| SooperKanoon Citation | sooperkanoon.com/19983 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai |
| Decided On | Dec-08-2000 |
| Reported in | (2001)(129)ELT207Tri(Mum.)bai |
| Appellant | Commissioner of C. Ex. |
| Respondent | icpa Health Products Pvt. Ltd. |
2. M/s. ICPA Health Products Pvt. Ltd. (hereinafter called as "the assessees") manufactured "moyzen liquid" claiming classification thereof under heading 3303 and also claiming the benefit of Notification 167/86-C.E. which exempted products falling under certain tariff heading alone from payment of duty when manufactured without the aid of power. Three show cause notices were issued on 27-2-1998, 24-8-1998 and 24-11-1998 covering the period November, 1997 to September, 1998 alleging that the classification warranted was under Heading 3304 and alleging short levy of duty totally amounting to Rs. 2,98,292.15 on that ground. The Assistant Commissioner upheld the allegations, confirmed the duty and imposed penalty of Rs. 30,000/- on the assessees. The Commissioner (Appeals) accepted the assessees' contention that the goods were toilet water, set aside the lower order and allowed the appeal. Against this order the revenue have filed an appeal bearing No. E/72-R&V/2000-Mum.
3. Another show cause notice was issued on 20-4-1998 invoking the extended period between April, 1993 to June, 1996 containing similar allegations. The Commissioner adjudicated the case confirming demand of Rs. 20,46,176.38 directing payment of interest on the delayed payment of duty, imposing a penalty of Rs. 4,00,000/-, ordering confiscation of land, building etc. but permitting redemption thereof on payment of fine of Rs. 50,000/-. Against this order the assessees have filed an appeal bearing No. E/2504- R/99-Mum.
4. We have heard Shri M.H. Patil, Advocate appearing along withShri T.C. Nair, Advocate for the assessees. We have also heard Smt. Reena Arya for the revenue.
5. The first issue is the classification of the contested product. The respective tariff entries and the relevant chapter note read as follows:- "3303.00 Perfumes and toilet waters, not containing the substances specified in Note l(d) to this Chapter.
3304.00 Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen and suntan preparations; manicure or pedicure preparations." 6. The label on the bottle described the product "perfumed lotion", "moisturous and moisturising liquid for dry skin disorders". The contents are (1) liquid paraffin (2) isopropyl myristate.
7. The sales literature claims that the product restores softness, smoothness and lustre to rough lustreless skin. It further states that the product prevents skin dehydration, preserves skin humectant and lubricates skin. The literature quotes the product "an ideal skin emollient". It also uses the description "toilet water".
8. We have seen the coverage of the tariff entries and the properties of the ingredients.
9. Although the wording of heading 3303 in the CETA is identical with that in the HSN, Chapter Note l(d) alters their scope. In western countries perfumes are normally alcohol based. The distinction between perfumes and toilet waters is made by the alcohol content by volume.
Whereas in perfumes the alcohol content would be 94 to 96%, the remaining being the perfuming agent, in toilet waters the alcohol would be as low as 25% (Chapter 56 of the book Modern Cosmetics by E.G.Thomssen, B.S., A.M., Ph.D., 1951 edition and reprinted in 1985). The effect of the chapter note would be to remove all alcohol based preparation leaving only the oil based preparations like attars and rose water. The HSN sub-notes describe the toilet waters as designed to give fragrance primarily to the human body.
10. The purpose of toilet waters therefore is limited and that is to impart fragrance to the body. No.further contribution is expected of them.
11. The preparations for the care of the skin may be perfumed but imparting fragrance is not their basic function. Chapter Note 5 to Chapter 33 gives the various nomenclatures of products capable of falling thereunder. In the book cited above Section III speaks of cosmetics for the skin. Chapter 9 speaks of lubricating or emollient creams. It is relevant to remember that the sales literature terms the contested product as "skin emollient". These creams have a favourable action upon dry skin condition and are primarily intended for this use and to help return the skin to a supple, soft condition. The book uses the following words "creams possessing good softening and lubricating properties find numerous uses. The skin not only dries out by exposure to sun and salt air in the summer time but also becomes dry and rough in the winter by the low humidity and heat indoors and cold outdoors.
Lubricating creams are formulated principally to apply oily emollient to skins that are "deficient in oil".
12. Emollient are further described as fatty or waxy substances that are sought to be absorbed by the skin. It further states that such lubricating creams consistently applied to dry skin would ensure a silky appearance.
13. The book further describes several recipes for such creams or lotions. Significantly, mineral oils occupy a very high percentage by volume therein.
14. In the light of these observations we examine the components of the contested goods. The Commissioner says that liquid paraffin content of the product is about 46%. Shri Patil submits that it is about 95%.
Paraffin is a hydrocarbon derivative. The bulk conforms to the formulae given in the cited book. The McGraw-Hill Dictionary of Scientific and Technical Terms describe the origin of paraffin as crude oil and prescribes its use in ointments, in lubricants, cosmetics and food products. The second ingredient isopropyl myristate is described in the same book as an ingredient in cosmetics preparations where good absorption through the skin is required.
15. Thus the principal ingredients in the contested product are emollient and contain fatty matter which is absorbed by the skin. The effect on the skin is that the dryness is reduced. The skin becomes smooth and acquires lustre. Thus its action on the skin and its function is far superior to action and function of toilet waters which is limited to imparting fragrance.
16. The sales literature except for using the words "toilet water" described the very product as a product for the care of the skin. Even the words toilet water are missing from the label imprinted on the bottle.
17. We have seen the opinion given by the Deputy Chief Chemist. There are two opinions, one dated 6-5-1998 and the latter dated 27-8-1998. In the first opinion the expert mentioned that isopropyl myristate was used in cosmetic creams but desired that the assessee may substantiate again by producing literature. In the second opinion on the basis of literature alone he recommended classification as toilet waters. We do not know what literature was presented before him but if what was before him was the literature as what is before us today, then it would appear that he made a grave error in forming this judgment. The function of a chemical authority is to give his opinion on the basis of chemical characteristics of a product. The revenue authority is capable of forming an opinion on perusal of the literature. For that purpose a chemical expert is not required. For this reason we are not impressed by the very substantial case law produced by Shri Patil to the effect that the opinion of the chemical authority must be given sufficient weightage.
18. Shri Patil mentioned that the specific description as "toilet waters" would override general description "preparations for the care of the skin". We find no merit in this claim on two grounds, firstly both are of equal weightage and one of them cannot be called a specific description. Secondly we have already analysed above the respective coverage of the two tariff entries.
19. Shri Patil also lays stress on the commercial parlance and invited our attention to the various opinions on record. The opinions are given by some medical practitioners and also general users perhaps at the instance of the marketing manager one Ms. Kulkarni of the assessee. The medical opinions are worth examination. One Dr. N.D. Rajani, skin specialist, opined as follows :- "I have been using moyzen as a toilet water product and it does not have the properties of a skin care preparations. It helps a great many patients with dry skin". As we have discussed above the property of a product restoring the dry skin condition would put it in the category of a cosmetic product. The skin specialist no doubt is a medical expert but he may not be an expert in the classification under central excise. One other Dr. S.T. Tahiliani has described the product as useful for patients suffering from ichthyoses. In this disease the skin develops fishlike scales due to excessive dryness and only an emollient cream would assist the patient.
When this property is evident in the opinion, the doctor's certificate that the contested product is not a skin care preparation does not assist the assessees. Several other doctors have also certified the product as useful in skin condition and at the same time certifying it as not a skin care product.
20. Shri Patil submits that in examining the classification the advertisement may not be a basis. In this respect he cites the Madras High Court judgment reproduced in 1985 (22) E.L.T. 701 (UOI v. T.S.R.Co.) and Hindustan Lever Ltd. 2000 (121) E.L.T. 451 (T) (Order No.C-II/1733-43/WZB/2000, dated 12-6-2000). We have not based our opinion on the literature alone but have gone into the properties of the ingredient as well as the contested product.
21. On the basis of the analysis above we find that the appropriate classification for the impugned product was under Heading 3304 and not under 3303.
23. In the case of appeal E/72-R&V/2000-Mum. filed by the revenue the Commissioner (Appeals) had dwelt only on classification and had not gone into the aspect of limitation at all. The proceedings involved three show cause notices. In each case the period involved was within six months. Shri Patil refers to the allegation in the show cause notice which states that the assessees had wilfully misclassified the product. He refers to the Supreme Court judgment in the case of CCE v.ONGC -1998 (103) E.L.T. 3 as also the Tribunal judgment in the case of Jayant Vitamins Ltd. v. CC -1996 (81) E.L.T. 421. In this judgment it was held that where suppression etc. was alleged in the show cause notice, the notice had to be signed by a Commissioner, even if the period invoked was within the six months period. Smt. Arya contests this and states that the wording as is used in the present show cause notices was not the same as was used in the notices in the cases before the Supreme Court and the Tribunal. She submits that classification etc. has not been made the plank on which the short levy is sought to be recovered. We however find that the show cause notices do not invoke the provisions of Section 11A of the Central Excise Act, 1944 for recovery of the duty. The duty is sought to be recovered under Rule 9(2) of the Rules although Section 11A has been invoked in imposition of penalty. As for the demand under Rule 9(2) is concerned the judgment of the Supreme Court in the case of N.B. Sanjana -1978 (2) E.L.T. J399 still holds the field. It is held that where the goods are cleared surreptitiously, the demand under this rule could sustain but not where the goods are cleared openly after assessment. It is not the case here that the goods were cleared surreptitiously. The demand under Rule 9(2) therefore does not sustain.
24. The revenue appeal therefore succeeds in part. The Assistant Commissioner's order insofar as it relates to the classification is upheld but the confirmation of demand does not sustain. For the same reason the orders of imposition of penalty also do not survive.
25. In the appeal filed by the assessees the show cause notice dated 20-4-1998 invokes the provisions of Section 11A(1) along with Rule 9(2). The show cause notice was signed by the Commissioner and invokes the extended period. The allegations as to mis-statement etc. are also made. The assessees among other arguments claimed limitation. It was claimed that the department was aware of the composition of the product. The classification had been approved. The RT 12 returns had been filed. Substantial case law was referred to. The Commissioner in his order distinguished the facts before him. He held that even in the product literature the indications were available that the product merited classification as cosmetic preparations. He disposed of the plea on limitation in the following words :- "The Chapter heading as mentioned is 3303.04 and exemption has been claimed under Notification No. 167/86, dt. 01-03-1986. In none of these classification lists total composition of the product has been mentioned inasmuch as the ingredient i.e. perfume upon which the assessee has been vigorously harping during personal hearing in the case of has not been mentioned. They have also not given the description specifically as 'perfume and toilet water but instead have simply mentioned 'Moyzen liquid' which description does not lead to anywhere. Even the literature relating to the advertisement and use of the product which was perused at the time of personal hearing which shows that the product is marketed as soothing, moisturising liquid for dry skin disorder, soothing, moisturising.
In view of the position it is therefore to be held that total information as required relating to the correct classification of the product was withheld from the department. It may be mentioned that under Self Removal Procedure, Central Excise Law casts an obligation on the assessee to file true and correct classification and to indicate therein all the relevant details relating to the classification of the goods being manufactured. Non-disclosure or suppression of full facts either of the product requiring classification under a Chapter heading for charging duty will tantamount to positive act rather than mere in acting and hence will make the extended period applicable. Filing of RT-12s and Classification Lists will not come to their rescue for the reason that they have misclassified their product "MOYZEN LIQUID" under Chapter Heading No. 3303 by way of wilful misstatement and suppression of the facts regarding actual nature and use of their product and wrongly availed the benefit of exemption under Notification No. 167/86- C.E., dated 01-03-1986 as amended.
Therefore non-declaration of the actual nature and use of their product i.e. "MOYZEN LIQUID" is to be taken as a positive act of suppression with intent to evade payment of duty. They cannot be allowed to derive any undue mileage from the judgments cited by them. Their case is not saved by the decisions of the judgments of the Apex Court." 26. We have seen the classification lists filed from time to time. The lists give the components i.e. paraffin and isopropyl myristate. We find that from time to time the labels were also filed. Thus the department had entire material before them on which they could have examined the propriety of the classification as claimed by the assessees. Their consistent failure would take away the merit in the allegation as to suppression etc.
27. We also find that much earlier i.e. on 1-10-1996 a show cause notice was sent to Gran Heale Pharma Ltd. who were manufacturing the same product for the very assessees. In that case the allegation was made that classification under Heading 3304 was appropriate in preference to that claimed by the assessees under Heading 3303. In the face of this show cause notice also (which show cause notice according to Shri Patil is still not adjudicated upon) the department was continuing to accept the various classification lists filed by the assessees. In the face of this overwhelming evidence the charge of suppression cannot sustain and therefore the entire demand made in the show cause notice dated 20-4-1998 where the last period covered was June, 1996 cannot sustain. We therefore allow the assessees' appeal in part. Their claim for the classification under Heading 3303 is without merit. The demand confirmed is barred by limitation. The orders of confirmation of demand are set aside. Consequentially the orders directing them to pay interest, the orders of imposition of penalty and also the orders of confiscation of land etc. do not survive and are set aside.