The Chennai Regional Bench of the Customs, Excise and Service Tax Appellate Tribunal has delivered a significant ruling clarifying the conditions under which Small Scale Industrial (SSI) exemption can be denied on account of brand name usage. The judgment reinforces that mere association between a manufacturer and the owner of a brand name - particularly when the owner is a director or proprietor of the same entity - does not automatically disqualify eligibility for SSI benefits. This decision provides critical doctrinal clarity for pharmaceutical and manufacturing units relying on SSI exemptions under Central Excise notifications.
Background & Facts
The Dispute
Dr. Harry Life Sciences Pvt. Ltd., a manufacturer of pharmaceutical products under Chapter 30031000 of the Central Excise Tariff Act, 1985, claimed SSI exemption for goods cleared during 2013 - 2015. The Revenue alleged that the company evaded excise duty by clearing medicines under brand names such as "OZOFER" and "OZONIC", which were registered to third-party entities: M/s. Ozonic Health Care and M/s. Sri Aksaya Agencies. The Revenue contended that since these brand names belonged to other persons, the appellant was ineligible for SSI exemption under Notification No. 8/2003-Central Excise.
Procedural History
- 2015: Show Cause Notice issued under Section 11A(4) and Section 11AC of the Central Excise Act, 1944, proposing denial of SSI exemption, demand of duty, and penalties.
- 2016: Original adjudicating authority upheld all proposals, imposing penalty of Rs. 16.34 lakh on the company and Rs. 16 lakh on its Managing Director under Rule 26 of Central Excise Rules, 2002.
- 2017: Commissioner of Central Excise (Appeals-II) dismissed the appeal, affirming the demand and penalties.
- 2025: Appeals filed before CESTAT Chennai, challenging both the denial of SSI exemption and the imposition of penalties.
Relief Sought
The appellants sought: (i) restoration of SSI exemption on grounds that the brand names were not owned by "another person" but by their own directors/proprietors; (ii) cancellation of excise duty demand; (iii) quashing of penalties under Section 11AC and Rule 26; and (iv) recognition of a Tahsildar-issued certificate proving rural location of the manufacturing unit.
The Legal Issue
The central question was whether SSI exemption under Notification No. 8/2003-Central Excise can be denied merely because a manufacturer uses a brand name owned by its director or proprietor, and whether the burden of proving ownership of the brand name by a third party lies with the Revenue.
Arguments Presented
For the Appellant
The appellants relied on multiple precedents and clarifications to argue that: (1) the term "brand name of another person" requires proof that the brand is owned by a distinct legal entity unrelated to the manufacturer; (2) Circulars 52/94 and 71/94 clarify that mere usage of a brand name does not attract disqualification unless there is a connection in the course of trade with a third party; (3) in Famcom Rubber Products and Elex Knitting Machinery, CESTAT held that if the brand owner is a director or proprietor of the manufacturer, it cannot be deemed "another person"; (4) the Revenue failed to establish ownership of the brand names by Ozonic or Sri Aksaya, as those entities themselves disclaimed ownership; and (5) the Tahsildar’s certificate dated 20.11.2018 validly established rural location, per CCE v. Triogene Labs and Excel Controlinkage.
For the Respondent
The Revenue contended that: (1) the use of brand names "OZONIC" and "OZOFER" - which were associated with third-party firms - automatically disqualified the appellant from SSI exemption; (2) the certificates submitted by the appellant lacked official seals or letterheads and were therefore inadmissible; (3) the appellant intentionally evaded duty by misrepresenting the brand ownership; and (4) penalties under Section 11AC and Rule 26 were justified due to suppression and non-disclosure.
The Court's Analysis
The Tribunal undertook a meticulous analysis of the statutory definition of "brand name" under Notification No. 8/2003 and its interpretation through judicial precedents and departmental circulars. It emphasized that the disqualification clause targets only those cases where the brand name indicates a connection in the course of trade with a person other than the manufacturer.
"An assessee would also be entitled to the benefit of the exemption if the brand name belongs to the assessee himself although someone else may be equally entitled to such name."
The Court noted that the Managing Director of Dr. Harry Life Sciences, Mr. J. Somasundaram, was the proprietor of M/s. Ozonic Health Care, and his wife was the proprietrix of M/s. Sri Aksaya Agencies. This factual overlap meant the brand names were not owned by an independent third party but by individuals intrinsically linked to the appellant company. The Tribunal held that applying the disqualification in such circumstances would be legally untenable and contrary to the spirit of the exemption scheme.
The Court further observed that the Revenue had not produced any evidence - such as trademark registrations, licensing agreements, or correspondence - to establish that Ozonic or Sri Aksaya were independent owners of the brand names. The mere fact that the names appeared on packaging did not suffice. The burden of proof, as established in Leo Engineering and NIRLEX Spares, rests squarely on the Revenue.
Regarding the rural location claim, the Tribunal held that while the initial certificates lacked formalities, the subsequent Tahsildar’s certificate issued under official authority was conclusive under CCE v. Triogene Labs and Excel Controlinkage. The Revenue’s failure to investigate the location during search operations was deemed a procedural lapse.
On penalties, the Court applied Pepsi Foods Ltd. to hold that Section 11AC requires mens rea, and since no fraud or suppression was established, the penalty was unsustainable. Similarly, under Rule 26, the absence of any confiscation order rendered the penalty inapplicable, as per Gouri Shankar Poddar.
The Verdict
The appellants won. The Court held that SSI exemption cannot be denied merely because a manufacturer uses a brand name owned by its director or proprietor, and that the burden of proving ownership by a third party lies with the Revenue. The demand for excise duty, interest, and all penalties were set aside.
What This Means For Similar Cases
Brand Name Ownership Must Be Proven by Revenue
- Practitioners must insist that the Revenue produce concrete evidence - such as trademark registrations, assignment deeds, or third-party affidavits - to prove a brand name belongs to a "person other than the assessee."
- Mere similarity of names or association with a related entity is insufficient to deny SSI exemption.
- If the brand owner is a director, partner, or proprietor of the manufacturer, the disqualification clause under Notification No. 8/2003 does not apply.
Tahsildar Certificates Are Valid Proof of Rural Location
- Jurisdictional Tahsildar certificates, even if issued post-adjudication, are legally valid to establish rural location for SSI exemption under Notification No. 8/2003.
- Revenue cannot reject such certificates on technical grounds like absence of letterhead unless fraud is proven.
- Practitioners should proactively obtain Tahsildar certification for rural units to preempt disputes.
Penalty Under Section 11AC Requires Mens Rea
- Section 11AC cannot be invoked without proof of deliberate suppression, fraud, or misrepresentation.
- Absence of mens rea, even in cases of technical non-compliance, renders penalty impermissible.
- Practitioners should challenge penalty notices where the show cause notice does not allege fraudulent intent.
Rule 26 Penalty Requires Confiscation Order
- Penalty under Rule 26 of Central Excise Rules, 2002, cannot be imposed unless goods are first ordered for confiscation.
- No confiscation order = no basis for Rule 26 penalty.
- Practitioners should routinely cross-check whether confiscation proceedings were initiated before accepting penalty orders.
