Holding

The proviso to Section 11‑A is not available to the Revenue, the exemption under Notification No. 175/86‑CE applies, and the penalty is unsustainable.

Summary

M/s P & B Pharmaceuticals (P) Ltd., a small‑scale manufacturer of patent and proprietary medicines, used the logo "P/B" assigned by M/s P & B Laboratories Ltd. The Central Excise authorities issued several show‑cause notices alleging that its distributor was a related person and that the logo was also used by the assignor, thereby suppressing material facts and invoking the proviso to Section 11‑A of the Central Excise Act to levy duty for an extended period and impose a penalty. The authorities had earlier examined the related‑person issue and concluded the distributor was not related, later reversing that view. The Tribunal upheld the demand and penalty. The Supreme Court held that the facts were already before the authorities, so no suppression occurred; the proviso to Section 11‑A could not be invoked, and the use of a logo by the assignor does not defeat exemption under Notification No. 175/86‑CE. Consequently, the penalty was unsustainable and the appeal was allowed.

Issues considered

Whether the proviso to Section 11‑A of the Central Excise Act can be invoked when the fact of a related person was already before the authorities and not suppressed.
Whether the use of a logo assigned from another manufacturer, which is also used by the assignor, disqualifies the assessee from exemption under Notification No. 175/86‑CE, para 7.
Whether a penalty imposed under Rule 173Q of the Central Excise Rules is sustainable if the proviso to Section 11‑A is inapplicable.

Legislation cited

Central Excise Act, 1944s. 11-A
Central Excise Rules, 1944s. Rule 173Q

Subjects

Central ExciseSection 11-Arelated personsuppression of factexemption notificationlogo assignmenttrademarkpenaltysmall scale unitpatent medicines

Judgment

A MIS. P & B PHARMACEUTICALS (P) LTD.
v.
COLLECTOR OF CENTRAL EXCISE

FEBRUARY 19, 2003

B [SYED SHAH MOHAMMED QUADRI AND ASHOK BHAN, JJ.] I
....!
Central Excise Act, I 944: ·,
\
S. I I-A, proviso-Recovery of duty not levied due to suppression of fact
c regarding related person-Assessee, manufacturing patent and proprietary _,.J'
medicines-Show cause notices issued to assessee demanding duty on the basis
ofprice at which its distributor sold goods in whole sale trade on the ground that
said distributor was a related person and the assessee suppressed the fact-Held,
the issue that distributor was a related person has been the subject matter of
consideration ofexcise authorities at different stages and necessary material was
D before the authorities-They had then taken the view that distriblllor was not a
related person-Ifthe authorities came to the conclusion subsequently that it was
a related person, the same fact could not be treated as a suppression offact on
the part of assessee so as to saddle it with liability of duty for the larger period
by invoking proviso to s. I I-A-As regards the assessee, it has all along been "
E contending that they were not related persons, so, it cannot be said to be guilty
of not filing up the declaration indicating. related persons-The demand for
extended period by invoking proviso to s. I I-A cannot be upheld
"
S. I I-A, proviso-Exemption Notification No.17 5186-CE dated I. 3. I 986-
Para 7-Recovery of duty not levied due to suppression offact that logo used
F by assessee was also being used by another manufacturer-Assessee, a small
scale unit manufacturing patent and proprietary medicines-Using logo "Pl
B" assigned to it by "P & B Laboratories Ltd. "-Show cause notice issued
to assessee stating that assessee suppressed the fact that the logo used by it
was also being used by another manufacturer, which was ineligible for
exemption under Notification No. J75186-CE-Held, use of logo of the
G manufacturer by other person whether an assignor or a third party, has no
relevance for purposes of para 7 of exemption Notification No. l 75186-C~
The ground that assessee has suppressed the fact that Mis. P & B Laboratories
were also using the logo for availing the benefit under the Notification cannot r-
be a valid reason to invoke the proviso to s. I I-A-There is no obligation on
.H the owner of a logo to make a roving252inquiry to ascertain whether any other
MIS. P & B PHARMACEUTICALS (P) LTD. v. C.C.E. 253
-~

person is also using his logo and disclose it to the authorities to avert a A
possible allegation ofsuppression offact for purposes ofinvoking the proviso--
Proviso to s. ll-A is not available to Revenue.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3969 of I 995.

From the Judgment and Order dated 17.10.94 of the Central Excise B
Customs and Gold (Control) Appellate Tribunal, New Delhi in A.No. 03192-
A in F.O.No. 290 of 1994-A.

A.R. Madhav Rao, P.M. Dave, Alok Yadav, Vishwanath Shukla and V.
Balachandran for the Appellant.
c
Jaideep Gupta, Ms. Rekha Pandey and B.K. Prasad for the Respondent.

The following Order of the Court was delivered :

This appeal, by the assessee, is from the final order No. 290194-A of
the Customs, Excise & Gold (Control) Appellate Tribunal in Appeal No.El D
03192-A, dated October 17, 1994.

The short point that arises for consideration is: whether the Tribunal
erred. in upholding the order of the Excise authorities in invoking the proviso
to Section 11-A of the Central Excise Act, 1944; if so, whether the order E
confirming penalty is sustainable.

It will be necessary to refer to the facts giving rise to this appeal.

The appellant-assessee is a registered small scale unit. It manufactures
patent and proprietary medicines. It uses a logo "P/B". The assessee claims F
that the logo was assigned to it by Mis. P&B Laboratories Ltd. by a deed of
a5signment dated July 1, 1984. The dispute relates to the period from May
1, 1985 to December 31, 1989. On March 25, 1985 a show cause notice was
issued to the assessee proposing to demand duty on the basis of the price at
which its distributor, Mis. Pharmachem Distributors, sold the goods in the
course of whole-sale trade on the ground that the said distributor was a G
related person. The assessee submitted its reply. The Assistant Collector of
Customs & Central Excise, Nadiad dropped the proceedings by order dated
May 10, 1985.

It is appropriate to note here that the Central Government issued H
254 SUPREME COURT REPORTS [2003] 2 S.C.R.
~
· A Notification No. 175/36-CE, dated March I, 1986 granting exemption to
small scale units subject to the terms and conditions specified therein. That \
notification was subsequently amended and para 7 was inserted therein.

(·-
On January 27, 1988 and, thereafter, on July 26, 1988 show cause
notices were issued to the assessee on the ground that the assessee and its
B distributor, Mis Pharmachem Distributors, have mutual interest and, therefore,
\
the price at which the distributor sold the goods in the market ought to be
adopted for the purposes of levy of excise duty on the assessee. The I
proceedings pursuant to these show cause notices were also dropped by the \
Assistant Collector, after considering the reply of the assessee, by order dated
C September 26, 1988.

A fourth show cause notice was issued to the assessee on June, 12,
1990. The present appeal arises out of those proceedings. The said notice is
very lengthy but it is based mainly on two grounds:

D The first ground is that the distributor of the appellant is a related
person, therefore, there has been short levy of duty and inasmuch as there has
been suppression of this fact, proviso to Section 11-A of the Central Excise
Act (for short, 'the Act') was attracted and the assessee was liable to pay duty
for the extended period from May 1, 1985 to December 12, 1989.

E The second ground is that after insertion of para 7 in Notification No.
175/86-CE, the assessee is not entitled to exemption as the assessee and Ml
s. P&B Laboratories Ltd. have been using the logo and it did not disclose this
fact; duty was demanded for the period commencing from October 10, 1987
till the date of notice (12.6.1990) invoking the proviso to Section 11-A of the
F Act.

On both the grounds, the Collector confirmed the demand pursuant to
the show cause notice dated June 12, 1990, and imposed a penalty of Rs.
20,00,000 on the assessee by his order dated October 21, 1991.

G Dissatisfied with the said order of the Collector, the assessee filed an
appeal before the Customs, Excise & Gold (Control) Appellate Tribunal (for
short 'the CEGAT'). The CEGA T upheld the order of the Collector but for
.purposes of quantification of duty after allowing permissible deduction, the
matter was remitted to the Collector. The penalty was, however, reduced to
H ·Rs. 15,00,000. The CEGAT thus allowed the appeal in part on October 17,
MIS. P & B PHARMACEUTICALS (P) LTD. v. C.C.E. 255
1994. That is the order which is under challenge before us. A
Mr. Lakshmikumaran, the learned counsel appearing for the appellant,
contends that so far as the demand of duty on the basis of the distributor
being a related person is . concerned, all facts in this regard were placed
before the concerned authorities and, therefore, there has been no suppression
of fact; in any event, submits the learned counsel, when the show cause B
notice was issued in 1985 and, thereafter, when two more show cause notices
were issued in 1988, all these facts were before the concerned authorities,
therefore, it was not open to the Central Excise authorities to invoke proviso
to Section 11-A of the Act for making a demand of duty for the extended
period. C
Mr. Jaideep Gupta, the learned senior counsel for the Revenue has, on
the other hand, contended that insofar as the question of related person is
concerned, as the assessee had failed to give such a declaration in a separate
form along with the classification list, there is, in that, suppression of fact and
the authorities were justified in invoking the proviso to section 11-A of the D
Act for demand of duty for the extended period.

We have indicated above the facts which make it clear that the question
whether Mis. Pharmachem Distributors was a related person has been the
subject-matter of consideration of the Excise authorities at different stages, E
when the classification was filed, when the first show cause notice was issued
in 1985 and also at the stage when the second and the third show cause
notices were issued in 1988. At all these stages, the necessary material was
before the authorities. They had then taken the view Mis. Pharmachem
Distributors was not a related person. If the authorities came to the conclusion
subsequently that it was a related person, the same fact could not be treated F
as a suppression of fact on the part of the assessee so as to saddle with the
liability of duty for the larger period by invoking proviso to Section 11-A of
the Act. So far as the assessee is concerned, it has all along been contending
that they were not related persons, so, it cannot be said to be guilty of not
filling up the declaration in the prescribed proforma indicating related persons. G
The necessary facts had been brought to the notice of the authorities at
different intervals from 1985 to 1988 and further they had dropped the
proceedings accepting that M/s. Pharmachem Distributors was not a related
person. It is, therefore, futile to contend that there haS been suppression of
· fact in regard to M/s. Pharmachem Distributors being a related person. On
that score, we are unable to uphold the invoking of the proviso to Section 11- H
256 SUPREME COURT REPORTS [2003] 2 S.C.R.

A A of the Act for making the demand for the extended period. ..
The second question relates to availing of exemption after the insertion
of para 7 in Notification No~ 175/86-CE, dated March l, 1986. Para 7 reads
as follows:

B · "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.

C We may also refer to Explanation VIII to the notification on which
reliance is placed by Mr. Jaideep Gupta. Explanation VIII runs thus:

· "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
D 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 man with or without any indication of the identity
of that person."
E
From a perusal of para 7 of Notification No. 175/86-CE, it is clear that
the exemption granted by the notification is not applicable to the specified
goods where a manufacturer affixes. the specified good with a brand name or
trade name (registered or not) of another person who is not eligible for the
grant of exemption under the said notification. There is no dispute that the
F assignor Mis. P & B Laboratories Ltd. is not entitled to exemption under the
notification. It is evident that the test mentioned in para 7 to deny the benefit
of exemption is, use of a logo by a manufacturer of which he is not the
owner. It is only when a manufacturer of the specified goods affixes them
with a logo-brand name or trade name-of another person who is not eligible
G for the exemption that he becomes ineligible to avail the benefit under the
notification. Use of the logo. Of the manufacturer by other person, whether a
assignor or a third party, has no relevance for purposes of para 7. That is not
the import of Explanation VIII.

Insofar as the order of the Collector, Central Excise, is concerned, it
H appears that documents were filed before the Collector to prove assignment
M/S, P & B PHARMACEUTICALS (P) LTD. v. C.C.E. 257
of the "logo" in favour of the appellant but on the ground that they were not A
legible, the Collector declined to take note of them. In any event, he did not
accept the assignment of logo.and proceeded on the footing that the assignment
of logo in favour of the appellant was not pr_oved. Therefore, on the basis that
logo was of Mis. P&B Laboratories Ltd., he came to the conclusion that the
assessee was not entitled to the exemption. The appellant filed in the appeal B
before the CEGAT, by way of additional evidence, the order passed by the
trade mark authorities. The additional evidence was allowed by the CEGA T;
it accepted the assignment of logo in favour of the appellant but denied the
exemption on the ground that it was being used by the assignor as well.

However, Mr. Jaideep Gupta submits that the Tribunal did not accept C
1hat there has been assignment of logo in favour of the assessee. We are
unable to accept the contention of the learned counsel. The tenor of the order,
"the assessee had produced certain documents such as registration form, trade
mark authorities assigning the trade mark to them but the fact remains that
there was material evidence by way of seizure of goods manufactured by
Mis. P&B Laboratories bearing the same Logo much after the alleged transfer D
of trade mark to the appellants'' discloses that the Tribunal accepted that
there has been an assignment but proceeded to deal with the case of
inapplicability of the exemption under the notification on the ground that the
logo was being used by Mis P&B Laboratories also. We have already indicated
above that use oflogo of the manufacturer by third parties is alien for purposes E
of denial of exemption on the strength of para 7 of the notification. In this
view of the matter, we are unable to uphold the order of the Tribunal denying
the exemption to the assessee.

In any event, the ground that the assessee has suppressed the fact that
Mis. P&B Laboratories was also '!sing the logo for availing the benefit under· F
the notification cannot be a valid reason to invoke the proviso to Section 11-
A of the Act. There is no obligation on the owner of a logo to make a roving
enquiry to ascertain whether any. other person is also using his logo and
disclose it to the authorities to avert a possible allegation of suppression of
fact for purposes of invoking the proviso.
G
For all these reasons, we are of the view that the proviso to Section 11-
A is not available to the Revenue. Consequently, we hold that the CEGAT
erred in confirming the order of the Collector.

The last point that remains to be mentioned is about the penalty imposed H
+
258 SUPREME COURT REPORTS [2003) 2 S.C.R.

A on the assessee. It is not in dispute that if the proviso to Section .11-A of the
Act cannot be called in aid, imposition of penalty can not be justified under
Rule 173Q of the Central Excise Rules, 1944. See: Collector of Central
Excise v. H.MM. Ltd., (1995) 76 ELT 497 and Nagpur Alloy Castings Ltd.
v. Collector of Central Excise (2002) 142 ELT 515. The order imposing
B penalty is thus unsustainable.
The appeal is, accordingly, allowed and the order of the CEGAT under
challenge is set aside. In the circumstances of the case, the parties are directed
to bear their own· costs.

R.P. Appeal allowed.