The Hon’ble Supreme Court in its decision dated January 14, 2013 in the case of CCE, Chennai-II v/s M/s Australian Foods India (P) Ltd. reported in 2013-TIOL-03-SC-CX held that even though goods manufactured by Small Scale Industries (SSI) do not physically bear brand name or logo but such manufactured goods are sold from branded sale outlets, then such manufactured goods are to be treated as “branded goods” and therefore, are not eligible to claim benefits under SSI. Once it is established that specified goods are branded goods, whether it is sold without any trade name by holder of brand name, it does not cease to be branded goods for first (original) manufacturer.
SSI unit has option not to pay central excise duty for the turnover of excisable goods upto Rs. 1.50 Crore. However, the turnover of goods manufactured with a brand name of some other person shall not take into account for availing exemption limit of Rs. 1.50 Crore and therefore, central excise duty is to be paid from Re. 1 related to the turnover of goods manufactured with the brand of other person even though such brand is registered or not.
FACTS OF THE CASE
The company (Respondent of the case) was engaged in manufacture and supply of cookies to its customer who thereafter used to sale such cookies from its branded retail outlet of “Cookie Man”. This brand was acquired by the customer of the company from M/s Cookie Man Pvt. Ltd, Australia. The company supplied cookies in plastic containers with sealed packing on which the brand name along with the logo was printed. But no brand name was affixed on the cookies. On receipt of cookies in packed form, some of the cookies were taken out and such cookies were sold from the branded outlet itself in loose form at the counter with plain plates or tissue paper. The remaining cookies in packed form were sold as it is at the counter. Central excise duty was paid by the manufacturer on the cookies sold in plastic containers however; no central excise duty was paid on the cookies sold in loose form.
The commissioner issued the Show Cause Notice (SCN) for demanding central excise duty on cookies sold in loose form at the counter of the branded outlet. However, after hearing the company, the Commissioner came to the conclusion that unless the specified goods or packing in which these are sold, bear the brand name or the logo, SSI exemption cannot be denied and accordingly, quashed the demand of central excise duty. The Department challenged the decision of the Commissioner and filed an appeal before the Hon’ble Tribunal, South Zonal Bench at Chennai. The Hon’ble Tribunal upheld the decision of the Commissioner and dismissed an appeal filed by the Department. The Department challenged the Order passed by the Hon’ble Tribunal and filed an appeal before the Hon’ble Supreme Court.
ANALYSIS OF THE HON’BLE SUPREME COURT ORDER
The Hon’ble Supreme Court observed that the controversy revolves around Para 4 of SSI Notification No. 1/93-CE dated February 28, 1993 which was read as under:
“4. 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.”Online GST Certification Course by TaxGuru & MSME- Click here to Join
The above provision was amended vide Notification No. 59/94-CE dated March 01, 1994 and as a result, deleted the words “where a manufacturer affixes the specified goods with” andnow read as under:
“4. 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.”
In Para J of the Budget Changes 1994-95 explained the following two purposes of the above amendment:
1. If 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.
2. 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.
Importantly, the term “brand name” or “trade name” is defined in Explanation IX of the Notification No. 1/93-CE dated February 28, 1993 which is reproduced below for your ready reference:
“Explanation IX- ‘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.”
The learned counsel of the company relied on the decision in the case of Commissioner of Central Excise, Jamshedpur Vs. Superex Industries, Bihar reported in 2004-TIOL-100-SC-CXwherein it was held that display of a brand name on goods is a necessary requirement for disqualification from the exemption granted by the concerned notification.
In the present case, the Hon’ble Supreme court observed that it cannot be derived from the above judgement that in order to avail exemption of manufacture of branded goods by SSI, there is a compulsory requirement of physical display of a brand name on the specified goods. 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.
It was also observed by the Hon’ble Supreme Court that in the present case, the goods were sold from exclusive single brand retail outlets / stores and this fact is to be a relevant fact in construing if the goods are its branded goods or not. Hence, we hold that 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.
While arriving at the conclusion, the Hon’ble Supreme Court observed that the most important factor is the specific branded outlet from which the goods were sold. However, such factors would carry different manners in different scenarios. There can be no single formula to determine if the goods are branded or not; such determination would vary from case to case. Also, our observations must be limited to this notification and not superseded to other laws with similar subject matter pertaining to trade names and brand names.
Applying the said principles on the facts at hand, we fail to see how the same branded cookies, sold in containers, can transform to become unbranded ones, when sold from the same counter, or even from an adjoining counter, without packaging carrying the brand name.
Even though brand name of other person is not affixed on the goods manufactured by SSI unit but so long as it can be proved that such manufactured goods belongs to some brand, then in such a case, such SSI unit cannot enjoy exemption of manufacture of unbranded goods upto the turnover of Rs. 1,50 Crore.
(Author is a Senior Associate in one of the leading consultancy company and can be reached at email@example.com)