2025 (7) TMI 1778 - AT - Central Excise

Pharma products sold under others' brand names don't get SSI exemption; penalty rules clarified under Section 11A(4) and 11AC

M/s Vitamax Health Care Pvt. Ltd. Versus Commissioner (Appeals), CGST, Customs & Central Excise, Indore (M. P.).

The CESTAT upheld that pharmaceutical preparations sold under brand names of others do not qualify for SSI exemption under N/N 8/2003-CE. The appellant's ... SSI Exemption - use of brand name or trade name of another person - use of brand name or generic names - Pharmaceutical preparations - invocation of extended period of limitation - levy of penalty. HELD THAT:- It is not very difficult to determine if the goods bear the brand name or not in case of pharmaceuticals because of the nature of the industry. Pharmaceuticals are sold as bulk drugs or as preparations. The appellant manufactured preparations. Pharmaceutical preparations are sold either by their generic names (e.g.; paracetamol) or brand names (e.g.; crocin, Dolo). While the generic name is the scientific name of the drug and is universally used, brand names are given by various companies to identify their products and associate them with their company. Every invoice of a pharmaceutical manufacturer shows under what name the goods are sold. In his OIO, the Assistant Commissioner examined every single invoice and recorded the products which were sold along with details. Clearly, they were sold on brand names and not on generic names. Another submission of the appellant is that there is no evidence that the brand names belonged to the customers and in some cases, the products with the same brand names were sold to more than one customer. Again, it is found that the brand name does not have to belong to the customer for the goods to be excluded from the benefit of N/N. 8/2003-CE. It is sufficient if there is a brand name and it is of some other person and not of the manufacturer. Extended period of limitation - HELD THAT:- It is found that the appellant had not taken central excise registration nor filed any returns. If the appellant knew about the N/N. 8/2003-CE which entitled him to the exemption, it is evident that he would have read it and it is unthinkable that he was not aware that goods bearing the brand name of any other person were not covered by the exemption. The appellant did not come clean about its activities and it is the investigation which showed that the appellant had been manufacturing goods with brand names of others and not paying duty on them. Under these circumstances, it is found that extended period of limitation under section 11A(4) was correctly invoked. Levy of penalty - HELD THAT:- The penalty under section 11AC is a mandatory penalty imposable on the assessee if the non-payment or short payment of duty is due to fraud or collusion or wilful misstatement or suppression of facts with an intent to evade. In short, on the same grounds on which the extended period of limitation can be invoked under section 11A, penalty under section 11AC is imposable. Since it is found in favour of the Revenue on the question of extended period of limitation, the penalty under section 11AC on the assessee also upheld - Penalty under Rule 27 is imposable where no other penalty is provided. Since it is found that the appellant was liable to penalty under Section 11AC of the Act, there are no reason to also uphold penalty under Rule 27 on the assessee. This deserves to be set aside. As far as the penalty under Rule 26 on Shri Jain is concerned, it is found that this Rule provides for penalty under two situations - (a) some goods have been rendered liable for confiscation and the person has done or omitted something which rendered the goods liable for confiscation; and (b) the person issued some invoices without supplying goods so as to enable the recipient to avail ineligible CENVAT credit. There is no confiscation of goods in this case nor is there any allegation of issue of invoices without supplying goods. Therefore, no penalty under Rule 26 should have been imposed on Shri Jain. The penalty imposed on Shri Jain under Rule 26 needs to be set aside. Appeal allowed in part. ISSUES: Whether goods manufactured bearing the brand name or trade name of another person are eligible for exemption under Notification No. 8/2003-CE.Whether the absence of brand name registration with the patents department affects the applicability of exemption under Notification No. 8/2003-CE.Whether permission or licence from the brand name owner is necessary for determining exemption eligibility under Notification No. 8/2003-CE.Whether the extended period of limitation under section 11A(4) of the Central Excise Act, 1944 can be invoked in the facts of the case.Whether penalty under section 11AC of the Act and Rules 26 and 27 of the Central Excise Rules, 2002 are justified and correctly imposed.Whether goods exempt under Notification No. 12/2012-CE (e.g., chloroquine preparations) are liable to excise duty demand.Whether penalty under Rule 26 is sustainable in absence of confiscation or issuance of invoices without delivery of goods. RULINGS / HOLDINGS: Goods bearing the brand name or trade name of another person, 'whether registered or not,' are not eligible for exemption under Notification No. 8/2003-CE as per paragraph 4 of the notification.The lack of registration of brand names with the patents department does not affect the applicability of Notification No. 8/2003-CE; the exemption excludes goods bearing unregistered brand names of others as well.Permission or licence from the brand name owner is not a prerequisite for determining exemption eligibility; manufacturing goods with another's brand name without licence does not confer exemption under Notification No. 8/2003-CE.The extended period of limitation under section 11A(4) was correctly invoked due to suppression of facts and manufacture of goods with brand names of others without paying duty.Penalty under section 11AC of the Act is mandatory where non-payment or short payment of duty is due to 'fraud or collusion or wilful misstatement or suppression of facts or contravention' with intent to evade duty, and is upheld in this case.Penalty under Rule 27 of the Central Excise Rules, 2002 is not applicable where penalty under section 11AC is imposed; thus, penalty under Rule 27 on the assessee is set aside.Penalty under Rule 26 is unsustainable absent confiscation of goods or issuance of invoices without delivery; penalty under Rule 26 imposed on the director is set aside.Excise duty demand does not apply to preparations of chloroquine as they are exempted under Notification No. 12/2012-CE; demand was correctly computed excluding such goods.Demand and penalties related to goods cleared under the brand name 'Ranemax', which belongs to the manufacturer, are set aside. RATIONALE: The Court applied the provisions of Notification No. 8/2003-CE, 1.3.2003, particularly paragraph 4, which excludes exemption for goods bearing brand names of others, regardless of registration status, relying on the plain language of the notification.Section 11A(4) of the Central Excise Act, 1944, allowing extended period of limitation, was invoked due to suppression of facts and non-payment of duty on goods bearing others' brand names, consistent with statutory intent to prevent evasion.Section 11AC of the Act imposes mandatory penalties where duty evasion involves 'fraud or collusion or wilful mis-statement or suppression of facts,' which was found applicable on the facts established by the investigation and invoices examined.Rule 26 and Rule 27 penalties under the Central Excise Rules, 2002 were interpreted strictly; Rule 27 penalty is inapplicable when section 11AC penalty is imposed, and Rule 26 requires confiscation or issuance of false invoices, neither of which was established.The Court emphasized that exemption notifications are to be strictly construed and that the burden of proving eligibility for exemption lies on the manufacturer, who failed to demonstrate that goods bearing brand names of others qualified for exemption.The Court recognized that the absence of license from brand owners does not affect the applicability of exemption provisions, distinguishing between legal disputes over brand use and statutory exemption eligibility.The Court remanded the matter for recomputation of duty, interest, and penalty after excluding goods under the manufacturer's own brand name and those exempt under Notification No. 12/2012-CE, reflecting a partial doctrinal adjustment in relief granted.