9911796707
TMI Blog1996 (4) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... for manufacture and supply of `eyebrow pencil' in the name of Lakme and accordingly were supplying eyebrow pencil in two sizes, medium and large, up to June, 1988 and thereafter, Kumkum pencils in the same brand name and in the same sizes and claiming exemption under Notification No. 235/86, dated 3-4-1986. 2.1 M/s. SPPL were also manufacturing and supplying eyebrow pencils with brand name of `Eyetex' for M/s. Aravind Laboratories up to June, 1987. Kumkum pencils with the brand name of eyetex were also being manufactured and supplied to M/s. Aravind Laboratories. 2.2 SPPL also alleged to have supplied eyebrow pencils in the name of black pencils to M/s. Colgate Palmolive (India) Ltd. without payment of duty. 2.3 It is alleged that in addition to common raw materials used in the manufacture of Kumkum pencils and eyebrow pencils, the following four raw materials are used in addition, only in eyebrow pencils. These 4 raw materials are not used in the manufacture of Kumkum pencils : (1) Beeswax (2) Liquid Paraffin (3) Stearic Acid (4) Calcium Stearate These raw materials, as observed by Collector from scrutiny of "Raw Material Stock Register", have been regularl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lties under Rule 209(A) were also imposed on Lakme, Aravind Laboratories and Venketesha Agency. 3. Arguing for the first four appellants, Sh. V. Lakshmi Kumaran, Ld. Advocate, made the following submissions :- (i) M/s. SPPL during the relevant period manufactured both, kumkum pencils and eyebrow pencils. Both these pencils were prominently marked either as kumkum pencil or eyebrow pencil. The Chemical Test conducted on the basis of which it is alleged that both pencils are same in vague as it does not list out the specific composition. In any case, the subsequent test carried out by the Chemical Examiner himself clearly indicated that the two products, kumkum pencils and eyebrow pencils, were totally different. This test also indicates basis for presence of calcium compounds in kumkum pencils. Eyebrow pencils are harder, suitable for use with eyebrows, whereas kumkum pencils which are essentially bindi pencils are softer and used on the forehead to put the bindi mark. Exemption was being claimed on kumkum pencil. He, however, conceded that Tribunal has held against them on the subject of exemption to kumkum pencil and they have gone in appeal to Hon'ble Supreme Court. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty. If, however, quantity is to be worked out on an estimated basis on the basis of consumption of 4 raw materials used exclusively in the manufacture of eyebrow pencils, the quantity of forty thousand and odd leads which were supplied to M/s. Maharashtra Pencil Factory (MPF) have necessarily to be taken into account while working out any duty liability on the ground that a particular quantity of eyebrow pencils ought to have been produced from the given quantity of raw materials. Even according to calculations made in the impugned order, the quantity accounted for is justified as the most probable maximum quantity on identically formulae consumption. (iv) Even if the assumed calculations are accepted, the total quantity that ought to have been produced would come to 76289 Gross, out of which 72920 Gross have been duly accounted for in the records of the Company. The duty liability, however, has been worked out on a much bigger figure of 113825 Gross. For producing this quantity they would need additional raw materials of the order of 4879 Kgs. There was no allegation that the appellants were selling goods without being accounted. In fact, the Order proceeds on the premise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pencil sometimes in July, 1988 and red kumkum pencil in July, 1990. The packaging of the two products is totally different. Both eyebrow pencil and kumkum pencil are clearly indicated on the pencils themselves as also on the boxes. These pencils are always treated as being totally different and separate from eyebrow pencils. Eyebrow pencils were marketed for darkening eyebrows whereas kumkum pencils stand for making a spot on the forehead. The market for kumkum pencil in the South of India is basically for black kumkum pencil as that colour is favoured there. They were always under the impression and bona fide belief that eyebrow pencils and kumkum pencils are totally different products. They had no knowledge of the composition of the two products as this was never communicated to them by SPPL. The market for Lakme eyebrow pencil has been declining and, therefore, they started marketing kumkum pencil after December. 1988. It was alleged against them that the two pencils were one and the same reliance being placed on the Chemical Examiner's Report dated 7th Feb., 1991. Collector had erred in relying upon the Chemical Examiner's Report when subsequent Report dated 31-7-1991 by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed these goods on Principal-to-Principal basis under the bona fide belief that the two pencils were totally different. Even as it is cross-examination of various persons clearly brought out the fact that they had at no stage asked the stockists or dealers to account these as eyebrow pencil or to sell these as eyebrow pencils. (iii) Referring to cross-examination of Abai Mangali, Executive Manager at Page 90 of the Paper Book Part-II, the Ld. Advocate submitted that it has clearly came out from the cross-examination that kumkum pencil are used only as kumkum pencil and few instances of wrong description on the part of stockists which were reported to them were being corrected. It also indicates that they launched kumkum pencil around July, 1988 and the market response was very good and the demand has been going very rapidly. The cross-examination also reveals that Lakme transaction with SPPL was on Principal-to-Principal basis. Referring to Cross-examination at Page 92 of the same Paper Book, he submitted that Sh. Sanjay Sharma categorically stated that he had never informed his retailers to sell kumkum pencil as eyebrow pencil and that he had not even a single invoice in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to rely on any publicity material for the purpose of identifying a product. (vi) Summing up he submitted that they had always purchased pencils under the bona fide belief that the two pencils were different and, therefore, the seized pencils were not liable to confiscation and they were not liable to penalty under Rule 209(A). 5. Ld. D.R., arguing on behalf of Revenue, submitted that admittedly the 4 ingredients mentioned in Para 29 of the impugned order are used only in the eyebrow pencil in addition to materials which are common to both, kumkum pencil and eyebrow pencil. These 4 raw materials as pointed out by Collector in Para 31 of the impugned Order have been regularly consumed by SPPL during the period from 1-4-1986 to 3-12-1990. The production of eyebrow pencil reflected in the daily stock account was not in proportion to the quantum of raw materials consumed. Their plea that some of these raw materials were also used in glass-marking pencils has been correctly rejected by Collector in Para 32 of his Order since no glass pencil had been produced during the material period. During the year 1989-90 raw materials had been consumed to the extent of nearly 2400 Kgs. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed indicate that some stockists were selling these as eyebrow pencils. In vies of this, the Collector has correctly concluded that all kumkum pencils were in fact eyebrow pencils, liable to duty, on which duty has been evaded. demand for duty, therefore, is justified. Appellants are also liable to penalties. M/s. Lakme and Aravind Laboratories are also liable to action under Rule 209(A) having dealt with in goods liable to confiscation. 6. We have heard both sides. The main charge in the Show Cause Notice is that 4 raw materials used exclusively in manufacturing eyebrow pencils have been consumed during the relevant period but the quantity of eyebrow pencils, which could be expected to have been manufactured from such raw materials, has not been entered in RG 1. From this an inference has been drawn that eyebrow pencils have been removed in the guise of kumkum pencils and duty evaded to that extent since exemption was claimed on such kumkum pencils whereas eyebrow pencils had to pay duty as cosmetics. This inference is sought to be corroborated through certain statements which reveal that kumkum pencils were accounted by dealers as eyebrow pencil and internal correspondence i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no allegation that raw material accounts are not correctly maintained. In fact, Collector has specifically observed that these raw materials had been regularly consumed by SPPL during the period relevant to this case, i.e., 1-4-1986 to 3-12-1990. There is nothing to cast doubt on the authenticity of raw materials register. In this context, therefore, it would not be fair to reject that part of evidence as reflected in raw material accounts, which evidence in fact is mainly relied upon to raise the charge against the appellant, and to use that evidence in arriving only at assumption that since some quantity as ought to have been produced, has not been entered in RG 1, all the kumkum pencils such as were accounted were in fact only eyebrow pencils, which had been removed as kumkum pencil. To the extent some quantities expected to have been produced from the raw material consumed were not accounted in RG 1 would not lead to the inference that entire RG 1 was falsified by indicating production only of kumkum pencils. Such an assumption would involve rejection of the evidence in the form of Raw Material Accounts, an evidence heavily relied upon by Collector himself. There is no alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986-87, 1987-88 and 1988-89 and that no eyebrow leads were received during 1989-90 and 1990-91 from SPPL. Rate of eyebrow leads supplied by SPPL was between Rs. 20 to 23 per gross. Eyebrow pencil leads were received with a certificate that they are meant 'for processing into pencils and not for sale' and that MPF had sent back only eyebrow pencils to SPPL. Shri Ranganathan, the storekeeper of SPPL in his further statement dated 14-2-1991 had stated that the processed pencils received from MPF were cut into two sharpened, cleaned, labelled, capped and packed in packets and sent to Lakme under "Trading Invoices" and that the above had not been entered in RG 1 and duty was not paid on such eyebrow pencils; that the processed pencils received from MPF are received at the packing department, and all the processes viz., cutting, sharpening, cleaning, capping and packing were being done in the company by the employees for the last 8 years and that the details regarding receipt of processed pencils from MPF and its repacking are not intimated to the Department." 10. Collector has concluded that SPPL had been sending eyebrow leads in the name of eyebrow and leads for eyebrow pencils ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re actually eyebrow pencils. No dealer has given a statement that they were selling kumkum pencil as eyebrow pencil under the directions or instructions of Lakme. When certain instances came to their notice, they took steps to correct the situation. They did not know the composition of the pencils nor was any information in regard to composition supplied to them by SPPL. Even Chemical Examiner's Report does not categorically specify the various constituents of the sample and subsequently the Second Report submitted by him is in their favour. The onus of establishing essential ingredients of an offence is always on the Department. Particular emphasis in this connection was laid on the fact that the goods seized in the premises of Lakme were not subjected to a chemical test and that during cross-examination the testimony relied upon in the form of statements had been badly shaken. In fact, some persons cross-examined had categorically stated that they did not receive any instruction from Lakme to sell kumkum pencil as eyebrow pencils and that in some cases accounting of kumkum pencil as eyebrow pencil was a result only of past habit. The evidence such as has been led in this case wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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