2017 (6) TMI 709 - AT - Central Excise

SSI exemption - brand name of others - It appeared to the Department that the appellants were clearing the goods in the brand name of the German company and therefore not eligible for SSI exemption - Held that - Para-4 of the SSI Notification disentitles the manufacturer from availing SSI exemption of specified goods manufactured by the assesse if bearing a brand name or trade name (listed or not) of another. From the technical collaboration agreement before us, it is seen that as per Article1.3 the appellant as the licensee has been authorized to manufacture contract products of the licensor viz., Kommerling Chemische Fabrik Gmbh, Germany - the appellant had exclusive right over the brand/trade name of the licensor/contract products, and the appellant cannot be disbarred by invoking clause-4 of the notification. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility for SSI exemption benefit under specific notifications.
2. Interpretation of technical collaboration agreement regarding the right to use brand name.
3. Denial of SSI exemption benefit based on the transfer of brand name.
4. Legal basis for denying SSI exemption benefit.

Analysis:
Issue 1: The appellants were availing the SSI exemption benefit under specific notifications. The Department alleged that the appellants were clearing goods in the brand name of a German company, making them ineligible for the SSI exemption. A Show Cause Notice was issued, leading to proceedings where the adjudicating authority observed that the appellant's use of the brand name was permissible under the technical collaboration agreement, thus dropping the proceedings. However, the Commissioner (Appeals) confirmed duty demand, interest, and penalties, prompting the appeal before the Tribunal.

Issue 2: The Ld. Counsel for the appellant argued that the technical collaboration agreement granted the exclusive right to use the brand name for five years. He contended that the right did not need to be permanently assigned for SSI exemption eligibility, supported by the agreement's Annexure-1 listing contract products and brand names. The AR, on the other hand, emphasized the temporary nature of the agreement and the absence of explicit brand name transfer.

Issue 3: The Tribunal carefully examined the technical collaboration agreement, particularly Clause 8.1, 9.1, and Annexure-1. It noted that the agreement authorized the manufacture of contract products with the licensor's trade name specified in Annexure-1. The transfer of technical knowhow, patents, and marketing rights implied the brand name transfer during the agreement period, making the brand/trade name usage crucial for eligibility.

Issue 4: The Tribunal disagreed with the Commissioner (Appeals)'s reasoning that the temporary and conditional nature of the rights affected SSI exemption eligibility. Citing the Supreme Court's precedent, it emphasized the appellant's exclusive right over the brand/trade name during the dispute period as the key factor for exemption. Consequently, the impugned order was set aside, allowing the appeal with consequential relief.

This detailed analysis of the judgment showcases the intricate legal considerations and interpretations involved in determining eligibility for SSI exemption benefit based on a technical collaboration agreement's provisions regarding brand name usage.