Supreme Court to Resolve Conflict on Small Scale Exemption Criteria under Central Excise Law

The Tribunal referred the conflicting judgments on the constitutionality and applicability of Central Excise Notification 175/86, specifically regarding small scale exemption based on brand names, to the Supreme Court due to differing views between the Karnataka High Court and the Calcutta High Court. The issue revolves around whether the classification of SSI units based on brand name usage for exemption purposes is arbitrary or justified under Article 14 of the Constitution of India. The matter was referred for resolution to address the significant implications for SSI units and their competitive position in the market.

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Issues Involved:
1. Applicability of Central Excise Notification 175/86 dated 1-3-1986 regarding small scale exemption on grounds of brand name.
2. Constitutionality of the Notification under Article 14 of the Constitution of India.
3. Conflicting views between the Hon'ble Karnataka High Court and the Hon'ble Calcutta High Court on the issue.

Detailed Analysis:

1. Applicability of Central Excise Notification 175/86:
The primary question in the appeals concerns the applicability of Central Excise Notification 175/86 dated 1-3-1986, specifically the small scale exemption based on brand name as outlined in para 7 of the Notification. The Notification excludes the benefit of exemption to SSI units using the brand names of another person. The classification among SSI units between those using and not using brand names for consideration of the benefit in terms of the Notification is deemed not arbitrary and based on relevant considerations.

2. Constitutionality of the Notification under Article 14:
The Karnataka High Court in Nectar Beverages Pvt. Ltd. v. Union of India held that the Notification is not ultra vires the Constitution. The court reasoned that the SSI units using brand names of others form a distinct class because their goods have certain market advantages. The classification is not arbitrary and is based on relevant considerations. The court stated:
> "SSI Units using brand names of others are a class by themselves, because the goods produced by them have certain advantages in the market."

Conversely, the Calcutta High Court in Banner & Co. v. Union of India held that the Notification offends Article 14 of the Constitution and is thus unsustainable. The court noted that the distinction between SSI units based solely on the use of brand names is arbitrary and does not achieve the stated objectives of preventing large scale units from evading excise duty and protecting small scale units from competition. The court concluded:
> "The distinction created by the impugned notification is arbitrary. Accordingly, the impugned notification cannot stand on the principle enunciated in Moti Das's case and must be quashed."

3. Conflicting Views:
Due to the conflicting judgments between the Karnataka High Court and the Calcutta High Court, the Tribunal deemed it necessary to refer the issue to the Hon'ble Supreme Court under Section 35H of the Central Excises and Salt Act, 1944. The Tribunal stated:
> "In view of the above conflicting views between the Hon'ble Karnataka High Court and the Hon'ble Calcutta High Court on the issue in question, we are of the view that it is expedient that a reference should be made to the Hon'ble Supreme Court."

Conclusion:
The Tribunal decided to refer the matter to the Hon'ble Supreme Court for resolution due to the conflicting judgments on the constitutionality and applicability of Central Excise Notification 175/86. The issue pertains to the eligibility for small scale exemption based on the use of brand names, which has significant implications for SSI units and their competitive standing in the market. The reference was made through the President, Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi.

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