of the Tribunal before the Supreme Court.

Appellant’s Contention: - Revenue contended that the Respondents were using the name of M/s. Grasim Industries Ltd. with the purpose of indicating a connection between the product i.e. the cement manufactured by them, and M/s. Grasim Industries Ltd. which is a well known cement manufacturer. The purpose of putting the name “M/s. Grasim Industries Ltd.” was to show a connection between the product and M/s. Grasim Industries Ltd. However, what has been contended is that the words “M/s. Grasim Industries Ltd.” are neither a brand name nor a trade name. It is contended that mere use of the name of a company does not amount to using a brand name or trade name of some other company.

Respondent’s Contention: -Respondent submitted that based on the judgment of the Supreme Court in Astra Pharmaceuticals (P) Ltd.’s case the Tribunal has consistently been holding that the benefit of such Notification is not lost by use of the name of a company. It was submitted that most of the judgments of the Tribunal were not appealed against by the Department. It was submitted that as no Appeal had been filed against those judgments, the Department should not be allowed to discriminate by filing an Appeal in this case.

Reliance was placed on the decision in Berger Paints India Ltd. v. Commissioner of Income Tax, Calcutta [2004 (165) E.L.T. 488 (S.C.)], wherein the Supreme Court has held that if the Revenue has not challenged the correctness of the law laid down earlier and accepted it in the case of one assessee then it is not open to the Revenue to challenge the correctness in other cases without a just cause. Reliance was also placed upon an unreported Judgment passed in the case of Superintendent of Central Excise v. D.C.I. Pharmaceuticals Pvt. Ltd. [Civil Appeal No. 6862 of 1999, dated 22nd February, 2005].

As Respondent was of the Bona fide belief that whatever they were practicing was right and Tribunal also in number of cases has given the same interpretation as understood by the Respondent.

Reasoning of Judgment: - The Supreme Court held that the view taken by the Tribunal in various judgments appear to be erroneous. The view of the Tribunal appears to be based on upon the Judgment of this Court in Astra Pharmaceuticals Ltd.’s case. Even in the impugned Judgment Astra Pharmaceuticals Ltd.’s case has been relied upon. In view of Supreme Court, the Tribunal is misconstruing and misunderstanding the judgment of the Court in Astra Pharmaceuticals Ltd.’s case. In Astra Pharmaceuticals Ltd.’s case the question was whether the Appellants (therein) were liable to pay duty on Dextrose Injection manufactured by it under Tariff Item 14E. It was noted that in that case, the Supreme Court was considering the the phrase “Patent or proprietary medicines”. In instant case and the other cases earlier dealt with by the Tribunal the phrase under consideration is “brand name or a trade name”. The subject matter of the two cases i.e. Tariff Item 14E and the Notifications being considered are completely different. Whilst interpreting the phrases “brand name or trade name” an interpretation given in respect of “Patent or proprietary medicines” can be of no assistance. Even otherwise, there is a considerable difference between the Explanation to Tariff Item 14E and the Explanation in the concerned Notification. The explanation to Tariff Item 14E provides that the patent or proprietary medicine must, amongst other things, be a brand name i.e. a name or a registered trade mark under the Trade and Merchandise Marks Act. In the Explanation under consideration the “brand name or a trade name” may be registered or unregistered. The registration need not be only under the Trade and Merchandise Marks Act. Undoubtedly, the words “any other mark such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to that medicine for the purpose of indicating or so as to indicate a connection in the course of trade between the medicine and some person” are almost identical. But in the Explanation to Tariff Item 14E they are used in the context of a “Patent and proprietary medicine” which must be a name or a registered trade mark under the Trade and Merchandise Marks Act. In the Explanation to the concerned Notifications these words are used in the context of a “Brand name or a trade name”. These words, when used in the context of a “Patent or a proprietary medicine” assume a completely different context from that when they are used in the context of a “Brand name or a trade name” which may be registered or not. Further, the Explanation to Tariff Item 14E nowhere uses the words “trade name”. As is commonly known, a trade name can be a name in which or by which a person or body carries on their trade. It would, if the context so permits, include the name of a company. In the context of a “trade name” the words “a name” and “or any writing” would cover the name of a company so long as it is used in relation to the product and is used for the purpose of indicating a connection in the course of a trade between the product and other person.

In the instant case, the Supreme Court held that clearly the Respondents were using a trade name of some other company with the purpose of indicating a connection in the course of trade between the product and that person. The Respondents were therefore clearly not entitled to the benefit of the Notification. The decision of the Tribunal is therefore clearly erroneous and requires to be set aside.

Thereafter, the Supreme Court took note of the judgments referred in the case. It was noted that in the case of Nippa Chemicals (Pvt.) Ltd.’s case the question was whether the Appellants (therein) were entitled to the benefit of Notification No. 175/86-C.E., dated 1st March, 1986. That Notification also contained an explanation (being Explanation VIII) which in terms is identical to the Explanation under consideration in this case. On facts of that case, the Supreme Court held that the Tribunal held that the use of these words did not preclude the Appellants (therein) from availing of the benefit of the Notification. To be immediately noted that in that case it was neither admitted nor proved that the words were used to indicate a connection between the product and Nihon Parkerizing Co. Ltd. The Tribunal so notes. Had the Tribunal based its decision on this aspect no fault could have been found.

In Supreme Court’s view, the Tribunal has completely misdirected itself. The term “brand name or trade name” is qualified by the words “that is to say”. Thus, even though under normal circumstances a brand name or a trade name may have the meaning as suggested by the Tribunal, for the purposes of such a Notification the terms “brand name or trade name” get qualified by the words which follow. The words which follow are “a name or a mark”. Thus even an ordinary name or an ordinary mark is sufficient. It is then elaborated that the “name or mark” such as a “symbol” or a “monogram” or a “label” or even a “signature of invented word” is a brand name or trade name. However, the contention is that they must be used in relation to the product and for the purposes of indicating a connection with the other person. This is further made clear by the words “any writing”. These words are wide enough to include the name of a company. The reasoning given by the Tribunal based on a dictionary meaning of the words “write” and “Writing” is clearly erroneous. Even the name of some other company, if it is used for the purposes of indicating a connection between the product and that company, would be sufficient. It is not necessary that the name or the writing must always be a brand name or a trade name in the sense that it is normally understood. The exemption is only to such parties who do not associate their products with some other person. Of course this being a Notification under the Excise Act, the connection must be of such a nature that it reflects on the aspect of manufacture and deal with quality of the products. No hard and fast rule can be laid down however it is possible that words which merely indicate the party who is marketing the product may not be sufficient. As we are not dealing with such a case we do not express any opinion on this aspect.

The Supreme Court noted that in the case of Royal Hatcheries Pvt. Ltd. v. State of A.P.[1994 Supp (1) SCC 429] the Court had already held that words to the effect “that is to say” qualify the words which precede them. In this case also the words “that is to say” qualify the words “brand name or trade name” by indicating that these terms must therefore be understood in the context of the words which follow. The words which follow are of wide amplitude and include any word, mark, symbol, monogram or label. Even a signature of an invented word or any writing would be sufficient if it is used in relation to the product for purpose of indicating a connection between the product and the other person/company. It is thus clear that the Tribunal’s decision in Nippa Chemicals (Pvt.) Ltd.’s case is clearly erroneous and will stand overruled.

In the case of Collector of Central Excise, Goa v. Christine Hoden (I) Pvt. Ltd.[1999 (113) E.L.T. 591] the question was whether the use of the word “comfit” with the name “Christine Hoden London, Rome Stockholm” would disentitle the Respondents therein from the benefit of the Notification. It was however found, as a matter of fact, that the word “comfit” was owned by the Respondent. It was on that basis held that the Respondents therein were entitled to the benefit of Notification. To this extent the Tribunal was right. However, the Tribunal has unnecessarily also gone on to comment as follows: “Mere indication of the foreign company’s name does not create any association in the course of trade between the goods and the foreign company.”

There would be no purpose in indicating the foreign company’s name in relation to the product except to indicate a connection between the product and the foreign company. Therefore, to this extent, the Tribunal is not correct.

The Supreme Court further noted that in the case of Commissioner of Central Excise, Hyderabad v. Sarat Electronics [2004 (167) E.L.T. 404] the question was whether the Respondents (therein) were entitled to benefit of Notification No. 1/93-C.E., which Notification was identical to the one under consideration by us. The Respondents therein used the words “SARAT” in bold letters following which the words “A quality product from ITL group” and “Technical licencee of ITL” were also printed.

In view of the Supreme Court the Tribunal was clearly erroneous. The Explanation makes it clear that it need not be a trade name or brand name as commonly understood. Any name or mark or writing, even the name of a company is sufficient so long as it is used for the purpose of indicating a connection between the product and that Company. The use of the words “A quality product from ITL group” clearly showed an intention to show a connection between the product and the ITL group. These words indicated that the quality of the product was the same as that of a product of ITL group. If use of such words did not disentitle a party from the benefit of the Notification, we fail to understand what sort of words would disentitle a party. The decision of the Tribunal in this case is clearly erroneous and will stand overruled.

Accordingly, the Supreme Court set aside the impugned Judgment and restored the Order passed by the Commissioner (A).

However, the Commissioner has also imposed penalty in a sum of Rs. 10,00,000/- under Rule 173Q of the Central Excise Rules. While the conclusions of the Commissioner that the Respondents were not entitled to the benefit of the Notification are correct, the fact still remains that the Tribunal has in a number of matters given an interpretation as understood by the Respondent. It therefore cannot be said that the Respondents could not have taken the view they did. It cannot be said that they could never have concluded that they were entitled to the benefit of the Notification. The Supreme Court therefore felt that this is a case where penalty should not be imposed. Hence they deleted the imposition of penalty on the Respondents.

It was held that in the case of Superintendent of Central Excise v. D.C.I. Pharmaceuticals Pvt. Ltd, the Supreme Court found that the Court refused to interfere because there was an earlier Judgment which had not been challenged in the case of concerned assessee itself.

Decision: - Appeals disposed off accordingly.

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