2004 (97) ECC 157 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Chennai

Smt. Jyoti Balasundaram, Member (J) and Shri Jeet Ram Kait, Member (T)

Commissioner of Central Excise, Chennai

Versus

Fountain Consumer Appliances Ltd.

Appeal No. E/556/2001

[Arising out of Order-in-Appeal No. 31/2001 dated 23.2.2001 passed by the Commissioner of Central Excise (Appeals), Chennai]

Final Order No. 433/2004, dt. 8.6.2004

SSI benefits

Pre mixes of coffee/tea/soup -- The process of mere mixing of duty-paid coffee powder/tea powder with duty paid sugar and duty paid whitener to make pre-mix coffee/pre-mix tea and mere mixing of chocolate powder with sugar and skimmed milk to make drinking chocolate, would not amount to manufacture in terms of Section 2(f) of the Central Excise Act, 1944.

SSI Exemption

Joint Venture with Foreign Partner -- Brand name used belonging to the Foreign Partner of the Respondents, being a non-transferable exclusive right to use in India, granted as per the agreement, would not deny the respondent the benefit of SSI concession in terms of the Notification No. 1/93 dt. 28.2.93, as amended.

PRESENT :

Smt. Bhagya Devi, SDR for the appellant.

Shri Krishan Srinivasan, Advocate for the respondent.

Cases Cited :

1. CCE, Chandigarh v. Markfed Vanaspati & Allied Inds., 2003 (87) ECC 270 (SC).............. [Para 6]

2. CCE, Coimbatore v. Gopalakrishnan & Sons, 2003 (157) ELT 79........................................ [Para 6]

3. Convertech Equipment Pvt. Ltd. v. CCE, Meerut, 2001 (137) ELT 144................................. [Para 4]

4. Elex Knitting Machinery Co. v. CCE, Chandigarh, 2003 (158) ELT 499............................... [Para 4]

5. Laljee Godhoo & Co. v. CCE, Mumbai, 2001 (78) ECC 211 (T)............................................. [Para 6]

6. Namtech Systems Ltd. v. CCE, 2000 (115) ELT 238................................................................ [Para 1]

7. New Horizons Limited & Anr. v. Union of India & Ors., (1995) 1 SCC 478........................... [Para 3]

8. Rathi Transpower Pvt. Ltd. CCE, Pune, 2002 (153) ELT 59.................................................... [Para 4]

9. Twenty First Century Pharmaceuticals Pvt. Ltd. v. CCE, Chennai, 2003 (158) ELT 660... [Para 6]

10. Union of India v. Parle Products Pvt. Ltd., 1994 (74) ELT 492 (SC).................................... [Para 6]

Per : Smt. Jyoti Balasundaram

The respondents herein, manufacturers of Hot-Drink Dispensing machines and pre-mix of Coffee/Tea/soup, are a SSI unit availing exemption in terms of Notification No. 1/93 dated 28.2.93. On noting that the assessee was affixing brand name "Fountain" belonging to one M/s. Fountain Netherlands Holding on their product, the department issued a show cause notice dated 4.1.95 proposing denial of SSI benefit for the period July to December, 1994 and this was followed by 8 periodical show cause notices covering the period upto September 1998 on the same issue. The notices were adjudicated by the Asstt. Commissioner of Central Excise vide order dated 29.9.2000, denying the benefit of SSI exemption and holding that pre-mixes of coffee/tea/soup are excisable and classifiable under CET Sub-Heading 2101.10, 2101.20 and 2104.10 respectively. The benefit of modvat credit for the relevant period was also denied and a demand for Rs. 91,92,183 was confirmed and a penalty of Rs. 10,000 in respect of each show cause notice, totaling Rs. 90,000 was imposed. The Commissioner (Appeals) vide his Order-in-Appeal dated 23.2.2001, on appeal filed by the assessee, held that mixing of duty paid instant coffee/tea/soup with duty paid Whitener, Sugar and drinking chocolate to pre-mix coffee/tea/soup does not amount to manufacture and thus not leviable to duty. With regard to Hot Drink Dispenser machines, he held that the process amounts to manufacture and chargeable to duty but he extended the benefit of SSI exemption holding that the goods do not fall under the mischief of the brand name concept provided in the Notification No. 1/93. He accordingly, directed the lower authority to calculate the duty liability on this product. He further directed that the benefit of modvat and cum duty price under Section 4(4)(d)(ii) to be extended to the assessee. Hence this appeal by the Revenue which contends that the benefit of SSI exemption is not available to Hot Drink Dispenser machines, in the light of the decision of the Larger Bench of the Tribunal in the case of M/s. Namtech Systems Ltd. v. CCE, 2000 (115) ELT 238 and that the premixes are processes of manufacture as by pre-mixing of various ingredients, a different commercial commodity comes into existence, which is liable to duty.

2. We have heard both sides. The following 2 issues have been raised by the Revenue in this appeal:-

(i) Whether the use of the brand name "Fountain" belonging to the Foreign Partner of the Respondents, being a non-transferable exclusive right to use in India, granted as per the Agreement, would deny the Respondent the benefit of SSI concessions in terms of the Notfn. No. 1/93 dt. 28.2.93, as amended.

(ii) Whether the process of mere mixing of duty-paid coffee power/tea powder with duty paid sugar and duty paid whitener to make pre-mix coffee/pre-mix tea and mere mixing of chocolate powder with sugar and skimmed milk to make drinking chocolate, would amount to manufacture in terms of Section 2(f) of the Central Excise Act, 1944.

3. Our findings are recorded hereunder:

Issue No. (1): According to the Ld. SDR, this issue stands answered in favour of the Revenue by the Larger Bench decision in the case of Namtech Systems Limited v. CCE, New Delhi, 2000 (115) ELT 238 wherein it has been held that where a manufacturer affixes the specified goods with the brand name or trade name of a foreign person and or a non-manufacturer/trader, the benefit of SSI Notification is not available to the specified goods. However, the above contention has been ably rebutted by the Ld. counsel for the respondents by submitting that the facts of the case are distinguishable from the Namtech Systems Limited. In the present case by the agreement dt. 27.4.94 entered between the respondents and Fountain Consumer, Netherlands Holding, Netherlands, the Foreign Company has participated in the Equity Capital of the respondent by subscribing to 40% of the issue subscribed and paid-up capital. Since the brand name that was being used was that of an Equity partner of the Respondent, it was not a brand of a foreign company. The decision of the Hon'ble Supreme Court in New Horizons Limited & Anr. v. Union of India & Ors. (1995) 1 SCC 478), is relied upon to support his contention. The Supreme Court has held as under:

Para-24:

"The expression "Joint Venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject-matter, a right to direct and govern the policy in connection therewith, and duty, which may be by agreement, to share both in profit and losses. (Black's Law Dictionary, 6th Edn., p. 839). According to Words and Phrases, Permanent Edn., a Joint Venture is an association of two or more persons to carry out a single business enterprise for profit (p. 117, Vol. 23). A Joint Venture can take the form of a corporation wherein two or more persons or companies may join together. A Joint Venture Corporation has been defined as a Corporation which has joined with other individuals or Corporations within the corporate framework in some specific undertaking commonly found in oil, chemicals, electronic, atomic fields. (Black's Law Dictionary, 6th Edn., P. 342) Joint Venture Companies are now being increasingly formed in relation to projects requiring inflow of foreign capital or technical expertise in the fast developing countries in East Asia, viz., Japan, South Korea, Taiwan, China, etc. (See Jacques Buhart: Joint Ventures in East Asia-Legal Issues (1991). There has been similar growth of Joint Ventures in our country wherein Foreign Companies join with Indian counterparts and contribute towards capital and technical know-how for the success of the venture. The High Court has taken note of this connotation of the expression "Joint Venture". But the High Court has held that NHL is not a Joint Venture and that there is only a certain amount of equity participation by a Foreign Company in it. We are unable to agree with the said view of the High Court."

Para-25

"As noticed earlier, in its tender NHL had stated that it is a Joint Venture Company established by TPI, LMI and WML and IIPL wherein TPL, LMI and WML and other Companies in the same group as well as Mr. Aroon Purie own 60% shares and IIPL owns 40% shares. It was also stated that the Joint Venture has received approval of the Government of India and is currently in operation and that the promoter will increase their capital/contribution to commensurate with the project need and that the company with expertise in database processing, publishing, sales/marketing and the dissemination of related information. In the tender, it is also stated that as a Joint Venture in the true sense of the phrase, the Company will have access to expertise in database management, sales and publishing of its parent group Companies. It would thus appear that the Indian Group of Companies (TPI, LMI and WML) and the Singapore-based Company (IIPL) have pooled together their resources in the sense that TPI, LMI and WML have made available their equipment and organization at various places in the country while-IIPL has made available its wide experience in the field as well as the expertise of its managerial staff. All the constituents of NHL have thus contributed to the resources of the Company (NHL). This shows that NHL is an association of Companies jointly undertaking a commercial enterprise wherein they will all contribute assets and will share risks and have a community of interest. We are, therefore, of the view that NHL has been constituted as a Joint Venture by the group of Indian Companies and IIPL, the Singapore-based Company and it would not be correct to say that IIPL which has a substantial stake in the success of the venture, having 40% of shareholding, is a mere shareholder in NHL".

Para-27

"The conclusion would not be different even if the matter is approached purely from the legal standpoint. It cannot be disputed that, in Law, a Company is a legal entity distinct from its members. It was so laid down by the House of Lords in 1897 in the leading case of Salomon v. Salomon & Co. Ever since this decision has been followed by the Courts in England as well as in this country. But there have been in-roads in the doctrine of corporate personality propounded in the said decision by statutory provisions as well as by judicial pronouncements. By the process, commonly described as "lifting the veil". the law either goes behind the corporate personality to the individual members or ignores the separate personality of each Company in favour of the economic entity constituted by a group of associated Companies. This course is adopted when it is found that the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest of the Revenue. (See: Gower's Principles of Modern Company Law, 4th Edn., P. 112). This concept, which is described as "piercing the veil" in the United States, has been thus put by Sanborn, J. in US v. Milwaukee Refrigerator Transit Co.:

"When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons."

4. Applying the above ratio, the respondents have to be held as a Single Economic Entity constituted by the Indian company and the Foreign company and therefore the use of the brand "Fountain" does not amount to use of the brand name of an other person. We also note that the brand "Fountain" has been registered by the respondents in India and the Joint Venture Company has become the owner of the brand and obtained non-transferable exclusive rights of using the brand in India, as seen from the agreement. We note that the Larger Bench decision in the case of Namtech Systems is not a case of use of brand name by an Equity Partner. We also find support for the view that where the brand name has been registered by the manufacturer and the manufacturer has exclusive non-transferable rights, they would be eligible for the benefits of the SSI exemption, from the Tribunal's decision in the case of Convertech Equipment Pvt. Ltd. v. CCE, Meerut, 2001 (137) ELT 144, Rathi Transpower Pvt. Ltd. CCE, Pune, 2002 (153) ELT 59 and Elex Knitting Machinery Co. v. CCE, Chandigarh, 2003 (158) ELT 499.

5. In the light of the above discussion, we hold that the use of the brand name "Fountain" cannot result in denial of benefit of concessional rate of duty under the SSI Notification No. 1/93 to the respondents and answered this issue against the Revenue.

Issue No. 2

6. There is no material on record to show that when coffee/tea powder is mixed with sugar and whitener to make it a pre-mix, it loses its original character and becomes a new product. The contention of the respondents that even after mixing, it remains the same coffee/tea and it is known in the market only as coffee/tea, is therefore required to be accepted. The same is the position with chocolate. The pre-mix form merely allows more convenience for sale and consumption but this does not in any way establish that the test of manufacture has been satisfied. The respondents have also produced affidavit from dealers stating that they are selling pre-mix coffee/tea as coffee/tea. The burden of showing that the particular process amounts to manufacture is cast upon the Revenue, as held by the Apex Court in the case of CCE, Chandigarh v. Markfed Vanaspati & Allied Inds., 2003 (87) ECC 270 (SC) : 2003 (153) ELT 491 (SC) and the burden has not been discharged by the Revenue authorities in the present case. The Trade parlance test which is also held to be relevant by the Apex Court in the case of Union of India v. Parle Products Pvt. Ltd., 1994 (74) ELT 492 (SC) also brings out that the pre-mix coffee/tea is known and sold as coffee/tea only. Since there is no change in the essential character of the products in dispute, applying the ratio laid down by the Tribunal in the case of Laljee Godhoo & Co. v. CCE, Mumbai, 2001 (78) ECC 211 (T) : 2001 (132) ELT 287; CCE, Coimbatore v. Gopalakrishnan & Sons, 2003 (157) ELT 79 and Twenty First Century Pharmaceuticals Pvt. Ltd. v. CCE, Chennai, 2003 (158) ELT 660 which has been upheld by the Supreme Court as seen from the dismissal of the Civil appeal against this judgment, by the Supreme Court on 17.9.2003 and reported in 2003 (158) ELT 222, we hold that the process of mixing does not amount to manufacture.

7. In the light of the above, we hold that the process of mixing of duty paid coffee powder/tea powder with duty paid sugar and duty paid whitener to make pre-mix coffee/pre-mix tea and mere mixing of chocolate powder with sugar and skimmed milk to make drinking chocolate, does not amount to manufacture as per Sec. 2(f) of the Central Excise Act, 1944 and accordingly answer this issue also against the Revenue.

8. In the result, we uphold the impugned order and reject the appeal.

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