2009 (12) TMI 242 - AT - Central Excise

Soap- Penalty- The appellant is engaged in the manufacture of soaps of different varieties such as Nivea Soap, Johnson & Johnson Baby Soap and Tetmosol Soap etc., on job work basis. The dispute in the instant case relates to the classification of Tetmosol Soap manufactured by the Appellant on job work basis for M/s. Nicholas Piramal India Limited. The appellant had classified the product as a Soap, other than for toilet use, whether or not containing medicament or disinfectant under sub heading 3401.11 of Central Excise Tariff Act, 1985. On the basis of said classification, the appellant opted to discharge appropriate duty applicable. The department took the stand that the impugned product is not a medicated soap and hence ought to be reclassified as toilet soap under sub-heading 3401.19 of Central Excise Tariff Act, 1985. Consequent on such reclassification the department demanded the differential duty as well as penalty for the period May 2003 to December 2003 by issuing show cause notice to the appellants. Held that- The Tribunal passed the order on 13-5-2005, whereas the show cause notice related to the year 2003. Therefore, it cannot be said that there was any suppression of facts or willful mis-declaration, fraud or collusion etc. In view of the above position, while on merits, we find that appellants have no case and therefore, they are required to pay the duty demanded with interest as applicable, penalty imposed on them under Section 11AC read with Rule 25 of Central Excise Rules, 2002 is set aside. The appeal is partly allowed.

Summary

Issues:
Classification of Tetmosol Soap under Central Excise Tariff Act, 1985
Liability of penalty under Section 11AC of Central Excise Act, 1944

Classification Issue:
The appellant, engaged in soap manufacturing, classified Tetmosol Soap as "Soap, other than for toilet use" under sub heading 3401.11. The department argued for reclassification as toilet soap under sub-heading 3401.19. Tribunal's previous order held Tetmosol soap as toilet soap under Chapter heading 3401.19, settling the classification issue against the appellants.

Penalty Liability Issue:
The question of whether the appellants should pay a penalty equal to the duty imposed under Section 11AC of the Central Excise Act, 1944 was raised. The appellant cited a Tribunal decision and a Supreme Court case to argue against the penalty. The department contended that the penalty was rightly imposed under Section 11AC. The Tribunal noted that penalty under Section 11AC is applicable only in cases of suppression of facts, mis-declaration, fraud, or collusion. As the show cause notice lacked allegations or evidence of such, the penalty could not be imposed. The Tribunal emphasized that the issue was not finalized during the earlier period, making the imposition of penalty unjustified. Consequently, the penalty under Section 11AC was set aside, and the appellants were directed to pay the demanded duty with applicable interest. The appeal was partly allowed.

This judgment by the Appellate Tribunal CESTAT, Ahmedabad addressed the classification of Tetmosol Soap under the Central Excise Tariff Act, 1985 and the liability of penalty under Section 11AC of the Central Excise Act, 1944. The Tribunal upheld the reclassification of Tetmosol Soap as toilet soap, settling the classification issue against the appellants. Regarding the penalty liability, the Tribunal ruled that penalty under Section 11AC could not be imposed due to the absence of allegations of suppression of facts, mis-declaration, fraud, or collusion in the show cause notice. The decision highlighted that the issue was not finalized during the earlier period, making the penalty unjustified. Consequently, the penalty was set aside, and the appellants were instructed to pay the demanded duty with applicable interest.