1999 (10) TMI 407 - AT - Central Excise

Issues Involved:
1. Eligibility for exemption under Notification No. 175/86.
2. Allegations of suppression of facts and intent to evade duty.
3. Invocation of extended period for demand under Rule 9(2) of C.E. Rules.
4. Imposition of penalties on the appellants and its director.
5. Correctness of duty computation for the relevant period.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 175/86:
The appellants were accused of using the brand name "GOKUL" and logo "ALILAI KRISHNAN," which were owned by M/s. T.S.R. & Co., Kumbakonam, and thus not eligible for exemption under Notification No. 175/86. The Commissioner concluded that since M/s. T.S.R. & Co. had surrendered their SSI certificate and ceased manufacturing activities, the exemption did not apply to the appellants. The Tribunal upheld this view, citing the case of Shah Machine Tools Pvt. Ltd. and Thio Pharma, which established that the benefit of the notification could not be extended to entities not engaged in manufacturing activities.

2. Allegations of Suppression of Facts and Intent to Evade Duty:
The appellants contended that they had informed the department about the takeover agreement and had disclosed all relevant facts, including the use of the brand name. They argued that there was no suppression or intent to evade duty. The Commissioner, however, concluded that there was suppression of facts, invoking the extended period for demand. The Tribunal found that the appellants had indeed informed the department through a letter dated 15-4-1989 and that the department had issued a show cause notice on 22-11-1990, acknowledging the use of the brand name. Therefore, the Tribunal concluded that there was no suppression or intent to evade duty.

3. Invocation of Extended Period for Demand under Rule 9(2) of C.E. Rules:
The Tribunal scrutinized whether the extended period for demand could be invoked. It was noted that the appellants had disclosed the takeover agreement and the use of the brand name to the department. The Tribunal referred to the Supreme Court's judgment in CCE v. HMM Ltd., which emphasized that for the extended period to be invoked, the show cause notice must specifically allege fraud, collusion, or willful misstatement. Since the department had prior knowledge and had issued a show cause notice in 1990, the Tribunal concluded that the extended period could not be invoked.

4. Imposition of Penalties on the Appellants and its Director:
The Commissioner had imposed penalties on the appellants and its director under Rule 173Q. The appellants argued that there was no intention to evade duty and that the director was a student at the time of the takeover. The Tribunal found merit in the appellants' argument, noting the lack of evidence for willful intent to evade duty. Consequently, the Tribunal set aside the penalties imposed by the Commissioner.

5. Correctness of Duty Computation for the Relevant Period:
The appellants contested the duty computation, arguing that the department had included items that did not bear the brand name. The Tribunal agreed that the computation required reassessment. It remanded the matter back to the Commissioner for de novo consideration, directing that the appellants be given an opportunity to present their case regarding the valuation and computation of duty. The Tribunal also instructed the Commissioner to re-evaluate the necessity of imposing any penalties.

Conclusion:
The Tribunal set aside the demands for the extended period and the penalties imposed. It remanded the matter for re-evaluation of duty computation for the six-month period and reconsideration of penalties, if any, after providing the appellants an opportunity for a hearing. The appeal was allowed to the extent indicated.

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