Coolair Industries Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. aggrieved by the order-in-original dated 20-2-1995 passed by the collector of central excise, new delhi confirming a duty demand of rs. 1,21,080/- in respect of 14 air-conditioners and a further duty demand of rs. 57,960/- in respect of another seven air-conditioners and a penalty of rs. 25,000/- against them, present appellants have filed this appeal.2. appellants are engaged in the manufacture of air-conditioners and coolers falling under chapter heading 8415.00 and 8479.00 of the schedule to the ceta, 1985. they were also availing duty exemption under notification no. 75/87-c.e., dated 1-3-1987.3. on a visit to the appellants factory by the officers of the anti-evasion branch of the delhi collectorate of excise on 27-4-1992 and on scrutiny of the records and physical verification of goods and raw-materials, the officers found that there was a shortage of seven air-conditioners of 1.5 tonnes capacity ' valued at rs. 57,960/- as well as three compressors on which modvat credit of central excise duty to the tune of rs. 20,720/- had been taken. on the basis of further investigation the department found that the appellants had also removed 14 numbers of air-conditioners of 1.5 tonne capacity without filing proper classification list and without determination and payment of proper excise duty. accordingly, present appellants were issued a scn dated 27-9-1993 charging them with contravention of the provisions of rules 9(1), 52a, 53, 57f(1), 173f, 173g and 226 of the central, excise rules, 1944 apart from calling upon them to show cause why penalty under rule 173q should not be imposed and why the extended period of 5 years under proviso to section 11a (1) of the central excise act, 1944 should not be invoked.4. the matter was adjudicated by the collector who passed the impugned order. as regards the allegation of clandestine removal of seven air-conditioners, the collector held that the assessees' explanation that these were removed by the employees of the assessee firm in the absence of the partner of the assessee firm has not been supported, by any evidence on record. he observed that the party had not communicated the particulars about the said air-conditioners being old air-conditioners and the fact that they were brought to their factory premises for repairs and that because of the urgency three compressors had to be used for repairing the said air-conditioners. he also observed that the party had not obtained any permission under rule 51a for bringing into the factory the duty paid old air-conditioners. he also pointed out that even if the compressors were required for the repair of the old air-conditioners the assessee could have debited their rg 23a part ii account relating to the three compressors. he also found that the party had not been able to give the particulars of the parties to whom they had supplied the air-conditioners. as regards the removal of the further 14 air-conditioners, collector observed that the removal of the said 14 air-conditioners by affixing the brand name, "accord", owned' by m/s. accord equipments disentitled them from the benefit of notification no. 75/87, dated 1-3-1987 as amended. on an examination of the agreement entered into between the present appellants, m/s. coolair industries and accord equipments, the collector observed that the agreement was only a dealership agreement as m/s. accord equipments had no manufacturing unit and they were only traders. the collector observed that according to the clauses of the agreement between the parties, the appellants, m/s. coolair industries were obliged to manufacture only "accord" branded air-conditioners and they were to supply the said goods to m/s. accord equipments as their authorised distributors. the collector further observed that in terms of the agreement it was clear that "accord" brand name was to be put and had been affixed by m/s. coolair industries on the air-conditioners manufactured by them. he also referred to the purchase order dated 5-2-1991 placed by m/s. accord equipments on m/s. coolair industries for purchase of eight numbers of window mounted type room air-conditioners which contained a clause stating that as per agreement, m/s. accord equipments would be charging rs. 2,000/- per air-conditioner towards sales and service commission. the collector accordingly found that m/s. accord equipments had procurred the air-conditioners from the appellants and therefore the conclusion was inescapable that the appellants had manufactured air-conditioners bearing the brand name "accord". he rejected the contention of the appellants that the invoices issued to m/s. accord equipments for the sale of air-conditioners did not mention the brand name "accord" as of no consequence. collector further referred to the statements given by shri abay shinghal, partner of coolair industries and shri rajiv sahay, partner of m/s. accord equipments, neither of which admitted to the affixing of the brand name or trade mark "accord" on the air-conditioners manufactured by m/s. coolair. in his statement dated 29-4-1992, shri abay singhal had only stated that the brand name "accord" was owned by m/s. accord equipments and that they (m/s.coolair industries) had entered into an agreement dated 17-3-1990 that the appellants will supply 20 numbers of split window type air-conditioners to m/s. accord equipments.5. shri b.b. gujral, ld. counsel appeared for the appellants and shri p.k. jain, ld. sdr appeared for the department.6. ld. counsel submitted that as regards the allegation relating to the seven air-conditioners, shri abay singhal in his statement dated 27-4-1992 had admitted that during his absence seven numbers of air-conditioners had been removed by one of his workers who did not know about the excise formalities and that three compressors had been used in the repair of air-conditioners brought to the factory due to extreme urgency. subsequently, the credit of rs. 20,700/- in respect of the three compressors had also been debited in their rg 23a part ii account on 17-11-1992. there was therefore no loss to the revenue and the same can be treated no more than as a procedural lapse. the removal occurred due to mistake/ignorance of the workers and there was no intention on the part of the appellants to effect removal without payment of duty. the bona fides of the appellants can be seen from the fact that they had complied with the duty liability even before the scn was issued. he submitted that where there is no wilful evasion of duty, and where the duty had been paid, there is no cause for invoking the extended period of limitation nor for imposing any penalty. as regards the allegation of removal of 14 numbers of air-conditioners without filing proper classification list and payment of excise duty, ld.counsel submitted that no reliance could be placed on the statement dated 3-5-1993 of shri rajiv sahay affirming that the 14 air-conditioners supplied by m/s. coolair industries were affixed with the brand name "accord" since shri rajiv sahay on his cross-examination during the adjudication proceedings had stated that he was not able to recall whether any brand name or labels had been put on the air-conditioners. shri sahay had also stated that it was possible that his partner might have put the brand name "accord" on the air-conditioners at the installation site. ld. counsel submitted that there was no evidence to show that the brand name "accord" was affixed at the time of clearance and it was only after the air-conditioners were given delivery at the installation site, the brand name was affixed. during the cross-examination shri rajiv sahay had further stated that as per agreement between m/s. coolair industries m/s.accord equipments, fully manufactured air-conditioners were purchased from coolair industries on principal-to-principal basis without any conditions or restrictions and full payment was made to m/s. coolair industries as per the invoices and delivery challans. ld. counsel also submitted that the counsel for the present appellants had sought time from the collector for submitting further written submissions 'and without granting them adjournment as requested by the counsel for the present appellants, the collector had proceeded to pronounce the order-in-original. this has resulted in violation of the principles of natural justice. he also referred to the observations made by the collector in the impugned order casting serious doubts about the reliability of the statement of shri rajiv sahay, partner of m/s.accord equipments. since the whole case of the department relating to the 14 air-conditioners was built on the basis of statement of shri rajiv sahay, the conclusion reached by the ld. collector was not well founded. he also relied on the tribunal decision in madura coats v.c.c.e. reported in 1996 (82) e.l.t. 512 in support of his argument that where brand name is affixed after the manufacture, no contravention can be alleged. he also relied on 1997 (21) rlt 828 in support of his submission on affixing of brand name after manufacture. as regards the extended period of limitation he relied on the apex court decisions in pushpam pharmaceuticals v. c.c.e. -1995 (75) e.l.t. 401 and cosmic dyechem -1995 (75) e.l.t. 721. as regards imposition of penalty he relied on 1995 (75) e.l.t. 273.7. the id. sdr drew attention to the fact that though duty was initially paid on the three compressors the appellants had paid the duty on the seven air-conditioners found short only after one and half years. he also referred to the detailed discussions in paragraphs 9 and 10 of the impugned order in which the collector had given a detailed analysis of the terms of the dealership agreement between m/s. coolair industries and accord equipments which clearly shows that the present appellants were the actual manufacturers of the air-conditioners and even the initial statement of shri rajiv sahay clearly stated that they (m/s. accord enterprises) were procuring air-conditioners from the appellants and supplying them under their brand name to various branches of the bank of india.8. we have given careful considerations to the submissions made on both sides. as regards the confirmation of demand of duty of rs. 57,960/- in respect of the seven air-conditioners, the appellants have stated that the amount had been paid by making a debit entry in their rg 23a part ii account. subject to verification, collector had directed appropriation of the amount towards confirmed demand of duty.appellants had pleaded bona fide mistake. since they have already paid the duty we do not find any force in their contention that the extended period of limitation was not invokable. further, their failure to inform the department about removal without payment of duty is tantamount to suppression. similarly, as regards reversal of modvat credit of rs. 20,700/- in respect of three compressors, the amount had already been debited by appellants in their rg 23a part ii account.collector had ordered appropriation of the amount already debited. it is not in dispute that the three compressors had been used in the repair of, the air-conditioners brought to the factory without observing the excise formalities. in these circumstances, we do not find any interference is warranted on these aspects of the impugned order.9. as regards the demand of duty of rs. 1,21,080/- in respect of the 14 air-conditioners, we find that the collector has relied on the clauses of the agreement entered into by the appellants with m/s. accord enterprises to come to the conclusion that the appellants were obliged to manufacture only "accord" branded air-conditioners and they were to supply the air-conditioners to m/s. accord equipments as their authorised distributors. he had come to the conclusion that in terms of the agreement it was clear that "accord" brand name was to be put and had been affixed by m/s. coolair industries on the air-conditioners. he had also concluded from the purchase orders that the present appellants were manufacturing "accord" brand air-conditioners. we, however, find that neither the clauses of the agreement nor the purchase orders clearly show that the appellants were manufacturing and clearing "accord" brand air-conditioners to the customers or that the brand name "accord" has been affixed on the air-conditioners by m/s. coolair industries and by no one else. we find that the collector himself has given a finding that the evidence of shri rajiv sahay was not reliable.in view of these facts we are of the view that the findings of the collector that the appellants had affixed the brand name "accord" in the appellants' factory premises before clearing the air-conditioners is not supported by any material. we also find from the case law relied on by the ld. counsel for the appellants, namely, madura coats v.c.c.e., supra and c.c.e. v. paras pharmaceuticals, supra, that ssi exemption under notification no. 175/86 cannot be denied where it is not proved that the manufacturer has affixed on the specified goods the brand name or trade name of another person, who is not eligible for the grant of exemption under the said notification. in madura coats, supra, the larger bench of the tribunal had held that paragraph 7 of notification no. 175/86 was by way of taking away the benefit of the exemption where the manufacturer affixes on the specified goods a brand name or trade name of another person who is not eligiole for the grant of exemption under the notification. it was held that where at the stage of clearance of goods, the goods did not have the brand name affixed to them and the affixture of the brand name was at a subsequent stage, the pre-condition contemplated under para 7 of the exemption notification was not satisfied. in such cases it must follow that the assessee would be entitled to the benefit of the notification. in paras pharmaceuticals case, supra, the tribunal had held that the benefit of the exemption notification no. 175/86 cannot be denied to a manufacturer manufacturing medicines under the brand name of another person having neither factory nor central excise licence. we therefore hold that the impugned order confirming the duty demand on the 14 air-conditioners is not sustainable. we also accordingly reverse the penalty imposed.10. having regard to the above discussions, we uphold the appropriation of rs. 57,960/- and rs. 20,700/- ordered by the collector. however, we set aside the demand of duty of rs. 1,21,080/- as well as the penalty of rs. 25,000/-

Judgment:
1. Aggrieved by the Order-in-Original dated 20-2-1995 passed by the Collector of Central Excise, New Delhi confirming a duty demand of Rs. 1,21,080/- in respect of 14 air-conditioners and a further duty demand of Rs. 57,960/- in respect of another seven air-conditioners and a penalty of Rs. 25,000/- against them, present appellants have filed this appeal.

2. Appellants are engaged in the manufacture of air-conditioners and coolers falling under Chapter heading 8415.00 and 8479.00 of the Schedule to the CETA, 1985. They were also availing duty exemption under Notification No. 75/87-C.E., dated 1-3-1987.

3. On a visit to the appellants factory by the officers of the Anti-Evasion Branch of the Delhi Collectorate of Excise on 27-4-1992 and on scrutiny of the records and physical verification of goods and raw-materials, the officers found that there was a shortage of seven air-conditioners of 1.5 tonnes capacity ' valued at Rs. 57,960/- as well as three compressors on which Modvat credit of Central Excise Duty to the tune of Rs. 20,720/- had been taken. On the basis of further investigation the Department found that the appellants had also removed 14 numbers of air-conditioners of 1.5 tonne capacity without filing proper classification list and without determination and payment of proper excise duty. Accordingly, present appellants were issued a SCN dated 27-9-1993 charging them with contravention of the provisions of Rules 9(1), 52A, 53, 57F(1), 173F, 173G and 226 of the Central, Excise Rules, 1944 apart from calling upon them to show cause why penalty under Rule 173Q should not be imposed and why the extended period of 5 years under proviso to Section 11A (1) of the Central Excise Act, 1944 should not be invoked.

4. The matter was adjudicated by the Collector who passed the impugned order. As regards the allegation of clandestine removal of seven air-conditioners, the Collector held that the assessees' explanation that these were removed by the employees of the assessee firm in the absence of the Partner of the assessee firm has not been supported, by any evidence on record. He observed that the party had not communicated the particulars about the said air-conditioners being old air-conditioners and the fact that they were brought to their factory premises for repairs and that because of the urgency three compressors had to be used for repairing the said air-conditioners. He also observed that the party had not obtained any permission under Rule 51A for bringing into the factory the duty paid old air-conditioners. He also pointed out that even if the compressors were required for the repair of the old air-conditioners the assessee could have debited their RG 23A Part II Account relating to the three compressors. He also found that the party had not been able to give the particulars of the parties to whom they had supplied the air-conditioners. As regards the removal of the further 14 air-conditioners, Collector observed that the removal of the said 14 air-conditioners by affixing the brand name, "Accord", owned' by M/s. Accord Equipments disentitled them from the benefit of Notification No. 75/87, dated 1-3-1987 as amended. On an examination of the agreement entered into between the present appellants, M/s. Coolair Industries and Accord Equipments, the Collector observed that the agreement was only a dealership agreement as M/s. Accord Equipments had no manufacturing unit and they were only traders. The Collector observed that according to the clauses of the agreement between the parties, the appellants, M/s. Coolair Industries were obliged to manufacture only "Accord" branded air-conditioners and they were to supply the said goods to M/s. Accord Equipments as their authorised distributors. The Collector further observed that in terms of the agreement it was clear that "Accord" brand name was to be put and had been affixed by M/s. Coolair Industries on the air-conditioners manufactured by them. He also referred to the purchase order dated 5-2-1991 placed by M/s. Accord Equipments on M/s. Coolair Industries for purchase of eight numbers of window mounted type room air-conditioners which contained a clause stating that as per agreement, M/s. Accord Equipments would be charging Rs. 2,000/- per air-conditioner towards sales and service commission. The Collector accordingly found that M/s. Accord Equipments had procurred the air-conditioners from the appellants and therefore the conclusion was inescapable that the appellants had manufactured air-conditioners bearing the brand name "Accord". He rejected the contention of the appellants that the invoices issued to M/s. Accord Equipments for the sale of air-conditioners did not mention the brand name "Accord" as of no consequence. Collector further referred to the statements given by Shri Abay Shinghal, Partner of Coolair Industries and Shri Rajiv Sahay, Partner of M/s. Accord Equipments, neither of which admitted to the affixing of the brand name or trade mark "Accord" on the air-conditioners manufactured by M/s. Coolair. In his statement dated 29-4-1992, Shri Abay Singhal had only stated that the brand name "Accord" was owned by M/s. Accord Equipments and that they (M/s.

Coolair Industries) had entered into an agreement dated 17-3-1990 that the appellants will supply 20 numbers of split window type air-conditioners to M/s. Accord Equipments.

5. Shri B.B. Gujral, ld. Counsel appeared for the appellants and Shri P.K. Jain, ld. SDR appeared for the Department.

6. Ld. Counsel submitted that as regards the allegation relating to the seven air-conditioners, Shri Abay Singhal in his statement dated 27-4-1992 had admitted that during his absence seven numbers of air-conditioners had been removed by one of his workers who did not know about the excise formalities and that three compressors had been used in the repair of air-conditioners brought to the factory due to extreme urgency. Subsequently, the credit of Rs. 20,700/- in respect of the three compressors had also been debited in their RG 23A Part II Account on 17-11-1992. There was therefore no loss to the Revenue and the same can be treated no more than as a procedural lapse. The removal occurred due to mistake/ignorance of the workers and there was no intention on the part of the appellants to effect removal without payment of duty. The bona fides of the appellants can be seen from the fact that they had complied with the duty liability even before the SCN was issued. He submitted that where there is no wilful evasion of duty, and where the duty had been paid, there is no cause for invoking the extended period of limitation nor for imposing any penalty. As regards the allegation of removal of 14 numbers of air-conditioners without filing proper Classification List and payment of Excise Duty, ld.Counsel submitted that no reliance could be placed on the statement dated 3-5-1993 of Shri Rajiv Sahay affirming that the 14 air-conditioners supplied by M/s. Coolair Industries were affixed with the brand name "Accord" since Shri Rajiv Sahay on his cross-examination during the adjudication proceedings had stated that he was not able to recall whether any brand name or labels had been put on the air-conditioners. Shri Sahay had also stated that it was possible that his Partner might have put the brand name "Accord" on the air-conditioners at the installation site. Ld. Counsel submitted that there was no evidence to show that the brand name "Accord" was affixed at the time of clearance and it was only after the air-conditioners were given delivery at the installation site, the brand name was affixed. During the cross-examination Shri Rajiv Sahay had further stated that as per agreement between M/s. Coolair Industries M/s.

Accord Equipments, fully manufactured air-conditioners were purchased from Coolair Industries on principal-to-principal basis without any conditions or restrictions and full payment was made to M/s. Coolair Industries as per the invoices and delivery challans. Ld. Counsel also submitted that the Counsel for the present appellants had sought time from the Collector for submitting further written submissions 'and without granting them adjournment as requested by the Counsel for the present appellants, the Collector had proceeded to pronounce the order-in-original. This has resulted in violation of the principles of natural justice. He also referred to the observations made by the Collector in the impugned order casting serious doubts about the reliability of the statement of Shri Rajiv Sahay, Partner of M/s.

Accord Equipments. Since the whole case of the Department relating to the 14 air-conditioners was built on the basis of statement of Shri Rajiv Sahay, the conclusion reached by the ld. Collector was not well founded. He also relied on the Tribunal decision in Madura Coats v.C.C.E. reported in 1996 (82) E.L.T. 512 in support of his argument that where brand name is affixed after the manufacture, no contravention can be alleged. He also relied on 1997 (21) RLT 828 in support of his submission on affixing of brand name after manufacture. As regards the extended period of limitation he relied on the Apex Court decisions in Pushpam Pharmaceuticals v. C.C.E. -1995 (75) E.L.T. 401 and Cosmic Dyechem -1995 (75) E.L.T. 721. As regards imposition of penalty he relied on 1995 (75) E.L.T. 273.

7. The Id. SDR drew attention to the fact that though duty was initially paid on the three compressors the appellants had paid the duty on the seven air-conditioners found short only after one and half years. He also referred to the detailed discussions in paragraphs 9 and 10 of the impugned order in which the Collector had given a detailed analysis of the terms of the dealership agreement between M/s. Coolair Industries and Accord Equipments which clearly shows that the present appellants were the actual manufacturers of the air-conditioners and even the initial statement of Shri Rajiv Sahay clearly stated that they (M/s. Accord Enterprises) were procuring air-conditioners from the appellants and supplying them under their brand name to various branches of the Bank of India.

8. We have given careful considerations to the submissions made on both sides. As regards the confirmation of demand of duty of Rs. 57,960/- in respect of the seven air-conditioners, the appellants have stated that the amount had been paid by making a debit entry in their RG 23A Part II Account. Subject to verification, Collector had directed appropriation of the amount towards confirmed demand of duty.

Appellants had pleaded bona fide mistake. Since they have already paid the duty we do not find any force in their contention that the extended period of limitation was not invokable. Further, their failure to inform the Department about removal without payment of duty is tantamount to suppression. Similarly, as regards reversal of Modvat credit of Rs. 20,700/- in respect of three compressors, the amount had already been debited by appellants in their RG 23A Part II account.

Collector had ordered appropriation of the amount already debited. It is not in dispute that the three compressors had been used in the repair of, the air-conditioners brought to the factory without observing the excise formalities. In these circumstances, we do not find any interference is warranted on these aspects of the impugned order.

9. As regards the demand of duty of Rs. 1,21,080/- in respect of the 14 air-conditioners, we find that the Collector has relied on the clauses of the agreement entered into by the appellants with M/s. Accord Enterprises to come to the conclusion that the appellants were obliged to manufacture only "Accord" branded air-conditioners and they were to supply the air-conditioners to M/s. Accord Equipments as their authorised distributors. He had come to the conclusion that in terms of the agreement it was clear that "Accord" brand name was to be put and had been affixed by M/s. Coolair Industries on the air-conditioners. He had also concluded from the purchase orders that the present appellants were manufacturing "Accord" brand air-conditioners. We, however, find that neither the clauses of the agreement nor the purchase orders clearly show that the appellants were manufacturing and clearing "Accord" brand air-conditioners to the customers or that the brand name "Accord" has been affixed on the air-conditioners by M/s. Coolair Industries and by no one else. We find that the Collector himself has given a finding that the evidence of Shri Rajiv Sahay was not reliable.

In view of these facts we are of the view that the findings of the Collector that the appellants had affixed the brand name "Accord" in the appellants' factory premises before clearing the air-conditioners is not supported by any material. We also find from the case law relied on by the ld. Counsel for the appellants, namely, Madura Coats v.C.C.E., supra and C.C.E. v. Paras Pharmaceuticals, supra, that SSI exemption under Notification No. 175/86 cannot be denied where it is not proved that the manufacturer has affixed on the specified goods the brand name or trade name of another person, who is not eligible for the grant of exemption under the said Notification. In Madura Coats, supra, the Larger Bench of the Tribunal had held that paragraph 7 of Notification No. 175/86 was by way of taking away the benefit of the exemption where the manufacturer affixes on the specified goods a brand name or trade name of another person who is not eligiole for the grant of exemption under the Notification. It was held that where at the stage of clearance of goods, the goods did not have the brand name affixed to them and the affixture of the brand name was at a subsequent stage, the pre-condition contemplated under para 7 of the exemption Notification was not satisfied. In such cases it must follow that the assessee would be entitled to the benefit of the Notification. In Paras Pharmaceuticals case, supra, the Tribunal had held that the benefit of the exemption Notification No. 175/86 cannot be denied to a manufacturer manufacturing medicines under the brand name of another person having neither factory nor Central Excise Licence. We therefore hold that the impugned order confirming the duty demand on the 14 air-conditioners is not sustainable. We also accordingly reverse the penalty imposed.

10. Having regard to the above discussions, we uphold the appropriation of Rs. 57,960/- and Rs. 20,700/- ordered by the Collector. However, we set aside the demand of duty of Rs. 1,21,080/- as well as the penalty of Rs. 25,000/-