23 January, 2013

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Goods sold from branded outlets are liable to Excise duty even if unbranded – Supreme Court

Goods sold from branded outlets are liable to Excise duty even if unbranded – Supreme Court

Hon’ble Supreme court in case of CCE, CHENNAI-II v. M/s Australian Foods India Ltd. 2013 (1) TMI 330 - SC wherein it has held that where the manufacture and sale of specified goods that do not physically bear a brand name but are sold from branded sale outlets it would disentitle an assessee from the benefit of S.S.I. Notification No. 1/93-C.E., dated 28th February, 1993, as amended from time to time.   

Brief Facts

Assessee was engaged in the manufacture and sale of cookies from branded retail outlets of “Cookie Man”. The assessee had acquired this brand name from M/s Cookie Man Pvt. Ltd, Australia (which in turn acquired it from M/s Auto- bake Pvt. Ltd., Australia).

The brand name used the words “Cookie Man” accompanied with a logo depicting the smiling face of a moustachioed chef. The assessee was selling some of these cookies in plastic pouches/containers on which the brand name described above was printed. No brand name was affixed or inscribed on the cookies. Excise duty was duly paid, on the cookies sold in the said pouches/containers. However, on the cookies sold loosely from the counter of the same retail outlet, with plain plates and tissue paper, duty was not paid. (Essentially, this was the question of law to be decided)

The retail outlets did not receive any loose cookies nor did they manufacture them. They received all cookies in sealed pouches/containers. Those sold loosely were taken out of the containers and displayed for sale separately. Even though no separate register was maintained to account for the sale of the cookies sold loosely, their numbers were calculated from the number of empty pouches / containers left behind at the end of day

Tribunal’s Judgement

Upon consideration of the explanation furnished by the assessee, the Commissioner inter-alia came to the conclusion (relevant for the controversy at hand) that unless the specified goods or the packaging in which these are sold, bear the brand name or the logo, prescribed S.S.I. exemption cannot be denied.

Thus, the Commissioner held that since there was neither any material evidence nor averment to prove that the brand name was embossed on the cookies, the assessee was eligible to avail of the benefit of small scale exemption in respect of cookies sold loosely from the counter of the retail outlet.

Being aggrieved by the order, both the Department and the assessee filed cross appeals before the tribunal. The decision of the Commissioner having been affirmed by the Tribunal. 

Based on the same, the revenue has taken the course of challenge into Hon’ble SC u/s 35L(b) of the Central Excise Act, 1944.

Contentions of Respondent & Court’s Views (Hon’ble SC)
  1. Respondent contended that combined reading of Para 4 and Explanation IX of the notification 1/93-CE, along with Para J of the Budget Changes, would lead to the conclusion that only specified goods bearing an affixed brand name, or in other words, those goods that physically display the brand name, are not covered by the exemption
  2. Respondent referred to CCE, Jamshedpur Vs. Superex Industries ( Now ‘Kirloskar’), Bihar[(2005) 4 SCC 207]
    • Physical manifestation of a brand name on a good is a necessary requirement for disqualification from the exemption granted by the concerned notification.
    • Court cannot look into the surrounding circumstances of a good, especially the specific outlet from which it is sold, to construe if it is branded or not; scrutiny, in his opinion, must be limited to the specified good itself

Para 3 of supra, as reproduced below

“3. CEGAT has held that the benefit of the notification would be lost only if the manufacturer affixes the specified goods with a brand name or trade name of the another who is not eligible to the exemption under the notification. It could not be denied that the name Kirloskar is not affixed to the generating sets. CEGAT has held that merely because, in the invoices, the set is passed off as a Kirloskar generating set, the benefit of the notification would not be lost. We see no infirmity in this reasoning. We, therefore, see no reason to interfere.”  

2A. Hon’ble SC view on above contention (Superex Industries) are that the decision in the above case simply recognizes that the benefit would be lost only if a manufacturer affixes the specified goods with a brand or trade name of another who is not eligible for the exemption under the notification. 

It does not state that the specified good must itself bear or be physically affixed with the brand or trade name. Such an interpretation would lead to absurd results in case of goods, which are incapable of physically bearing brand names. For instance, the goods, which, due to their very nature and structure, are incapable of bearing brand names, would always be deemed unbranded. Liquids, soft drinks, milk, dairy products, powders, edible products, salt, pepper, sweets, gaseous products, perfumes, deodorants etc., to name a few, are either liquids, gases or amorphous/brittle solids, making it impossible for the good to be affixed with a brand name.

2B. Further, a specific, dedicated and exclusive outlet from which a good is sold is often the most crucial and conclusive factor to hold a good as branded. The decision referred to above only made a limited point that invoices alone cannot be the sole basis of construing whether a good is a branded good or not; it does not hold that a specified good itself must be stamped with a brand name. It is therefore, permissible to look into the environment of the good. Invoice bearing the brand name cannot be sole criterion to decide whether the goods are branded or not. There can be no precise formula for such determination. However, in most circumstances, an exclusive branded outlet from which the good is sold, would be a crucial factor in determining the question.  

  1. Respondent also referred to Kohinoor Elastics (P) Ltd. Vs. Commissioner of Central Excise, Indore[(2005) 7 SCC 528] wherein it was held that :-
    • Only the “specified good” in question must be scrutinized and the expression cannot be expanded to mean “specified outlets” or other surrounding circumstances. Extract of Para 5 of Judgement is as reproduced below :-

“5. Clause 4 of the notification is unambiguous and clear. It specifically states that the exemption contained in the notification shall not apply to specific goods which bear a brand name or trade name (registered or not) of another person. It is settled law that to claim exemption under a notification one must strictly comply with the terms of the notification. It is not permissible to imply words into the notification which the legislature has purposely not used. The framers were aware that use of a brand/trade name is generally to show to a consumer a connection between the goods and a person. The framers were aware that goods may be manufactured on order for captive consumption by that customer and bear the brand/trade name of that customer. The framers were aware that such goods may not reach the market in the form in which they were supplied to the customer. The framers were aware that the customer may merely use such goods as an input for the goods manufactured by him. Yet clause 4 provides in categoric terms that the exemption is lost if the goods bear the brand/trade name of another. Clause 4 does not state that the exemption is lost only in respect of such goods as reach the market.

3A. Hon’ble SC views on above contention  (Para 3 above) are that to hold from the above passages that every good must be physically stamped with a brand or trade name to be considered a branded good in terms of the notification, and that, one is forbidden to look beyond the specified good into the surrounding environment of the good in construing if it is a branded good or not, would be a complete misunderstanding of the above judgment and a distortion of the concept of a brand or trade name. The above judgment makes no such observation and was delivered on a completely different set of facts and circumstances

Hon’ble SC explains brand/trade name
  1. A brand/ trade name must not be reduced to a label or sticker that is affixed on a good. The test of whether the good is branded or unbranded, must not be the physical presence of the brand name on the good, but whether it, as Explanation IX reads, “is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of the person.” Therefore, whether the brand name appears in entirety or in parts or does not appear at all cannot be the chief criterion; primary focus has to be on whether an indication of a connection is conveyed in the course of trade between such specified goods and some person using the mark.

4A. To substantiate above, Hon’ble SC has referred to CCE, Trichy Vs. Rukmani Pakkwell Traders[(2004) 11 SCC 801] para6 of which is as reproduced below:-  

“6. The Tribunal had also held that under the notification the use must be of “such brand name”. The Tribunal has held that the words “such brand name” show that the very same brand name or trade name must be used. The Tribunal has held that if there are any differences then the exemption would not be lost. We are afraid that in coming to this conclusion the Tribunal has ignored Explanation IX. Explanation IX makes it clear that the brand name or trade name shall mean a brand name or trade name (whether registered or not), that is to say, a name or a mark, code number, design number, drawing number, symbol, monogram, label, signature or invented word or writing. This makes it very clear that even a use of part of a brand name or trade name, so long as it indicates a connection in the course of trade would be sufficient to disentitle the person from getting exemption under the notification. In this case, admittedly, the brand name or trade name is the word “ARR” with the photograph of the founder of the group. Merely because the registered trade mark is not entirely reproduced does not take the respondents out of clause 4 and make them eligible to the benefit of the notification.”

Final Verdict

  • Once it is established that a specified good is a branded good, whether it is sold without any trade name on it, or by another manufacturer, it does not cease to be a branded good of the first manufacturer.
  • In case of goods sold from exclusive single brand retail outlets or restaurants or stores, the fact that a good is sold from such a store ought to be a relevant fact in construing if the good is its branded good or not. In the case of such goods, perhaps a rebuttable presumption arises in favour of such goods being branded goods of the specified store. Such a presumption can be rebutted if it is shown that the specified good being sold is in fact a branded good of another manufacturer.
  • It is not necessary for goods to be stamped with a trade or brand name to be considered as branded goods under the SSI notification.
  • A scrutiny of the surrounding circumstances is not only permissible, but necessary to decipher the same; the most important of these factors being the specific outlet from which the good is sold.
  • There can be no single formula to determine if a good is branded or not; such determination would vary from case to case.
  • Cookies sold even without inscription of the brand name, indicate a clear connection with the brand name, in the course of assessee’s business of manufacture and sale of cookies under the brand name “Cookie Man”. They continue to be branded cookies of “Cookie Man” and hence cannot claim exemption under the SSI Notification

About the Author:

By CA Ankit Gulgulia (Jain)

Author is practicing Chartered Accountant in New Delhi and specialising in Indirect taxes, Corporate Laws and Management Advisory. He can be reached at ankitgulgulia@gmail.com.

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