In a recent case related to allegation of Discripencies in Computation of excise duty, the Chennai bench of the Customs, Excise And Service Tax Appellate Tribunal (CESTAT) has directed to recompute the duty after deducting the value of Bought out items, value of clearances to SEZ units and other post manufacturing expenses.
M/s. Sabari Kitchen Services (P) Ltd. ,the Appellant-A1 and Mr. M. Thangavelu, Managing Director the Appellant-A2 filed the appeal as aggrieved by the impugned Order-inOriginal. The Appellant-A1 was engaged in the manufacture and clearance of various kitchen equipments under their brand name “SaBari” which was used on all their manufactured products since 01.01.2004. They have also mentioned the brand name in their invoices, products and brochures. The Appellant-A1 was availing the benefit of SSI Notification No. 8/2003-CE dated 01.03.2003. DGCEI conducted an investigation during January 2014, and it was alleged that appellant was using the brand name “SaBari”, which belonged to others and hence not eligible for SSI exemption and therefore liable to pay duty during the period from March 2010 to December 2014.
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A Show Cause Notice was issued to Appellant A1, seeking to deny the SSI exemption and demand duty of Rs.99,42,427/- under Section 11A(1)/11A(4) of the Act along with applicable interest and to impose penalty under Section 11 AC of the Act read with Rule 25 of the Rules and to impose penalty on Appellant A2 under Rules 26 of the Rules. The Adjudicating Authority vide the impugned order confirmed the demands as proposed and imposed penalties on A1 and A2 and also appropriated an amount of Rs.4,48,558/- paid by the Appellant-A1 towards duty demand.
It was averred that ownership of the brand was decided on the basis of continuous usage and not on the basis of registration which is done to avoid disputes. It was pointed out that in the instant case, they were using the brand name since January 2004 without any objection from others and their application for registration was pending with authorities and therefore denial of exemption merely on the basis of non-registration with authorities was not legally proper.
It was submitted that, (i) they were the owners of the brand name; (ii) they have been using it since 01.01.2004; (iii) their brand name is mentioned in all their invoices and products; (iv) no other person has objected to the usage; (v) the unique red flame differentiates their brand name from others; (vi) their bona fide belief is that they are eligible for the exemption under Notification No. 8/2003-CE; (viii) they have not suppressed any information deliberately with an intention to evade the duty; therefore, the demand of duty upto Feb, 2014 is hit by limitation.
It was contended that the impugned order denied the relief claimed by the Appellant regarding the discrepancies in computation of duty by including the value of bought out components, exports and postmanufacturing expenses. It was pointed out that if such value was excluded, the turnover would be less than Rs.1.5 crores for all the years. However, for 2013-14 and 2014-15, appropriate duty was paid after crossing exemption limit of Rs.1.5 crores by including the excludable turnover. Therefore, there is no more duty liability on their part.
The Counsel submitted that they have been using the brand name since 01.01.2004, which was designed by them without any objection from others. It was pointed out that in 2014, Appellants applied for registration of trademark and an additional application was also made and no objection was raised by others including the Commissioner of Central Excise/Dept under Section 21 of Trademark Act, 1999. Registration was granted in March 2017 and August 2017. Therefore, it was contended that Appellants have been the owners of the brand name since 01.01.2004 and the registration is merely a recognition of the rights of the Appellants since 01.01.2004 as prior user. In view of the above reasons, it was argued that the exemption could not be denied since the Appellants’ brand name will not fall under Explanation A.
The Authorised Representative Smt. O.M. Reena, representing the Departmentpointed out that the Appellant had contravened the provisions of the ACT and Rules with an intent to evade payment of duty and hence the demand confirmed is sustainable. Hence it was prayed for dismissal of the appeals filed by the Appellant.
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On the issue of quantification of duty payable, it is evident that the value of sales by the Appellants was ascertained on the basis of IT Returns filed and its financial statements for the financial years from 2009-2010 to 20132014. The Counsel for the Appellants Shri S. Durairaj has stated in his written submissions and also during the hearing before the Tribunal that the total turnover reflected in the balance sheets and the financial statements included the sale of manufactured items to units situated in a SEZ, the sale of bought out items (trading) and erection charges i.e., post manufacturing expenses and if these were excluded, the annual value of clearances of the manufactured goods under SaBari brand was always less than the threshold exemption limit of Rs.1.5 crores for all the years except for 2013-2014 and 2014-2015.
Whereas the impugned Order-in-Original No. 03/2016-Commr. dated 23.02.2016 had demanded duty of Rs.99,42,427/- for the years from March 2010 to December 2014 alleging that they are not eligible for the SSI exemption under Notification No. 8/2003-CE dated 01.03.2003 as they were using the brand name of others. In view of these submissions by the Appellant, it is required to arrive at the taxable turnover for the disputed period on the basis of financial statements, records and documents submitted by the Appellant.
The reasons for not allowing deductions towards Bought out items, value of supplies to SEZs and post manufacturing expenses are not forthcoming. As such, for quantification of the duty, the issue is remanded to the Original Adjudicating Authority for arriving at the taxable turnover allowing the benefit of the SSI exemption.
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The Advocate Shri S. Durairaj has also argued on invocation of extended period. He has submitted that the ‘SaBari’ brand with red flame is their own brand name though not registered during the investigation period, and they have been using this brand name since 2004 without any objections from others.
Even, the Sabari brand name was registered for different items by different persons and there is no clash of interest while using this brand name for manufacture and sale of kitchen appliances by the Appellant. His arguments that the Appellant is of genuine impression that he is eligible for SSI exemption is acceptable. As such, there is no justification for invocation of the extended period and demand for normal period only is sustainable in the facts of this appeal.
A two memebr bench of Vasa Seshagiri Rao, Member (Technical) and Ajayan T.V., Member (Judicial) directed the Adjudicating Authority to arrive at the taxable turnover after according the benefit of SSI exemption Notification No. 8/2003-CE dated 01.03.2003 though the kitchen items manufactured were bearing the brand name ‘SaBari’. However, in computation of such turnover, the value of Bought out items, value of clearances to SEZ units and other post manufacturing expenses are to be deducted and benefit thereon should be extended.
The Appellant is entitled to provide a Chartered Accountant’s certificate supporting his claims to the Department and is directed to pay the duty amount along with applicable interest if any, for the normal period after crossing the threshold limit, under intimation to the department. The interest under Section 11AB of Central Excise Act, 1944 shall be applicable on such recalculated duty.
The order is modified to the extent of re-computation of duty payable after allowing the SSI exemption benefit for normal period in respect of Appeal No. 40988 of 2016 and allowed the appeal by way of remand.
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