Judgment:
1. The issue for determination in these two appeals which are heard together and disposed of by this common order is the classification of 'Tetmosol' soap manufactured by the appellants herein - whether under CET sub-heading 3401.11 as "soap, other than for toilet use, whether or not containing medicament or disinfectant" as claimed by the assessee or under CET sub-heading 3401.19 as "other soaps" as held by the Revenue authorities. In Appeal No. E/337/02 covering the period September, 1998 to September, 1999, demand of Rs. 54,55,922/- has been confirmed on the basis of classification under CET sub-heading 3401.19 and penalty of equal amount under Section 11AC of the Central Excise Act has been imposed, and in Appeal No. E/4026/02 covering the period Oct. 1999 to Feb. 2000, demand of Rs. 19,81,658/- has been confirmed on the same basis and penalty of Rs. 3 lakhs has been imposed under Rule 173Q of the Central Excise Rules. An additional issue for decision in Appeal No. E/337/02, is whether the demand is barred by limitation.
2. We have heard both sides. There is no dispute that the soap is a medicated soap - it contains monosulfiran B.P. 5% w/w. It is used for treatment and prevention of scabies which is a contagious skin affliction characterised by itching and sores. The toilet soap is used for bathing purpose. In the case of Oswal Agro Mills Ltd. v. CCE , the Supreme Court observed that if anybody goes to the market and asks for soap he must ask only for household bathing purpose and not for industrial or other sorts and that toilet soap is used only by family for bathing purpose. Thus it is clear that toilet soap is for bathing purpose. Let us examine whether Tetmosol satisfies the test of use for bathing or washing. The wrapper of the soap reads as under : 'Tetmosol' is a medicated soap used to treat and prevent scabies. It is especially useful for the prevention of infection in hospitals, schools, etc.
Use in place of ordinary toilet soap to help prevent scabies.
Ideally bathe in hot water and wash liberally with Tetmosol soap, paying particular attention to folded areas of skin.
After bathing allow the body to dry naturally or dry with a towel using a blotting action. Use Tetmosol daily for as long as the danger of infection remains.
Tetmosol soap should not be used by patients who have previous reacted badly in any way to the product. Rarely, a rash can occur after using Tetmosol, if this occurs stop using the product.
Over application of Tetmosol is unlikely to have any adverse effect.
If swallowed, seek medical advise (ingestion should be treated symptomatically)" 3. From the above, it is clear that the soap is used for bathing and washing. Although it will be used for only by the person affected with scabies such person uses it only for bathing and washing. Thus, Tetmosol answers the test of toilet soap and the fact that it is medicated does not prevent it from being toilet soap. The HSN explanatory notes to Chapter heading 34.01 sets out that medicated soap containing boric acid, salicylic acid, sulphur...or other medicinal substances are one category of toilet soap.
4. In the light of the above, we hold that the product in dispute is soap for toilet use and is, therefore, not classifiable under CET sub-heading 3401.11 but under CET sub-heading 3401.19 as upheld by the lower authorities.
5. Coming to the issue of limitation, we find that in the classification declaration filed during the period in dispute in Appeal No. E/337/02, the appellants have declared the product as "soap other than for toilet use whether or not containing medicament or disinfectant" and classified the product under CET sub-heading 3401.11.
This amounts to clear misdeclaration of the description of the product.
The appellants have suppressed the correct description of the product.
The intention to evade duty can be inferred from the fact that products classifiable under CET sub-heading 3401.11 attracted lower rate of duty of 8% while products falling for classification under CET sub-heading 3401.19 attracted higher rate of duty of 18% during the relevant period. We, therefore, hold that the ingredients of proviso to Section 11A(1) of the Central Excise Act are made out against the appellants and that the extended period is available to the department.
6. In the result, the duty demands are upheld. Having regard to the facts and circumstances of the case, we reduce the penalty in Appeal No. E/337/02 to Rs. 7.5 lakhs (Rupees Seven Lakhs fifty thousand only) and in Appeal No. E/4026/02 to Rs. 35,000/- (Rupees Thirty Five Thousand only).