Ruma Pal, J.:— This judgment disposes of the only issue raised in a series of writ petitions. The facts in the writ petitions are, for the purposes of this decision, identical. Each of the writ petitioners is a Small Scale Industry manufacturing and supplying goods to large scale units after putting the brand name of such large scale unit on such goods. For example, the writ petitioner in the first writ petition, manufactures flood light reflectors and flame proof fittings which are supplied by the petitioner to M/s. Bajaj Electricals Ltd. The sale between the petitioner and M/s. Bajaj Electricals Ltd. is on a principal to principal basis. The petitioner produces the goods according to the specifications of M/s. Bajaj Electricals Ltd. This includes putting the brand name of Bajaj Electricals on the goods manufactured by the petitioner.

2. The subject matter of challenge in the writ petitions briefly stated is Notification No. 223/87-C.E., dated 22nd September, 1987 (referred to hereafter as the impugned Notification). By the impugned Notification an earlier Notification No. 175/86-C.E., dated 1st March, 1986 was sought to be amended by denying an exemption of Excise duty granted under the earlier notification, to Small Scale Industries which manufactured specified goods for persons not eligible for the exemption and which also affixed the brand name of such persons on the specified goods. The petitioners have submitted that the Small Scale Industries were normally ancillary to Large Scale Units and exemption of Excise Duty was given to Small Scale Industries with the object of encouraging the setting up of such industries. It is submitted by the petitioners, that the avowed object of the impugned notification was not to allow large industrial houses or Large Scale Units to benefit from the exemption granted to Small Scale Industries. It is submitted that the impugned notification did not achieve the object. It is argued that the putting of the brand name could not be a relevant factor in seeking to restrain Large Scale Units from availing of the benefit of the exemption under the earlier notification because marking of the brand name did not amount to manufacture. Therefore, according to the petitioners when the unmarked goods were supplied to the Large Scale Unit by the Small Scale Industry, the manufacture was already complete and the question of levy or exemption of Excise Duty settled at that point. All that the impugned notification resulted in, was the Large Scale Unit putting on their own brand name subsequently on the goods manufactured by the SSI without being subjected to payment of Excise Duty. It is submitted that the impugned notification discriminated between Small Scale Industrial Units putting on the brand name and Small Scale Units not putting on the brand name on specified goods for supply to large scale units. It is stated that the classification of Small Scale Industries on the basis of the marking or not marking of specified goods or by any other activity which did not amount to manufacture was, for the purposes of levying Excise Duty, arbitrary.

3. The respondents have submitted that the object of the impugned notification was to limit the benefit of the exemption of Excise Duty to Small Scale Industries and to deny the benefit to Large Scale Units which were otherwise liable to pay Excise Duty. It is stated that the Large Scale Units were taking advantage of the exemption granted to Small Scale Industries for avoiding payment of Excise Duty. It is submitted that the differentiation between Small Scale Industries affixing brand names and others was reasonable as the brand name was a valuable asset of the Large Scale Industry and the impugned notification protected the Small Scale Industry from unequal competition with Large Scale Units. Thirdly it is submitted that the Small Scale Industries were not in fact prejudicially affected by the impugned notification and that there was no evidence before this Court to show that the Small Scale Industries who had been affixing brand names to the specified goods for Large Scale Units, had suffered any loss in their business by reason of the impugned notification. Finally it is submitted that whether the object with which the impugned notification was made had been achieved or not, could not be the subject matter of judicial review. The Court could only question whether the notification had any connection with the object sought to be achieved. It is contended that the Court should not sit in appeal or substitute its own wisdom for what was essentially a question of policy.

4. Several decisions have been cited by the parties which will be considered at a subsequent stage of this judgment.

5. Notification No. 175/86-C.E. (referred to as the earlier notification) was issued by the Central Government on 1st March 1986 in exercise of powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 (hereinafter referred to as the said Rules). By this notification exemption was granted in respect of goods specified in the annexure to the notification. There is no dispute that each of the petitioners manufactures the goods specified in the annexure to the earlier notification or the specified goods.

6. The earlier notification provided for the rate of exemption and also provided as follows:

“3. Nothing contained in this notification shall apply if the aggregate value of clearances of all excisable goods for home consumptions,—

(a) by a manufacturer, from one or more factories, or

(b) from any factory, by one or more manufacturers, had exceeded rupees one hundred and fifty lakh in the preceding financial year.

4. The exemption contained in this notification shall be applicable only to a factory which is an undertaking registered with the Director of Industries in any State or the Development Commissioner (Small Scale Industries) as a small scale industry under the provisions of the Industries (Development and Regulations) Act, 1951 (65 of 1951).

5. Notwithstanding the exemption granted by this notification in respect of the specified goods which are subjected to concessional rate of duty (other than those specified goods which are wholly exempted from the duty of excise leviable thereon), under this notification and used as inputs in the manufacture of final products in terms of the provisions of Section AA of Chapter V of the said Rules the credit in respect of such inputs shall be allowed under Rule 57B of the said Rules, at the rate of duty otherwise applicable, but for this notification.

6… …. …. ……

Explanation IV. - For the purposes of this notification, where the specified goods manufactured by a manufacturer, are affixed with a brand name or trade name (registered or not) of another manufacturer or trader, such specified goods shall not, merely by reason of that fact, be deemed to have been manufactured by such other manufacturer or trader.”

7. The position that emerges from the provisions of the earlier notification quoted is that goods which were merely to be used as inputs by Large Scale Units would not be entitled to the exemption. But where the manufacture was completed by the Small Scale Industry, it would, subject to other conditions relating to the total clearance etc., be entitled to the exemption. And for this purpose it was made clear that the putting on of a brand name did not amount to manufacture. In other words, if a Small Scale Industry put on the brand name of any other unit it would still amount to manufacture by the Small Scale Industry and such Small Scale Industry would be entitled to the exemption granted.

8. In this background the impugned notification was issued on 22nd September, 1987 by the Central Government also under sub-rule (1) of Rule 8 of the Rules. The impugned notification amended the earlier notification in the following manner:

“i. after paragraph 6, the following paragraph shall be inserted, namely:

7. The exemption contained in this notification shall not apply to the specified goods where a manufacturer affixed the specified goods with a brand name or trade name (registered or not) of another person who is not eligible for the grant of exemption under this notification:

Provided that nothing contained in this paragraph shall be applicable in respect of the specified goods cleared for home consumption before the 1st day of October, 1987;

ii. after Explanation VII, the following Explanation shall be inserted, namely:

Explanation VIII. - Brand name or trade name shall mean a brand name or trade name, whether registered or not, that is to say a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using “such name or mark with or without any indication of the identity of that person”.”

9. There is an explanatory note to the impugned notification which says that the amendment sought to deny Small Scale Industries exemption in respect of specified goods affixed with the brand name/trade name of a person not eligible for exemption under the earlier notification.

10. Before the merits of the matter are taken up, the respondents submission as to the scope and extent of the court's power under Article 226 vis-a-vis a notification published by the Government, in this case under sub-rule (1) of Rule 8 of Central Excise Rules, 1944, is considered.

11. The submission of the respondent regarding the limit of the Court's jurisdiction rests on a misapprehension as to the nature of the petitioner's challenge. The petitioners have challenged the impugned notification as being unconstitutional — the argument being that the impugned notification unreasonably treated two classes of Small Scale Industries similarly situated in an unequal manner. It is well settled that no legislation or legislative instrument can unreasonably classify for the purposes of legislation and:—

“In order to pass the test of permissible classification, two conditions must be fulfilled, namely (1) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and (2) that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases such as, geographical, or according to objects or occupations and the like.” [Moti Das v. S.P Sahi, AIR 1959 (SC) 942, 947].

12. Both sides have cited a series of decisions illustrative of the applications of the principle. The decisions relied upon by the petitioners are cases where the Courts have found that the notification had not passed the test of reasonableness laid down by the Supreme Court in Moti Das's case (Suhrid Geigy Ltd. v. Union of India, 1980 E.L.T 959 (Guj.) (DB); Extrusion Processes Pvt. Ltd. v. Assistant Collector of Central Excise., 1987 (31) E.L.T 916 (Bom.); Union of India v. Rizzvan International, [1993 (42) ECC 183 (Mad.)].

13. On the other hand, the respondents have cited decisions where the Courts have found the classification to have been reasonably explained in the light of the object for which the notification was issued or statute enacted. (Moti Das v. S.P Sahi, AIR 1959 SC 942; Orient Weaving Mills v. Union of India : AIR 1963 SC 98; British India Corporation Ltd. v. Collector of Central Excise, Allahabad., AIR 1963 SC 104; Indian Organic Chemicals Ltd. v. Union of India, 1980 (6) E.L.T 521 (Del.); Smt. S. Panna Devi v. Government of India, 1991 (52) E.L.T 347; Subhash Photographies v. Union of India, 1993 (66) E.L.T 3 (SC); Maharashtra State Board Secondary and High Secondary Education v. Paritosh Bhupesh Kurmarsheth, (1984) 4 SCC 27 : AIR 1984 SC 1543; Western India Plywood Ltd. v. Union of India., 1993 Tax L.R 2081 (Ker.) (DB).

14. Thus in every case where the legislative instrument seeks to make a distinction between groups of persons, the distinction will have to be justified taking into consideration the object sought to be achieved by the legislation. The object sought to be achieved would be a matter of policy and may not be open to judicial review, but the method by which the object is sought to be achieved can be subjected to judicial scrutiny.

15. In this case the object of issuing the impugned notification has been set out in the affidavit filed on behalf of the respondents. It has been stated by the respondents that it was noticed that the big industrial houses were availing of the benefit of duty exemption granted under the earlier notification “where the goods were sold by Small Scale Manufacturers with the brand name or trade name of the big industrial house affixed thereon”. It is then stated:

“To overcome all such ill devices the Central Government by Notification No. 223/86-C.E. dated 22nd September, 1987 amended the earlier Notification No. 175/86-CE. dated 1st March, 1986.”

… … … ……

The whole object of the exemption notification granted to small scale units is to give them protection against unhealthy and unequal competition by big Industries. The entire object is frustrated if the S.S.I industries unit instead of selling its product in the market on its own name itself become prey of big Industries and big Industrial Houses really eats up the entire benefit without embarking on any manufacturing articles at all.”

16. Paraphrased, the object of the impugned notification appears to be two-fold: (i) to see that the “big industrial houses” did not avoid payment of excise duty, and (ii) to give an advantage to the small scale industries in the market as against “big industrial houses”.

17. As already held the question whether the Central Government can or ought to pursue these objects is not for this Court to determine. But in pursuit of these objects, Small Scale Industries catering to the needs of large scale units have been divided into two groups by the impugned notification: (i) Small Scale Industries not putting the brand name of the large scale unit on the product supplied and (ii) small scale industries putting the brand name of the large scale unit on the goods to be supplied. The first group is exempt from payment of duty and the second group is not. It is to be emphasised that the only distinction between the two groups is that the first group puts the brand name of large scale units whereas the second group does not.

18. All the writ petitioners belong to the second group. It is nobody's case that writ petitioners are otherwise connected with the large scale units to which supplies are made except as sellers and purchasers.

19. The first reason given by the respondents for making the distinction between the two groups of small scale industrial units described above is that by making the distinction large scale units would be defeated in their attempt to evade payment of excise duty.

20. It has not been shown to this Court by the respondents, how, by denying the benefit of the exemption to a Small Scale Industry like the petitioner, the Large Scale Units like Bajaj Electrical have been compelled to pay excise duty.

21. A Large Scale Industry facing the choice of purchasing specified goods from a Small Scale Industry which puts the brand name on at a price inclusive of excise duty and a small scale industry not putting the brand name on, at a price exclusive of excise duty would certainly choose the latter.

22. It would be open to the large scale unit to purchase the specified goods without its brand name, and then subsequently, put on its brand name on the goods so purchased without being subjected to the incidence of excise duty either directly or indirectly. This is because by putting on its brand name the large scale unit would still not be manufacturing the specified goods purchased from the small scale industry.

23. It does not need the citation of any authority to hold that excise duty is payable on manufacture and a process is not manufacture if it does not change the character of the goods manufactured. Putting the brand name on specified goods does not change the goods and cannot amount to manufacture. With respect I adopt the reasoning of the Division Bench of the Bombay High Court in Bush India Limited v. Union of India, 1980 E.L.T 258 that the manufacture was complete even without the brand name being put on the specified goods and that the marketing of the specified goods under the trade name made no difference as they still remain the same article irrespective of the name under which they may be sold. See also Bata India Ltd. v. Assistant Collector of Central Excise, 1978 E.L.T 211; Bapalal & Co. v. Government of India, 1981 E.L.T 581; Carona Sahu & Co. Ltd. v. Superintendent of Central Excise, 1981 E.L.T 730; Union of India v. Cibatul Limited, 1985 (22) E.L.T 302 and the Joint Secretary, Government of India v. Food Specialities Ltd., 1985 (22) E.L.T 324.

24. The putting of the brand name therefore is not a material factor for imposing excise duty. Apart from the judicial decisions on the point, Explanation IV to paragraph 6 of the earlier Notification clearly indicates that the putting of the brand name of the large scale unit would not mean that the small scale industrial unit was not the manufacturer of the goods. Explanation TV has not in fact been amended by the impugned notification. Therefore a mere adding of the brand name is an irrelevant consideration as far as the excise duty is concerned.

25. Therefore having regard to the settled legal position even if a small scale industrial unit like the petitioner, affixed the brand name of the large scale unit, the manufacture would continue to be that of the small scale industry and the incidence of excise duty could be avoided by the Large Scale Unit, by requiring the Small Industrial Unit to produce specified goods without the brand name and then putting on the brand name itself and the Large Scale Unit would, even under the impugned notification, reap the benefit of the exemption under the earlier notification. The distinction between the two classes of small scale industries cannot therefore be justified with reference to the first object of the impugned notification.

26. In my view the distinction between the two classes of small scale industries cannot be justified even with reference to the second objective viz. to protect small scale industries from competition with large scale units.

27. Whether or not the brand name is stipulated to be added to the goods by the large scale unit as part of its specification or service to be rendered by the small scale industry to the large scale unit, would not stop the small scale industry from manufacturing and selling the specified goods in the open market. There would be no question of competition with “big industries” as the big industry far from being a competitor would be the small scale industry's largest creditor and customer. The argument, appears to be that a small scale unit selling its product with its own brand name and a big large scale unit selling goods purchased from the petitioner under its own brand name would result in the small scale industry not being able to sell its own product under its own brand name. This stand is indefensible. The distinction under the impugned notification is not based upon the supply of goods to Large Scale Units and others but on the fixing of the Trade mark brand name alone. So under the impugned notification a large scale unit could purchase the specified goods from a small scale unit without its brand name, and without bearing the burden of Excise duty and subsequently put on its own brand name and sell the product of the small scale industry under its brand name. Thus under the impugned notification the competition would still be there.

28. The fact that the Trademark may be a valuable asset of the Large Scale Unit is neither here nor there as there is no question of utilisation of the brand name of the large scale unit but only the fixing of the same.

29. The respondents submission that the petitioners should not be allowed to challenge the impugned notification because there was no evidence that they had suffered prejudice thereby is also without merit. Firstly, the point was not raised by the respondents in their affidavit and the respondents cannot be allowed to raise a submission which would need a factual answer, only at the time of argument. Secondly, the question is whether the classification was rational having regard to the objectives irrespective of the question of prejudice and finally, the factor of prejudice is inbuilt in the situation where small scale industries like the petitioner would be at a more disadvantageous position than other similar small scale industries manufacturing materially identical goods for the same type of customer.

30. Neither of the objects specified in the affidavit of the respondents has therefore been achieved and it must be held that the distinction created by the impugned notification is arbitrary. Accordingly, the impugned notification cannot stand on the principle enunciated in Moti Das's case and must be quashed.

31. The petitioners have also argued that the impugned notification was arbitrary because no reason at all had been given as to why the 1st day of October, 1987 had been taken as cut off date in the impugned notification. In view of the finding reached by me on the main issue raised, it is not necessary to decide this question. The writ application is therefore allowed and the rule nisi made absolute. The interim order which had been issued restraining the respondents from giving effect to the impugned notification had been granted subject to the petitioner depositing an amount equivalent to 50 per cent of the duty demanded and furnishing a bank guarantee for the balance 50 per cent. The respondents will return the duty paid by the petitioners and the bank guarantee if any duly discharged to the petitioners within a week from service of the operative portion of this judgment on them.

32. In the facts of this case there will be no order as to costs.