2001 (4) TMI 563 - AT - Central Excise

Summary

Issues Involved:
1. Classification of the product "Kesh Nikhar" as soap or shampoo.
2. Demand for central excise duty and penalties.
3. Financial hardship and stay application.

Issue-wise Detailed Analysis:

1. Classification of the Product "Kesh Nikhar" as Soap or Shampoo:

The primary issue is whether "Kesh Nikhar" is classifiable as soap under sub-heading No. 3401.12 or as a shampoo under Heading No. 33.05 of the Central Excise Tariff. The Commissioner of Central Excise (Adjudication) classified the product as a shampoo, based on its use for washing hair and its marketing as a poor man's shampoo. The adjudicating authority applied the principle of common trade parlance and concluded that "Kesh Nikhar" is a shampoo in the form of soap/cake, justifying its classification under Heading No. 33.05, which covers preparations for use on the hair.

However, the Tribunal noted that "Kesh Nikhar" is in the form of a soap cake/bar, used by consumers as a soap cake/bar, and its ingredients are similar to any other toilet soap. The Tribunal emphasized that in common parlance, shampoo is generally marketed in liquid or viscous form, and soap in the form of a cake/bar, even when used for washing hair, is not commonly understood as a shampoo. The Tribunal referenced the Kirk-Othmer Concise Encyclopaedia of Chemical Technology, which describes shampoos as primarily aqueous solutions, and noted that the manufacturing process of "Kesh Nikhar" aligns with that of soap rather than shampoo.

The Tribunal also highlighted that no material evidence was provided to show that consumers understood "Kesh Nikhar" as a shampoo. The product may have an effect similar to that of a shampoo, but this does not make it a shampoo. The Tribunal referred to the Supreme Court's decision in the case of State of Gujarat v. Prakash Trading Company, which distinguished between soap and shampoo based on their commercial understanding and form.

2. Demand for Central Excise Duty and Penalties:

The Commissioner confirmed a demand for central excise duty of Rs. 8,42,17,562/- for the period 1-12-1994 to 30-11-1999, invoking the extended period of limitation, and imposed an equal amount of penalty. Additional penalties under Rule 52A(8), Rule 9(2), and Rule 226 of the Central Excise Rules, 1944, were also imposed, along with interest under Section 11AB of the Central Excise Act, 1944.

The Tribunal found that "Kesh Nikhar" was being produced, marketed, and sold since 1935, and at no stage prior to the present show cause notice was it considered a shampoo by the Revenue. The Tribunal noted that excise duty on shampoo was levied from 1-3-1954, and cosmetics and toilet preparations were added to the tariff from 1-3-1961. The Tribunal found force in the appellants' plea that there was no ground for invoking the extended period of limitation, as there was no suppression of facts.

3. Financial Hardship and Stay Application:

The stay application was heard, and the appellants pleaded financial hardship. The Tribunal, after considering the submissions, waived the requirement of pre-deposit of duty and penalty amount, and stayed its recovery till the disposal of the appeal. However, to safeguard the Revenue's interests, the Tribunal directed the appellants to provide an undertaking not to alienate the land, building, plant, and machinery of the firm till the disposal of the appeal.

Conclusion:

The Tribunal concluded that the appellants have a prima facie good case on merits as well as on limitation. The stay application was allowed, and the appeal was scheduled for regular hearing in its due course. The Tribunal emphasized that the classification of the product should be based on its nature and description in the relevant tariff entry, rather than on advertising material or marketing strategies.