1. Both these appeals raise common of question of law and facts, hence they are taken up together for disposal as per law. The question that arises for consideration in both these appeals is the correct classification i.e., required to be adopted in respect of one of the products manufactured by the appellants namely 'Santoor Toilet Soap'.
There is no dispute in the appeals with regard to the said product having been classified under sub-heading 34.01 of the Central Excise Tariff Act in terms of the declarations filed from time to time by the appellants and the same having been accepted by the department.
However, the department had issued series of show-cause notices and vide show-cause notice dated 1.6.98 invoking the larger period under proviso to Section 11A of the Act working out the differential duty for various periods to show-cause the appellants as to why the said product 'santoor soap' should not be re-classified under Chapter Heading 33.07 of the Central Excise Tariff Act mainly on the following grounds: (a) that inasmuch as the Explanatory Notes under heading 34.01 of the HSN states that the soaps of headings are true soaps and are categorised as (i) hard soaps, (ii) soft soaps, (iii) liquid soaps and generally in the form of bars, cakes, moulded pieces or shapes, flakes, powder, pastes and aqueous solution and covers in particular (i) toilet soaps, (ii) household soaps, (iii) resin, tall oil or napthanate soaps, and (iv) industrial soaps and hence does not cover bathing bars; (b) That as per Circular No. X/19013/1/93/D dated 15.4.93 and Drug Controller (India), Directorate of Health Services, New Delhi, the soap manufacturers should adhere to BIS Standard No. IS 2888:1983and no toilet soap containing less than 60% FM (Total Fatty Matter) should be marketed and further that bathing bars are not covered under the provisions of Drugs & Cosmetics Act/Rules, which implies that the soaps containing 60% TFM and allowed to be marketed are nothing but bathing bars; (c) that bathing bars (soaps containing less than 60% TFM merit classification under Chapter sub-heading 3307.39 of the Central Excise Tariff Act, 1985; (d) and that as per the Quality Control reports of the appellants the said 'Santoor Soaps' contain TFM between 53% to 55%, and hence they are classifiable only under Chapter sub-heading 3307.39 of the Central Excise Tariff Act, 1985 as bathing preparations.
On these grounds, different duty was worked out and demands raised in the said show-cause notices issued to the appellants.
2. The appellants M/s. Panchajanya Enterprises in Appeal No. E/1424/99, is a job worker of the appellants M/s. Wipro Ltd., manufacturing the same item and hence, same proceedings under same grounds for reclassification of the product were initiated. The appellants replied to the show-cause notice in brief as follows: (i) That they had taken licence for manufacturing the item and other soaps from the Karnataka Licensing Authority under Drugs & Cosmetics Act, 1940, upto the period 31.12.1998. The licensing authority had looked into the various process of manufacture, inputs used in the manufacture, fatty acid matter and other material contents and other factors before the grant of licence; (ii) They had filed classification list for the earlier period under Chapter Heading No. 3401 and continued the same practice from 1.3.1997.
(iii) They contended that soaps are again classified under the heading 'soap in any form' Chapter Heading No. 3401.11 covers the goods "soap, other than for toilet use, whether or not containing medicament or disinfectant and Chapter Heading 3401.19 covers the goods "Others". In other words, the soaps which are not covered under Chapter sub-heading Nos. 3401.11, 3401.12, 3401.13 are classifiable under 3401.19. Therefore, they stated that considering this aspect, they have classified the item under Chapter sub-heading 3401.19 with description of goods reading as "Soaps for toilet use, whether or not containing medicament or disinfectant--Santoor bathing bar" and subject to appropriate rate of duty. They stated that this was accepted from 1989 without any proposal for modification, whatsoever.
(iv) They contended that chemically, soaps are the result of hydrolysis of fats and oils with alkalies. This process is called Saponification. The soaps themselves are in the form of Sodium or potassium salts of fatty acids, chiefly oleic, setaric, polmatic etc. Referring to HSN Explanatory Notes, they pointed out that soap is alkaline salt (inorganic or organic formed) from a fatty acid or mixture of fatty acids containing atleast eight carbon atoms. In practice, party of fatty acid may be replaced by rosin acids. The HSN Explanatory Notes further states that this heading covers only soaps soluble in water, that is to say true soap. Soaps form a class of anionic surface active agents, with an alkaline reaction, which lather abundantly to aqueous solutions. They further stated that the soaps of this headings are generally in the following forms: Bars, cakes, moulded pieces or shapes, flakes, powder, paste or aqueous solution.
(v) They contended that they looked into the categories of soaps which are hard soaps, soft soaps and liquid soaps. Moreover, toilet soaps includes the following floating soaps and deodorant soaps, glycerin soaps, shavings soaps, medicated soaps, disinfectant soaps, abrasive soaps and household soaps, rosins tall oils soaps, industrial soaps etc. Therefore, considering the HSN Notes, they contended that Santoor Bathing Bar deserves to be classified under Chapter Heading 3401 only.
(vi) They referred to Chapter Note 1(c) to Chapter 34 which clearly holds that it does not cover the following: Shampoos, dentifrices, having creams and foams or bath preparations, containing soap or other organic surface-active agents.
They contended that Santoor bathing bar is not shampoo or cream or bath preparations containing soap for foam bath, hence they are eliminated from Chapter 34 in terms of the said Note.
(vii) They also referred to Note 2 of Chapter 34 which reads as follows: 2. For the purposes of heading No. 34.01, 'soap' applies only to soap soluble in water. Soap and the other products of heading No. 34.01 may contain added substances (for example, disinfectants, abrasive powders, fillers or medicaments). Products containing abrasive powders remain classified in heading No. 34.01 only if in the form of bars, cakes or moulded pieces or shapes. In other forms, they are to be classified in Heading No. 34.05 as "Scouring powders and similar preparations.
They contended that the soap manufactured by them was soluble in water and as it contains TFM between 53% to 55% sold in moulded shape in bar form duly packed, therefore, it satisfy the above Note.
They contended that they used the word "bathing bar" because in common man's understanding, a soap is also a form of cake or bar used as soap and Santoor soap/bathing bar manufactured by them is known commercially as a soap in the market. They stated that each printed packaging wrapper contains the following details namely, bathing bar, TFM 53%, Made in India, Packed month etc. They further stated that the buyer is aware of all the particulars as contained in the printed packing wrapper on soap.
(viii) They stated that these facts had been declared on the wrapper and the classification list from 1989 was accepted and approved.
They stated that they made known to the department various types of oils used in the manufacture of soap by making necessary declarations. They availed credit of money in respect of various prescribed vegetable oils used in the manufacture of soaps under Rule 57K read with Notification issued thereunder upto 23.7.96 and they were allowed the Modvat credit for the reason that final product was soap falling under Chapter Heading 3401.
(ix) They stated that the percentage of total TFM containable in the soap is not indicated in Section Note or Chapter Note of Central Excise Tariff Act. Further no such percentage is also indicated in HSN Explanatory Notes and no Board's Circular or Commissionerate's Trade Circular was issued indicating to the manufacturer that the classification would be on the basis of TFM only.
(x) They stated that according to the Indian Standard specification for toilet soap vide IS 2888-1983 prescribes the requirements and methods of sampling and test for toilet soap. It had laid down that toilet soap shall be of three grades namely Grade 1, Grade 2 and Grade 3. However, the requirement for toilet soap, the total fatty matter, percent by mass, min is indicated as 76.0%, 70.0 and 60.0 for respective grades. They stated that they have not obtained ISI grade and hence no such grading has been printed on the wrapper.
However, they contended that TFM percentage contents in the soap were printed and no ISI mark was indicated and hence the items was not manufactured in terms of ISI standards and they were not required to obtain any certification for this purpose.
(xi) They further reiterated that the correct classification of the product would be only under sub-heading 3401.19 as the said heading indicates the soap in any form. It is stated that even while applying the statutory rules for interpretation Schedule to Central Excise Tariff Act, 1985, the product would squarely fall within sub-heading 3401 as a soap in any form as essential character given to the product by salt of fatty acids which had preponderant predominance over other ingredients would apply to facts of this case. They further stated that this soap manufactured is soluble in water and being a soap and marketed as such would only be classifiable under sub-heading 3401. They also referred to CBEC Circular No. 31/89-CX.3 dated 12.5.89.
(xii) They contended that the item cannot be classified under 3307.39 as suggested by the department for re-classification for the following reasons: (a) that even in terms of the HSN Explanatory Notes soaps in bar form are covered under Chapter Heading 3401 only.
(b) Referring to the Drug Controller Circular relied upon by the department, they contended that this circular was not backed by any Rules and that this circular is not binding on Central Excise Officers but only State Drug Control Licensing Authorities. They also relied on the CBEC Circular No. 360/76/ 97-CX dated 3.12.97 which relied on the Law Ministry's advice, which overruled the application of Circular under Drugs & Cosmetics Act. The said circular is reproduced herein below: I am directed to refer to the Board's Circular No. 333/49/97-CX dated 10.9.97 wherein guidelines regarding classification of products under the Central Excise Tariff Act, 1985 which are claimed by the manufacturers as Ayurvedic medicines, were issued.
2. A doubt arose on a question of law, as to how and on what basis a distinction between drugs & cosmetics, is to be made when the assessee is holding a valid drug licence under the Drugs & Cosmetics Act, 1940 for a product which is sought to be classified under the Central Excise Tariff.
3. The matter has been examined in Board's office in consultation with the Ministry of Law & Justice.
the objects of the Central Excise Tariff Act, 1985 and Drugs & Cosmetics Act, 1940 are different and the two Acts operate in separate and different fields. The Supreme Court in Shri Baidyanath Ayurved Bhawan Ltd. v. CCE, Nagpur has pointed out that the primary object of the Excise Act is to raise revenue and for that purpose various products are differently classified. The Court held that in interpreting a term under the Excise Act, resort should not be had to its scientific or technical meaning given under the Drugs & Cosmetics Act, 1940. Whether a product can be considered as drugs or cosmetics will have to be determined with reference to the object of the Act under which the issue is to be decided.
They contended that as per the Circular bathing bars are not covered under the provisions of Drugs & Cosmetics Act/Rules. They stated that since this circular itself does not cover bathing bars, reliance on the circular issued by Drug Controller is unreasonable and unwarranted and hence sought for dropping of demands.
(xiii) Stating that soap containing less than 60% of TFM requiring classification as per show-cause notice under sub-heding 3307.39 being not correct, they contended that the said Chapter Heading suggested is not appropriate at all, as the Chapter Heading itself indicated that products would be classified in this heading only if the same are not elsewhere specified or included. As the item is already covered under Chapter 3401, therefore, the item classified under sub-heading 3307.39 is not appropriate.
(xiv) Regarding the term "Others" in Chapter 3307.31 and 3307. 39, they pointed out to page 477 of the HSN Explanatory Notes which defines that 'Bath preparations, such as perfumed bath salts and preparations, for foam baths, whether or not containing soap or other organic surface-active agents [see Note 1(c) to Chapter 34] and preparations for personal hygiene include only the items like foam baths which are in the form of shampoos, dentifrices, shaving creams and foams or bath preparations, containing soap or other organic surface-active agents" which are excluded from Chapter 34 vide Chapter Note 1(c). They contended that santoor bathing bar is not shampoo or cream or bath preparation containing soap for foam bath and hence suggested headings are eliminated and the approved classification should be retained.
(xv) Referring to Chapter Note 2 of Chapter 33, which reads as follows: 2. Heading No. 33.03 to 33.07 apply, inter alia to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents or are held out as having subsidiary curative or prophylactic value.
They contended that the item had not specified about the terms as only those items would fall under Chapter 33 which are suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are used for cosmetics for toilet preparations. They contended that the item is not sold in such a manner and hence in terms of Note 2 to Chapter 33 the product cannot be classified in the Chapter.
(xvi) They referred to Note 3 of Chapter 33 and contended that it does not specify this criteria also as Chapter Note 3 clearly suggests that perfumery or cosmetic or toilet preparations in heading 33.07 apples inter-alia, to the following products: scented sachets; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solutions; wadding, felt and non-wovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations.
(xvii) Referring to the allegation to their quality control reports showing the TFM between 53% and 55% they contended that the said reports were obtained to bring the correct TFM on the package. They stated merely because TFM percentage is indicated in the wrapper, that by itself, would not be justifiable reason for classifying under sub-heading 3307.39 as bathing preparations.
3. In view of the two contesting Chapter Headings only latter heading would be appropriate for classification, wherein the item was specifically fit in with specific description in terms of Rule 3(a) of Rules for interpretation and hence, they contended that they satisfy with the criteria of the sub-heading 3401 being later entry and hence Chapter 33 is ruled out in terms of Rules 3(c) also.
4. They contended that all other manufacturers of soaps also bring TFM percentage and even in their cases percentage less than 60% are continued to be classified under the same Chapter heading of Chapter 34 and there has been no proceedings against them for re-classification.
They further pleaded that demands were time barred as there was no cause for re-classification that there was no suppression of facts with an intent to evade duty and hence larger period was not invocable.
5. The Commissioner after a detailed consideration over-ruled their pleas and held that the item is justifiably classifiable only under Chapter 33 and not under Chapter 34 for the following reasons: (i) that under Chapter 34 soaps of three categories alone would be classified namely (1) hard soaps, (2) soft soaps, and (3) liquid soaps, as the item is 'santoor toilet soap' such toilet soaps are not classifiable under Chapter 34, as the HSN Explanatory Notes of Chapter 34 does not specifically cover bathing bars and as HSN Explanatory Notes has persuasive value, therefore, 'santoor toilet soaps' cannot be seen to have been covered under Chapter sub-heading 34.01. He has taken a ground that the said item is having less than 60% TFM and as the item is admittedly a bathing bar in terms of IS 13498: 1997 of Bureau of Indian's Standards (BIS). The Drugs Controller circular dated 15.4.93 relied upon by the department would apply to the instant case and as the TFM is less than 60%, they cannot be categorised as "soap" for classification under Chapter 34.
(ii) The Commissioner has held that alternative classification suggested by the department under heading 33.07 is a correct classification, as the Chapter 33 does not cover "soap or other products of heading 34.01 like gum, wood or sulphate turpentine or other products of Chapter 38" and also perfumery, cosmetics and toilet preparations containing alcohol or opium, Indian hemp or other narcotics, as the item is not falling under Chapter 34.01 and as it does not come within exclusion items mentioned in Note 1(b) & 1(c) of Chapter 33, they have to be held to be classified under sub-heading 3307.30. He has held that as per Rule 3(a) of Rules for Interpretation clearly applies where the goods impugned are prima-facie classified under two or more headings, the heading which provides more specific description to a heading providing more general description to a heading providing more general description.
Hence he proceeded to hold that the item impugned is required to be classified under Chapter heading 33. No other reasons have been assigned nor there was discussion about headings and various pleas raised by the appellants with regard to the correct classification adopted.
(iii) The Commissioner has held that there is suppression in the fact that as the appellants had not disclosed the total fatty matter in the classification list, hence there was intention to evade duty requiring for invocation of larger period. He has also held that the penalty is imposable and on that grounds he confirmed the duties and penalties.
6. We have heard Sri R. Ravindran, learned advocate and Sri. A.Padmanabhan, Corporate Legal Manager for the appellants and Sri V.T.Gopalan, Learned Additional Solicitor General, assisted by Sri S.Kannan, learned D.R. for the Revenue.
7. Learned advocate relied on all the grounds made out in reply to the show-cause notice and in the appeal memo. It was pleaded that the soaps meant for human bathing as toilet soaps and the toilet soap is associated with total fatty matter content, the higher content the quality of the soap is considered to be better. The fatty matter used in soap comes from vegetable oils. Even as the Government desired reduction in use of vegetable oil for manufacture of soaps, it was very keen that quality of soap should not fall. It was contended that the industry, in association with Bureau of Indian Standards formulated soaps with low TFM content and yet gave the performance of good toilet soap and at the same time, cheaper than the usual toilet soaps. The formulation so conceived resulted in what is known as 'performance based soaps' and to distinguish such performance soap based from the traditional toilet soaps, a new term was coined as 'bathing bar'. It was contended that bathing bars are as much soaps as are the toilet soaps except that the TFM content is lower and its uses are identical.
In the market parlance, both toilet soaps as well as bathing bar sold as soaps and all other manufacturers sell it in the same way, so also with regard to trade understanding large number of evidences have been placed from stockists, chemists etc, and common consumers to show that, the understanding among all of theiv was that bathing bars are soaps.
It was pleaded that none of the evidence placed was looked into including the technical understanding as relied before the Commissioner that bathing bars and soaps are one and the same. He pleaded that the fact of TFM content was disclosed and is well known from 1989 onwards and the department had clear knowledge and hence there was no suppression with an intent to evade duty. He relied on the Board's Circular No. 31/ 89-CX III dated 12.5.89, which clearly clarified that the essential character of the soap is that the product containing sodium salt of fatty acids, therefore, the item is clearly having sodium salt fatty acid and it cannot be considered as any other item than as soap. He referred to various classification lists, Reiterating the points on TFM value percentage he pleaded that the circular issued by the Drugs Controller is only for the purpose of the standards prescribed under Drugs and Cosmetics Act and no toilet soap containing less than 60% TFM should be allowed to be marketed. He stated that the bathing bar is not covered under the provisions of Drugs & Cosmetics Act/Rules. Further, he stated that this has also since been superseded by a afresh Circular No. X/19013/1/93D dated 30tlt July, 1999, therefore, the test adopted by the department, no longer survives, as the Drug Controllers themselves dropped their circular. He contended that the Superintendent of Central Excise vide his Letter No. 1734/97 dated 2.5.97 had clearly indicated that the proceedings were initiated on the observations of the A.G. audit, who in turn had referred to Drug Controllers circular dated 15.4.93 and there was no information with the department about the Drugs Controller letter and therefore, the question of alleged mis-declaration or mis-classification with an intent to evade duty does not arise. He also referred to the representations from Indian Soap & Toiletries Makers' Association letter No. ISTMA/101/252/97 dated 8.10.97 seeking clarification from the department with regard to the classification. The Board has issued Circular No. 360/76/97-CX dated 3.12.97 issuing guidelines for classification and clarifying that the resort should not be had to its scientific or technical meaning given under the Drugs & Cosmetics Act, 1940. He contended that the HSN and circular of the Drugs Controller of India being public documents is deemed to have been known to the department, hence there is no question of suppression for extending the larger period. In this regard, the observations made by the Hon'ble Apex Court in the case of Pushpam Pharmaceuticals Co. v. CCE as reported in 1995 (75) ELT401 (SC) was relied, besides, reference to judgment rendered in the case of Makker & Loomba v. CCE as . He contended that there was no requirement to disclose the TFM percentage to the department. He also relied on the decision rendered in the case of CCE v. Moti Laminates P. Ltd. as reported in 1997 (96) ELT 191, wherein it was held that any omission by the party to disclose such information would not amount to suppression.
He contended for classification of the item impugned under 3401 and the TFM content is not material information to disclose and the classification cannot be adopted on the basis of TFM content. He also relied on the judgment of Jai Mata Plywood Co. Pvt. Ltd. v. CCE as reported in 1999 (32) RLT 63, wherein it has been held that where there is no suppression of material information, then larger period cannot be extended. He further contended that the show-cause notice itself admits that the item to be a soap and therefore, the finding arrived at by the Commissioner that it is not a soap but bathing bar to be classified under Chapter 33 without giving any reasons for such classification is not sustainable. He further contend that the item clearly falls under heading soap for toilet use and the same falls under Chapter 34.
Referring to the New Oxford Dictionary of English at page 1948 which refers to the term 'toiletries" soaps which gives the meaning soaps for washing and to the term "toiletries" which gives the meaning articles used in washing and taking care of one's body such as soap, shampoo and toothpaste, they contended that it is squarely classifiable under Chapter Heading 3401 only. He also referred to technical literature from the book. 'Their Chemistry and Technology' by Sri. J.G. Kane at page 43 to 52 of the paper book under the Chapter 'Classification of Soap Products', which exhaustively lists different types of soaps. In the said Chapter it is clarified that the contents of TFM in 'A heavely silicated soap' at 20%, in 'A low-silicated soap' the TFM at 40-45% and in 'Soap with mixed fillers' the percentage of TFM at 25% are considered as soaps and at page 48 of the said book under the heading "Jelly Soaps" the TFM content is between 45 to 50%. At page 50 of the said book in para 2 of chemical preparations, the TFM content is only 50% and for liquid form the content of TFM only 25% . At page 51 it refers to 'Soft soaps' and in which soap content is about 40%. In the last para it also refers to 'Genuine Soft Soap', where the fatty acid percentage is referred shown as 33 or 39%. Referring to IS 285:1992 which is for specific laundry soap, the TFM of such soaps is 35 or 45%, they stated that Sunlight Laundry Soap mark has got 49.5% TFM and 501 Bar Laundry Soap has the content of 29.87: of TFM and both are marketed as Laundry Soaps. He submitted that liquid soap has been classified under sub-heading 34.01 by the Tribunal in the case of Epsi Industries Chemical v. CCE, to show-cause notice that it is soap which less than 60% of TFM and once it is accepted as soap, it only falls under sub-heading 34.01.
8. Referring to HSN Explanatory Notes at page 518 & 519. He pointed out that the said Note covers the following items:Oswal Agro Mills Ltd. v. CCE contended that the said judgment laid down the ruling that toilet soap is a household soap. The Hon'ble Apex Court held that the term "household" is compendiously used to refer to soaps used for cleaning utensils, laundry used for cleaning soiled cloths etc. and toilet soap is used by family for bathing purposes, and hence held to be 'household soap'. He referred to Commissioner findings who had admitted that there is no denial of the fact that the product in question namely santoor toilet soap' is a preparation meant for use for bathing. If this be the finding, then the judgment of Hon'ble Apex Court would apply to the facts of the case and household soaps are clearly covered under HSN Explanatory Notes under Chapter 34 only. He contended that Drugs Controller Circular dated 15.4.93 cannot be relied as it has no binding force in terms of the Apex Court judgment rendered in the case of Shri Baidyanath Ayurved Bhawan Ltd. as . He referred to IS 13498:1997 which is a specification of bathing bar which holds it to be a soap only.
9. Referring to Chapter sub-heading 33.07, he contended that soap does not come within this heading, as the said heading deals with toilet preparations only. They also submitted that the items referred are pre-shave, shaving or after-shave preparations personal deodorants, bath preparations, depilatories and other perfumery, cosmetics or toilet preparations and the item in question does not satisfy the descriptions thereunder. Referring to the term 'bath preparation', they contended that in bath preparation, the item which is used to soften the water in terms of the extracts on 'bath preparations from Harry's Cosmeticology which discussed number of items like bath cubes, bath oils and Emulsions, Foam baths, foaming Bath Oils, Body or Dusting Powder and they did not consider soap as bath preparations. Bath preparations should contain perfumes in terms of literature relied more particularly extract from the "Formulation and Function of Cosmetics" by Dr. J. Stephan Jellinek, Perfumes, Cosmetics & Soaps by Sri William A. Poucher in Vol. Ill at pages 19-21 of the paper book.
10. Ld. Advocate further contended that in future re-classification on changed view calls for demands to be confirmed prospectively in the absence of any suppression as held by the Hon'ble Apex Court in the case of CCE v. Cotspun India Ltd. as reported in 1999 (113) ELT 352. He contended that there is no cause for imposition of penalty under Section 11 AC as the period covered is from January 1994 to March 1997 and Section 11 AC does not have retrospective effect as held by the Tribunal in the case of Marcanday Prasad Radhakrishna Prasad Pvt. Ltd. as . He further contended that as there was no suppression, no penalty can be imposed in the matter as held in the case of CCE v. Unique Farmaid P. Ltd. as reported in 1999 (33) RLT365.
11. Learned Additional Solicitor General supported the order impugned because bath preparation is not soap as held by the Commissioner. Bath preparation would not come under Chapter 34 and would be rightly classifiable only under Chapter 33 as held by the Commissioner. He pointed out that the party ought to have disclosed the contents of the test results in the classification list and as the same was not disclosed, it has clearly resulted in suppression calling for invocation of the larger period. He submits that the confirmation of demands is totally justified. He submits that inclusion of ISI standards and the circular of Drugs & Controller of Cosmetics for the purpose of classification is justified, as it clearly indicates the type of the item manufactured by the appellants and as they have not satisfied the said test, they are not soaps for classification under Chapter 34. He contended that ISI specification can also be relied for the purpose of classification as held by the Hon'ble Apex Court in the case of Kirloskar Oil Engines Ltd. v. UOI as . He submitted that for the purpose of classification language of the entries should be given factors only where there is ambiguity, the Court should resort the understanding of the product from the technical literature. He submits that one Chapter sub-heading 33.07 refers to bath preparation and when the party was clearly admitted that the item was bath preparation, therefore, it has to be classified only under Chapter 33. He refers to Chapter Note in Chapter 34 which excludes soaps and bath preparations and hence Chapter 34 was clearly excluded. He submitted that once TFM content was less than 60%, it was not toilet soap and bath preparation and as bath preparation it is excluded from Chapter 34. He submitted that the nature of use of the item of soap is not criteria but its understanding by ISI and Drugs & Cosmetics Act, which is material for the purpose of classification. He submitted that there is no absolute definition for soap/bathing preparation, therefore, Drugs & Cosmetics Act specification is justified. He also relied on the judgment of Hon'ble Apex Court in the case of CCE v. Wood Craft Products Ltd. as . He submitted that being bathing bar used for preparation for personal hygiene and the same is having content of TFM more than 60% could not be classified as toilet soap under Chapter 34 and hence the Revenue's contention is required to be accepted. He submitted that wherever specific of other enactments are excluded, then we have to abide by the expressed intention of the statute and one cannot go against it. He submitted that conversely where residuary to other enactments are not excluded, then reliance upon the other enactments could be permissible subject only to this limitation that by relying upon other enactments expressed terms of present enactment is not over-ruled. He submitted that there is no exclusive reliance on Drugs & Cosmetics Act as per the finding arrived at by the Commissioner. As admittedly 'santoor toilet soap' was bathing bar meant for use of bathing, hence it was excluded from Chapter Heading 34 and classified under heading 37.01 more specific. He pleaded that logically HSN Explanatory Notes cannot classify bathing preparations, hence ISI specifications were relied. He submitted that the literature relied upon by the party has no relevance as it pertains to Western Standards.
He submitted that there was failure on the part of the appellants in disclosing of material facts and hence the department can proceed to invoke larger period. He submitted that bathing bar has an origin, which is Indian specific and the shortage of tallow was found in India, therefore, vegetable oils was used. When that was also under shortage, the TFM was reduced. When it is less than 60% of TFM, then it is no longer a toilet soap and a new category was termed as bathing bar by ISI, which are not toilet soaps and are not soaps to be sold as toilet soaps and as they are selling it as bathing bar, it has a different connotation to its origin and hence it has to be excluded under Chapter 34. He submitted that HSN Explanatory Notes has not thrown any light with regard to the type of soap manufactured in India and hence it cannot be of much help to decide this issue, hence the tariff wordings and ISI specifications are rightly relied upon. On a particular query from the Bench to the learned Additional Soilicitor General appearing for the Revenue as to whether the local soaps manufactured in the home and Khadhi Industries which are unbranded with low TFM content could be considered as bath preparation and charged to higher duty, than the toilet soaps with higher TFM content charged to lower duty; he submitted that the Courts cannot go beyond the tariff understanding.
12. In counter, learned advocate again reiterated the appellants stand that Revenue has accepted the item to be a soap and all soaps exclusively fall only under Chapter sub-heading 34.01, in view of the facts that the description in the Tariff Heading refers to "soap in any form" and soap being a finished product becomes a taxable commodity and it cannot be considered as an ingredient for the purpose of bath preparation, which the respondent's counsel had made to appear so in his arguments. He contended that soap cannot be relegated as an input for other finished products, although he agrees with general principle that there is an ambiguilty in the language of the tariff, then harmonious interpretation is required to be made. His contention is that there is absolutely no ambiguity in the language of the tariff. He submitted that upto 22.7.96 , there was no dispute about the item calling only soap under Chapter Heading 3307 and also with regard to the item being granted exemption under Notification No. 12/94 dated 1.3.94. After 23.7.96, Notification No. 12/94 had been merged in the tariff. A simple look at the terms of the Notification and the description of the tariff under Chapter 34 would make it clear that it had been divided into two parts, namely (i)" Soap for toilet use", and (ii) 'Soap for non-toilet use' carrying nil rate of duty. He contended that the use of the item soap for various purposes is a criteria adopted for the purpose of classification. He again referred to definition of the term 'soap' appearing under New Oxford Dictionary at page 1948, where the term has been referred to as for washing purposes.
He contended that Chapter 34.01 is based on the use of the product whether the toilet soap or non-toilet soap. He contended that they were terming as item 'bathing bar' and such a term used on the wrapper for the purpose of its having less than TFM 60% would not ipso facto making it a bathing preparation which is not soap and which falls in a different category as an item as an item under Chapter 33. He contended that even as per ISI standard, bathing preparation is not a soap. He contended that cutting point of TFM 60% was an account of licensing purpose under Drugs & Cosmetics Act, which was amended suitably. He submitted that so far as the Central Excise Act and Tariff Act is concerned, there is no distinction between toilet soaps and non-toilet soaps. He contended that prior to 1993 the heading bifurcated the items between toilet and other than toilet soaps and the shaving soaps went in the category of 'other than toilet soaps'. He contended that TFM criteria has not been laid down in the Tariff Act for the purpose of classification. He contended that tariff heading 3401.11 and 3401.19 is on the basis of its use. He contends that soap 'other that toilet soaps' would fall under sub-heading 3401.11 and "others" would fall under sub-heading 3401.19. He contended that Drugs & Cosmetics Act has now brought within its ambit even bathing bar with effect from 30th July, 1999, while the Schedule of the Drugs Act included as on 27.10.93 under serial No. 19 toilet soap, under serial number 20 liquid toilet soap, under 21 bathing bar toilet soaps, under 22 shaving soap under 23 transparent toilet soap. It had further laid down that it should satisfy the ISI standards. As the item was not a toilet soap, it did not get the ISI specification and as such the specification of Drugs & Cosmetics Act and ISI specification cannot be applied to the item in question, as it was a non-toilet soap having TFM content less than 60%.
It is only called as 'bathing bar' due to TFM being less than 60% for the purpose of Drugs & Cosmetics Act only otherwise it continues to remain as soap used for toilet purposes. He contended that the understanding of Drugs & Cosmetics Act was for a different purposes and the said understanding cannot be incorporated for the purpose of classification. He again reiterated the departmental understanding in the form of Circular No. 360/76/97-CX dated 3.12.97 by which they had indicated clearly that the understanding of Drugs & Cosmetics Act cannot be applied and therefore, he contended that this circular is binding on the Revenue authorities. He submits that the Commissioner not giving any findings on all the contentions raised has created a serious illegality and has passed the order impugned with a view to confirm the demands, without application of mind. He further contended that Chapter Heading 33 does not include soaps and the principle of NosciturA Socis applies in terms of the principles. The items has to be classified in terms of the company it keeps. He submitted that the items specified under heading 33.07 are in the nature of Shaving soap, pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetics or toilet preparations not elsewhere specified or included and items like kumkum, kajal, sindur, alter of mahavar, preparations for perfuming or deodorizing rooms, including odoriferous preparations used during religious rites, agarbatti, dhoop and similar preparations. He contended that the item is used for the purpose of washing and bathing and therefore, the items of principle of Noscitur cannot classified within this heading. He relied on the judgment rendered in the case of Epsi Industries & Chemicals Pvt. Ltd. as , wherein the Hon'ble Apex Court had held that where the classification list is accepted by the department without demur, the department cannot take a somersault and contend to the contrary. He further contended that it is a changed view taken by the department and there was no suppression in the matter and hence larger period is not invokable in the matter. Even if, extreme view is taken against them, the demands have to be only in prospective in terms of the judgment of Hon'ble Supreme Court rendered in the case of Cotspun India Ltd. as reported in 1999 (113) ELT 352.
13. We have carefully considered the submissions made by both sides and have perused the entire records of the case including the show-cause notice reply, evidence on record and the findings arrived at by the learned Commissioner. On a total perusal of the entire case, we are of the considered opinion that the Revenue has not made out any case for the purpose of re-classification of the product impugned under Chapter 33.07 and that the appellants have made out a case both on merits as well as on limitation for the following reasons: As can be seen from the narration of facts of the case, there is no dispute of the appellants filing the classification list from time to time for classifying the product under Chapter 34.01 of the Tariff and the same having been approved from time to time. The classification list filed clearly indicated that the product manufactured by them was 'Santoor soap/bathing soap' and claimed classification under heading 3401.10 as perfumed 'santoor bar soap' under the same sub-heading. The classification list indicates that perfumed santoor soap noodless/bars/cakes in bags and trays were also classifiable under the same tariff heading. As can be seen from the wrappers by which these goods were removed, the appellants had clearly indicated the net weight, when packed with MRP, place of manufacture, registered office address, TFM percentage besides manufacturing licence No. and date of packing etc. As is well known soaps manufactured by all the industries would have a wrapper and the same indicates the percentage of TFM. The soap is such a commodity which is commonly used by every individual and it is glaring to the eyes about the details contained on the wrapper.
The appellants clearances of these goods have been very enormous and the duty had been paid to a very huge extent for a continuous period of time. It is not in dispute that the item 'santoor soap' is preparation of soap and the same is being utilised for washing purposes. It is also not in dispute that content of TFM beyond 60% only added to the quality of the item. It is also not in dispute that the Government had brought within the ambit of the Drugs & Cosmetics Act through its circular dated 15.4.1993 the percentage of TFM to be 60% for the purpose of treating the same as toilet soap to be in consonance with BIS Standard No. IS 2888:1983. These facts of the case indicate that the Government had introduced this bifurcation with the sole aim of reducing the use of vegetable oils by the soap manufacturers as the result of restriction of import of animal fats popularly known as tallow being not available in sufficient quantities in the country. The existence of the Drugs & Cosmetics Act, regulates the licence for manufacture of the items indicated therein according to its standards is a fact which is to be taken judicial notice and it cannot be said that ISI specification for soaps and the regulation of its manufacture of soap through Drugs & Cosmetics Act was not known to the department.
Ignorance of law being no excuse and the Revenue cannot plead that these factors were not known to them including the fact that the appellants item is not a soap but an item 'other than soap' in the form of bath preparation. The CBEC Circular No. 360/76/97-CX dated 3.12.97 which has already been extracted above has clearly taken the opinion from the Ministry of Law & Justice that the objects of Central Excise Tariff Act, 1985 the judgment of Hon'ble Supreme Court rendered in the case of Shri Baidyanath Ayurved Bhawan Ltd. v. CCE (supra) wherein it had been pointed out that the primary object of the Central Excise Act is to raise revenue and for that purpose various products are differently classified. The Hon'ble Apex Court held that in interpreting a term under Central Excise Act, resort should not be had to its scientific or technical meaning given under the Drugs & Cosmetics Act, 1940 and whether a product can be considered as durgs or cosmetics will have to be determined with reference to the object of the Act under which the issue is to be decided. The Board referring to the advice given by the Law Ministry accepted the plea and clarified to all field formation vide the said circular that the meaning attached to items under Drugs & Cosmetics Act should not be adopted or resorted to for the purpose of classification. When this Board circular is in effect and when there are no Section Note or Chapter Note indicating that the meaning given to the Drugs & Cosmetics Act or that the meanings given to ISI specification would be adopted for the purpose of classification of the products under Chapter 33 or 34, therefore, in that event of the matter, the Revenue taking a somur sault and proceeding to issue show-cause notice on the understanding arrived at on the products in terms of the Drugs & Cosmetics Act and the Circular issued therein and distinguish to BIS Standard No. IS 2888:1983 is totally unwarranted and uncalled for. The basic fundamental principle of classification is guided by Rules of Interpretation to the Schedule of Tariff in the section notes and tariff notes. The description in each of the Chapters is the basic criteria for the purpose of classification as has been well laid down in several judgments of the Hon'ble Apex Court and Tribunal. The Revenue in the context of principles laid down had been rightly classified the item on the basis of item being a soap on the basis of its use as a bath product or product for personal hygiene. On this understanding there is no challenge in the show-cause notice. Therefore, it is quite surprising that the Commissioner ought to have suddenly taken a different view without basing his case in terms of the principle laid down for classification of the product under the Central Excise Tariff Act. As has been well settled, the ISI standards are only for the purpose of maintaining the quality of the product and it cannot determine the classification of the product at all. It is beyond our comprehension and understanding as to how there could be a suppression in the matter merely because the classification list did not indicate the TFM percentage. Nowhere in the Section Note, Chapter Note of both tariff headings namely 33 and 34 of the Rules of Interpretation is indicated that the TFM percentage is required to be disclosed for the purpose of classification of the product namely soap. This contention raised by the appellants is well founded and the same requires acceptance. Even otherwise, the appellants have given the process of manufacture and total inputs and ingredients used for manufacture of the final product, the description of the product required for the purpose of classification had satisfied the authorities. If at all, the authority required further information, it is for them to have drawn samples and got it tested. In the present case, there is no retention or withholding of information in such a manner as to cause suppression of facts. The percentage of TFM had been brought out on the wrapper and made known to the purchaser. The TFM percentage had been clearly indicated on the wrapper and the same was being sold in such a manner and every purchaser was aware of the TFM content of the soap and the quality of the soap was being determined on the basis of TFM. It is a matter of common knowledge, therefore, it cannot be alleged by the Revenue that such an information was never disclosed to them and there was suppression in the matter. This is very hard to believe and it only speaks about the poor comprehension of the entire matter by the Revenue and more particularly the findings arrived at by the Commissioner on this footings is not appreciable. These vital facts were well known and the history of the classification of the product is clearly brought out in detail including the manner of exemption given in the Notification and the incorporation of tariff entry was also brought out, and the Revenue is totally aware of the same; yet the Commissioner had not appreciated the entire case in the light in which it was required to have been done. Had the Commissioner kept an open mind and understood the matter in the light in which it was projected and by applying the principles of classification, rules of interpretation, interpretation of statutes, then there would not have been much problem in the present case. We are constrained to make this observation for the simple reason that the appellants have brought out enormous evidence, trade understanding of bifurcation of soaps between 60% and lower percentage and all manufacturers were marketing the same on their own brand names.
The Revenue throughout in all other cases of manufacturers had been considering the soaps as soaps except that where the entry distinguished between toilet soaps and non-toilet soaps and both falling under Chapter 34. The Revenue has not initiated any proceedings against any of the other manufacturers but have chosen only to initiate proceedings against the present manufacturer and has confirmed the huge amounts towards duty besides imposed very high penalty is totally unjustified and uncalled for. The plea that there was no suppression and the demands cannot be confirmed on the stated grounds has also not appreciated properly. Furthermore, the show-cause notice itself indicates about the changed view for classification having been taken for the reason that the Drugs & Cosmetics Act and BIS Standard No. IS 2888 construes the TFM percentage to be the cutting point for treating soap and bathing bars. This is a changed view and not guided by principles of tariff understanding. Therefore, it cannot be said that there were such factors available for invoking of larger period in the matter i.e. , on account of mis-declaration and suppression. There is no compelling ground to arrive at a conclusion that these factors were required to have been disclosed by the party. These factors were available as they were all statutory directions in the form of circulars and if the Revenue thought that these were the factors requiring for re-classification, then the Revenue could have been adopted to provisional assessment. The Revenue could have taken samples and got the TFM content analysed/tested and issued show-cause notice on those grounds. However, we notice that the show-cause notice merely proceeds to quote the circular to adopt a different tariff heading, thereby it is clear that it is a changed view which has prompted the Revenue to issue the show-cause notice on the basis of circular and therefore, the demands cannot have retrospective effect and it has to be only prospective in terms of the judgment of Hon'ble Apex Court rendered in the case of Cotspun India Ltd. (supra), The Hon'ble Apex Court has clearly held that there cannot be short levy in such circumstances and applying this ratio of the judgment, we have to clearly hold that the demands are not only barred by time but also the demands cannot be confirmed with retrospective effect.
14. Now turning out attention to the charge made out in the show-pause notice and analysing the same for the purpose of classification of the product, we notice from the show-cause notice that the Revenue has in para 3 of 28.9.98 (taken as instance) indicates that the Explanatory Notes in HSN under Chapter Heading 34.01 states that the soaps of heading are true soaps and are categorised as (i) hard soaps, (ii) soft soaps, and (iii) liquid soaps and generally In the form of bars, cakes moulded pieces or shapes, flakes, powder, paste or aqueous solution and covers in particular (a) toilet soaps, (b) household soaps, (c) resin tall oil or naphthanate soaps and (d) industrial soaps and the show-cause notice states that it does not cover bathing bars. Quoting the Circular of Drugs Controller, which determines the toilet soap on the basis of TFM content of 60% and alleges what is being market is bathing bar and such bathing bars are classifiable under sub-heading 3307.39 of the Central Excise Tariff Act. There is no allegation in the show-cause notice as to how the appellants have committed an error or suppression of facts or committed fraud in evading duty or in suppressing material facts while submitting the details in classification list. The demands have been simply raised on the ground that the item impugned is required to be re-classified under sub-heading 3307,39 of CETA is it is not toilet soap but a bathing preparations classifiable therein. The appellants contention is that although it is a bathing bar, it is not a bathing preparation. It is their contention that bathing preparation is not a soap. Chapter Note 2 of Chapter 33 clearly indicates that terms of heading Nos. 33.03 to 33.07 (bathing preparations) apply, Inter-alla, to products whether or not mixed (other than aqueous distillates and aqueous solutions of essentials oils) suitable for use as goods of these headings and put up in packings with labels, literature or other indications they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value. They pointed out to Chapter Note 1(b) of Chapter 33 which clearly indicates that this Chapter 33 does not apply soap or other products of heading No. 34.01. The appellants have contended that the bathing preparation is indicated in Chapter sub-heading 33.07 and it should be put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations. They have established before us that the item is a plain soap used for bathing purposes as like any other soaps and it is not toilet preparation and it does not have TFM content beyond 60% to be called toilet soap and that there is no packing with labels, literature or other indications that they are for use as cosmetics or toilet preparation. Therefore, in terms of Note 1(b) of Chapter 33, the item 'santoor toilet soap' is clearly not classifiable under this heading. Furthermore, the Chapter Note 3 also indicates that the 'perfumery, cosmetic or toilet preparations' in heading No. 33.07 applies, inter-alia to the following products: Scented sachets; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solutions; wadding felt and non-wovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations.
Therefore, even in terms of this Chapter Note 3, the item does not satisfy for inclusion in Chapter 33.07 as it does not have perfumery or cosmetic or toilet preparations. We further notice that Chapter Heading 33.07 has got the following items: Pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetic or toilet preparations, not elsewhere specified or included; prepared room deodorisers, whether or not perfumed or having disinfectant properties.
On a clear look of the items in the above heading, we note that pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations are products that can be classed in one group on account of its similarity and close associationship. The classification of an item has to be under the heading of those items where it can be placed and can find a most suitable heading. The present item is used for bath purposes and it does not fit into the category of the items prescribed as above. Furthermore, we also notice from the other last two sub-headings, which refers only to personal and perfumed bath salts and preparations for foam baths. The last residuary sub-heading 3307.39 is "Other" and it should satisfy "other bath preparations". The Revenue's contention is that the item is 'bath preparation'. As can be seen from the Chapter Note 2 of Chapter 33, the bath preparations should be put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use. We do not find that the item satisfy this Chapter Note. Turning to description of this item and understanding under the Explanatory Notes to HSN, we notice that at page 505 to 513, it is seen that very Chapter Note 4 of Chapter 33 states that "The expression 'perfumery, cosmetics or toilet preparations' in heading No. 33.07 applies, inter-alia, to the following products: scented sachets; odoriferous preparations which operate by burning; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solutions; wadding, felt and non-wovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations. Further explanation given below is that the above description indicates that heading 33.03 to 33.07 include products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use (see Note 3 to this Chapter). Note 3 has already been discussed above. The Note further explains as follows: The products of headings 33.03 to 33.07 remain in these headings whether or not they contain subsidiary pharmaceutical or disinfectant constitutents, or are held out as having subsidiary therapeutic or prophylactic value (see Note 1(d) to Chapter 30).
However, prepared room deodorisers remain classified in heading 33.07 even if they have disinfectant properties of more than a subsidiary nature.
A further explanation given indicates that Preparations (e.g. varnish) and unmixed products (e.g. unperfumed powdered tale, fuller's earth, acetone, alum) which are suitable for other uses in addition to those described above are classified in these headings only when they are: (a) In packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as perfumery, cosmetic or toilet preparations, or as rooms deodorisers; or (b) Put up in a form clearly specialised to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish).
When we proceed to examine the sub-heading 3307.90 at page 512, wherein bath preparation has been indicated Explanatory Note states that this heading covers bath preparations, such as perfumed bath salts and preparations for foam baths, whether or not containing soap or other organic surface-active agents (see Note 1(c) to Chapter 34) and preparations for personal hygiene. Learned Additional Solicitor General referring to this Note was emphasized that bath preparations are also for personal hygiene and as the item santoor soap is used for personal hygiene, it falls under bath preparation. We are not inclined to agree with this view for the reason that the term 'bath preparation' given in this heading is not a soap, as the definition of soap indicated in the Chapter 34 under Note (2) as that for the purposes of heading No. 34.01 the expression 'soap' applies only to soap soluble in water. The soap and other products of heading No. 34.01 may contain added substances (for example disinfectants, abrasive powders, fillers or medicaments).
Products containing abrasive powders, remain classified in heading No.34.01 only if in the form of bars, cakes or moulded pieces or shapes.
In other forms, they are to be classified in heading 34.05 as "scouring powders and similar preparations". The further Chapter Note also clearly indicated about the definition of 'organic surface-active agent'. The Explanatory Notes of HSN under Chapter 34 clearly indicates that soap is an alkaline salt (inorganic or organic) formed from a fatty acid or a mixture of fatty acids containing at least eight carbon atoms, in practice, part of the fatty acids may be replaced by rosin acids. The Explanatory Notes further states that the heading covers only soap soluble in water, i.e. , to say true soap. Soaps form a class of anionic surface-active agents, with an alkaline reaction, which lather abundantly in aqueous solutions. It merley gives various categories of soaps falling thereunder including toilet soaps besides hard soaps, soft soaps and liquid soaps. It adds description of glycerin soaps and indicates shaving soaps would fall under sub-heading 33.07 but incorporates medicated soaps and disinfectant soaps and excludes disinfecting preparations of heading 38.08. It also includes Abrasive soaps but excludes abrasive scouring pastes and powders which should fall under heading 34.05. It refers also to Household soaps, which may be coloured or perfumed, abrasive of disinfectant; Rosin, tall oil or naphthenate soaps and Industrial soaps. Therefore, on reading of the entire chapter of Explanatory Notes both under Chapters 33 and 34, it is very clear that soaps are different from bathing preparations. The distinction is in the form of soap being an alkaline salt (inorganic or organic) formed from a fatty acid or a mixture of fatty acids containing at least 8 carbon atoms. The item in question fully satisfied the definition of soap and in terms of various certificates produced by the appellants. The appellants also produced large number of affidavits from various sources which includes opinions of experts, traders and consumers etc. all of them confirmed that the item is soap and not bathing preparation. The appellants have also produced a report of Cosmic Industrial Laboratories Ltd., which has analysed the sample and indicated that the item impugned is a soap satisfying to its definition.
15. The appellants have tried to explain that even bathing bar is a soap in terms of bathing bar specification issued by ISI and it is not bath preparation. The appellants have shown through technical literature and also through the extract from the book of Harry's Cosmeticology at page 235, which deals with bath preparations that bath preparation is made out of bath salts and these are used for the purpose of softening the water and at the same time providing it with a refershing and attractive odour. The book discloses that there is no doubt that this latter function is of very great importance and that both salts are often used in cases where the water requires no softening, solely on account of the pleasing result from adding coloured perfumed crystals to the water. It lays down the requirement to consider as bath crystal when it is in a readily soluble and effectively soften the water, that they should possess an attractive appearance, be stable under ordinary climatic conditions and should be easy to colour and perfume, that they should be rasonably expensive. It has been shown through the extract of all technical literature that bathing oils and 'bath preparations' are very expensive and are used to soften the water and to give luster to the skin through perfumes. The same definition is found in Dr. J. Stephan Jellinek book of "Formulation And Function of Cosmetics", wherein at page 530, it deals with bath preparation. The requirement of item to be bath preparation indicated therein is also that it softens the water and the product consists of inorganic salt namely bath salts. Even from the book of Perfumes Cosmetics & Soaps with Especial Reference to Synthetics by William A. Poucher in Vol. Ill at page under Chapter I in Bath Preparations, it is indicated that bath crystals constitute the most popular bath preparation today in spite of the use, in approved formulae, of industrial methylated spirit for the manufacturer of bath cologne etc. and they are sold in elegant and expensive packs by the high-class perfumers and in an inexpensive form by the cheap stores.
The principles states that the principal difference between the two types is in the quality of the perfume and in the cost of the containers. Therefore, on examination of the technical literature on bath preparation, it is clear that bath preparation or perfumes which are used for softening water. Even in terms of understanding of HSN, it may be preparation for personal hygiene but it is certainly not a soap for the purpose of cleaning. A further reading of HSN at page 512 very clearly states that bath preparations are perfumed bath salts and preparations for foam baths/The indication therein clearly discloses that the item bath preparation or perfumed bath salts in terms of technical understanding they are all perfumes to soften water and they are expensive and the item bath preparation goes along with similar items which are all in the same category and the nature of the products are identical in the form of personal deodorants, agarbatti etc. The item 'santoor soap' cannot be considered to be falling under cream, pre-shave, shaving or after-shave preparations, personal deodorants and bath preparations, depilatories etc. which are totally different preparations.
16. In that view of the matter, it is clear that the Revenue has suddenly taken upon itself the understanding that the Drugs & Cosmetics Act has distinguished the 'toilet soaps' that the content of 60% TFM & above alone are soaps and less than 60% are bath preparations which is totally misconstrued and erroneous understanding. A simple question was posed to learned Additional Solicitor General as to whether each soap manufactured in local and/or Khadhi Industry with very low TFM content would be considered as bathing preparation as they are expensive, he attempted to explain that when the tariff does not make such a distinction, then the classification has to be adopted in that manner only. We are not impressed with this reply as the TFM content is not the basis for classification at all. Even in terms of the judgment of Hon'ble Apex Court in the case of Oswal Agro Mills Ltd. v, CCE as , it has been laid down that considered in the legal setting and commercial parlance, the Court observed that 'toilet soap' being of everyday household use for the purpose of bath and having removed its separate identity which it enjoyed preceding amendment and having been not specifically included in "Other sorts", it took its shelter in commercial parlance under "household". The Hon'ble Apex Court proceeded to state that if anybody goes to the market and asks for toilet soap, he must ask only for household bathing purpose and not for industrial or other sorts. It further laid down that even the people dealing with it would supply it only for household purpose. It may be true that household consists of soap used for cleaning utensils, laundry used for cleaning soiled clothes and soap toilet is used for bathing but household is compendiously used, toilet soap is used only by the family for bathing purpose. It observed that individual preference or choice or taste of a particular soap for bath is not relevant. It laid down that the soap 'toilet' would therefore, fall within the meaniing of the word 'household' in sub-item (1) of item 15 of the Schedule. Taking this principle, we have to hold that santoor toilet soap prescribed as bathing bar is also a household soap and the tariff distinguishes between toilet soap and non-toilet soap.
Hence, the plea that TFM content does not refer separately to soap is well founded and requires acceptance. The soap whether it is toilet soap or non-toilet soap continues to fall under Chapter Heading 34, merely because TFM content is less than 60% and the item in question is not toilet soap and it does not go out of Chapter 34. The very logic adopted by the Commissioner that ordinary toilet soap with less content of TFM in bath preparations in terms of commercial understanding of the item is little surprising. Bath preparations as shown to us in terms of the understanding and product itself are very expensive item which are used for softening the item and leave the body scented. Hence, the item in question is a soap only for classification under Chapter 34 and it is not bath preparation for classification under heading 3307 of the Central Excise Tariff Act as contended by the Revenue.
17. In that view of the matter, the appellant succeeds both on merits as well as on time bar and the appeals are allowed with consequential relief, as per law.