SUPREME COURT OF INDIA
Messrs Reiz Electro Controls Private Limited
Vs
Commissioner of Central Excise, Delhi-I
Appeal (Civil) 7449 of 2003
(Arijit Pasayat and L. S. Panta, JJ)
31.07.2006
ARIJIT PASAYAT, J.
Challenge in this appeal is to the decision of the Central Excise and Gold
Control Appellate Tribunal, New Delhi (in short 'the Tribunal') holding that
the authorities had rightly denied small scale exemption to Reiz Electro
controls Pvt. Ltd. (in short the 'REPL') and Reiz Enterprises (in short the
'RE'). It was further held that the demands of duty from them and imposition of
penalty as well as interest levied under Central Excise
Act, 1944 (in short the 'Act') and Central Excise Rules, 1944 (in short
the 'Rules') do not suffer from any infirmity. However, the case was remanded
to the jurisdictional Commissioner for re-computing the duty demands and re-
determining penalty. However, in the light of observations made, penalties
imposed on Shri Atul Agarwal and Sh. Siddarth Agarwal under Rule 209A were set
aside.
The back ground facts in a nutshell are as follows:
M/s RE is a proprietary concern of Shri Atul Agarwal and is engaged in the
manufacture of Electronic Fan Regulators, Dimmers and Remote Control Switches
under the brand name 'RE1Z since 1988. In the year 1993, M/s REPL was
constituted with Shri Atul Agarwal and his two brothers Shri Siddarth Agarwal
and Shri Ravindra Agarwal as its Directors. M/s REPL was engaged in the
manufacture of Electronic transformers. Both the units manufacture their goods
under a common brand name of 'REIZ'. The Commissioner, Central Excise-I, New
Delhi by his order dated 31.10.2001 held that since the brand name 'REIZ'
belonged to M/s RE till its transfer to REPL in 2000, the Electronic
transformers manufactured under brand name 'RETZ' by REPL till the transfer
were ineligible for small scale exemption, inasmuch as under the Notification
no.1/93 a manufacturer affixing the brand name of another person was ineligible
for the exemption. Similarly, it was held that M/s RE became ineligible for
exemption once the brand name REIZ was transferred on 30.3.2000 to REPL.
Appeals were preferred before the Tribunal questioning duty, penalty and
interest levied. Tribunal disposed of the appeals as aforenoted. Tribunal noted
the position as follows:
"It is a specific condition under Notification No. 1/93 that the goods
manufactured under the brand name of another person is not eligible for
exemption under the notification. Investigations have established that Shri
Atul Agarwal on behalf of M/s. RE had applied on 12.1.1993 for registration of
brand name of 'REIZ' in respect of goods including electronic transformer. This
registration application was allowed in his favour in 2000. It is well settled
that registration of trade mark/brand name once granted relates back to the
date of application. Thus, in respect of electronic transformer also Mr. Atul
Agarwal, proprietor of RE became owner of the brand name 'REIZ' w.e.f 1993.
Therefore, the electronic transformers manufactured by M/s. REPL with the brand
name REIZ impugned in the present proceeding being manufactured subsequent to
1993 became ineligible for small exemption on account of the use of brand name
'REIZ' which belonged to another person (RE). On account of the subsequent
transfer of the brand name of REPL, RE has also become ineligible for exemption
in respect of the goods produced under that brand name subsequent to the
transfer."
Stand of the appellants before the Tribunal was that M/s RE never manufactured
electronic transformer and therefore, in respect of that item, the brand name
REIZ belonged to M/s REPL. It was also submitted that REPL had applied for
registration of that brand name in their favour for electronic transformer in
1995. In these circumstances, it has to be held that electronic transformers
manufactured by the REPL were not manufactured under the brand name of another
person.
The demands in the present case were raised under extended period permitted in
the proviso 11A of the Act, on the ground that, the non-levy in the result of
suppression of facts with intention to evade payment of duty. It was contended
that there was no suppression of facts in as much as both the manufacturers had
filed declaration before the Central Excise authorities that goods are
manufactured under the brand name belonging to them and brand name of another
person is not used It is also stressed that both the units are located in the
same building in the jurisdiction of same Central Excise Superintendent and
therefore, the facts of the cases were known to the Central Excise authorities
and a change of suppression of facts is not maintainable.
The respondents pointed out that in view of the specific prescriptions in the
Notification the demands have been rightly raised.
As noted above the contentions did not find acceptance by Tribunal and,
therefore, the impugned order was passed.
Stands before the Tribunal were reiterated by learned counsel for the
appellant. Additionally, it was submitted that the appellant had in the
meantime obtained a certificate under the Trade Marks Act,
1999 (in short the 'Trade Marks Act') and the certificate of
registration of trade mark covered the period in question. Therefore, even if
it is conceded that the Tribunal's view is correct no duty, penalty or interest
can be levied.
So far as the views regarding non-eligibility are concerned view expressed by
this Court in several cases needs to be noted.
In Commissioner of Central Excise, Chandigar-I v. Mahaan Dairies (SC)]
it was noted (in para 6) as follows:
"We have today delivered a judgment in Commissioner of Central Excise,
Trichy v. Rukmani Pakkwell Traders 2004 (165) ELT 481 (S.C.) (Civil
Appeal Nos. 3227-3228/1998) wherein we have held in respect of another
Notification containing identical words that it makes no difference whether the
goods on which the trade name or mark is used are the same in respect of which
the trade mark is registered. Even if the goods are different so long as the
trade name or brand name of some other Company is used the benefit of the
Notification would not be available. Further, in our view, once a trade name or
brand name is used then mere use of additional words would not enable the party
to claim the benefit of Notification."
In Union of India v. Paliwal Electricals (P) Ltd. and Another it was
noted (in paras 10 and 11) as follows:
"10. We are of the opinion that while examining the challenge to an
exemption notification under the Central Excise Act, the observations in the
decisions aforesaid should be kept in mind. It should also be remembered that
generally speaking the exemption notification and the terms and conditions
prescribed therein represent the policies of the Government evolved to subserve
public interest and public revenue. A very heavy burden lies upon the person
who challenges them on. the ground of Article 14. Unless otherwise established,
the court must presume that the said amendment was found by the Central
Government to be necessary for giving effect to its policy (underlying the
notification) on the basis of the working of the said notification and that
such an amendment was found necessary to prevent persons from taking unfair
advantage of the concession. In fact, in this case, the explanatory note
appended to amending notification says so in so many words. If necessary, the
Court could have called upon the Central Government to establish the reasons
behind the amendment. (It did not think it fit to do so.) It is equally
necessary to bear in mind, as pointed out repeatedly by this Court, that in
economic and taxation sphere, a large latitude should be allowed to the
legislature. The courts should bear in mind the following observations made by
a Constitution Bench of this Court in R.K. Garg v. Union of India : (SCC
pp. 690-91, para 8)
"Another rule of equal importance is that laws relating to economic
activities should be viewed with greater latitude than laws touching civil
rights such as freedom of speech, religion etc. It has been said by no less a
person than Holmes, J. that the legislature should be allowed some play in the
joints, because it has to deal with complex problems which do not admit of
solution through any doctrinaire or strait-jacket formula and this is
particularly true in case of legislation dealing with economic matters, where,
having regard to the nature of the problems required to be dealt with, greater
play in the joints has to be allowed to the legislature. The Court should feel
more inclined to give judicial deference to legislative judgment in the field
of economic regulation than in other areas where fundamental human rights are
involved. Nowhere has this admonition been more felicitously expressed than in
Morey v. Doud 354 US 457 (1957)] where Frankfurter, J. said in his inimitable
style:
'In the utilities, tax and economic regulation cases, there are good reasons
for judicial self- restraint if not judicial deference to legislative judgment.
The legislature after all has the affirmative responsibility. The courts have only
the power to destroy not to reconstruct. When these are added to the complexity
of economic regulation, the uncertainty, the liability to error, the
bewildering a conflict of the experts, and the number of times the Judges have
been overruled by events self-limitation can be seen to be the path of judicial
wisdom and institutional prestige and stability.'
The court must always remember that 'legislation is directed to practical
problems, that the economic mechanism is highly sensitive and complex, that
many problems are singular and contingent, that laws are b not abstract
propositions and do not relate to abstract units and are not to be measured by
abstract symmetry' that exact wisdom and nice adaptation of remedy are not
always possible and that judgment is largely a prophecy based on meagre and
uninterpreted experience'. Every legislation particularly in economic matters
is essentially empiric and it is based on experimentation or what one may call
trial and error C method and therefore it cannot provide for all possible
situations or anticipate all possible abuses. There may be crudities and
inequities in complicated experimental economic legislation but on that account
alone it cannot be struck down as invalid. The courts cannot, as pointed out by
the United States Supreme Court in Secy. of Agriculture v. Central Roig
Refining Co. [ 94 L Ed 381 : 338 US 604 (1950)] be converted into
tribunals for relief from such crudities d and inequities. There may even be
possibilities of abuse, but that too cannot of itself be a ground for
invalidating the legislation, because it is not possible for any legislature to
anticipate as if by some divine prescience, distortions and abuses of its
legislation which may be made by those subject to its provisions and to provide
against such distortions and abuses. Indeed, howsoever great may be the care
bestowed on its e framing, it is difficult to conceive of a legislation which
is not capable of being abused by perverted human ingenuity. The Court must
therefore adjudge the constitutionality of such legislation by the generality
of its provisions and not by its crudities or inequities or by the
possibilities of abuse come to light, the legislature can always step in and
enact suitable amendatory legislation. That is the essence of pragmatic
approach which f must guide and inspire the legislature in dealing with complex
economic issues."
11. The same principle should hold good in the matter of exemption
notifications as well, for the said power is part and parcel of the enactment
and is supposed to be employed to further the objects of enactment subject, of
course, to the condition that the notification is not ultra vires the Act,
and/or Article 14 of the Constitution of India. (See P.J. Irani V. State of
Madras 1962 (2) SCR 169.
In Pahwa Chemicals Private Limited v. Commissioner of Central Excise, Delhi
(SC)] it was held as follows at para 3:
"Paragraph 4 and Explanation IX of Notification have been construed by
this Court in Commissioner of Central Excise v. Rukhmarii Pakkwell Traders,
2004 (165) ELT 481; as also in Commissioner of Central Excise, Chandigarh
v. Mczhaan Dairies, . In both these decisions this Court held that
Paragraph 4 read with Explanation IX of the notification could not be construed
in the manner as contended by the assessees, namely, to make it necessary for
the owner of the trade mark/trade name to use the goods in respect of the
specified goods manufactured by the assessee. We see no reason to differ with
the reasoning of this Court in the aforesaid decisions. Clause 4 of the
Notification read with Explanation IX clearly debars those persons from the
benefit of the exemption who use someone else's name in connection with their
goods either with the intention of indicating or in a manner so as to indicate
a connection between the assessees goods and such other person. There is no
requirement for the owner of the trade mark using the name or mark with
reference to any particular goods. The object of the exemption notification was
neither to protect the owners of the trade mark/trade name nor the consumers
from being misled. These are considerations which are relevant in cases
relating to disputes arising out of infringement/passing off actions under the
Trade Marks Act. The object of the Notification is clearly to grant benefits
only to those industries which otherwise do not have the advantage of a brand
name. The decisions cited by the Counsel appearing on behalf of the assessees
relate to decisions involving Trade Mark disputes and are in the circumstances
not apposite."
Therefore, the main contention of the learned counsel for the appellant about
eligibility for exemption is sans merit. However, the alternative plea raised
needs to be considered. It is accepted by learned counsel for the parties that
this plea needs factual adjudication which has not been done.
It appears that such a stand was not taken before the Tribunal. In any event in
view of what has been stated by this Court in Mahaan Dairies' case (supra) the
Tribunal has to consider the plea. In Mahaan Diaries' case (supra) it was
observed as follows:
"9. It was however, urged that the respondents have applied for
registration of the Mark "Mahaan Taste Maker". We clarify that if and
when they get their mark registered then they would become entitle to the
benefit of the Notification in accordance with Board's Circular No.88/88, dated
13.12.1988."
Similarly in Bhalla's case (supra) it was observed as follows:
"17. According to the learned Counsel appearing on behalf of the
respondents the documents on the basis of which the impugned demand has been
raised against the respondent were available with the Department as on the date
of the seizure. There was as such no question of holding any further
investigation into any further fact for the issue of the demand on the
allegation that the assessees had wrongly availed of the exemption. The only
investigation which was held related to the question whether the respondent was
a dummy unit of Corona Plus Industries. It is submitted that the Department
cannot take advantage of the investigation held in such connection to justify a
time- barred claim relating to the first issue. In any event it is submitted
that the respondent-firm had all along contended that it was also the owner of
the brand name/trade mark in question. In fact, the application made by the
respondent for registration of the trade mark in question, namely, "Saving
Plus" had been made on 16- 10-97. This application had been allowed by the
trade mark authorities under the Trade Mark Act on 22-12-2003 with
retrospective effect i.e. 6-10-97. It is, therefore, submitted that in any
event, the respondent would be entitled to the benefit of the exemption
Notification. We are of the view that having regard to the contention of the
parties, the matter should be reheard by the Tribunal on both the issue of
limitation as well as the issue of ownership. The decision of the Tribunal is,
accordingly, set aside and the matter is remanded back for the aforesaid
purpose."
If the Tribunal holds that the trade mark registration has any relevance, then
question of limitation is really of academic interest. But if it is held that
the same has no relevance the question of limitation has to be decided in the
background of the factual scenario.
The appeal is accordingly disposed of with no orders as to costs.