Holding

The Supreme Court held that both products qualify for the claimed exemptions, there was no willful suppression of facts, the demand is time‑barred, no penalty can be imposed, and the assessee is neither a dummy nor a related person of BBL.

Summary

Damnet Chemicals Pvt. Ltd. manufactured two products, ‘CRC 2-26’ and ‘CRC Acryform’, and claimed exemption from central excise duty under Notification No. 120/84‑CE (blended lubricating oil) and Notification No. 175/86‑CE (SSI) respectively. The Central Excise Department issued a show‑cause notice alleging that the products were not eligible for exemption, that the trademark used was not entitled to the benefit, that the assessee was a dummy of Bharat Bijlee Ltd. (BBL) and that there was willful suppression of facts to evade duty, invoking the proviso to Section 11A(1) of the Central Excise Act. The Tribunal allowed the assessee’s appeal; the Commissioner appealed to the Supreme Court. The Court held that ‘CRC 2‑26’ is a blended lubricating oil containing more than 70% mineral oil and thus qualifies for exemption, and that ‘CRC Acryform’ is entitled to SSI exemption as the trademark belongs to the assessee. No willful misstatement or suppression was found, so the extended limitation period could not be invoked and the demand is time‑barred; consequently, no penalty could be imposed. The Court also found no evidence that the assessee was a dummy or a related person of BBL. The appeals were dismissed.

Issues considered

Whether ‘CRC 2‑26’ is a blended lubricating oil and eligible for exemption under Notification No. 120/84‑CE.
Whether ‘CRC Acryform’ is entitled to SSI exemption under Notification No. 175/86‑CE.
Whether there was any willful misstatement or suppression of facts with intent to evade duty, permitting invocation of the proviso to Section 11A(1) and rendering the demand time‑barred.
Whether the Department could levy a penalty on the assessee.
Whether the assessee is a dummy or façade of BBL and whether they are ‘related persons’ within the meaning of Section 4(a) and 4(3)(b) of the Central Excise Act.

Legislation cited

Central Excise Act, 1944s. 11A(1), s. 4(3)(b), s. 4(a)

Subjects

central exciseexemptionblended lubricating oilSSI exemptionwillful suppressionextended limitation periodrelated personsdummy companypenaltyNotification 120/84Notification 175/86Section 11ASection 4

Judgment

COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV A
v.
MIS. DAMNET CHEMICALS PVT. LTD. ETC.

SEPTEMBER IO, 2007

(TARUNCHATIERJEEANDB.SUDERSHANREDDY,JJ.J B

.. <
Central Excise Act, 1944:

'CRC 2-26' -Exemption under Notification-Entitlement of-Held:
Product 'CRC 2-26' is b(ended lubricating oil, th.us assessee entitled to C
exemption under the Notification-Notification No. 120184-CE dated
11.5.1984.

'CRC Acryform'-Exemption under Notification-Entitlement of-Held:
'CRC Acryform' entitled to exemption under the Notification-Product did D
not carry on it brand name/trade name of a person not entitled to the benefit
of Notification-Notification No. 175186-CE dated 1.3.1986.

S. l lA(J) proviso-Extended period of limitation-Invocation of-
Assessee manufacturing product 'CRC 2-26' and 'CRC Acryform'-Demand of
duty invoking extended period of limitation-Sustainability of -Held: There E
was no willful misstatement or suppression of facts by assessee with intent
to evade duty with regard to the products or about the relationship between
assessee and the company who are bulk buyer of product manufactured by
assessee-They are not related persons-Thus, extended period of limitation
not available to the Department for initiating the recovery proceedings-
Penalty cannot be levied F
Respondent-manufacturer of products 'CRC 2-26' and 'CRC Acryform',
claimed exemption under Notification No. 120/84-CE dated 11.5.1984 for the
product 'CRC 2-26' and SSI exemption under Notification No. 175/86-CE
dated 1.3.1986 for the product 'CRC Acryform'. The Department issued show
cause notice to the respondent calling upon as to why excise duty should not G
be demanded. The Commissioner held that the respondent-assessee was not
---i. entitled to exemption of duty under the Notifications for its product Respondent
filed an appeal. Tribunal held in favour of the respondent-assessee. Hence the
present appeal.
813 H
814 SUPREME COURT REPORTS [2007] 9 S.C.R.

A The question which arose for consideration in these appeals were:

(1) Whether the product 'CRC 2-26' is a blended lubricating oil and
thus, entitled to exemption under Notification No. 120184-CE dated 11.5.1984?

(2) Whether the respondent is entitled to the benefit of Notification No.
B 175/86-CE dated 1.3.1986 in respect of the product 'CRC Acryform'?

(3) Whether there was any willful misstatement or suppression of facts
with intent to evade duty with regard to the products 'CRC 2-26' and 'CRC
Acryform' or about the relationship between the respondent and BBL-bulk
buyer of product manufactured by assessee so as to enable the Department to
C invoke the proviso to se_ction llA(l) of the Central Excise Act, 1944 in sho~
cause notice and whether the demand raised in the said show cause notice is
substantially time-barred?

(4) Whether the Department could impose any penalty?

D (5) Whether the respondent was a fa~ade or dummy of BBL and/or
whether the respondent and BBL are related persons within the meaning of
Section 4 (a) and 4 (3) (b) of the Act?

Dismissing the appeals, the Court

E HELD: 1.1. The HSN explanatory notes specifically declares that oils
classified under the head remain classifiable if various substances have been
added to render them suitable for particular uses, provided the product
contains by weight 70% or more of petroleum oil or oils obtained from ·
bituminous minerals as the base and that they are not covered by a clear
F specific heading. There is no dispute whatsoever the product 'CRC 2-26' to
be a preparation containing 70% or more of mineral oil apart from 20%
petroleum oil and 3% rust preventives. The product is predominantly a blended
lubricating oil. Negligible percentage of rust preventives does not make the
product to be a rust preventive one. The plea of the Department that the product
is not a lubricating oil is untenable. There is no material or evidence in support
G of the said plea. The findings recorded by the Tribunal based on material and
evidence available on record does not suffer from any error requiring
interference in exercise of appellate jurisdiction. (Para 15) (822-E-H]

1.2. The test report on 'CRC 2-26' carried out by Professor of IIT
categorically stated that 'CRC 2-26' is a blended lubricant and that the
H
C.C.E.v.DAMNETCHEMI.PVT.LID.ETC. 815
lubricating oil used in the formulation conforms with the requirements of A
the Bureau of Indian Standards requirements. The Department did not
controvert the expert opinion given by the Professor. The Department itself
drew samples on the said products on more than one occasion. The Deputy
Chief Chemist gave the test reports and communicated on different occasion
that the sample which forms of a liquid is composed of mineral oil and small
amount of additives; that the sample is composed of mineral oils and additives, B
the percentage of mineral oil is more than 70%; and that it is a product
primarily used as lubricant though it has anticorrosive properties also. The
test reports given by the Chemical Examiner are binding upon the Department
in the absence of any other acceptable evidence produced by it in rebuttal. In
the instant case, the Department has neither produced any evidence to rebut C
the reports of the Chemical Examiner nor impeached the findings of the test
reports. (Paras 13 and 14) [821-G-H; 822-A-C)

2.1. There is no dispute that the respondent-assessee has been using
the trademark 'CRC Acryform' as its own ever since 1987. 'CRC Acryform'
bears the mark 'CRC Acryform' which is registered and shown in the D
trademark certificate. It is true the registration of the trademark on
14.10.1992 after the commencement of lis between the parties by itself may
not be binding on the Department but its evidentiary value cannot be altogether
ignored. CRC Chemicals Europe had given an affidavit and a certificate
specifically stating that they do not manufacture and have not manufactured E
or sold any product under the name and style "Acryform" or "CRC
Acryform" either in India or abroad and they have not claimed any title, right.
or ownership in the aforesaid names. This affidavit has been ignored
altogether by the Commissioner on the ground that it was procured by the
respondent-assessee and it was a false document. There is no evidence made
available by the Department that the same trade name or brand name is used F
by some other company apart from the respondent-assessee. There is also no
evidence available on record indicating any connection between the 'CRC
Acryform' and CRC Chemicals Europe. In the absence of any specific
statement in the show cause notice to this effect burden in this regard cannot
be cast on the respondent-assessee. Admittedly the use of the logo was G
discontinued from 1990 and the same was informed to the Department.
(Para 16) (823-B-FJ

2.2. The Commissioner mis-interpreted the clause in the agreement
relating to the product 'CRC 2-26' and made it applicable to 'CRC Acryform'.
The licence agreement dated 30.9.1986 is nothing but extension to the license H
816 SUPREME COURT REPORTS [2007] 9 S.C.R

A agreement dated 1.10.1983 for 'CRC 2-26' of course in addition permitting
the manufacturer of 'CRC Acryform' to label it as such. It is nowhere
· mentioned in the original license agreement and in.the subsequent agreement
dated 30.9.1986that 'CRC Acryform' is atrademark or brand name ofCRC
Chemicals Europe. The Tribunal upon appreciation of the evidence available
on record came.to the correct conclusion that respondent-assessee continues
B to be a small- scale .industry and is entitled to the benefit of Notification No.
. 175/86 in respect of'CRC Acryform'. (Para 16] [823-H; 824-A-B)

3.1. IMs clear.from the material available on record that the Excise
Authorities had inspected the manufacture process, collected the necessary
C information and details from the respondent-assessee and. even collected the
samples and sent to chemical analysis. The Authorities were aware of the
tests and analysis reports of the products manufactured by the respondent-
assessee. The relevant facts were very much within the knowledge of the
Department Authorities. The Department did not make any:attemptto lead
any-evidence that there was any willful misstatement or suppression of facts
D with intent to evade.payment of duty. (Para 19) (825-G-H)

3.2. In order to invoke the proviso to Section llA(l) a mere
misstatement could not be enough. The requirement in 'law is that such
misstatement or suppression of facts must be willful.,ln the circumstances,
it cannot be held that there.has been conscious or deliberate withholding of
E information by the assessee. There has been no willful misstatement much
less any deliberate.and willful suppression of facts. Tribunal did not commit
any error in holding that the extended period of limitation 'Wascnot available
to the Department for initiating the recovery proceedings,under Section 1lA
(1) of the Act. (Paras 18 and 20] (825-D; 826-A]
F Anand Nishikawa Co. Ltd. v. CCE, (2005) 188 ELT 149 (SC), referred
to.

3.3. The copies of the labels on the product which were furnished to the
Department at the time of filing declarations and classification lists contain
G information that 'CRC Acryform' was manufactured under the license ofCRC
Chemicals Europe. The Department had even taken samples of 'CRC-2-26'
which had contained labels of the aforesaid product. Non~mentioning of the
license agreement in the classification lists does not lead to the conclusion
that there has been willful suppression of facts with intent to evade duty.
Therefore, the demand in respect of 'CRC Acryform' is totally time barred.
H (Paras 21 and 23) (826-B, C, F)
C.C.E. v. DAMNETCHEMI.PVT.LTD. ETC. 817
O.K Play (India) Ltd. v. Commissioner of Central Excise, Delhi-III, A
Gurgaon, (2005) 188 EL T 300 (SC) and Commissioner of Central Excise,
Jamshedpur v. Dabur India Ltd., (2005) 182 ELT 308 SC, relied on.

4. There has been no suppression of facts by the respondent-assessee
and had not evaded payment of duty thus, the imposition of penalty does not
arise. The duty demanded by invoking the extended period of limitation itself B
is untenable and unsustainable. [Para 24) (826-G-H)

5.1. The BBL entered into a lease agreement with the respondent-
company under the Board Resolution of the company. Mere fact that both the
registered offices are situated in the same premises and the manufacturing
unit of the respondent-company is.situated in the industrial.gala owned by C
the BBL would not make both the companies related to each other. There is
no mutuality of interest between both the companies. BBL does not hold any
shares in respondent-company nor the respondent-company owns any shares
in BBL. (Paras 26 and 27) (827-E-G)
D
5.2. There is no evidence on record in support of the allegation that the
transactions between the respondent-company and BBL were not on a
principle to principal basis. The Commissioner found that the transaction .
between both the companies was not a simple relationship between
manufacturer and seller, because respondent-company manufactured the
product but did not mention its name on the product or carton, but mentioned E
that the product was marketed by BBL and put the logo of BBL thereon and
that BBL did not pay any consideration to the respondent-company in that
regard. This is totally contradictory to the evidence available on record as
held by the Tribunal. The name of the manufacturer is also mentioned on the
product. [Para 28) [828-B-C)
F
5.3. There is no evidence to arrive at any conclusion that there was a
hidden flow back of money between both the companies or respondent-assessee
received something further from BBL other than the price charged The
respondent did not take any loan or advances from BBL. The appellant did
not produce any evidence to show that BBL has an interest in the respondent- G
company's business. BBL obviously is a distributor and not a relative within
the meaning of Section 4 (a) and 4 (3) (b) of the Act Tribunal found that BBL
was a bulk buyer of the product manufactured by the respondent-assessee
and there is nothing wrong in giving 40% discount. It was a normal trade
practice. In such view of the matter, it cannot be said that the respondent-
H
818 SUPREME COURT REPORTS (2007] 9 S.C.R.

A assessee and BBL were related persons. The finding arrived at in this regard ,.Joi
by the Tribunal is correct No interference is called for.
(Paras 28, 29, 30 and 32) (828-C, D, F; 829-B; 830-B)

Metal Box India Ltd. v. Collector of Central Excise, Madras, "(1995) 75
ELT 449 (SC) and Union ofIndia v. Atic Industries, (1984) 17 ELT 323 SC,
B referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3821-3823 of
2005. '?
From the Judgment and Order No. A. 1466-1468/WZB/04/C-III dated
c 22.12.2004 of the Customs, Excise and Services Tax Appellate Tribunal, West
Regional Bench Mumbai in Appeal Nos. E/304/2004, E/314/2004 and E/315/
2004.

Vikas Singh, ASG. Nagendra Rai, Navin Prakash and B. Krishna Prasad
for the Appellant.
D
D.B. Shroff, Faranaaz Karbhari, Ajay Aggarwal, Mallika Joshi and Rajan >--
Narain for the Respondent.

The Judgment of the Court was· delivered by
E
B. SUDERSHAN REDDY, J. I. These appeals preferred under Section
35L(b) of the Central Excise Act, 1944 (hereinafter referred to as 'the Act') are
directed against a common order dated 22.12.2004 passed by the Customs,
Excise and Service Tax Appellate Tribunal (hereinafter referred to as 'CESTAT')
West Regional Bench, Mumbai by which Appeal Nos. E/304/2004, E/314/2004
F and E/31512004 filed by the respondent-assessee were allowed.

2. The facts briefly stated are as follows:

3. The respondents - Mis. Danmet Chemicals Pvt. Ltd. (here.inafter
referred to as 'DCPL') were manufacturing the products 'CRC 2-26 Aerosol'
G and 'CRC Acryform Aerosol' since 1983. They were claiming exemption under
Notification No. 120/84-CE dated 11.5.1984 for the product 'CRC 2-26' and SSI
exemption under Notification No. 175/86-CE dated 1.3.1986 for the product ,}-

'CRC Acryform'. In their declarations they claimed the classification of the
products 'CRC 2-26' under Chapter 2710.99 and 'CRC Acryform' under Chapter
H 3203.40.
C.C.E.v.DAMNEfCHEMI.PVT.LID.ETC.[B.SUDERSHANREDDY,J.] 819

4. On the basis of the material gathered during the routine transit checks A
>--- and other information the Department issued show cause notice dated
12.2.1993 to the respondent-assessee calling upon it to show cause as to why
Central Excise duty of Rs. 56,69,872.80p should not be demanded and recovered
for the period 26.2.1988 to 24. l 0.1992. In the said show cause notice mainly
4 issues were raised, namely:
B
(i) That the product 'CRC 2-26' was not a blended lubricating oil
and was, therefore, not entitled to the benefit of Notification No.
120/84-CE dated 11.5.1984;

(iI) That the product 'CRC Acryform' was not entitled to the benefit
of Notification No. 175/86-CE dated 1.3.1986 inasmuch as the c
product carried on it the brand name/trademark of a person not
entitled to the benefit of the Notification;
(Iii) That the respondent-assessee was a dummy or a fa~ade of
Bharat Bijlee Ltd. (for short 'BBL') and also that the respondent
and BBL were related persons and that therefore the price at D
which BBL sold the respondent's products should be taken as
-,
the assessable value;
(iv) That the respondent-assessee had suppressed the facts with
intent to evade duty and therefore the proviso to Section 1 lA
(1) of the Act had been invoked.
E
5. The Department issued 12 six-monthly show cause notices between
27.10.1997 to 3.4.2003 for the period April, 1997 to 31.10.2002, demanding an
aggregate amount of Rs. 22,55,444/-

6. The matter was initially adjudicated by the Commissioner
F
(Adjudication) vide order dated 31.8.1998 which was challenged by the
respondent-assessee in appeal and the Tribunal having set aside the order
of the Commissioner remitted the case to the Commissioner for de novo
adjudication. Accordingly, the Commissioner adjudicated all the show cause
notices vide his order dated 31.10.2003 whereby and whereunder it was held G
that the respondent-assessee is not entitled to exemption of duty under
Notification No. 120/84-CE for the product 'CRC 2-26' and exemption under
Notification No. 175/86-CE in ca5e of product 'CRC Acryform'.

7. Aggrieved by the said decision the respondent-assessee filed an H
(
\

820 SUPREME COURTREPORTS [2007] 9 S.C.R.

A appeal against the aforesaid order dated 31.10.2003 passed by the
Commissioner, Central Excise, Mumbai-IV. The CESTAT decided all the issues
that had arisen for its consideration and accordingly allowed the appeal
preferred by the respondent-assessee. We shall refer to those issues
adjudicated by the CESTAT in detail appropriately. Being aggrieved by the
B decision of the Tribunal, Commissioner of Central Excise, Mumbai-IV preferred
these appeals.

8. We have heard Shri Vikas Singh, learned Additional Solicitor General
for the appellant and Shri D. B. Shroff, learned Senior Counsel for the
respondent-assessee.
c 9. Elaborate submissions were made by both ttie counsel. We have
perused the orders passed by the Commissioner as well as the Tribunal. We
have also gone through the material available on record.

IO. The learned Additional Solicitor General mainly contended that the
D product 'CRC 2-26' manufactured by the respondent-assessee cannot be
characterized as lubricating oil as it was predominantly anticorrosive in nature
and was used for air conditioners, panel boards and other electrical and
electronic gadgets primarily to prevent corrosion and for improving electrical
properties. It was also submitted that the respondent-assessee was not entitled
E to SSI exemption for 'CRC Acryform' since the respondent-assessee
manufactured and cleared goods in the brand name of M/s. BBL and also the
logo of M/s. CRC Chemicals Europe. Further submission was that DCPL and
BBL are related persons and relation led to under valuation of the goods. The
respondent-assessee is guilty of suppression of facts warranting invocation
F of the extended period .

.11. ·shri D.R Shroff, learned senior counsel for the respondent-assessee
supported the findings and conclusion recorded by the Tribunal and reiterated
the case of the respondent-assessee that he is entitled for the benefit of both
the Notifications referred to hereinabove.
G - .
12. Broadly, the following issues arise for our consider~tion in these
appeals namely:

1. Whether the product 'CRC 2-26' is a blended lubricating oil and
thus is entitled to exemption under Notification No. 120/84?
H 2. Whether the respondent i3 entitled to the benefit of Notification
C.C.E. v. DAMNETCHEMI.PVT.LTD.ETC. [B. SUDERSHANREDDY,J.] 821

No. 175/86 in respect of the product 'CRC Acryfonn'? A
3. Whether there was any willful misstatement or suppression of
facts with intent to evade duty with regard to the products 'CRC
2-26' and 'CRC Acryfonn' or about the relationship between the
respondent and BBL so as to enable the Department to invoke
the proviso to Section 11 A( I) in show cause notice dated B
12.2.1993 and whether the demand raised in the said show cause
notice is substantially time-barred?

4. Whether the Department can impose any penalty?

5. Whether the respondent was a fa~ade or dummy of BBL and/ . C
or whether the respondent and BBL are related persons within
the meaning of Section 4 (a) and 4 (3) (b) of the Act?

ISSUE NO.I: Whether the product 'CRC 2-26' is a blended
lubricating oil and thus is entitled to exemption
under Notification No. 120/84? D
13. The material available on record suggests that 'CRC 2-26' mainly
contains petroleum base oil 25%, mineral oil 72% and rust preventives 3%.
It is the case of the respondent-assessee that these ingredients are blended
together with a stin-er until thoroughly mixed. This blended lubricating oil is
sold and used as a penetrating lubricating oil by many industries including E
government owned for the purposes of lubricating the ball and roller bearings,
circuit breakers, connectors, switches, push buttons etc. The petroleum base
oil undisputedly is also mineral oil has lubricating properties and is the most
important ingredient in 'CRC 2-26'. Its main function is lubrication. It is explained
that when it is sprayed on moving parts, the product fonns a thin film on the F
surface and this film lubricates the parts. The film fonning property is called
lubricity. As corrosion and rust increases friction amongst moving surfaces,
a small percentage of proprietary rust preventives is also added so as to keep
the surface rust free as far as possible for effective lubrication by the film.
The certificates issued by various industrial concerns including the government
industries are part of record. Their genuineness is not put in issue. The test G
report on 'CRC 2-26' carried out by Prof. M.C. Dwivedi, Professor of IIT
categorically states that 'CRC 2-26' is a blended lubricant and that the
lubricating oil used in the fonnulation conforms with the requirements of the
Bureau of Indian Standards requirements. The Department did not controvert
the expert opinion given by the Professor. H
822 SUPREME COURT REPORTS [2007] 9 S.C.R

A 14. Be that as it may, the Department itself drew samples on the said
products on more than one occasion i.e. in 1984, 1990 and 1993. The Deputy
Chief Chemist has given the test reports and communicated the same vide
letter dated 3.5.1985 stating that the sample which forms of a liquid is composed
of mineral oil and small amount of additives; 1990 analysis has been
B communicated vide letter dated 15.4.1991 stating that the sample is composed
of mineral oils and additives, the percentage of mineral oil is more than 70%
and the result of 1993 analysis was communicated vide letter dated l 0.1.1994
specifically stating that it is a product primarily used as lubricant though it
has anticorrosive properties also. It is well settled and needs no restatement
at our hands that the test reports given by the Chemical Examiner are binding
C upon the Department in the absence of any other acceptable evidence produced
by it in rebuttai. In the present case, the Department has neither produced
any evidence to rebut the reports of the Chemical Exam.iner nor impeached the
findings of the test reports. ·

15. Much reliance was sought to be placed by the Department on the
D label affixed on the container which says that " 'CRC 2-26' is a precision
blended multi purpose lubricating oil that prevents malfunction due to the
deteriorating effects of moisture and corrosion, extends operational life, claims, >-
protects metal, reduces downtime and maintenance." Under the heading
Directions, it is mentioned that 'CRC 2-26' is to be used to clean, lub~i;ate,
E protect precision mechanism. We fail to appreciate as to how this information·
contained in the label supports the plea of the Department. It is true that the
product in some measures contains anti-corrosive properties. The HSN
explanatory notes specifically declares that oils classified under the head
remain classifiable if various substances have been added to render them
suitable for particular uses, provided the product contains by weight 70% or
F more of petroleum oil or oils obtained from bituminous minerals as the base
and that they are not covered by a clear specific heading. There is no dispute
whatsoever the product in question to be a preparation containing 70% or
more of mineral oil apart from 20% petroleum oil. The product is predominantly
a blended lubricating oil. Negligible percentage of rust preventives does not
G mlke the product in question to be a rust preventive one. The plea of the
Department that the product is not a lubricating oil is untenable. There is no
material or evidence in support of the said plea. The findings recorded by the
Tribunal based on material and evidence available on record in our considered
opinion do not suffer from any error requiring our interference in exercise of
our appellate jurisdiction.
H
C.C.E. v. DAMNEfCHEMI.PVT.LTD.ETClB.SUDERSHANREDDY,J.] 823

ISSUE N0.2: Whether the respondent is entitled to the benefit A
of Notification No. 175/86 in respect of the product
'CRC Acryfonn' ?

16. The contention of the Department in this regard mainly was that
labels 'CRC Acryform' carried the logos "B" of BBL and 'CRC' ofCRC Chemicals
Europe, who admittedly are not entitled to the benefit of notification. It was B
submitted, in the circumstances 'CRC Acryfonn' is not entitled to the benefit
of Notification No. 175/86. There is no dispute that the respondent-assessee
has been using the trademark 'CRC Acryform' as its own ever since 1987. It
had applied to the Trademarks Registrar for registering the trademark as early
as in the year 1992. The Trademark Registrar has registered 'CRC Acryform'
as respondent's trademark.on 14.10.1992 with retrospective effect from the C
date of use in the year 1987. It is true the registration of the trademark on
14.10.1992 after the commen~ement oflis between the parties by itself may not
be binding on the Departmen\but its evidentiary value cannot be altogether
ignored. So far as the CRC Cliemicals Europe is concerned it had given an
affidavit and a certificate specifically stating that they do not manufacture and D
have not manufactured or sold any product under the name and style
"Aciyfonn" or "CRC Acryform" either in India or abroad and they have not
claimed any title, right or ownership in the aforesaid names. This affidavit has
been ignored altogether by the Commissioner on the ground that it was
procured by the respondent-assessee and it was a false document. There is
no evidence made available by the Department that the same trade name or E
brand name is used by some other company apart from the respondent-
assessee. There is also no evidence available on record indicating any
connection between the 'CRC Acryform' and CRC Chemicals Europe. In the
absence of any specific statement in the show cause notice to this effect
burden in this regard cannot be cast on the respondent-assessee. Admittedly F
the use of the logo was discontinued from 1990 and the same was infonned
to the Department. So far as the 'CRC Acryfonn' is concerned it bears the mark
'CRC Acryform' which is registered and shown in the trademark certificate. We
are also not impressed by the submission made on behalf of the Department
that 'CRC Chemicals Europe' could not have pennitted the manufacture of the
product and supply the concentrate without having title to the trademark for G
the simple reason that the licence agreement referred to and relied upon by
the Department merely pennits the respondent-assessee to manufacture 'CRC
Acryfonn' from the concentrate supplied by 'CRC Chemicals Europe'. The
Commissioner mis-interpreted the clause in the agreement relating to the
product 'CRC 2-26' and made it applicable to 'CRC Acryform'. The licence H
824 SUPREME COURT REPORTS (2007] 9 S.C.R.

A agreement dated 30.9.1986 is nothing but extension to the license agreement
dated l. l 0.1983 for 'CRC 2-26' of course in addition permitting the manufacturer
of 'CRC Acryform' to label it as such. It is nowhere mentioned in the original
license agreement and in the subsequent agreement dated 30.9.1986 that 'CRC
Acryform' is a trademark or brand name of CRC Chemicals Europe. The
Tribunal upon appreciation of the evidence available on record came to the
B correct conclusion that respondent-assessee continues to be a small- scale
industry and entitles to the benefit of Notification No. 175/86 in respect of
'CRC Acryform'. We find no error in the conclusion so arrived at by the
Tribunal. -

ISSUE No. 3 : Whether there was any willful misstatement or
c suppression of facts with intent to evade duty with
regard to the products CRC 2-26 and CRC Acryform or
about the relationship between the respondent and BBL
so as to enable the Department to invoke the proviso
to Section l lA(l) of the Act, in the show cause notice
D dated 12.2.1993 and whether the demand raised in the
said show cause notice is substantially time-barred?

17. The classification lists filed by the assessee from time to time
categorically mention in the column relating to the process of manufacture as
"blending of various anti-corrosive chemicals and solvents with mineral
E turpentine". It is mentioned that the product is a blended lubricating oil
manufactured by blending mineral turpentine oil with anti-corrosive in a base
of corrosive oil. The stand taken by the assessee is consistent as is evident
from the letter dated 20.3.1985 addressed to the Superintendent of Central
Excise that they were the manufacturers of 'CRC 2-26' which was a blended
F lubricant comprising of various anticorrosive oils and mineral turpentine oil
and that the same was fully exempted under Notification No. 120/84. The
required information was supplied to the Superintendent of Central Excise
when he visited the factory of the respondent-assessee. Samples were again
drawn in 1990 and 1993 to determine whether the product was not a lubricating
oil. We have already referred to the analysis of the Deputy Chief Chemist who
G opined that the samples contained mineral oil which was !llOre than 70% and
additives. The chemical test reports so obtained by the Department were
never put in issue. No dispute has been raised in this regard. The declarations
furnished by the respondent-assessee were totally inconformity with what
>-
has been stated in the test reports of the Deputy Chief Chemist. It is true that
the exemption under Notification No. 120/84 was applicable to lubricating oil
H
C.C.E.v. DAMNETCHEMl.PVT.LTD.ETC.[B.SUDERSHANREDDY,J.] 825

and greases which had a primary and permanent function of lubrication and A
not for the product having a primary function of anti-corrosive protection. But
the evidence available on record reveals that the quantum of rust preventives
in 'CRC 2-26' is only 3% whereas mineral oil is 70%. The evidence of the
people in the trade, testimonials given by them including various government
bodies reveal that the product 'CRC 2-26' is primarily used as a lubricating oil. B
The test reports of the Deputy Chief Chemist coupled with the evidence
referred to hereinabove lead to one and only one irresistible conclusion that
the product was primarily used for the lubricating purposes. No evidence has
been produced by the Department to rebut the voluminous evidence made
available by the respondent-assessee.

18. In the circumstances, we find it difficult to hold that there has been
c
conscious or deliberate withholding of information by the assessee. There
has been no willful misstatement much less any deliberate and willful
suppression of facts. It is settled law that in order to invoke the proviso to
Section I IA(l) a mere misstatement could not be enough. The requirement
in law is that such misstatement or suppression of facts must be willful. We D
do not propose to burden this judgment with various authoritative
pronouncements except to refer the judgment of this Court in Anand Nishikawa
Co. Ltd. v. CCE, (2005) 188 ELT 149 SC wherein this Court held:

"We find that "suppression of facts" can have only one meaning that
the correct information was not disclosed deliberately to evade E
payment of duty, when facts were known to both the parties, the
omission by one to do what he might have done not that he must
have done would not render it suppression. It is settled law that mere
failure to declare does not amount to willful suppression. There must
be some positive act from the side of the assessee to find willful p
suppression. (emphasis supplied)

19. It is clear from the material available on record that the Excise
Authorities had inspected the manufacture process, collected the necessary
information and details from the respondent-assessee and even collected the
samples and sent to chemical analysis. The Authorities were aware of the G
tests and analysis reports of the products manufactured by the respondent-
assessee. The relevant facts were very much within the knowledge of the
Department Authorities. The Department did not make any attempt to lead
any evidence that there was any willful misstatement or suppression of facts
with intent to evade payment of duty.
H
826 SUPREME COURT REPORTS [2007] 9 S.C.R

A 20. For the reasons aforesaid, we are of the view that the Tribunal did
not commit any error in holding that the extended period of limitation was not
available to the Department for initiating the recovery proceedings under
Section 11 A (1) of the Act.

21. So far as 'CRC Acryform' is concerned, the allegation was that the
B respondent-assessee did not mention about the license agreement in the
classification lists. But the fact remains the copies of the labels on the product
which were furnished to the Department at the time of filing declarations and
classification lists contain information that 'CRC Acryform' was manufactured
under the license of CRC Chemicals Europe. The Department had even taken
C samples of 'CRC 2-26' which had contained labets of the aforesaid product.
This Court in O.K. Play (India) Ltd v. Commissioner of Central Excise,
Delhi-JI/, Gurgaon, (2005) 188 EL T 300 SC while dealing with the effect of
approval of the classification lists observed:

"The classification lists were duly approved by the department from
D time to time. All the facts were known to the department, whose
officers had visited the factory of the assessee on at least 12 occasions.
In the circumstances, we do not find any infirmity in the reasoning
given by the Tribunal in coming to the conclusion that there was no
willful suppression on the part of the assessee enabling the departinent
to invoke the extended period of limitation under the proviso to
E Section llA (l) of the 1944 Act."

22. The same principle is reiterated ii:' Commissioner of Central Excise,
Jamshedpur v. Dabur India Ltd, (2005) 182 EL T 308 SC.

23. On the facts of the case, we hold that non-mentioning of the license
F agreement in the classification lists does not lead to the conclusion that there
has been willful suppression of facts with intent to evade duty. The demand
in respect of 'CRC Acryform' is, therefore, totally time barred.

ISSUE NO. 4: Whether the Department can impose any penalty?

G 24. The only ground for levying the penalty is that the respondent-
assessee had suppressed the facts and had evaded the payment of duty. In
view of our conclusion that there has been no suppression whatsoever, the
question ~f imposition of penalty does not arise. The duty demanded by
invoking the extended period oflimitation itself is untenable and unsustainable
for the aforesaid reasons. In such view of the matter no elaborate discussion
H on this aspect is necessary.
C.C.E. v. DAMNETCHEMI.PVT.LTD.ETC.[B.SUDERSHANREDDY,J.] 827

ISSUE NO. 5 : Whether the respondent was a fa~ade or dummy of A
BBL and/or whether the respondent and BBL are
related persons within the meaning of Section 4 (a)
and 4 (3) (b) of the Act?

25. The Department in the show cause notice dated 12.2.1993 alleged
that: (i) the assessee-respondent is a dummy/facade of BBL; (ii) the assessee- B
respondent and BBL are related persons. The assessee in response to show
cause inter alia contended that it is a wholly independent and separate
company incorporated under the Companies Act, 1956 as early as on 21.5 .1983
having two directors, namely Mr. N.J. Danani and his wife. A manufacturing
unit was registered as a small-scale unit. It has no borrowings or loans from C
BBL or any other manufacturing unit. The ·machineries required for" the
purposes of manufacturing the products are purchased and owned by the
respondent-company. The required raw materials and packing materials for
manufacturing and packing the products were always purchased from its own
resources and BBL in no manner exercises any supervision or control over
the affairs of the respondent-company. D
26. It is no doubt true that the registered office of BBL and the
respondent-company was located in the same premises. The BBL owns the
industrial gala in which respondent's factory exists for which the respondent-
company pays market rent for its operation. The BBL before entering into a E
lease agreement on each occasion obtained a valuation report from an
independent Valuer for the purposes of fixing the quantum of rent. The BBL
entered into a lease agreement with the respondent-company under the Board
Resolution of the company. Mere fact that both the registered offices are
situated in the same premises and the manufacturing unit of the respondent-
company is situated in the industrial gala owned by the BBL would not make F
both the companies are related to each other. There is no mutuality of interest
between both the companies.

27. BBL admittedly does not hold any shares in respondent-company
nor the respondent-company owns any shares in BBL. One of the Directors G
in both the companies appears to be common. The respondent-company was
incorporated in 1983 and at that time Mr. N.J. Danani was only an employee
of BBL and became its Director in June, 1988 and was one out of seven
Directors. It is required to appreciate that the respondent first started
manufacturing 'CRC 2-26' in the year 1984. The manufacture of'CRC Acryform' H
·r
1.

828 SUPREME COURT REPORTS [2007] 9 S.C.R.

A was started after September, 1986 but well before Mr. N.J. Danani became
Director of BBL.

28. There is no evidence on record in support of the allegation that the
transactions between the respondent-company and BBL were not on a principle
to principal basis. The Commissioner found that the transaction between both
B the companies was not a simple relationship between manufacturer and seller,
because respondent-company manufactured the product but did not mention
its name on the product or carton, but mentioned that the product was
marketed by BBL and put the logo of BBL thereon and that BBL did not pay
any consideration to the respondent-company in that regard. This is totally
C contradictory to the evidence available on record as held by the Tribunal. The
name of the manufacturer is also mentioned on the product. There is no
evidence to arrive at any conclusion that there was a hidden flow back of
money between both the companies. The respondent did not take any loan
or advances from BBL. The appellant did not produce any evidence to show
D that BBL has an interest in the respondent-company's business. The appellant
however, placed much reliance upon the finding of the Commissioner which
is as follows:

"The respondent had a list price beyond which BBL could not sell and
the arrangement between the parties was that BBL would be billed at
E 60% of the list price and that the difference in the prices would
recover the cost incurred by BBL for providing security services, and
for expenses incurred by respondent for putting the logo and the
name of BBL as also the cost of printing the leaflets, advertisement
material provided to BBL."
F 29. The Tribunal after elaborate consideration of the matter and upon
appreciation of the evidence found that BBL was a bulk buyer of the product
manufactured by the respondent-assessee and there is nothing wrong in
giving 40% discount. It was a normal trade practice. This Court in Metal Box
India Ltd v. Collector of Central Excise, Madras, (1995) 75 ELT 449 SC held
G that:

"If a special trade discount is given to such a customer who is a buyer
of 90% of goods, it would amount to a normal trade practice. At any .>-

rate it would not be an impem1issible trade practice. In fact such type
of concessions are usually given by manufacturers whose goods are
H lifted by whole-buyers whose availability avoids lot of marketing and
--;
i

C.C.E.v.DAMNETCHEMI.PVT.LTD.ETC.[B.SUDERSHANREDDY,J.] 829

advertising costs for the manufacturer and also ensures a guaranteed A
quantity of sales year after year. In order to keep such a wholesale
monopolistic buyer attached to it, if under such circumstances by way
of business expediency, the manufacturer offers him a special trade
discount, it cannot be said that it is not in accordance with normal
practice of wholesale trade."
B
30. There is no evidence available on record that the respondent-
assessee received something further from BBL other than the price charged.
There is no evidence to suggest that the profit made by the BBL had flown
into the respondent-company. BBL obviously is a distributor and not a relative
within the meaning of Section 4 (a) and 4 (3) (b) of the Act. C
31. This Court in Union of India v. Atic Industries, (1984) 17 ELT 323
SC held that:

"For treating the customer as a related person, the first part of the
definition of'related person' as given in Section 4 (4) (c) requires that D
the person who is sought to be branded as a 'related person' must be
a person who is so associated with the assessee that they have
interest directly or indirectly in the business of each other. Thus, it
is not enough that the assessee has an interest directly or indirectly
in the business of the person alleged to be a related person nor is it E
enough that the person alleged to be a related person has any interest
directly or indirectly in the business of the assessee. It is essential
to attract the applicability of the first part of the definition that the
assessee and the person alleged to be a related person must have
interest direct or indirect in the business of each other. The equality
and degree of interest which each has in the business of the other F
may be different; the interest of one in the business of the other may
be direct while the interest of the latter in the business of the former
may be indirect, but that would not make any difference so long as
each has got some interest direct or indirect in the business of the
other. In cases, where 50% share of the manufacturing company is G
held by7 the customer company, the customer company can be said
to be having interest in the manufacturing company as a shareholder
but for this reason, it cannot be said that the manufacturing company
has any interest direct or indirect, in the business carried on by one
of its shareholders even though the shareholding of such shareholders H
r
830 SUPREME COURT REPORTS [2007] 9 S.C.R.

A may be 50%. In the absence of mutuality of interest in the business
of each other, the customer company holding shares in the
manufacturing company cannot be treated to be a 'related person'."
(Emphasis supplied)

32. In such view of the matter it cannot be said that the rcspondent-
B assessee and BBL were related persons. The finding arrived at in this regard
by the Tribunal is correct. No interference is called for.

33. In view of our findings, it is not necessary to go into the various
alternative submissions made during the course of hearing of these appeals.

c 34. The appeals fail and are accordingly dismissed with no order as to
costs.

N.J. Appeal dismissed.

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