1998(11)LCX0108

IN THE CEGAT, COURT NO. III, NEW DELHI

Ms. Jyoti Balasundaram, Member (J) and Shri Lajja Ram, Member (T)

ICPA HEALTH PRODUCTS (P) LTD.

Versus

COLLECTOR OF C. EX., VADODARA

Final Order No. 1201/98-C, dated 24-11-1998 in Appeal No. E/4354/94-C

Cases Quoted

Limenaph Chemicals v. Union of India — 1993(01)LCX0019 Eq 1993 (068) ELT 0077 (Mad.) — Referred                            [Paras 4.2]

Limenaph Chemicals v. Union of India — 1997(06)LCX0074 Eq 1997 (095) ELT 0195 (Mad.) — Relied on                        [Paras 4.2]

Pushpam Pharmaceuticals Co. Ltd. v. Collector — 1995(03)LCX0088 Eq 1995 (078) ELT 0401 (S.C.) — Followed            [Paras 4.2]

Advocated By : Shri V. Lakshmikumaran, Advocate, for the Appellant.

Shri Sumit Das, SDR, for the Respondent.

[Order per : Jyoti Balasundaram, Member (J)]. - The above appeal arises out of the order of the Collector of Central Excise, Vadodara confirming a duty demand of Rs. 5,41,499.03 on the appellants herein as a consequence of classification of the product “Clinsodent - Denture Cleanser” under CET sub-heading 3306.00 as “preparation for oral and dental hygiene......” and imposing a penalty of Rs. 3 lakhs. The period of demand is March, 1988 to 8th Feburary, 1993 while the show cause notice has been issued on 2-4-1993.

2. The brief facts of the case are that the appellants manufacture P or P medicamants falling under Chapter 30 and goods falling under Chapter 33 of the Schedule to the CETA, 1985. They were also manufacturing a product described as Clinsodent 75 gms. - “Scientific Denture Cleanser” in their factory without the aid of power and without payment of duty, by availing the benefit of exemption in terms of Notification 179/77 which grants exemption to goods falling under TI 68 of the Schedule to the erstwhile Central Excise Tariff, manufactured without the aid of power. (They also classified this product under TI 68 read with Notification 179/77; however their classification list dated 8-8-1985 was returned by the Superintendent of Central Excise vide letter dated 16-8-1985 directing the appellants not to file any classification list or price list since the product was wholly exempt from duty). After introduction of the new Tariff w.e.f. 1-4-1986, the appellants informed the Department vide letters dated 1-4-1986, 18-7-1986 and 8-9-1986 that under the new Tariff classification of Clinsodent would be under CET sub-heading 3405.40 as “Scouring Powder” and eligible for exemption under Notification 222/77, dated 15-5-1977 (covering inter alia Scouring Powder) as amended by Notification 78/86. Thereafter they cleared Clinsodent without payment of duty. Since the Department was of the view that the manufacture of Clinsodent had not been declared in the classification list filed for other products, a show cause notice dated 2-4-1993 was issued proposing classification under CET sub-heading 3306.00 as “preparation for oral or dental hygience .....” instead of the assessee’s claim that it was a Scouring Powder, in view of the product literature which indicated clearly that “a lidful of Clinsodent is to be put into the denture container filled with water. After leaving the denture overnight the denture is to be rinsed and brushed with sufficient water before use” and thus Clinsodent is not required to be rubbed or brushed on the denture in any manner and is, therefore, not a scouring powder. The notice proposed recovery of the duty amount ultimately confirmed and also proposed imposition of penalty. The adjudicating authority confirmed the classification proposed and the demand and penalty holding that Heading 3306 covered the product and he invoked the extended period of limitation, holding the appellants guilty of misstatement of the product as scouring powder in order to wrongly avail the exemption under Notification 222/77 with intent to evade payment of duty. Hence this appeal.

2.1 We have heard Shri V. Lakhsmikumaran, learned Advocate who contends inter alia that the product in dispute is a scouring powder falling under Chapter Heading 34.05 and is not a cosmetic or toilet preparation under Chapter 33 and that the demand is barred by limitation in respect of the period beyond six months prior to the date of show casue notice, since the appellants had specifically written to the Department intimating the Department about the process of manufacture and the ingredients and in fact the Department itself had returned the classification list of 1985 holding that Clinsodent was not liable to duty and hence it cannot be alleged that the appellants had suppressed the facts with intent to evade payment of duty. Without prejudice to the above contention, the learned Counsel also submits that the quantum of duty is incorrect since the sale price has been taken as the assessable value instead of arriving at the assessable value after allowing abatement towards duty from the sale price, applying the provisions of Section 4(4)(d)(ii) of the Central Excise Act. He also submits that in view of the above the penalty is also not imposable on the appellants.

3. Opposing the prayer, learned SDR, Shri Sumit Das supports classification under Chapter 33 as the product is a “preparation for oral and dental hygiene” since it renders dentures clean and fresh and rules out its classification under Heading 34.05 because it is not required to be rubbed or brushed on the denture but is only to be added to water in a container in which the denture is left to soak overnight and is, therefore, not a scouring powder as no abrasive action is involved. He submits that the extended period of limitation is applicable in the present case since they had deliberately misdeclared that their product was a scouring powder and deliberately and wrongly claimed the benefit of exemption available under Notification 222/77 which covers goods falling under Chapter 34 manufactured without the aid of power, which constituted suppression of facts with intent to evade payment of duty. However, he fairly submits that in the event of the Bench directing requantification for any reason, the assessable value would have to be reworked after allowing abatement towards duty from the sale price.

4. We have carefully considered the above submissions. Our findings are recorded as under :

4.1 Classification of Clinsodent

There is no dispute regarding the manner of use of the product from which it is clear that no abrasive action takes place. Scouring powders are rubbed or brushed on vessels, etc. so as to bring about abrasive action for the cleaning to take place. Hence the product cannot be considered as a scouring powder falling under Chapter 34.05 which covers inter alia “scouring powders and powders of similiar prepration ....”. Heading 33.06 specifically covers this type of product as it is a preparation for dental hygiene, being a preparation for cleaning the dentures. Hence we uphold the classification confirmed by the adjudicating authority.

4.2 Limitation

Prior to the advent of CETA, 1985, the appellants were manufacturing Clinsodent through loan licence and during that time, they filed a classification list for the product along with labels. The Department advised the appellants not to file any classification list or price list since the product was exempt from payment of duty in terms of Notification 179/77 which exempted products falling under TI 68 manufactured without the aid of power. Immediately after introduction of the new Tariff, the appellants wrote to the Department on 1-4-1986 on the subject of classification of Clinsodent in the light of the new Tariff in which they clearly stated that it was a scouring powder used for cleaning of dentures (emphasis supplied). On 18-7-1986 the apellants again wrote to the jurisdictional Superintendent of Central Excise regarding classification of the product under the new Tariff in which they have stated that the product was used for scouring or washing of dentures and on this basis they claimed that this was a scouring powder under Chapter 34. In these letters, they intimated to the Department about the ingredients used in the manufacture of Clinsodent as well as its ultimate use as denture cleanser. Further in the 1990 questionnaire for valuation of goods under Section 4 of the Central Excise Act, 1944, in response to query No. 6 viz. “Are you supplying exempted goods or accessories along with excisable goods sold by you?” They replied that they were clearing Clinsodent 75 gms without the use of power and similar was the response to the same query in 1992. In these circumstances, it cannot be held that the appellants have not made a true and full disclosure to the Department about the product and hence it was open to the Department to direct them to file a classification list for Clinsodent and pay appropriate duty under CET sub-heading 33.06. The Collector has relied upon the decision of the Hon’ble Madras High Court in the case of Limenaph Chemicals v. Union of India reported in 1993(01)LCX0019 Eq 1993 (068) ELT 0077 (Mad.) wherein the Court held that if an assessee deliberately misdeclares the description of the products manufactured by him, the extended period is available to the Department, regardless of the Department’s knowledge about the product. However, as rightly pointed out by the learned Counsel this judgment of the Single Judge has been reversed by the Division Bench in 1997 (095) ELT 195 wherein the Court held that the extended period was not invokable because the Department was fully aware about the manufacturing process and the nature of the product and allowed the appellants to clear the goods by availing of exemption after testing. In coming to this conclusion, the Division Bench of the Madras High Court relied upon the Supreme Court’s decision in the case of Pushpam Pharmaceuticals Co. Ltd. reported in 1995 (078) ELT 401 S.C. wherein it was held that “where facts known to both the parties, the omission by one to do what he might have done and not that he must have done, does not render it suppression”. Following the ratio of the Division Bench judgment, we hold that in the face of the complete disclosure about the product in dispute, the Department is not justified in invoking the extended period of limitation and accordingly restrict the duty demand to a period of six months prior to the date of the show cause notice. The requantification of the duty demand is to be carried out by the jurisdictional Comissioner of Central Excise who is also directed to arrive at the assessable value of the product after allowing abatement towards duty from the sale price.

5. The penalty imposed on the appellants is set aside since the Department has not been able to sustain the charge of suppression.

6. In the result the appeal is partly allowed.

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Equivalent 1999 (105) ELT 351 (Tribunal)

Equivalent 1998 (029) RLT 0876