P.K. Kapoor, Member (T)
1. These appeals have been filed against the orders passed by the Collector, Central Excise, Ahmedabad. Since the issues arising for consideration in these cases are identical, they are disposed of by this common order.
2. The appellant firms are engaged in the manufacture of Fibre Glass Fabrics, Poly-tetrafloro Ethylene (PTFE) coated Fibre Glass Fabrics and PTFE coated Fibre Glass Tapes falling under sub-headings 7014.00 and 3910.00 respectively of the Schedule to the Central Excise Tariff Act, 1985. 'PTFE' used for coating of Fibre Glass Fabrics and Tapes is imported from M/s. E.I. Dupont De Nemours and Co., U.S.A. who market it under the trade name 'Teflon'. The appellants held a Central Excise licence and were availing the SSI exemption in terms of Notification No. 175/86, dated 1-3-1986 as amended. During their visit to the appellants' factories on 17-9-1990 the Central Excise officers verified of their records and also recorded the statement of Shri Balkrishna A. Sharma, Commercial Executive and Shri Janak G. Nanavati, partner of the firm. After further investigations both the appellant firms were served with the show cause notices dated 2-7-1991 alleging that they were not entitled for the benefit of exemption in terms of Notification No. 175/86 as amended, since they were affixing the brand name TEFLON' of M/s. E.I. Dupont of U.S.A. who were not entitled for exemption under the Notification No. 175/86-C.E. on the packings of their goods as well as different documents. The show cause notices further alleged that the appellants had contravened the provisions of Rule 173B, 9(1) read with Rule 173F and 173G inasmuch as they had failed to file the correct classification list and thereby failed to determine and pay the correct Central Excise duty. On these grounds M/s. Unnati Corporation and M/s. Unnati Industries were asked to show cause as to why duty amounting to Rs. 37,74,734/- and Rs. 29,11,612/- respectively for the period September, 1987 to November, 1990 should not be recovered on the excisable goods cleared by them under Rule 9(2) of the Central Excise Rules, read with Section 11A of the Central Excises and Salt Act, 1944. The show cause notices also alleged that the short levy had occurred on account of fraud, wilful suppression of facts on the part of the appellants with the intent to evade duty. The appellants were, therefore, required to show cause, why penalty should not be imposed on each of the firms and on Shri Janak K. Nanavati, partner under Rule 290A of the Central Excise Rules, 1944. The appellants denied the allegations and in particular they contended that all their activities had been within the knowledge of the department. They claimed that Teflon' coated glass fabrics were cleared in the form of rolls in plain brown paper without affixing any brand name and the word Teflon' used on cartons in which adhesive tapes were packed was the trade mark of the foreign company in relation to the material used for coating of the glass cloth and not in relation to coated fibre glass tapes. On these grounds they contended that the goods could not be deemed as bearing the trade mark of any other person. However, by the impugned orders the Collector rejected the appellants' contentions and confirmed the demands. He also imposed various amounts of penalties on the firms and Shri Janak G. Nanavati one of the partners of the firms.
3. On behalf of the appellants Shri V. Lakshmi Kumaran, ld. advocate appeared before us. He submitted that the Collector had erred in holding that the appellants were not eligible for the benefit of the small scale exemption Notification No. 175/86, dated 1-3-1986 as amended by Notification No. 223/87, dated 22-9-1987 by virtue of clause 7 read with explanation VIII of the said notification on the ground that they had used on the disputed products the brand name of a foreign company which was not eligible for the grant of exemption under the notification. He stated that as far as Teflon coated glass fabrics are concerned, they were being packed in the form of rolls with plain brown paper covering without affixation any brand name. He added that even in respect of Fibre Glass Coated adhesive tapes, the exemption under Notification No. 175/86, dated 1-3-1986 as amended could not be denied to the appellants in terms of clause 7 read with explanation VIII of the said notification since the trade mark Teflon' on the cartons used for packing the tapes in question was not owned by any person in relation to the appellants' product namely, Teflon Coated Fibre Glass Tape. He stated that the trade mark 'Teflon' was owned by M/s. E.T. Dupont of U.S.A. only in relation to the resin Polytetrafluro-ethylene (PTFE)' and not in respect of fibre glass tape coated with such resin. In this regard he prayed that the Misc. application No. 501 to 502/94-D for taking on record the following additional documents which could not be filed earlier because of bonafide error and which confirm the well-known fact that Teflon is a registered trade mark of E.I. Dupont De Nemours & Co. Inc. U.S.A. only for PTFE and not for any product made out of Resin PTFE may be permitted to be taken on record :-
(i) Certificate dated 4-4-1991 of Remfry & Sugar Attorney at Law, Bombay certifying that 'Teflon' is a registered trade mark of E.I. Dupont De Nemours & Co. Inc., USA under registration No. 258487 in respect of 'Resinous Moulding Powder and extruding composition and Solution and Emulsion of Resinous plastic materials all included in class-1".
(ii) Letter dated 18-3-1984 of M/s. Dupont South Asia Ltd.
(iii) Letter dated 15-10-1991 of M/s. Dupont Far East Inc.
(iv) Copy of registration of trade mark 'Teflon' in India
He also prayed that the Misc. application 771-772 filed by the appellants praying that in addition to the grounds already taken in the memorandum of appeal the following legal grounds which do not require any further investigation of facts may be added to the grounds of appeal :-
"(a) Without prejudice and in any case, the quantum of duty demanded is incorrect in law. In the present case, duty has been demanded by denying the full exemption as well as the concessional rate of duty under Notification No. 175/86-C.E. on the ground that use of brand name of other person who is not eligible for the aforesaid exemption. While computing the quantum of duty payable by the applicants, the MOD-VAT credit of the duty paid on the inputs used in the manufacture of final products cleared at Nil rate of duty under the aforesaid notification has not been allowed. It is settled position of law that when duty is demanded by denying the exemption which was availed by an assessee on a bonafide belief, the MODVAT credit or proforma credit of the duty paid on the inputs used in the manufacture of the final products has to be allowed and adjusted in the quantum of duty payable. This legal position has been laid down by the following decisions :-
1. 1988 (34) E.L.T. 30 (Bom) - Kirloskar Brothers Ltd. v. Union of India
2. 1988 (37) E.L.T. 81 - Haryana State Electricity Board v, C.C.E.
3. 1992 (59) E.L.T. T-7 - F. No. 267/6/92-CX. 8, dated 30-1-1992
4. Technological Systems Ltd. -Order No. 105/92-B, dated 30-3-1992
5. 1993 (65) E.L.T. 300 - Jagraon Machine Tools v. CCE
6. Byco Industries and Ors. v. CCE -1993 (49) ECR 126
7. Chamundi Steel Re-rolling Mills - Final Order No. E/161/94-B
Hence without prejudice to the various submissions made on the merits of the case, the quantum of duty in any case has to be recomputed.
(b) Further duty has been demanded by treating the invoice price as the assessable value instead of treating the same as cum-duty price, and duty has been calculated on that basis. However, in terms of Section 4(4)(d)(ii), duty payable on the goods is not includible in the assessable value. It is also settled by series of decisions that invoice price cannot be treated as assessable value but has to be treated as cum-duty price and duty payable is deducted in terms of Section 4(4)(d)(ii). A list of decisions in support of the aforesaid legal position is enclosed as Annexure-1. Without prejudice to the various submissions made on the merits, the demand for differential duty has been incorrectly computed for this reason also."
4. Continuing his submissions the ld. counsel for the appellants stated that clause 7 of Notification No. 175/86-C.E., dated 1-3-1986 have been struck as violative of Article 14 of the Constitution by the Calcutta High Court and also by a Division Bench of the Allahabad High Court. He contended that under these circumstances the Tribunal will have to read the notification by omitting clause 7 altogether. He argued that even though there was a contrary judgment of the Karnataka High Court upholding the validity of clause 7 of the said notification, the Tribunal would be bound by the judgment of the Division Bench of the Allahabad High Court. He contended that the impugned order suffers from non-application of mind since the appellants' plea before the adjudicating authority that they were not affixing any trade mark on the Teflon Coated Glass Fabrics' which were packed in the form of rolls covered with plain brown paper without affixation of any trade mark was not examined. In support of his contention he referred to the statement of Shri Janak Nanavati and the reply to the show cause notice filed by the appellants. He submitted that without examining the appellant's plea that clause 7 of Notification No. 175/86 as amended contemplates the situation in which the goods manufactured by an assessee are affixed with trade mark of any other person not eligible for exemption under the said notification but the Collector had fastened the liability on the appellants on the basis of description of the goods in the invoice and certain other documents. In support of his contention he placed reliance on the following case law :-
(i) AIR 1976 S.C. 2547 - The State of U.P. v. Ram Chandra Trivedi
(ii) AIR 1974 S.C. 1596 - Mattulal v. Radhe Lal
(iii) 1987 (27) E.L.T. 369 (Cal.) - Bishnu Krishna Shrestha v. U.O.I. and Ors.
(iv) 1994 (73) E.L.T. 19 (All.) - Machine Well Engineers v. Union of India
The Ld. Counsel for the appellants reiterated his submissions that exemption under Notification No. 175/86 as amended could not be denied to the appellants in terms of Clause 7 read with Explanation, VIII of the notification since 'Teflon' was the registered trade name of M/s. E.T. Dupont of USA only in relation to resin (PTFE) and not in respect of products thereof such as Teflon Coated Fibre Glass Fabrics' and Tapes'. He contended that it was permissible for the purpose of Notification No. 175/86, for two manufacturers producing different products to have the same trade mark. He referred to Section 30(1)(c) of the Trade and Merchandised Marks Act (1958) and contended that use of materials having a registered trade mark as component parts of the other goods and use of the trade mark of the components on the product does not amount to an infringement under the Act. In support of his contentions he cited the following case law :-
(i) 1992 (62) E.L.T. 447 (Tribunal) - Opus India v. Collector of Central Excise
(ii) 1993 (65) E.L.T. 69 - Precise Electronics v. C.C.E.
The ld. counsel for the appellants further submitted that the impugned orders confirming the demand by invoking the extended period in terms of the proviso to Section 11A are not sustainable since the show cause notices sought to invoke the extended period on the grounds of suppression of facts and the Collector after holding that the charge of suppression had not been established went on to confirm the demand for extended period on the grounds of mis-statement or mis-declaration with the intent to evade duty, even though no such allegation was made in the show cause notice. He stated that the Collector's finding in regard to mis-declaration was erroneous since the appellants had correctly stated in the relevant classification lists that they were not manufacturing goods bearing the brand name of any other manufacturer who was not eligible for grant of exemption under Notification No. 175/86. In this regard he reiterated his stand that the mark Teflon' occurring on the cartons used for packing the Teflon coated fibre glass tapes and fabrics manufactured by the appellants was not the registered trade mark of any person in respect of such tapes and fabrics. He added that in any case the department was throughout aware of the appellants' activity and the nature of their products since the classification lists filed from time to time were approved and the RT-12 returns filed alongwith relevant invoices and gate-passes describing the goods as Teflon Coated Glass Fabrics/Tapes were fully assessed and finalised. He contended that Order No. 18/Collr/1988, dated 14-10-1988 passed by the Collector in an earlier proceeding initiated against the appellants clearly showed that from 1988 onwards the department had complete information in regard to the nature of the products in question the packing used and the details printed thereon. He stated that even though this order was relied upon by the appellants, the Collector had not dealt with it. The learned counsel further submitted that in any event the penalty imposed on the appellants is not sustainable. He added that in case a decision is taken against the appellants and the order confirming the demand of duty is sustained they would be eligible for Modvat in respect of the countervailing duty paid on imported raw materials. He added that in that situation the duty payable would have to be re-determined in terms of Section 4(4)(d)(ii).
5. On behalf of the respondent Shri M.K. Jain, ld. SDR pleaded for the rejection of the application filed for placing of additional evidence on records and addition to the grounds of appeal. He submitted that the documents which the appellants were seeking to place on record were not before the lower authority. He added that in view of the conflicting judgments of various High Courts on the question whether clause 7 of Notification No. 175/86 was violative of Article 14 of the Constitution the Tribunal was free to follow any judgment of its choice. In support of his contention he cited the Tribunal's decision in the case of Alma Steels Pvt. Ltd. v. CCE, Chandigarh, reported in 1984 (17) E.L.T. 331. He submitted that on a plain reading of clause 7 and Explanation VIII of Notification No. 175/86 it follows that the exemption under the notification is not admissible in respect of goods manufactured by a small scale unit which affixes to its goods the trade mark belonging to another person who is not eligible for the exemption under the Notification. He contended that there is no force at all in the appellants' argument that the appellants could not be denied the exemption under Notification No. 175/86 since the trade mark 'Teflon' was owned by M/s. Dupont of USA in respect of the resin used by the appellants as raw materials and not in respect of Teflon coated fibre glass tapes and fabrics. He argued that use of any trade mark by a small scale unit on its goods which belong to another person who is not entitled to the exemption under the said notification would be sufficient to debar the unit from the benefit of exemption under the notification. He stated that the decisions in the cases of Precise Electronics and Opus India cannot be of any assistance to the appellants since the facts in those cases were not the same as in the appellants' case. He contended that the extended period in terms of proviso to Section 11-A was correctly invoked by the Collector since the appellants were using the trade mark of another person who was not eligible for the exemption under the notification whereas in the classification lists filed from time to time they had deliberately made incorrect declarations that they were not using the trade mark of any other person on their goods.
6. We have examined the records of the case and considered the submissions made on behalf of both sides. The ld. counsel for the appellants has pointed out that para 7 of Notification No. 175/86-C.E., dated 1-3-1986 as amended by Notification No. 223/87-C.E., dated 22-9-1987 has been struck down as being violative of Article 14 of the Constitution by the Allahabad High Court in the case of Machine Well Engineers v. Union of India, reported in 1994 (4) R.L.T. 255 and also by the Calcutta High Court in the case of Banner and Company v. Union of India, reported in 1994 (70) E.L.T. 183. He has, therefore, contended that the said notification will have to read after deletion of paragraph 7. He has also contended that notwithstanding the fact that in the case of Nectar Beverages Pvt. Ltd. v. UOI the Karnataka High Court has held that paragraph 7 of the Notification No. 175/86-C.E., dated 1-3-1986 denying the benefit under the notification to goods bearing the brand name of another person who is not eligible for the exemption under the said notification is not discriminatory and violative of Article 14 of the Constitution, the judgment of the Allahabad High Court in the case of Machine Well Engineers (supra) being a judgment by a Division Bench will be binding upon the Tribunal. In this regard we find that in the case of Atma Steels Pvt. Ltd. v. Collector of Central Excise, Chandigarh, reported in 1984 (17) E.L.T. 331 the Tribunal has held than while working on all India basis, it has the freedom to consider judgments holding conflicting views given by different High Courts, and it cannot be circumscribed by the view of a particular High Court because that would inevitably land the Tribunal in a mess, propounding conflicting and contradictory views, vitiating its very existence. Para 70 of the said decision of the Tribunal being relevant is reproduced below :-
"We also feel that as a Tribunal, working on all India basis, we have the freedom to consider judgments holding conflicting views given by different High Courts, and then see for ourselves as to which authority, applied more fully and aptly to the facts of a given case, before us. For, in view of the scheme of the Act, under which we are functioning, as brought into focus in paras 59 and 61 above, we are constrained to repel the arguments, that we are circumscribed by the view of a particular High Court where the assessee or a particular Collectorate is, because that would inevitably land the Tribunal in a mess, propounding conflicting and contradictory views, vitiating its very existence, and cutting down the wholesome principles, desirability whereof has been highlighted in para 60 above. We, therefore, feel duty-bound to determine ourselves, this issue; namely, continuation of proceedings pending at the time of the respective amendments, and adopting the view of Madhya Pradesh High Court as enunciated in Gwalior Rayon case (supra), we hold that these proceedings can continue, which view a Bench of this Tribunal already expressed, without much controversy having been raised in the case of Carew & Co. Ltd. v. Collector of Central Excise, Allahabad 1983 (13) E.L.T. 1186 (CEGAT). Another Bench of this Tribunal (NRB) also held similarly in case: Sri Ram Pistons and Rings Ltd. v. CCE, Meerut 1980 (6) E.L.T. 927."
7. In view of the foregoing we adopt the Karnataka High Court judgment in the case of Nectar Beverages Pvt. Ltd. (supra) and proceed to examine the other points raised by the appellants.
8. One of the points raised by the appellants is that they had contended before the adjudicating authority that only on the cartons in which Teflon Coated Glass Fibre adhesive tapes were being packed, the mark 'Teflon' had been used whereas Teflon Coated Glass Fabrics were cleared in the form of rolls having brown paper covering but without any marking or affixation of brand name. In support of their claim the appellants have referred to the statement of Shri Balkrishna, A. Sharma, Commercial Executive of the firm which has been relied upon in the show cause notice. The appellants have contended that in the impugned order the Collector has not dealt with their claim that as far as the Teflon Coated Glass Fabrics were concerned no trade mark of any other person was being affixed to the goods. On perusal of the impugned order we are inclined to agree with the appellants that while upholding the allegations in the show cause notice and confirming the demand both in respect of Teflon Coated Glass Fabrics and Teflon Coated Fibre Glass Adhesive Tapes the Collector has not dealt with the appellants' claim that Teflon Coated Fibre Glass Fabric they were being cleared in rolls with plain brown paper covering without any markings or affixation of any brand name. Under these circumstances we are inclined to agree with the appellants that the impugned order is not reasoned and shows non-application of mind.
9. The ld. counsel for the appellants has also pointed out that in the show cause notice the extended period of limitation was sought to be invoked on the ground of fraud [to evade] duty but the Collector has confirmed the demand for the extended period on entirely different grounds viz. wilful mis-statement and mis-declaration on the part of the assessee with the intent to evade duty. In this regard it has been submitted that while arriving at his finding the Collector had not dealt with the appellants' plea that from the MODVAT declaration filed by them and the earlier investigations culminating in order-in-original No. 18/Collr./1988, dated 30-8-1988/14-10-1988 passed by the Collector Central Excise, Ahmedabad and Order No. 15/Addl.Collr./1989, dated 14-12-1989/17-12-1989 passed by the Additional Collector it was evident that the Department was throughout aware of the nature of the appellants' products and their activities.
10. On perusal of the impugned order we find sufficient force in the appellants' contention that the Collector while arriving at his finding in regard to wilful mis-declaration has failed to examine their claim that the Department was throughout aware of their activities and the exact nature of their product since detailed investigation carried by the Department had resulted in initiation of atleast two separate proceedings against the appellants and they had also given the proper description of their goods in their Modvat declaration. On this account as well, we find that the impugned order is not a 'speaking order' and shows non-application of mind.
11. In view of the foregoing, without going into the Misc. applications and the other points raised by the appellants we set aside the impugned orders and remand the matter to the Collector for de novo adjudication in accordance with law and after affording suitable opportunity to the appellants for being heard in person.
12. The appeals are, therefore, allowed by way of remand and the Miscellaneous applications are disposed of accordingly.