2010 (12) TMI 26 - SC - Central Excise

SSI exemption denied; corporate veil pierced and coded flavours held branded, disqualifying benefits under Notifications 175/86, 1/93

SC upheld the excise authorities' and Tribunal's orders denying SSI exemption to the appellant. It held that the appellant's clearances had to be clubbed ... SSI Exemption - Clubbing of value of production/clearances - Product Code Names as Brand Names - Entitlement to the benefit of Notifications 175/86 and 1/93 - undervaluation of flavours - differential duty - Piercing the corporate veil - notification require that the aggregate value of clearances of all excisable goods from a factory by one or more manufacturer should not exceed Rs. 150 lakhs and Rs. 200 lakhs respectively in the preceding financial year - Clubbing of value of production/clearances - Held that:- Directors of the appellant herein are among those who also serve on the Board of Directors in M/s PEL Ltd. and M/s PIL Ltd. It is also a fact on record that that M/s. PEL advanced an interest-free loan to the appellant, which was used for purchase of raw material by the latter (As evidenced from the balance sheet). Furthermore, the flavours being manufactured by the appellant were developed by M/SPEL at their R and D Lab at Bombay, whose services were at the disposal of the appellant. They were at one point of time were manufactured by M/s. PEL and admittedly owned by them. A careful scrutiny of the records therefore establish that both the aforesaid two basic features are overwhelmingly present in this case. Therefore it would likely seem that the purported fragmentation of the manufacturing process was but a mere ploy to avail of the SSI exemption. Piercing the corporate veil, when the notions of beneficial ownership and interdependency come into the picture, are no longer res integra. On this count, therefore, we have no hesitation whatsoever in affirming the order of the Tribunal, which was justified entirely through the precedent set by this Court. Whether the code names' used to denote soft drink flavours manufactured by the appellant could in fact be termed as brand names' and if so, whether they belonged to another entity -Held that:- We are not convinced by the argument of the appellant that this Explanation refers only to brand names' and cannot be used to determine whether code names, as used by the appellant in the present case, fall within the said category. The mere difference in nomenclature cannot take away the import of the Explanation from its applicability to the present case. The appellant herein manufactures flavours which fall within the ambit of the code names' and it is a fact on record that these codes are key to identifying the flavours which are commercially transferable. The ownership of the code names by M/s PEL Ltd. is clearly evidenced from the fact that these flavours were developed, researched and concocted by M/s. PEL Ltd in its research labs. That M/s. PEL Ltd. have given the brand names to the flavours and allowed them to be manufactured by the appellant, their holding company cannot hide the fact that M/s PEL Ltd were in fact, the owner of the code/brand names. This conclusion is fortified by the fact that it was M/s PEL Ltd who transferred the right of the codes when they were sold to M/s. Coca Cola Company in November, 1993. Since the appellant was not the owner of the said brand names in question, the Tribunal was justified in holding that the appellant will not be entitled to the benefit of Notification No. 175/86 and 1/93 for the products with code names G-44T, L-33A, T-IIPC, T-IIP, R-66M and K-55T which belonged to M/s PEL Ltd. Thus, we are of the firm opinion that the appeal bears no merit. Issues Involved:1. Clubbing of value of production/clearances of three companies for SSI exemption eligibility.2. Denial of SSI exemption based on the use of product code names as brand names.Issue-wise Detailed Analysis:Issue I: Clubbing of Value of Production/ClearancesThe primary contention was whether the value of production/clearances of the appellant and two other companies (M/s PEL Ltd. and M/s PIL Ltd.) could be clubbed for determining eligibility for SSI exemption under Notification No. 1/93 CE dated 28.02.93. The Tribunal's decision was based on the precedent set by the Supreme Court in *Modi Alkalies and Chemicals Ltd. and Ors*, which emphasized that Circular 6/92 had no relevance post the commencement of Notification No. 1/93. The Tribunal found that the companies were interdependent and interrelated through financial and management control, thus justifying the clubbing of clearances.The Tribunal concluded that the companies were effectively controlled by a common core of directors and financial resources, including an interest-free loan from M/s PEL to the appellant. The Tribunal's decision to club the clearances was affirmed by the Supreme Court, which noted overwhelming evidence of interdependency and financial control, thereby rejecting the appellant's claim for SSI exemption from 1.4.1993 to October 1993.Issue II: Denial of SSI Exemption Based on Product Code Names as Brand NamesThe second issue was whether the product code names used by the appellant could be considered brand names under Explanation VIII of Notifications No. 175/86 and No. 1/93. The Tribunal held that the code names indicated a connection in the course of trade between the specified goods and the person using such names, which in this case was M/s PEL Ltd. The Tribunal found that the code names were used commercially to identify the flavours, which were originally developed by M/s PEL Ltd. and subsequently manufactured by the appellant.The Tribunal concluded that the appellant was not entitled to the benefit of the said Notifications for products with code names G-44T, L-33A, T-IIPC, T-IIP, R-66M, and K-55T, as these belonged to M/s PEL Ltd. This conclusion was supported by the fact that M/s PEL Ltd. had transferred the rights to these codes to M/s Coca Cola Company in November 1993, indicating their ownership.Conclusion:After thorough consideration, the Supreme Court dismissed the appeal, affirming the Tribunal's decision. The Court found no merit in the appellant's arguments and upheld the denial of SSI exemption based on both the clubbing of clearances and the use of product code names as brand names. The parties were ordered to bear their own costs.