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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2789 OF 2007

COMMISSIONER OF CENTRAL EXCISE,  CHENNAI

...APPELLANT

VERSUS

M/S. NEBULAE HEALTH CARE LTD. ...RESPONDENTS

W I T H

CIVIL APPEAL NO. 1142 OF 2009

J U D G M E N T

A.K. SIKRI, J.

Delay condoned.

2) These appeals raise an issue of eligibility of concession/exemption from

excise  duty  that  is  provided  under  Notification  nos.  8/1999,  8/2000,

8/2001, 8/2002 and 8/2003 to the Small Scale Industrial Units (for short,

'SSI Units'). It is not in dispute that the respondents – assessees in these

appeals  fulfill  eligibility  conditions  for  availing  the  benefit  of  SSI

exemption under  the aforesaid  Notifications.   However, in  addition to

manufacturing goods on their own account, they are also doing job work

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of manufacturing goods of certain other parties on job work basis.  The

goods manufactured for third parties bear the brand name of those third

parties and in respect of such goods manufactured for third parties, the

assessees paid the normal duty of excise but at the same time availed

the benefit of MODVAT/CENVAT credit as well.  Thus, to put it succinctly,

the real issue is as to whether availing the benefit of MODVAT/CENVAT

credit in respect of branded goods of third parties manufactured by the

assessees on job work basis, disentitles them from availing the benefit of

the aforesaid Notifications?

3) The assessee in Civil Appeal No. 2789 of 2007 is the manufacturer of

medicaments which fall under Chapter Heading 30 of the First Schedule

of  the  Central  Excise  Tariff  Act,  1985  (hereinafter  referred  to  as  the

“CETA,  1985”).   In  addition,  it  is  manufacturing  medicines  under  the

brand name belonging to third parties, viz., M/s. Roots Pharma House

(P)  Ltd.,  Chennai,  M/s.  Satven  & Mer, Chennai,  M/s.  Tickle  Pharma,

Chennai,  M/s.  Shyulu  India,  Krishnagiri  and  M/s.  ARK  Medicare,

Chennai.  The goods manufactured by the assessee on its own account

bear its own brand name and goods manufactured by the third parties

bear the brand names belonging to those parties.   During the period in

question, i.e., 1999 to 2003 – 2004, the assessee had availed the benefit

of SSI exemption notifications that were in force, i.e., Notification nos.

8/1999  etc.,  as  mentioned  above.   Availing  the  benefit  of  these

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Notifications in respect of goods manufactured by the assessee on its

own account, i.e., the goods bearing its own brand name, the assessee

had cleared the said goods without payment of any excise duty.  On the

other  hand,  during  this  very  period,  in  respect  of  goods  bearing  the

brand name of third parties manufactured by the assessee, it paid excise

duty  thereupon.   At  the same time,  it  also  availed CENVAT credit  in

respect of inputs used for the manufacture of these  branded goods.  It

resulted in issuance of five show cause notices stating therein that since

the assessee had availed CENVAT credit in respect of inputs used for

the manufacture  of  branded goods,  it  had  lost  the right  to  claim the

benefit of SSI exemptions under the aforesaid Notifications and, thus,

had  claimed the  exemption  from payment  of  duties  improperly.  The

details of these show cause notices are as under:     

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S.No. SCN No. & Date Period Duty involved 1 1471/30.09.99 1999-2000 13,50,000/- 2 579/26.04.2001 2000-2001 13,50,000/- 3 1979/26.12.2001 2001-2002 16,00,000/- 4 588/08.04.2003 2002-2003 15,99,904/-

5 V/Ch.30/15/7/04dated 16.03.2004 2003-2004 15,99,875/-

4) The aforesaid demand was confirmed by the Joint Commissioner vide

his Order-in-Original dated January 17, 2005.  Penalty under Rule 25 of

the Central Excise Rules as well as interest under Section 11AB of the

Central Excise Act was also imposed.  The appeal of the assessee to the

Commissioner  (A)  proved  futile  as  it  was  dismissed  by  the

Commissioner (A) vide orders dated July 19, 2005.  However, a partial

relief  was given by setting aside the penalty.  Not  satisfied with  this

outcome, the assessee approached the Central Excise and Service Tax

Appellate  Tribunal  (hereinafter  referred  to  as  “CESTAT”)  by  way  of

another  statutory  appeal  in  which  it  has  succeeded  as  the  CESTAT,

Chennai Bench, has allowed the appeal of the assessee.

5) The  assessee  in  Civil  Appeal  No.  1142  of  2009  is  engaged  in  the

manufacture of motor vehicle rubber parts falling under Chapter Heading

8708.00 of the Act.  It filed declaration with effect from May 01, 1995

claiming 15% central excise duty on branded goods and full exemption

for its own products on the ground that it was eligible for exemption as

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per Notification No. 1/9-C.E.,  dated February 28,  1993, being an SSI

Unit.  The  excise  duty  was  paid  on  branded  goods  which  were

manufactured for third parties.  However, in respect of inputs used in the

manufacture  of  these  goods,  the  assessee  availed  MODVAT credit.

Three  show cause  notices  were  issued  to  the  assessee  stating  that

since it had filed MODVAT facility for branded goods under Notification

No. 1/93-C.E., the assessee was not entitled to the benefit of exemption

notification even in respect of its own products.  Order-in-Original dated

July 10, 1998 was passed confirming the demand.  In the appeal filed by

the assessee to the Commissioner (Appeals), the assessee succeeded

as the said appeal was allowed by orders dated March 25, 2003 setting

aside the Order-in-Original  and holding that  the assessee could avail

both the facilities, i.e., MODVAT credit of inputs used for manufacturing

of  goods  with  brand  name  of  others  of  exemption  for  own  branded

goods, simultaneously.  This order was challenged by the Department

before the CESTAT.  However,  vide impugned order dated June 12,

2008, the Tribunal has dismissed the appeal,  thereby maintaining the

order of the Commissioner (Appeals).

This is how the Department has filed the two instant appeals challenging

the orders of the Tribunal.

6) From 1986, the SSI Units have been given the benefit of excise duty by

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allowing them to clear the goods either without payment of any excise

duty or allowing them to clear the goods at concessional duty, depending

upon the nature of product manufactured by these SSI Units.  General

Exemption  No.  1  in  this  behalf  was  issued  vide  Notification  No.

175/86-CE dated March 01, 1986 which has been amended from time to

time.  Vide these amendments, the value of the goods produced to avail

the  benefits  has  been  increasing.   It  is  not  in  dispute  that  the  two

assessees before us qualify the definition of SSI Units.  By amendments,

certain other eligibility conditions have also been provided from time to

time.   One  such  condition/provision  with  which  we  are  concerned in

these appeals pertain to manufacturing of branded goods of third parties.

7) Insofar  as  Notification  No.  1/93-C.E.,  dated  February  28,  1993  is

concerned,  exemption to  first  clearances of  specified goods upto  the

value of 30,00,000/-₹  and concessional duty on subsequent clearances

in case of manufacturer having clearances not exceeding ₹3,00,00,000/-

in  the preceding financial  year was provided.   In paragraph 4 of  this

Notification,  it  was  stated  that  the  exemption  contained  in  the  said

Notification would not apply to the specified goods bearing a brand name

or trade name, whether registered or not, of another person.  The said

para 4 reads as under:   

“4.  The exemption contained in this notification shall not apply  to  the  specified  goods,  bearing  a  brand name or trade name (registered or not) of another person:

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Provided that nothing contained in this paragraph shall be applicable  to  the  specified  goods  which  are  component parts  of  any machinery or  equipment  or  appliances and cleared from a factory for use a original equipment in the manufacture  of  the  said  machinery  or  equipment  or appliances, and -  

(i) in a case where the clearances of such specified goods are within  the first  clearances upto an aggregate value not exceeding rupees thirty lakhs in a financial year, the  manufacturer  of  the  specified  goods  gives  a declaration  that  the  specified  goods  shall  be  used  as mentioned above;

(ii) in any other case, the procedure set out in Chapter X of the Said Rules is followed:

Provided further that nothing contained in this paragraph shall be applicable to the specified goods bearing a brand name or trade name (registered or not) of the Khadi and Village Industries Commission or of the State Khadi and Village  Industries  Board,  National  Small  Industries Corporation  or  the  State  Small  Industries  Development Corporation.

* * * * Notwithstanding the exemption contained in paragraph 1 of this notification, a manufacturer shall have an option for not availing of the benefit  of the exemption contained in the said paragraph and to pay duty of excise at the rate applicable  to  the  specified  goods  but  for  the  exemption contained in the said paragraph 1, subject to the condition that  such  manufacturer  shall  pay  duty  at  the  rate applicable  but  for  the  aforesaid  exemption  on  all subsequent  clearances  of  specified  goods  made  after availing such option, in a financial year in which such date of option falls.”

8) This  Notification  contained  as  many  as  11  explanations.   For  our

purposes, Explanation Nos. III, IX and X are relevant and, therefore, we

reproduce here below these explanations as well:

“Explanation  III.  -  For  the  purpose  of  computing  the aggregate value of clearances under paragraph 1,2 and 3,

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the clearances of  any specified goods,  bearing a brand name or trade name (registered or not) of another person, which are not eligible for grant of exemption in terms of provisions of paragraph 4 of this notification, shall not be taken into account.

Explanation IX. - “Brand name” or “trade name” shall mean a brand name or trade name, whether registered or not, that  is  to  say  a  name  or  a  mark,  such  as  symbol, monogram,  label,  signature  or  invented  word  or  writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the  course  of  trade  between  such  specified  goods  and some person suing such name or mar with or without any indication of the identity of that person.

Explanation X.- For the purpose of this notification, where the specified goods manufactured by a manufacturer, bear a brand name or trade name (registered or not) of another manufacturer  or  trader,  such  specified  goods  shall  not, merely by reason of  that fact,  be deemed to have been manufactured by such other manufacturer or trader.”

9) The  aforesaid  Notification  was  replaced  by  Notification  No.

8/1999-Central  Excise,  dated  February  28,  1999  which  provided  the

exemption from excise duty or clearance of goods on concessional rate

of duty as per the table reproduced below:

S. No. Value of clearances Rate of duty (1) (2) (3) 1. First  clearances  upto  an  aggregate

value not exceeding fifty lakh rupees made on or after the 1st day of April in any financial year

Nil

2. Clearances upto an aggregate value not  exceeding  fifty  lakh  rupees immediately following the clearances specified  against  Sl.  No.  1  above during the financial year

Five per cent ad valorem

3. All clearances of the specified goods which are used as inputs for further

Nil

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manufacture of  any specified goods within the factory of production of the specified goods.

10) In  paragraph 2  of  this  Notification,  certain  conditions  were  stipulated

subject to fulfillment of which the benefit of exemption Notification could

be made available.  Some of the conditions with which we are concerned

in these appeals are noted below:  

“2.  The exemption contained in this notification shall apply subject to the following conditions, namely:-

(i)   a  manufacturer  who  intends  to  avail  the  exemption under this notification shall exercise his option in writing for availing  the  exemption  under  this  notification  before effecting  the  first  clearances  under  this  notification  and such option shall be effective from the date of exercise of the option.  Such option shall not be withdrawn during the remaining part of the financial year except when an option is  exercised  with  respect  to  Notification  No.  9/99-C.E., dated 28th February, 1999.

(ii) a manufacturer also has the option not to avail the exemption contained in  this  notification and instead pay the normal rate of duty on the goods cleared by him.  Such option  shall  be  exercised  before  effecting  his  first clearances at the normal rate of duty.  Such option shall not be withdrawn during the remaining part of the financial year.

(iii)   while  exercising  the  option  under  condition  (i),  the manufacturer  shall  inform  in  writing  to  the  Assistant Commissioner  of  Central  Excise  or  the  Deputy Commissioner  of  Central  Excise  with  a  copy  to  the Superintendent  of  Central  Excise  giving  the  following particulars, namely:-

(a)  name and address of the manufacturer;

(b)  location/locations of factory/factories;

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(c)  description of inputs used in manufacture of specified goods;

(d)  description of specified goods produced;

(e)  date from which option under this notification has been exercised;

(f)   aggregate  value  of  clearances  of  specified  goods (excluding the value of clearances referred to in paragraph 3 of this notification) till the date of exercising the option;

(iv)  the manufacturer shall not avail the credit of duty on inputs under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 (herein after referred to as the said rules), paid on inputs  used  in  the  manufacture  of  the  specified  goods cleared for home consumption, the aggregate value of first clearances of which, as calculated in the manner specified in  the said  Table  does not  exceed rupees one hundred lakhs;

(v)  the manufacturer also does not utilise the credit of duty on capital goods under rule 3 or rule 11 of the said rules, paid on capital goods, for payment of duty, if any, on the aforesaid  clearances,  the  aggregate  value  of  first clearances of which does not exceed rupees one hundred lakhs,  as calculated in the manner specified in the said Table.

3.  For the purposes of determining the aggregate value of clearances  for  home  consumption,  the  following clearances shall not be taken into account, namely:-

(a)  clearances, which are exempt from the whole of the excise  duty  leviable  thereon  (other  than  an  exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason;

(b)   clearances bearing the brand name or trade name of another person, which are ineligible for the grant of  this exemption in terms of paragraph 4 below;  

(c) clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods;

(c)   clearance of strips of plastics used within the factory

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of production for weaving of fabrics or for manufacture of sacks or bags made of polymers or ethylene or propylene.

4.   The exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases:-

(a)    where the specified goods,  being in  the nature of components  or  parts  of  any machinery  or  equipment  or appliances, are cleared for use as original equipment in the manufacture of  the said  machinery  or  equipment  or appliances  by  following  the  procedure  laid  down  in Chapter X of  the Central Excise Rules,  1994.  Provided that manufacturers, whose aggregate value of clearances for home consumption of such specified goods for use as original equipment does not exceed rupees fifty lakhs in a financial year as calculated in the manner specified in the said Table, may submit a declaration regarding such use instead of following the procedure laid down in Chapter X of the said rules;

(b) where the specified goods bear a brand name or trade name of-

(i) the Khadi and Village Industries Commission; or

(ii) a State Khadi and Village Industry Board; or

(iii) the National Small Industries Corporation; or

(iv) a State Small Industries Development Corporation; or

(v) a State Small Industries Corporation.”

11) This Notification also provided the definition of 'brand name'  or 'trade

name', as under:

“Explanation. - For the purposes of this notification, -

(A)  “brand  name”  or  “trade  name”  shall  mean  a  brand name or trade name, whether registered or not, that is to say a name or a mark, such as symbol, monogram, label, signature  or  invented  word  or  writing  which  is  used  in relation  to  such  specified  goods  for  the  purpose  of

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indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person;

(B)   where  the  specified  goods  manufactured  by  a manufacturer bear a brand name or trade name, whether registered or not, of another manufacturer or trader, such specified goods shall not, merely by reason of that fact, be deemed  to  have  been  manufactured  by  such  other manufacturer or trader”

12) In  other  Notifications,  namely,  Notification  Nos.  9/1999-C.E.,

8/2000-C.E.,  9/2000-C.E.,  8/2001-C.E.,  9/2001-C.E.,  8/2002-C.E.,

9/2002-C.E.,  8/2003-C.E.  and  9/2003-C.E.,  there  is  no  significant

amendment which has bearing on the present case as the conditions

which  are  necessary  for  our  purposes  remained  almost  the  same.

However,  it  would  still  be  apt  to  reproduce  paras  2,  3  and  4  of

Notification No. 8/2003 dated March 01, 2003.

“2.  The exemption contained in this notification shall apply subject to the following conditions, namely:-

(i)   a  manufacturer  has  the  option  not  to  avail  the exemption contained in  this  notification and instead pay the normal rate of duty on the goods cleared by him.  Such option  shall  be  exercised  before  effecting  his  first clearances at the normal rate of duty.  Such option shall not be withdrawn during the remaining part of the financial year;

(ii)   while  exercising  the  option  under  condition  (i),  the manufacturer  shall  inform  in  writing  to  the  Assistant Commissioner  of  Central  Excise  or  the  Deputy Commissioner  of  Central  Excise  with  a  copy  to  the Superintendent  of  Central  Excise  giving  the  following particulars, namely:- (a)  name and address of the manufacturer; (b)  location/locations of factory/factories; (c)  description of inputs used in manufacture of specified

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goods; (d)  description of specified goods produced; (e)  date from which option under this notification has been exercised; (f)   aggregate  value  of  clearances  of  specified  goods (excluding the value of clearances referred to in paragraph 3 of this notification) till the date of exercising the option;

(iii)  the manufacturer shall not avail the credit of duty on inputs under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 (herein after referred to as the said rules), paid on inputs  used  in  the  manufacture  of  the  specified  goods cleared for home consumption, the aggregate value of first clearances of which, as calculated in the manner specified in  the said  Table  does not  exceed rupees one hundred lakhs;

(iv)   the manufacturer  also does not utilise the credit  of duty on capital goods under rule 3 or rule 11 of the said rules, paid on capital goods, for payment of duty, if any, on the  aforesaid  clearances,  the  aggregate  value  of  first clearances of which does not exceed rupees one hundred lakhs,  as calculated in the manner specified in the said Table;

(v)  where a manufacturer clears the specified goods from one  or  more  factories,  the  exemption  in  his  case  shall apply  to  the  aggregate  value  of  clearances  mentioned against each of the serial numbers in the said Table and not separately for each factory;

(vi)  where the specified goods are cleared by one or more manufacturers from a factory, the exemption shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each manufacturer;

(vii)   the aggregate value of  clearances of  all  excisable goods for home consumption by a manufacturer from one or  more  factories,  or  from  a  factory  by  one  or  more manufacturers,  does  not  exceed  rupees  three  hundred lakhs in the preceding financial year.

3.  For the purposes of determining the aggregate value of clearances  for  home  consumption,  the  following clearances shall not be taken into account, namely:-

(a)  clearances bearing the brand name or trade name of

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another person, which are ineligible for the grant of  this exemption in terms of paragraph 4;

(b)   clearances of the specified goods which are used as inputs  for  further  manufacture  of  any  specified  goods within the factory of production of the specified goods;

(c)   clearance of strips of plastics used within the factory of production for weaving of fabrics or for manufacture of sacks or bags made of polymers or ethylene or propylene.

4.   The exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases:-

(a)    where the specified goods,  being in  the nature of components  or  parts  of  any machinery  or  equipment  or appliances, are cleared for use as original equipment in the manufacture of  the said  machinery  or  equipment  or appliances  by  following  the  procedure  laid  down in  the Central Excise (Removal of Goods at Concessional Rate of Duty of Manufacture or Excisable Goods) Rules, 2001: Provided that  manufacturers,  whose  aggregate  value  of clearances  of  the  specified  goods  for  use  as  original equi9pment does not exceed rupees one hundred lakhs in the financial year 2002-2003 as calculated in the manner specified  in  paragraph  1,  may  submit  a  declaration regarding such use instead of following the procedure laid down in  the  said  Central  Excise (Removal  of  Goods at Concessional  Rate of  Duty for Manufacture of Excisable Goods) Rules, 2001: (b) where the specified goods bear a brand name or trade name of-

(i) the Khadi and Village Industries Commission; or

(ii) a State Khadi and Village Industry Board; or

(iii) the National Small Industries Corporation; or

(iv) a State Small Industries Development Corporation; or

(v) a State Small Industries Corporation;

(c) where the specified goods are manufactured in a factory located in a rural area.”

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13) Having taken note of the relevant provisions of the aforesaid exemption

Notifications and without commenting upon the same at this juncture, we

would like to discuss few judgments of this Court which have considered

and interpreted these Notifications in the context of the issue that arises

for  determination  in  these  appeals.   In  Commissioner  of  Central

Excise, Ahmedabad v. Ramesh Food Products1, the assessee therein

was  engaged  in  the  manufacture  of  biscuits  under  the  brand  name

'Ramesh' on his own account.  It was also manufacturing, on job work

basis,  biscuits  under  the  brand name of  'Cadbury'  on  behalf  of  M/s.

Hindustan Coco Products, Bombay.  It availed MODVAT benefit on the

inputs  used  for  manufacture  of  Cadbury  branded  biscuits.   The

Department issued the show cause notice taking the position that as the

assessee had availed MODVAT benefit it had no right to avail the benefit

of Notification No. 175/86 in respect of its own goods bearing 'Ramesh'

brand  either.   Though,  the  Assistant  Collector  dropped  the  demand

holding  that  assessee  could  avail  both  the  benefits,  the  Collector

(Appeals) took a contrary view holding that it was not permissible for the

assessee to simultaneously opt for goods of one heading and MODVAT

facility  in  respect  of  another  heading.   Assessee's  appeal  before  the

CEGAT was  decided  in  favour  of  the  assessee,  which  decision  of

CEGAT was upset by this Court in the judgment.  This Court noted that

1 2004 (174) E.L.T. 310 (S.C.)

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the CEGAT had relied upon another judgment of Tribunal in Faridabad

Tools Pvt. Ltd.  v. Collector of Central Excise2 which was specifically

overruled by a larger Bench of CEGAT in Kamani Food v. Collector of

Central Excise3  

14) After extensively quoting from the discussion of the Tribunal in Kamani

Food case (supra), this Court observed as follows:

“10. Notification 175/86 have to be read as a whole and as noted  rightly,  in  Kharia  Cement  Works  case  (supra) Sub-clauses (i) and (ii) have to be construed harmoniously. Exemption envisaged for the specified goods accrues to them  through  instrumentality  of  the  manufacturer.  The notification  clearly  demarcated  the  two  categories  of manufacturers. A clear cut distinction is explicit between a manufacturer availing Modvat credit under Rule 57A and another not opting for the Modvat Scheme. As is statutorily provided, input duty relief is given under the scheme to the manufacturers who opt to operate under the scheme by applying  for  it  in  the  prescribed  manner.  Ultimately  the manufacturers have the choice of choosing one of the two concessions, i.e. either The Modvat Scheme or Notification 175/86. Further, there is no one to one correlation between the  inputs  and  final  products  under  Modvat  Scheme.  It would therefore not possible to allow the manufacturer to simultaneously avail Modvat for some products and avail full  exemption  for  others  under  small-scale  exemption scheme.”

15) Some of the salient features of the decision of this Court in  Ramesh

Food Products which need to be emphasised are the following:

(a)  The decision of the Tribunal in that case was of the year 1998 and it had

relied upon its earlier  judgment in  Faridabad Tools  case, which was

2 1993 (63) E.L.T. 759 3 1995 (75) E.L.T. 202

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decided in the year 1993, without realising that the said judgment had

been overruled by a larger  Bench of  the Tribunal  in  Kamani  Foods

case, decided in the year 1995.

(b)  In view of the above, this Court was influenced by the fact that smaller

Bench of the Tribunal,  while giving the decision which was impugned

before it, was bound to follow the judgment of the larger Bench as per

the demands of judicial propriety.

(c)  In  Kamani Foods  case, the larger Bench of the Tribunal had noted its

earlier  Special  Bench ruling in the case of  Kharia Cement Works  v.

Collector of Central Excise4 wherein it was held that Notification No.

175 of 1986 had to be read as a whole and sub-clauses (i) and (ii) had to

be construed harmoniously.  The case was, thus, confined to interplay

between sub-clauses (i) and (ii) of clause (a) of para 1 of the Notification,

which reads as under:

“In  exercise  of  the  powers  conferred  by  sub-rule  (1)  of Rule 8 of the Central Excise Rules, 1944, in supersession of  the  notification  of  the  Government  of  India  in  the Ministry  of  Finance  (Department  of  Revenue)  No. 85/85-Central  Excises,  dated  the  17th March,  1985,  the Central Government hereby exempts the excisable goods of  the  description  specified  in  the  Annexure  below  and falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), (hereinafter referred to as the “specified goods”), and cleared for home consumption on or after the 1st day of  April  in  any financial  year, by a manufacturer from one or more factories, -  

(a)  in  the  case  of  the  first  clearances  of  the  specified

4 1989 (42) ELT 696 (Tribunal)

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goods upto an aggregate value not exceeding rupees thirty lakhs, -  

(i) in a case where a manufacturer avails of the credit of the duty paid on inputs used in the manufacture of the  specified  goods  cleared  for  home  consumption under Rule 57A of the said Rules, from so much of the duty of excise leviable thereon which is specified in  the  said  Schedule  [read  with  any  relevant notification issued under sub-rule (1) of Rule 8 of the said  Rules  or  sub-section  (1)  of  section  5A of  the Central Excises and Salt Act, 1944 (1 of 1944) and in force for the time being] as is equivalent to an amount calculated at the rate of 10% ad valorem :

(ii)  in any other case from the whole of the duty of excise leviable thereon :

Provided that the aggregate value of clearances of  the  specified  goods  under  sub-clause (ii)  of  this clause  in  respect  of  any  one  chapter  of  the  said Schedule, shall not exceed rupees twenty lakhs;

xx xx xx”

(d) Interpreting  the  aforesaid  two  sub-clauses  harmoniously,  this  Court,

while  giving  its  imprimatur  to  Kamani  Foods  case,  held  that  if  the

MODVAT credit under Rule 57A is availed by the assessee, it would not

be entitled to exemption from excise duty under the said Notification.

Significantly, these two sub-clauses deal with the goods manufactured

by the assessee with its own brand and do not deal with the situation

where,  in  addition,  the  assessee/manufacturer  also manufactures  the

goods of third parties on job work basis.  It  goes without saying, and

does  not  need  much  elaboration,  that  in  respect  of  its  own  goods

manufactured by the SSI Unit, it  can either claim exemption from the

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excise duty or CENVAT credit, and not both.  That is the clear message

of sub-clauses (i) and (ii) of clause (a) of para 1 of the Notification.

(e) Distinction between the goods cleared for home consumption and

those manufactured on job work basis for third parties and the fact that

CENVAT credit was availed of only in respect of goods manufactured for

third parties and not with respect to home brand was not brought to the

notice of  the Court.   Other  provisions of  the notifications which have

bearing on this issue were also not brought to the notice of the Court.  In

fact, as noted above, the Court was primarily influenced by the fact that

Tribunal had relied upon its earlier decision in  Faridabad Tools  case

without  realising  that  same  had  already  been  overruled  by  a  larger

Bench of the Tribunal in Kamani Foods case.  It would be pertinent to

point out that the appeal was decided  ex parte,  i.e., in the absence of

assessee who chose not to appear.  As would be noted hereafter on this

issue, it is the other clauses of the Notifications which provide a correct

answer.

  16) The question posed in these appeals, however, is different  where the

assessees have not claimed any CENVAT/MODVAT credit in respect of

inputs  used in  the  manufacture  of  their  own products.  This  CENVAT

credit  is  availed  by  them in  respect  of  goods  manufactured  for  third

parties on job work basis for which the assessees had admittedly paid

the  excise  duty.  In  such  circumstances,  whether  such  an  assessee

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loses the benefit of exemption notification even in respect of goods for

home  consumption?   Answer  to  this  question  is  not  available  in

sub-clauses (i) and (ii) of clause (a) of para 1.  For this, other paragraphs

of the Notifications in question have to be looked into.  We have already

extracted  those  relevant  paragraphs  from  these  Notifications.   We

reproduce,  in  the  form  of  a  comparative  chart,  extract  of  those

paragraphs:

Notification No. 175/86 Notification No. 8/99-CE and 9/99-CE

Proviso to Para 3   “Provided  that  for  the  purpose  of computing  the  aggregate  value  of clearances under this paragraph, the clearances  of  any  excisable  goods where  a  manufacturer  affixes  the specified goods with  a brand name or trade name (registered or not) of another person who is not eligible for the  grant  of  exemption  under  this notification,  shall  not  be  taken  into account;”

Para 3

For the purposes of determining the aggregate  value  of  clearances  for home  consumption,  the  following clearances  shall  not  be  taken  into account, namely:

(a)  clearances,  which  are  exempt from  the  whole  of  the  excise  duty leviable  thereon  (other  than  an exemption based on quantity or value of  clearances)  under  any  other notification  or  on  which  no  excise duty is payable for any other reason;

(b)  clearances being the brand name or  trade  name  of  another  person, which  are  ineligible  for  the  grant  of this exemption in terms of paragraph 4 below;

(c)  clearances of the specified goods which are used as inputs for further manufacture of  any specified goods within the factory of production of the specified goods;  

(d)   clearances  of  strips  of  plastics used within the factory of production for  weaving  of  fabrics  or  for manufacture of sacks or bags made

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of polymers of ethylene or propylene.

Para 7

The  exemption  contained  in  this notification  shall  not  apply  to  the specified  goods  where  a manufacturer  affixes  the  specified goods  with  a  brand  name or  trade name (registered or not)  of  another person  who  is  not  eligible  for  the grant  of  exemption  under  this notification.

Provided  that  nothing  containing  in this notification shall be applicable to the  specified  goods  which  are component parts of any machinery or equipment or appliances and cleared from  a  factory  for  use  as  original equipment in the manufacture of the said  machinery  or  equipment  or appliances and the procedure set out in  Chapter  X  of  the  said  rules  is followed...

Provided  further  that  nothing contained in this paragraph shall be applicable  to  the  specified  goods where  a  manufacturer  affixes  the specified goods with  a brand name or trade name (registered or not) of the  Khadi  and  Village  Industries Commission,  the  State  Khadi  and Village Industries Board, the National Small  Industries  Corporation  or  the State Small  Industries Development Corporation.

Para 4

The  exemption  contained  in  this notification  shall  not  apply  to  the specified  goods  bearing  a  brand name  or  trade  name,  whether registered or not, of another person, except in the following cases:-

(a)   where  such  specified  goods, being in the nature of components or parts of any machinery or equipment or appliances, are cleared for use as original  equipment  in  the manufacture of the said machinery or equipment or appliances by following the procedure laid down in Chapter X of the Central Excise Rules, 1944.

Provided that manufacturers,  whose aggregate  value  of  clearances  for home consumption of such specified goods for use as original equipment does not exceed rupees fifty lakhs in a financial  year as calculated in the manner  specified  in  the  said  Table, may  submit  a  declaration  regarding such  use  instead  of  following  the procedure laid down in Chapter X of the said rules;

(b)  where the specified goods bear a brand name or trade name of -  

(i)  the  Khadi  and  Village  Industries Commission; or (ii)   a  State  Khadi  and  Village Industry Board; or (iii)   the  National  Small  Industries Corporation; or (iv)   a  State  Small  Industries Development Corporation; or (v)   a  State  Small  Industries Corporation.

Explanation IV

For the purposes of this notification, where  the  specified  goods

Explanation B to para 5

For the purposes of this notification, where  the  specified  goods

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manufactured by a manufacturer, are affixed with  a  brand name or  trade name (registered or not)  of  another manufacturer  or  trader,  such specified goods shall not, merely by reason  of  that  fact,  be  deemed  to have  been  manufactured  by  such other manufacturer or trader.

manufactured  by  a  manufacturer bear  a  brand name or  trade name, whether registered or not, of another manufacturer  or  trader,  such specified goods shall not, merely by reason  of  that  fact,  be  deemed  to have  been  manufactured  by  such other manufacturer or trader.

17) A holistic reading of the Notification, in the light of the other paragraphs,

brings into focus the overall  scheme.  It,  inter  alia,  provides that  the

clearances bearing the brand name or trade name of third parties which

are ineligible for grant of this exemption, for the purposes of determining

aggregate  value  of  clearances  for  home consumption,  are  not  to  be

included.   These  Notifications  also  make  it  clear  that  the  exemption

contained therein is not to apply to the specified goods bearing a brand

name or trade name, whether registered or not, of any person, except

under  certain  circumstances  specifically  stipulated  therein.  The

Notifications also clarify that for the purpose of these Notifications, where

the goods manufactured by a manufacturer bear brand name or trade

name (whether registered or not) of any manufacturer of trade, they shall

not be deemed to have been manufactured by such other manufacturer

or  trade.   Reading  of  the  aforesaid  provisions  in  the  Notifications

unambiguously points out that for the purposes of availing the benefit of

Notification by an SSI Unit, the clearances for home consumption only

are to be taken into consideration,  except  in  those cases where it  is

clearly  provided otherwise.   For  this  purpose,  clearances bearing the

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brand name or trade name of third parties are concerned, they are kept

outside the scheme inasmuch as: (a) they are not to be included for the

purposes of determining the aggregate value of the clearances for home

consumption;  and  (b)  such  products  bearing  brand  names  or  trade

names of third parties, even if  manufactured by the SSI Unit, are not

eligible for any exemption and excise duty thereupon has to be paid.

Once we understand the scheme of the Notifications in the aforesaid

perspective, which according to us is the only manner in which it has to

be  understood,  it  becomes  apparent  that  so  far  as  manufacture  of

branded  goods  of  third  party  on  job  work  basis  by  the  SSI  Unit  is

concerned, they are to be dealt with differently in the sense that they do

not come within the ambit of exemption on which normally excise duty,

as per the provisions of the Act, is payable.  As a sequitur, it also follows

that  once  excise  duty  is  paid  by  the  manufacturer  on  such  branded

goods  manufactured,  the  brand  name  whereof  belongs  to  another

person,  on  job  work  basis,  the  SSI  Unit  would  be  entitled  to

CENVAT/MODVAT credit on the inputs which were used for manufacture

of such goods as on those inputs also excise duty was paid.  To put it

otherwise, these branded goods manufactured by the SSI Units meant

for third parties are regulated by the normal provisions of excise law and

will have no bearing or relevance insofar as availing the benefit of those

exemption notifications in respect of its own products manufactured by

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the SSI Units is concerned.

18) We, thus, find that the Tribunal in the impugned decisions in both these

appeals has decided the issue correctly.  Admittedly, in respect of home

production,  the  assessee  had  not  availed  the  benefit  of  two  options

simultaneously  as  no  CENVAT credit  is  claimed  in  respect  of  those

goods.  While doing so, the Tribunal has taken note of the judgment of

this  Court  in  Ramesh Food Products  case and rightly  analysed the

same.  We reproduce following discussion in the impugned judgment

dated 22.08.2006 of the Tribunal (which is the subject  matter  of  Civil

Appeal No. 2789 of 2007):

“7.  The provisions in the relevant Notifications to compute aggregate  value  of  clearances  mandate  that  the clearances of goods bearing brand name or trade name of another  persons  which  are  ineligible  for  the  grant  of exemption shall not be taken into account in determining the aggregate value of  clearances.   Therefore,  value of clearances of goods bearing brand name of third parties without availing the benefit of Notification No. 8/2003 is not reckoned  for  computing  clearance  value  of  rupees  one hundred lakhs in any year for exemption benefit.   From these clauses contained in the relevant Notifications, it is clear that goods bearing brand name of third parties were not  eligible  for  exemption  contained  in  Notification  No. 8/2003.   Identical  provision existed in Notifn No. 9/2003 where  the  option  of  availment  of  Modvat  benefit  and payment  of  a concessional  rate of  duty was prescribed. Goods bearing brand name of third parties are therefore excluded from the exemption in Notification No. 9/2003 as well.  The assessee has not availed the benefit contained in  either  of  the Notifications 8/99 and 9/99,  8/2000 and 9/2000 etc.  in  respect  of  goods bearing brand name of third parties.

8.  We find that the impugned order also seeks support of the ratio of Ramesh Food Products case decided by the

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Hon'ble  Supreme  Court.   In  that  case,  the  Honourable Supreme Court considered the options available to the SSI units clearing specified goods and decided that both the options provided substantive concessions viz; modvat and exemption under Notfn.  175/86 to the manufacturer  and the manufacturer had to decide on one option.  Once an option was made, there was no liberty to the assessee to avail  benefits  of  both  the  options  simultaneously. Therefore an SSI unit  availing full  exemption as per the Notfn.  No.  175/86  in  respect  of  certain  specified  goods could not also avail the modvat benefit in respect of certain other specified goods.

8.1   Notfn  No.  175/86  dated  01.03.1986  extended concessional rate of duty on first clearances of specified goods  of  value  of  rupees  seven  and  half  lakhs  while availing modvat credit on inputs or full exemptions benefit for such goods without the benefit of modvat credit.  The Notfn also provided lesser benefit for further clearances in excess  of  the  above  aggregate  value  under  both  the options for higher slabs/aggregate value of clearances.  In computing  the  aggregate  value  of  clearances  for  the purposes  of  exemption  under  both  the  options,  the notification did not require that the goods bearing brand name of third parties should be excluded.  The following explanations,  inter-alia,  governed  computation  of  the above aggregate value for the Notfn.

Explanation  IV  –  For  the  purposes  of  this  notification, where  the  specified  goods  manufactured  by  a manufacturer, are affixed with a brand name or trade name (registered  or  not)  of  another  manufacturer  or  traders, such specified goods shall not, merely by reason of that fact, be deemed to have been manufactured by such other manufacturer or trader.

8.2   The  above  condition  though  present  in  the Notifications that replaced the scheme of duty benefit for SSI units contained in Notfn. 175/86, value of such goods are  specifically  excluded  from  the  computation  of aggregate  value  in  these Notfns.   Clearances  of  goods bearing brand name of third parties is thus not governed by the Notfns issued for the benefit of SSI units.

xx xx xx

9.1  All the twin Notifications contain the following identical conditions  excluding  the  goods  bearing  brand  name  of

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third parties from the purview of both the Notifications:

“3.   For  the  purpose  of  determining  the  aggregate value  of  clearances  for  home  consumptions,  the following clearances shall not be taken into account, namely:

(a) xx xx xx

(b)   clearances  bearing  the  brand  name  or  trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4 below.

4.  The exemption contained in the Notification shall not  apply  to  the  specified  goods  bearing  a  brand name or  trade name,  whether  registered  or  not,  of another person, except in the following cases....”

The exclusions mentioned are components manufactured for OE manufacturers, goods manufactured in rural area, goods bearing brand names of KVIC etc.  The conditions contained in para 2(iii) of the relevant Notifications seminal to  the  dispute  was  not  present  in  the  Notification  No. 175/86.   The  relevant  notifications  are  different  from Notification No. 175/86 in view of the other new conditions since added.

10.   Therefore,  the  ratio  laid  down  by  the  Apex  Court interpreting  Notification  No.  175/86  in  Ramesh  Food Products  cannot  apply  in  reading  the  scope  of  pairs  of Notifications issued in various years after its (Notification No. 175/86) rescission for the benefit of SSI Units.  It  is well  settled  that  each  Notification  has  to  be  construed strictly on its own terms.  The issue involved in the subject case  is  interpretation  of  the  scope  of  relevant  Notfns extending exemption without the benefit of modvat credit. In the view we have taken of the relevant Notifications, the assessee had correctly availed the exemption under the relevant  Notfns.  and  the  impugned  order  is  passed  on incorrect reasoning.  We therefore set aside the impugned order and allow the appeal.”

19) We, accordingly, uphold the view of the Tribunal in both the decisions,

result whereof is to dismiss these appeals.  Ordered accordingly.  There

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shall, however, be no order as to costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; OCTOBER 27, 2015.