The penalty cannot be imposed on bonafide interpretation of exemption notification?

PJ/Case Laws/2012-13/1201

Case:-PRIYA BAKERS (P) LTD. V/S UNION OF INDIA

Citation:- 2012 (282) E.L.T. 190 (Chhattisgarh)

Issue:- The penalty cannot be imposed on bonafide interpretation of exemption notification?
Brief Facts: - The appellant is a private limited company having its small scale industry unit at Urla, Raipur. It is manufacturing biscuits in the brand name of "Priya Glucose V". Its turnover during 1996-97 was Rs. 2,14,405/-. Since they did not cross the limit of Rs. 30 lacs in 1997-98, as envisages under Notification No. 16/97-C.E., dated 1-4-1997, they did not apply for the registration under the Central Excise Law. They were served with the show cause notice dated 11-3-1998, proposing recovery of leviable excise duty for removing the excisable goods - biscuits - from its premises during the period from 11-3-1997 to 12-9-1997; confiscation of biscuits in terms of Rule 173Q of Central Excise Rules, 1944; imposition of penalty under the provisions of Rules 9(2), 52A, and 173Q of the Rules; imposition of interest under Section 11A of the Act, and recovery of mandatory penalty under Section 11AC of the Act equivalent to the amount of duty not paid etc. The assessee preferred an appeal under Section 35G of the Central Excise Act, 1944 against the impugned order of Annexure A/1 passed by the CESTAT.
The appellant replied to the aforesaid notice and stated that the Firm was entitled for exemption under the Notification No. 16/97-CE dated 1-4-1997, as being a small scale industry they did not cross the limit of Rs. 30 lacs, their brand name is "Priya Glucose V", and not "Priya" which is owned by M/s. Priya Food Products Ltd., S.M. Bose Road, Agarpara, Distt. North 24, Parganas, West Bengal, and thus, they are eligible for exemption and the proceedings, proposed in the show cause notice, be dropped.
The Additional Commissioner, Central Excise, Headquarters, Raipur, dropped the proceedings with a conclusion as under:
“5.5 In view of the foregoing, it can be easily concluded that commonness of one of the Directors and using of similar brand name are not sufficient grounds to club the value of clearance of two units when there is nothing on record to indicate presence of mutuality of interest. Again the notice has contended that their brand name is "Priya Glucose V" and not "Priya" of M/s Priya Food Products. For once, even if it is conceded that they are using the same brand name, then the only beneficiary will be M/s. Priya Bakers and no way it will benefit M/s. Priya Food Products. Further the show cause notice itself alleges that M/s. Priya Bakers are not formally authorized to use the brand name "Priya". Thus it will be a long drawn conclusion to say that they are using the brand name of M/s. Priya Food Products. Using another's brand name means that the user must either be paying royalty to brand owner or they must be manufacturing the goods for the brand owner. The show cause notice fails to prove any of these. Therefore, the value of clearances of M/s. Priya Bakers is not clubbable with the value of clearances of M/s. Priya Food Products, 24 Pargana, and West Bengal and therefore, benefit of Notfn. No. 16/97, dated 1-4-1997 is admissible to the notice.
However, the appeal preferred by the Excise Department was allowed by the Commissioner (Appeals-I) and order passed by the adjudicating authority was set aside, Central Excise duty amounting to Rs. 2,30,102/- was confirmed, an equivalent amount of penalty under Section 11AC was also imposed and the seized goods was confiscated, and redemption fine amounting to Rs. 10,000/- was imposed in lieu of confiscation. The appeal preferred by the assessee has been further dismissed by the CESTAT by the impugned order. Hence the appeal has been filed before High Court.
Appellant’s Contention: - The appellant contended that as per Notification No. 16/97-CE dated 1-4-1997, they are entitled for exemption benefit. The Commissioner (Appeals) as well as the CESTAT failed to appreciate that there was no evidence to show any connection between them and M/s. Priya Food Products Ltd, West Bengal, or that they was trying to take advantage of the trade name/brand name of some other company.
Respondent’s Contention: - The respondent argued that the Commissioner (Appeals) as well as the CESTAT, after examining the labels of the goods manufactured by the appellant as well as the goods manufactured by other manufacturers, have recorded a finding of fact that "Priya" is written in the same way as written on the goods manufactured by M/s. Priya Food Products Ltd. The CESTAT, relying upon the decision of the Supreme Court in the case of CCE, Chandigarh-I v. Mahaan Dairies - (2004) 11 SCC 798 = 2004 (166) E.L.T. 23 (S.C.) held that in such circumstances, the manufacturer is not entitled for benefit of exemption of notification.
The above view has been further reiterated by the Supreme Court in the matters of CCE, Trichy v. Rukmani Pakkwell Traders - (2004) 11 SCC 801 and Unison Electronics Private Limited and Another v. CCE, Noida - (2009) 4 SCC 647 = 2009 (235) E.L.T. 206 (S.C.).
Reasoning of Judgment: - The Hon’ble High Court held that on Perusal of the impugned order as also the order-in-original and the order passed by the learned Commissioner (Appeals) it was found that the CESTAT, on comparison of labels of the goods manufactured by the appellant and the goods manufactured by other manufacturers, has observed that "Priya" is written in the same way on the goods of the appellant as written on the goods manufactured by M/s. Priya Food Products Ltd., and confirmed the finding of the Commissioner (Appeals), by relying upon the decision of the Supreme Court in the matter of Mahaan Dairies (supra). This conclusion of the CESTAT confirming the finding of the Commissioner (Appeals) is essentially factual. The identical issue came up for consideration before the Supreme Court in the matters of Mahaan Dairies and Rukmani Pakkwell Traders (supra). Referring to the notification, it was held in Mahaan Dairies (supra) that in order to claim benefit of a notification, a party must strictly comply with the terms of the notification. If on wording of the notification, the benefit is not available then by stretching the words of the notification or by adding words to the notification benefit cannot be conferred. The Tribunal has based its decision on a decision delivered by it in Rukmani Pakkwell Traders v. CCE. In case also they hold that the decision of the Tribunal is unsustainable. It is accordingly set aside. Similar issue again came up for consideration before the Supreme Court in the matters of Unison Electronics Pvt. Ltd. (supra), and the principles of law laid down in the aforesaid judgments have been reiterated. The facts of the above cited cases are substantially similar to the facts of the present case. Thus, in view of the above well-settled principles of law, they held that the CESTAT has not committing any illegality of infirmity in imposing/confirming penalty on the appellant and denying the benefit of exemption notification to the appellant.
Decision: - Appeal was dismissed.

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PJ/Case Laws/2012-13/1201

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