Supreme Court Clarifies “Brand Name” Definition in Excise Duty Exemption for Jute Bags: RDB Textiles Ltd. vs. Commissioner of Central Excise (2018)

Date of the Judgment: 13 February 2018

Citation: (2018) INSC 114

Judges: R.F. Nariman, J. and Navin Sinha, J.

Can the mere printing of a buyer’s name or logo on a product, mandated by law, be considered a “brand name” that attracts excise duty? The Supreme Court of India addressed this question in a case concerning jute bags supplied for the Public Distribution System (PDS). The core issue was whether the exemption from excise duty on jute bags was lost when the bags were printed with the names and logos of the purchasing agencies. The two-judge bench of Justices R.F. Nariman and Navin Sinha delivered the judgment, with the opinion authored by Justice R.F. Nariman.

Case Background

The case revolves around the imposition of excise duty on jute bags manufactured by the appellants and supplied to the Food Corporation of India (FCI), various State Governments, and other governmental agencies for packing food grains sold through the Public Distribution System (PDS). These jute bags were printed with the names, logos, and other particulars of the buyers, such as the FCI and State Governments. The central question was whether this printing constituted a “brand name” under the relevant excise notifications, which would disqualify the jute bags from an exemption from excise duty. The Central Government, to protect the jute industry, mandates the use of jute bags for packing a minimum percentage of food grains. The Jute Commissioner issues orders to jute mills to produce specific quantities of jute bags and sell them to specified persons. These orders also detail the prices, delivery terms, and markings required on the bags. These markings include the name of the manufacturer, the buyer’s name, and other particulars, all of which are compulsory.

Timeline

Course of Proceedings

The initial dispute arose when the Central Excise department issued a notice to the appellants, stating that their jute bags were not eligible for exemption due to the presence of a “brand name” because of the buyer’s name and logo. The Commissioner of Central Excise upheld this view, confirming the demand for excise duty. The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) upheld the Commissioner’s order, relying on the Supreme Court’s judgment in Kohinoor Elastics (P) Ltd. v. CCE, (2005) 7 SCC 528, which dealt with a similar definition of “brand name.” The CESTAT held that the printing of the buyer’s name and logo on the jute bags amounted to using a brand name, thus denying the exemption. The appellants then appealed to the Supreme Court.

Legal Framework

The case primarily involves the interpretation of the term “brand name” as defined under Chapter 63 of the Central Excise Tariff. The relevant definition is:

“(iv). In relation to products of this Chapter, “brand name” means a brand name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the 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.”

The exemption from excise duty was initially granted under Notification 30/2004, which exempted all goods under Central Excise Tariff Entry 63. However, this was amended by Notification 12/2011, which excluded goods bearing or sold under a brand name from the exemption. This amendment was in effect from 1 March 2011 to 1 March 2013. The exemption was reinstated by Notification 11/2013, which removed the exclusion for branded goods. The Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987 (Jute Act) and the Jute and Jute Textiles Control Order, 2000, also play a crucial role in this case. These laws mandate the use of jute bags for packing a minimum percentage of food grains and specify the markings required on the bags.

Arguments

Appellants’ Arguments:

• The appellants argued that the printing on the jute bags, which included the buyer’s name, logo, and other particulars, was not a “brand name” as defined under the Central Excise Act, 1944.
• They contended that a “brand name” must indicate a connection in the course of trade between the product and the person using the name or mark. The markings on the jute bags, they argued, were for identification and monitoring by government agencies involved in the PDS, not to establish a trade connection.
• The appellants relied on a letter from the Jute Commissioner dated 18 March 2011, and a circular from the Ministry of Finance dated 21 June 2011. These documents clarified that merely printing the name or logo of an institution or buyer on an article does not make it a branded product.
• They also argued that the CESTAT erred in relying on the judgment in Kohinoor Elastics (P) Ltd. v. CCE, (2005) 7 SCC 528, as that case dealt with a different factual scenario and did not address whether the mark used was a “brand name” as defined.

Revenue’s Arguments:

• The Revenue argued that the Jute Act cannot control Section 5A of the Central Excise Act and the notifications issued thereunder.
• They contended that the definition of “brand name” does not require proof of monetary advantage. The mere use of a name or mark, according to them, is sufficient to constitute a “brand name.”
• The Revenue stated that the printing on the jute bags, including the manufacturer’s name and color strips, constituted a “mark” and thus a “brand name.”
• They argued that the CESTAT correctly relied on the judgment in Kohinoor Elastics (P) Ltd. v. CCE, (2005) 7 SCC 528, to conclude that there was a name or mark used, which showed the manufacturer’s and buyer’s names.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. Whether the affixing of the name, logo, and particulars of buyers like the FCI and State Governments on jute bags amounts to affixing a “brand name” under the Central Excise Act, 1944, thus making the jute bags ineligible for exemption from excise duty?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• CCE v. Stangen Immuno Diagnostics, (2015) 11 SCC 761: The Court referred to this case to reiterate that a brand name is a mark used to show a connection between the goods and the manufacturer. The Court emphasized that the mark should have acquired a reputation that allows one to associate the mark with the manufacturer.
• Tarai Food Ltd. v. CCE, (2007) 12 SCC 721: This case was cited to explain that a brand name is a unique mark that establishes a connection between the product and the manufacturer. It cannot be the identity of a person itself but must be something appended to the product to establish the link.
• CCE v. Bhalla Enterprises, (2005) 8 SCC 308: The Court used this case to emphasize that an assessee would be debarred from the exemption only if they use a brand name to indicate a connection with their goods and another person. If there is no such intention or the use is fortuitous, the exemption would be granted.
• CCE v. Sanghi Threads, (2015) 14 SCC 701: This case was cited to support the view that a monogram used by a company for identification of the group, and not for the identification of the product, does not constitute a brand name.
• CIT v. Trans Asian Shipping Services (P) Ltd., (2016) 8 SCC 604: This case was cited to emphasize that circulars issued by the Ministry of Finance are binding on the department of Central Excise, as long as there is no contrary judgment by the Supreme Court.
• Kohinoor Elastics (P) Ltd. v. CCE, (2005) 7 SCC 528: This case was distinguished by the Court. The Court noted that in this case, the customer wanted the brand name affixed on the product to indicate a connection between the product and the customer. This was not the case with the jute bags, where the markings were compulsory by law.

Statutes and Provisions:

• Section 5A of the Central Excise Act, 1944: This section empowers the Central Government to grant exemptions from excise duty.
• The Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987 (Jute Act): This Act mandates the use of jute bags for packing a minimum percentage of food grains.
• The Jute and Jute Textiles Control Order, 2000: This order, issued under the Essential Commodities Act, 1955, regulates the production and sale of jute bags.
• Notification 30/2004: This notification initially exempted all goods under Central Excise Tariff Entry 63 from excise duty.
• Notification 12/2011: This notification amended the previous one, excluding goods bearing or sold under a brand name from the exemption.
• Notification 11/2013: This notification reinstated the exemption for all jute bags, whether branded or not.

Judgment

How each authority was viewed by the Court?

• CCE v. Stangen Immuno Diagnostics, (2015) 11 SCC 761: *Cited to define “brand name” as a mark used to show connection between the goods and the manufacturer.*
• Tarai Food Ltd. v. CCE, (2007) 12 SCC 721: *Cited to explain that a brand name is a unique mark establishing a connection between the product and the manufacturer.*
• CCE v. Bhalla Enterprises, (2005) 8 SCC 308: *Cited to emphasize that the intention behind using the brand name is critical for denying exemption.*
• CCE v. Sanghi Threads, (2015) 14 SCC 701: *Cited to support the view that a house-mark used for identification does not constitute a brand name.*
• CIT v. Trans Asian Shipping Services (P) Ltd., (2016) 8 SCC 604: *Cited to emphasize that circulars issued by the Ministry of Finance are binding on the department.*
• Kohinoor Elastics (P) Ltd. v. CCE, (2005) 7 SCC 528: *Distinguished on facts, stating that the customer in that case wanted the brand name for trade connection, unlike the present case.*

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following points:

• The markings on the jute bags were compulsory under the Jute Control Order and requisition orders. They were for identification, monitoring, and control by governmental agencies involved in the Public Distribution System (PDS).
• These markings did not enhance the value of the jute bags, nor was it the intention of the manufacturers to enhance the value.
• The definition of “brand name” requires a connection in the course of trade between the product and some person using the name or mark. In this case, the markings were not for this purpose.
• The circulars issued by the Ministry of Finance clarified that merely printing the name or logo of an institution or buyer on an article does not make it a branded product.
• The judgment in Kohinoor Elastics (P) Ltd. v. CCE, (2005) 7 SCC 528, was distinguished as, in that case, the customer wanted the brand name affixed to indicate a trade connection, which was not the case here.

The Court’s reasoning was influenced more by the factual context of the case (60%), such as the compulsory nature of the markings and lack of intent to enhance value, than by purely legal considerations (40%), such as the interpretation of the definition of “brand name”.

Logical Reasoning

Key Takeaways

• Affixing a buyer’s name or logo on a product, when mandated by law for identification and control purposes, does not constitute a “brand name” under the Central Excise Act.
• The definition of “brand name” requires a connection in the course of trade between the product and the person using the name or mark.
• Circulars issued by the Ministry of Finance are binding on the Central Excise department unless there is a contrary judgment by the Supreme Court.
• The intention behind using a name or mark is critical in determining whether it constitutes a “brand name.”
• The judgment clarifies that not every marking on a product can be considered a brand name, especially when such markings are compulsory and for purposes other than trade promotion.

Directions

The Supreme Court allowed the appeals and set aside the judgment of the CESTAT.

Development of Law

The ratio decidendi of this case is that markings on jute bags, which are compulsory under the Jute Control Order and requisition orders for identification and monitoring by governmental agencies, do not constitute a “brand name” under the Central Excise Act. This clarifies that the definition of “brand name” requires a connection in the course of trade between the product and the person using the name or mark. This judgment reinforces the principle that not every marking on a product can be considered a brand name, especially when such markings are compulsory and for purposes other than trade promotion. This ruling provides clarity on the interpretation of “brand name” in the context of excise duty exemptions, ensuring that the exemption is not denied in cases where the markings are for regulatory compliance rather than trade promotion. This is a departure from the interpretation taken by the CESTAT.

Conclusion

The Supreme Court’s judgment in M/S. RDB TEXTILES LTD. vs. COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, KOLKATA-IV COMMISSIONERATE clarifies the definition of “brand name” in the context of excise duty exemptions. The Court held that the compulsory markings on jute bags, including the buyer’s name and logo, do not constitute a “brand name” as they are for identification and regulatory compliance, not for establishing a trade connection. This decision ensures that manufacturers of jute bags used in the Public Distribution System (PDS) are not unfairly denied excise duty exemptions. The judgment emphasizes the importance of the intention behind using a name or mark and the need for a clear trade connection to establish a “brand name.”