2017 (11) TMI 828 - HC - Central Excise

Admission of additional grounds - Tribunal procedure rules - without deciding the issue of admission of additional evidence, tribunal straight away decided the issue on merit - SSI Exemption - use of Brand name - The case of the Appellant was that while it was manufacturing membrane switches as per drawings and specifications given by its purchaser, the Appellant was printing the name of its customer on the membrane switches. The contention of the Appellant was that its customers themselves are manufacturers of electrical machines and equipments and the membrane switches are used by them for manufacture of electrical machines. The printing of the names of its customers did not amount to use of brand name or trade name as defined in explanation 9 in the said Notification 1 of 1993. Held that - The purport of Rule 10 is that the Appellate Tribunal in deciding an Appeal, need not remain confined to the grounds set forth in Memorandum of Appeal. However, if the Tribunal wants to consider a ground which is not set forth in Memorandum of Appeal, it is a duty of the Tribunal to give sufficient opportunity to the parties to the Appeal of being heard on the said ground. If the Appellant wants to urge a ground, which is not taken in the Memorandum of Appeal, he is entitled to do so by seeking a leave of the Tribunal. While dealing with such an Application made for seeking leave under Rule 10 of the Procedure Rules, the Appellate Tribunal is required to apply its mind to a limited issue whether leave is required to be granted. However, while deciding the said Application, the Appellate Tribunal cannot decide the merits of the additional grounds sought to be urged. When such an Application is made for grant of leave, either a leave has to be granted or rejected. If leave is granted, at the time of final hearing of the Appeal, it is open to the Appellant to urge the ground in respect of which leave has been granted. In the present case, the Appellate Tribunal has purported to go into the merits of the additional grounds sought to be raised in the Application seeking grant of leave under Rule 10. The said course adopted by the Appellate Tribunal is completely erroneous and therefore, the order passed in the Application made by the Appellant for grant of leave is completely illegal - the error committed by the Appellate Tribunal is not merely a procedural error. The Appellate Tribunal has completely overlooked the object of proviso Rule 10 - matter placed on remand. Whether or not the Appellants i.e. M/s Kohinoor Elastics Private Limited are entitled to the benefit of the aforementioned Notification? - Held that - The customer is getting the brand/trade name affixed because he wants the ultimate customer to know that there is a connection between the product and him. Of course the intention of the customer is not relevant for the purposes of this Notification. This is being mentioned only to indicate that interpretation sought to be placed by Mr. Sridharan would enable manufacturers, who are otherwise not eligible, to get manufactured from small scale industries like the Appellants their goods or some inputs, affix their brand/trade name and still avail of exemption. When the wording of the Notification are clear and unambiguous, they must be given effect to. By a strained reasoning benefit cannot be given when it is clearly not available. Appeal allowed in part and part matter on remand.

Issues Involved:

1. Applicability of Notification 1 of 1993 regarding SSI exemption.
2. Legality of the Appellate Tribunal's order denying the application to urge additional grounds.
3. Impact of the Supreme Court's decision in Kohinoor Elastic on the present case.
4. Applicability of the doctrine of promissory estoppel based on a CBEC circular.

Detailed Analysis:

1. Applicability of Notification 1 of 1993:

The core issue revolves around whether the appellant is entitled to the benefit of the Small Scale Industries (SSI) exemption under Notification 1 of 1993. The appellant contended that the printing of their customer's name on membrane switches does not constitute the use of a brand name or trade name as per the notification's explanation. However, the Deputy Commissioner and the Commissioner (Appeals) denied this benefit, asserting that the appellant was using a brand name, thereby disqualifying them from the exemption. The Appellate Tribunal upheld this view, relying on the Supreme Court's decision in Kohinoor Elastics Pvt. Ltd. Vs. Commissioner of Central Excise, Indore, which stated that the exemption is lost if the goods bear a brand or trade name.

2. Legality of the Appellate Tribunal's Order on Additional Grounds:

The appellant sought to raise additional grounds under Rule 10 of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982, arguing that the sale price should be treated as cum duty value since no duty was collected from customers. The Appellate Tribunal dismissed this application by evaluating the merits of the additional grounds, which was deemed erroneous by the High Court. The High Court emphasized that the Tribunal should have only decided whether to grant leave to raise the additional grounds without delving into their merits. Consequently, the High Court set aside the Tribunal's order and remanded the case for fresh consideration of the additional grounds.

3. Impact of the Supreme Court's Decision in Kohinoor Elastic:

The Supreme Court's decision in Kohinoor Elastic was pivotal, as it clarified that the SSI exemption under Notification 1 of 1993 is not applicable if the goods bear a brand name or trade name of another entity. The High Court reiterated that this decision remains binding and applicable to the present case. The appellant's argument for prospective application of this decision was dismissed, affirming that the law laid down in Kohinoor Elastic continues to hold full force.

4. Doctrine of Promissory Estoppel Based on CBEC Circular:

The appellant argued that based on the CBEC Circular No. 71/71/94-CX dated 27 October 1994, the demand of duty should not be enforced prior to the Supreme Court's decision in Kohinoor Elastic. The High Court, however, noted that the Supreme Court's decision prevails over the CBEC circular, and thus, the appellant's contention on promissory estoppel was not upheld. The High Court concluded that the issues raised in questions (c) and (d) were without merit.

Conclusion:

The High Court set aside the Appellate Tribunal's order dated 5 January 2016 and remanded the case for fresh hearing on the additional grounds raised by the appellant. The Tribunal's decision on the merits of the additional grounds was deemed erroneous, and the High Court clarified the proper application of Rule 10. The appeals were partly allowed, with specific directions for the Appellate Tribunal to prioritize the disposal of the remanded appeals.

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