Whether the appellant is liable to be denied of Small Scale Industries exemption for selling the mehandi powder/henna powder with other’s person Brand name or Trade name?

CASE STUDY
M.L.T SONS (Order In Appeal No. 1422-1423(CRM) CE/JDR/2018 dated 28.12.2018

Prepared By:-RISHABH BHANSALI

Introduction:- The compendious of the case is that , M/s MLT Sons, (hereinafter referred to as the appellant) is engaged in packing/manufacturing of Mehandi/Henna Powder. A Show Cause Notice No. V(CEX)SCN/SEIZURE/MLT/PALI/51/2016 dated 12.08.2016 was issued to the appellant alleging that the appellant intended to clear the Mehandi/Henna Powder without registration and without any duty payment thereby contravening the provisions of section 6 of the Central Excise Act, 1944 and Rule 9, 10, 11 & 12 of the Central Excise Rules, 2002. The factory premises of the appellant was also visited by the Central Excise Officers on 19.02.2016 whereby on belief that the appellant was engaged in packing/manufacturing of mehandi powder/henna powder mixed with other ingredients and bearing brand name or trade name of another person, without applying for Central Excise Registration with intent to evade payment of duty by way of clandestine removal, the finished goods and packing material of the appellant was also seized.

Relevant Legal Provisions:

Rule 9 Central Excise Rules,2002
Rule 10 Central Excise Rules,2002
Section 6 of the Central Excise Act,1944
Section 11AB of the Central Excise Act,1944
Rule 25 of the Central Excise Rules,2002

Issue Involved: Whether the appellant is liable to be denied of Small Scale Industries exemption for selling the mehandi powder/henna powder with other’s person Brand name or Trade name?

Brief Facts:It was mainly pleaded that they were entitled for small scale industries exemption under notification no. 08/2003 dated 01.03.2003. Furthermore, they intended to export their product and the trade mark used by them did not belong to any Indian Company and so the benefit of small scale industries cannot be denied to them on the grounds that they have manufactured product in the brand name belonging to other person. Moreover, it was submitted that printing of packing material in the language of the country to which export was to be made is clear indicator of the fact that they intended to export the said seized goods and there was no malafide intention to evade Central Excise Duty. It was contended that merely because the trade mark ‘ Marco’ was not registered in the name of appellant cannot be a reason to conclude that manufacturing was done in the trade name of another person and the benefit of small scale industries exemption cannot be denied to them.
Subsequently, the appellant replied vide their letter dated 30.08.2017 against the SCN issued wherein it was stated that the seized goods were provisionally released and the said goods have already been exported on which there is no central excise duty liability. The appellant also enclosed documents indicating proof of export with the said letter and requested to withdraw the proceedings initiated against them.
Thereafter, the appellant vide their letter dated 12.09.2017 requested to release the bank guarantee as the goods seized were exported by them.

Thereafter, personal hearing in the matter was granted to the appellant on 30.08.2017. The authorized representative Shri H. Singhvi appeared on behalf of the appellant and reiterated submissions already made in the reply to the show cause notice. It was submitted that since the goods under reference have already been exported , the proceedings should be dropped.
The submissions of the appellant were not adhered to and the impugned order in original no. 09/2017-CE (DEMAND) dated 26.03.2018 was passed for confirming the allegations levelled in the impugned show cause notice. The central excise duty demand of Rs. 3,25,000/- was confirmed along with interest and penalty of Rs. 2,65,650/- under Rule 25 of the Central Excise Rules, 2002. The finished goods seized were also confiscated on redemption fine of Rs. 6,50,000/- and the packing material were also confiscated on redemption fine of Rs. 14,125/-.

Assessees Contention:

The impugned order in original confirming the central excise duty demand along with interest and penalty is wholly and totally erroneous and is liable to be set aside.

The impugned order has denied the benefit of small scale industries exemption available under notification no. 08/2003-CE dated 01.03.2003 on the grounds that they have manufactured goods using the brand name belonging to another person by placing reliance on para 4 of the notification which reads as follows:-

The exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases:

Where the specified goods, being in the nature of components or parts of any machinery or equipment or appliances, are cleared for use as original equipment in the manufacture of the said machinery or equipment or appliances by following the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001:

Provided that manufacturers, whose aggregate value of clearances of the specified goods for use as original equipment does not exceed rupees one hundred lakhs in the financial year 2002-2003 as calculated in the manner specified in paragraph 1, may submit a declaration regarding such use instead of following the procedure laid down in the said Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001;

Where the specified goods bear a brand name or trade name of-
The Khadi and Village Industries Commission; or
A State Khadi and Village Industry Board; or
The National Small Industries Corporation; or
A State Small Industries Development Corporation; or
A State Small Industries Corporation;

Where the specified goods are manufactured in a factory located in a rural area;
Where the specified goods are account books, registers, writing pads and file folders falling under heading 4820 or 4821 of the said First Schedule.
Where the specified goods are in the nature of packing materials and are meant for use as packing material by or on behalf of the person whose brand name they bear.

Explanation- For the purposes of this notification,-

‘brand name’ or ‘trade name’ means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which 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 that person.

The impugned order has held that since none of the exception as stipulated in para 4 of the notification apply to this case, the exemption granted in sub-para (a), (b) and (c) of para 4 to the notification no. 8/2003-CE dated 01.03.2003 is not available to the appellant to the extent of the goods manufactured and cleared using other’s brand name. In this regard, the appellant submits that the trade name ‘Marco’ exclusively belongs to them and is not used by any other Indian Company. Consequently, they cannot be considered to have used the trade name belonging to another person so as to disentitle them from claiming the benefit of small scale industries exemption. Moreover, since the allegation that they are using trade name belonging to another person has not been proved by the revenue authorities, they should be extended the benefit of small scale industries exemption. Furthermore, their act of filing application for registration of trade name ‘Marco’ in the name of appellant also indicates that they have not used trade name of any other person. As such, the benefit of the exemption should be granted to them. It is also pertinent to mention that since no other Indian Company has been pointed to having used the said trade name, the usage of said trade name cannot be considered as an indication for any connection with any other person as stated in Explanation reproduced above. Therefore, the allegation of the impugned order in original for denying the benefit of small scale industries exemption to them is not tenable and deserves to be quashed.

The impugned order has also placed reliance on the decision given by the Hon’ble Supreme Court in the case of CCE Vs Rukmani Pakkwell Traders [2004 (165) ELT 481 (SC)], CCE Vs Mahaan Dairies [2004 (166) ELT 23 (SC)], CCE Vs Bhalla Enterprises [2004 (1730) ELT 225 (SC)] and CCE Vs Emkay Investments (P) Ltd. [2004 (174) ELT 298 (SC)]. The impugned order has held that the Supreme Court has settled the law that SSI exemption is not available if the brand or trade name belongs to other person, even when the brand name or trade name belongs to other person for a different category of goods and the SSI exemption notification is not available even when the other person uses a brand name or a trade name, which consist of a ‘part’ of the brand name or trade name of other person. It is also alleged that the exemption contained in the notification no. 08/2003-CE dated 01.03.2003 is subject to conditions specified therein and it is settled position in law that the burden to prove fulfillment of conditions of the notification lies on the assessee. In this regard, the appellant submits that erroneous reliance has been placed on the above cited decisions rendered by the Supreme Court and the said decisions are clearly distinguishable in the present case.

CCE Vs Rukmani Pakkwell Traders [2004 (165) ELT 481 (SC)]:- It was held in this case that the benefit of exemption would be lost even in case unregistered trademark is used or a trademark registered for different category of goods is being used. However, it was also held that the benefit of exemption would not be denied in case where brand name registered in name of more than one person but in respect of different goods is used. The appellant submits that the benefit of exemption would be denied only in case brand name belonging to another person or indicating connection with another person is being used by the assessee which is not the present case. The appellant submits that they have already stated that the trade name ‘Marco’ is not being used by any other Indian Company and they have already applied for registration of the said trade name vide their application no. 3196701 dated 28.02.2016. The appellant submits that the revenue authorities have not established that the trade name ‘Marco’ pertains to another manufacturer whereas the appellant has clearly substantiated that the said trade name belongs to them. As such, they have not used trade name of any other person so as to disentitle them from claiming the benefit of small scale industries exemption.

CCE Vs Mahaan Dairies [2004 (166) ELT 23 (SC)]:- It was concluded in the relied upon case that use of trade name registered in the name of another company will disentitle the assessee from claiming the benefit of small scale industries exemption even if the said trade name pertains to altogether different category of product. It is pertinent to mention that it was also held that if and when the assessee get the trade name registered in their name, they would become entitled to benefit of small scale industries exemption. The appellant submits that they have repeatedly stated that the trade name ‘Marco’ does not belong to any other person and they have also filed application for registering the said trade name. Consequently, the allegation that they have used trade name of another person is not at all tenable and the impugned order in original denying the benefit of small scale industries exemption is not sustainable.

CCE Vs Bhalla Enterprises [2004 (1730) ELT 225 (SC)]:- The appellant submits that the impugned order has erroneously placed reliance on the above cited decision as the conclusion arrived in the case favour the contention of the appellant. It was held in this case that if same brand name is being used by different persons, then the benefit of exemption is not be denied merely because some other traders, even in a remote area of country had used the trade mark earlier. The assessee will be debarred only if it uses the trade name with intention to indicate some connection of the goods manufactured with the trade name belonging to another person. It was concluded that the exemption is available if brand name belongs to assessee himself although someone else may be equally entitled to such name. The appellant submits that in their case also they are using their trade name ‘Marco’ and they are not indicating any connection of their product with any other manufacturer with the same trade name. Moreover, the appellant does not know any other Indian Company using the trade name ‘Marco’ and the revenue authorities have also not been able to prove that any other manufacturer is using this trade name. Therefore, the benefit of the above cited decision should be extended in their case and the impugned order in original should be set aside.

CCE Vs Emkay Investments (P) Ltd. [2004 (174) ELT 298 (SC)]:-The Supreme Court concluded in the relied upon case that use of brand name belonging to another person along with own logo will also disentitle the assessee from claiming the benefit of small scale industries exemption. The appellant submits that in the present case, they are using their own trade name ‘Marco’ and the said trade name is not used by any other person. Consequently, the denial of benefit of small scale industries exemption to the appellant is unjust and improper and the impugned order in original deserves to be quashed.

The impugned order has placed reliance on the CRCL test report pertaining to Test Memo No. 41/2015-16 dated 19.02.2016 wherein it was held that the sample of henna powder comprises of additives but does not contain any extraneous dye. It is alleged that in view of the test result, the appellant is not eligible to claim benefit of exemption under notification no. 12/2012-CE dated 17.03.2012 as amended. In this regard, the appellant submits that they have already furnished sufficient evidences as regards the fact that the seized goods have been exported by them. Consequently, there is no excise duty liability on their part on the clearances of said seized goods but the impugned order is ignoring this vital fact. The appellant submits that it is immaterial whether they are extended the benefit of the exemption notification no. 12/2012-CE dated 17.03.2012 as amended because even otherwise, exports are not liable to excise duty. The appellant submits that since their aggregate turnover did not exceed Rs. 4 Crores in the preceding financial year, they were eligible for exemption upto aggregate value of clearances amounting to Rs. 1.5 Crores. The appellant reiterate that since they were within the threshold limit for exemption, they have not taken Central Excise Registration as they were not liable to pay any central excise duty on clearances made by them. Moreover, the appellant has already furnished the proof of export of goods seized and so there is no central excise duty liability on their part. As such, the test result will not alter the factual position that they are not liable to pay central excise duty on the clearance of henna powder. Therefore, the impugned order in original confirming the central excise duty demand by placing reliance on the CRCL test report is erroneous and deserves to be set aside.

The impugned order has also discussed in detail the classification of henna powder and has held that it is classifiable under chapter 33 of the Central Excise Tariff Act, 1985. The appellant submits that the discussion as regards classification of their product under chapter 33 or chapter 14 is irrelevant in the present case as they have not cleared their product in the domestic market and rather they have exported their product. The appellant submits that in case of domestic clearances, the dispute regarding classification of henna powder comes into picture if it is proved that the henna powder manufactured is not eligible for full exemption under serial no. 134 of the notification no. 12/2012-CE dated 17.03.2012 as amended. The appellant submits that they need not claim benefit of any exemption notification as they have exported their goods. Consequently, no excise duty is payable on the clearances made by them and the impugned order in original discussing the classification of the product which is irrelevant in the present case deserves to be quashed. Alternatively, it is submitted that since the turnover of the appellant is below the threshold limit of Rs. 1.5 Crores, they are eligible for small scale industries exemption and are not liable to pay any duty even if the classification of their product is confirmed under chapter 33 of the Central Excise Tariff Act, 1985.

The impugned order has also confiscated their seized goods and has imposed redemption fine for the same. In this regard, the appellant submits that when the seized goods were intended to be exported and have actually been exported, confiscation and imposition of penalty is not at all justifiable. The appellant submits that they have already furnished proof of export so the order of confiscation and imposition of redemption fine is not sustainable. In this regard, reliance is placed on the decision given in the case of K.K. LEATHER MART VERSUS COLLECTOR OF CENTRAL EXCISE, KANPUR [1994 (74) E.L.T. 596 (TRIBUNAL)] wherein it was held that confiscation of goods is not proper when the unit was producing goods entirely for export purposes and the seized goods after their provisional release were also exported. The synopsis of the case is produced for the sake of convenient reference as follows:-

Registration under Central Excise - Penalty and confiscation - Units producing goods entirely for export purposes exempt from licensing control under Central Excise - Unit in question manufacturing goods entirely for export - Even seized goods after their provisional release also exported -Declaration claiming exemption from licencing control not filed nor provisions of Rule 174A of Central Excise Rules, 1944 complied with - Non compliance with the procedural formalities is only a technical offence -Confiscation of goods and imposition of penalty set aside - Section 6 of the Central Excises and Salt Act, 1944 - Rues 173Q and 174A of Central Excise Rules, 1944.

[Kanpur Collectorate Trade Notice No. 118/85]. [paras 3, 4]
The appellant submits that in the present case also, at the time of seizure it was known that the goods were intended to be exported as the packing material contained description in foreign language also. Hence, when there was no requirement for taking registration under Central Excise Laws as the aggregate turnover of the appellant was below the threshold limit of exemption and ultimately the seized goods have been exported, the confiscation of goods and imposition of redemption fine is not at all tenable. Therefore, the impugned order in original should be set aside.

The appellant further submits that the imposition of penalty under Rule 25 of the Central Excise Rules, 2002 is not at all tenable as they have already justified that there is no central excise duty liability on their part as they have exported the seized goods and even otherwise, they are eligible for small scale industries exemption. Consequently, when there is no central excise duty liability, the question of confiscation of goods and imposition of penalty thereof is not at all sustainable. In this regard, reliance is placed on the decision given in the case of KAMKHIYA ALLOYS (P) LTD. VERSUS COMMISSIONER OF C. EX., LUCKNOW [2011 (267) E.L.T. 97 (TRI. - DEL.] wherein it was held that when there was no intention to clear goods without payment of duty, confiscation is not sustainable and so penalty under Rule 25 of the Central Excise Rules, 2002 is also not imposable. The head note of the case is produced for the sake of convenient reference as follows:-

Confiscation - Non-accountal of goods - No statutory record available on date of visit of officers, which produced after 15 days - Submission that factory closed earlier and production started on 5-9-2006 only while preventive officers visited on 7-9-2006 - Records not produced on visit as concerned clerk not available then - Nothing made out that assessee had intention to clear goods without payment of duty - Confiscation not sustainable as non-production of records satisfactorily explained - Rule 25 of Central Excise Rules, 2002. [para 4]

Penalty - Non-accountal of goods - Non-production of records satisfactorily explained - No allegation that assessee played fraud, collusion, suppression of facts etc. with intention to evade duty - Penalty not imposable - Rule 25 of Central Excise Rules, 2002. [para 4]
The appellant submits that since in the present case also there was no intention to clear goods without payment of duty as they were within the threshold limit for small scale industries exemption and moreover, they had exported the goods manufactured by them. As such, when there was no central excise duty liability, the question of evasion does not arise and the benefit of above cited decision should be extended to them. Therefore, the impugned order in original should be quashed and the appeal should be allowed.

Respondent Contentions and Judgment:-The Commissioner(Appeals) stated that the adjudicating authority has concluded that since the test report states that there are additives in the henna powder manufactured by the assessee, the benefit of exemption is not admissible. Moreover, the test reports clearly states that there was no extraneous dye, hence they are eligible for the benefit of exemption as per the clarification of Board vide DOF No. 334/15/2014-TRU letter dated 10.07.2014 that products like dye and cosmetics are not to be considered in the henna powder or henna paste. Test report clearly shows that as no extraneous dye was present in the henna powder manufactured by assessee, then they are entitled for the benefit of exemption notification no. 12/2013-CE dated 01.03.2013.
Since the goods manufactured are exempted, therefore question of confiscation of goods, duty demand, interest and imposition does not arise.

Conclusion:-Appeal has been passed in favor of appellant.

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