M/S. Rexford (I) Pharmaceuticals vs Commissioner Of Central Excise, Thane ...

(Arising out Order-in-Appeal No. BR/167 to 168/Th-II/05 dated 31.05.2005 passed by the Commissioner of Central Excise (Appeals), Thane II)

For approval and signature: Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S.S.Garg, Member (Judicial)

1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : Yes 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

M/s. Rexford (I) Pharmaceuticals Mr. Kirit S. Sanghvi Appellant

Vs.

Commissioner of Central Excise, Thane II Respondent

Appearance:

Shri C.S. Biradar, Advocate for the appellant Shri N.N. Prabhudesai, Supdt. (AR) for the respondent

CORAM:

Honble Shri P.K. Jain, Member (Technical) Honble Shri S. S. Garg, Member (Judicial)

Date of hearing : 03.09.2015 Date of decision : 15.09.2015

O R D E R No:..

Per: P.K. Jain:

The brief facts of the case are that the appellants are engaged in the manufacture of medicines and availing the benefit of small scale exemption notification no. 175/86-CE. During the period March 1991 to August 1992, in addition to their own manufacturing, they also manufactured P&P medicaments on behalf of M/s. Vellanova Pharmaceuticals Ltd. (VPL for short). The medicines manufactured were having the brand name of M/s. VPL. It was further claimed that the said M/s. VPL is a small scale unit and since the appellant were manufacturing the goods of another small scale unit carrying the brand name of that SSI, they are eligible for the benefit of Notification 175/86 even in respect of goods manufactured on behalf of M/s. VPL.

2. On the basis of information, the matter was investigated and it was found that M/s. VPL is a subsidiary company of a big industrial group M/s. Business Combines Ltd. having a turnover of more than `2 crores which far exceeded the SSI limits. Investigation also revealed that M/s. VPL at the relevant time had no manufacturing facility and were a trading concern only. They had only taken some land and thereafter registered themselves on provisional basis with Small Scale Industrys Authorities. This is normally done so that they can complete other requirements e.g. electricity connection, bank loan, etc. During the period in question no manufacturing activity was carried out by M/s. VPL as the unit did not have manufacturing facility. Keeping in view the fact that M/s. VPL did not have the manufacturing facility during the relevant period and therefore, cannot be considered as a Small Scale unit, Revenue is of the view that the benefit of Notification 175/86 cannot be extended to the appellant in respect of the goods manufactured by them on behalf of M/s. VPL. After investigation which included recording of statements of certain officials from M/s. VPL, a show-cause notice demanding duty and penalty was issued which was confirmed by the original authority. Aggrieved by the said order, appellants filed appeals before the appellate authority who in the impugned order has confirmed the demand and penalty. However, penalty is substantially reduced on the main appellant. Aggrieved by the said order, both the appellants are before this Tribunal

3. Ld. counsel for the appellants main contention was that appellant has undertaken the manufacturing on behalf of M/s. VPL after filing the classification list in which it was very clearly shown that they are going to manufacture goods on behalf of M/s. VPL. It was further submitted that at the relevant time M/s. VPL had provisional SSI registration certificate and as clarified by the Board vide circular no. B-21/15/86-TRU dated 03.04.1987 the provisional registration from the state government authorities could be accepted for purpose of duty concession. It was submitted the said provisional certificate was converted into permanent certificate and as clarified by the Board vide Circular no. 46/90-CX dated 11.07.1990, M/s. VPL would be eligible for getting the benefit of SSI Notification. Ld. counsel further submitted that once the clarification list is approved it is not open for the department to raise the demand as held by the Hon'ble Supreme Court and this Tribunal in the following cases:

* Bhiwani Textile Mills 1996 (88) ELT 639 (SC) * Giridhara Supply Co. 1997 (94) ELT 14 (SC) * Project Technologists P. Ltd. 2003 (161) ELT 783 (T) * Laxmi Vishnu Dye Chem 2002 (142) ELT 611 (T)

3.1. Ld. counsels contention was that since the classification list was approved and M/s. VPL had the provisional SSI registration certificate which was later on converted into permanent SSI certificate, Revenue cannot demand the duty at this stage and therefore there is no question of any penalty. It was further submitted that the demand notice has invoked the extended period of limitation also which is not sustainable in view of the fact that the classification list was approved.

4. Ld. AR on the other hand, submitted that the contention of the appellant about the approval of the classification list is not valid in view of the fact that Section 11A was amended in 2000 and the said amendment was with retrospective effect. He further submitted that the whole issue has gone to the Hon'ble Supreme Court after the amendment in the law and the same has been discussed in detail by the Hon'ble Supreme Court in the case of ITW Signode India Ltd. 2003 (158) ELT 403 (SC). Ld. AR submitted in view of the said decision of the Hon'ble Supreme Court approval of the classification list cannot stop the department from issuing the demand for the past period. Further, extended period of limitation can be invoked if the ingredients of proviso are satisfied.

4.1. Ld. AR further submitted that the issue of brand name is elaborately discussed by the Hon'ble Supreme Court and this Tribunal in number of cases. In support of the same, ld. AR cited the following case:

* CCE vs. Khanna Inds. 2007 (207) ELT 17 (SC) * Namtech Systems Ltd. 2000 (115) ELT 238 * Harts Cocoa Products (P) Ltd. 1996 (88) ELT 714 * Kores India Ltd. 2003 (158) ELT 658 * Beco Chemicals (P) Ltd. 2003 (156) ELT 668 * Yash Krishna Food Services Ltd. 2015 (318) ELT 144 * Kothari Poly Extrusion 2014 (314) ELT 307 * CCE vs. Tubes & Structurals 2015 (165) ELT 481 * CCE vs. Rukmani Pakkwell Traders 2004 (165) ELT 481 * CCE vs. Ace Auto Comp. Ltd. 2011 (263) ELT 3 (SC) * Parle Bisleri P. Ltd. 2011 (263) ELT 15 (SC).

4.2. Ld. AR further submitted that there is no dispute that the medicine manufactured had the brand name of M/s. VPL and therefore the goods manufactured were branded goods. Thus appellant manufactured goods carrying brand name of M/s. VPL. It was further submitted that since M/s. VPL at the relevant time was not at all the manufacturing unit but only a trading concern, M/s. VPL was not eligible for the exemption from duty and the goods manufactured on behalf of M/s. VPL by the appellant would also not be eligible for benefit of Notification 175/86. He further submitted that the issuance of the provisional certificate of SSI is of no relevance; as such a certificate gets issued even when an applicant purchases a land. The idea of such certificate is to enable the applicant to get approvals and electricity connection, bank loan etc. from various authorities. It is only after the unit starts commercial production that permanent SSI certificate is granted. Ld. AR further submitted that appellant is not claiming that M/s. VPL was a functional unit during the period under dispute. Ld. AR also submitted that the clarifications referred are relevant for the goods manufactured in SSI unit themselves and not to the goods which have been manufactured on their behalf in some other unit. In view of the said factual position, the appellant was not eligible for the benefit of Notification 175/86. Ld. AR further submitted that the Commissioner (Appeals) has already reduced the penalty substantially. He further submitted that approval of classification list has to be considered as non est in the eyes of law for the simple reason that the manufacturing unit was not in existence or capable of producing any goods at the relevant time. Moreover, such a crucial fact was intentionally and wilfully suppressed from the Revenue in the classification list.

5. We have considered the submissions made by both sides. The relevant provisions in Notification 175/86 is as under :

7. The exemption contained in the 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 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 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. In brief, a SSI unit could use his brand name and avail the benefit of this Notification. Thus at the relevant time SSI units can avail the benefit of SSI exemption even in respect of the goods manufactured on behalf of other SSI unit carrying the brand name of such other SSI unit. However, if a SSI unit was manufacturing the branded goods on behalf of any person other than SSI unit then benefit of Notification 175/86 in respect of such goods was not available. In the present case, there is no dispute that the appellants were manufacturing the branded goods on behalf of M/s. VPL. However, the appellant has claimed the benefit on the grounds M/s. VPL is a SSI unit. We find from the facts that at the relevant time, even though M/s. VPL has taken the provisional SSI certificate but manufacturing facility had not come into existence; It was only that the land was purchased and they were in the process of establishing the manufacturing unit. During investigation from the statement of the officials of M/s. VPL it is clear that the appellant was aware of the fact that M/s. VPL has no manufacturing facility. It is not in dispute that during the period in question M/s. VPL was not having manufacturing facility and has not commenced the commercial production. Hence goods manufactured by the appellant in the brand name of M/s. VPL would not be eligible for the benefit of Notification 175/86. Ld. counsel has emphasised that the unit was provisionally registered and in view of Boards clarification dated 03.04.1987 and further clarification dated 11.07.1990, M/s. VPL will be eligible to the benefit of SSI. We have gone through the clarification. Relevant portion of clarification dated 03.04.1987 and 11.07.1990.

Circular: B-21/15/ 86-TRU, dated 3-4-1987 Doubts have been expressed by some Collectors on the question whether the small scale units which are provisionally registered with the State Government authorities should get the benefit of SSI concession under notification 175/86-C.E., dated 1-3-1986.

2. The matter has been examined in the Board. It has been decided that the provisional registration from the State Government authorities could be accepted for the purpose of availment of duty concession under the aforesaid notification.

Circular No. 46/90-CX.8, dated 11-7-1990 Doubts were raised whether : -

(a) An assessee who was holding a provisional certificate but is denied permanent registration would still be entitled to exemption in terms of para 4(b) of Notification No. 175/86 and

(b)  With regard to point No.(a), the Conference felt that a provisional registration with SSI Directorate was no registration. For purposes of Notification No. 175/86, dated 1-3-1986 as amended, an SSI unit was required to be permanently registered. It was therefore recommended by the conference that an assessee whose provisional registration certificate was not converted into a permanent one, would not be eligible for the benefit available under Notification No. 175/86.



The conference also felt that in both types of cases mentioned above, the assessment should be kept provisional and finalised only after correct registration has been produced/obtained by the SSI unit.

The said clarifications are in respect of the goods produced by the SSI unit themselves by availing the benefit of Notification 175/86. The purpose of this clarification is that many a time a unit might have a provisional SSI certificate and thereafter would have started the commercial production while the state government authorities grant permanent SSI certificate after ensuring that such unit have started the commercial production and have the necessary capabilities and facilities. During the intervening period, if a view is taken that the goods produced by such a unit will not be eligible for SSI benefit the same would have caused undue hardship to such SSI unit. In the present case, the goods have not been produced by M/s. VPL but by the appellant. In our considered view, the said clarifications are not relevant. In the present circumstances, what is to be seen is M/s. VPL is a functional SSI unit and eligible for the benefit of Notification 175/86. We therefore do not find any strength in the arguments of the ld. counsel for the appellant.

6. As far as the ld. counsels argument that once classification list have been approved revenue cannot raise the demand. We find that that case laws quoted by the appellant are for the period prior to amendment and after the amendment in law the position is very clear and revenue is not prohibited from issuing the demand notices for the past period provided the conditions prescribed in the Section 11A are satisfied. We also note that the fact that M/s. VPL had no manufacturing facility and it had only bought the piece of land and even the civil work had not started and no manufacturing facility have not been put in place and commercial production not started were completely suppressed in the classification list filed by the appellant. In view of the said position, in our considered view, the extended period of limitation has been correctly invoked. We therefore uphold the demand made by the revenue. Further, we find that the penalty has already been substantially reduced by the Commissioner (Appeals) on the main appellant and we do not see any reason to further reduce the penalty. As far as penalty on the partner Shri Kirit Sanghvi is concerned, we find the penalty imposed is nominal. He was the active person and as is clarified by the officials of M/s. VPL that the main appellant and their officials were aware that they had no manufacturing facility. We do not find any reason to interfere with the nominal penalty imposed on the second appellant.

7. In the result, both the appeals are dismissed.

(Pronounced in Court on .)

(S. S. Garg) (P.K. Jain) Member (Judicial) Member (Technical)

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