2000 (12) TMI 373 - AT - Central Excise

Issues Involved:
1. Classification of the contested product under the appropriate tariff heading.
2. Validity of the demand for duty and the imposition of penalties.
3. Application of the limitation period for issuing show cause notices.

Issue-wise Detailed Analysis:

1. Classification of the Contested Product:
The primary issue was whether the product "moyzen liquid" should be classified under Heading 3303 (Perfumes and toilet waters) or Heading 3304 (Beauty or make-up preparations and preparations for the care of the skin). The product was described as a "perfumed lotion" and "moisturizing liquid for dry skin disorders," with ingredients including liquid paraffin and isopropyl myristate. The sales literature described it as restoring softness and smoothness to the skin, preventing dehydration, and acting as an emollient. The Tribunal noted that while perfumes and toilet waters are primarily alcohol-based and intended to impart fragrance, the contested product's primary function was skin care, making it more akin to preparations under Heading 3304. The Tribunal concluded that the product's action on the skin was superior to that of toilet waters, which are limited to imparting fragrance. Consequently, the Tribunal upheld the classification under Heading 3304.

2. Validity of the Demand for Duty and the Imposition of Penalties:
The Tribunal examined the Assistant Commissioner's order, which confirmed the duty demand and imposed penalties. The Commissioner (Appeals) had set aside this order, accepting the assessees' contention that the product was toilet water. The Tribunal found that the appropriate classification was indeed under Heading 3304. However, in the appeal filed by the revenue, the Tribunal noted that the show cause notices did not invoke Section 11A of the Central Excise Act, 1944, for duty recovery but relied on Rule 9(2) of the Rules. The Tribunal referred to the Supreme Court judgment in N.B. Sanjana, which held that demand under Rule 9(2) could not sustain if the goods were cleared openly after assessment. Since the goods were not cleared surreptitiously, the Tribunal concluded that the demand under Rule 9(2) did not sustain. Consequently, the orders of imposition of penalty also did not survive.

3. Application of the Limitation Period for Issuing Show Cause Notices:
The Tribunal addressed the issue of limitation in the context of the show cause notice dated 20-4-1998, which invoked the extended period between April 1993 and June 1996. The Commissioner had distinguished the facts and held that the assessees had wilfully misclassified the product, justifying the extended period. However, the Tribunal found that the department had all the necessary information, including the composition and labels of the product, to examine the classification. The Tribunal noted that a similar show cause notice had been issued to another manufacturer of the same product, indicating that the department was aware of the classification issue. Therefore, the Tribunal concluded that the charge of suppression could not sustain, and the entire demand made in the show cause notice was barred by limitation. Consequently, the orders confirming the demand, imposing penalties, and ordering confiscation were set aside.

Conclusion:
The Tribunal upheld the classification of the product under Heading 3304 but found that the demand for duty and penalties did not sustain due to the improper invocation of Rule 9(2) and the bar of limitation. The appeals were allowed in these terms, setting aside the orders of confirmation of demand, imposition of penalties, and confiscation.

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