2009 (8) TMI 996 - Commissioner - Central Excise

Issues Involved:
1. Applicability of SSI exemption to the appellant's goods.
2. Interpretation of the Supreme Court's decision in Kohinoor Elastic (P) Ltd. v. CCE.
3. Validity of CBEC circulars in light of Supreme Court judgments.
4. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Applicability of SSI Exemption:
The appellants, M/s. Khushwani Print Pack (P) Ltd., were engaged in manufacturing Flexible Laminated printed Film and claimed SSI exemption under Notification No. 8/2003-C.E. The department denied this exemption based on the condition in para 4 of the notification, which excludes goods bearing the brand name of another person from SSI exemption. The department raised a demand for recovery of duty along with interest and initiated penal proceedings. The appellants argued that their goods were exempted from duty as SSI exemption was available to them and cited various notifications and circulars supporting their claim.

2. Interpretation of the Supreme Court's Decision in Kohinoor Elastic (P) Ltd. v. CCE:
The department relied on the Supreme Court's decision in Kohinoor Elastic (P) Ltd. v. CCE, which held that goods bearing the brand name of another person are not eligible for SSI exemption. However, the appellants contended that this decision was not applicable to their case, as it pertained to elastic bands used in undergarments, whereas their case involved packaging materials. The appellants cited an interim order by the Hon'ble High Court of Allahabad in the case of Sharda Packaging Pvt. Ltd., which opined that the Kohinoor Elastic judgment did not apply to SSI units manufacturing packaging material.

3. Validity of CBEC Circulars in Light of Supreme Court Judgments:
The appellants argued that CBEC circulars issued in 1987 and 1994, which extended SSI exemption to packaging materials bearing brand names, were in force during the disputed period and were only withdrawn on 1-9-2008. They cited the Supreme Court's decision in the case of Ratan Melting & Wire Industries, which clarified that CBEC circulars cannot override Supreme Court judgments but also stated that benefits already granted under such circulars should not be reopened. The appellants argued that the benefit of SSI exemption extended by these circulars should be upheld for the period under dispute.

4. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:
The appellants contended that there was no contumacious conduct or deliberate violation of fiscal statutes on their part, and thus, the invocation of penalty provisions was unwarranted. They cited various judicial decisions, including Hindustan Steel Ltd. v. State of Orissa, which held that penalties should not be imposed for technical or venial breaches or where there is a bona fide belief of non-liability. The adjudicating authority agreed, noting that the issue was one of interpretation of notification and not clandestine removal, and thus, the ingredients for imposing a penalty under Section 11AC were not met.

Conclusion:
The adjudicating authority set aside the demand raised against the appellants, holding that the benefit of SSI exemption was available to them during the disputed period as per the CBEC circulars in force at that time. The authority also set aside the penalty, finding no evidence of deliberate violation or contumacious conduct. The appeal was allowed with consequential relief.

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