The Calcutta High Court has ruled that merely mentioning a brand name on sale invoices does not establish that the manufactured goods themselves bore the brand name, and therefore cannot be used to deny an exemption available under Notification No. 6/2003-CE.

The Bench of Justice Debangsu Basak and Justice Aryak Dutt set aside the orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and the Commissioner of Central Excise and quashed the central excise duty demand of ₹37,80,246, the equivalent penalty imposed under Section 11AC of the Central Excise Act, 1944, and the related interest liability.

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The dispute concerned the appellant’s eligibility for exemption under Notification No. 6/2003-CE dated March 1, 2003.

Under the relevant entry of the notification, goods were generally exempt from central excise duty. However, the exemption did not extend to partially or wholly hydrogenated vegetable fats and oils, vanaspati and bakery shortening when two conditions were satisfied: the goods bore a brand name and were put up in unit containers for retail sale.

The case originated from a surprise visit conducted on April 23, 2003, by the Anti-Evasion Unit of the Midnapur Division at the company’s factory in Jhargram, West Bengal.

The Revenue alleged that the company had surreptitiously removed different varieties of vanaspati bearing the brand name “Shiva” without paying excise duty. The disputed clearances allegedly involved 116.052 metric tonnes of vanaspati valued at ₹28,34,752.

A show-cause notice was issued to the company on April 7, 2004.

On February 17, 2005, the Commissioner of Central Excise, Haldia Commissionerate, confirmed a duty demand of ₹37,80,246 under Section 11A(1) of the Central Excise Act. An equivalent penalty was imposed under Section 11AC, along with interest at 15% under Section 11AB.

The CESTAT’s Kolkata Bench subsequently dismissed the company’s appeal on February 24, 2010, prompting it to approach the High Court under Section 35G of the Central Excise Act.

The assessee argued that the exclusion from the exemption was attracted only when the brand name was affixed to the goods or their unit containers.

According to the company, the Revenue’s case rested entirely on statements showing that the word “Shiva” was mentioned on the sale invoices. No container, packing material, label, printing order or stationery demonstrating the use of the brand name on the actual goods was seized or examined.

It was contended that the goods manufactured and cleared after March 1, 2003 did not carry any brand name. The word “Shiva” appeared only on the accompanying sale invoices and not on the goods or their containers.

The company also relied upon certificates furnished by its agents and distributors confirming that although “Shiva” was mentioned on the invoices, the containers received by them did not carry that marking.

The Revenue, however, argued that the company had manufactured and cleared branded goods before the introduction of the levy on March 1, 2003. It contended that the company could not be presumed to have stopped manufacturing branded goods immediately after the levy was introduced.

It further questioned the reliability of the letters furnished by 11 agents and distributors on the ground that they were written in identical language.

Examining the exemption notification, the High Court observed that the exclusion applied only where the goods bore a brand name and were put up in unit containers for retail sale.

The two conditions were cumulative, the Court held.

The Bench explained that the decisive question was whether the goods removed by the company after March 1, 2003 actually bore a brand name. Since the Revenue sought to bring the company within the exclusion clause and impose a duty liability, the burden of proving this fact rested upon the Revenue.

The Court noted that the statements and letters collected from the company’s agents and distributors themselves confirmed that the word “Shiva” appeared only on the invoices and not on the containers.

“The material gathered by the revenue therefore establishes the very fact contended for by the appellant, namely, that the brand name appeared upon the invoices alone and not upon the goods,” the Bench observed.

The High Court rejected the Revenue’s attempt to rely selectively upon the statements of the agents and distributors.

It held that the department could not rely upon a piece of evidence to the extent that it supported the Revenue’s case and discard the same evidence insofar as it supported the assessee.

Having chosen to build its case upon the statements of the agents and distributors, the Revenue could not subsequently impeach those statements merely because they were couched in similar language, the Court said.

The Bench noted that the persons who furnished the statements had not been confronted with the allegation regarding the similarity of the language. No other evidence was produced to displace their statements.

“The similarity of language, without more, furnishes no ground for rejecting the substance of what eleven independent persons have deposed to,” the Court observed.

The Bench also rejected the Revenue’s contention that because the company had manufactured branded goods before March 1, 2003, it must have continued to manufacture branded goods after the levy was introduced.

The Court characterised the department’s argument as being founded on conjecture rather than evidence.

The company’s conduct before the levy came into operation could create suspicion, but it could not by itself establish that the goods cleared after March 1, 2003 bore a brand name, the Court said.

“Suspicion, however strong, cannot take the place of proof,” the Bench emphasised.

The High Court relied upon the Supreme Court’s ruling in Commissioner of Central Excise, Jamshedpur v. Superex Industries.

In that case, the Supreme Court had upheld the view that mentioning a brand in invoices would not result in the loss of an exemption where the brand name was not affixed to the goods themselves.

Applying the principle to the present dispute, the High Court held that once it was established that the word “Shiva” was not affixed to the goods and was mentioned only in the sale invoices, the exclusion under Notification No. 6/2003-CE could not be invoked.

“The mention of a brand name in an invoice is not the use of a brand name upon the goods,” the Court declared.

Accordingly, the company could not be deprived of the central excise exemption merely because its invoices referred to the “Shiva” brand.

The High Court further ruled that the penalty imposed under Section 11AC could not survive once the underlying duty demand had been found unsustainable.

The Bench additionally observed that the dispute turned upon the interpretation of an exemption notification. The Revenue had not produced any material establishing fraud, collusion, wilful misstatement or suppression of facts with the intention to evade excise duty.

Such conduct was a necessary condition for invoking the penal provisions of Section 11AC, the Court noted.

The High Court consequently answered both substantial questions of law in favour of the assessee and against the Revenue. It set aside the CESTAT order dated February 24, 2010 as well as the Commissioner’s order-in-original dated February 17, 2005.

The duty demand of ₹37,80,246, the equivalent penalty and the interest confirmed against the company were quashed. No order was passed as to costs.

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