Customs, Excise and Gold Tribunal - Delhi
Super Star Welding Ind. Ltd. vs Collector Of C. Excise on 22 June, 1993
Equivalent citations: 1994(71)ELT443(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. The appellants have challenged the order-in-original No. 31 /Coll./1990 dated 21-11-1990 passed by the Collector of Central Excise, Ahmedabad. By this order, the ld. Collector has confirmed a demand of Rs. 17,88,637.60 (Rupees seventeen lakhs, eighty eight thousand, six hundred thirty seven and paise sixty only) under Rule 9(2) read with Section 11A of the Central Excises & Salt Act, 1944 and has also imposed a penalty of Rs. 10 lakhs under Rule 173Q of Central Excise Rules, 1944. To sum up, the facts of the case are that a Show Cause Notice dated 16-5-1990 was issued by the Collector. It is alleged that the appellants are manufacturing 'Welding Electrodes' falling under sub-heading 8311.00 of the First Schedule of Central Excise Tariff Act, 1985 and were recognised as ISI vide certificate dated 17-10-1984. They were holding Central Excise Licence L 4/50/1-84-85 dated 21-4-1984. They had filed classification list No. 1/87-88 effective from 1-4-1987, 1/88-89 effective from 1-4-1988, 2/88-89 effective from 16-6-1988 and 1/89-90 effective from 1-4-1989 as per the provisions of Rule 173B of Central Excise Rules, 1944 for their product "Starweld Welding Electrodes" of various types, sizes and specifications mentioned therein under sub-heading 8311.00 of the Schedule to the Central Excise Tariff Act, 1985 and claimed concessional rate of excise duty under Central Excise Notification No. 175/86 dated 1-3-1986. The Supdt. of Central Excise (Prev.), Mehsana visited their factory alongwith his staff on 26-12-1989, and on examination of products manufactured and mode of its packing in packets/packages, found that the welding electrodes (Arch welding) manufactured by them, had been first packed in paper/paper board carton called packets. These packets alongwith other informations printed with Trade name "STARWELD" in some special manner and style with the wordings "Welding Electrodes". The said carton also had a printed trade mark in the form of a specific symbol/monogram (LOGO) with the words "ADVANI OERLIKON". It is also alleged that the said corrugated paper/paper board cartons (cases) had also been printed with the Trade name "STARWELD" with words "welding electrodes" in same style and manner as on packets and on it was also printed with the same Trade Mark (Logo) with words "ADVANI OERLIKON" in the form as stated above. The Superintendent also recorded the statement of Plant Executive Manager Shri D.M. Atodaria. He had stated that their unit had technical collaboration with "Advani Oerlikon Ltd., Bombay", who had permitted the unit to use their logo and that they were also manufacturers of welding electrodes and were also using/affixing the same logo on their products manufactured and sold by them. He had further stated that their unit was using/affixing the logo of M/s. Advani Oerlikon to make people known that the "Starweld" welding electrodes manufactured by the unit had been manufactured with the technical know-how of M/s. Advani Oerlikon Ltd. and also that the goods were of quality products and met the market requirements.
2. Therefore, it was alleged that the assessee had wrongly enjoyed the benefit of Notification No. 175/86 as amended by Notification No. 223/87 w.e.f. 1-10-1987 by suppressing the facts of affixing brand name of M/s. Advani Oerlikon Ltd., Bombay, who were not entitled for any benefits under the said notification. It is also alleged that the assessee had informed the department about these facts and also in their classification lists filed under Rule 173B from time to time. The department had examined the agreement entered into by the assessee dated 14th April, 1981 with M/s. Advani Oerlikon Ltd. and the renewed agreement dated 14-1-1988 and subsequent oral renewal for one year from 30-6-1990 as per the letters of Managing Director of the assessee unit. After quoting several clauses from these agreements, it is alleged in the Show-Cause Notice that Advani Oerlikon Ltd. are the owners of Brand "STARWELD" since 1970 and had applied for registration with proper authorities vide application No. 400816 dated 2-2-1983. The statement of Shri Madhu Sudan Bhai Ranchhodbhai Desai, Managing Director of the assessee was also recorded, who by his statement, admitted the use of Brand (Trade Name) "STARWELD" since 1983 and under the agreement, use had been permitted by payment of royalty @ 2.5% for three years only. He also admitted that one of the rawmaterials flux manufactured by Advani Oerlikon, Bombay, specially formulated for the unit, was being sold only to the assessee unit. The said formulations were samples of finished welding electrodes manufactured by them before despatch for sale in market were sent to A.O.L. Bombay for testing its quality and performance. The goods were cleared to market only after the results of the test were approved by A.O.L., Bombay.
3. The statement of Shri N.P. Shahani, General Manager of the assessee unit was also recorded on 2-1-1990, who admitted the use of the said logo on all the products manufactured by AOL, Bombay in all their units in India. The flux known as "STARWELD FLUX" manufactured by A.O.L., Bombay specially formulated for their unit, had to be purchased only from A.O.L. Bombay and not from elsewhere for the manufacture of welding electrodes. He had further stated that the Trade Mark logo in question had been registered in the name of A.O.L., Bombay and that they were not utilising the benefit of Notification No. 175/86 as amended. He had also stated that the said logo had also been assigned/permitted for use to M/s. R. GAC Electrodes Ltd., Trivandrum who had been paying full rate of duty on their products. Therefore, it was alleged in the Show Cause Notice that the owner of the brand name "STARWELD" was M/s. Advani Oerlikon Ltd., Bombay and that they had control over the production and quantity of the welding electrodes and that A.O.L. were also using the logo on their products. Therefore, it was alleged that the assessees were not eligible for the benefit of Notification No. 175/86, dated 1-3-1986 as amended, and hence, short duty worked out as per the annexure for the period 8-7-1988, 88-89, 89-90 had been demanded by the Show Cause Notice. The contraventions summarised in the Show Cause Notice are :
(i) they failed to fulfil the conditions of Notification No. 175/86 as amended by Notification No. 223/87 dated 22nd September, 1987.
(ii) they failed to determine the correct duty liability, failed to discharge CED leviable at the appropriate rate on the said excisable goods.
(iii) they failed to file price list in proper proforma before the clearance of excisable goods as they were not entitled for the benefit under Notification No. 175/86 as amended and all these acts of contravention on their part appeared to have been committed by them by reason of fraud, wilful suppression of facts, deliberate contravention of the rules and with a view to evade CED.
4. The appellants had filed a detailed reply dated Nil July, 1990 to the Show Cause Notice. They denied wilful mis-statement or suppression of facts on their part and contended that the Show Cause Notice should be dropped on this ground alone. It is their case that during the relevant period 1-10-1987 to 31-12-1989, the factory had been visited by audit parties and officials of Accountant General and checked the books of account on regular basis. They had filed annual report of their company alongwith the balance sheet and profit and loss account. The fact of technical collaboration with M/s. Advani Oerlikon Ltd., Bombay was also well known and that the department was aware that the goods in question i.e. Welding Electrodes were manufactured by them with the technical collaboration with M/s. Advani Oerlikon Ltd. They have pleaded that on the labels and packings, their name had always been shown as the manufacturer and it had been mentioned that the goods had been manufactured with technical collaboration with M/s. Advani and this fact had been declared to the Excise Department. The covering letter accompanying the classification list also clearly mentioned about this fact. The letter heads on which they were corresponding with department also disclosed about this fact.
5. During the personal hearing Shri K.M. Gohel, Rtd. Supdt. of Central Excise, Shri S.B. Patel, Inspector and Shri S. Gautam, Supdt. of Central Excise was present and none on behalf of the appellants.
6. Shri Gohel admitted that during service, he had frequently visited the factory of the appellant. He had studied the process of manufacture during his visit to the factory. During the course of his study of the process of manufacture and also examination of final product i.e., welding electrodes, he did not find any mark affixed or engraved on it. He admitted about the inspectors working under him also visiting the factory and he had also directed his Inspectors to undertake the visit to the factory for the purpose of PBC checks, Modvat checks, pre-budget verification etc. None of his inspectors had even brought to his notice any contravention of any of Central Excise Rules. He had also examined the packed cartons and had noticed the marking "STARWELD" and double "S.S.". He was given the impression by the Unit that whatever mark or logo was marked on the carton had been owned by them. He admitted having called the annual report and the Balance Sheet of the company of having approved the classification lists. He admitted having received the letter dated 2-2-1989, 16-1-1989, 28-3-1989 andl-4-1989 and also admitted that the department was aware of the technical collaboration with A.O.L.
7. Shri S.B. Patel, Inspector stated that he did not visit the factory during his tenure, as it was a SSI Unit. Except for pre-budget stock taking, none of the Inspectors visited the unit. Every year before the budget he had visited the factory and also the BSR of the unit during the pre-budget stock verification. He was shown the carton and he admitted having seen the same during his visit.
8. Shri S. Gautam, Supdt., Central Excise on cross examination stated that he had visited with his staff for investigation on 26-12-1989. He admitted having seen the marks "STARWELD" and "SS" and the logo of M/s. Advani Oerlikon Ltd. with a remark in "Technical Collaboration of M/s. Advani Oerlikon Ltd." on the carton.
The appellants again filed a detailed reply to the Show-Cause Notice through their Advocate vide reply dated 1-10-1990.
9. The ld. Collector after a careful consideration of the evidence on record was not satisfied with the explanation of the appellant. He examined the contents of the agreement and held that:
"In view of the discussions above it is crystal clear that the welding electrodes manufactured by the party was bearing the brand name "Starweld" owned by M/s. Arvind Oerlikon Ltd. throughout the material period. In view of the additional facts that on the packing a logo of M/s. Arvind Oerlikon Ltd. and the name of AOL was also mentioned finally settled the issue that party was manufacturing a product bearing the brand name of M/s. Arvind Oerlikon Ltd. for the clearance of which they are not entitled for the benefit of the Notification 175/86."
The ld. Collector did not agree with the appellant's contention that there had been no suppression or misdeclaration and therefore, the ld. Collector has confirmed the demands extending the larger period. In this context, he had held that:
"...It is observed that, contrary to their contention, they have never intimated to the Department about the fact that they were manufacturing the welding electrodes under technical collaboration with M/s. AOL Bombay. They had also concealed from the Department the facts that there was an elaborate technical collaboration agreement by which the manufacturer, processing, sale of the product alongwith its raw-material were totally controlled by M/s. AOL Bombay. In their classification lists furnished at different times they have referred their welding electrodes product as only "Star-weld" without elaborating this fact of utilisation of the Trade Mark/Brand of M/s. AOL, Bombay. They have not intimated separately by a covering letter alongwith the classification list the details of this product Star-weld. Even in their classification, the details of the manufacturing process also does not throw any indication about the elaborate arrangements under an agreement with M/s. AOL for the manufacture of this product. Therefore, there were definite suppression of certain vital facts from the Department whereby an impression was created to all around in the Department that the product which the party was manufacturing was carrying their own brand name. Therefore, the contention is totally rejected. The argument of the party that the Departmental officers visited their factory and therefore, the facts were known to them cannot be accepted since the departmental officers' visits are for different purposes and it is not necessary that certain agreements with M/s. AOL, Bombay, which has been concealed by them very clearly, should be discerned and comprehended by the excise staff. In view of the above, I reject their contention that Department was aware of the fact that they were using the brand name "Starweld" under technical collaboration with M/s. AOL Bombay. It is seen that the party deliberately contravened the provisions of Rule 173C by applying for assessment on the basis of invoice price knowing fully well that they were not entitled for the concessional rate of duty as regards their branded product Starweld since the brand name belonged to M/s. AOL, Bombay. This contravention of the rule was done with the sole intention of evasion of Central Excise Duty."
On the basis of the above findings, the ld. Collector confirmed the demands made in the Show Cause Notice and imposed the penalty as stated supra.
10. We have heard Shri D. Dave, ld. Advocate for the appellant and Shri S.K. Sharma, ld. JDR for the Revenue.
11. Shri Dushyant Dave contended that the department was well aware of the use of Logo of M/s. AOL by the appellant. He contended that the brand name "Star Weld" is owned by appellant. The appellant had entered into technical collaboration with M/s. AOL on 14th April, 1981. The agreement had been initially executed for five years for extending technical collaboration. By this agreement, the appellant had agreed to pay down payment of Rs. 4 lakhs and technical assistance fee of 7% (seven percent) of net sales of the products manufactured by the appellant. The appellants were to receive technical information from M/s. AOL and were required to keep it secret. A fresh agreement dated 14-1-1988 was executed. In Clause 3, the following words had been inserted "on the expiry of the said technical assistance agreement on 30-6-1989, super star will cease to use AOL logo on Star-weld products manufactured by them". After these words one sentence had been inserted in close between two sentences, namely :-
"The brand 'STARWELD' will be transferred/assigned by AOL to superstar at a consideration to be mutually agreed upon between the parties hereto after the expiry of the said agreement."
12. The appellant had not noticed this insertion after the copy of agreement was received by them. Therefore, by their letter dated 27-1-1988 they raised a dispute with M/s. AOL. M/s. AOL by their letter dated 11-2-1988 admitted about the insertion of the above-stated line and they treated the line to be cancelled and they made it clear that at no point of time, they would ask any consideration for the transfer/assigning of the brand name. Thereafter, M/s. AOL by their letter dated 17-2-1988 to the Registrar of Trade Mark, Bombay informed them that they were withdrawing the application for registration of Trade Mark 'STARWELD' in their name as they learnt that it belonged to M/s. Superstar Welding Ltd. The Deputy Registrar of Trade Mark by his letter dated 3-5-1990 informed M/s. AOL that the application of registration of trade mark Super Weld, in their name has been treated as withdrawn. On these facts, Shri Dave, ld. Advocate contended that the Trademark "Super-weld" is solely owned by the appellants and that the goods were traded in their own name and hence there was no infringement of Notification No. 175/86. The letter heads of appellants on which correspondence was done with the department clearly bore the Logo/emblem of M/s. Advani Oerlikon Ltd., Bombay and carried these words :
"Manufactures of welding Electrodes in Technical collaboration with ADVANI OERLIKON LTD., Bombay."
Shri Gautam, Supdt. (Rtd.) had also admitted about receiving these letters from appellant and hence, the department cannot allege about the fact of the ownership of Trade Mark or about the technical collaboration with M/s. Advani Oerlikon Ltd. or about the packings bearing the marks and logo of AOL. The appellant had submitted balance sheet and annual report to the Department. The annual report had mentioned about the Technical 'Know-How agreement' with M/s. AOL and payment royalty of 7% to 2.5% P.A. Shri Dave arguing on these facts contended that there has been no suppression or conscious or deliberate withholding of information and in this contract relied on the ruling rendered by Supreme Court in the case of Collector of Central Excise, Hyderabad v. Cltemphar Drugs & Liniments, 1989 (40) E.L.T. 276 and Padmini Products v. Collector of Central Excise, 1989 (43) E.L.T. 195.
He also submitted that no penalty can be imposed in the present case as all procedures had been followed and there had been no manner to defraud or evade payment of duty.
13. Shri Sharma, ld. JDR contended that party was aware of not being entitled to the benefit as per Para 7 of the Notification No. 175/86 and yet they had dared to claim the benefit without making full disclosure of the use of the Logo of M/s. AOL on the wrappers and packing of their product. Even in correspondence with the Department, they had not mentioned about the use of Logo of M/s. AOL, the department came to know only on the visit of Supdt. (Prev.) on 26th December, 1989. They were also using the colour scheme of M/s. AOL and the detailed reasoning given by Collector both on merits and on limitations are well founded and sustainable. He relied on the following rulings:
British India Corporation Ltd. v. Collector of Central Excise, Chandigarh, 1986 (25) E.L.T. 727, Jaishree Industries 1989 (40) E.L.T. 214
14. We have carefully considered the submissions made by both the sides and perused the records and the impugned order.
15. It is not in dispute about the use of logo of M/s. Advani Oerlikon Ltd. by the appellants on the wrappers and packings and on cartons. There is no serious argument made before us about the non-applicability of the Notification No. 175/86 but the contentions raised is that the department was fully aware of the use of the logo of M/s. AOL by the appellant and that there was no conscious or deliberate suppression or withholding of information and hence larger period cannot be invoked in this case. Examining the facts on merits, the ld. Collector had held that benefit of the Notification No. 175/86 cannot be extended to the appellants as their welding electrodes namely "Star- weld" was being sold in a unit packing which displayed the brand name "Starweld" Logo SS, Logo of M/s. AOL and the name of the company M/s. AOL on the unit pack. The product was manufactured under the quality control of M/s. AOL and by taking technical know-how, skill and services required for the manufacture and processing of the welding electrodes and also by obtaining process control, research and development facility for the sale of the product. They were being supplied with principal raw material "flux" exclusively from M/s. AOL. It has also come on record that the product "Rutile" which is one of the raw materials used for 50% of manufacture of "flux" and supplied to the consumers on the basis of the allotment of quota by the Govt. of India through M/s. Indian Granite Ltd. to the appellant who sold to M/s. AOL, Bombay at no profit no loss basis. The samples of the products before being despatched for sale in the market were being sent for testing its quality and performance by M/s. AOL and only after receiving the approval of the M/s. AOL by test report the electrodes were being sold to the market. Therefore, the ld. Collector examining these facts in the light of Para 7 of Notification No. 175/86 as amended by Notification No. 223/87 dated 22-9- 1987 held that appellants were disentitled to the benefit of the notification. Para 7 of the said notification stipulated that the exemption contained in the notification shall not apply to the specified goods where a manufacturer affixes on the said goods, with a brand name or trade name (registered or not) of another person who is not eligible for the grant of exemption under this notification. On examining the definition of brand name or trade name, it is seen that it includes a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specific goods for the purpose of indicating or so as to indicate a connection in the course of trade between the said goods and same person using such name or mark with or without any indication of the identity of that person. In this case, the ld. Collector has held that brand name 'Starweld' is owned by M/s. AOL, Bombay and has relied on the initial statement of the Managing Director and also has drawn an inference from various other inferences that M/s. AOL had got the registration cancelled of the trade name "Star-weld" only after the investigation and till then it continued to remain with them. He had seen that the raw material 'flux' is supplied by M/s. AOL and about the quality control and other factors discussed above to reject the parties' contention that the brand name 'Star-weld' is owned by them. Shri Dave relied on the correspondence of the appellant with M/s. AOL and that of M/s. AOL with Registrar of Trade Marks and the letter of Dy. Registrar, Trade Marks accepting M/s. AOL's request for withdrawing the application of Trade Mark "Starweld" in their favour. We have considered these submissions. We are of the view that even if the brand name "Star-weld" is owned by the appellant, yet the fact remains that the logo of M/s. AOL and colour scheme of the packing of M/s. AOL's product is being adopted by the appellant, hence Para 7 of the said notification clearly disentitles them from the benefit of the notification. Therefore, we see no reason to interfere with the findings of the ld. Collector and we confirm the same and hold that the appellants are not entitled to the benefit of the notification in question. In this regard the ruling of Thio Pharma v. Collector of Central Excise 1992 (60) E.L.T. 395 is also directly applicable to the facts of this case.
16. The other point that remains for determination in regarding the invocation of larger period on the ground of suppression and withholding of information. The ld. Collector has held that the appellant had concealed from the department about the elaborate technical collaboration agreement with M/s. AOL. He has further held that in their classification lists furnished at different times they had referred their welding electrodes as only "Starweld" without elaborating this fact of utilisation of the trade mark/brand of M/s. AOL, Bombay. He has also held that the appellant had not intimated separately by a covering letter alongwith the classification lists the details of this product 'Starweld'. We are not inclined to accept these findings for the simple reason that the fact of technical collaboration with M/s. AOL had been within the knowledge of the department, as admitted by Shri K.M. Gohel, Supdt. of Central Excise (Retd.) in his cross-examination and also by the other Inspectors, who were cross-examined by the applicants. They have admitted having received the annual report of the appellant company. Shri Dave pointed from the copy of the annual report about the terms and conditions of technical collaboration with M/s. AOL. The visiting staff, Supdt. of Central Excise and Inspectors have admitted having seen the Logo and mark of M/s. AOL on the packings and cartons. They have also admitted having received letters from appellant on which the fact of technical collaboration with M/s. AOL and their logo had been printed on the letter heads. Therefore, it follows that the departmental officials were fully aware of this fact of use of logo and emblem of M/s. AOL by the appellants. Therefore, it cannot be said that the appellants had suppressed any information. When these facts came to light, the officials could have called for further information and examined the case and denied the benefit of the notification. But this has not been done. It is only after the visit of Supdt. (Preventive) and after recording of statement of Managing Director, the department has invoked larger period. However, it has come on record through the cross examination of departmental officers that facts pertaining to use of Logo of M/s. AOL was clearly within the knowledge of the department. Hence larger period cannot be invoked in this case. Both the ratio of the rulings of the Hon'ble Supreme Court rendered in the case of M/s. Padmini Products and CJiemphar Drugs and Liniments are applicable to the facts of this case. The ld. DR relied on the ruling of M/s. British India Corporation and that oifaishree Inds. case. In those cases, the facts were different, the department had been clearly misled and the knowledge of department of use of logo of other manufacturer was not the point in these cases and hence, these rulings are clearly distinguishable.
In the result, the appeal is partly allowed to the extent of the demands to be restricted only to a period of six months prior to the date of Show Cause Notice. Otherwise the impugned order is confirmed.