Full Judgment
2. The Ld. Counsel stated that the appellants had a small scale unit and had obtained Central Excise License for manufacturing soap in any form. They had also filed the classification list indicating the Heading No. 3401.10 and subsequently a Modvat declaration also.
3. The department's case against them is that they were manufacturing detergent and not soap and had mis-disclared their product and thereby got the classification approved under wrong heading.
4. It was however, their contention that they had not suppressed or mis-stated any fact and had described their product in terms of the tariff description as soap, organic surface active products and preparations for use as soap in the form of bars, cakes, moulded pieces or shapes whether or not containing soap - soap in any form - GUIDE, DETERGENT CAKES (GUIDE, Blue, Green and Yellow cakes). Thus they had fully described their product.
5. Further more, they had shown the classification as 3401.10 and the same had been approved by the officers. This is because both the appellants as well as officers were under the impression at that time that organic surface active products and preparations for use as soap in the form of cakes etc. -whether or not containing soap were covered by the tariff description of 34.01. It was their contention that detergent cakes are such organic surface active products which do not contain soap but which were preparations meant for use as soap or like soap. However, it was open to the departmental officers to indicate any other heading which they thought appropriate and classify accordingly; but it was, in the circumstances, not fair or proper on their part to charge the appellants with deliberate suppression or mis-statement of fact with intention to evade duty. It was also his submission that in the context provided by the language used in Heading 34.01 and sub-headings 3401.10,3401.20 and Heading 34.02 would make the position clear.
Whereas 34.01 includes soap; as well as OSA whether or not containing soap. 34.02 covers OSA (other than soap); surface active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations whether or not containing soap. Therefore, even if their product was held as not covered by sub-heading 3401.10 which covers only soap in any form, a question would arise whether 34.02 was attracted or 3401.20. But even if the department's contention that it falls under the latter as organic surface active products and preparations for use as soap in the form of bars, cakes etc. is considered, the demand would still be time barred having been issued after the normal period of limitation. It was their contention in this connection that they have at times used the word detergent soap because in common man's understanding a detergent is also a form of cake or bar used as soap for washing and cleaning purposes.
6. It was also their contention that a question would also arise in the circumstances whether the appellants were eligible for the benefit of exemption Notification No. 39/87 as amended. The appellants had claimed benefit of this notification as the detergent cakes were being used as soap or like soap for washing and were being treated by the common user as such.
7. The Ld. D.R. stated that in their classification list No. 72/88-89, the appellants had merely reproduced the tariff description which covers both soap as well as OSAs and soap in any form and showed the classification as Heading 3401.10 which covers only soap. In subsequent classification list also they had added GUIDE DETERGENT CAKE and DERBY DETERGENT CAKE below the tariff description but even then they had shown the Heading as 3401.10 which covers only soap and not detergents.
The deptt. became aware of the actual position when they filed a declaration under 57A since it included some inputs - which were not required for manufacture of soaps. It also found that in some of the documents such as G.P 1 etc. they were showing the product as detergent soap, soap detergent etc. In the circumstances, there was every reason to believe that their product was detergent, but they had deliberately mis-declared it as soap in any form and classified it wrongly under 3401.10. It was his submission that soap and detergent are two entirely different products manufactured by different processes and known in the market as different commodities. Hence, because of this deliberate action on the part of the appellants the larger period of time was invokable under Section 11A and the appellants were required to pay the differential duty and penalty. The appellants were also not entitled to the benefit of Notification No. 39/87 as it covered only soap and not detergents.
8. Ld. Counsel reiterated that from the very beginning that is right from filing AR-4 application and classification list they have always indicated the word DETERGENT. In fact the SSI certificate would also go to show that the item has been treated as detergent soap. In their CL of 72/88-89 they have specifically mentioned the words GUIDE DETERGENT CAKE AND DERBY DETERGENT CAKE. The GUIDE DETERGENT CAKE has also been mentioned in their subsequent classification list and the officers themselves had approved the classification earlier under 3401.10. Even in their application under Rule 57A they had mentioned the words GUIDE/DERBY DETERGENT CAKES and indicated the raw materials required.
In other documents also they have shown the brand name GUIDE.9. We have considered the above submissions. We observe that admittedly what the appellants have been manufacturing is a DETERGENT CAKE and the Ld. D.R. is correct in pointing out that soap and detergents are two different commodities known to the market as such. Their process of manufacture are different and their chemical composition is different and it is a different matter if both can be used for washing purposes.
"For the purposes of Heading 34.01 soap applies only to soap, soluble in water. Soap and the other products of Heading No. 34.01 may contain added substances whereas for the purposes of Heading No. 34.02 organic surface active agents are products which when mixed with water at a concentration of 0.5% at 20C and left to stand for one hour at the same temperature :- (a) give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; and (b) reduce the surface tension of water to 4.5 x 10 N/m (45 dyne/cm) or less.
10. Chemically soaps are the result of hydrolysis of fats and oils with alkalies. The process is called Saponification. The soaps themselves are in the form of sodium or potassium salts of fatty acids chiefly oleic, stearic, palmitic etc. On the other hand detergents are the result of action between alkalies and long chain hydrocarbons derived from petroleum refining such as long chain organic acids. As a commercial products, however, they are mostly a mixture of organic surface active agents and subsidiary constituents.
11. As already noticed soap and detergent are entirely different commodities. Therefore, it was incorrect on the part of the appellants to describe them or include them under soaps in any form.
12. In a classification list mere reproduction of a tariff description or giving merely a commercial name does not serve the purpose and one is expected to describe the nature and type of his product. At the same time we note that the appellants had mentioned the word detergent even in their A.R. 4 application and specifically indicated the words 'detergent cakes' in some of the classification lists shown to us.
Once, this was the position and yet they had shown 3401.10 as a heading and sub-heading, the proper officer ought not to have approved the classification list under the proposed heading and should have corrected the classification rightaway.
13. There is no doubt that 3401.10 does not cover detergents (and covers only soaps). And therefore, it is not clear why the officers concerned still approved it under that sub-heading; but having once done so they were required to keep the time factor in mind and issue the demand notice within the normal period of time.
14. The Ld. D.R. is again correct in pointing out that Notification No.39/87 does not cover detergent and covers only soap. Therefore, the benefit of this notification was obviously not available. The demand however, remains time barred as the department has not been able to establish that the appellant had deliberately suppressed or mis-stated any fact with intention to evade duty.
15. The question still remains whether the appellant's product was classifiable under 3401.20 as organic surface active product and preparations for use as soap in the form of bar, cakes etc. (as held by the ld. Addl. Collector) or under 34.02 as organic surface active agent (other than soap). In this connection, we notice that this aspect has not been examined by the authorities below and there is nothing before us to show whether the conditions mentioned in Chapter Note 3 are satisfied in the case of appellant's product.
Since this is not the issue in controversy before us and we do not have sufficient material on record we are not labouring this point further and leaving it open to the authorities concerned to keep these aspects also in view and apply as and when and where necessary.
16. At the moment, in view of the submissions and the record before us and the position in law, we uphold the classification under 3401.20 as ordered by Collector. We also uphold the finding that exemption under Notification No. 39/87 was not available to the assessee. However, we set aside the demand of duty as time barred and also set aside the penalty for reasons recorded above.