1995 (2) TMI 228 - AT - Central Excise

Summary

Issues:
- Interpretation of Notification No. 140/83, dated 5-5-1983 regarding exemption eligibility
- Allegation of manufacturer not being independent due to brand affiliation
- Liability for duty payment and penalty under Section 11A and Rule 173Q
- Consideration of High Court and Supreme Court judgments on manufacturer independence
- Time-barred show cause notice and exemption availed by the manufacturer

Analysis:
The appeal before the Appellate Tribunal CEGAT, New Delhi involved a dispute arising from the Department's challenge against an order by the Collector (Appeals), Bombay dated 29-6-1988. The core issue revolved around the eligibility of the respondents, M/s. Hemali Cosmetics, for exemption under Notification No. 140/83, dated 5-5-1983. The Department contended that the respondents, manufacturers of cosmetics and toilet preparations, were not independent manufacturers as they were allegedly utilizing the Tiara brand lent by another company, thereby disqualifying them from the exemption. The Department sought duty payment for the period from December 1983 to March 1984, as per a Show Cause Notice issued under Section 11A, along with penalty under Rule 173Q.

The Assistant Collector had previously ruled in favor of the respondents, treating them as independent manufacturers, a decision upheld by the Collector (Appeals), leading to the Department's appeal. The respondents, through their counsel, emphasized their independence as manufacturers, highlighting their sourcing of raw materials from independent suppliers, internal manufacturing processes, and sale of finished goods to the brand owner. They argued that the mere affixing of the brand name did not negate their independent manufacturer status, citing legal precedents including a Supreme Court judgment in Union of India v. Cibatul Ltd.

The Appellate Tribunal, in its analysis, focused on the timeline of amendments to Notification No. 140/83. It noted that the exemption's inapplicability to goods affixed with a brand name of an ineligible entity was introduced through an amendment on 22-9-1987. As the period in question preceded this amendment, the Tribunal concluded that the respondents were entitled to the exemption unless evidence proved a non-arm's length transaction or lack of a principal-to-principal relationship, which the Department failed to provide. The Tribunal dismissed the appeal, affirming the respondents' entitlement to the exemption and rejecting the Department's unsubstantiated case.

In summary, the judgment centered on the interpretation of the exemption notification, the independence of the manufacturer concerning brand affiliation, the obligation for duty payment and penalty, the relevance of legal precedents on manufacturer independence, the timeliness of the show cause notice, and the validity of the exemption availed by the manufacturer. The Tribunal's decision rested on the lack of evidence supporting the Department's claims, ultimately upholding the respondents' entitlement to the exemption under the applicable notification.