High Court Upholds Remission of Excise Duty on Goods Rendered Unmarketable by Trademark Injunction:

M/s Dhariwal Industries Pvt. Ltd. was engaged in manufacturing pan masala, gutkha and tobacco products under the brand name "Manikchand". However, by an ex-parte ad-interim order dated March 16, 2004, the District Judge, Mandleshwar, restrained the assessee from using the Manikchand trademark. Following the injunction, the assessee stopped using the Manikchand brand and commenced manufacturing under the new "RMD" brand. However, substantial stocks of Manikchand-branded goods already recorded in the daily stock account remained unused as they could not be sold or disposed of.

The assessee later sought remission of excise duty amounting to Rs. 2.70 crore under Rule 21 of the Central Excise Rules, 2002, and also sought permission to destroy the goods under the supervision of Central Excise officers. The Commissioner of Central Excise rejected the remission application on June 6, 2017, observing that the assessee had commenced manufacturing under the RMD brand and could have repacked the old goods under the new brand and sold them in the domestic market.

The CESTAT, however, allowed the assessee's appeal on November 27, 2018. Before the High Court, the Department argued that the assessee had failed to establish that the loss or destruction of the goods was beyond its control. It argued that the goods could have been repacked under the RMD brand and sold.

The Gujarat High Court agreed with the findings of the CESTAT. The Court noted that the Department had not disputed either the injunction against use of the Manikchand trademark or the fact that the assessee had stopped using the brand and shifted to RMD.

The Court held that if the goods were actually found to be fit for consumption, the Department could have considered the suggestions regarding repacking and sale. However, in the absence of such factual verification, the Department could not reject remission merely by assuming that the goods could have been repacked.

Accordingly, the High Court held that the substantial questions of law had to be answered against the Department and dismissed the Tax Appeal.