When brand name disentitles small units

EXPERT EYE

The only big thing about the small-scale industry is the case law on it. Take only the brand name issue. In the 1993-94 Budget, a crucial change was introduced in exemptions for the small-scale manufacturers.

A condition was imposed that the benefit of the exemption will not be given, if the goods manufactured by the small-scale industry bear the trade mark or the brand name of another person.

It was done to plug the misuse by big manufacturers who used to get goods manufactured at exempted rate by, say, hundred small units and sell them with their own brand name at much higher price without paying any duty because branding the product is not manufacture, and also because, legally speaking, only the small-scale factory is the manufacturer and not the big firms. It is only a buyer in the eye of central excise law.

This change incorporated in the Notification No. 1/93-CE dated March 1, 1993 was expectedly subjected to tremendous opposition from the small-scale manufacturers on the ground that their marketing structure would crumble without the backing of a known brand name. It was argued, for example, that a pouch of shampoo without a recognizable brand name would not sell at all.

However, over time, the market has got adjusted to the new system. Thereafter, the manufacturers have challenged the legality of this notification on three counts in various judicial fora.

One ground is that the brand name can disentitle the exemption only if it is a registered brand name of somebody else. The second ground is that the brand name must relate to the same goods, and not other goods, in order to disentitle the small-scale manufacturer using such brand name to the exemption.

The third ground is that a full brand name cannot be used but a part of it can be used. On all these three counts, there were judgments in favour of the above arguments for the small scale units up to the tribunal level, as in the case of the judgment reported in 1999(109) ELT 204 (T).

The Supreme Court, however, has now given finality to the whole issue in the case of CCE, Trichy vs Rukmani Pakkwell Trades, reported in 2004 (165) ELT 481 (SC).

The court has said the Notification No.1/93 has used unequivocal language from which it is clear that to disentitle the small-scale manufacturer from getting the benefit of the exemption:

the brand name can be either registered or un-registered;

the brand name or the trade name need not be in respect of the same goods, and

even part of a brand name cannot be used, so long as it indicates a connection in the course of trade.

We may examine the above enunciation in the context of the overall principle laid down by the Apex Court over a period of time . The first principle of interpretation of notification is that an exemption notification is to be strictly construed. There is no scope of liberal interpretation in a notification if it is clearly worded.

This principle has been laid down in several judgments over a long period of time""a landmark judgment being the case of Union of India vs Commercial Tax Officer, West Bengal (AIR 1956 SC 202).

The issue that came up for decision before the Supreme Court was whether an exemption under the Act which was meant for sales to "India Stores Department, the Supply Department of the Government of India" could be extended to sales to the ministry of industries and supplies.

The Supreme Court by a majority of 4 to 1 held that "this exemption is the creation of the statute and must be construed strictly and cannot be extended to sales to other departments".

At the same time, the Supreme Court has said in the case of Swadeshi Polytex Ltd. vs. Collector of Central Excise 1990 (2) SCC. 358 that if it is a promotional notification, it should be liberally interpreted.

So, the conclusion is that other notifications relating to other Acts cannot guide the interpretation under this Act, here the Excise Act. This is not permissible because notification is to be strictly construed and new words cannot be imported into it when the words are clear.

It is only the promotional exemptions, which can be liberally interpreted, but even those notifications cannot be interpreted with the help of notifications under other Acts.

(The author is a former member of the Central Board of Excise&Customs)

smukher2000@yahoo.com