1990 (1) TMI 253 - AT - Central Excise

Issues Involved:
1. Classification of O.B.M. Oil
2. Classification of E. Oil
3. Validity of Cross Objections
4. Demand of Duty and Penalty on E. Oil
5. Invocation of Larger Period of Limitation

Issue-wise Detailed Analysis:

1. Classification of O.B.M. Oil:
The respondents manufactured Olemessa Baby Massage Oil (O.B.M. Oil) and claimed it was exempt from excise duty under T.I. 14(F). The Collector initially classified O.B.M. Oil under T.I. 68, exempting it from duty under Notifications No. 85/79 and 46/81. The Revenue argued that O.B.M. Oil should be classified under T.I. 14(F) as a preparation for skin care. The Tribunal found that O.B.M. Oil remained groundnut oil despite the addition of color and should be classified under T.I. 12, not attracting any excise duty. The Tribunal referenced the Supreme Court's decision in the Jayant Oil Mills case, which held that oil retains its essential properties even after processing.

2. Classification of E. Oil:
E. Oil was a mixture of several oils, including Arachis Oil, Olive Oil, Kunkumadi Oil, and Vitamin E. The Collector classified E. Oil under T.I. 14(F)(i) as a preparation for skin care. The respondents contended that E. Oil should be treated as an Ayurvedic medicine for wrinkles and pimples. The Tribunal upheld the Collector's classification, noting that wrinkles and pimples are not considered ailments, and products for their removal fall under skin care preparations.

3. Validity of Cross Objections:
The respondents filed cross objections challenging the classification of E. Oil. The Revenue argued that cross objections could not be filed under Section 35E(4) of the Central Excises and Salt Act, 1944. The Tribunal found that cross objections were permissible under Section 35B(4) and should be disposed of as if they were an appeal. Therefore, the Tribunal rejected the Revenue's contention.

4. Demand of Duty and Penalty on E. Oil:
The show cause notice demanded duty on E. Oil from 1-4-79 to 26-4-84. The Collector dropped the demand for 1979-80 to 1982-83, imposing a small duty for 1983-84 and no duty for 1984-85. The Tribunal upheld the classification of E. Oil but declared the demand for duty beyond six months from the notice date as time-barred. The Tribunal also set aside the penalty imposed under Rule 173(Q) of the Central Excise Rules.

5. Invocation of Larger Period of Limitation:
The show cause notice invoked the larger period of limitation, alleging suppression of facts and misrepresentation by the respondents. The Tribunal found that the respondents had informed the Department about their products and sought clarification on excise duty applicability. The Department's knowledge of the products negated any suppression or fraud. Therefore, invoking the larger period of limitation was not justified, and the demand for duty beyond six months was improper.

Final Order:
(a) The impugned order was modified to classify O.B.M. Oil under T.I. 12 without attracting excise duty.
(b) Cross objections were partly upheld:
(i) Classification of E. Oil was upheld, but the demand for duty beyond six months was time-barred.
(ii) Penalty was set aside.
(iii) The matter was remanded to the jurisdictional Collector for duty assessment on E. Oil, considering relevant notifications.

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