SSI Exemption available to job worker on goods manufactured under Brand name of Principal manufacturer – SC

Brief of the case

In the case of M/s. Vir Rubber Products P. Ltd. Vs. Commissioner of Central Excise Hon’ble SC held that for claiming SSI exemption under Central Excise law, the value of clearances made on account of job work under the brand name of principal manufacturer should not be included i.e. the clearances made under the assessee’s own brand name should only be considered for arriving at the value to be considered for SSI exemption.

Facts of the Case

The assessee was engaged in the manufacture of certain articles from vulcanized rubber as bushes for use in the motor vehicles. The assessee is a Small Scale Industrial unit (SSI). The assessee has its own brand name “VIR” and has been manufacturing these products under the said brand name and supplying the same to various customers. In addition, the appellant was also having job orders from some automobile companies like Hindustan Motors, Kinetic Honda, etc. In regards to goods manufactured on job work, the assessee had been putting the identification mark such as “HM”, “PAL”, “KH”, etc. The assessee is claiming the SSI benefit under notification no. 1/93 on goods manufactured on its own account and cleared under its own brand name ‘Vir’. The said notification provides exemption from payment of excise duty on fulfilment of certain conditions.
The revenue disputed that assessee is fulfilling all the conditions of the said notification except that the aggregate value of clearances in the preceding financial year should be less than Rs. 3 Crores.

While interpreting the said notification, the revenue included the value of goods supplied to the automobile companies under the brand name ‘HM” “PAL”, “KH”, etc. and on that basis, came to the conclusion that the total value of goods cleared by the assessee in the previous financial year was much more than Rs.3 crores. The assessee contented that only the value of clearances made with its proprietary brand name ‘VIR’ should be included while calculating the amount of Rs. 3 Crores. The adjudicating authority including CEGAT had rejected the contentions of the assessee.

Held by Hon’ble Supreme Court of India

Hon’ble Supreme Court of India relied on a recent judgement dated by 11^th March, 2015 in the case of Commissioner of Central Excise, Jamshedpur v. M/s. Tubes & Structurals and Another [Civil Appeal Nos. 7955-7956 of 2003]. In the said judgement the Hon’ble court relied on another judgement in the case of Commissioner of Central Excise, Chennai-II v. Australian Foods India (P) Ltd. (2013) 287 E.L.T. 385 (SC), wherein the Hon’ble court took note of the original Para 4 in Notification No. 1/93 dated 28.2.1993 where the words mentioned are “the exemption contained in this Notification shall not apply to the specified goods, bearing a brand name or trade name (registered or not) of another person.” This Para 4 was amended vide Notification No. 59/94-CE dated 1.3.1994 and the word “affixes” was substituted by the word “bearing”. The court in the case of Australian foods further states that Brand name provisions has been amended so as to provide that SSI concession shall not apply to the goods bearing the brand name of another person. The effect of this amendment is that if an SSI unit manufactures the branded goods for   another person irrespective of whether the brand name owner himself is SSI unit or not, such goods shall not be eligible for the concession. Another implication of this amendment is that the requirement of affixation or brand name by the SSI unit has been changed and now the only condition is that the goods cleared by SSI unit bearing a brand name of another person shall not be eligible for the concession irrespective of the fact whether the brand name was affixed by the SSI unit or that, the input material used by the SSI unit was already affixed with brand name.

The Hon’ble Court in the present case of Vir Rubber further states that the CEGAT has given two other reasons to deny the relief to the appellant.

• It has observed that letters such as “HM” and “PAL” were initials of the buyers of the goods and they constitute the brand name. However, what was indicated was only initials with the sole purpose to identify the goods for particular automobile company. After the supply of these goods, the said automobile companies were affixing their proper trade mark/ brand name thereupon. On this basis, it is mentioned that the Notification in question would not apply.

• The other reason given by the CEGAT is that “HM” and “PAL” are not the brand names.

The Hon’ble court states that the first reason mentioned by CEGAT is contrary to the law laid down by this court in Kohinoor Elastics (P) Ltd. v. Commissioner of Central Excise, Indore [(2005) 7 SCC 528] wherein it was held that the relation given in any clause should be read in the context of such clause and not otherwise.

The Hon’ble court states that the second reason mentioned by CEGAT is a legal error and the same was rejected by this court in the case of Commissioner of Central Excise, Trichy v. M/s. Grasim Industries Ltd. [2005 (3) SCR 466] wherein it was held that the “name or mark” such as a “symbol” or a “monogram” or a “label” or even a “signature of invented word” is a brand name or trade name.

In view of the aforesaid discussion, the Hon’ble Supreme Court held that value of the goods meant for “HM”, “PAL”, “KH”, etc. cannot be included while considering the benefit of the aforesaid Notification and hence the CEGAT order was set aside.