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2006 DIGILAW 931 (RAJ)

Zaclon Electronics Pvt. Ltd. v. Union of India

2006-03-23

VINEET KOTHARI, Y.R.MEENA

body2006
Judgment Dr. Vineet Kothari, J.-M/s. Zaclon Electronics Private Limited, Jaipur (hereinafter referred to be as “petitioner-company”) engaged in the manufacturing of Potassium silicate falling under sub-heading 2839.90 of the Schedule to the Central Excise Tariff Act, 1985 claimed the benefit of exemption available to Small Scale Industries under the Notification No. 175/1986 C.E. dated 01.03.1986 and was paying duty at the concessional rate on the aforesaid goods under the said notification. 2. The said petitioner company entered into a technical collaboration with Zaclon Inc., USA on a one time technical know-how transfer fees basis and sold these goods with the description on the packing disclosing in brackets that the product in question is manufactured by the petitioner company M/s. Zalcon Electronics Pvt. Ltd., Jaipur (in technical collaboration with Zaclon Inc., USA). The Excise Authorities served a show cause notice upon the petitioner company to show cause as to why the benefit of concessional rate of duty be not denied to the petitioner-company in view of Para No. 7 of the said notification and after considering the reply filed by the petitioner company, the Collector, Central Excise, Respondent No. 2 passed the impugned order on 06.04.1994 (Annexure-17). Being aggrieved by the said order, the petitioner-company preferred this writ petition under Article 226 of the Constitution of India in this Court. 3. Mr. Paras Kuhad, learned Counsel for the petitioner-company submitted that Para No. 7 of the said Notification No. 175/86 C.E. dated 01.03.1986 does not hit the case of the petitioner-company and the Respondent No. 2 has erred in withdrawing the said benefit on a misconception of law and facts. 4. 3. Mr. Paras Kuhad, learned Counsel for the petitioner-company submitted that Para No. 7 of the said Notification No. 175/86 C.E. dated 01.03.1986 does not hit the case of the petitioner-company and the Respondent No. 2 has erred in withdrawing the said benefit on a misconception of law and facts. 4. The relevant extract of notification is reproduced herein under for reference as under:- “Exemption to first clearances of specified goods upto the value of rupees 20/30 lakhs and concessional duty on subsequent clearances in the case of manufacturer having clearances not exceeding rupees two crores in the preceding year.- In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 85/85 Central Excises, dated the 17.03.1985, 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.-.................... .................... “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 to the specified goods which are component parts of any machinery or equipment or appliances and cleared from a factory for use as original equipment in the manufacture of the said machinery or equipment or appliances and the procedure set out in Chapter X of the said rules is followed. Provided further that nothing contained in this paragraph shall be applicable to the specified goods where a manufacturer affixes the specified goods with a brand name or trade name (registered or not) of the Khadi and Village Industries Commission or of the State Khadi and Village Industries Board. ..................... .................... Provided further that nothing contained in this paragraph shall be applicable to the specified goods where a manufacturer affixes the specified goods with a brand name or trade name (registered or not) of the Khadi and Village Industries Commission or of the State Khadi and Village Industries Board. ..................... .................... 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.” 5. Mr. Kuhad, learned Counsel for the petitioner-company submits that firstly petitioner-company has not affixed the “Brand name or Trade name” on the specified goods and the transfer of only technical know-how by Zaclon Inc., USA under the agreement (Annexure-3) is only about technical know-how and is not about the user of trade name or brand name. The petitioner-company is registered in its own name with the Registrar of Companies under the Indian Companies Act and the goods manufactured by it as Small Scale Industry are entitled to concessional rate of duty under the said notification. He further submitted that even if the word Zaclon is taken to be the brand name or trade name, unless it indicates 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, it shall not dis-entitle the petitioner-company from availing the said concessional rate of duty. He further contends that description of goods manufactured by petitioner-company making disclosure on the packing that it is so manufactured in technical collaboration with Zaclon Inc., USA does not amount to user of brand name or trade name and even the co-incidence of name of petitioner-company being similar does not establish any connection in the course of trade between specified goods and some person using such name or mark. On the basis of preamble of said notification, he further submits that said company of USA i.e., Zaclon Inc. On the basis of preamble of said notification, he further submits that said company of USA i.e., Zaclon Inc. is not entitled to avail any benefit under the said notification nor there is any question of it being ineligible under the said notification, therefore, obviously Para No. 7 of the said notification would not apply to the case of present petitioner-company. He relies upon the Judgment of Honble Supreme Court in the case of Commissioner of Central Excise, Jamshedpur vs. Superex Industries, Bihar reported in 2005 (4) SCC 207 . The relevant part of which reads as under:- “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 would not be denied that the name Kirloshkar is not affixed to the generating sets. CEGAT has held that merely because, in the invoices, the set is passed off 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.” 6. Per contra, Mr. Ajay Shukla, learned Counsel for Revenue contends that merely because the brand name “Zaclon” is not affixed on the product itself , but is used on the packing which is used for packing of Potassium Silicate, it does not mean that the petitioner is not using the brand name or trade name of the USA Company. He relies on the Judgment of Honble Supreme Court rendered in Commissioner of Central Excise, Calcutta vs. Emkay Investment (P) Ltd. & Anr., reported in 2005 (1) SCC 526 , in which the respondent assessee, a Small Scale Manufacturer of ply-wood, using the brand/logo “Merino” on its product alongwith its own brand name “Pelican” while “Merino” and “Tuffply” together were being used by a large-scale manufacturer of plywood who was not entitled to small-scale exemption under Notification No. 175/86-CE. In such circumstances, the condition of establishing a connection between the respondents product and the brand name holder in the course of trade, as postulated in Explanation VIII of Notification No. 175/86-CE, was held to have been satisfied and Clause 7 was held attracted. 7. In such circumstances, the condition of establishing a connection between the respondents product and the brand name holder in the course of trade, as postulated in Explanation VIII of Notification No. 175/86-CE, was held to have been satisfied and Clause 7 was held attracted. 7. This case with great respect, is distinguishable from the facts and circumstances of the present case where no brand name or trade name is being used, as such by the SSI Manufacturer and mere disclosure of technical collaboration with Zaclon Inc., USA, in our view does not attract the Explanation VIII or Para No. 7 of the said notification dis-entitling the petitioner-company from the concessinal rate of duty under the said notification. 8. The revenue has not only failed to establish the connection between the use of brand name on specified product in the course of trade as required under Explanation VIII, but has also failed to establish how the agreement (Annexure-3) for transfer of technical know-how was sufficient or enabling the petitioner-company to use such brand name or trade name. The impugned order also does not lay any foundation while denying the benefit of Notification No. 175/86-CE to the petitioner-company to show as to how the said company Zaclon Inc. USA was not eligible to avail the benefit of said notification. The purpose of Para No. 7 of the said notification denying the benefit to SSI Units seems to be not to permit SSI units to manufacture goods for large companies under their brand name or trade name and avoid payment of Excise duty or pay such duty at the concessional rate merely because they happen to be SSI units on the basis of their fixed capital investment. The purpose of said Para No. 7 does not seem to be to discourage technical collaboration with foreign companies and transfer of technical know-how for manufacture of products by SSI units in the country as is the present case. 9. Accordingly, this writ petition deserves to be allowed and same is hereby allowed. The impugned order passed by the Collector, Central Excise on 06.04.1994 (Annexure-17) is quashed. No order as to costs.