1. Facts of the case as stated in Appeal Memorandum and in the Cross-Objections be briefly stated as under: 2. The respondents are engaged in manufacture of Olemessa Baby Massage Oil and E. Oil. They have started manufacturing O.B.M. Oil from November 1976 and E. Oil some time during 1979. They never paid Central Excise Duty, because at the beginning their clearances were within the exemption limit. In 1979 they received circular from Central Excise Department asking them to maintain a register of production and removal in the given form. In reply thereof the respondents by a letter dated 3.12.1979 explained that two items did not contain any perfume and were exempted from levy of excise duty under T.I. 14(F). Thereupon they received an intimation dated 10.12.1979 from the Department that they were not required to send monthly returns. Samples of both items were drawn by Central Excise Department on 4.1.1980. Factory premises of the respondent were again visited by the Central Excise Officers on 6.4.1984 and 17.4.1984 and stock of O.B.M. oil valued at Rs. 90,458.40 was seized on the plea that same was manufactured without valid licence. They were released on superdginama after drawing representative sample. No stock of E. Oil was found. After some enquiry and recording of Statements Show Cause Notice dated 30.6.1984 was issued alleging that the respondent contravened provisions of Rules 174,49,52 (A), 174(D), 173(C), 173(G), 9 (i) and 53 read with 226 Central Excise Rules, 1944 in as far as they: (i) suppressed the facts and misrepresented that their product did not contain any perfume and so products were exempt from levy of excise duty even though the two oils were not hair oil and the criterion of absence of perfume was not relevant.
(ii) they manufactured the above product without applying for/obtaining valid Central Excise Licence.
(iii) they removed the excisable goods without payment of duty without gate passes and without maintaining the stock register.
Respondents were also called upon to show cause as to why Central Excise Duty amounting to Rs. 1,20,74,161.24/- not be levied and why the goods seized should not be confiscated and penalty should not be imposed. On adjudication the learned collector held that O.B.M. Oil was classifiable under T.I. 68 and fully exempt from payment of excise duty under Notification Nos. 85/79 and 46/81 as amended. He ordered release of seized stock. Regarding E. Oil he held that the clearances during 1979-83 were exempt from payment of duty as per Notifications 71/78 and 80/81 as amended and so demand for duty for that period was dropped.
Value of clearances of E. Oil in 1983-84 was Rs. 5,00,337.40.
Clearances up to the value of Rs. 5 lakhs were exempt from payment of duty under Notification No. 140/83. So Central Excise duty amounting to Rs. 354.25 was demanded on the excess value of Rs. 387.40. Again no duty was demanded on the value of clearances of E. Oil during 1984-85 (26.4.1984) as the same were still within the exemption limit. He imposed personal penalty of Rs. 1,000/- under Rule 173(Q) of Central Excise Rules.
3. The Revenue preferred this appeal against the said order praying that the impugned order pertaining to O.B.M. Oil be set aside and classification of O.B.M. Oil be confirmed under T.I. 14(F) of Central Excise Tariff and to confirm the demand of duty raised in the Show Cause Notice and to impose penalty. The respondent filed Cross-Objections praying that E. Oil be classified under Tariff Item 68 and exempt from payment of duty under Notifications 85/79, 46/81 and any other relevant Notifications and penalty be set aside.
4. We have heard Shri Sunder Rajan for the revenue and Shri. M.Chandrasekharan, Learned Advocate for the respondents, 5. At the outset Shri. A.S. Sunder Rajan, learned JDR contended that the respondents have not tiled appeal pertaining to the findings regarding E. Oil and they have challenged by way of filing cross-objections. It cannot be done under provisions of Section 35-E (4) of the Central Excises and Salt Act, 1944. (Hereinafter referred to as said Act). This Section 35-E (4) reads as under: Where in pursuance of an order under Sub-section (1) or Sub-section (2) the adjudicating authority or the authorised officer makes an application to the Appellate Tribunal or the Collector (Appeals) within a period of three months from the date of communication of the order under Sub-section (1) or Sub-section (2) to the adjudicating authority, such application shall be heard by the Appellate Tribunal or the Collector (Appeals), as the case may be as if such application were an appeal made against the decision or order of the adjudicating authority and the provisions of this Act regarding Appeals, including the provisions of Sub-section (4) of Section 35B shall, so far as may be apply to such application.
So it can be seen from the above that such application made to the Appellate Tribunal has to be treated as an appeal and all the provisions of Sub-section 4 of Section 35 (B) shall apply to such application. Section 35-B Sub-section 4 reads as under: On receipt of notice that an appeal has been preferred under this section, the party against whom the appeal has been preferred may, notwithstanding that he may not have appealed against such order or any part thereof, file, within fortyfive days of the receipt of the notice, a memorandum of cross-objections verified in the prescribed manner against any part of the order appealed against and such memorandum shall be disposed of by the appellate Tribunal as if it were an appeal presented within the time specified in Sub-section (3).
So the cross-objections filed are covered under above provision of law and they are to be disposed of by this Tribunal as if it is an appeal presented to] this Tribunal. So we do not find any force in the contention of the learned JDR and reject the same.
6. To appreciate the arguments and to decide issues in question it is necessary to understand process of manufacture of these two products and the ingredients involved therein. According to the submission of the respondents in O.B.M. Oil they add some colour namely Funchan Yellow in very small amount to the Arachis (groundnut) oil and both are stirred manually. According to the respondents this oil which is double refined is purchased from the local market, full duty-paid and 25 gms.
colour is added to 63 Kgs. of oil. In E. Oil the respondents add Olive Oil, Kunkumadi Oil and Vitamin E., in Arachis (groundnut) oil in following proportions: This is supported by a letter addressed by Deputy Drugs Controller to the Assistant Collector, Central Excise, New Delhi copy of which is produced on record by the respondents. The respondents have also placed on record the Assistant Chemical Examiner's letter dated 23.4.1980 wherein he has stated as under: This product is arachis oil 100%, double refined purchased from the local market, in which small amount of organic colouring matter Funchom Yellow is added. In typical batch, approximately 25 gms., of Function Yellow is added to 62 Kgs. of Arachis Oil. After thorough mixing in mixing vessel the product is filled up in small plastic containers (bottles) of different capacities (50 gms.), (100 gms.
etc.) by means of vacuum filling machine. No other ingredient or perfuming material was found to be added. A sample of Arachis oil before the addition of colouring matter was drawn and tested under laboratory registration No. CLD/30-VP dated 17.3.1980. This sample was in the form of colourless liquid. The sample of 'Olemessa' received earlier was in the form of light yellow liquid and no perfume was perceptible. This was also tested simultaneously under laboratory registration No CLD/27-VP dated 21.1.1980. Both these samples were found to conform to the specifications for Arachis oil (Groundnut oil).
The sample of this product as received was in the form of light brown liquid having odour of sandal wood type. It was ascertained during the visit that the composition of this product was Arachis Oil 61%, Olive Oil 20%, Kunkumadi Oil 15% and Vitamin E. liquid 4%.
The four ingredients are thoroughly mixed in the mixing vessel and the resultant product is filled up in small plastic bottles by means of vacuum tilling machine. Samples of Olive Oil and vitamin E. liquid (both of which are imported) were drawn and tested under laboratory registration Nos. CLD/31-VP and CLD/33 dated 17.3.1980.
These were found to have characteristics of Olive Oil and vitamin E. (Tecopherol Acetste) respectively. The sample of 'E. Oil' also gave test for the presence of vitamin E (Tecopherol Acetste). The sample of Kunkumadi Oil (Laboratory registration No. CLD/32-VP dated 173.1980) was found to be in the form of dark brown liquid with mild fragrance of sandal wood type. As seen from Ayurvedic Formulary Part-1 (1st On) "Kunkumadi Oil" is an Ayurvedic preparation containing 29 different constituents (herb, root & oils) formulated in certain fixed proportion including odoriferous constituents like Chandan (Sandal wood), it 18 obvious that the presence of much odorilerous constituents in Kunkumadi oil which is one of the ingredients of E. Oil, accounts for its mild fragrant character.
It may be noted that the respondents had filed declaration dated 22.12.1978 in relation to their production of E. Oil claiming total exemption from excise duty which was acknowledged by the Superintendent of Central Excise (Annexure 1). After this, vide a letter dated 11.4.1919 the respondents had intimated to the Department regarding their production of E. Oil with a copy of formula and with a request to clarify whether it attracted any Central Excise Duty. The respondents had also forwarded a sample of product. (Annexure J) On 17.4.1979 the respondents tiled another declaration for E. Oil claiming exemption under Notification No. 71/78 of 1.3.1978 from payment of duty copy of which is produced at Annexure 'K' By a circular dated 15.11.1979 Superintendent of Central Excise informed the respondents to maintain records prescribed for exemption from duty and submit monthly returns (Annexure 'L'). By letter dated 13.12.1979 the respondents informed the Department that they were producing O.B.M. Oil and E. oil. that O.B.M Oil did not contain any perfume and it was exempt from levy of Central Excise Duty under 14-F and E. Oil contained Kunkumadi Oil and was an Ayurvedic preparation which contained 'Chandan' Oil (Sandal Wood Oil).
It also did not contain any perfume. Hence these were not covered under T.I. 14(F) and sought clarification whether they were required to submit monthly returns (copy at Annexure M ). By letter dated 10.12.1979, the Department informed the respondents that they were not required to file monthly returns (copy at Annexure 'O'). On 4.1.1980 the Department drew samples of O.B.M. Oil forwarded to the Chemical Examiner's Office and thereupon the Assistant chemical Examiner visited factory of the respondents and submitted his report as above and also submitted following conclusions: The significance of the query whether perfumed is not clear. Both the products are advertised as massage oil and not as hair oil. In view of the advertised use these two E. products may merit classification as "Preparation for the care of Skin.
When officers of the Department visited the factory they again took samples and forwarded them to Chemical Examiner's Office. Report is on record (Page 81) and in Annexure 'A' to the Show Cause Notice it is stated as under: Samole of 'Olemessa baby massage oil' drawn on 27.4.1984 was sent to the Chemical Examiner, Central Revenue Control Laboratories, Pusa Institute New Delhi for analysis in the light of statement dated 2.5.1984 of Shri Raj Kumar Virmani and pamphlets issued by the manufacturer.
The Chemical Examiner had reported that' 'on the basis of the analytical formula both the samples are similar i.e. (Groundnut oil, Refined groundnut oil). Both the samples have been coloured with small quantity of Funchon yellow. In view of high price and advertised use of the product as 'Baby massage oil-safest natural massage oil for the tender skin of your baby' the product under reference in my opinion be considered as preparations for the care of skin.
7. As far as O.B.M. Oil is concerned, in the impugned order learned Collector discussed at length citing from various scientific publications and technical books and held that the said oil is massage oil. He also held that in commercial parlance the product has found acceptance as an article of baby toiletries and effect obviously is skin care; for cleansing or stimulation or lubrication. He referred to advertisement pamphlets also. But then after holding that the product in question is 'cosmetic' he held that it is not a 'manufactured article' and so it would not be covered under item 1 of Item 14 of Central Excise Tariff. Because in his view adding Funchon Yellow to Arachis oil would not amount to preparation meaning thereby it would not amount to manufacture and so as there is no processing involved, it would be classifiable under T.I. 68 only.
8. Learned JDR also referred to advertisement wherein it is described as massage oil and not as groundnut oil and in his submission it is known in commercial parlance also as a massage product. So it is a product for care of skin and should have been classified under 14F (1).
Learned JDR cited:Sunny Industries (Private) Ltd. v. Collector of Central Excise Calcutta reported in 1989 (20) E.C.R. 59 (Cegat SB-C) wherein according to the learned DR this issue is settled.
9. Learned Advocate Mr. M. Chandra sekharan submitted that the product is 100% groundnut oil and only colour is added which is to make the liquid pale yellow and with a view to give a particular colour but it remains groundnut oil. He cited following authorities:Vital and Vital Oil Pvt. Ltd. v. Collector of Central Excise, Bombay wherein it is held as under: Item 12 of Central Excise Tariff covers Vegetable Non-essential oils of all sorts. It is only such varieties thereof as would be edible even when hydrogenated that would fall under tariff Item 13. But this is not for the reason that they would on hydrogenation cease to be vegetable non-essential oils but because Tariff Item 13 has been specifically provided for such hydrogenated vegetable oils as vegetable products. Otherwise, vegetable non-essential oils continue to be oils in spite of being hydrogenated or hardened. The mere fact that chemical changes occur during hydrogenation would not take them out of the purview of Tariff Item 12 inasmuch as they remain oils in their behaviour, structure and use and, therefore, their essential character as oils remains the same before and even after hydrogenation.Collector of Central Excise v. Jayant Oil Mills Pvt. Ltd. Oil would remain oil if it retained its essential properties and merely because it had been subjected to certain processes would not convert it into a different substance. Accordingly edible rice bran oil falling under Tariff Item 12 CET would even after extra hardening or the process of hydrogenation will not fall under Tariff Item 68 but will continue to fall under Item 12 for two reasons-firatly the essential properties of the rice bran oil are not changed even after process of hydrogenation/hardening as there is hardly any distinction between vegetable oil in liquid form and hydrogenated oil which is hardened with a melting point higher than 41 C, and secondly resort to the residuary entry 68 cannot be made when there is a specific entry in Tariff Item 12 for the 'goods' in question.
10. It may be noted that by this judgment the Hon'ble Supreme Court has confirmed decision of this Tribunal in Tata Oil Mills Co. Ltd. v.Collector of Central Excise, Madras Cegat. Now the fact is that the product remains groundnut oil as per the opinion expressed by the Chemical Examiner in 1980. His conclusion in his report that these products merit classification as "preparations for the care of skin" does not carry any weight as it is not for the Chemical Examiner to express any opinion regarding classification.
Similarly opinion expressed by Chemical Analyser as stated in the adjudication order, on the basis of sample drawn on 27.4.1984 is also on the same line and he has also found that the product is groundnut oil. His opinion "in view of high prices and advertised use of the product as "baby massage oil safest natural massage oil for the tender skin of your baby", the product under reference be considered as "preparations for the care of skin" as reflected in the Adjudication order does not carry any weight, firstly because it was not for him to give any opinion regarding classification and secondly considerations stated in his opinion should not weigh with him.
11. It is also true that the product was being marketed as massage oil and not as edible oil. It is also noted that because of addition of colour, which is a coaltar dye the oil in question perhaps ceases to be edible. Learned Advocate Chandrasekharan has referred to certificates issued by several Doctors (Annexures B to E). In these certificates what has been emphasised by the Doctors is that the oil in question has no curative value but all have stated that the product is good for massage of babies. It is common knowledge that massage with oil is given not necessarily for curative purposes but it adds glow and suppleness to the skin. T.I. 14 F (1) CET (as it then existed) covered "Preparations for the care of the skin" (emphasis supplied). But then in T.I. 14 F(1) CET some products are mentioned and though the definition is inclusive one, description of the products included therein would suggest that products like those stated therein or those which are alike or similar would be includible in the said tariff item.
So groundnut oil cannot be covered by that definition. It is also to be noted that some edible oils are commonly used for the purpose of massage also e.g. mustard oil, coconut oil, etc. There is no direct evidence on record that groundnut oil is also used for massage purposes but then it is not the contention of the revenue that the colour added therein would make oil fit for the purpose of massage. So even though oil is marketed as massage oil and even though it would suggest change in the character and use of the oil, still, however it would continue to remain oil. Moreover T.I. 12 covers VNE oils, all sorts, and it is not necessary that to be included therein the oil in question should remain edible. So in view of the decision in Jayant Oil Mills case (supra) the product in question should have been classified under T.I.12. In this connection reliance can also be placed on following ratio of Bharat Forge and Press Industries (P) Ltd. v. Collector of Central Excise It is also clear that it is of no consequence whether the pipes and tubes are manufactured by rolling, forging, spinning, casting, drawing, annealing, welding or extruding. It is true that initially pipes and tubes may be obtained from sheets, billets or bars by various processes, but the process of manufacture of pipes and tubes does not end there. In order to achieve fully the purpose for which the pipes and tubes are manufactured, it is necessary to manufacture smaller pieces of pipes and tubes and also to manufacture them in such a shape that they may be able to conduct liquids and gases, passing them through and across angles, turnings, corners and curves or regulating their flow in the manner required Smaller pieces of pipes and tubes differently shaped are manufactured for this purpose. They are merely intended as accessories or supplements to the larger pipes and tubes. They are pipes and tubes made out of pipes and tubes. There is no change in their basic physical properties and there is no change in their end use. There is no reason why these smaller articles cannot also be described as pipes and tubes.
12. The learned JDR has placed reliance upon M/s. Sunny Industries case (supra) 1989 (20) ECR 59 Cegat SB-C. We have carefully perused that order; therein the question was whether the product therein should be classified under T.I. 14 F or T.I. 14E and the issue was whether addition of Vitamins 'A' & 'D' would make the product a proprietory medicine or the product being 'A' 'D' Vitamin massage oil Forte' "should be classified under 14-F". Tribunal has found that the product was made of Olive Oil, and Vitamins A and E and "a few other things. In these circumstances the product was held to be classifiable under T.I.14 F (as it then existed). We have also noted that therein there was no argument about inclusion of the product in T.I. 12 or T.I. 68. So in our view that case is distinguishable.
12A. Admittedly the appellant has been purchasing duty-paid groundnut oil and so the question of charging of Central Excise duty does not arise.
13. We need not discuss the objections raised in the cross-objections regarding findings of the Collector that O.B.M. Oil is not a product for the care of skin. We need not discuss in detail the objections raised by the respondents in the cross-objections as it is not necessary.
14. As far as the product E. Oil is concerned admittedly it is a mixture of several oils including Kunkumadi oil and on Chemical Examination it is found to be containing Arachis Oil (61%) Olive Oil, (20%) Kunkumadi Oil 15% and Vitamin E. liquid (4%). As noted in the impugned order the respondents were also adding anti oxidant in the preparation. It is also noted that the product has all the characteristics of a "preparation". Character and use of the product also changed. So. it was rightly held to be "manufacture". But it is contended by the respondents that the same was recommended for use as cure for pimples on the skin and should be treated as Ayurvedic medicine for wrinkles. In this connection the learned Collector has rightly observed as under: The party in reply to the show causa notice has admitted the product to be a preparation but has said that the same is for cure of the wrinkles and pimples on the skin and should be treated as ayurvedic medicine. Only such of the medicines fall under T.I. No. 14E which are for the internal and external treatment of or for the prevention of ailment in human beings or animals-wrinkles or pimples on a skin is never considered to be an ailment. Whatever is applied on skin for removal of wrinkles or pimples will fall under the category of care for the skin. Moreover, this product is being sold by the noticee as a product for care of the skin. This product is correctly classifiable under T.l. No. 14F (1).
After advancing arguments Mr. Chandrasekharan also conceded this position. So the contention of the respondent is required to be rejected as far as classification is concerned.
15. As far as the question of assessment and demand of duty on the product E. Oil is concerned the show cause notice was issued on 30.6.1984. Even though Central Excise duty was demanded from 1.4.1979 to 26.4.1984, ultimately the learned Collector has dropped the demand for the period 19/9-80 to 1982-83. The show cause notice has been issued under provisions of rules 9/10 read with other rules of Central Excise Rules, 1944, invoking larger period of limitation alleging that the respondents manufactured goods without obtaining valid licence, did not maintain proper records and removed goods without payment of duty and that they had misrepresented to Central Excise Department by addressing a letter dated 3.12.1979 that they were manufacturing these products which did not contain any perfume and were exempted from levy of Central Excise Duty under T.I. 14(F) (not withstanding the fact that the oils in question were not hair oils and criterion of absence of perfume was not relevant), with deliberate intent to evade Central Excise Duty. Copy of the said letter is on record (Annexure 'M'). in the beginning the respondents filed a declaration dated 27.12.1978 in relation to E. Oil claiming total exemption from the excise duty (Annexure '1'). In this the product was described as cosmetic (E. Oil).
At annexure 'J' is a letter dated 11.4.1979 whereby the party applied for exemption for product E. Oil and they sent one sample also for consideration by the Department. From the report of the Chemical Examiner (excerpted above) the Department knew what was being manufactured and by circular dated 15.11.1979 (Annexure 'L'), the Department directed the respondent to submit monthly returns, fly a letter dated 3.12.1979 (Annexure 'M') the respondents inform-led the Department about their manufacturing O.B.M. Oil and E. Oil under cosmetic licence without perfume and seeking clarification whether they were required to file monthly returns. They filed returns for the month of November 1979 as per copy of forwarding letter dated 4.12.1979 (Annexure 'N'). By letter dated 10.12.1979 (Annexure 'O') the Department informed the respondents not to file monthly returns. So it cannot be said that what was being manufactured by the respondents was not known to the Department and ho the questions of not obtaining and not applying for licence and not maintaining statutory records and removing goods clandestinely simply do not arise....The Department was in a position to know whether the products were covered under any specific tariff item and whether they were excisable. There was no suppression on the part of the respondent. They cannot be alleged to have committed any fraud. So invoking larger period of limitation was not permissible. So demand for duty beyond 6 months from the date of service of notice was not proper. In the circumstances penalty was not warranted.
(a) In appeal number E/2688/85-C preferred by the revenue the impugned order is modified to the extent that O.B.M. oil would be classifiable under T.I. 12 during the relevant period but would not attract any Central Excise Duty.
(i) Classification of E. Oil decided upon by the adjudicating authority is upheld but demand for the period beyond six months from the date of service of the show cause notice is declared time-barred.
(iii) The matter shall go back to the jurisdictional Collector for assessment of duty on E Oil keeping in view the provisions of Notifications No. 71/78, 80/80 and 140/83 as amended from time to time.