By TIOL News Service

CHANDIGARH, MAY 30, 2013: THE CESTAT had denied the benefit of SSI exemption under per Notification No.8/ 2001 to the assessee on the ground of using the brand name of another person. However the Tribunal set aside the confiscation and penalty on the Company as well as its directors.

Against the denial of exemption, the assessee appealed to the Supreme Court, but its appeal was dismissed in a one-line order - The Civil Appeal is dismissed.

Against the setting aside of confiscation and penalty, the Revenue is in appeal before the High Court.

So, now the preliminary questions before the High Court are:

(i) Whether the demand of duty claiming exemption as per Notification No.8/2001 relates to the determination of 'rate of duty of excise' or to the 'value of goods', which may lead to exclusion of jurisdiction of this Court in an appeal under Section 35G of the Act?

(ii) Whether dismissal of an appeal by the Hon'ble Supreme Court at the instance of assessee precludes the Revenue from availing the remedy of appeal under Section 35G of the Act?

On the first question, the High Court observed, "The issue in the present lis is regarding benefit of exemption under Notification No.8/2001 available to an assessee, a Small Scale Industry. It is not an issue relating to rates of duty or the value of goods, but only to the effect whether the assessee is entitled to exemption granted to a Small Scale Industrial Unit on the basis of trade mark of another concern. Any decision thereon, is relevant only inter-parties and has no wider ramification within the jurisdiction of this Court much less in the Country. Therefore, such localized dispute does not fall within the exception of Section 35G of the Act. Thus, this Court will have jurisdiction to entertain the appeal in respect of clandestine removal of goods claiming benefit of exemption as per Notification No.8/2001. Thus, the first question of law is answered holding that claim of the benefit of a notification by an assessee does not give rise to an issue relating to 'rate of duty' or the 'value of goods' for the purposes of assessment, therefore an appeal would be maintainable before this court"

On the second question, the High Court noted that the assessee's appeal was dismissed by the Supreme Court by passing the following order:

Delay condoned.

The Civil Appeal is dismissed.

The High Court held that the order of the Supreme Court dismissing Civil Appeal leads to merger of that part of the order alone, which was against the assessee. Once the assessee has availed the remedy of appeal and such appeal has been dismissed, the findings of the Tribunal, which are against the assessee, stands affirmed and stood merged with the order of the Hon ble Supreme Court. It is more so, when the appeal was dismissed without notice to the Revenue and the Revenue had no opportunity to point that it intends to file an appeal against an order of the Tribunal. Therefore, the findings against the Revenue could be disputed before the competent Court of law.

Now, the appeal by the Revenue before the High Court, setting aside the confiscation and penalty.

The High Court observed,

Rule 25 and Rule 26 of the Central Excise Rules confer the power to impose penalty on the Adjudicating Authority subject to provisions of Section 11-AC of the Act. Penalty is imposable under Rule 25, if any producer, manufacturer, registered person of a warehouse or a registered dealer, contravenes any of the provisions of these Rules or the notifications issued under these rules 'with intent to evade payment of duty'. It also contemplates that 'penalty shall not exceed the duty on the excisable goods'.

A reading of clause (d) of Rule 25 shows that the penalty is imposable if there is intention to evade payment of duty. Thus, mens rea becomes a necessary ingredient before imposition of penalty under Rule 25. The Tribunal has set aside the order of imposing penalty finding that it is a bona fide belief of the assessee in using the brand name of its sister concern. Therefore, such user is not with intent to evade payment of duty and, thus, levy of penalty has been rightly set aside.

In respect of penalties imposable under Rule 26, again the penalty is payable if a person acquires possession of, or in any manner deals with any excisable goods 'which he knows or has reason to believe' are liable to confiscation under the Act. Such provision again makes the mens rea a necessary ingredient for imposition of penalty, as held by the Supreme Court.

The High Court held that Revenue has not been able to prove the intention to evade the payment of duty or the fact that the assessee knew or has reason to belief that the goods used are liable to be confiscated under the Act. The Tribunal is right in setting aside the order of imposition of penalty.

Revenue Appeal Dismissed.

(See 2013-TIOL-445-HC-P&H-CX)