By TIOL News Service

NEW DELHI, MAR 06, 2017: THE appellant, a proprietary concern,is engaged in trading of "AVON" branded two wheeler accessories like side box, helmets, locks, side bags, leg guards, etc.

Pursuant to investigations, proceedings were initiated alleging that the appellant had floated various fictitious firms and got the "AVON" brand items manufactured and thereby evaded central excise duty. It was further alleged that the seized goods valued at Rs.45,51,129/- in the premises of the appellant M/s. Veekay Auto Accessories are liable to be confiscated as they were branded goods manufactured and cleared without payment of duty. Proceedings were also initiated against various other manufacturers, who in collaboration with the brand owner allegedly manufactured and cleared excisable goods without payment of proper central excise duty. Two of such parties viz. M/s. Vibhor Enterprises and M/s. Newon Seat Covers also filed appeals against the impugned order.

Before the CESTAT, the appellant M/s. Veekay Auto Accessories submitted that they have their brand name "AVON" registered under Trade Mark Act for two wheeler accessories;that they do not manufacture the aforementioned branded goods as they had no facility of manufacture. Inasmuch as they procured these items and sold them under the brand name "AVON".It is further submitted that even after repeated requests, the Original Authority did not permit cross examination of the persons, whose statements were relied upon; that there is an inordinate delay in issuing the impugned order in the sense that whereas Personal hearing was conducted on 19.09.2007, the order was passed on 28.01.2009, after a delay of over 16 months and hence order is not tenable.

It is further submitted that the impugned order records contradictory observation and findings inasmuch as it is recorded in the impugned order that the appellant M/s. Veekay Auto Accessories are responsible in creating fictitious firms to manufacture goods and for possessing/keeping/clearing of excisable goods valued at Rs.5,19,06,839/- with central excise duty liability of Rs.83,83,814/-; that M/s. Veekay Auto Accessories cannot be penalized u/s 11AC, however, the Original Authority proceeded to impose a huge penalty of Rs.1 Crores on the proprietor of the firm u/r 26 of the CER, 2002. Further contradiction, the appellant submits, is apparent from the fact that the original authority appropriated the amount of Rs.50 lakhs deposited by the Proprietor Vinod Kumar Arora, against the duty liability confirmed against the individual manufacturers.

The appellant M/s. Newon Seat Covers submitted that the appellant did not manufacture any goods with brand name "AVON" and the finished goods found in their premises during the inquiry had no brand name.

The appellant M/s. Vibhor Enterprises submitted that they are a small-scale manufacturer and were supplying the goods to M/s. Veekay Auto Accessories till October, 2005 with no brand was affixed; that they got the die for affixing the brand name in September, 2005 and the clearance of September is without brand name and the same should be excluded from the duty calculation; that they did not know the requirements of excise with reference to branded goods and, therefore, did not pay duty.

The AR reiterated the findings recorded by the original authority.

The Bench inter alia observed -

Appeal by M/s. Veekay Auto Accessories

+ We find the impugned order is self-contradictory in more than one aspect. It is clearly recorded, in more than one place that Veekay Auto Accessories was controlling the day to day activities of the fictitious firms floated by the owner, to suppress the manufacture and thereby to evade payment of central excise duty. However, in the conclusion, no duty has been confirmed against the said appellant. We notice that central excise duty has been confirmed against various individual units viz. M/s. Laxmi Enterprises, M/s. Sagar Auto Centre, M/s. Irfan Seat Covers, M/s. Vibhor Enterprises, M/s. Do Bhai Auto Products and M/s. Newon Seat Cover s. However, the Original Authority ordered appropriation of the amount deposited by M/s. Veekay Auto Accessories against the demands confirmed against these individual units. If these are fictitious firms, the question of confirming demand against them does not arise . The actual manufacturer has to be identified and the duty has to be confirmed on such persons . If the actual manufacturer is found to be M/s. Veekay Auto Accessories , then the duty demand also has to be held against such manufacturer. We find the dual approach of holding individual units as liable to central excise duty and at the same time holding these units as fictitious firms created by Shri V.K. Arora, as held by Original Authority is legally unsustainable.

+ Not allowing the cross examination of the persons whose statements were relied upon and issuing the impugned order after almost 16 months of conclusion of hearing clearly violates the principles of natural justice. [Ambika International - 2016-TIOL-1238-HC-P&H-CX, Jindal Drugs Pvt. Ltd.& Another = 2016-TIOL-1230-HC-P&H-CX J&K Cigarettes Ltd. = 2009-TIOL-478-HC-DEL-CX relied upon.]

+ As already noted, the duty confirmation has been ordered against individual manufacturers as listed in the impugned order. Then, it follows that M/s.Veekay Auto Accessories with owners of brand name are only trading in these items and have no duty liability as a manufacturer. No duty has been confirmed against them. In such situation, the goods lying in the traders premises is not liable for confiscation.

++ The impugned order with reference to M/s. Veekay Auto Accessories suffers from serious, multiple legal infirmities and as such, cannot be sustained.

Appeal by M/s. Newon Seat Covers:

+ Except for the statements recorded of the proprietor to the effect that the firm was established on the direction of Shri V.K.Arora, who gave design and style and also supplied packing materials for packing "AVON" brand seat covers manufactured in her premises, there is nothing on record to establish that the appellants were all throughout engaged in the manufacture of seat covers with brand name of another person. No finished goods with "AVON" brand name was found at that time of search of the factory on 17.12.2005. Further, the invoices issued by the appellant did not indicate the details of any brand name for the goods cleared. In the absence of any corroboration to hold the manufacture of branded goods by the appellant, it is not possible to confirm the duty liability in this case.

++ Appeal filed by M/s. Newon Seat Covers is allowed.

Appeal by M/s.Vibhor Enterprises:

+ The appellants admittedly received die for affixing the brand name in September 2005. Thereafter, they have been making the goods with brand name "AVON". We note that as the manufacture and clearance of branded items has not been disputed in this appeal, there is no need to go into further corroboration to confirm the demand. However, the appellants did not produce any supporting evidence regarding the specific date of receipt of die for the manufacture of branded goods.

+ Not knowing the excise provisions for duty liability is not a factor for setting aside the duty demand.

++ No merit in the appeal by M/s. Vibhor Enterprises.

In fine, the appeals filed by M/s. Veekay Auto Accessories and M/s. Newon Seat Covers were allowed and that by M/s.Vibhor Enterprises was dismissed.

In passing: Confusion is a word we have invented for an order which is not understood - Henry Miller, Tropic of Capricorn, 1938

(See 2017-TIOL-693-CESTAT-DEL)