Per S.L. Peeran:

The appellants are aggrieved with the order-in-original dt. 5.12.91 passed by Collector of Central Excise, Bangalore denying the benefit of the exemption notification No. 175/86 dt. 1.3.86 and has confirmed the differential CED amounting to Rs. 18,78,856.18 on the goods cleared during the period 1987-88 to 1989-90 under Rule 9 (2) of Central Excise Rules, 1944 read with the proviso of Section 11A of Central Excises & Salt Act, 1944. A penalty of Rs. 2 lakhs has also been imposed on the appellants. The facts of the case are that the show-cause notice dt. 20.8.91 was issued to the appellants. It is alleged therein that the appellants are manufacturers of Pneumatic valves, Cylinders, Base plate, manifold and fillings falling under Chapter 84 of Central Excise Tariff Act, 1985 and they had contravened rules 9(1), 52A, 53 read with Rule 226, 173B, 173G and 174 of Central Excise Rules, 1944, and further committed the offences specified in Rule 173Q (1) (a), 173Q (1) (c) and 173Q (l) (d) ibid, in as much as, they had suppressed the fact of manufacture of the said goods with brand name "Festo" which is owned by their collaborators M/s. FESTO KG (Festo Pneumatic), Germany, who are not eligible for exemption under Notification No. 175/86 dt. 1.386 as amended and cleared the same during the period 1987-88 to 1989-90, without following Central Excise procedures and without payment of Central Excise Duty, by wrongly availing exemption/concession under the said Notification, in contravention of the said rules with an intention to evade payment of Central Excise duty. Thus, duty evaded has been worked out to the amount already stated above. They have also been asked to explained as to why the benefit of the exemption/concession under the said notification should not be denied to them and penalty also imposed for the said contraventions.

2. In the Annexure to the show-cause notice, it is stated that the Central Excise Officers attached to Bangalore VI Divn. gathered intelligence that the brand name 'FESTO' which is affixed on their products by M/s. Festo, Bangalore is the trade name of their collaborator, who is not a person eligible for exemption under the said notification and therefore, were wrongly availing the benefits of the said notification. Therefore, the officer visited the factory on 21.6.90. The said officers during their visit found that all the products manufactured by them were affixed with the name 'FESTO'. The officers also noticed that the packings of the product packed in pouches also bore the name 'FESTO'. The embossing of the above name was not only by means of an adhesive label but also casted on the product. The officers later verified the collaboration agreement, project report and the company literature (catalogue) and other private records maintained by them. On examination of the same, the following facts were revealed. A perusal of the project report appears to indicate that M/s. Festo, Bangalore was promoted for the purpose of manufacturing pneumatic equipments in India and for the said purpose, the said company is having a 40% equity participation from FESTO K.G. West Germany and the collaboration has been approved by the Govt. of India. The collaboration agreement, literature (catalogue) and the project report appear to indicate that all the technical know-how and expertise for manufacturing the said products is provided by their collaborator, i.e. M/s. Festo K.G. Germany. The training, production, sales and service is also extensively done under their patronage and guidance which is of International standard. Their collaborators have been and still involved in offering Festo products, Festo Service and Festo know-how at 61 locations throughout the world of which M/s. Festo, Bangalore is one such. It is also stated that considering the good marketability of the product, the promoters i.e. M/s. Festo, K.G. Germany have decided to venture into this area and have started M/s. Festo, Bangalore. I