IMPORTANT POINT
Where proviso to Section 11A of the Central Excise Act, 1944 cannot be called in aid, imposition of penalty cannot be justified under rule 173Q of the Central Excise Rules, 1944.

Headnote:Central Excise Act, 1944-Proviso to Section 11A-Central Excise Rules, 1944-Rule 173Q-Show cause notice of demand on two grounds that distributor of appellant is a related person-That assessee is not entitled to exemption-On both grounds Collector confirmed demand and imposed penalty-Upheld by Tribunal but allowed appeal in part-Appeal against to Supreme Court-Whether proviso to Section 11A is available to revenue? (No)-Whether penalty is justified? (No)-Appeal allowed accordingly.
       Held : The necessary facts had been brought to the notice of the authorities at different intervals from 1985 to 1988 and further they had dropped the proceedings accepting that M/s. Pharmachem Distributors was not a related person. It is, therefore, futile to contend that there has been suppression of fact in regard to M/s. Pharmachem Distributors being a related person. On that score, we are unable to uphold the invoking of the proviso to Section 11-A of the Act for making the demand for the extended period. (Para 14)
       Use of the logo of the manufacturer by other person, whether a assignor or a third party, has no relevance for purposes of para 7. That is not the import of Explanation VIII. (Para 17)
       In any event, the ground that the assessee has suppressed the fact that M/s. P&B Laboratories was also using the logo for availing the benefit under the notification cannot be a valid reason to invoke the proviso to Section 11-A of the Act. There is no obligation on the owner of a logo to make a roving enquiry to ascertain whether any other person is also using his logo and disclose it to the authorities to avert a possible allegation of suppression of fact for purposes of invoking the proviso. For all these reasons, we are of the view that the proviso to Section 11-A is not available to the Revenue. Consequently, we hold that the CEGAT erred in confirming the order of the Collector. The last point that remains to be mentioned is about the penalty imposed on the assessee. It is not in dispute that if the proviso to Section 11-A of the Act cannot be called in aid, imposition of penalty can not be justified under Rule 173Q of the Central Excise Rules, 1944. (See: Collector of Central Excise vs. H.M.M. Ltd. [1995 (76) ELT 497] and Nagpur Alloy Castings Ltd. v. Collector of Central Excise [2002 (142) ELT 515]. The order imposing penalty is thus unsustainable. The appeal is, accordingly, allowed and the order of the CEGAT under challenge is set aside. In the circumstances of the case, the parties are directed to bear their own costs. (Paras 20, 21 & 22)

ORDER

This appeal, by the assessee, is from the final order No.290/94-A of the Customs, Excise & Gold (Control) Appellate Tribunal in Appeal No. E/03/92-A, dated October 17, 1994.

2. The short point that arises for consideration is: whether the Tribunal erred in upholding the order of the Excise authorities in invoking the proviso to Section 11-A of the Central Excise Act, 1944; if so, whether the order confirming penalty is sustainable.

3. It will be necessary to refer to the facts giving rise to this appeal.

4. The appellant-assessee is a registered small scale unit. It manufactures patent and proprietary medicines. It uses a logo "P/B". The assessee claims that the logo was assigned to it by M/s. P&B Laboratories Ltd. by a deed of assignment dated July 1, 1984. The dispute relates to the period from May 1, 1985 to December 31, 1989. On March 25, 1985, a show cause notice was issued to the assessee proposing to demand duty on the basis of the price at which its distributor, M/s Pharmachem Distributors, sold the goods in the course of whole-sale trade on the ground that the said distributor was a related person. The assessee submitted its reply. The Assistant Collector of Customs & Central Excise, Nadiad dropped the proceedings by order dated May 10, 1985.

5. It is appropriate to note here that the Central Government issued Notification No.175/36-CE, dated March 1, 1986, granting exemption to small scale units subject to the terms and conditions specified therein. That notification was subsequently amended and para 7 was inserted therein.

6. On January 27, 1988 and, thereafter, on July 26, 1988 show cause notices were issued to the assessee on the ground that the assessee and its distributor, M/s Pharmachem Distributors, have mutual interest and, therefore, the price at which the distributor sold the goods in the market ought to be adopted for the purposes of levy of excise duty on the assessee. The proceedings pursuant to these show cause notices were also dropped by the Assistant Collector, after considering the reply of the assessee, by order dated September 26, 1988.

7. A fourth show cause notice was issued to the assessee on June 12, 1990. The present appeal arises out of those proceedings. The said notice is very lengthy but it is based mainly on two grounds.

8. The first ground is that the distributor of the appellant is a related person, therefore, there has been short levy of duty and inasmuch as there has been suppression of this fact, proviso to Section 11-A of the Central Excise Act (for short, the Act ) was attracted and the assessee was liable to pay duty for the extended period from May 1, 1985 to December 12, 1989.

9. The second ground is that after insertion of para 7 in Notification No. 175/86-CE, the assessee is not entitled to exemption as the assessee and M/s. P&B Laboratories Ltd. have been using the logo and it did not disclose this fact; duty was demanded for the period commencing from October 10, 1987 till the date of notice (12.6.1990) invoking the proviso to Section 11-A of the Act.

10. On both the grounds, the Collector confirmed the demand pursuant to the show cause notice dated June 12, 1990, and imposed a penalty of Rs.20,00,000/- on the assessee by his order dated October 21, 1991.

11. Dissatisfied with the said order of the Collector, the assessee filed an appeal before the Customs, Excise & Gold (Control) Appellate Tribunal (for short the CEGAT ). The CEGAT upheld the order of the Collector but for purposes of quantification of duty after allowing permissible deduction, the matter was remitted to the Collector. The penalty was, however, reduced to Rs. 15,00,000/-. The CEGAT thus allowed the appeal in part on October 17, 1994. That is the order which is under challenge before us.

12. Mr. Lakshmikumaran, the learned counsel appearing for the appellant, contends that so far as the demand of duty on the basis of the distributor being a related person is concerned, all facts in this regard

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2003 Supreme(SC) 209

IMPORTANT POINTWhere proviso to Section 11A of the Central Excise Act, 1944 cannot be called in aid, imposition of penalty cannot be justified under rule 173Q of the Central Excise Rules, 1944.

Cases Referred (2)

IMPORTANT POINT
Where proviso to Section 11A of the Central Excise Act, 1944 cannot be called in aid, imposition of penalty cannot be justified under rule 173Q of the Central Excise Rules, 1944.