The Hindu Business Line : Context of company name

S. Murugappan discusses a recent apex court decision on the meaning of brand name in connection with central excise duty exemption and its far-reaching implications.

THE Supreme Court delivered a landmark judgment on April 12, 2005, in the Commissioner of Central Excise, Trichy vs Grasim Industries Ltd case involving the interpretation of the expressions "brand name or trade name" in connection with central excise duty exemption.

This Supreme Court judgment will have far-reaching implications for thousands of small-scale units utilising small-scale duty exemption and job workers manufacturing goods for others such as pharmaceutical units, where excise duty exemption is sought by claiming that the brand name or trade name of another person has not been used.

Briefly the facts relating to the Grasim Industries case are as follows: Dharani Cements Ltd, a subsidiary of Grasim Industries Ltd, was claiming excise duty exemption in terms of Notification 5/98-Central Excise dated June 2, 1998, for the cement manufactured by it.

On the bags of cement manufactured by Dharani Cements, the words "Manufactured by Dharani Cements Ltd. A Subsidiary of Grasim Industries Ltd" was written. One of the conditions for excise duty exemption under the above notification was that the cement manufactured should not bear the brand/trade name (whether registered or not) of another person.

The notification defined brand/trade name thus:

"For the purpose of condition (ii), `brand name' or `trade name' means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, signature, or invented words or any writing which is used in relation to a product for that purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person."

Dharani Cements claimed that the words "M/s. Grasim Industries Ltd" was neither a brand name nor a trade name. It was contended by them that mere use of the name of a company does not amount to using a brand/trade name of some other company.

On the other hand, the excise authorities contended that Dharani Cements was using the name of Grasim Industries with the purpose of indicating connection between the product, that is, cement manufactured by it , and Grasim Industries, which is a well known cement manufacturer.

The Commissioner of Central Excise (CCE) denied the duty exemption claimed by Dharani Cements on the ground that the use of the words "M/s.Grasim Industries Ltd" indicates a connection between the cement manufactured by it and Grasim Industries.

However, on appeal to the Customs and Excise Tribunal, Dharani Cements obtained a decision in its favour.

The Tribunal gave its decision based on the Supreme Court judgment rendered in theAstra Pharmaceuticals Ltd vs Collector of Central Excise, Chandigarh case and also on the basis of the Tribunal's decisions in theNippa Chemicals Pvt. Ltd and Commissioner of Central Excise, Hyderabad vs Sarat Electronics cases.

The CCE, Trichy filed an appeal before the Supreme Court contesting the the Tribunal decision given in favour of Dharani Cements, thus leading to the present judgment of the apex court.

The Supreme Court judgment in this case has overruled several decisions of the Tribunal on the subject and also has distinguished the judgment given by it in the Astra Pharmaceuticals case.

The apex court observed that in the Astra case, the dispute was with regard to interpretation of the words "patent or proprietary medicines". It has said that in the definition of "patent and proprietary medicine" given in the relevant tariff entry, which was the subject matter of dispute in the Astra case, there was no mention of "trade name".

Hence, the apex court held that while interpreting the phrase `brand name or trade name', an interpretation given in respect of "patent or proprietary medicines" can be of no assistance.

Further, the apex court made the following succinct observation: "As is commonly known, a trade name can be a name in which or by which a person or body carries on their trade.

It would, if the context so permits, include the name of a company. In the context of a "trade name" the words "a name" and "or any writing" would cover the name of a company so long as it is used in relation to the product and is used for the purpose of indicating a connection in the course of a trade between the product and other person."

The apex court thus came to the conclusion that in the present case, Dharani Cements will not be entitled for duty exemption.

On behalf of the three-judge Bench, Justice S. N. Variava pointed out thus:

"There is also no denial that the purpose of using the words `Manufactured by Dharani Cements Ltd.

A Subsidiary of Grasim Industries Ltd' was with an intention of indicating a connection between the product i.e., the cement and M/s. Grasim Industries Ltd. In such cases, clearly the respondents were using a trade name of some other company with the purpose of indicating a connection in the course of trade between the product and that person. The respondents were, therefore, clearly not entitled to the benefit of the Notification. The decision of the Tribunal is, therefore, clearly erroneous and requires to be set aside." Thus, with the above view of the Supreme Court, the decisions given by the Tribunal in similar cases such as Nippa Chemicals Pvt. Ltd., Commissioner of Central Excise, Hyderabad Vs. Sarat Electronics have tumbled down and stand overruled as erroneous. The apex court stated that it becomes necessary for this court to clarify the law so that the erroneous judgments of the Tribunal do not remain binding precedents.

This interpretation now given by the Supreme Court will have far-reaching implications for a large number of manufacturers who are enjoying benefit of excise duty exemption applicable to small-scale industries, job workers for other manufacturers, such as pharmaceutical units, and also jewellery manufacturers. In fact, SSI exemption notifications, currently available to small-scale manufacturers, use the same expression "brand name or trade name" with an identical definition. Several of the manufacturers now indicate in their products/packages "manufactured by `X' on behalf of `Y'" or "manufactured by `X' for `Y'". Some manufacturers also use the expression "manufactured by `X' and marketed by `Y'". Thus, these expressions, which were so far accepted by the excise authorities for providing duty exemption, will now amount to use of a trade name as per the Supreme Court judgment under discussion. Hence, in all such cases, the units/manufacturers will be disentitled for seeking excise duty exemption. Tthese manufacturers have to find other ways of coping with the issues thrown up by the Supreme Court judgment, if they are to utilise duty exemption.

Branded jewellery was brought under excise recently in terms of the Budget proposals for the current year made by the Government of India. The relevant excise notification provided that the duty exemption is not applicable to "articles of jewellery" on which brand name or trade name is indelibly affixed or embossed on the articles of jewellery itself. It has been clarified by the Finance Ministry that marking of the manufacturers' name on the articles of jewellery will not be treated as amounting to mentioning of brand/trade name. However, in view of the Supreme Court, this clarification can no longer be sustained.

As a result, the Government has to provide for an appropriate exemption, else jewellery manufacturers marking their company's name will find themselves liable to pay excise duty. So far, the Government has not responded to the Supreme Court judgment by way of circulars or notifications. What will happen to past assessments and clearances in similar cases? Will the Government seek to reopen them within the permissible limit? What will be in store for manufacturers who are currently enjoying facilities as per the previous understanding? One has to wait and see, as there is so much in a `name'.

(The author is a Chennai-based advocate.)

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