Calcutta High Court: The Division Bench of Aryak Dutt* and Debangsu Basak, JJ. while allowing the appeal on two substantial questions of law, held that the revenue cannot be permitted to rely upon the material to the extent that assists the revenue and to discard the very same material to the extent that does not. The Court emphasized that since revenue-respondent sought to bring the appellant within the exclusion from the exemption and thereby impose a tax liability, the burden of proving that exempted goods satisfy the notification’s exclusion will be on the revenue. The Court found the penalty imposed under Section 11-AC, Central Excise Act, 1944 (the Act), underlying the demand of duty to be unsustainable. It allowed the appeal and set aside both the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) orders.
Background
The case revolving around the appellant’s entitlement to exemption under Notification dated 1 March 2003. The appellant was engaged in the manufacture of Vanaspati. The notification granted exemption to specified goods, but excluded partially or wholly hydrogenated vegetable fats and oils and Vanaspati and bakery shortening when such goods bore a brand name and were put up in unit containers for retail sale. The notification also contained an Explanation defining “brand name” as a name or mark used in relation to a product so as to indicate a connection in the course of trade between the product and the person using the name or mark.
According to the Revenue-respondent, the appellant had cleared branded Vanaspati bearing the brand name “Shiva” without payment of central excise duty after the exemption notification came into force on 1 March 2003. A show-cause notice dated 7 April 2004 alleged that the appellant had surreptitiously removed assorted varieties of Vanaspati bearing the “Shiva” brand. It also alleged that alleged value of the goods was ₹28,34,752 and 116.052 metric tonnes of branded Vanaspati had been cleared in unit containers for retail sale.
The appellant-Company duly replied to the show-cause notice. It contested that the goods manufactured and cleared after 1 March 2003 did not bear the “Shiva” brand at all. According to the appellant, the word “Shiva” appeared only on the sales invoices accompanying the goods. The containers and the goods themselves did not carry the brand name. The appellant therefore contended that the exclusion contained in notification was not attracted because the notification required the goods themselves to bear a brand name. The Commissioner of Central Excise (Revenue) rejected the appellant’s defence by order-in-original dated 17 February 2005 and confirmed a demand of duty of ₹37,80,246 under Section 11-A(1) of the Act. It imposed an equivalent penalty under Section 11-AC with an interest of 15 per cent under Section 11-AB.
The appellant challenged this order before the CESTAT. The Tribunal dismissed the appeal by its order dated 24 February 2010. The appellant aggrieved by the impugned order filed this appeal and argued that the condition upon which the exemption under notification was the affixation of a brand name upon goods put up in unit containers, and not the description under which the goods happen to be invoiced. It submitted that the Revenue had not seized any branded container, packing material, label or printing material. No customer had stated that the goods themselves carried the “Shiva” brand. Instead, several purchasers or distributors had furnished certificates indicating that the goods received by them bore no such marking. The appeal was admitted on two substantial questions of law.It was also contended by the appellant that the show-cause notice and the order-in-original had both been signed by the same Commissioner of Central Excise.
The Revenue argued that the appellant had been manufacturing and clearing branded goods before 1 March 2003 and that it was implausible that the appellant would suddenly stop manufacturing branded goods when the levy became applicable. The Revenue also relied upon statements and letters from purchasers, agents and distributors showing that their invoices mentioned “Shiva”. It further contended that 11 letters furnished by distributors were drafted in substantially identical language and therefore should not be relied upon.
Issue
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Whether the Tribunal was justified in holding that branded goods had been manufactured and cleared without payment of duty despite the absence of evidence that goods manufactured after 1 March 2003 were actually sold using a brand name?
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Whether the CESTAT was legally right in upholding the imposition of penalty when the matter relates to interpretation of a notification/statutory provision and in the absence of circumstances to invoke Section 11-AC of the Act?
Decision and Analysis
The Court by examining the language of notification observed that the exclusion operated only when two conditions were cumulatively satisfied that the goods had to bear a brand name and they had to be put up in unit containers for retail sale. The Court therefore held that the crucial factual enquiry was whether the goods removed after 1 March 2003 actually bore the “Shiva” brand. The Court placed the burden of establishing this fact upon the Revenue. Since the Revenue sought to bring the appellant within the exclusion from the exemption and thereby impose a tax liability, it was required to establish that the statutory conditions for exclusion were satisfied. The Court noted that the Revenue had relied upon letters from 11 agents or distributors of the appellant. Those letters confirmed that although the sales invoices mentioned “Shiva”, the goods received by the distributors did not bear the “Shiva” marking on their containers. The Court considered this evidence that the brand name appeared on invoices but not on the goods.
The Court held that the revenue cannot be permitted to rely upon this material to the extent that assists the revenue and to discard the very same material to the extent that does not. Having chosen to build its case upon the statements of the agents/distributors, it was not open to the Revenue to impeach those statements upon the solitary ground that they were couched in similar language, particularly when the deponents were not confronted with any such objection and no other material was brought on record to displace what they had stated. The similarity of language, without more, furnished no ground for rejecting the substance of what 11 independent persons had deposed to.
The Court further rejected the fact that the appellant was manufacturing and clearing branded goods prior to 1 March 2003, and that it could not have ceased to do so immediately upon the introduction of the levy, rests upon surmise. The conduct anterior to the levy may give rise to suspicion but it cannot, by itself, discharge the burden of proving that the goods actually removed after 1 March 2003 bore a brand name. Suspicion, however strong, cannot take the place of proof.
The Court considered the case of CCE v. Superex Industries, (2005) 4 SCC 207 where the Supreme Court had held that the benefit of an exemption would not be lost merely because the name “Kirloskar” appeared in invoices when that name was not affixed to the generating sets themselves. Applying that reasoning, the Court concluded that the mere appearance of “Shiva” on sales invoices did not amount to use of the brand name upon the goods for the purposes of the exclusion in notification. Since the Vanaspati removed by the appellant did not bear the brand name, the exclusion was not attracted and the appellant was entitled to the benefit of the exemption.
The Court found the penalty imposed under Section 11-AC of the Act, underlying the demand of duty to be unsustainable. The Court noted that the dispute in the present case turned upon the true construction of an exemption notification. There was no material brought on record to establish fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of duty, which was precedent for the invocation of Section 11-AC of the Act.
The Court declined to express any view on the appellant’s contention that the show-cause notice and the order-in-original had been signed by the same officer, noting that this was unnecessary in view of its conclusion on the merits.
The first substantial question of law, as to whether the Tribunal was correct in holding that the branded goods were manufactured and cleared without payment of duty, in the absence of any evidence that the goods manufactured after 1 March 2003 were sold using any brand name, was answered in favour of the appellant-assessee and against the revenue. The second substantial question of law, as to the legality of upholding the imposition of penalty and the invocation of Section 11-AC of the Act, was also answered in favour of the assessee and against the Revenue.
The Court therefore answered both substantial questions of law in favour of the assessee and against the Revenue. It allowed the appeal and set aside both the CESTAT order dated 24 February 2010 and the Commissioner’s order-in-original dated 17 February 2005. The demand of duty, penalty and interest were consequently quashed.
[Kanchan Oil Industries Ltd. v. CCE, 2026 SCC OnLine Cal 13379, decided on 14-9-2026]
*Judgment authored by: Justice Aryak Dutt
Advocates who appeared in this case:
For the Appellant: N. K. Chowdhury, Arijit Chakrabarti, Nilotpal Chowdhury, Advocates
For the Respondent: Bhaskar Prosad Banerjee, Anurag Roy, Advocates
