FEBRUARY 4, 2011

The little branded bottle - A small story, well almost!

By Sunil Achutan

IN his book, ‘Guide to Central Excise Law & Practice', Shri Arvind P.Datar , has this to say about the Small Scale Exemption Notification 175/86-CE.

"The Notification has been drafted very badly. It is ironical that a notification meant for small scale units, should be so lengthy, cumbersome and couched in un-necessary legalese. The use of plain English would have avoided the controversy that has dogged this notification right from beginning."

So True!

The later notifications beginning from 1/93-CE onwards were merely clones of the original notification and carried the essence of SSI benefit forward into the twenty first century.

This story is about the little branded bottle born in a SSI unit. Branded is actually a misnomer, bottles are known by its contents! Nonetheless, there are well known plastic bottles available in the market – the "pet" brands who have earned a name over the years as being pilfer proof, long lasting, designer ones, made of ‘virgin' plastic etc. etc.

They are too famous and this write up would not like to focus on them but the smaller manufacturers who sell bottles to well known brand owners (no…not the pet owners) for a living!

One of the earliest clarifications in this regard issued by the CBEC read –

++ F. No. 213/28/87-CX.6, dated 27-11-1987

"Some doubts have been expressed regarding the dutiability of packing materials, like metal containers, HDP woven sacks, etc. manufactured in the SSI units under the brand name/trade name of the goods to be packed in such packing materials, in view of the withdrawal of the SSI exemption for branded goods, vide Notifications No. 223/87-CE, 224/87-CE and 225/87-CE.

In this connection, attention is invited to clarifications already given in para 2.1 of Board's letter F. No. 345/35/87-TRU dated the 29th October, 1987 . As in the case of collapsible tubes , crown corks, PP caps, Metal containers, HDPE bags etc . bearing the brand name of large manufacturers/traders would not be hit by the mischief of aforesaid notifications."

The scope of the expression ‘brand name' was further clarified by Circular 71/71/94-CX dated 27.10.1994 . The relevant extracts read –

" As explained in paragraph 3 of the letter [F.No. B. 40/12/94-TRU, dated the 1st September, 1994 (Circular No. 52/52/94-CX.)], to attract the mischief of the provisions relating to brand name, two conditions have to be satisfied .

(1) Such brand name must indicate a connection between the branded goods and some person using such brand name.

(2) Such connection should be in the course of trade.

Consequently if there is no "trade" of such goods, the brand name provision would not apply."

Incidentally, the aforesaid conditions were the contents of the opinion of the Law Ministry which examined the issue in the context of Explanation IX to the Notification No. 1/93-C.E that defined the term ‘brand name' .

A turn of events led to the Board issuing fresh instructions vide Letter F.No. 354/124/2008-TRU, dated 1-9-2008 clarifying as under -

" Disputes have arisen in the past about the applicability of this condition to goods that bear the brand name of another person but which are sold under that brand name by the buyer of the goods and not by the SSI unit affixing the brand name. Such goods are normally manufactured by the SSI unit as per the orders of the customer for further use by the latter in the manufacture of the final product. Examples of such goods are elastic tapes used in the manufacture of undergarments, castings, packing materials such as printed cartons of paper, HDPF bags, Polypropylene caps, metal containers etc. On the basis of circulars/clarifications issued by the Government, from time to time, the brand name restriction was not being applied to such goods and the benefit of the exemption was being extended on the ground that there is no nexus between the person manufacturing the goods and the brand name . In the case of Kohinoor Elastics Pvt. Ltd. v. CCE, Indore - (2005-TIOL-120-SC-CX), the Hon'ble Court has held that the wording of the notification does not allow the benefit of the exemption in this situation as the notification does not envisage a nexus between the manufacturer and the brand for it to attract the mischief of the brand name restriction. Accordingly, the mere affixation of brand name of another person is adequate to disqualify the goods for SSI exemption."

The letter tried to assuage the grief of these ‘branded bottle manufacturers", amongst others, by informing that a new notification 47/2008-CE dated 01.09.2008 has been issued to amend the SSI exemption and that –

"…It provides that the benefit of the exemption shall be available to specified goods bearing the brand name or trade name of another person if they are in the nature of packing materials, namely, printed cartons of paper or paper board, metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks and metal labels. The amendments contained in the notification come into immediate effect and would be applicable to the clearances of these goods effected on or after 1st September, 2008."

It is pertinent to note that ‘plastic bottles/plastic containers' do not figure in this amending notification. However, since they too are packing materials, the benefit ought to be tacitly extended to them. This is because –

++ The Supreme Court in the case of   Suksha International & Nutan Gems   (2002-TIOL-660-SC-EXIM) has held that interpretation which would unduly restrict the scope of the beneficial provision and take away with one hand what is given with the other is to be avoided. So also, in the case of   Shriram Vinyl & Chemical Industries,   (2002-TIOL-663-SC-CUS), it was held that interpretation of an exemption notification must be rational and it must not result in denial of benefit thereof.

++ It is also held by the Apex Court in the case of   Mahindra Engg . & Chemical Products Ltd. (2002-TIOL-673-SC-CX)   that   the use of expressions "namely", "that is to say", followed by description of goods is usually exhaustive unless there are strong indications to the contrary.

It is also mentioned in the said Board letter dated 01.09.2008 that the following Board Circulars/letters/clarifications have been withdrawn –

(i) Letter F.No. 345/35/87-TRU, dated 29-10-87 (Point 1 at paragraph 2);

(ii) Letter F.No. 213/28/87-CX.6, dated 27-11-87; and

(iii) Circular No. 71/71/94-CX., dated 27-10-94

Incidentally, the Board had in its letter dated 01.09.2008 also referred to its earlier letter F.No. 115/1/2008-CX. 3, dated 16th June, 2008 where instructions were issued (in the light of the SC decision in Kohinoor Elastics Pvt. Ltd. ) to raise protective demands in cases where the benefit of SSI exemption was being extended by the field formations in such cases on the basis of Circulars/clarifications referred to above .

Let us visit the protective demand issued to the ‘branded plastic bottle' manufacturer for the clearances made during the five years preceding the date of issue of notification 47/2008-CE dated 01.09.2008 .

An over-protective order-in-original was passed confirming the demand of Central Excise duty and with imposition of penalties on every conceived contravention.

But naturally, this is absurd. The SSI benefit was being extended to the assessee on the basis of Board's own Circulars/clarifications/instructions and that too based on the Law Ministry's opinion and if the Board unilaterally withdraws them not after the day the Supreme Court pronounced its decision in the case of Kohinoor Elastics (on 4.08.2005) but after three years, it is not the assessees fault. The law is settled in this regard and in favour of the assessee. Reference is made to the decision dated 21.8.2009 passed by the Commissioner of Central Excise & Customs(Appeals), Kanpur in the case of Khushwani Print Pack (P) Ltd. and reported as 2010(250)ELT 435(Commr. Appl). The head-note reads –

"SSI Exemption - Brand name of other on packaging - CBEC circulars from 1987 to 1994, interpreting exemption notifications to allow their benefit, but in 2008 those circulars withdrawn and contrary decision given by Apex Court - HELD : Assessee was entitled to benefit of circulars in force at material time, and benefit already extended to them could not be re-opened - Notification No. 8/2003-C.E. [paras l7, 18, 19]

Departmental instructions - CBEC circulars - Interpreting exemption notification in favour of assessee - Subsequently, Apex Court giving contrary interpretation - HELD : Though Apex Court decision was binding on Department, they could not re-open cases where benefit of exemption was already given to assessee, and remained bound by earlier CBEC circular - Section 37B of Central Excise Act, 1944. [paras 14, 15, 16]"

The story does not end here.

Take a look at what happened to the contents of this notification 47/2008-CE (amending notification 8/2003-CE) as the days passed by. The Table below gives a glimpse of the somersaults made –

However, an interesting facet of this entire episode is issuance of a notification 24/2009-CE (N.T) dated 21.10.2009 issued under section 11C of the Central Excise Act, 1944.

The notification grants the benefit of SSI exemption to packing materials bearing a brand name for the following goods and for the following period –

Sadly, the ‘plastic bottle' bearing a brand name does not figure in the list shown above and the adjudicating authority confirmed the demand of Central Excise duty on the ground that the ‘little branded bottle manufacturer' was not considered to be worthy enough to get the benefit of Section 11C of the CEA, 1944.

Obviously, it could not have been mentioned outright in the section 11C notification as neither notification 47/2008-CE nor notification 9/2009-CE makes a direct reference to the same.

And this is the precise ground on which the little ‘branded plastic bottle' was denied the benefit of SSI exemption by the over-protective adjudicating authority.

The little story continues…

Two more notifications saw the light of the day and it is here that the ‘plastic bottles' made their appearance.

The notifications and the amendments carried out are as tabulated below -

Resultantly, as on date, the contents of that mutated clause (e) inserted on 01.09.2008 extends the benefit of SSI exemption to manufacturers of all kinds of packing materials so long as they are meant for use as ‘packing material by or on behalf of the person whose brand name they bear'.

So, the "little branded bottle" finally gets the benefit of the SSI exemption.

As for the past, it is for the Board to issue another Section 11C notification this Budget and do deserved justice to the "little branded bottle".

(The views expressed are strictly personal)