9911796707
TMI Blog2009 (3) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... product without payment of Central Excise duty due there on even after crossing the exemption limit of Rs. 1 Crore, a team of Central Excise Officers of Central Excise, Division-I, Kanpur (here in after referred to as the officers) visited the office and the factory premises of the appellants under the authority of search warrant. During the course of visit, the officers gathered that the appellants are manufacturing the goods under Drug License no. 1/97 dated 13-1-97 issued by the Drug Controller, Lucknow. A statement of Sri Subhash Kheria, G.M. was recorded on the spot wherein he stated that the appellants are in production since 1997 and mainly supply the goods manufactured by them to Govt. Hospitals, Hospitals of Defence and Railways and other defence establishments as per their orders and conditions. He further stated that absorbent cotton was the main product being manufactured by them which is classifiable under chapter 56 and the said product was exempted from payment of Central Excise duty vide notification no. 30/2004 as per his knowledge. He also stated that the appellants were manufacturing the goods for themselves without bearing any brand name. 3. During further enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice was issued proposing therein the classification of aforesaid goods under Chapter Heading No. 3005 and demanding duty of Rs. 19,83,744.00 (BED), Ed. Cess of Rs. 39,675.00 and H.S. Ed. Cess of Rs. 19,837.00 totaling to Rs. 20,43,256.00 on the clearance value of Rs. 1,23,98,397.02 during the financial year 2007-08 (excluding the value of Trading goods, goods cleared for export against form 'H' & SSI exemption limit of Rs. 1.5 crores). 6. The appellants in response to the said demand-cum-show-cause notice submitted a detailed reply contesting therein that their final products did not merit classification under Chapter Sub-Heading No. 3005 as proposed by the adjudicating authority rather as per nomenclature and the constituents, the same were liable to be classified under Chapter Sub-Heading 5601, 5203 or 58 as the case may be because, the same were specifically mentioned therein. The same facts were also reiterated by them at the time of personal hearing before the adjudicating authority. In support of their contentions, the appellants also relied upon various cases laws of higher judicial forums and the definitions given in The Standards of Weight and Measures (Packaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r admitting the said facts, the Revenue has dragged the classification under Chapter 3005 only for the reason of mischief of word 'put up in the form of packing for retail sale for medical, surgical etc. purposes'. The Adjudicating Authority was further requested to decide that whether specific entry can be overridden by the residuary entry in defiance of the law laid down in interpretation rules and by Hon'ble Supreme Court in various cases. The Learned Adjudicating Authority was also requested to decide as to when no pharmaceuticals substance is added to absorbent cotton wool, how the same can be classified as cotton wool medicated and that can only be done after finalizing the tariff classification with 8 digit sub heading. The Learned Adjudicating Authority was further requested to decide with regard to re-quantification of duty liability in terms of the submissions made in subsequent paras. The Appellants further requested the Adjudicating Authority to decide as to how penal provisions under Section 11AC of the Central Excise Act, 1944 are invokable in the case of determining the classification of the goods and further the impugned Show Cause Notice having been issued within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Cotton Wool the use of the word medicated with comma (,) behoves that Cotton Wool which was impregnated or coated with the pharmaceutical substance exclusively fall within the description of the goods as classified under Chapter 3005 90 10. The Learned Respondent also should have appreciated the fact that broad Chapter heading was also stressed upon the classification of Wadding Gauze Bandages, similar article impregnated or coated with pharmaceutical substance. It was not in dispute that the Absorbent Cotton Wool manufactured and cleared by the Appellants did not contain any medicament or use of any pharmaceutical substance therein. 4. Because the Learned Respondent Ought to have appreciated the fact that with the introduction of 8 digit Tariff, the Government of India has made a distinction between Cotton Wool, Medicated and Absorbent Cotton Wool thereby the classification of Absorbent Cotton Wool was classified under specific Chapter Heading of 5601 21 10 and the Learned Respondent in gross judicial indiscipline has failed to be guided by the Hon'ble Apex Courts Decision in Moorco (India) Ltd. v. CCE, Madras, reported in 1994 (74) E.L.T. 5 (S.C.), which with regard to classif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Drug License. The Appellant say that Absorbent Cotton Wool is not only used for medical and surgical purposes but is used by Barber Shop, Beauty parlors, Weight Reducing Centers, Hygienic Cleaning of Child, use of Absorbent Cotton Wool as a Sanitary Pads by ladies and the Appellant further say the Respondents insistence for Drug License denying classification of Absorbent Cotton Wool under Chapter 5601 does not hold good for the reason that Drug License is also required for manufacture of Phenyl and Toilet Cleaner under Rule 126 and as per standards given in Schedule O of the Drug Act but cannot be treated as drug in common parlance, and the same is also not included in Chapter 30 (Pharmaceutical products) of the Tariff Act, 1985. The Appellant say that the classification of the Absorbent Cotton Wool under Chapter 3005, after introduction of 8 Digit Tariff w.e.f. 1-4-2005, by the Learned Respondent is not only in-fructuous but also void ab inito. 7. Because in his Adjudication Order in internal page 41 and 42, the Learned Joint Commissioner has observed as follows :- "I have carefully taken the view of the advocate as well as the charges alleged in the show cause notice an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent that among the article of wadding the articles impregnated or coated with pharmaceutical substances. It is an admitted fact by the Respondent that Absorbent Cotton Wool manufactured by the Appellants does not have any addition of pharmaceutical substance as such the Absorbent Cotton Wool of the Appellants cannot be dragged out of the specific classification as given in Chapter 56 of Central Excise Tariff Act, 1985. Further the Respondent has insisted on packing for Retail sale for medical, surgical, dental or veterinary purposes. The Appellant say that Standards of Weights and Measures Act (Packaged Commodities Rules, 1977) defines Retail Package and Retail Sale under Rule 2(p) and 2(q), respectively, as follows :- "Rule 2(p). "retail package" means a packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of commodity contained therein and includes the imported packages: Provided that for the purposes of this clause, the expression "ultimate consumer" shall not include industrial or institutional consumers." "Rule 2(q). "retail sale" in relation to a commodity, means the sale, distribution or delivery of such commodity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able - Section 4A of Central Excise Act, 1944 not applicable to ice-cream sold by the assessee." The Decision of Hon'ble Supreme Court read with Rule ibid goes to prove that the Absorbent Cotton Wool manufactured by the Appellants does not fall within the definition of packing for Retail Sale. The Appellant submit that in fact the definition as given in HSN Chapter 56 lends assistance to the Appellants submission on classification of Absorbent Cotton Wool, which as per HSN itself says that among the article of wadding under Chapter 56 does not include the Articles impregnated or coated with pharmaceutical substance or package for Retail Sale. The Appellants as stated above have proved that the exclusion clause under Chapter as referred in HSN is not attracted in the case of the Appellants. The Appellants further say that as stated earlier the Appellants product Absorbent Cotton Wool not being medicated or impregnated with pharmaceutical substance cannot fall in the definition of Cotton Wool, Medicated, and classified under Chapter heading 3005 90 10 of Central Excise Tariff Act, 1985. 8. Because the Appellant further say that the Hon'ble Supreme Court in the case of Jayanti Food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the Learned Respondent holding a post of Joint Commissioner was well aware about the Rules of Interpretation of the Schedule to the Central Excise Tariff Act, 1985, wherein it was classified as follows :- "3. When, goods are classifiable under two or more headings, - (a) Most specific description: The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the item in a set put up for retail sale, those heading are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Essential character : Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. When goods cannot be classified by reference to (a) or (b), they shall be classified under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otton manufactured by the Appellants would not merit classification under Chapter 3005 of CETA, 1985 but would appropriately classified under Chapter 56 and Chapter 5203 00 00 of CETA, 1985. 15 (1) The Appellants makes elaborate submissions as to: - WHY ABSORBENT COTTON WOOL MANUFACTURED WITH STANDARD SET OUT IN INDIA PHARMACOPOEIA WOULD NOT MERIT CLASSIFICATION UNDER CHAPTER 3005 OF CETA, 1985 (i) It is an undisputed fact that absorbent cotton wool manufactured in accordance with the standard set-out in Indian Pharmacopoeia does not contain any medicine or pharmaceutical substance and the same is even not sterilized. The said submissions behoves that the first conditions set out in broad chapter heading 3005 (as impregnated or coated with pharmaceutical substance), gets ruled out and is not applicable either in the case of absorbent cotton wool I.P. or even in the case of carded cotton (non absorbent cotton wool) which is not even cleared and is not even manufactured as per standards set out in the Indian Pharmacopoeia. The said submissions also applies to counter the observation that the Revenue dragged classification of absorbent cotton wool I.P. under Chapter 3005 90 10 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de.(COD) --of textile materials is made by super- imposing several layers of carded or air-laid textile fibres one on the other, and then compressing them in order to increase the cohesion of the fibres. Wadding is sometimes lightly punched to increase the cohesion of the fibres and, in some cases, to fix the layer of wadding on a support of woven or other textile fibres…. It is generally made of cotton fibres (absorbent or other cotton waddings) or of artificial staple fibre. Wadding is largely used for padding (e.g. shoulder pads, inter-lining, upholstery), as packing material, or for sanitary use. It is summarized before this Hon'ble Chair that neither absorbent cotton wool (I.P.) or carded cotton fall within the definition of wadding as given in the HSN which specifically says "usually of absorbent cotton and not cotton itself" and further since cotton as such is not wrapped but can only be stuffed in wadding when put to use. As per HSN definition the Revenue is not disputing non-adding of any pharmaceutical substance and as such the sale is not agitated and further elaborate submissions made packing for retail sale, as per the definition given in Standards of Weights a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cause Notice is laid down upon Rule 6 (i) (f) of Packaged Commodities Rules, 1977 because of details printed on packets as per investigation from various purchasers. Rule prescribes the information required to be printed on retail packets but does not stop that any extra information cannot be printed. In Jayanti Food case Apex court has decided this fact of RSP printed on the product. This Hon'ble Chair will appreciate the fact that Noticee are effecting their sale to Government and private hospitals and also to wholesalers, who in turn are making sale to hospitals and defence organization, at the outset the said organizations referred supra, do not classify the definition of 'ultimate consumers' and secondly even from the hospital there is no sale of absorbent cotton wool or carded cotton to the 'ultimate consumer'. It is submitted that there is a clear indication in the definition of 'Retail Sale Price' as provided in Rule 2(r), which clearly explain MRP means the Maximum Price at which the commodity in packaged form may be sold to the ultimate consumer. It is further submitted that in this point the definition of 'sale' as given in Section 2(v) of Standards of Weights & Measures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Weights and Measures Act, 1976 following the principles laid down by Hon'ble Supreme in M/s. Jayanti Food Processing Pvt. Ltd., ibid. The Appellants submit that in the above decision the Hon'ble Tribunal has held that unless there is an element of 'retail sale' to the 'ultimate consumer' the product in question would not fall within the restricted arena of Section 4A of Central Excise Act, 1944 which determines the provisions with regard to Retail Sale Price and/or provisions of packing for 'retail sale'. The Appellants say that it being an undisputed fact that all the sales are made to Government Hospitals and even when routed through distributors the sale is made to the private hospitals, the absorbent cotton wool and carded cotton being sold to Hospital/Institutions, the restricted arena of the Standards of Weights and Measurement Act does not come into play with regard to the Appellants goods in question. The Appellants further submit that the definition of retail package as given in Standards of Weights and Measures (Packaged Commodities Rules), 1977 came into effect w.e.f. 12-1-2007 by GSR 425 GSR (E) dated 17-7-2006 (WEF 12-1-2007) which defines as follows : - Rule 2 [( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) such supplies are made by the manufacturers or distributors direct to the hospital/dispensaries; and (ii) hospital packs shall not be supplied to a retail dealer or to a Registered Medical Practioners. A careful reading of the above provisions of Drugs & Cosmetics Rules, 1945, copy enclosed, goes to prove two things firstly, the use of letter I.P. in absorbent cotton wood only means that it is manufactured in accordance with the Standards set out with the Indian Pharmacopoeia or any such pharmacopoeia so no confusion or wrong conclusion can be drawn with the word I.P. Secondly, Rule 105 read with Rule 105A of the Drugs and Cosmetics Rules, 1945 goes to prove that pack size of doses meant for sale to hospital and nursing home shall not come within the definition of pack size of drugs meant for retail sale as per the Rules, ibid. Even as per the relevant rules absorbent cotton wools manufactured as per I.P. Standard does not come within the definition of pack size of drugs meant for retail sale even word I.P. cannot be misinterpreted and misconstrued as per the whims and fancies of the Revenue. (iii) The Appellants craves leave of this Hon'ble Chair and beg to submit that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inary purposes." Whereas with the introduction of 8 digit Tariff Classification w.e.f. 2005. Absorbent Cotton Wool was specifically classified under Chapter 5601 21 10 and on the other hand while clarifying the classification of Absorbent Cotton Wool the definition of 'put up in the form of packing for retail sale for medical, surgical etc. purposes' was attached to Chapter 3005. As you are aware that classification of Absorbent Cotton Wool from 3004 to 5601 under specific entry and which was not in existence for the period of 2005 before the 8 digit of Tariff Classification was introduced. That the Noticee crave leave of this Hon'ble Chair and beg to submit that in 2006 (193) E.L.T. 368 (Tri.) in CCE, Mumbai-III v. Johnson & Johnson Ltd. the Hon'ble Tribunal has held as follows : - "Bud - Johnson Bud - Classification of - Whether to be classified under sub-heading 5601 10 of Central Excise Tariff as article of wadding or under sub-heading 3926.90 ibid as articles of plastics - Commodity known, advertised, sold and offered in the market as 'ear bud' is not an article of plastic in view of Geep Flashlight Industries v. U.O.I. [1985 (22) E.L.T. 3 (S.C.). THEREFORE TO BE CLASSIFIED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctional use for the purpose for which the said product is intended to, the product is classifiable under Chapter Heading No. 5601.00". (b) Absorbent Cotton Wool I.P. does not have any therapeutic and curative properties. The Noticee submits that it is an undisputed fact that absorbent cotton wool I.P. does not have any therapeutic and curative properties and as per settled position of law the same would be classified under Chapter 5601 and not under Chapter 3005 as done by the Revenue. (c) That the appellants further submits that relying on Johnson & Johnson case supra, the Hon'ble Tribunal in the case of CCE, Rajkot v. Modi Surgi-Chem Pvt. Ltd. reported in 1999 (113) E.L.T. 450 (Trib.) has held "Cotton swabs is a wadding and has been converted into an article of wadding of textile materials - It is neither a broom nor a brush according to the end-use which is for cleaning dirt and wax from the ears - It is also used in applying medicines, cosmetics etc. - Classifiable under Heading 56.01 of Central Excise Tariff Act, 1985." In the said decision in internal page 7 the Hon'ble Tribunal has held "Chapter Heading 5601 covers wadding of textiles materials and articles thereof, cot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and mechanically separated to form a fleecy mass of soft white filaments which consist almost entirely of cellulose." In that shape substance continues to be cotton; albeit in its manufactured state, different from raw cotton. ................in the Bombay High Court in Commissioner of Sales Tax, Maharashtra State, Bombay v. Fairdeal Corporation Ltd. [1962] 13 STC 750, the question arose for consideration of their Lordships was whether absorbent cotton wool or surgical cotton is not "raw cotton (whether ginned or unginned)" within the meaning of item I, Schedule B of the Bombay Sales Tax Act. The contention was raised that even in its state as surgical cotton the substance continued to be cotton and comes within the meaning of cotton. The contention of the Advocate-General that the word "cotton" by itself would mean cotton in unadulterated or unchanged form, and therefore, so long as the composition of the substance remains nothing else but cotton, The Tribunal has been influenced by the fact that cotton wool is described as raw cotton by the dictionaries. If a commodity can reasonably be related to any of the specific entry in the schedule prescribing rate of tax it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as absorbent cotton, except that there uses are different. One cannot, therefore, escape from the conclusion that the absorbent cotton is covered by the definition of "agricultural produce." 1. The Appellants in respect of classification of carded cotton (non absorbent cotton wool) under Chapter 5203 00 00 submit as under : - The Appellants rely upon the internal page 17 & 18 of the reply and Para D (i, j, k & l) and for the sake of brevity and to avoid repetition the same are not elaborated as under but are relied upon with regard to carded cotton (Non Absorbent Cotton Wool) under heading 5203 00 of CETA, 1985. At this point of time and at the outset we beg to detail the process of manufacture both of absorbent cotton wool and carded cotton which will clarify that both the products are distinct and are classifiable under different chapter heading of CETA, 1985. PROCESS CHART OF ABSORBENT COTTON WOOL IP 1. Cleanina of traces from Raw Cotton by Crighton Opener (Air Blow Process). 3. Steam Boiling of Cotton in Keir Tank. 4. Washina_of cotton after steam boiling. 5. Bleaching, of Cotton in Bleaching Tank. 6. Washing of cotton after bleaching. 7. Extracting of water from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsorbent Cotton Wool (Carded Cotton) the respondent has taken a hybrid stand and issues the show cause due to oversight. It is on record that the Noticee has always received supply orders separately for Non-Absorbent Cotton Wool (Carded Cotton) having no therapeutic or medicinal substance therein. Hence the impugned order for this product is incorrect and hence not liable to be maintained. 19. Because with regard to carded cotton the appellants had also placed reliance upon the list of machine placed in Relied upon Documents No. 4 as (a) Crighton Machine 2 (b) Blow Room Machine 2 (c) Carding Machine 9 The said RUD went to prove that manufacture of Carded Cotton even in Show Cause Notice admitted the nomenclature of Non Absorbent Cotton (Carded Cotton) and the product itself was a distinct commodity under textile item and the Hon'ble Tribunal in plethora of decisions repeatedly held that Carded Cotton is a product of textile industry. The Hon'ble Tribunal in the case of CCE, Coimbatore v. Gowri Spinning Mills (P) Ltd., reported in 2000 (116) E.L.T. 672 has held that Carded Cotton is classified under 5202 of Central Excise Tariff Act, 1985. Further reliance is placed on decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.) in Okay Play India v. CCE. It is submitted that Hon'ble Tribunal in the case of CCE v. Telco Ltd. reported in 2002 (143) E.L.T. 548, has held that - Opinion given by World Customs Organization in regard to classification of goods having great persuasive value, considering the purpose of its setting up and expertise it represents, cannot be brushed aside. The Appellant Crave indulgence of this Hon'ble Chair to examine the use of carded cotton, referred supra, its classification as textile material by Ministry of Defence and further under a specific entry of 5203 00 by CETA, 1985 read with harmonized coding system. It is requested that this Hon'ble Chair to pass a speaking order as to how carded cotton non absorbent cotton wool) which is not even sterlised but combed would be classified (without admitting) under Chapter 30 of CETA, 1985, which only classifies pharmaceutical products as per the Chapter heading and the Noticee requests that investigating officer Mr. Kamesh Bajpai may be summoned for cross-examination with the specific quarry on the submissions made hereinabove and also to prove before this Hon'ble Chair that how carded cotton can be categorized under the head of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Johnson and Modi Surgichem case and as submitted for Absorbent Cotton Wool/ Carded Cotton, the entire sale of First Aid Dressing is made to Ministry of Defence/Arms Forces on their placement of order and not sold in the market, which is a verifiable fact and as such the bar of put up in retail pack as given in Chapter 3005 of the Act does not apply in the case and this fact of clearance of First Aid Dressing to Ministry of Defence is corroborative of Relied Upon documents evidencing sale to Ministry of Defence. 23. The Appellant submit that explanatory note to the HSN were placed before the Learned Respondent and the Learned Respondent as a Joint Commissioner was well aware of the provisions of HSN which had an over ridding effect. The Appellant say that the HSN in respect of Chapter 56.01, in its explanatory notes has divided the products of Chapter 56.01 under two groups (A) Wadding of textile material and article thereof (B) Textile fibers, not exceeding 5mm in length (flocks) and textile dust. Even reading the broad Chapter heading of 56.01 as given in CETA, 1985, there is a (;) after the word wadding, a textile material and article thereof which bifurcates the same from te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the product is classifiable under the particular heading of Tariff is on the Revenue and must be discharged by providing that it is so understood by the consumers of product in common parlance. 26. Because the Learned Respondent has misinterpreted and misconstrued the Harmonized Commodity, Description and Coding System in respect of Carded Cotton (Non-Absorbent Cotton Wool). The Appellant submit that under the HSN, referred above, and its explanatory notes Carded Cotton is classified under specific entry of Chapter heading 52.03, it also details the products, which are excluded under Chapter Heading 52.02, which is detailed as under :- "The heading excludes: - (a) Cotton linters (heading 14.04) (b) Wadding (heading 30.05 or 56.01) (c) Carded or combed cotton waste (heading 52.03) (d) Textile flock and dust and mill neps (heading 56.01) (e) Used or new rags and other scrape textile articles (heading 63.10)" The Appellant further say that reading of the explanatory notes to HSN further specifies as under : - "In general, this heading covers waste cotton obtained when cotton is prepared for spinning, or during spinning operations, weaving, knitting, etc., or from the garn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 is most arbitrary, most unjustified and only shows the abuse of process of law. The Learned Respondent even as on today through the officers of lower formation is forcing for classification of Absorbent Cotton Wool and Non Absorbent Cotton Wool (Carded Cotton), Handloom Gauze Cloth and Handloom Bandage Cloth under Chapter 3005 which is an erroneous action and needs intervention of this Hon'ble Tribunal. 29. Because the Appellant say that both Handloom Gauze Cloth and Handloom Bandage Cloth are being sold in THANS (Cloth folded as per requirement of purchaser not in a special folding to make a lump of cloth) and is sold in meters and the provision of Retail Sale Price and/or its classification under Chapter 3005 is not attracted for the product and the order to that extent is liable to be set aside and moreover the subjected product, supra, does not have any medicinal substance added to the product and it is not the issue disputed even by the Revenue. 9. In response to the opportunity for personal hearing to the appellants, Shri Amit Awasti, Advocate and Counsel of the appellants and Shri Sri Subhash Chandra Kheria, General Manager appeared on 13-3-2009. They reiterated the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt dated 26-2-2007, further disclosed that the appellants had started manufacturing activities by manufacturing Absorbent Cotton Wool IP., Non Absorbent Cotton Wool (Carded Cotton), Gauge & Bandage cloth, bleached and cut bandages. Gradually they started manufacturing Sanitary Napkins & Dressing first aid (un-medicated). In addition to it, they were manufacturing Disposable syringe (Dispo) in their another factory at A-7, Rania Industrial Area, Site No. 2, Kanpur which was closed in 2004. He further stated that absorbent cotton packet of 200 gms and above is known as bulk packing. Gauze cloth and bandage cloth are packed as per length and then packed in packing of Dozens. Bleached cotton packed in zhals and first aid dressings are only for defence hospitals as per their requirement. 13. The department after conducting the enquiries from the purchasers of the good manufactured by the appellants came to conclusion that the appellants were engaged in manufacture and sale of products i.e. absorbent cotton wool I.P., bleached cotton, non-absorbent cotton (carded cotton), handloom bandage cloth, handloom gauge cloth, bandages, sanitary napkins and first aid dressing un-medicated under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight and Measures (Packaged Commodities) Rules, 1977 issued under the Standards of Weight and Measures Act, 1976 and the Drugs & Cosmetics Act. 16. The department however rejected the submissions of the appellants and passed impugned order vide which demand of duty under Section 11A amounting to Rs. 16,81,711/- (after re-calculation) alongwith interest under Section 11AB was confirmed and an equivalent penalty of Rs. 16,81,711/- under Section 11AC of Central Excise Act, 1944 was imposed. Since, the relief sought by the appellants was not given, this appeal has been filed. I notice that the grounds on which the appellants have pleaded their case before are the same as submitted before the adjudicating authority. I main contention of the appellants is that the classification has been done on the wrong appreciation of the facts of the case. 17. From the facts of the case, I notice that the matter for decision before me is the proper classification of the final products viz. "Absorbent Cotton Wool", "Wool Cotton non-absorbent or Cotton Carded", "Open Wove Bandage (Handloom)", "Handloom Cotton Gauze" and "Rolled Dressing Handloom", all non-sterilized, being manufactured by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir packages were not the "retail packages". The appellants in their defence have relied upon the definition of terms 'retail sale' and 'retail package' as defined in "The Standards of Weight and Measures (Packaged Commodities) Rules, 1977 (SWMPCR in short) issued under the Standards of Weight and Measures Act, 1976 (SWMA in short). They have also relied upon various other provisions of said rules alongwith the provisions of Drugs and Cosmetic Act and Rules made there under and the case laws of various judicial forums including the landmark judgment of the Apex Court in the case of Jayanti Foods (supra). 20. Now I take up the issue of classification of the goods in question. On going through the facts of the case, I observe that prior to introduction of eight (8) digit tariff classification, the impugned goods were being classified under Chapter Sub Heading No. 3004 and it was being done because no specific entry so as to cover the goods was in existence. By virtue of an exemption notification the said goods were exempted from the Central Excise Duty. After introduction of the new eight digit based tariff classification in the year 2005-06, a specific Chapter Sub-Heading No. 5601 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iduary. Now coming to the issue, I observe that the goods "Absorbent Cotton Wool" and "Cotton Carded" specifically find place in the Chapter Sub-Heading 56012110 and 52030000 respectively. Nothing regarding its uses, its packing, its end use or its being of 'IP' grade has been specified therein so as to exclude it from classification under the said heading. For appreciation of facts and ready reference the relevant portion of the Tariff in respect of Chapter 30, 52 & 56 are being reproduced below:- Heading No. Description of article Unit Rate of duty (1) (2) (3) (4) 3005 Wadding, gauze, bandages and similar articles (for example, dressings, adhesive plasters, poultices), impregnated or coated with pharmaceutical substances or put up in forms or packings for retail sale for medical, surgical, dental or veterinary purposes 3005 10 - Adhesive dressings and other articles having an adhesive layer 3005 10 10 ---Adhesive gauze kg 16% 3005 10 20 ---Adhesive tape kg 16% 3005 10 90 ---Other kg 16% 3005 90 - Other: 3005 90 10 ---Cotton wool, medicated kg 16% 3005 90 20 ---Poulitice of kaolin kg 16% 3005 90 30 ---Lint, medicated kg 16% 3005 90 40 ---Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sub-headings and any related Sub-heading notes and, mutatis mutandis, to the above rules, on the understanding that only sub-headings at the same level are comparable. For the purposes of this rule, the relative Chapter and Section Notes also apply, unless the context otherwise requires. The said rule is self explanatory. The reference to chapter notes and section notes has been placed at last. In the present case the provisions of Rule 2, 3 or 4 are not attracted because the Chapter Sub-Heading 56012110 and 52030000 specifically provide for the classification of goods in question without any exclusion. 25. I further observe that my above said findings also get support from the findings of Hon'ble Supreme Court in the case of Moorco (India) Ltd v. Collector of Customs, Madras - 1994 (74) E.L.T. 5 (S.C.), which have also been relied upon by the appellants. A similar situation came for decision before the Hon'ble Judges in the said case, wherein it was held that the specific entry will prevail over the general entry. It would be in the interest of justice to discuss the case. The appellant party in the said case imported Flow Meters, which were specifically classified in Heading N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly lay that the specific will prevail over the general. I notice that the adjudicating authority has referred the said judgment in the order but the same has not been appreciated in right perspective. The following case law has further strengthened my views. The findings given by Hon'ble Supreme in above case have further been relied by Hon'ble Tribunal while deciding the case of CCE v. SPM India Ltd. - 2007 (211) E.L.T.-573 (Tri.) relating to classification in a similar situation. After relying the case law in the case of Moorco India (supra) it has been held that "When there is a specific entry, there is no need to come to residual entry preferred by the Revenue". Hon'ble High Court Allahabad in the case of Superintendent C.EX. v. Vacmet Corpn. Pvt. Ltd. has also affirmed my views and has held that "When an article falls within specific entry such goods must necessarily be excluded form general entry". 27. I further notice that the adjudicating authority has also taken note of the Section note 1(e) of Section XI of CETA, 1985 which pertains to Chapter 50 to 63. For appreciation and ease of reference the same is being reproduced "(e) Articles of Chapter 3005 or 3006 (for exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other order which was affirmed in this order. Even, I agree with that part of findings of the Hon'ble Tribunal but, at the same time I would like to reproduce the relevant text of para 11 of the said order, which is more relevant and befitting in this case: "11. We have already held that these industrial laminates are electrical insulators. Tariff Heading 8546.00 is a specific entry for "Electrical Insulators of any material". Rule 3(a) of the Rules for Interpretation says that the heading which provides the most specific description shall be preferred to headings providing a more general description. Tariff Heading 3920.31 - - - Rigid plates, sheets, film, foil and strips of "other plastics" provides a more general description." Here again the view taken by me in the proceeding paragraphs that the specific description shall prevail over the general description, gets affirmed. The importance of the Rules for Interpretation and the guidance to be derived from the said rules has once again been upheld by Hon'ble Tribunal of which the adjudicating authority has lost sight. 29. Now, I consider the next case law relied upon by the adjudicating authority for supporting his view i.e. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CCE v. Unicorn Connectors Pvt. Ltd. - 2008 (232) E.L.T. 205 (Tri.-LB), which was relied upon by the appellant before me at the time of hearing. In para 10 of the said order which is being reproduced for reference, it has been held that "10. We do not find force in the submission of the Ld. Joint C.D.R. Rule 1 of General Rules for the Interpretation of the First Schedule to Excise Tariff provides that the titles of Sections, Chapters and Sub-Chapters are provided for case of reference only; for legal purposes, classification shall be determined according to the terms of heading. If the wording of the heading is clear enough to understand the issue, there is no need to resort the end use for classification unless specifically mentioned in the Tariff." 32. The findings of Hon'ble Tribunal in the case of M/s. Hardware Trading Corporation v. CC also hold the same view. The relevant extract is reproduced below :- 12. The General Rules for the Interpretation of the Custom Tariff or Excise Tariff provide as under: "Classification of goods in this Schedule shall be governed by the following principles: "1. The titles of Sections, Chapters and sub-chapters are "1. provided for ease of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft Products Ltd. - 1995 (77) E.L.T. 23 and CCE v. Bakelite Hylem Ltd. 1997 (91) E.L.T. 13. After going through the contents of the said case laws, I have noticed that the help of explanations contained in the HSN were taken when the possibility of classification of products on the basis of specific entry in Chapter Sub-Heading failed. The Section notes and the Chapter notes also failed to contribute in determining the classification. The products in question in both the said cases were not mentioned in any specific Chapter Sub-heading and the rules for interpretation also failed to provide any help in classification. In paragraphs 24 & 25 of the order of Bakelite Hylem [1997 (91) E.L.T. 13 (S.C.)] (supra), it has been noted by the Hon'ble Judges that "24. Now, since decorative laminates are composed of paper as well as resins, it is possible that they can be classified either under Chapter 39 which deals with plastics or under Chapter 48 which deals with paper. In order to decide which the more appropriate classification is, it is also necessary to refer to the Rules of Interpretation prescribed under the New Tariff Act. Rules 1, 2(b) and 3 are as follows: In the said order in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporated in the explanation. As a matter of fact, the commodities like wadding, gauze and bandages are distinct from "absorbent cotton wool" and "carded cotton". By stretch of any imagination these goods cannot be said to be the same. Once the goods themselves are not included in the definition the condition of end use or packing cannot be applied for arriving at conclusion. I observe that the appellants have provided the meaning of wadding as defined in various dictionaries in their defence reply and in the grounds of appeal as well, which unfortunately the adjudicating authority has not discussed. Although the said definitions as per the dictionary cannot be said to be cent per cent authentic still for common understanding the same can be considered. After considering the meanings mentioned supra, I agree with the meanings provided therein which clearly state that the wadding themselves are not the "Absorbent Cotton Wool" but, are the distinct articles made from fibers or textile materials of wool whether absorbent or not. 38. Secondly, the note stipulates that the wadding and gauze should be for dressing. It is a well known fact that for dressing purposes the material should a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstances" are also includable in chapter 30 whereas the explanation under Chapter 5601 speaks of exclusion of only "wadding or articles of wadding, impregnated or coated with pharmaceutical substances". The reading of both the explanations simultaneously create confusion and give an understanding that both are contradictory to each other. For seeking classification on the basis of these explanations it is necessary that the condition of the exclusion and inclusion clause should be the same, which in this case are not the same. Thus, when the explanations themselves are contradictory to each other, then how the same can be relied for resolving an issue relating to classification. I therefore disapprove the attempt made by the adjudicating authority for classifying the goods according to the clarifications in the HSN. 41. Now I take up the condition of "putting up in forms or packings for retail sale for medical, surgical, dental or veterinary" as stipulated in the Chapter Sub-Heading No 3005. The appellant has contended that as per the definition given in The Standards of Weight and Measures (Packaged Commodities) Rules, 1977 (SWMPCR in short) issued under the Standards of Weight a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable. Section 3 of the SWMA provides that "Provisions of this Act to override the provisions of any other law" meaning thereby that the definitions provided in the SWMPCR will be final for all purposes. 45. Before taking up the applicability of second part of the CSH 3005, I feel it necessary to reproduce the definitions of certain terms as defined in SWMPCR. "Rule 2(p). "retail package" means packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of commodity contained therein and includes the imported packages: Provided that for the purposes of this clause, the expression "ultimate consumer" shall not include industrial or institutional consumers." "Rule 2(q). "retail sale" in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumers;" "Rule 2(x). "wholesale package" means a package containing - (i) a number of retail packages, where such first mentioned package is intended for sale, distribution or delivery to an intermediary and is not intended for sale direct to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group of individuals or any other consumers have been affected. The hospitals can also not be termed as "Individual" or "group of Individuals". The department cannot deny the fact that the Hospitals or the defence establishments are the Institutional or Industrial consumers. No evidence to negate this fact has been placed on the record by the department. The appellants however produced the packaging material and the goods packed in the said packing material for my perusal. I notice that the outer packing of the goods made of plastic was having a clear cut marking "Hospital Supply. Not for Sale", "Government Supply. Not for Sale" and "CGHS. Not for Sale". This means that the goods were supplied to hospitals or the Government for their own use and not for retail sale. This again establishes that the packings were not the "retail packings" and the sales were not the "retail sales". Therefore from the facts discussed hereinabove, it can safely be concluded that the packages manufactured by the appellants were not the "retail packages" and the sales affected by them were not the "retail sale". Once the above fact is proved, the goods automatically come out of the purview of the Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceding discussions, I hold that the adjudicating authority's views and findings regarding exclusion of Absorbent Cotton Wool from Chapter 56 and classification under Chapter 30 are liable to be set-aside on the wrong appreciation of facts is liable to be set-aside. 50. So far as putting the marks 'IP' are concerned, the appellants have pleaded that the same was being done to fulfil the requirement of Drugs and Cosmetic Rules, 1945. In this regard they have placed reliance on Rule 104 of the said Rules that requires for such marking if the goods confirm the standard of Indian Pharmacopoeia. They have submitted that the said marking was placed as an indication to show that the product was manufactured in accordance with standard set out in the Indian Pharmacopoeia and can also be used for the said purposes. I have gone through the wordings of Rule 104 which are reproduced below. The relevant rule is being reproduced below:- Rule 104. Use of letters I.P. etc.:- The letters I.P. and recognized abbreviations of pharmacopoeias and official compendia of drug standards prescribed under these rules shall be entered on the label of the drug only for the purpose of indicating that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .03 covers brooms, brushes; cotton swab is neither a broom nor a brush according to the end use given in the submissions by the respondent herein for cleaning dirt and wax from ears. They also find use in applying medicines, cosmetics etc. Looking to the process of manufacture and end use of the product, we are of the view that that product is classifiable under Chapter Heading 56.01 and we hold accordingly. In this view of the matter we allow the appeal of the Revenue by setting aside the impugned order. 52. The appellants apart from the above have further submitted that product Carded Cotton has been ordered for classification under its respective Chapter heading as per the nomenclature and the constituent material. In this regard, the appellants have relied upon the findings of Hon'ble Tribunal in the case of CCE, Coimbatore v. Gowri Spinning Mills (P) Ltd., reported in 2000 (116) E.L.T. 672; CCE, Rajkoat v. Modi Surgi-chem Pvt. Ltd. - 1999 (113) E.L.T. 450 (Tri.); CCE, Coimbatore v. Singaravelar Spinning Mills (P) Ltd. - 1999 (105) E.L.T. 630 (Tri.); 2005 (179) E.L.T.-219 (Trib.) in Surya Prabha Mills Ltd. v. CCE, Coimbatore and 2004 (177) E.L.T.-640 (Trib.) in PKPN Spinning M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded/Non-absorbent Cotton, Handloom bandage cloth, Handloom Gauze Cloth/Gauze under Chapter 30 is not appropriate and legal and is thus liable to be set aside. 56. As regards demand of duty, I find that after setting aside the order of change in classification, the demand on the said goods may vary as per the duty structure and the exemption notifications applicable. I therefore direct the appellant to workout the duty liability, if any, in consultation with the concerned Range Officer and deposit the same with interest as provided in the statute. 57. So far as penalties are concerned, I find that department was in possession of knowledge regarding the activities of the appellant as one more demand cum show cause notice was issued for earlier period on the basis consequent to same visit and investigations. The appellants cannot be held guilty of suppression of facts. This is a case of bona fide belief regarding classification of goods in specific headings as per the nomenclature. The ingredients to prove intention to evade payment of duty are not present. Moreover, after setting aside the order for change in classification, the possibility of any duty liability has been washed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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