ORDER
1. Denial of the benefit of exemption granted to Small Scale Industrial units, to the petitioners who are SSI units but are alleged to be using the brand name/trade name of another, is the subject matter of these writ petitions.
2. As per Notification No. 175/86, Small Scale Industries (SSI Units, for short) were granted exemption from the levy of duty under the provisions of the Central Excises & Salt Act, 1944 ('the Act'). Subsequently, by Notification No. 223/87 dated 22-9-1987, para-7 was added to the earlier Notification, effect of which is to deny the exemption to the SSI Units using the brand name/trade name of another person who is not eligible for the grant of exemptions under the Notification. These Notifications were issued under Rule 8(1) of the Central Excise Rules.
3. Petitioners attack the validity of the second Notification (No. 223/1987) on the grounds that it is ultra vires the provisions of the Act and that it offends Art. 14 of the Constitution. In a few writ petitions, petitioners further contend that the 2nd Notification is not applicable to them and therefore denial of the exemption is not warranted.
4. The relevant parts of the first Notification read as follows :
'Notification No. 175/86-C.E., dated 1-3-1986. - In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and an supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 85/85-Central Excise, dated the 17th March, 1985, the Central Government hereby exempts the excisable goods of the description specified in the Annexure below and falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), (hereinafter referred to as the 'specified goods'), and cleared for home consumption on or after the 1st day of April in any financial year, by a manufacturer from one or more factories, -
(a) in the case of the first clearance of the specified goods upto an aggregate value not exceeding rupees seven and a half lakhs, (i), (ii), (b) (c) xx xx (omitted as unnecessary)2. xx xx3. xx xx (omitted as unnecessary)
4. The exemption contained in this notification shall be applicable only to a factory which is an undertaking registered with the director of Industries in any State or the Developmental Commissioner (Small Scale Industries) as a small scale industry under the provisions of the Industries (Development and Regulations) Act, 1951 (56 of 1951).' (rest omitted as unnecessary)
The second notification is as follows :
'Notification No. 223/87-Central Excise, G.S.R. 813 (E) :- In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby makes the following further amendments in the notification (Department of Revenue) No. 175/86 Central Excise, dated the 1st March, 1986, namely, -
In the said notification :-
(i) After paragraph 6, the following paragraph shall be inserted, namely, -
'7. The exemption contained in this notification shall not apply to the specified goods where a manufacturer affixes the specified goods with a brand name or trade name (registered or not) of another person who is not eligible for the grant of exemption under this notification :
Provided that nothing contained in this paragraph shall be applicable in respect of the specified goods cleared for home consumption before the first day of October, 1987';
(ii) after Explanation VII, the following Explanation shall be inserted, namely :-
'Explanation VIII : '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, such as symbol, monogram, label, signature or invented word or writing which 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 that person.' Sd/-
(Under Secretary to the
Government of India).
F. No. 339/3/86-TRU.
Explanatory Note : This amendment seeks to deny small scale exemption in respect of specified goods affixed with the brand name/trade name of a person who is not eligible for the exemption under notification No. 175/86-C.E. dated 1-3-1986.'
5. It was contended that power to issue notification under Rule 8(1) gets exhausted on issuance of such a notification and there is no power to add to,amend, vary or rescind the notification. section 21 of the General Clause Act was referred to, which discloses that when a power is conferred by any Act or Regulation, to issue notifications, orders, rules or bye-laws, said conferment of power includes a power exercisable to add to, amend, very etc., of the said notification, order, rule or bye-laws. It was argued that section 21 governs only an Act or a Regulation. When a power is conferred by a rule to issue a notification, no power is granted to amend the said notification. section 21 of General Clauses Act refer to the power granted under an Act or Regulation and not powers created elsewhere. Sec 6 of General Clauses Act was referred, which also provided for the aftermath of a repeal of any Act or Regulation; the Supreme Court held in Rayala Corporation (P.) Ltd. v. The Director of Enforcement [AIR 1970 SC 494] that section 6 applies only when the repeal is of a Central Act or Regulation and not of a Rule. It was contended that by the same analogy it should be held that section 21 also does not apply to a Rule conferring a power to issue a notification.
6.1. The contention, though looks attractive, ignores the basic distinction between the situation caused by a repeal and a situation requiring amendment, withdrawal or variation of a notification issued under a Rule.
6.2 It has been held though under a different context, that 'section 21 of General Clauses Act embodies a rule of construction, and that rule must have reference to the context and subject matter of the particular statute to which it is being applied.' [Vide : Lachmi Narain etc., etc. v. Union of India & Others, : [1976]2SCR785 .
6.3 It will lead to absurd consequences if a power to issue an exemption notification gets exhausted and the said power does not include a power to withdraw the notification or vary it. Power to amend a notification should be read with the power to issue a notification; validity of the amendatory notification shall have to be examined with reference to the scope of the power under which original notification was issued. So long as the amendment made to a notification falls within the scope of the main power, for example, if the original notification itself had contained the variation or the amendment and such a notification is valid, there is no reason to hold that the same result cannot be achieved by subsequent amendment or variation of the notification.
6.4 Rules of interpretation are to be considered as aids to the construction of statutes and not meant to control and stultify the law. There must always be flexibility in the incidence of taxation and it shall have to be varied from time to time depending on the circumstances. The experience gained in the working of a notification granting an exemption may reveal that certain conditions require to be imposed to prevent the misuse of the notification; conditions shall have to be imposed to advance the real object behind a notification. In every such situation, the Government cannot be and should not be compelled to move the Parliament to vary the notification.
6.5 Rule under the Act is made by virtue of section 37 read with section 38. Parliamentary Control over the Rule is provided for under section 38. Rule 8 itself provides for the exercise of the power conferred by it 'from time to time'. Rule 8 creates a power to issue any notification 'from time to time' granting exemption from the levy of duty, subject to such conditions as may be specified in the notification.
7. It was then contended that the levy of duty is under the Central Excise Tariff Act, 1985. This Act, read with section 3 of the Central Excises and Salt Act makes it clear that levy is on excisable goods which are specified. If so, the exemption from the levy also shall have to be with reference to the specified goods. Exclusion from the operation of the exemption depending upon the manufacturer's states is wholly outside the purview of the above two Acts. It was argued that even under Rule 8, notification to be issued is to exempt any excisable goods and therefore the conditions permitted to be imposed for the exemption and referred to in Rule 8, are to be conditions governing those goods and not the manufacturer of goods. The second notification has excluded the manufacturer of the goods from the benefit of exemption, which is ultra vires Rule 8.
7.1 This contention, again, is misconceived. There is always a difference between a taxable event, subject of the tax and the person liable to pay the tax. Ultimately, it is the person liable to pay the tax, who has to shoulder the burden. If the subject matter is exempted from the levy, the benefit is derived not by the subject (which has no soul), but by the person who is charged with the liability to pay the tax. Therefore, conditions permitted to be imposed while granting an exemption under Rule 8, may consider the circumstances of a particular manufacturer who manufactures the excisable goods.
7.2 The exemption may depend upon the yearly turnover of the manufacturer; exemption may depend upon the real use to which particular goods are meant for; exemption may depend upon the locality where goods are manufactured. Situations calling for an exemption from the liability to pay the duty cannot be foreseen; it is impossible to prepare a catalogue of the circumstances under which, tax liability may have to be reduced or exempted from.
7.3 When it is said that Small Scale Industries (SSI) are to be exempted, said condition basically relates to the status of the manufacturer. Petitioners seek to avail of this benefit. But, when it is subjected to the condition, that if the goods produced have a brand name or monogram of someone else, petitioners attack the condition, as irrelevant.
7.4 In fact, a product having a brand name or bearing a monogram can be considered as a distinct commodity having a special value in the market. As an article of commerce, it has special significance. A goods in circulation with a particular brand name has its buyers looking for it because of the brand name and not because of the name of the manufacturer.
7.5 It is well known that several goods, like refrigerators, batteries, etc., are manufactured at a single factory by a manufacturer, but sold under different brand names by different persons, who get these goods manufactured in their brand names through the former. In the commercial world, goods move about with their respective reputed brand names.
8. The same contention is emphasised by pointing out that brand name holder is not the manufacturer, and the impugned notification in effect, deems the brand name holder as the manufacturer. It was pointed out that even though petitioners are the real manufacturers and are SSI units, the impugned Explanation in the second notification denies them the exemption, because, brand name belongs to someone else who is not eligible for exemption. The real basis to deny the exemption, therefore, is the equation made, by equating the petitioners with the brand name holder.
8.1 In support of this contention, Bata India Ltd. v. Assistant Collector of Central Excise, Patna [1978 E.L.T. (J 211)] was relied. In the said case, the impugned Explanation categorically deemed the brand name holder as the manufacturer of goods, even though, as a fact, he was not the manufacturer. It was held by the Patna High Court that it was not competent for the Government to treat a non-manufacturer as a manufacturer, in the exercise of its powers under Rule 8. By such a deeming provision, tax is levied on a person, not charged with the liability to the tax by Sections 3 and 4 of the Central Excises and Salt Act. At para 24 the Court held :
'On a reference to the Explanation contained in the notification (Annexure 4) it is manifest that a footwear, manufactured by an exempted manufacturer, if affixed with the brand or trade name of another manufacturer, or purchased by another manufacturer, shall be deemed to have been manufactured by the manufacturer whose brand or trade name has been affixed or who has purchased the same. This is characterised to be changing the character of impost of excise duty from a manufacturer of a footwear to one who is not the manufacturer of the same, under the deeming clause in the explanation, in the wake of granting exemption to the real manufacturer. Mr. Ray is right in his submission that the Central Government could not do in exercise of the power for granting exemption under Rule 8(1) of the Rules. As already discussed, a delegated authority must act within the limits of the delegation. The condition which the Central Government could impose, while granting exemption must be qua manufacturer to whom the exemption is being granted and which could not directly rope in a non-manufacturer of those footwears.'
8.2 Above decision has no application to the instant case. Here, the non-manufacturer is not made liable to pay the tax. The impugned explanation excludes the person using the brand name of another from the benefit; in other words, the person who uses the brand name of another shall have to pay the duty of excise in respect of the goods manufactured by him (under circumstances stated in the two notifications). In fact, by virtue of this explanation, the primary charge created by the Act is effectuated, because, the Act creates a charges in respect of all the excisable goods.
8.3 Because certain advantage is available to good having brand names, the Central Government thought it unnecessary to extend the benefit of exemption to those goods.
9. It was then contended that the denial of benefit of exemption to the petitioners is arbitrary and violative of Article 14 of the Constitution. Object behind the grant of exemption is to benefit the SSI Units; if so, why should the benefit be denied to a SSI Unit solely because, the manufactured goods bear a brand name. It was argued that there is no nexus between the basis of the classification and object of the notification. In this connection, Khandige Sham Bhat etc. v. Agricultural Income Tax Officer, Kasargod & Another [AIR 1963 SC 591] was referred. Principles governing the applicability of Art. 14 of the Constitution are now quite settled. It is true that even a fiscal regulation has to satisfy the requirements of Art. 14. It is also true that a greater latitude is given to the law maker in the matter of classifying the subjects for taxation. The diverse and complicated problems of administration are taken note of by the Courts, while allowing greater flexibility in the matter of policies governing a fiscal statute.
9.1 In M/s. Galaxy Theatre v. State of Karnataka : ILR1991KAR2468 a Bench of this Court observed at page 2478 :
'Equality is not an abstract concept. Realities of life, practicality of administration, convenience of the public and requirement of simplicity of procedure are some of the factors to be considered as relevant in testing a complaint of discrimination'.
Again at page 2481 :
'When a tax levy is attacked as discriminatory, the harsh realities of discrimination its oppressiveness and palpable injustice or hostility by such a levy has to be clearly brought out by the petitioners who attacks the levy as discriminatory. In such a situation the entire global picture of expenditure, income capital outlay, normal returns, the affectation of the impugned tax, are to be pleaded and proved. Levy cannot be struck down on an application of any abstract formula.'
At page 2484, while concluding the alleged discrimination passed on concession, the Bench held :
'In a recent decision in Sri Krishna Das v. Town Area Committee Chirgaon : [1990]183ITR401(SC) levy of tax referred as weighing dues was challenged as discriminatory, in view of the exemptions granted to a few of the products. The observations of the Supreme Court found at page 654 are :
'The contention that the tax is discriminatory in view of the exemptions granted to some of the products and to those tax enter the TAC by rail or motor transport is equally untenable. It is for the legislature or for the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. The courts cannot review these decisions. In paragraph 16 of the counter-affidavit the TAC tried to explain the reason for not taxing the salt, sugar and rice stating that they were not local produce but were imported from distant places and that the tax was levied only on the local produce which came from the neighbouring places. Court cannot review the wisdom or advisability or expediency of a tax as the court has no concern with the policy of legislation, so long as they are not inconsistent with the provisions of the Constitution. It is only where there is abuse of its powers and transgression of the legislative function in levying a tax, it may be corrected by the judiciary and not otherwise. Taxes may be and often are oppressive, unjust, and even unnecessary but this can constitute no reason for judicial interference. When taxes are levied on certain articles of services and not on others it cannot be said to be discriminatory. Cooley observes : 'Every tax must discriminate; and only the authority that imposes it can determine how and in what directions'. The TAC having decided to impose weighing dues on the goods mentioned in the bye-laws it is not for the Court to question it on the ground that some similar commodities or commodities arriving by rail or road were not subjected to the tax.'
These words certainly do not exclude the judicial scrutiny of fiscal legislation under article 14 of the Constitution, but permits a wide latitude to the legislature in selecting the subject for the levy; the legislative wisdom in granting exemption to similar subjects is the be rarely questioned.'
The petitioners allege discrimination, because they are denied a concession given to others. A patently, arbitrary basis to deny a concession granted to others may invite Art. 14 of the Constitution.
9.2 Concession from levy of tax is not a matter of right. It is a bounty; as observed by the Supreme court in International Cotton Corporation (P.) Ltd. v. Commercial Tax Officer, Hubli & Others : [1975]2SCR345 - This aspect of the nature of a concession cannot be ignored while considering the plea based on discrimination.
9.3 SSI Units using brand names of others are class by themselves, because the goods produced by them have certain advantages in the market. Therefore, it cannot be held that the classification is arbitrary and based on irrelevant considerations. Concession is granted obviously to SSI Units who has to struggle hard to earn a good market for their goods and to prevent brand name holders adopting the device of manufacturing those goods though SSI Units - Contention is accordingly rejected.
Further contentions raised in W.P. No. 7204 and 3805 of 1989 require to be considered :
Re. W.P. No. 7204/1989 :
10. The writ petition is against the order dated 26-12-1988 made by the first respondent, upholding the demand for differential duty after rejecting petitioner's explanation to the show cause notice.
10.1 The petitioner manufactures stainless steel items like wash-hand sink, lavatory pans, wall protectors etc., for being supplied to the Indian Railways, exclusively, in accordance with the purchase orders and the drawings furnished by the Railways. Drawing number is indicated in every item along with the identification mark of the Railways as required by the Railways; there is also a writing to it that the item is the property of the Indian Railways. The 'mark' is referred to by the respondent as a monogram of the railways and therefore, proceedings were initiated to collect differential duty, since exemption was granted earlier to the petitioner as a SSI unit without noticing the alleged monogram of the Railways. The articles are not sold by the Railways, but used to compete the Railway coaches; they are the components of the coaches. According to the petitioner the alleged monogram and the writings on these items manufactured by the petitioner and supplied to the Railways, do not indicate any connection in the course of trade between such items and the railways or anyone else. If Railways or someone else were to sell these items, only then, if the monogram and the writings on these items indicate a connection between these items and the Railways (or others who deal with them), the monogram and the writings would be 'brand name' or 'trade name'. This contention was rejected by the first respondents.
10.2 Mr. Chander Kumar contended that the exemption is denied only when the brand name or trade name of another indicates a connection in the course of trade between the goods and the brand name owner. In this regard clarification issued by the Department, as reported in 32 E.L.T. page T33 is referred :
'Point I : Whether small scale exemption could be denied to metal labels, crown corks, pp caps and collapsible tubes bearing the name/logo of the brand name owner
Clarification : The name/logo printed on the metal labels etc., is a brand name/trade name in respect of goods on which such labels are to be affixed, because such name/logo indicates a connection in the course of trade between the goods on which such labels are affixed and the brand name owner, Names printed on such metal labels are not brand name by themselves and as long as these metal labels are not affixed on the goods in the trade of which the name/logo printed on such metal labels etc., services as brand name (within the definition of explanation VII) they are not hit by the mischief of the amending notification. Therefore SSI units manufacturing metal labels/collapsible tubes/crown cork/P.P. caps, which bear the name or logo of brand name owners, would continue to enjoy the benefit of Notification No. 175/86-C.E., subject to satisfying other conditions of the notification'.
Subsequently, Explanation VIII was added to Notification 223/87, thus :
'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, such as symbol, monogram, label, signature or invented word or writing which 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 that person.'
10.3 Though the question raised looks to be a question of law, I am of the view that it should be properly agitated before the statutory authorities, having regard to the scheme of the Act. The Act provides a hierarchy of forums to decide the question arising under the Act. The order of first respondent is appealable. There is a provision for further appeal and thereafter the question may still be agitated by seeking reference to the High Court or a further appeal to the Supreme Court directly. Hence I keep open the question, with liberty to the petitioner to raise the same in appeal. The appeal against the order may be filed within sixty days of the receipt of this order and the appellate authority shall entertain the appeal without reference to the bar of limitation.
Re. W.P. No. 3805/89 :
11. In this writ petition also, there is an order of adjudication dated 29-11-1988 made by the first respondent. The order is appealable. Question raised pertains to the interpretation of the Notification and the relevant Explanations.
11.1 In the circumstances, petitioner is directed to file an appropriate appeal before the statutory appellate authority within sixty days of the receipt of this order; the appeal shall be entertained without reference to the bar of limitation.
12. In W.P. No. 633/1989, petitioner approached this court at the stage of show cause notice. It is open to the petitioner to show cause in answer to the said notice dated 27-9-1988; cause may be shown within sixty days of the receipt of this order.
13. In the result, all the writ petitions are dismissed, subject to the liberties given above. Rule discharged.