G. Loucatos and Co. Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. the questions for decision surviving for a consideration in this appeal are whether the five years time-limit under proviso to section 11a(1) of central excises and salt act, 19h in raising demand against the appellants is applicable on the facts and circumstances of the case and whether imposition of penalty of rs. 5,000/- against the appellants for breach of certain rules set out in the show cause notice and orders of the lower authorities are justified.2. in response to notice of hearing, the appellants by their communication dated november 18, 1986 (received in the tribunal on 1-12-1986) intimated that they are not in a position to appear for the hearing either in person or through an authorised representative. they requested that the case may be decided on merits in their absence and they have nothing to add to the representation made in their appeal.the letter further refers to a valuation issue raised against them by appropriation of an amount of rs. 18,619.87p. from the bank guarantee.they appear to have entered into correspondence with the tribunal - whether filing of supplementary appeal about this aspect is necessary to which no reply appears to have been sent by the tribunal. the letter requests that this valuation issue be also decided in their absence and refund of rs. 18,619.87p. ordered. about this aspect, it is sufficient to say that the same is not before the tribunal through proper procedure and the tribunal would not be expressing any findings on this aspect of the letter.2a. smt. j.k. chander, departmental representative was heard for the respondents.3. in the written representation at page 3, the appellants say that the collector (appeals) has passed the order-in-appeal partly giving some relief, but otherwise has rejected their appeal especially concerning their plea of time bar and imposition of penalty. they further add that though other matters are also raised in their appeal for appreciation of their stand point, it is particularly against this part of the order-in-appeal (rejection of time bar plea and imposition of penalty) that they are filing this instant appeal before the hon'ble tribunal.in view of this, the tribunal does not enter into the question of classification of the product (spirocton gum cream). it confines itself only to the plea of time bar and imposition of penalty.4. the appellants are engaged in the manufacture of p and p medicines falling under tariff item 14-e of the central excise tariff. one of the products manufactured by the appellants is spirocton-gum-cream. the appellants filed classification list no. 4/78 dated 19-6-1978 declaring this item among others as non-excisable. while the assistant collector or central excise approved the classification in respect of other items, about this item he made a remark that its classification would be dealt with separately. the superintendent in charge of the appellants' unit drew a sample of the product on 12-10-1978 and the same was sent to deputy chief chemist, central excise for chemical analysis. the order of the assistant collector further shows that the chemical examiner vide his letter dated 10-12-1974 opined that the product could not fall under tariff item 14-ff for which the sample was sent for his opinion but expressed its possibility of falling under tariff item 14-e in view of the contents of calcium carbonite, bacterial culture-filtrate (vaccine) and writing on its labels and cartons and its advertisement as also the appellants declaration that it is a medicated cream for keeping the gum healthy. the chemical examiner desired to know the function and content of the cream contained in the product. the appellants by their letter dated 3-1-1975 furnished the nature of the active ingredient as also its chemical composition of the product and stated that it is used against the common gum troubles i.e. pyorrhoea, gingivities and gum bleeding. there appears to have been some correspondence between the parties which could be best gathered by reproduction of the relevant part of the assistant collector's order:- "in their subsequent letter dated 19-2-1975 addressed to the concerned superintendent of central excise, the party stated that the product does not fall within the purview of drugs and cosmetics act, 1940. in support of their above statement they had enclosed letter no. dca/1b/ii/12623 of 1964 dated 7-4-1964 issued by the director, food & drug administration, maharashtra state, bombay-1. when the above facts were brought to the notice of the chemical examiner, he vide his no. bms/14f-48-24/74 dated 26-3-1975 expressed doubt as to whether the relevant facts i.e. the presence of bacterial culture filtrate i.e. vaccine in the said product and the party's declaration that the said cream was medicated cream for gum massage had been disclosed to the drug control administration in 1964 or otherwise. he, therefore, directed the departmental officers to bring the fact to the notice of the food & drug administration for further clarification when the above facts were brought to the notice of the food & drug administration, the commissioner of food and drug administration vide his letter no. a/to/g-26/75 dated 17.11.75 informed the department that the spirocton gum cream would be a new drug within the meaning of section 75(b) of the drugs and cosmetics act, 1940 and accordingly they had instructed the party to approach the drug controller of india, new delhi, to obtain the permission for manufacture of the said product as a drug so as to enable them to issue the necessary licence under drugs and cosmetics act, 1940. it is brought out that party did approach drug controller of india for required permission but since they did not follow the instructions and directions of the drug controller of india given vide his letter no. 4-7/70-dc dated 20.9.79 the food & drug administration instead of issuing them a licence directed the party under their no. ad/g/263280/12 dated 27.3.81 to stop the manufacture of the said product as to withdraw all the stocks from the market".a show cause notice dated 3.6.81 was served on the appellants alleging and charging them with mis-declaration of the product with intent to evade payment of appropriate central excise duty and calling upon them to pay duty in all rs. 1,61,818.04 p. in respect of the product cleared during the five years period 1.6.76 to 31.5.81. the appellants in reply to the show cause notice denied the allegations and maintained that they had been manufacturing and marketing the product as a toiletary item since 1941 with the knowledge and authority of food &. drug admn., bombay. in 1964, the food and drug administration, bombay informed them that no licence under the drugs act, 1940 was required for manufacturing the said product, hi 1973, the assistant collector of central excise, bombay wrote to the appellants that their spirocton gum-cream does not fall under item 14e. the samples of the product were drawn by the department from time to time for determining whether the product can be considered as p & p medicine falling under item 14-e but so far the department has not been able to classify the product in question. the appellants maintained that they had complied with the directions and instructions of the drugs controller of india but the dental institutions did not cooperate. they could not, therefore, submit the necessary certificates. the products are not sold on doctor's prescription and the carton of the product does not say so.they denied the charge of mis-declaration. they maintained that they had been cooperating with the department and furnishing information on the nature and composition of the product without concealing any fact.the appellants could not be penalised because the department could not arrive at. a proper classification. they could not be held liable for payment of duty for the past 5 years. they also maintained that they were eligible to benefit of exemption under notification no. 71/78 dated 1.3.78 and no. 80/80 dated 19.6.80. there had been no wilful mis-statement or suppression of fact and proviso to sub-section (1) of section 11-a for recovery of duty could not be invoked. the assistant collector afforded a hearing to the appellants and then by order dated 24.7.81 classified the product under tariff item 14-e and confirmed the demand of duty and also imposed penalty. in appeal the collector of central excise (appeals) granted to the appellants the benefit of notification no. 71/78 dated 1.3.78 and no. 80/80 dated 19.7.80 regardless of their having not filed the classification list provided they satisfied the conditions specified in the respective notifications but for this modification he dismissed the appeal. hence this appeal to the tribunal.5. the inference as to suppression of fact is sought to be drawn against the appellants by the lower authorities on the ground that the commissioner of food & drug administration, maharashtra state vide his letter dated 17.11.1975 informed the department that the drug spirocton gum cream would be a new drug within the meaning of section 75(b) of the drugs and cosmetics act, 1940 and that the appellant manufacturer had been instructed to approach the drug controller of india to obtain permission for manufacture of the said drug as drug so as to enable them to issue the necessary licence under drugs and cosmetics act, 1940. ft appears that the appellants approached the drug controller of india for required permission but for some reason or the other, they did not succeed in obtaining the permission so far. now it is well settled that burden to prove that a particular/manufacture or product falls under any particular tariff item for classification is on the revenue. for coming to a finding on classification the officer empowered for the job can hold enquiry according to law and can also call upon the applicant or manufacturer to produce any documents in their possession relevant to the enquiry. now in the instant case, the inference of suppression of fact is sought to be drawn only from the fact that the appellant? in spite of letter dated 17.11.75 from the commissioner of food and drug administration to the department and to the appellants filed a classification list claiming the goods to be non-excisable. now even according to the department letter dated 17.11.75 was' addressed to the department also and they must be presumed to have knowledge of the same. it is not shown or suggested that appellants were called upon to produce this letter and they did not produce the same. it is not shown or suggested that they were confronted with the same and they denied the same. this apart, the letter loses its importance because in terms of the same, no permission in respect of the manufacture as a drug has been granted by the drug controller of india for whatever reason it may be.6. the appellants, it appears to us, cooperated in full with the department at all stages. as for letter dated 17.11.75 (supra), department was itself in possession of the letter because it was addressed to them and the appellants were not asked to produce this letter. classification is a mixed question of law and fact. when the appellants has placed all relevant facts, it was for the department to come to a finding about proper classification based on relevant material. merely because the appellants claimed the products to be non-excisable in the classification list, nothing prevented- the department in coming to a proper finding about classification. in this connection, it is useful to refer to the form used for filing classification list which is form i available as annexure i in central excise law guide 4th edition by r.k. jain published by central law office, new delhi. the memorandum of approval by proper officer appended to the form gives out 3 draft forms of approval. serial no. 3 of the memorandum inter-alia reads as under "goods described against s.no.(s)... to... of item no. 7 which have been claimed by the assessee as non-excisable are excisable. tariff classification and rate of duty leviable in respect of these goods shall be as under, until further orders." full instructions are also apprehended to this form. instruction 6 reads as under - "if the assessee has any difficulty in filing column 5 to 9, he may leave them blank. these will then be filled up by the central excise officer".with reference to this instruction, it may be stated that columns nos.5 to 9 of the form deal with unit code no. , classification code no. , type of duty, rate of duty and number and date of the relevant notifications. it is also observed that as late as 1973 even while tariff item 16-e was there in the tariff, the department had approved the classification of the product as being non-excisable. nothing prevented the department from having recourse of provisional classification if they were prima-facie not satisfied with the classification filed by the appellants on 19.6.78. in our view, the assistant collector should not have deferred the decision till middle of 1981 and then call upon the appellants to pay duty for the last 5 years. in the above background, we feel that invoking the 5 year time-limit against the appellants for raising demand of duty is not justifiable.7. as for imposition of penalty, in the background stated above, the appellants cannot be held liable merely because the appellants claimed their goods t6 be non-excisable in the classification list which was still to be approved. imposition of penalty is not justified and we set aside the same.8. as a result, the demand of duty, if any, against the appellants, is restricted to a period of 6 months preceding the date of show cause notice. penalty of rs. 5,000/- is set aside.9. the appeal is disposed of in the foregoing terms with consequential relief to the appellants.

Judgment:
1. The questions for decision surviving for a consideration in this appeal are whether the five years time-limit under proviso to Section 11A(1) of Central Excises and Salt Act, 19H in raising demand against the appellants is applicable on the facts and circumstances of the case and whether imposition of penalty of Rs. 5,000/- against the appellants for breach of certain rules set out in the show cause notice and orders of the lower authorities are justified.

2. In response to notice of hearing, the appellants by their communication dated November 18, 1986 (received in the Tribunal on 1-12-1986) intimated that they are not in a position to appear for the hearing either in person or through an authorised representative. They requested that the case may be decided on merits in their absence and they have nothing to add to the representation made in their appeal.

The letter further refers to a valuation issue raised against them by appropriation of an amount of Rs. 18,619.87p. from the Bank guarantee.

They appear to have entered into correspondence with the Tribunal - whether filing of supplementary appeal about this aspect is necessary to which no reply appears to have been sent by the Tribunal. The letter requests that this valuation issue be also decided in their absence and refund of Rs. 18,619.87p. ordered. About this aspect, it is sufficient to say that the same is not before the Tribunal through proper procedure and the Tribunal would not be expressing any findings on this aspect of the letter.

2a. Smt. J.K. Chander, Departmental Representative was heard for the respondents.

3. In the written representation at page 3, the appellants say that the Collector (Appeals) has passed the order-in-appeal partly giving some relief, but otherwise has rejected their appeal especially concerning their plea of time bar and imposition of penalty. They further add that though other matters are also raised in their appeal for appreciation of their stand point, it is particularly against this part of the order-in-appeal (rejection of time bar plea and imposition of penalty) that they are filing this instant appeal before the Hon'ble Tribunal.

In view of this, the Tribunal does not enter into the question of classification of the product (SPIROCTON GUM CREAM). It confines itself only to the plea of time bar and imposition of penalty.

4. The appellants are engaged in the manufacture of P and P medicines falling under Tariff Item 14-E of the Central Excise Tariff. One of the products manufactured by the appellants is Spirocton-gum-cream. The appellants filed classification list No. 4/78 dated 19-6-1978 declaring this item among others as non-excisable. While the Assistant Collector or Central Excise approved the classification in respect of other items, about this item he made a remark that its classification would be dealt with separately. The Superintendent in charge of the appellants' unit drew a sample of the product on 12-10-1978 and the same was sent to Deputy Chief Chemist, Central Excise for chemical analysis. The order of the Assistant Collector further shows that the Chemical Examiner vide his letter dated 10-12-1974 opined that the product could not fall under Tariff Item 14-FF for which the sample was sent for his opinion but expressed its possibility of falling under Tariff Item 14-E in view of the contents of Calcium Carbonite, bacterial culture-filtrate (vaccine) and writing on its labels and cartons and its advertisement as also the appellants declaration that it is a medicated cream for keeping the gum healthy. The Chemical Examiner desired to know the function and content of the cream contained in the product. The appellants by their letter dated 3-1-1975 furnished the nature of the active ingredient as also its chemical composition of the product and stated that it is used against the common gum troubles i.e. Pyorrhoea, gingivities and gum bleeding. There appears to have been some correspondence between the parties which could be best gathered by reproduction of the relevant part of the Assistant Collector's order:- "In their subsequent letter dated 19-2-1975 addressed to the concerned Superintendent of Central Excise, the party stated that the product does not fall within the purview of Drugs and Cosmetics Act, 1940. In support of their above statement they had enclosed letter No. DCA/1B/II/12623 of 1964 dated 7-4-1964 issued by the Director, Food & Drug Administration, Maharashtra State, Bombay-1.

When the above facts were brought to the notice of the Chemical Examiner, he vide his No. BMS/14F-48-24/74 dated 26-3-1975 expressed doubt as to whether the relevant facts i.e. the presence of bacterial culture filtrate i.e. vaccine in the said product and the party's declaration that the said cream was medicated cream for gum massage had been disclosed to the Drug Control Administration in 1964 or otherwise. He, therefore, directed the departmental officers to bring the fact to the notice of the Food & Drug Administration for further clarification when the above facts were brought to the notice of the Food & Drug Administration, the Commissioner of Food and Drug Administration vide his letter No. A/TO/G-26/75 dated 17.11.75 informed the department that the spirocton gum cream would be a new drug within the meaning of Section 75(B) of the Drugs and Cosmetics Act, 1940 and accordingly they had instructed the party to approach the Drug Controller of India, New Delhi, to obtain the permission for manufacture of the said product as a drug so as to enable them to issue the necessary licence under Drugs and Cosmetics Act, 1940. It is brought out that party did approach Drug Controller of India for required permission but since they did not follow the instructions and directions of the Drug Controller of India given vide his letter No. 4-7/70-DC dated 20.9.79 the Food & Drug Administration instead of issuing them a licence directed the party under their No. AD/G/263280/12 dated 27.3.81 to stop the manufacture of the said product as to withdraw all the stocks from the market".

A show cause notice dated 3.6.81 was served on the appellants alleging and charging them with mis-declaration of the product with intent to evade payment of appropriate Central Excise duty and calling upon them to pay duty in all Rs. 1,61,818.04 p. in respect of the product cleared during the five years period 1.6.76 to 31.5.81. The appellants in reply to the show cause notice denied the allegations and maintained that they had been manufacturing and marketing the product as a toiletary item since 1941 with the knowledge and authority of Food &. Drug Admn., Bombay. In 1964, the Food and Drug Administration, Bombay informed them that no licence under the Drugs Act, 1940 was required for manufacturing the said product, hi 1973, the Assistant Collector of Central Excise, Bombay wrote to the appellants that their Spirocton gum-cream does not fall under item 14E. The samples of the product were drawn by the Department from time to time for determining whether the product can be considered as P & P medicine falling under Item 14-E but so far the Department has not been able to classify the product in question. The appellants maintained that they had complied with the directions and instructions of the Drugs Controller of India but the Dental Institutions did not cooperate. They could not, therefore, submit the necessary certificates. The products are not sold on doctor's prescription and the carton of the product does not say so.

They denied the charge of mis-declaration. They maintained that they had been cooperating with the Department and furnishing information on the nature and composition of the product without concealing any fact.

The appellants could not be penalised because the Department could not arrive at. a proper classification. They could not be held liable for payment of duty for the past 5 years. They also maintained that they were eligible to benefit of exemption under notification No. 71/78 dated 1.3.78 and No. 80/80 dated 19.6.80. There had been no wilful mis-statement or suppression of fact and proviso to Sub-section (1) of Section 11-A for recovery of duty could not be invoked. The Assistant Collector afforded a hearing to the appellants and then by order dated 24.7.81 classified the product under Tariff Item 14-E and confirmed the demand of duty and also imposed penalty. In appeal the Collector of Central Excise (Appeals) granted to the appellants the benefit of notification No. 71/78 dated 1.3.78 and No. 80/80 dated 19.7.80 regardless of their having not filed the classification list provided they satisfied the conditions specified in the respective notifications but for this modification he dismissed the appeal. Hence this appeal to the Tribunal.

5. The inference as to suppression of fact is sought to be drawn against the appellants by the lower authorities on the ground that the Commissioner of Food & Drug Administration, Maharashtra State vide his letter dated 17.11.1975 informed the Department that the drug Spirocton gum cream would be a new drug within the meaning of Section 75(B) of the Drugs and Cosmetics Act, 1940 and that the appellant manufacturer had been instructed to approach the Drug Controller of India to obtain permission for manufacture of the said drug as drug so as to enable them to issue the necessary licence under Drugs and Cosmetics Act, 1940. ft appears that the appellants approached the Drug Controller of India for required permission but for some reason or the other, they did not succeed in obtaining the permission so far. Now it is well settled that burden to prove that a particular/manufacture or product falls under any particular Tariff item for classification is on the Revenue. For coming to a finding on classification the officer empowered for the job can hold enquiry according to law and can also call upon the applicant or manufacturer to produce any documents in their possession relevant to the enquiry. Now in the instant case, the inference of suppression of fact is sought to be drawn only from the fact that the appellant? in spite of letter dated 17.11.75 from the Commissioner of Food and Drug Administration to the Department and to the appellants filed a classification list claiming the goods to be non-excisable. Now even according to the Department letter dated 17.11.75 was' addressed to the Department also and they must be presumed to have knowledge of the same. It is not shown or suggested that appellants were called upon to produce this letter and they did not produce the same. It is not shown or suggested that they were confronted with the same and they denied the same. This apart, the letter loses its importance because in terms of the same, no permission in respect of the manufacture as a drug has been granted by the Drug Controller of India for whatever reason it may be.

6. The appellants, it appears to us, cooperated in full with the Department at all stages. As for letter dated 17.11.75 (supra), Department was itself in possession of the letter because it was addressed to them and the appellants were not asked to produce this letter. Classification is a mixed question of law and fact. When the appellants has placed all relevant facts, it was for the Department to come to a finding about proper classification based on relevant material. Merely because the appellants claimed the products to be non-excisable in the classification list, nothing prevented- the Department in coming to a proper finding about classification. In this connection, it is useful to refer to the form used for filing classification list which is form I available as Annexure I in Central Excise Law Guide 4th Edition by R.K. Jain published by Central Law Office, New Delhi. The memorandum of approval by proper officer appended to the form gives out 3 draft forms of approval. Serial No. 3 of the memorandum inter-alia reads as under "Goods described against S.No.(s)... to... of item No. 7 which have been claimed by the assessee as non-excisable are excisable. Tariff classification and rate of duty leviable in respect of these goods shall be as under, until further orders." Full instructions are also apprehended to this form. Instruction 6 reads as under - "If the assessee has any difficulty in filing column 5 to 9, he may leave them blank. These will then be filled up by the Central Excise officer".

With reference to this instruction, it may be stated that Columns Nos.

5 to 9 of the Form deal with Unit Code No. , Classification Code No. , Type of duty, Rate of duty and Number and date of the relevant notifications. It is also observed that as late as 1973 even while Tariff Item 16-E was there in the tariff, the Department had approved the classification of the product as being non-excisable. Nothing prevented the Department from having recourse of provisional classification if they were prima-facie not satisfied with the classification filed by the appellants on 19.6.78. In our view, the Assistant Collector should not have deferred the decision till middle of 1981 and then call upon the appellants to pay duty for the last 5 years. In the above background, we feel that invoking the 5 year time-limit against the appellants for raising demand of duty is not justifiable.

7. As for imposition of penalty, in the background stated above, the appellants cannot be held liable merely because the appellants claimed their goods t6 be non-excisable in the classification list which was still to be approved. Imposition of penalty is not justified and we set aside the same.

8. As a result, the demand of duty, if any, against the appellants, is restricted to a period of 6 months preceding the date of show cause notice. Penalty of Rs. 5,000/- is set aside.

9. The appeal is disposed of in the foregoing terms with consequential relief to the appellants.