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TMI Blog2004 (12) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... 173Q(2) and an offer to redeem the same was given to DCPL on payment of fine of Rs. l5 Lakhs; 44 cans of 'CRC Acryform' found at the premises of M/s. Tri-Techno Services were ordered to be confiscated under rule 173Q(1) with an option given to redeem the same on a fine of ₹ 10 Lakhs; 15 cans seized to M/s. Nelco Dawane unit were ordered to be confiscated under rule 173Q(1) and be redeemed to them on a fine of ₹ 40,000/-. Penalties under rule 209A were imposed on Shri. N.J. Danani, Managing Director and Shri Herman Pinto, an employee of M/s. DCPL. Hence these appeal. 2.2 DCPL since 1983-87 were manufacturing products viz CRC 2-26 Aerosol and 'CR @ Acrylform Aerosol' under notfn. 120/84-CE for CRC 2-26 vide declaration notfn. 174/86 for the year 1987-88 to 1990-91 exemption were claimed under Notfn. 175/86 for CRC - Acryform; CRC 2-26 exemption was claimed 'CRC 2-26' was classified under 2710.99 and CRC Acryform under 3203.40. It appears that during a Transit check, at lower Parel, Mumbai, on 14-12-1991 a lorry was intercepted with "CRC 2-26' & 'CRC Acryform' cans and delivery challan Nos. 602, 603 & 654 all dated 14-12-1991 accompanying the goods. On scrutiny, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as having created a façade', dummy in the name and style of M/s. DCPL and exercised overall control over it for the purpose of evasion of duties of Central Excise; (ii) the duty amounting to ₹ 51,49,222.19 (Basic), ₹ 5,20,605.61 (Special) for the period from 26-2-1988 to 24-10-1992 should not he demanded and recovered from them under Rule 221 of the Central Excise Rules, 1944. Shri N.J. Danani, Director of M/s. DCPL and Director of M/s. BBL, Suit. R.N. Danani, Director of M/s. DCPL, Shri G. Narasimhan, Company Secretary of M/s. BBL, Shri Herman Pinto, incharge of M/s. DCPL, M/s. Mistair home Products were called upon to show cause to the Collector -II, Central Excise, Bombay-I as to why a penalty under Rule 209A of the Central Excise Rules, 1944 should not be imposed. M/s. Tri-Techno Services and M/s. Nelco were also required to show cause to the Collector-II, Central Excise, Bombay-I as to why the goods seized under Panchanama dated 14-12-1992 and 15-12-1992 respectively should not be confiscated under the provisions of Rule 173Q and Rule 226 of the Central Excise Rules, as the same had been manufactured and cleared without payment of Central Excise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 11A(1) as the Show Cause Notice is admittedly issued for the period beyond six months from the date of the Show Cause Notice? (f) Whether the penalty can be imposed? (g) Assuming that all the issues on merit are decided against the DCPL, whether the duty demanded has been properly computed? 3.2 On whether CRC 2-26 is exempt under Notification No. 120/84 it is found - (a) It is on record that, CRC 2 - 26 as a blended lubricating oil it is sold and used as a penetrating lubricating oil by various companies including Government Companies, who use the same for lubricating ball and roller bearings, circuit breakers, connectors, contacts, switches, false, push buttons, solenoids, potentiometers etc. The product is filled in aerosol containers into which a propellant is injected, so as to create a spray of CRC 2.2 onto hard-to-reach surfaces. The product is found to mainly contains Petroleum Base Oil 25%, Mineral Oil - 72% and Rust Preventives - 3%. It is submitted, these ingredients are blended together with a stirrer until thoroughly mixed. The petroleum base oil, which is mineral oil has lubricating properties, it is the most important ingredient in CRC 2 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lubricant. There is no dispute on this aspect. (iii) The Government of India has in its order in the case of Geoffrey Manners and Co., India Ltd. - 1982 (10) E.L.T. 549A (GOI) has held that the product would be classifiable under the erstwhile, Tariff Item 11B, which specifically covered blended lubricating oils. The Government of India held that the product consists of mixing of mineral oils with a variety of materials ranging from animal, vegetable and fish or oils to sulphur soap and chemical compounds to improve the lubricating properties of the oil and is therefore classifiable under Tariff Item 11B. "3-in-1 Oil", a world famous oil and was at one time manufactured in India by Geoffrey manners and Co. Ltd. The product literature of that product specifically states that it lubricates, cleans and prevents rust. That product also contained rust preventives chemicals. It is therefore to be held that merely because rust preventives are added, that would not detract from the product being a lubricating oil. (iv) From the copies of material, on various products that merely prevent rust, placed before us, it is evident that such products are only to be applied to the metal surfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... users, as a lubricant for lubricating the moving parts of their equipment. The test report on CRC 2-26, carried out by Professor M.C. Dwivedi, Professor of the IIT categorically opines that CRC 2-26 is a blended lubricant and that the lubricating oil used in the formulation conforms with the requirements of the Bureau of Indian Standards requirements as per IS-493 (Part II) 1981, General-purpose Machinery and Spindle Oils-Light Grade VG 10. The department has not produced any material to contrary. (ii) The Instruction Manual issued by Crompton Greaves, in respect of its Bulk Oil Circuit Breaker specifically states in paragraph 15(c) that "all hinged joints of mechanism linkages should be regularly cleaned with rust preventive solution such as Molykote Supergliss and apply lubricants such as Racold Grease, CRC 2-26 or Molykote Spray". It is thus very clear that CRC 2-26 is not used as a rust preventive but is used as the lubricant. This manual also specifies, that the circuit breaker is first cleaned with the rust preventive solution and then lubricated with CRC 2-26. If CRC 2-26 was only a rust preventive, the Manual would not have stated what is stated therein. (iii) The Gloss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70%. It is seen from the information printed of the container that CRC 2-26 penetrates and lubricates, prevents corrosion, displaces and seals out moisture and cleans releases rusted mechanism. Since it is recommended to be used for penetration and lubrication, it cannot be considered as speciality oil. In my opinion it is product primarily used as lubricant though it has anti corrosive properties also. Sample is used up." It is pertinent to note that the Department had requested the Chemical Examiner to test whether the product was exempt under Notification No. 120/84. It is also clear that the Department was fully aware that the product contained rust preventives and that was specifically mentioned on the cans when samples were drawn, as also in the declarations as well as in various letters as also in the classification lists. Pursuant to these reports of 1984 and 1991 the Assistant Collector accepted the Declarations filed under Notification No. 111/78 and finally approved the classification lists. The 1993 test report is categorical that the product is a lubricating oil. It is well settled that the test reports given by the Chemical Examiner are binding on the Department an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able of falling in one or the other category but once it falls then the exemption notification has to be construed broadly and widely. The conclusion of the Commissioner, that the burden is on the claimant, is not applicable when the department is seeking to withdraw the benefit of the exemption Notification- see Naffar Chandra Jute Mills - 1993 (66) E.L.T. 574 (Cal). The attempt to pick words from labels and literature is to try and deny the benefit of the Notification without evidence to show that the product is not used, known or understood in the trade as a lubricating oil, which they have not been done. The findings of the Commissioner are to be therefore set aside. (e) Reliance on the parameters of lubricating oil as mentioned in the Concise Chemical and Technical Dictionary of McGraw Hill clearly travels beyond the scope of the Show Cause Notice, as no such parameters were relied upon in the show cause notice. Had DCPL been given an opportunity it would have been able to show to the Commissioner that in fact the film that forms has a thickness of more than 10. In fact literature annexed to the show cause notice itself under the heading 'Specifications,' contains as it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11B. Item 27 of the list includes Corrosion preventive oil and compounds. The CBEC also stated that speciality oils are generally treated as non-lubricants and a primary function is other than lubrication and a lubrication function, if any, is only secondary. Collector (Appeals) in his order dated 18-5-1994 in this assessee's case specially held as under : "From the definition of "speciality oil" contained in the explanation to the notification, the Appellant appears to me to have a strong case for the eligibility of the notification for the product, in case the Assistant Collector's view that the product is primarily anti corrosive and only secondarily use as a lubricant is correct." It is therefore to be held that the entity can be considered as a speciality oil, which is fully exempt under the Notification 287/86. Commissioner has repeatedly held that lubrication properties of the oil are only secondary nature. Assuming this to be true then the natural outcome would be that it must be considered as a speciality oil and fully exempt under Notification No. 287/86. The Explanation to the Notification specifically states that speciality oil means any preparation obtained by ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for Registering the Trademark. The Trademark Registrar has registered CRC Acryform as DCPL's trademark on 14-10-1992. This trademark is effective from 1987. This is clear from the Certificate given by De Penning & De Penning, Trade Mark Attorneys. It is now well settled that the ownership of a brand name flows either from registration or use. DCPL is the only company entitled to use the brand name CRC Acryform in India and has become the owners of the brand name by continued use of the same. As the Trade Mark is registered in DCPL's name they are entitled to the benefit of the notification [see CCE v. Mahan Dairies - 2004 (166) E.L.T. 23 at 25 (SC)]. (c) Since the trademark has been registered by the Trademarks Authorities in the Appellants' name, the Appellant has acquired an exclusive right to the use of the trade name in relation to the goods in respect of which the trademark is registered and the Appellants are entitled to relief against any person in respect of India, in the manner provided by the Trade and Merchandise Marks Act. Therefore, no person other than DCPL is entitled to use the trade name/brand-name "CRC Acryform" in India. There is no question of there being an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contentions are ex facie untenable as : (i) No multinational company or responsible officer would just gift away its valuable trademark or brand-name by filing a false affidavit and giving a worldwide disclaimer that the company does not own the trademark or brand-name. (ii) In any case he cannot disregard it without cross-examination. (iii) The aforesaid letter merely grants an extension to the license agreement dated 1-10-1983 for CRC 2-26 and in addition permits the manufacture of CRC Acryform staring from the concentrate on to label it is such. The original License agreement for CRC 2-26 specifically states that CRC 2-26 is the trademark of CRC Chemicals Europe. Neither the original License agreement nor the extensions as that CRC Acryform is the trade mark or brand-name of M/s CRC Chemicals Europe. The extension letter merely says that whatever was applicable from the original License agreement for CRC Acryform would apply. The clause relating to trademark of CRC 2-26 can therefore have no application to CRC Acryform. As they did not own the trademark, the question of giving any permission did not arise & the Certificate of Trade Mark Attorneys which Commissioner has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. - 1997 (94) E.L.T. 124 (T) and Rajdoot Paints Ltd. v. CCE - 2001 (134) E.L.T. 281. It is well settled that an SSI exemption is not deniable merely by fixation of a portion of a symbol or monogram or logo and something more is required, these items must create an impression in the mind of the purchaser that the product is that of another person. By using the monogram 'B' of a marketing company or distributor who does not manufacture the goods cannot indicate any indication or connection in the course of trade between "CRC Acryform" and the marketing company. It is therefore to be held that merely because there is a connection in the course of trade between the aforesaid house mark 'B' and BBL cannot disentitled DCPL from the benefit of the Notification as it does not indicate a connection in the course of trade between the specified goods and the personal owns the mark relying upon. Emkay Investments Private Limited in 2000 (124) E.L.T. 741, VI John Beuty Tech v. CCE - 2002 (143) E.L.T. 148 approved in 2003 (157) E.L.T. A210 (S.C.). (i) When there is already a mark on the product, namely CRC Acryform, the logo of BBL cannot fall within the mischief of paragraph 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and borrowings are from banks. (v) It has purchased all machineries owned by them as also all of raw materials and packing materials required for manufacturing and packing the products from their own resources (copies of invoices for purchase etc. are at Vol. 1, pp. 141-216). (vi) That all salaries and wages are paid by DCPL from its own sources of finance. (vii) That DCPL had their own import licences to import raw materials used in the manufacture of the products. (viii) That DCPL looks after its own business and that there is no supervision or managerial control by BBL. (ix) That DCPL has total control and supervision over their own manufacturing operations. Mr. H. Pinto and before him Mr. Mehta, both employees of DCPL looked after and supervised all manufacturing operations under the control and guidance of Mr. N. J. Danani. (x) That DCPL's ledgers and various other financial statements, etc. clearly showed that no payment were made to Bharat Bijlee. In fact, it is BBL that paid DCPL the purchase price of the products. (xi) That DCPL has its own Sales Tax and Income Tax Registrations, Shops and Establishments Registration, BMC Store Facilities and SSI Registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct "CRC Acryform". DCPL commenced the manufacture of "CRC Acryform after September, 1986, but well before Mr. N.J. Danani became Director of BBL Ltd. Mr. N.J. Danani could never therefore have created DCPL merely to enable BBL to get the benefit of Notification No. 175/86. 3.4 The parties were related persons or that there was mutuality of interest between DCPL and Bharat Bijlee Ltd. (a) Commissioner has arrived at the following reasons to hold. (i) That transactions were not a principal-to-principal basis because DCPL did not pay for security and because the keys to the gala were kept with the security staff and that the security staff opened and closed the gala. This ground is manifestly untenable as these factors cannot establish that DCPL and BBL had any interest direct or indirect in the business of each other. (ii) That the transaction between the parties was not a simple relationship of manufacture and seller, because DCPL manufactured the product but did not mention its name on the product or carton, but mentioned that the product was being marketed by BBL and put the logo of BBL thereon and that BBL Ltd. did not pay any consideration to DCPL for this purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred by DCPL for putting the logo and name of BBL as also the cost of printing the leaflets, brochures and literature and advertising material provided to BBL. The Commissioner has apparently contradicted himself. In the earlier paragraphs, Commissioner has concluded that the printing of leaflets, brochures etc. by DCPL was an indirect flow back for the security provided and marketing expenses incurred. If that is so, the difference in the prices cannot also be for the same thing. These printing charges are borne by DCPL and not by BBL as is admitted in the earlier paragraphs by the Commissioner. It is therefore beyond comprehension as to how the bulk discounts given by DCPL to BBL was for compensating BBL for expenses which it never incurred. Further, BBL was the National Distributor of the products. It was therefore, necessary to mention its name as marketing company. This cannot amount to any hidden flow back. It cannot amount to mutuality of interest and certainly cannot make the transactions are other than at arms length. (b) The above findings cannot be upheld as BBL as a bulk buyer to DCPL was entitled to a discount. DCPL did not take any loans or advances from BB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed nothing other than the price charged to BBL. Whatever profit was made by BBL did not flow to DCPL. It is therefore beyond comprehension as to what flow back the Commissioner is referring to. The Appellants did not fix the price at which BBL could & did sell the goods but fixed the maximum price at beyond which it cannot sell. There is no notice material to controvert this submissions. As a manufacturer, Department it was perfectly & it was reasonable to do so. These are commercial decisions, they cannot ipso facto result in mutuality of interest in the business of each other. (g) It is submitted that merely because there is a common registered office, it cannot lead to the conclusion that the parties are related & that has to be accepted. (h) As regards the finding that under agreement with BBL Ltd., they were to determine the quality of the product to be brought to them and that this showed that BBL controlled the quality of the product. It is observed that there was no control by BBL over the quality of the product and even assuming there was this could not lead to the conclusion that the parties were related. Merely because one buyer on one occasion made inquiries wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Ltd. v. CCE - 2002 (143) E.L.T. 244 (S.C.) the Supreme Court held that merely holding shares in each other and having a common Chairman and some common Directors cannot mean that one company has an interest in the business of the other. It is pertinent to note that in this judgment they have disagreed with an earlier judgment of the Supreme Court in the case of Calcutta Chromotype Ltd. v. CCE - 1998 (99) E.L.T. 202 (S.C.). The Tribunal has also held the same in Mahalaxmi Glassworks Ltd v. CCE - 1991 (53) E.L.T. 120 (T). Union of India v. Playworld Electronics Private Ltd. - 1989 (41) E.L.T. 368 (S.C.) the Supreme Court held that merely because the entire production is sold to a buyer the sales could not be treated as sales to related person. It is also clear from the order of the CEGAT, dated 11th June, 1999 in the present case that there has been no indication as to how any of the factors relied upon by the department show interest in the business of each other. Therefore it is clear DCPL and BBL cannot be considered to be related persons. 3.5 Whether there was any suppression to justify invoking the proviso to Section 11A(1) ? (a) It is now well settled that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the basis of these test reports the Declarations claiming the benefit of Notification 120/84 and subsequently the classification lists themselves were approved. At no stage did the department asked for retest or dispute the same. As the department was fully aware that the product, inter alia, prevents rust and has anti-corrosive properties and as this fact was never suppressed from the department, it cannot now alleged that there was any suppression of facts with intent to evade duty. The entire demand therefore in respect of CRC 2-26 must be considered to be wholly time-barred. (b) Further, the department themselves went in appeal against the approval of the classification list. This appeal was set aside as the entire matter was remanded. We are informed, Till date there has been no order passed by the Assistant Commissioner on these classification lists with regard to the claim of the benefits of the Notification. In the circumstances it is not open for the Commissioner to allege suppression and demand duty, when the issue itself is still at large has not been decided by the Assistant Commissioner. (c) The conclusion, that DCPL had suppressed the fact that CRC 2-26 was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E - 2002 (150) E.L.T. 284 SPM Instrument India Pvt. Ltd. v. CCE - 2003 (152) E.L.T. 115 (T) (g) It has also been held in of Vora Products - 2002 (143) E.L.T. 84 that the approval of the classification list granting the benefit of the small-scale Notification presumes the necessary inquiries were conducted by the department as would entitle the assessee to exemption and therefore the larger period of limitation can be invoked. (h) In any case there has to be something positive i.e. a conscious or deliberate withholding of information when the manufacture knew otherwise. This has to be established by the department Padmini Products v. CCE - 1989 (43) E.L.T. 195 (S.C.) & the department has failed in this respect. 3.6 Whether the Department can demand penalty ? (a) As there has been no suppression of facts whatsoever and as the duty demanded is time-barred and as the Show Cause Notice is itself manifestly misconceived on merits there can be no question of imposing any penalty either under Rule 173Q or any other provision. (b) The only ground for imposing penalty is that the Appellant had suppressed the facts and thus evaded payment of duty. In the present case when ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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