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CASE NO.: Appeal (civil)  7449 of 2003

PETITIONER: M/s Reiz Electrocontrols Pvt. Ltd

RESPONDENT: Commr. of Central Excise, Delhi-I

DATE OF JUDGMENT: 31/07/2006

BENCH: ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T

ARIJIT PASAYAT, J.  

Challenge in this appeal is to the decision of the Central  Excise and Gold Control Appellate Tribunal, New Delhi (in  short ’the Tribunal’) holding that the authorities had rightly  denied small  scale exemption to Reiz Electrocontrols Pvt. Ltd.  (in short the ’REPL’) and Reiz Enterprises (in short the ’RE’).  It  was further held that the demands of duty from them and  imposition of penalty as well as interest levied under Central  Excise Act, 1944 (in short the ’Act’) and Central Excise Rules,  1944 (in short the ’Rules’) do not suffer from any infirmity.   However, the case was remanded to the jurisdictional  Commissioner for re-computing the duty demands and re- determining penalty. However, in the light of observations  made, penalties imposed on Shri Atul Agarwal and Sh.  Siddarth Agarwal under Rule 209A were set aside.

The back ground facts in a nutshell are as follows:

M/s RE is a proprietary concern of Shri Atul Agarwal and  is engaged in the manufacture of Electronic Fan Regulators,  Dimmers and Remote Control Switches under the brand name  ’RE1Z since 1988. In the year 1993, M/s REPL was  constituted with Shri Atul Agarwal and his two brothers Shri  Siddarth Agarwal and Shri Ravindra Agarwal as its Directors.  M/s REPL was engaged in the manufacture of Electronic  transformers.  Both the units manufacture their goods under  a common brand name of ’REIZ’. The Commissioner, Central  Excise-I, New Delhi by his order dated 31.10.2001 held that  since the brand name ’REIZ’ belonged to M/s RE till its  transfer to REPL in 2000, the Electronic transformers  manufactured under brand name ’RETZ’ by REPL till the  transfer were ineligible for small scale exemption, inasmuch as  under the Notification no.1/93 a manufacturer affixing the  brand name of another person was ineligible for the  exemption. Similarly, it was held that M/s RE became  ineligible for exemption once the brand name REIZ was  transferred on 30.3.2000 to REPL.  Appeals were preferred  before the Tribunal questioning duty, penalty and interest  levied. Tribunal disposed of the appeals as aforenoted.   Tribunal noted the position as follows:

"It is a specific condition under  Notification No. 1/93 that the goods  manufactured under the brand name of  another person is not eligible for exemption  under the notification. Investigations have

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established that Shri Atul Agarwal on behalf of  M/s. RE had applied on 12.1.1993 for  registration of brand name of ’REIZ’ in respect  of goods including electronic transformer. This  registration application was allowed in his  favour in 2000. It is well settled that  registration of trade mark/brand name once  granted relates back to the date of application.  Thus, in respect of electronic transformer also  Mr. Atul Agarwal, proprietor of RE became  owner of the brand name ’REIZ’ w.e.f 1993.  Therefore, the electronic transformers  manufactured by M/s. REPL with the brand  name REIZ impugned in the present  proceeding being manufactured subsequent to  1993 became ineligible for small exemption on  account of the use of brand name ’REIZ’ which  belonged to another person (RE). On account  of the subsequent transfer of the brand name  of REPL, RE has also become ineligible for  exemption in respect of the goods produced  under that brand name subsequent to the  transfer."

Stand of the appellants before the Tribunal was that M/s  RE never manufactured electronic transformer and therefore,  in respect of that item, the brand name REIZ belonged to M/s  REPL. It was also submitted that REPL had applied for  registration of that brand name in their favour for electronic  transformer in 1995.  In these circumstances, it has to be held  that electronic transformers manufactured by the REPL were  not manufactured under the brand name of another person.

The demands in the present case were raised under  extended period permitted in the proviso 11A of the Act, on the  ground that, the non-levy in the result of suppression of facts  with intention to evade payment of duty. It was contended that  there was no suppression of facts in as much as both the  manufacturers had filed declaration before the Central Excise  authorities that goods are manufactured under the brand  name belonging to them and brand name of another person is  not used It is also stressed that both the units are located in  the same building in the jurisdiction of same Central Excise  Superintendent and therefore, the facts of the cases were  known to the Central Excise authorities and a change of  suppression of facts is not maintainable.

The respondents pointed out that in view of the specific  prescriptions in the Notification the demands have been  rightly raised.  

As noted above the contentions did not find acceptance  by Tribunal and, therefore, the impugned order was passed.

Stands before the Tribunal were reiterated by learned  counsel for the appellant.  Additionally, it was submitted that  the appellant had in the meantime obtained a certificate under  the Trade Marks Act, 1999 (in short the ’Trade Marks Act’) and  the certificate of registration of trade mark covered the period  in question. Therefore, even if it is conceded that the  Tribunal’s view is correct no duty, penalty or interest can be  levied.   

So far as the views regarding non-eligibility are  concerned view expressed by this Court in several cases needs

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to be noted.

In Commissioner of Central Excise, Chandigar-I v.  Mahaan Dairies [2004 (166) ELT 23 (SC)] it was noted (in para  6) as follows:

"We have today delivered a judgment in  Commissioner of Central Excise, Trichy v.  Rukmani Pakkwell Traders \026 2004 (165) E.L.T.  481 (S.C.) (Civil Appeal Nos. 3227-3228/1998)  wherein we have held in respect of another  Notification containing identical words that it  makes no difference whether the goods on  which the trade name or mark is used are the  same in respect of which the trade mark is  registered.  Even if the goods are different so  long as the trade name or brand name of some  other Company is used the benefit of the  Notification would not be available.  Further,  in our view, once a trade name or brand name  is used then mere use of additional words  would not enable the party to claim the benefit  of Notification."

In Union of India v. Paliwal Electricals (P) Ltd. and  Another  [(1996) 3 SCC 407] it was noted (in paras 10 and 11)  as follows:

"10. We are of the opinion that while  examining the challenge to an exemption  notification under the Central Excise Act, the  observations in the decisions aforesaid should  be kept in mind. It should also be remembered  that generally speaking the exemption  notification and the terms and conditions  prescribed therein represent the policies of the  Government evolved to subserve public  interest and public revenue. A very heavy  burden lies upon the person who challenges  them on. the ground of Article 14. Unless  otherwise established, the court must presume  that the said amendment was found by the  Central Government to be necessary for giving  effect to its policy (underlying the notification)  on the basis of the working of the said  notification and that such an amendment was  found necessary to prevent persons from  taking unfair advantage of the concession. In  fact, in this case, the explanatory note  appended to amending notification says so in  so many words. If necessary, the Court could  have called upon the Central Government to  establish the reasons behind the amendment.  (It did not think it fit to do so.) It is equally  necessary to bear in mind, as pointed out  repeatedly by this Court, that in economic and  taxation sphere, a large latitude should be  allowed to the legislature. The courts should  bear in mind the following observations made  by a Constitution Bench of this Court in R.K.  Garg v. Union of India [1981 (4) SCC 675]:  (SCC pp. 690-91, para 8)

"Another rule of equal importance  is that laws relating to economic

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activities should be viewed with greater  latitude than laws touching civil rights  such as freedom of speech, religion etc.  It has been said by no less a person  than Holmes, J. that the legislature  should be allowed some play in the  joints, because it has to deal with  complex problems which do not admit  of solution through any doctrinaire or  strait-jacket formula and this is  particularly true in case of legislation  dealing with economic matters, where,  having regard to the nature of the  problems required to be dealt with,  greater play in the joints has to be  allowed to the legislature. The Court  should feel more inclined to give  judicial deference to legislative  judgment in the field of economic  regulation than in other areas where  fundamental human rights are  involved. Nowhere has this admonition  been more felicitously expressed than  in Morey v. Doud [354 US 457 (1957)]  where Frankfurter, J. said in his  inimitable style:

’In the utilities, tax and  economic regulation cases, there  are good reasons for judicial self- restraint if not judicial deference to  legislative judgment. The  legislature after all has the  affirmative responsibility. The  courts have only the power to  destroy not to reconstruct. When  these are added to the complexity  of economic regulation, the  uncertainty, the liability to error,  the bewildering a conflict of the  experts, and the number of times  the Judges have been overruled by  events\027self-limitation can be seen  to be the path of judicial wisdom  and institutional prestige and  stability.’

The court must always remember that  ’legislation is directed to practical problems,  that the economic mechanism is highly  sensitive and complex, that many problems are  singular and contingent, that laws are b not  abstract propositions and do not relate to  abstract units and are not to be measured by  abstract symmetry’ that exact wisdom and nice  adaptation of remedy are not always possible  and that judgment is largely a prophecy based  on meagre and uninterpreted experience’.  Every legislation particularly in economic  matters is essentially empiric and it is based  on experimentation or what one may call trial  and error C method and therefore it cannot  provide for all possible situations or anticipate  all possible abuses. There may be crudities  and inequities in complicated experimental

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economic legislation but on that account alone  it cannot be struck down as invalid. The courts  cannot, as pointed out by the United States  Supreme Court in Secy. of Agriculture v.  Central Roig Refining Co. [ 94 L Ed 381 : 338  US 604 (1950)] be converted into tribunals for  relief from such crudities d and inequities.  There may even be possibilities of abuse, but  that too cannot of itself be a ground for  invalidating the legislation, because it is not  possible for any legislature to anticipate as if  by some divine prescience, distortions and  abuses of its legislation which may be made by  those subject to its provisions and to provide  against such distortions and abuses. Indeed,  howsoever great may be the care bestowed on  its e framing, it is difficult to conceive of a  legislation which is not capable of being  abused by perverted human ingenuity. The  Court must therefore adjudge the  constitutionality of such legislation by the  generality of its provisions and not by its  crudities or inequities or by the possibilities of  abuse come to light, the legislature can always  step in and enact suitable amendatory  legislation. That is the essence of pragmatic  approach which f must guide and inspire the  legislature in dealing with complex economic  issues."

11.     The same principle should hold good in  the matter of exemption notifications as well,  for the said power is part and parcel of the  enactment and is supposed to be employed to  further the objects of enactment \027 subject, of  course, to the condition that the notification is  not ultra vires the Act, and/or Article 14 of the  Constitution of India. (See P.J. Irani V. State of  Madras [(1962) 2 SCR 169]".                                                                                                  In Pahwa Chemicals Private Limited v. Commissioner of  Central Excise, Delhi [2005 (189) ELT 257 (SC)] it was held as  follows at para 3:    

"Paragraph 4 and Explanation IX of  Notification have been construed by this Court  in Commissioner of Central Excise v.  Rukhmarii Pakkwell Traders, 2004 (165) E.L.T.  481; as also in Commissioner of Central  Excise, Chandigarh v. Mczhaan Dairies, 2004  (166) ELT. 23. In both these decisions this  Court held that Paragraph 4 read with  Explanation IX of the notification could not be  construed in the manner as contended by the  assessees, namely, to make it necessary for the  owner of the trade mark/trade name to use the  goods in respect of the specified goods  manufactured by the assessee. We see no  reason to differ with the reasoning of this  Court in the aforesaid decisions. Clause 4 of  the Notification read with Explanation IX  clearly debars those persons from the benefit  of the exemption who use someone else’s name  in connection with their goods either with the  intention of indicating or in a manner so as to

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indicate a connection between the assessees  goods and such other person. There is no  requirement for the owner of the trade mark  using the name or mark with reference to any  particular goods. The object of the exemption  notification was neither to protect the owners  of the trade mark/trade name nor the  consumers from being misled. These are  considerations which are relevant in cases  relating to disputes arising out of  infringement/passing off actions under the  Trade Marks Act. The object of the Notification  is clearly to grant benefits only to those  industries which otherwise do not have the  advantage of a brand name. The decisions  cited by the Counsel appearing on behalf of the  assessees relate to decisions involving Trade  Mark disputes and are in the circumstances  not apposite."

Therefore, the main contention of the learned counsel for  the appellant about eligibility for exemption is sans merit.   However, the alternative plea raised needs to be considered.  It  is accepted by learned counsel for the parties that this plea  needs factual adjudication which has not been done.

It appears that such a stand was not taken before the  Tribunal. In any event in view of what has been stated by this  Court in Mahaan Dairies’ case (supra) the Tribunal has to  consider the plea.  In Mahaan Diaries’ case (supra) it was  observed as follows:

"9.     It was however, urged that the  respondents have applied for registration of  the Mark "Mahaan Taste Maker".  We clarify  that if and when they get their mark registered  then they would become entitle to the benefit  of the Notification in accordance with Board’s  Circular No.88/88, dated 13.12.1988."

Similarly in Bhalla’s case (supra) it was observed as  follows: "17.    According to the learned Counsel  appearing on behalf of the respondents the  documents on the basis of which the  impugned demand has been raised against the  respondent were available with the  Department as on the date of the seizure.  There was as such no question of holding any  further investigation into any further fact for  the issue of the demand on the allegation that  the assessees had wrongly availed of the  exemption. The only investigation which was  held related to the question whether the  respondent was a dummy unit of Corona Plus  Industries. It is submitted that the Department  cannot take advantage of the investigation held  in such connection to justify a time- barred  claim relating to the first issue. In any event it  is submitted that the respondent-firm had all  along contended that it was also the owner of  the brand name/trade mark in question. In  fact, the application made by the respondent  for registration of the trade mark in question,  namely, "Saving Plus" had been made on 16-

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10-97. This application had been allowed by  the trade mark authorities under the Trade  Mark Act on 22-12-2003 with retrospective  effect i.e. 6-10-97. It is, therefore, submitted  that in any event, the respondent would be  entitled to the benefit of the exemption  Notification. We are of the view that having  regard to the contention of the parties, the  matter should be reheard by the Tribunal on  both the issue of limitation as well as the issue  of ownership. The decision of the Tribunal is,  accordingly, set aside and the matter is  remanded back for the aforesaid purpose."

If the Tribunal holds that the trade mark registration has  any relevance, then question of limitation is really of academic  interest.  But if it is held that the same has no relevance the  question of limitation has to be decided in the background of  the factual scenario.  

The appeal is accordingly disposed of with no orders as to  costs.