2013 (6) TMI 35 - HC - Central Excise

Penalty for availing wrong SSI Exemption - maintainability of appeal before HC - brand name Guru - Doctrine of merger - effective date of assignment (memorandum of understanding) - right to use - manufacture of sanitary and bath fittings - held that - The issue in the present lis is regarding benefit of exemption under Notification No.8/2001 available to an assessee, a Small Scale Industry. It is not an issue relating to rates of duty or the value of goods, but only to the effect whether the assessee is entitled to exemption granted to a Small Scale Industrial Unit on the basis of trade mark of another concern. Any decision thereon, is relevant only inter-parties and has no wider ramification within the jurisdiction of this Court much less in the Country. Therefore, such localized dispute does not fall within the exception of Section 35G of the Act. - an appeal would be maintainable before this court. - in favor of revenue. Doctrine of merger - appeal filed by the assessee before the SC was dismissed - held that - dismissing Civil Appeal leads to merger of that part of the order alone, which was against the assessee. Once the assessee has availed the remedy of appeal and such appeal has been dismissed, the findings of the Tribunal, which are against the assessee, stands affirmed and stood merged with the order of the Hon ble Supreme Court. It is more so, when the appeal was dismissed without notice to the Revenue and the Revenue had no opportunity to point that it intends to file an appeal against an order of the Tribunal. Therefore, the findings against the Revenue could be disputed before the competent Court of law. - in favor of revenue. Regarding penalty - held that - The Tribunal has set aside the order of imposing penalty finding that it is a bona fide belief of the assessee in using the brand name of its sister concern. Therefore, such user is not with intent to evade payment of duty and, thus, levy of penalty has been rightly set aside. In respect of penalties imposable under Rule 26, again the penalty is payable if a person acquires possession of, or in any manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under the Act. Such provision again makes the mens rea a necessary ingredient for imposition of penalty, as held by the Supreme Court in Pepsi Foods Ltd. case (2010 (12) TMI 15 - Supreme Court of India). - No penalty - decided in favor of assessee.

Summary

Issues Involved:
1. Jurisdiction of the High Court under Section 35G of the Central Excise Act, 1944.
2. Doctrine of merger concerning the dismissal of an appeal by the Supreme Court.
3. Imposition of penalties under Rules 25 and 26 of the Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Jurisdiction of the High Court under Section 35G of the Central Excise Act, 1944:
The primary issue was whether the High Court had jurisdiction to entertain the appeal under Section 35G of the Central Excise Act, 1944. The court examined Section 35G, which allows appeals to the High Court from orders passed by the Appellate Tribunal, except those relating to the determination of the rate of duty or the value of goods for assessment purposes. The court referred to the Supreme Court judgment in Navin Chemicals Manufacturing & Trading Co. Ltd., which clarified that appeals involving the rate of duty or value of goods should go directly to the Supreme Court. The court concluded that the issue at hand was about the entitlement to SSI exemption under Notification No. 8/2001, not about the rate of duty or value of goods. Therefore, the High Court had jurisdiction to entertain the appeal.

2. Doctrine of Merger Concerning the Dismissal of an Appeal by the Supreme Court:
The second issue was whether the dismissal of the assessee's appeal by the Supreme Court precluded the Revenue from filing an appeal under Section 35G. The court examined the doctrine of merger and referred to the Supreme Court judgments in Kunhayammed & others vs. State of Kerala and Mauria Udyog Ltd. vs. Commissioner of Central Excise. It was held that the doctrine of merger applies only to the issues contested in the appeal. Since the assessee's appeal before the Supreme Court was dismissed without notice to the Revenue, the findings against the Revenue by the Tribunal were not merged with the Supreme Court's order. Therefore, the Revenue could still challenge those findings in the High Court.

3. Imposition of Penalties under Rules 25 and 26 of the Central Excise Rules, 2002:
The final issue was whether the Tribunal erred in setting aside the penalties imposed under Rules 25 and 26. Rule 25 imposes penalties for contraventions with the intent to evade duty, while Rule 26 imposes penalties for dealing with excisable goods liable to confiscation. The court referred to several Supreme Court judgments, including Hindustan Steel Ltd. vs. State of Orissa and Pepsi Foods Ltd. vs. CCE, which emphasized that mens rea (intent to evade duty) is a necessary ingredient for imposing penalties. The Tribunal had set aside the penalties, finding that the assessee acted in a bona fide belief that it could use the brand name of its sister concern. The High Court upheld this finding, stating that the Revenue failed to prove the intent to evade duty or that the assessee knew the goods were liable to confiscation. Consequently, the High Court dismissed the appeal, finding no substantial question of law for consideration.

Conclusion:
The High Court concluded that it had jurisdiction to entertain the appeal under Section 35G, the doctrine of merger did not preclude the Revenue's appeal, and the Tribunal was correct in setting aside the penalties due to the lack of mens rea. The appeal was accordingly dismissed.