Brand name exclusion from small scale exemption lacked rational nexus and was struck down under Article 14.

A fiscal exemption classification under the small scale industry scheme was held to be arbitrary where it denied benefit solely because goods bore the purchaser's brand name. Applying Article 14, the Court found no rational nexus between brand-name affixation and the object of the exemption notifications, since the manufacturing unit remained the same and the character of manufacture was unchanged. Notification No. 223/87-Central Excise was therefore invalid to the extent it withdrew exemption on that basis, and the assessees remained entitled to the benefit of Notification No. 175/86-C.E.

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Issues: Whether Notification No. 223/87-Central Excise dated 22-9-1987, which denied small scale industry exemption where goods were affixed with the purchaser's brand name, was discriminatory and violative of Article 14 of the Constitution of India, and whether the petitioners remained entitled to the benefit of Notification No. 175/86-C.E. dated 1-3-1986.

Analysis: The exemption scheme under Notification No. 175/86-C.E. treated the manufacturer as the small scale unit even where goods bore another's brand name, and the later amendment under Notification No. 223/87-Central Excise created a separate class by withdrawing exemption only from units affixing the purchaser's brand name. The classification was held to have no rational nexus with the object of the exemption notifications. Brand name affixation did not alter the character of manufacture or provide a valid basis to deny exemption, and the differential treatment was therefore arbitrary. The Court applied the equality principle under Article 14 and upheld the view that legislative or delegated classification must rest on a rational basis connected to the object sought to be achieved.

Conclusion: Notification No. 223/87-Central Excise dated 22-9-1987 was invalid to the extent it denied exemption on the basis of affixation of the purchaser's brand name, and the petitioners were entitled to the benefit of Notification No. 175/86-C.E. dated 1-3-1986.

Final Conclusion: The writ petition was allowed and the petitioners obtained the excise exemption claimed under the earlier notification, with the discriminatory amendment not being applied against them.

Ratio Decidendi: A classification for fiscal exemption must have a rational nexus with the object of the exemption, and affixation of a purchaser's brand name on goods, by itself, cannot furnish a valid basis to deny small scale industry exemption when manufacture remains by the same unit.

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