No SSI exemption on manufacture of branded goods: SC
Case Law Citation- COMMISSIONER OF CENTRAL EXCISE, CHENNAI VERSUS M/S. NEBULAE HEALTH CARE LTD. (In the Supreme Court of India); CIVIL APPEAL NO. 2789 OF 2007; Date of Decision: OCTOBER 27, 2015
Brief of the Case
In the case of COMMISSIONER OF CENTRAL EXCISE, CHENNAI VERSUS M/S. NEBULAE HEALTH CARE LTD., the Hon’ble Supreme Court held that excise duty is paid by the manufacturer on branded goods manufactured, the brand name whereof belongs to another person, on job work basis, the SSI Unit would be entitled to CENVAT/MODVAT credit on the inputs which were used for manufacture of such goods as on those inputs also excise duty was paid. To put it otherwise, these branded goods manufactured by the SSI Units meant for third parties are regulated by the normal provisions of excise law and will have no bearing or relevance insofar as availing the benefit of those exemption notifications in respect of its own products manufactured by the SSI Units is concerned.
Brief Facts of the Case
The assessee is the manufacturer of medicaments which fall under Chapter Heading 30 of the First Schedule of the Central Excise Tariff Act, 1985 (hereinafter referred to as the “CETA, 1985”). In addition, it is manufacturing medicines under the brand name belonging to third parties, viz., M/s. Roots Pharma House (P) Ltd., Chennai, M/s. Satven & Mer, Chennai, M/s. Tickle Pharma, Chennai, M/s. Shyulu India, Krishnagiri and M/s. ARK Medicare, Chennai. The goods manufactured by the assessee on its own account bear its own brand name and goods manufactured by the third parties bear the brand names belonging to those parties. During the period in question, i.e., 1999 to 2003–2004, the assessee had availed the benefit of SSI exemption notifications that were in force, i.e., Notification nos. 8/1999 etc., as mentioned above.
Availing the benefit of these Notifications in respect of goods manufactured by the assessee on its own account, i.e., the goods bearing its own brand name, the assessee had cleared the said goods without payment of any excise duty. On the other hand, during this very period, in respect of goods bearing the brand name of third parties manufactured by the assessee, it paid excise duty thereupon. At the same time, it also availed CENVAT credit in respect of inputs used for the manufacture of these branded goods. It resulted in issuance of five show cause notices stating therein that since the assessee had availed CENVAT credit in respect of inputs used for the manufacture of branded goods, it had lost the right to claim the benefit of SSI exemptions under the aforesaid Notifications and, thus, had claimed the exemption from payment of duties improperly.
The aforesaid demand was confirmed by the Joint Commissioner vide his Order- in-Original dated January 17, 2005. The appeal of the assessee to the Commissioner (A) proved futile as it was dismissed by the Commissioner (A). However, a partial relief was given by setting aside the penalty. Not satisfied with this outcome, the assessee approached the
CESTAT in which it has succeeded as the CESTAT, Chennai Bench, has allowed the appeal of the assessee.
The department has filed the present against the said order of CESTAT.
Held by Hon’ble Supreme Court of India
The Hon’ble Supreme Court referred to the decision in the case of Commissioner of Central Excise,Ahmedabad v. Ramesh Food Products, the assessee therein was engaged in the manufacture of biscuits under the brand name ‘Ramesh’ on his own account. It was also manufacturing, on job work basis, biscuits under the brand name of ‘Cadbury’ on behalf of M/s. Hindustan Coco Products, Bombay. It availed MODVAT benefit on the inputs used for manufacture of Cadbury branded biscuits. The Department issued the show cause notice taking the position that as the assessee had availed MODVAT benefit it had no right to avail the benefit of Notification No. 175/86 in respect of its own goods bearing ‘Ramesh’ brand either. Though, the Assistant Collector dropped the demand holding that assessee could avail both the benefits, the Collector (Appeals) took a contrary view holding that it was not permissible for the assessee to simultaneously opt for goods of one heading and MODVAT facility in respect of another heading. Assessee’s appeal before the CEGAT was decided in favour of the assessee, which decision of CEGAT was upset by this Court in the judgment. This Court noted that the CEGAT had relied upon another judgment of Tribunal in Faridabad Tools Pvt. Ltd. v. Collector of Central Excise which was specifically overruled by a larger Bench of CEGAT in Kamani Food v. Collector of Central Excise.
After extensively quoting from the discussion of the Tribunal in Kamani Food case (supra), this Court observed as follows:
“10. Notification 175/86 have to be read as a whole and as noted rightly, in Kharia Cement Works case (supra) Sub-clauses (i) and (ii) have to be construed harmoniously. Exemption envisaged for the specified goods accrues to them through instrumentality of the manufacturer. The notification clearly demarcated the two categories of manufacturers. A clear cut distinction is explicit between a manufacturer availing Modvat credit under Rule 57A and another not opting for the Modvat Scheme. As is statutorily provided, input duty relief is given under the scheme to the manufacturers who opt to operate under the scheme by applying for it in the prescribed manner. Ultimately the manufacturers have the choice of choosing one of the two concessions, i.e. either The Modvat Scheme or Notification 175/86. Further, there is no one to one correlation between the inputs and final products under Modvat Scheme. It would therefore not possible to allow the manufacturer to simultaneously avail Modvat for some products and avail full exemption for others under small-scale exemption scheme.”
The Hon’ble Court further stated that a holistic reading of the Notification, in the light of the other paragraphs, brings into focus the overall scheme. It, inter alia, provides that the clearances bearing the brand name or trade name of third parties which are ineligible for grant of this exemption, for the purposes of determining aggregate value of clearances for home consumption, are not to be included. These Notifications also make it clear that the exemption contained therein is not to apply to the specified goods bearing a brand name or trade name, whether registered or not, of any person, except under certain circumstances specifically stipulated therein. The Notifications also clarify that for the purpose of these Notifications, where the goods manufactured by a manufacturer bear brand name or trade name (whether registered or not) of any manufacturer of trade, they shall not be deemed to have been manufactured by such other manufacturer or trade. Reading of the provisions in the Notifications unambiguously points out that for the purposes of availing the benefit of Notification by an SSI Unit, the clearances for home consumption only are to be taken into consideration, except in those cases where it is clearly provided otherwise. For this purpose, clearances bearing the brand name or trade name of third parties are concerned, they are kept outside the scheme in as much as:
they are not to be included for the purposes of determining the aggregate value of the clearances for home consumption; and
Such products bearing brand names or trade names of third parties, even if manufactured by the SSI Unit, are not eligible for any exemption and excise duty thereupon has to be paid.
As a sequitur, it also follows that once excise duty is paid by the manufacturer on such branded goods manufactured, the brand name whereof belongs to another person, on job work basis, the SSI Unit would be entitled to CENVAT/MODVAT credit on the inputs which were used for manufacture of such goods as on those inputs also excise duty was paid. To put it otherwise, these branded goods manufactured by the SSI Units meant for third parties are regulated by the normal provisions of excise law and will have no bearing or relevance insofar as availing the benefit of those exemption notifications in respect of its own products manufactured by the SSI Units is concerned.
The Hon’ble Court found that the Tribunal in the impugned decisions in this appeal has decided the issue correctly. Admittedly, in respect of home production, the assessee had not availed the benefit of two options simultaneously as no CENVAT credit is claimed in respect of those goods. While doing so, the Tribunal has taken note of the judgment of this Court in Ramesh Food Products case and rightly analysed the same.
Therefore, the ratio laid down by the Apex Court interpreting Notification No. 175/86 in Ramesh Food Products cannot apply in reading the scope of pairs of Notifications issued in various years after its (Notification No. 175/86) rescission for the benefit of SSI Units. It is well settled that each Notification has to be construed strictly on its own terms. The issue involved in the subject case is interpretation of the scope of relevant Notfns extending exemption without the benefit of modvat credit.
In the view of the above, the assessee had correctly availed the exemption under the relevant Notfns. And the impugned order is passed on incorrect reasoning.
The Hon’ble Court, accordingly, uphold the view of the Tribunal and appeal has been dismissed.
