Proof for establishing clandestine removal

Case: COMMISSIONER OF C. EX., MUMBAI Versus KALVERT FOODS INDIA PVT. LTD

Citation: 2011 (270) E.L.T. 643 (S.C.)

Issue:- Proof of Clandestine removal – whether retracted statement of Managing Director be considered as proof.

SSI exemption – whether available when unregistered trademark used by SS unit?

Brief Facts:- Respondent No. 1 - company was engaged in the manufacture of P & P Food Products, such as, assorted jams, pickles, squashes, cooking sauces, chutneys, syrups, synthetic vinegars etc. The company was also trading in sugar, salt and pepper by packing into small packs. Respondent No. 2, Shri Yunus A. Kalvert is the Managing Director of Company.

On 22-11-2000, on receiving information that respondents were indulging in clandestine removals of its finished P & P food products without payment of Excise Duty, Revenue Authorities searched their factory premises. Searches were also carried out at the premises of distributors/wholesale dealers/ traders of respondent no. 1 situated in and around Mumbai and other connected premises.

During search, several incriminating documents, articles and records were found. A huge quantity of finished goods was also found lying in the factory premises. Further, it was also noticed that there was one tempo parked inside the factory premises loaded with cartons containing excisable goods manufactured by Respondent and was about to leave the factory premises. On inquiry from the driver, it was found that the driver was not in possession of any documents relating to the goods loaded in the tempo. On inspection of invoices, it was also found that there were two invoices with the same serial number, in respect of different products. The officers took stock of the goods in the factory and it was found that the finished goods lying in the factory were in excess of the stock shown and accounted for in the RGI Register.

Specific allegation against respondent was that the excess goods were founding the factory than what were entered into RGI register, valued at Rs. 7,33,668/- and the same was seized.

In search at the premises of the dealers/ traders, the goods found of value of Rs. 6,22,946/- were also seized on the ground that they were not duty paid.

Similarly, during search on 28-11-2000 at the premises of M/s. Relish Trading Company (in short 'RTC')/the selling agent of Respondent-company, M/s. Sai Krupa, a partnership firm of the Managing Director of Respondent No. 1; and at the premises of sole proprietor of RTC and records pertaining to sale and purchase of goods lying in the offices of these companies, were seized. It revealed that, in fact, the respondent-company had cleared jams, syrup, sauces, pickles, etc., from the factory premises to the above said selling agents without payment of duty, but had shown those clearances as that of sugar in the invoices and had also cleared the branded goods to dealers/traders.

After completion of entire process, show cause notice was is issued to the Company and its Director. Notices were also issued to the proprietor of M/s. RTC, its partner and M/s. Sai Krupa Corporation. Duty was demanded and penalty was also proposed to be imposed on the company.

The Adjudicating Authority held that respondent with the connivance of Respondents 2 and 3 have deliberately attempted to pass off excisable goods as non-excisable goods with an intent to evade payment of excise duty. Consequently, the Commissioner confirmed the duty demand and ordered confiscation of seized goods and also imposed penalty equivalent to the amount of duty on the company and also directed to pay interest on excise duty etc.

Being aggrieved, respondents filed appeals before the Tribunal. The Tribunal set aside the findings of the Commissioner holding that respondents were not guilty of clandestine removal of excisable goods and also that goods of respondent no. 1 were not excisable inasmuch as they were allegedly not packed in containers under a brand name and therefore not required to pay any excise duty. The Tribunal has also recorded a finding that the respondents never cleared the goods in question under any brand name and being unbranded they were chargeable to NIL rate of duty.

Against the said decision, Revenue is in appeal before the Supreme Court.

Appellant’s Contentions:- Appellant relied upon the finding of Adjudicating Authority regarding recovery of unaccounted finished excisable goods from 8 different dealers in and around Mumbai and regarding creation of firms dealing in similar products from same premises by the same persons having no capital or machinery and the fact that there was only one tempo for transporting goods from factory to buyer and that there have been use of parallel sets of invoices of same serial numbers supported by recovery of a serially numbering machine and blank invoices without any printed serial numbers.

Respondent’s Contention:- Respondent submitted that although the statements of Managing Director of the Company and other persons were recorded during the course of judicial proceedings but the same were retracted statements, and therefore, they cannot be relied upon.

Respondent relied upon the definition of “Brand name” given in the judgment of Tarai Food Ltd v/s Commissioner of Central Excise, Meeru-II [2007 (8) SR 442 (SC)] and it was submitted that “New Improved Quick Frozen French Fries” was not held to be brand name and therefore, the brand name of respondent-company “Kalvert” was a “House name” and not “Brand name”.

Reasoning of Judgment:- The Supreme Court perused the Excise Tariff of the years 1996-97, 1997-98 and 1998-99 and noted that for the year of 1996-97, the relevant entry 20.01 and sub-heading 2001.00 under Chapter 20 relating to preparations of vegetables, fruits, nuts or other parts of plants; prescribed "Nil" rate of duty for the goods mentioned in this sub-heading 2001.00.

In the year 1998-99, for the relevant entry, 8% excise duty was prescribed for the goods mentioned under sub-heading 2001.10. And for Chapter 21 (incorporating rates of Central Excise & Service Tax as in operation on 2nd June, 1998) relating to "Miscellaneous Edible Preparations" prescribed 8% excise duty for the goods mentioned under sub-heading 2103.10.

That the Sub-heading 2108.20 prescribes 18% excise duty for "Edible preparations, not elsewhere specified or including Sharbat" under Chapter 21. Sub-heading 2203.00 also prescribes 18% excise duty for "Vinegar and substitutes for vinegar obtained from acetic acid" under Chapter 22.

The Supreme Court noted that during the search operation carried out by the appellants several incriminating articles were found with brand name "Kalvert Anchor" or "Kalvert" in assorted forms which were manufactured by M/s. Kalvert Foods (I) P. Ltd. During the course of investigation statement of Shri Yunus A. Kalvert, Managing Director of respondent company was recorded under Section 14 of the Central Excise Act, 1944, who inter cilia deposed that the respondent company was engaged in the manufacture of P & P food products like jams; pickles; syrups; vinegars etc. bearing their brand name "KALVERT ANCHOR" and the other Directors of the company viz. Shri Akbar Ali Kalvert, his father and Shri Irshad Y. Kalvert.

With regard to argument of not placing reliance on the statement of Managing Director, the Supreme Court held that the statements were recorded by the Central Excise Officers and they were not police officers. Therefore, such statements made by the Managing Director of the Company and other persons containing all the details about the functioning of the company which could be made only with personal knowledge of the respondents and therefore could not have been obtained through coercion or duress or through dictation. The Supreme Court saw no reason why the aforesaid statements made in the circumstances of the case should not be considered, looked into and relied upon.

The Supreme Court opined that it is established from the record that the aforesaid statements were given by the concerned persons out of their own volition and there is no allegation of threat, force, coercion, duress or pressure being utilized by the officers to extract the statements which corroborated each other. Besides, the Managing Director of the Company on his own volition deposited the amount of Rs. 11 lakhs towards excise duty and therefore in the facts and circumstance of the present case, the aforesaid statement of the counsel for the respondents cannot be accepted. This fact clearly proves the conclusion that the statements of the concerned persons were of their volition and not outcome of any duress.

The Supreme Court noted the statement of Managing Director of the Company where he had admitted the fact of clandestine clearance of excisable goods and therefore has voluntarily come forward to sort out the issue and to pay the Central Excise duty liability and that he has paid Central Excise duty voluntarily under TR6 Challans totaling to Rs. 11,00,000/- on various dates. Similarly statement of Miss Vinita M. Khanolkar - proprietor of RTC was also recorded under Section 14 of the Central Excise Act, 1944 along with Shri Shekhar Mogaviera - Production Supervisor of M/s. Kalvert Foods India Pvt. Ltd. Statements of various other persons were also recorded under Section 14 of the Central Excise Act.

With regard to evidence the Supreme Court noted that the Adjudicating Authority came to the conclusion that the respondent no. 1 with the connivance of respondent nos. 2 and 3 have been deliberately clandestinely removing excisable goods as non-excisable goods with intent to evade payment of excise duty. However, the aforesaid judgment and order passed by the adjudicating authority, namely, the Commissioner of Central Excise, Mumbai, was set aside by the Tribunal holding that neither the tempo nor the goods loaded therein could be legally seized and confiscated when the relevant documents were shown to the officers at the spot. It was also observed by the Tribunal that it could be said that an attempt was being made to clear those goods in tempo in a clandestine manner, when the company representative produced the invoices and other relevant documents in respect thereof. These findings were arrived at by the Tribunal apparently ignoring the materials which are considered herein- before and referred to.

There is no reference about the statement of Miss Vinita M. Khanolkar - sole proprietor of M/s. RTC, in the judgment of order passed by the Tribunal, when she was examined under Section 14 of the Central Excise Act, she had clearly stated that her company bought large quantities of excisable goods from the respondent company and in turn sold them to its distributors. She also confirmed the documents seized from her residence which included correspondence with their customers regarding promotion of the "Kalvert brand" products.

The Supreme Court held that the Tribunal also failed to consider and discuss the specific allegation of Revenue that respondent no. 1 had maintained two sets of computerized commercial invoices, one for excisable products like jams, sauce, syrup etc. and the other for non-excisable goods such as salt, sugar and pepper which were marked as L series. It has also come on evidence that L series sales for the period 1996-1999 was only made to RTC in huge quantities and that in the guise of selling salt, sugar and pepper, the respondent No. 1 was in fact selling excisable goods to RTC. These facts have been found and taken note of by the Adjudicating Authority but the same were totally ignored by the Tribunal.

The Supreme Court held that from evidence on record, it is clear that the Company was guilty of clandestine removal of excisable goods as non-excisable goods in order to evade excise duty. It is proved from the fact that the Managing Director voluntarily came forward to sort out the issue and to pay the Excise duty and paid Excise duty to the extent of Rs. 11,00,000/- on different dates. The aforesaid act of the respondent no. 1 was very material and relevant but the same was also ignored by the Tribunal while arriving at wrong conclusion.

Therefore, the issue with regard to the clandestine removal of excisable goods as non-excisable goods by the respondent from their premises and selling to its dealers and distributors is clearly proved from the materials on record.

In view of the aforesaid position and since there was clandestine removal of excisable goods, the period of limitation in the present case would have to be computed from the date of their knowledge, arrived at upon raids on the premises. In the present case therefore the extended period of limitation would be available as there was suppression of facts by the respondents with the intention to evade the central excise duty inasmuch as they did not account for the manufactured goods in the prescribed record.

The Supreme Court held that the finding of the Tribunal that no goods were sent under any brand name is unacceptable. The Managing Director of the respondent company has himself stated that they have been selling their products under the brand name "Kalvert" and on the basis of the said statement and other record found on the articles sold by the respondent company the aforesaid finding of the Tribunal is wrong and perverse.

The finding of Tribunal with regard to non-use of brand name and that the “Kalvert” could be held as “House Mark”, the Supreme Court held that the said findings were totally wrong and recorded in violation of law of Trade Marks.

With regard to respondent’s submission regarding “New Improved Quick Frozen French Fries”, it was held that the same was a descriptive word and the same could not have been termed and coined either as a “house name” or a “brand name” under any circumstances. It was held that there was no dispute about the law laid down in the case of Tarai Foods. The Supreme Court referred to the decision in Astra Pharmaceuticals Pvt Ltd v/s Collector of Central Excise, Chandigarh [1995 (75) ELT 214 (SC)] which was relating to pharmaceuticals products. The manner and scope of “Brand name” and distinction between ‘House mark’ and “Product mark/Brand name” brought out in this judgment was noted.

It was noted that in the book of "Trade Marks" by Sarkar, the distinction between the expressions "House mark" and "Product mark" or "Brand name" has been clearly brought out by way of reference to the decision in Astra Pharmaceutical Pvt. Ltd. It is stated therein that "House mark" is used on all the products of the manufacturer and that it is usually a device or a form of emblem of words or both. It was also pointed out that for each product a separate mark known as a "Product mark" or "Brand name" is used which is invariably a word or combination of word and letter or numeral by which the product is identified and asked for. It was also stated that in respect of all products both the "Product mark" and "Brand name" would appear side by side on all the labels, cartons etc. and that the "House mark" is used generally as an emblem of the manufacturer projecting the image of the manufacturer, whereas "Brand name" is a name or trade mark either unregistered or registered under the Act.

Therefore, it is not necessary that "Brand name" should be compulsorily registered. A person can carry on his trade by using a "Brand name" which is not even registered. But in violation/infringement of trade mark, remedy available would be distinctly different to an unregistered brand name from that of remedy available to a registered brand name.

It was held that unfortunately, the Tribunal did not consider and properly appreciate the apparent distinction between the two distinct expressions i.e. "House mark" and "Brand name" and thereby proceeded to set aside the well-written judgment passed by the Commissioner (Appeals) who has recorded his reasons giving cogent basis for his reasoning.

Reliance was placed on the distinction between ‘Product mark’ and ‘House mark’ given in the book “Law of Trade Marks” by K. C. Kailasam and Ramu Vedaraman.

It was held that in view of above discussion, it is clear that what was being used by the respondent under the expression "Kalvert" was a "Brand name" and not a "House mark" as sought to be alleged by the respondent and has wrongly accepted by the Tribunal. Therefore, the articles of assorted jams, pickles, squashes, cooking sauces, chutneys, syrups, synthetic vinegars etc. manufactured and sold by the Respondent under a brand name "Kalvert" were liable to be charged for excise duty at the rate prescribed in the Excise Law.

In the end it was held that the Tribunal committed manifest error in coming to its conclusion and therefore, impugned order is set aside and the order passed by the Commissioner (Appeals) is restored.

Decision:- Appeals allowed accordingly.

Comment:- This is very detailed decision of Apex Court wherein the heavy reliance is placed on confessional statement given by the appellant. Moreover, distinction is drawn between “house mark” and “brand name”. This landmark decision will be of great help to the department and will show the path for future cases.

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PJ/Case Laws/2011-12/1350

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