1995 (10) TMI 88 - AT - Central Excise

Appellants' Exemption Denied Due to Brand Name Use

The appellants were found ineligible for exemption under Notification No. 175/86-C.E. due to their use of a brand name owned by another entity, despite ... Exclusion of exemption where specified goods are affixed with the brand name or trade name (registered or not) of another person - scope of Explanation VIII - meaning of 'brand name' or 'trade name' and its application across different classes of goods - proviso to Section 11A - extended period of limitation and requirement of suppression, fraud or deliberate withholding of information - consequence for penalty and confiscation where seized goods are found to be nonoffendingExclusion of exemption where specified goods are affixed with the brand name or trade name (registered or not) of another person - scope of Explanation VIII - meaning of 'brand name' or 'trade name' and its application across different classes of goods - Whether use of the brand name 'Shyam' (registered by another company for different products) rendered the appellants ineligible for exemption under Notification No. 175/86 as amended by Notification No. 223/87. - HELD THAT: - Para 7 read with Explanation VIII of Notification No. 175/86 (as amended) excludes the benefit where a manufacturer affixes specified goods with a brand name or trade name (registered or not) of another person who is not eligible for exemption. The Tribunal considered competing authorities and followed the view expressed by the Madras High Court in Bell Products Co. that the notification contains no limitation that the other person's brand must be registered for identical goods; the provision is aimed at preventing abuse where use of a common brand enables ineligible manufacturers to claim exemption. Applying that principle, even though the registered ownership of the mark 'Shyam' related to different products, the appellants' use of that brand on EPABX and telephone equipment brought them within the mischief of para 7 and disentitled them to the exemption under the amended notification. The Collector's finding on ineligibility is therefore upheld. [Paras 6, 7, 8, 9]Benefit of Notification No. 175/86 (as amended) is not admissible to the appellants because they affixed on their products the brand name 'Shyam' belonging to another person who was not eligible for exemption.Proviso to Section 11A - extended period of limitation and requirement of suppression, fraud or deliberate withholding of information - knowledge of department and declaration obligations under Rule 173B - Whether the Collector could invoke the extended fiveyear limitation under the proviso to Section 11A by holding that the appellants suppressed the fact of using the brand name. - HELD THAT: - The extended period under the proviso to Section 11A applies only where duty was not levied or paid, shortlevied or shortpaid or erroneously refunded by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention of law with intent to evade duty. Mere failure to disclose legal consequences or omission in classification lists, without positive evidence of deliberate withholding or fraudulent conduct, does not attract the extended limitation. The appellants relied on contemporaneous statements and a Board clarification and contended there was no duty to declare brand names under Rule 173B; the Collector found the statements predated the amendment and were not equivalent to a continuing declaration. The Tribunal, however, accepted that no conscious, deliberate suppression to evade duty was established and that no positive act of fraud or deliberate withholding was proved. Consequently, the demand can be confirmed only for the normal sixmonth limitation period preceding the show cause notice. [Paras 9, 10, 11, 12, 13]Extended fiveyear period under the proviso to Section 11A is not sustainable; differential duty, if any, recoverable only for the sixmonth normal limitation period.Consequence for penalty and confiscation where seized goods are found to be nonoffending - reduction of penalty in view of absence of suppression and release of seized goods - Appropriate consequence as to penalty and treatment of seized goods where suppression is not established and seized goods are found nonoffending. - HELD THAT: - The Collector had held seized goods were nonoffending and did not confirm confiscation; a demand was confirmed for shortage found on stock taking. Given the Tribunal's conclusion that suppression with intent to evade duty was not proved and that seized goods were nonoffending and released, the imposition of a substantial penalty was not warranted. Balancing the factual findings and legal conclusions, the Tribunal reduced the penalty imposed by the Collector to a nominal amount. [Paras 14, 15]Seized goods treated as nonoffending (no confiscation); penalty reduced to Rs. 25,000 and demand confined to the period of six months as above.Final Conclusion: The appeal is allowed in part: the appellants are held ineligible for the exemption under Notification No. 175/86 (as amended) because they used the brand name of another person not eligible for exemption; however, the extended fiveyear limitation under the proviso to Section 11A is not attracted for lack of suppression with intent to evade duty and any differential duty is recoverable only for the normal sixmonth period; seized goods were held nonoffending and the penalty is reduced to Rs. 25,000. The appeal is disposed of accordingly. Issues Involved1. Eligibility for exemption under Notification No. 175/86-C.E.2. Sustainability of demand confirmed by invoking the extended period u/s 11A of the Central Excises & Salt Act, 1944.SummaryIssue 1: Eligibility for Exemption under Notification No. 175/86-C.E.The appellants, engaged in manufacturing Electronic Push Button Dialer and EPABX systems, were denied exemption under Notification No. 175/86 (as amended) because they used the brand name 'Shyam,' owned by M/s. Shyam Antenna Electronics Pvt. Ltd. The Collector held that the appellants were ineligible for exemption as they affixed their products with a brand name owned by another entity, thus violating para 7 read with Explanation VIII of the said notification. The appellants contended that the brand name 'Shyam' was registered for different products (Antenna Systems) and not for their products (Telephone and Telecommunication equipment), arguing that the exemption should still apply. They cited the Tribunal's decision in Precise Electronics v. Collector, which supported their interpretation. However, the Tribunal followed the Madras High Court's judgment in Bell Products Co. v. U.O.I., which held that using a brand name of another person, irrespective of the product category, disqualified the manufacturer from exemption. Thus, the appellants were not eligible for the exemption.Issue 2: Sustainability of Demand Confirmed by Invoking the Extended Period u/s 11AThe Collector confirmed the demand by invoking the extended period u/s 11A, alleging suppression of facts by the appellants. The appellants argued that the department was aware of their use of the 'Shyam' brand name and that there was no requirement under Rule 173B to declare the brand name in the classification list. They claimed to have acted on a bona fide belief that they were eligible for exemption, supported by the Board's letter and the Tribunal's decision in Precise Electronics. The Tribunal found merit in the appellants' argument, citing the Apex Court's rulings in Collector v. Champhor Drugs and Liniments and Padmini Products v. Collector, which emphasized that mere failure or negligence does not constitute suppression of facts. Thus, the extended period for confirming the demand was not sustainable, and the differential duty was recoverable only for the normal limitation period of six months.PenaltyThe Tribunal noted that the goods seized were found to be non-offending, and considering the non-sustainability of the suppression charge, reduced the penalty from Rs. 5 lakhs to Rs. 25,000.ConclusionThe appeal was disposed of with the Tribunal holding that the appellants were not eligible for exemption under Notification No. 175/86 and that the demand for the extended period was unsustainable, thus limiting the recovery to the normal period of six months and reducing the penalty to Rs. 25,000.