2002 (9) TMI 128 - HC - Central Excise

Words and phrases - Classification of goods - Valuation (Central Excise) - Demand - Unjust enrichment

Summary

Issues Involved:
1. Whether hair dyes were covered under Tariff Item No. 14F of the Central Excise Tariff at the relevant time.
2. What should be the monetary liability for the petitioner in either of the situations.

Issue-wise Detailed Analysis:

Issue (a): Whether hair dyes were covered under Tariff Item No. 14F of the Central Excise Tariff at the relevant time

The petitioner, a public limited company engaged in manufacturing cosmetics, challenged the classification of their hair dye product under Tariff Item No. 14F, which imposed a higher excise duty. The petitioner argued that hair dyes were not explicitly mentioned under Tariff Item No. 14F before 1st April 1985 and should not be classified under "hair lotions," thus attracting a lower duty under the residuary entry No. 68.

The court examined the interpretation of the term "namely" in Tariff Item 14F, agreeing with the Single Judge's view in the Vasmol case that the term was used restrictively, not illustratively. Therefore, unless hair dyes were specifically mentioned, they could not be classified under hair lotions, creams, and pomades.

However, the court also considered the Division Bench judgment in Chimanlal Mehta's case, which had a broader interpretation, suggesting that hair dyes could be considered hair lotions based on their composition and commercial interchangeability. The respondent No. 1 followed this broader interpretation, classifying hair dyes as hair lotions.

The court concluded that the respondent No. 1's approach was not perverse, given the Division Bench's observations. Therefore, the court upheld the classification of hair dyes under Tariff Item 14F, accepting that the broader interpretation was reasonable.

Issue (b): What should be the monetary liability for the petitioner in either of the situations

The petitioner had collected excise duty at the rate of 105% from customers but paid only 8% to the government, arguing that they were protecting themselves against potential liability. The court examined Section 4 of the Central Excise Act, which provides for the valuation of excisable goods, excluding the amount of duty from the wholesale price to arrive at the assessable value.

The court found that the petitioner had consciously deducted 105% excise duty while calculating the assessable value, retaining the excess amount collected from customers. This act was not innocent or mistaken, as the petitioner was aware of the possible liability and chose to shift the burden onto customers.

The court emphasized the principle of unjust enrichment, stating that no one can retain an amount collected as tax if it was not paid to the state. The petitioner's conduct of collecting and retaining the excess duty was deemed unjust enrichment, and they were required to pay the collected amount to the government.

The court dismissed the petition, holding that hair dyes were covered under Tariff Item No. 14F at the relevant time. Even if classified under the residuary Entry No. 68, the petitioner was liable to pay the duty at 105% since they collected it from consumers. The petition was dismissed with costs, and the interim order was vacated, allowing the respondents to recover the excise duty as per the impugned order and notices. The court granted an 8-week continuation of the interim injunction to allow the petitioner to seek further relief.