2003 (10) TMI 48 - SC - Central Excise

Medicinal preparations - Words and Phrases - Drugs - Demand - Limitation - Valuation (Central Excise)

Summary

Issues Involved:
1. Classification of After Shave Lotions (ASLs) as medicinal preparations or toilet preparations.
2. Validity and jurisdiction of the Excise Commissioner's order dated 23-3-1985.
3. Applicability of Rule 11 or Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 for recovery of short-paid excise duty.
4. Method of quantifying duties on products with cum-duty prices.

Detailed Analysis:

1. Classification of After Shave Lotions (ASLs)
The primary issue was whether 'Old Spice' and 'Blue Stratos' ASLs are medicinal preparations or toilet preparations. Colfax argued that their ASLs, containing 62% alcohol, propylene glycol, benzyl alcohol, and water, should be classified as medicinal preparations due to their antiseptic and bactericidal properties. The State of Goa contended that ASLs are toilet preparations, emphasizing their cosmetic use and the presence of perfume. The judgment highlighted the statutory definitions under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, and concluded that ASLs do not treat, mitigate, or prevent any disease, thus classifying them as toilet preparations. The Excise Commissioner and the High Court's findings were upheld, rejecting Colfax's contention.

2. Validity and Jurisdiction of the Excise Commissioner's Order
Colfax had applied for reclassification of their ASLs as medicinal preparations, which was approved by the Excise Commissioner on 23-3-1985. The judgment noted that Colfax's licences were for cosmetics, and they did not have a licence to manufacture medicinal preparations. The order for reclassification was deemed without jurisdiction and null, as it contravened the statutory requirement for a drug licence under the Drugs and Cosmetics Act, 1940. Consequently, the reclassification order was considered a nullity.

3. Applicability of Rule 11 or Rule 12 of the Rules
The High Court treated the excise duty recovery notices as issued under Rule 11, limiting recovery to six months preceding the notices. The Supreme Court, however, held that Rule 12, a residuary provision, was applicable since the short-levy resulted from a jurisdictionally invalid order. Rule 12 allows recovery without a specific limitation period. The judgment emphasized that the Excise Officer acted under the binding order of the Commissioner, making Rule 11 inapplicable due to the lack of inadvertence, error, collusion, or misconstruction by the officer. Thus, the entire short-paid duty from 23-3-1985 was recoverable.

4. Method of Quantifying Duties
The High Court's method of quantifying duties by applying the formula under Section 4(4)(d) of the Central Excise Act, 1944, was upheld. This method involves calculating the excise duty based on the wholesale price less the duty payable, ensuring the correct valuation of excisable goods. The judgment affirmed the High Court's approach, aligning with the precedent set in Govt. of India v. Madras Rubber Factory.

Conclusion:
- Civil Appeal No. 415 of 2000 filed by Colfax was dismissed with costs.
- Civil Appeal No. 414 of 2000 filed by the State of Goa was partly allowed, setting aside the High Court's limitation on recovery to six months and permitting recovery of the entire short-paid duty as per the Excise Commissioner's order dated 12-8-1998.