TaxTMI 
TaxTMI 
2004 (12) TMI 675
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.... to be confiscated under rule 173Q(2) and an offer to redeem the same was given to DCPL on payment of fine of Rs. l5 Lakhs; 44 cans of 'CRC Acryform' found at the premises of M/s. Tri-Techno Services were ordered to be confiscated under rule 173Q(1) with an option given to redeem the same on a fine of Rs. 10 Lakhs; 15 cans seized to M/s. Nelco Dawane unit were ordered to be confiscated under rule 173Q(1) and be redeemed to them on a fine of Rs. 40,000/-. Penalties under rule 209A were imposed on Shri. N.J. Danani, Managing Director and Shri Herman Pinto, an employee of M/s. DCPL. Hence these appeal. 2.2 DCPL since 1983-87 were manufacturing products viz CRC 2-26 Aerosol and 'CR @ Acrylform Aerosol' under notfn. 120/84-CE for CRC 2-26 vide declaration notfn. 174/86 for the year 1987-88 to 1990-91 exemption were claimed under Notfn. 175/86 for CRC - Acryform; CRC 2-26 exemption was claimed 'CRC 2-26' was classified under 2710.99 and CRC Acryform under 3203.40. It appears that during a Transit check, at lower Parel, Mumbai, on 14-12-1991 a lorry was intercepted with "CRC 2-26' & 'CRC Acryform' cans and delivery challan Nos. 602, 603 & 654 all dated 14-12-1991 accompanying the ....
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.... penalty should not be imposed upon them in terms of the provisions of Rule 173Q and Rule 9 (2) and Rule 52A, and Rule 210, and Rule 226 of the Central Excise Rules, 1944; They were also called upon to show cause as to why : (i) they should not be held as having created a façade', dummy in the name and style of M/s. DCPL and exercised overall control over it for the purpose of evasion of duties of Central Excise; (ii) the duty amounting to Rs. 51,49,222.19 (Basic), Rs. 5,20,605.61 (Special) for the period from 26-2-1988 to 24-10-1992 should not he demanded and recovered from them under Rule 221 of the Central Excise Rules, 1944. Shri N.J. Danani, Director of M/s. DCPL and Director of M/s. BBL, Suit. R.N. Danani, Director of M/s. DCPL, Shri G. Narasimhan, Company Secretary of M/s. BBL, Shri Herman Pinto, incharge of M/s. DCPL, M/s. Mistair home Products were called upon to show cause to the Collector -II, Central Excise, Bombay-I as to why a penalty under Rule 209A of the Central Excise Rules, 1944 should not be imposed. M/s. Tri-Techno Services and M/s. Nelco were also required....
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.... or any other substance and is intended for industrial use (other than for use as lubricant) and the which the lubrication function, if any, is only secondary in nature? (c) Whether the Appellants (DCPL) is entitled to the benefit of notification 175/86 in respect of their product CRC Acryform. (d) Whether DCPL was a façade or dummy of Bharat Bijlee Ltd. (BBL) and/or whether DCPL and BBL are related persons under section 4 of the Central Excise Act, 1944? (e) Whether there was any suppression to justify invoking the proviso to section 11A(1) as the Show Cause Notice is admittedly issued for the period beyond six months from the date of the Show Cause Notice? (f) Whether the penalty can be imposed? (g) Assuming that all the issues on merit are decided against the DCPL, whether the duty demanded has been properly computed? 3.2 On whether CRC 2-26 is exempt under Notification No. 120/84 it is found - (a) It is on record that, CRC 2 - 26 as a blended lubricating oil it is sold....
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....they are not covered by a more specific heading. It gives examples of such oils : (ii) Lubricants consisting of mixture of lubricating oils with widely varying quantities of other products 9 e.g., products for improving their lubricating properties (such as vegetable oils and fats); anti-oxidants, rust preventives, anti-foam agents such as silicones)". In the present case before us there is no dispute of the product in question to be a preparation containing 70% or more of mineral oil; the aforesaid HSN Explanatory Notes apply proprio vigore to the present case. These aspects were noted by the CEGAT, in paragraph 8 of the earlier order dated 11-6-1999. CEGAT also held that the logical outcome of the fact that the Department consistently alleged that the product reduces friction, is, that the product in question is a lubricant. There is no dispute on this aspect. (iii) The Government of India has in its order in the case of Geoffrey Manners and Co., India Ltd. - 1982 (10) E.L.T. 549A (GOI) has held that the product would be classifiable under the erstwhile, Tariff Item 11B....
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....ils, which have a flashpoint below 94 degree C, would fall under sub-heading 2710.99. The classification of CRC 2-26 under sub-heading 2710.99 has never been disputed by the Department. CRC 2-26 is, therefore, entitled to the benefit of Notification No. 120/84. The mere fact that rust preventives are added for secondary function and improving lubrication, does not take the product out of the scope of the notification. This view would be also in conformity with the above-mentioned HSN Explanatory Notes. (c) It is well settled that in the absence of a definition the only test that is to be employed is : "How is the product understood in the trade and in commercial parlance?" as held in Shree Baidyanath Ayurved Bhavan Ltd. v. CCE - 1996 (83) E.L.T. 492 (S.C.) proceeding to examine in this light, it is found - (i) That CRC 2-26 is known and used as a lubricating oil. DCPL produced numerous Testimonials/Certificates/Letters of Users showing that CRC 2-26 is used, by such users, as a lubricant for lubricating the moving parts of their equipment. The test report on CRC 2-26, carried out by Professor M.C. Dwiv....
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....cating Oil' as an "oil usually refined, primarily intended to reduce friction between moving surfaces". There is no dispute that CRC 2-26 reduces friction. As it is a blend of mineral oils containing 70% or more of mineral oils it has to be considered as a lubricating oil falling within the scope of the notification. It is clear, therefore, that the rust preventives are mere "additives" and CRC 2-26 clearly falls within the aforesaid definitions by application of the understanding of the terms. (iv) The Department themselves drew samples of the said product on three occasions, i.e. in 1984, 1990 and 1993. The Deputy Chief chemist in respect of CRC 2-26 has given the following test reports : (i) 1984 analysis communicated by letter dated 3-5-1985 : "Sample is in the form of a liquid. It is composed of mineral oil and small amount of additives". (ii) 1990 analysis communicated by letter dated 15-4-1991. &....
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....arlier orders of the Commissioner of Central Excise (Appeals) and abandoned the test Reports of the Chemical Examiner & the binding judgments of this Tribunal. The numerous testimonials, certificates and letters from its users, showing that CRC 2-26 is used by such users as a lubricant. The conclusion arrived in the impugned order, that it is not a lubricating oil is based solely on the label of the product and that too by deliberately misreading the same. This is impermissible (see Subhash Chandra Nishat v. U.O.I. - 1979 (4) E.L.T. (J 212) (Bom.). The constant refrain that the product label also states that the product improves electrical properties goes beyond the allegations in the show cause notice. The show cause notice merely alleged that the product was predominantly a rust preventive or anticorrosive. The fact that the label states that it improves electrical properties is only indicating to the consumer the benefit of using the product and does not indicate the functional properties of the product which have been separately mentioned on the label, namely, to penetrate and lubricates, clean etc. This additional property cannot dislodge the product from the benefit of the pr....
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....The ingredients are not disputed. The logical outcome therefore is that it is a lubricating oil as held by this Hon'ble Tribunal in the case of Bharat Petroleum Corporation v. CCE - 2003 (154) E.L.T. 698 (T). This judgment refers to a Larger Bench judgement which laid down two tests both of which are satisfied, namely (i) whether the impugned product satisfies the definition of Notification and (ii) whether the goods are ordinarily used as lubricants. (g) The product consists of only 3% of rust preventives the rest in all mineral oil and it is the mineral oil which gives the product its lubricating properties and is the most important ingredient. Commissioner has on his own ipse dixit presumed that the product has no lubricating properties and has purported to rebut the evidence only on the basis of his own presumptions without any technical knowledge. (h) This question is therefore to be answered in favour of the appellants by upholding the exemption eligibility. 3.2 Whether in the alternative CRC 2-26 is exempt under Notification No. 287/86 ? (a) If the lubrication properties of t....
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....as speciality oil. This is also clear from CBEC dated Circular where Corrosion Preventive Oil and Compounds had been listed as speciality oils. (b) There is no dispute that the entity is for industrial use. Therefore, once the Commissioner of Central Excise came to the conclusion that the lubrication property is secondary, it necessarily became a speciality oil as understood in this notification. This was also what both the Commissioner of Central Excise (Appeals) held in their orders. In any case, whether the rust preventives were secondary or not was a wholly irrelevant criteria. In any case the Notification does not say that it has to be the main function. In the circumstances in any view of the matter CRC 2-26 is fully exempted from duty under the two notifications i.e. 120/84 & or 287/86. No duty demands could be therefore effected. 3.3 Whether Notification 175/86 as amended by Notification No. 223/87 was available to CRC acryform ? (a) The benefit of Notification No. 175/86 has been be denied to 'CRC Acryform' on the ground that labels of CRC Acryform carried the logos "B" of BBL and "CRC" of M....
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....C Chemicals Europe is altogether immaterial to the Appellants claim towards the trade mark. In the present case not only has the foreign company not raised a claim to the trademark but has in fact given an affidavit stating that it has no ownership, title or right in the names "Acryform" or "CRC Acryform" [see Rathi Transpower Private Limited v. CCE - 2003 (153) E.L.T. 59 (T)]. (d) There is nothing on record to show that NV CRC Chemicals Europe legally owned or used the brand-name/trademark "CRC Acryform" to the exclusion of other manufacturers. In fact in the present case the said trademark has been registered in DCPL's own name. Had somebody else been the owner of the brand-name in question, the appropriate authorities would not have registered the same in the name of the Appellant. This Tribunal in the case of Laxmi Enterprises v. CCE - 2004 (167) E.L.T. 408 (T) has held that the aforesaid factors were exceedingly relevant and that in view of the same the SSI benefit could not be denied. When CBEC Circular No. 213/41/88-CX. 6, dated 30-12-1988 wherein it is stated that as per section 8 of the Trade and Merchandise Marks Act, 1958 are trademark can be r....
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....oner has brushed aside the aforesaid certificate of De Penning and De Penning on the specious ground that the search report of the Trademark Authority is limited to the Indian Republic. (f) The reliance by the Commissioner on the case of Kemfin Chemicals 2003 (162) E.L.T. 458 (Tri-Del) is misconceived as in the present case there has been no sale of the brand-name. In that case there was a sale of the brand-name and therefore it was accepted that the brand-name belonged to another. DCPL are the registered proprietors or owners of the trademark and have the exclusive right to use the same & in view of the uninterrupted user since 1987 DCPL are deemed to be the proprietors and owners of the trademark. Permitting a manufacture under the license agreement is wholly distinct from the use of the trademark. Therefore the conclusion that M/s. CRC Chemicals Europe could not have permitted a manufacture of the product or supplied the concentrate without having title to the trademark is untenable & is not upheld. (g) The Commissioner has stated that he has seen the logo of CRC on the cans. There is no such logo found, nor....
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....Emkay Investments Private Limited in 2000 (124) E.L.T. 741, VI John Beuty Tech v. CCE - 2002 (143) E.L.T. 148 approved in 2003 (157) E.L.T. A210 (S.C.). (i) When there is already a mark on the product, namely CRC Acryform, the logo of BBL cannot fall within the mischief of paragraph 7 of notification 175/86 read with Explanation VIII thereof relying upon CCE v. Aarem Enterprises - 2003 (153) E.L.T. 111 (T). In any event since May, 1990, other products manufactured by DCPL have not been labelled with the house mark of BBL. Despite the same the Commissioner has confirmed the demands in the 12 subsequent show cause notices which are for the subsequent period. Moreover merely putting the name of the distributor cannot deny the benefit of the Notification relying upon SPM Instrument India Pvt. Ltd. v. CCE - 2003 (152) E.L.T. 115 (T). Rajdoot Paints Ltd v. CCE - 2001 (134) E.L.T. 281 (T). In the circumstances it is to be held that it is untenable to allege that DCPL are not entitled to the benefit of notification 175/86 in respect of CRC Acryform. Duty demands cannot therefore be determined. 3.4 Whether DCPL is a dummy or facade of ....
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....That DCPL looks after its own business and that there is no supervision or managerial control by BBL. (ix) That DCPL has total control and supervision over their own manufacturing operations. Mr. H. Pinto and before him Mr. Mehta, both employees of DCPL looked after and supervised all manufacturing operations under the control and guidance of Mr. N. J. Danani. (x) That DCPL's ledgers and various other financial statements, etc. clearly showed that no payment were made to Bharat Bijlee. In fact, it is BBL that paid DCPL the purchase price of the products. (xi) That DCPL has its own Sales Tax and Income Tax Registrations, Shops and Establishments Registration, BMC Store Facilities and SSI Registration. (xii) That DCPL has its own import license. (xiii) That DCPL paid its own electricity bills. (xiv) Though BBL owns the gala in which DCPL's factory exists, BBL paid a market rent for the same. (xv) That before fixing the quantum of rent and ....
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....r the product "CRC Acryform". DCPL commenced the manufacture of "CRC Acryform after September, 1986, but well before Mr. N.J. Danani became Director of BBL Ltd. Mr. N.J. Danani could never therefore have created DCPL merely to enable BBL to get the benefit of Notification No. 175/86. 3.4 The parties were related persons or that there was mutuality of interest between DCPL and Bharat Bijlee Ltd. (a) Commissioner has arrived at the following reasons to hold. (i) That transactions were not a principal-to-principal basis because DCPL did not pay for security and because the keys to the gala were kept with the security staff and that the security staff opened and closed the gala. This ground is manifestly untenable as these factors cannot establish that DCPL and BBL had any interest direct or indirect in the business of each other. (ii) That the transaction between the parties was not a simple relationship of manufacture and seller, because DCPL manufactured the product but did not mention its name on the product or ca....
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....sell and the arrangement between the parties was that BBL would be billed at 60% of the list price and that the difference in the prices would recover the cost incurred by BBL for providing security services, for opening/closing their factory and for expenses incurred by DCPL for putting the logo and name of BBL as also the cost of printing the leaflets, brochures and literature and advertising material provided to BBL. The Commissioner has apparently contradicted himself. In the earlier paragraphs, Commissioner has concluded that the printing of leaflets, brochures etc. by DCPL was an indirect flow back for the security provided and marketing expenses incurred. If that is so, the difference in the prices cannot also be for the same thing. These printing charges are borne by DCPL and not by BBL as is admitted in the earlier paragraphs by the Commissioner. It is therefore beyond comprehension as to how the bulk discounts given by DCPL to BBL was for compensating BBL for expenses which it never incurred. Further, BBL was the National Distributor of the products. It was therefore, necessary to mention its name as marketin....
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....egation that was made in the show cause notice. This exhibits a biased approach if not non application of mind. Such orders cannot be upheld. (f) The list price indicated the price is beyond which BBL could not sell the goods. DCPL gave BBL a discount from this list price and the difference between the price at which DCPL sold the goods to BBL and the price at which BBL resold the goods, was the income of BBL. The Appellants received nothing other than the price charged to BBL. Whatever profit was made by BBL did not flow to DCPL. It is therefore beyond comprehension as to what flow back the Commissioner is referring to. The Appellants did not fix the price at which BBL could & did sell the goods but fixed the maximum price at beyond which it cannot sell. There is no notice material to controvert this submissions. As a manufacturer, Department it was perfectly & it was reasonable to do so. These are commercial decisions, they cannot ipso facto result in mutuality of interest in the business of each other. (g) It is submitted that merely because the....
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....terest-free loans, share participation and constitution of Board of Directors of the Appellant company indicated a presence of interest by the buyer companies in the affairs of the Appellant company but did not show any interest of the Appellant company in the business of the buyers. It was held therefore that even if a company has interest in the business of another that would not suffice, as it must be showing that the other also has interest in the business of the company. In other words there has to be mutuality of interest and one-sided interest is not enough. Therefore, assuming whilst denying that BBL had created DCPL it would only show that BBL has an interest in the DCPL's business. No evidence is produced showing DCPL's interest in BBL. In Alembic Glass Industries Ltd. v. CCE - 2002 (143) E.L.T. 244 (S.C.) the Supreme Court held that merely holding shares in each other and having a common Chairman and some common Directors cannot mean that one company has an interest in the business of the other. It is pertinent to note that in this judgment they have disagreed with an earlier judgment of the Supreme Court in the case of Calcutta Chromotype Ltd. v. CCE - 1998 (99) E.L.T. ....
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....perintendent was requested to confirm whether the same was in order. The Superintendent asked for the process of manufacture and the percentage of the ingredients. The DCPL gave this information pointing out that the product contained 3% of rust preventives. In the Annexure to the Declarations filed from time to time, it was specifically mentioned under the Process of Manufacture as under : "Blending of various Anti Corrosive chemicals and solvents were minimal turpentine" (see page 46 of the SCN). A mere perusal of the classification list filed in 1991 would show that DCPL disclosed that CRC 2-26 was a blended lubricating oil manufactured by blending mineral turpentine oil with anti-corrosive agents in a base of petroleum oil. The chemical test reports obtained by the department are unequivocal. On the basis of these test reports the Declarations claiming the benefit of Notification 120/84 and subsequently the classification lists themselves were approved. At no stage did the department asked for retest or dispute the same. As the department was fully aware that the product, inter alia, prevents rust and has anti-corrosive properties and as this fact was never suppressed from the ....
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....imitation cannot be invoked. (e) The fact that CRC Acryform was manufactured under license from CRC Chemicals Europe is mentioned on the label of the product as also the literature. Copies of these labels were given to the Department at the time of filing declarations and classification lists right from September, 1986 onwards. The labels of CRC 2-26 also contained the same information and the department had taken samples of these cans with the aforesaid information thereon on several occasions. The Department was therefore fully aware that CRC Acryform was being manufactured under license from CRC Chemicals Europe. (f) Non mentioning of the license agreement in the classification lists cannot lead to the conclusion that there has been suppression as it is now well settled that Rule 173B does not require the disclosure regarding a brand-name. Queen Electrical Industries v. CCE - 2002 (150) E.L.T. 284 SPM Instrument India Pvt. Ltd. v. CCE - 2003 (152) E.L.T. 115 (T) (g) It has also been held in of Vora Products - 2002 (143) E.L.T. 84 that the approval of the cla....