1. Appellants are aggrieved by and order of the Commissioner, who has confirmed a demand of duty and imposed and equivalent amount of penalty under Rule 25 of the Central Excise (No. 2) Rules, 2001, confiscated the goods seized and imposed a fine in lieu of confiscation, and directed enforcement of B-8 Bond.
1.2 The appellants are manufacturers of various types of toothpaste and dental cleaners bearing brand name and trade name of their customers for example Close up Red, Close up Blue, Close up Green, Close up Whitening and Pepsodent, Signal, Aim etc. falling under Chapter 33 of the Central Excise Tariff Act for which they hold a proper registration and were discharging duty on 'toothpaste' and 'other dental cleaners' cleared by them. They also availed benefit of Modvat credit. Before effecting the manufacture and clearance of any of their goods, they obtain appropriate registration with the Food and Drug Control authorities as required for 'toothpaste', they submit detailed manufacturing processes for the various products.
1.3 For the Financial Year 1989-1999 and 1999-2000, the effective rate of duty on 'toothpaste' covered under Heading 3306.10 of the Central Excise Tariff Act. was less than the duty on 'dental cleaners' falling under sub-heading 3306.90. They filed classification lists for Close up Red, Green, Blue toothpaste under Heading 3306.10 and paid duty @ 8% for the products 'Close up Renew dental cleaners' they claimed classification under Heading 3306.90 at a duty of 18% with benefit of Modvat. Vide Classification List dated 1.4.1998. They similarly classified toothpaste Close up Red, Blue and Green under Heading 3306.10 and 'Close up Renew Dental Cleaner' under Heading 3306.90 with similar rate of duty. While classification list dated 3.6.1998 the duty rates were 8% and 18%, and in classification list effective from 4.3.1999 the rates under Heading 3306.10 were 8% and 16% under Heading 3306.90, and vide List dated 1.4.1999 the rates were 8% and 16% for Heading 3306.10 and 3306.90 respectively, as also subsequent to Finance Bill 2000-2001 the rates of duty under Heading 3306.10 and Heading 3306.90 were brought at par i.e. 16% and this continued in their classification list dated 14.3.2000 and 2.4.2001. Regular declarations in the prescribed proforma were filed.
1.4 A new product 'Close up Whitening' was introduced and was claimed as a Dental Cleaner falling under Heading 3306.90 with effect from 1.7.2001. It was nothing but remaining/relaunching of earlier dental cleaner 'Close up Renew'. The appellants effected clearances of "Close up Whitening Dental Cleaner" on payment of duty under Heading 3306.90 for the period July 2001 to September, 2001. The Preventive Officers visited their factory on 25.9.2001, verified the manufacturing facility and the processes and list of inputs for all the items and brands and came to an opinion that "Close up Whitening Dental Cleaner" would also be covered under Heading 3306.10 and should discharge duty as tooth paste. According to this opinion, they effected detention of full quantity of such "Close up Whitening Dental Cleaner" manufactured and lying in the factory BSR duly accounted under Rule 10 and ordered its seizure on 4.10.2001. They were served with the Show Cause Notice dated 21.3.2002 alleging that "Close up Whitening Dental Cleaner" was classified under Heading 3306.90 instead of classification under Heading 3306.10 as toothpaste with intention to evade payment of proper Central Excise duty by resorting to assessment under Section 4 instead of assessment under Section 4A of the Central Excise Act, 1944, and therefore the proposal for recovery of duty and liability to confiscation arose.
(a) for a ready reference, the entry Heading 3306 of CETA 1985 and sub Heading 3306.90 which are relevant are reproduced below: 33.06 Preparations for oral or dental hygiene, including dentifrices (for example, toothpaste and tooth powder and denture fixative pastes and powders.
On a perusal of the above, it is apparent that Heading 3306 covers various preparations for oral or dental hygiene including dentifrices. Out of such preparations only toothpaste and toothpowder were covered under Heading 3306.10 and all other preparations came under Heading 3306.90.
(b) The term 'Dentifrices' is understood in the proper perspective by reference to Explanatory Notes to HSN, 2nd Edition 1996 at page 511 which visualises the scope of Heading 33.06 as under: (1) Toothpaste and other preparations for teeth. These are substances or preparations used with a toothbrush, whether for cleaning or polishing the accessible surfaces of teeth or for other purposes such as anticaries prophylactic treatment.
(2) Denture cleaners, i.e. preparations for cleaning or polishing dentures, whether or not they contain agents with abrasive properties.
A perusal of the HSN Note would indicate that all three types of 'Dentifrices' are recognised as (i) Toothpaste', (ii) 'Other preparations for teeth', and (iii) 'Denture cleaners'. The Note further explains that "Dentifrices" to include "toothpaste" and "other preparations for teeth" whether for cleaning or polishing the assessable surface of teeth or for other purposes such as Anticaries prophylactic treatment. The Note also enumerates that 'toothpaste' and 'other preparations for teeth' remains classified under Heading 3306 whether or not they contain abrasives and whether or not they are used by dentist. The correct scope of the Heading as per the submission of the appellants is that when one refers to HSN item 3306 and the bifurcations as also under CETA 1985 there is a variance seen. In other words, this bifurcation under Heading 3306 for HSN and is not para materia and under CETA 1985 and therefore the sub heading structure of HSN would not apply to CETA. The CETA covers preparation for oral or dental hygiene including Dentifrices and Denture Fixative paste and powders under Heading 3306 and at the four digit level it is para materia HSN. The scope of Sub Heading 3306.10 of CETA 1985 restricts it to only 'tooth powder and paste' and any entity which is not a 'toothpowder or toothpaste' would be covered under Heading 3306.90. This submissior has to be upheld. (c) Close up Whitening Dental Cleaner' is claimed to be not a 'toothpaste'. As the appellants claimed that 'toothpaste' has not been defined in the CETA 1985 nor in HSN. The word 'toothpaste' has therefore to be evaluated as to how it is understood by the persons who deal with it i.e. the manufacturers and the consumers. It is a matter on record that of manufacturing 'toothpaste', registration with Food and Drug Authorities (FDA) of the respective State Government is required and FDA provisions recognise only those products as 'toothpaste' which meet the specification of Bureau of Indian Standard. The Bureau of Indian Standard for toothpaste, is as per specification under IS6356-1993 Second edition. It is also on record that the entity 'Close up Whitening Dental Cleaner' does not meet the said IS specification for toothpaste and also on record that FDA has issued a licence for the said product and its manufacture not as a toothpaste but as 'Close up Whitening Dental Cleaner. It commenced production with effect form July 2001. Since it did not meet with the ISI specifications for toothpaste it was not recognised by the FDA as well as the Bureau of Indian Standard as 'toothpaste'. The entity could not be marketed and brought for sale and purchase as toothpaste. Relying on the decision of the Delhi High Court in the case of DCM v. CCE 1978 ELT 121 (Delhi) : 1978 Cen Cus 55D (Del.) which has been confirmed by the Supreme Court, wherein it has been held 7. Lastly, the use and exchange of goods is often regulated by law.
Unless the relevant rules are complied with, an article may not be useful or exchangeable and that may be additional reason why it may not be goods.
The entity herein cannot be manufactured, sold or exchanged as 'toothpaste' as per FDA law.
It can safely be concluded that since the entity is not allowed to be manufactured and marketed or treated as a 'toothpaste', the same cannot be classified under the Excise Tariff as such and duty be recovered on it toothpaste, even though the packing or the product in the tube may induce use on teeth. In this view of the matter and the fact that the appellants have sold the entity as 'other preparations' for polishing and cleaning of teeth and not sold and marketed the same as 'toothpaste' even from the declaration on the packing cartons and tube, it is to be held that the entity was visualised as only 'dental cleaners with micro granules added' which help the teeth go whiter. The product therefore cannot be found to be understood as 'toothpaste' nor is there any evidence to that effect.
(d) The reliance of the Revenue on the Product Manual issued by M/s.
Hindustan Lever Ltd. and the difference in toothpaste i.e. Close up Red, Blue, Green and dental cleaners i.e. Close up Whitening cleaners which reads as under; is considered.
(i) the difference in raw materials used for Close Up Whitening and Close Up Red/Blue/Green is the additional presence of 2.8% and 0.2% w/w Silicon Agglomerate and Bluer Agglomerates respectively in Close Up Whitening and absence of 0.1% w/w 2,4,4, Tri Chloro 2 hydroxy Diphenyl Ether in Close Up Whitening in comparison with Close Up Red/Blue/Green.
(ii) The difference in product form between Close Up Red/Blue/Green and Close Up Whitening is the presence of "Uniformly dispersed blue speckles." (iii) The manufacturing process of Close up Red/Blue/Green in comparison with Close up Whitening is the same except one additional step of 'addition of silica agglomerates' (to get uniformly dispersed speckles) in the manufacture of Close up Whitening.
It is found that the above Manual instructions are heavily relied upon by the Department to prove their case. Perusal of the same indicate that the ingredients and ratio of all the inputs which go into the manufacturing a 'toothpaste' and a 'Dental Cleaner' are different and varying. The 'Dental Cleaner' in addition has two additional ingredients namely Silicon Agglomerate and Blue Agglomerates which play an active role as abrasive. A perusal of the manufacturing process of 'Close up toothpaste' and the manufacturing process of 'Close up Dental Whitening' indicates that there is a difference in the step of manufacture of the two. The total stages for manufacture of toothpaste were nine, while the total number of stages for manufacture of 'Close up Dental Whitening' were 11 and it takes 120 minutes to manufacture a toothpaste tube, while it took 155 minutes of process time to effect the manufacture of a 'Close up Dental Whitening Cleaner'. In this view of the matter, the statement of Mr. N.H. Bijlani, the only expert in this case, recorded on 9.1.2002 which explains the difference of 'toothpaste' and 'Dental Cleaners' cannot be ignored and it has to be held that 'Close up Whitening Dental Cleaner' cannot be equated with a 'toothpaste' as is common understood/used and specifically mentioned in CETA under Heading 3306.10.
(e) It is on record that classifications of same entity in an earlier 'other brand was acceptable to the department. It was classified under a different name for all these years when the rate of duty under Heading 3306.90 were higher then under Heading 3306.10, mere change of duty and the brand name of the product, cannot be reason to alter classification.
(f) The goods seized in the factory were entered in the records and even if the classification was doubted by the Preventive Officers, there was no reason to call for their reclassification or confiscation and redemption fine as arrived at by the Ld.
Commissioner. The classification of the goods and the rate of duty and valuation would be applicable it the time of removal of such goods from the factory and confiscation therefore ordered cannot be upheld for a mere opinion of disputed classification. Consequently penalties cannot be upheld. (a) The appellants have paid the duty at the time of provisional release but before the issue of Show Cause Notice. The imposition of penalty cannot be upheld now because when classification under Heading 3306.10 as toothpaste is not being upheld, there is no question of demand of differential duty as arrived at by the Ld.
Commissioner.
1.6 In view of the findings hereinabove, it is to be held that the entities is to be correctly classified under Heading 3306.90.
1.7 In view of the findings, we find no merits in this case to uphold the penalty, duty and or interest as arrived at and the orders are required to be set aside.
1.8 In view of the findings, the order is set aside and the appeals allowed.