By TIOL News Service

MUMBAI, FEB 21, 2017: THE appellants manufacture 'ready-made garments' and claimed exemption from CE duty under SSI notification no. 8/2001-CE.

It is alleged that, in violation of conditions of the said notification, the goods produced by the appellants had been marketed under brand names that did not belong to them and, therefore, demand notices were issued seeking to deny the SSI notification.

The original authority dropped the proceedings but the Commissioner(A) allowed the Revenue appeals.

Hence the appellants are before the CESTAT.

Allegedly, the 'ready-made garments' manufactured by the appellants bear the brands 'CANNON', 'CHARMS', 'CHOCKLATE' etc. which admittedly, also belonged to other persons.

The original authority took a stand that these brands were registered for manufacture of 'knitted garments' falling under Ch. 61 of the CETA, 1985 whereas the appellant manufactured 'woven garments'.

The impugned order relied on the apex court decision in Rukmani Pakkwell Traders - 2004-TIOL-51-SC-CX to hold that the exemption is not available irrespective of the fact that the goods that are manufactured by the owner of the brand is different from the user of the brand.

Before the CESTAT, the appellant relies on the apex court decision in Bhalla Enterprises - 2004-TIOL-90-SC-CX which is in their favour and where it is held -

"6. The apprehension of the assessee that they may be denied the exemption merely because some other traders even in a remote area of the country had used the trade mark earlier is unfounded. The notification clearly indicates that the assessee will be debarred only if its uses on the goods in respect of which exemption is sought, the same/similar brand name with the intention of indicating a connection with the assessee's goods and such other person or uses the name in such a manner that it would indicate such connection. Therefore, it the assessee is able to satisfy the assessing authorities that there was no such intention or that the user of the brand name was entirely fortuitous and could not on a fair appraisal of the marks indicate any such connection, it would be entitled to the benefit of exemption. An assessee would also be entitled to the benefit of the exemption if the brand name belongs to the assessee himself although someone else may be equally entitled to such name."

It is also submitted that, other than a search report showing ownership of these brands with some persons or entities, there is no allegation of any financial relationship that can reveal intent to take advantage of the brands.

The Bench observed –

+ There is no dispute that the brand names used by appellants are also registered under the relevant Rules and under a broad description which, undeniably, covers the goods manufactured by the appellant. It is, however, questionable whether Revenue was within its rights to dispute the finding of the original authority for not having examined this aspect. It is not the case of Revenue that this provision was invoked in the show cause notice. Nor is it proper for Revenue to surmise that the scheme of brand name usage as an exception to entitlement for exemption is with reference to the said Trade Marks and Merchandising Rules, 1999 because such a link is not articulated in the exemption notification. On the contrary, the notification does not restrict the exception to registered brands and, hence, it would only be reasonable to conclude that such a touchstone was not intended by the Central Government when it issued the exemption notification.

+ It would appear that the impugned order has denied the benefit of exemption merely because the brands belong to another person. That would constrain the exemption notification and it would be perilous for any small unit to use a brand unless it was registered in their own name. It cannot also be expected to search out and avoid usages of brands that are registered. A small unit that balances on the edge of survival can hardly be expected to find the resources to do so and we would be condemning the small units to stagnate by denying them the opportunity to grow through brand building. …

+ It would have been impossible for the Central Government to devise sentences that would describe precisely what is enabled and what is dis-incentivised by this exclusion.

+ From the explanation (to clause 4 of notification), it would appear that the intent to take advantage of the recognition enjoyed by another brand is critical to invoking of the exception provision . Such intent can be established by facts unearthed on investigation. Failure to carry out such investigation to establish such intent cannot be supplemented and complemented by adjudication orders, let alone appellate proceedings. The notice issued to appellants has not ventured to bring such intent to light. Indeed, no attempt has been made to even portray any advantage that the appellants derived from using these particular brands. That the owner of the brands has any market presence at all is not evinced from the records.

Concluding that the use of the brands by appellants cannot be considered to have intended to communicate a connection in the course of trade with the person who purportedly owns the brand name, the impugned order was held as unsustainable and set aside.

The Appeals were allowed.

(See 2017-TIOL-527-CESTAT-MUM)