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TMI Blog2000 (6) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... hy the said product 'Santoor Soap' should not be re-classified under Chapter Heading 33.07 of the Central Excise Tariff Act mainly on the following grounds :- (a) that inasmuch as the Explanatory Notes under Heading 34.01 of the HSN states that the soaps of headings are true soaps and are categorised as (i) hard soaps (ii) soft soaps (iii) liquid soaps and generally in the form of bars, cakes, moulded pieces or shapes, flakes, powder, pastes and aqueous solution and covers in particular (i) toilet soaps (ii) household soaps (iii) resin, tall oil or napthanate soaps and (iv) industrial soaps and hence does not cover bathing bars; (b) That as per Circular No. X/19013/1/93/D, dated 15-4-1993 and Drug Controller (India), Directorate of Health Services, New Delhi, the soap manufacturers should adhere to BIS standard No. IS 2888; 1983 and no toilet soap containing less than 60% FM (Total Fatty Matter) should be marketed and further that bathing bars are not covered under the provisions of Drugs Cosmetics Act/Rules, which implies that the soaps containing 60% TFM and allowed to be marketed are nothing but bathing bars; (c) that bathing bars (soaps containing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fatty acids, chiefly oleic, setaric, polmatic etc. Referring to HSN Explanatory Notes, they pointed out that soap is alkaline salt (inorganic or organic formed) from a fatty acid or mixture of fatty acids containing at least eight carbon atoms. In practice, party of fatty acid may be replaced by rosin acids. The HSN Explanatory Notes further states that this heading covers only soaps soluble in water, that is to say true soap. Soaps form a class of anionic surface active agents, with an alkaline reaction, which lather abundantly to aqueous solutions. They further stated that the soaps of this headings are generally in the following forms :-'Bars, cakes, moulded pieces or shapes, flakes, powder, paste or aqueous solution.' (v) They contended that they looked into the categories of soaps which are hard soaps, soft soaps and liquid soaps. Moreover, toilet soaps includes the following floating soaps and deodorant soaps, glycerin soaps, shavings soaps, medicated soaps, disinfectant soaps, abrasive soaps and household soaps, rosins tall oil soaps, industrial soaps etc. Therefore, considering the HSN Notes, they contended that Santoor Bathing Bar deserves to be classified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the soap is not indicated in Section Note or Chapter Note of Central Excise Tariff Act. Further no such percentage is also indicated in HSN Explanatory Notes and no Board's circular or Commissionerate's trade circular was issued indicating to the manufacturer that the classification would be on the basis of TFM only. (x) They stated that according to the Indian Standard specification for toilet soap vide IS 2888-1983 prescribes the requirements and methods of sampling and test for toilet soap. It had laid down that toilet soap shall be of three grades namely Grade 1, Grade 2 and Grade 3. However, the requirement for toilet soap, the total fatty matter, percent by mass, min is indicated as 76.0%, 70.0 and 60.0 for respective grades. They stated that they have not obtained ISI grade and hence no such grading has been printed on the wrapper. However, they contended that TFM percentage contents in the soap were printed and no ISI mark was indicated and hence the items was not manufactured in terms of ISI standards and they were not required to obtain any certification for this purpose. (xi) They further reiterated that the correct classification of the product would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ields. The Supreme Court in Shri Batyanath Ayurved Bhawan Ltd. v. CCE, Nagpur has pointed out that the primary object of the Excise Act is to raise revenue and for that purpose various products are differently classified. The Court held that in interpreting a term under the Excise Act, resort should not be had to its scientific or technical meaning given under the Drugs Cosmetics Act, 1940. Whether a product can be considered as drugs or cosmetics will have to be determined with reference to the object of the Act under which the issue is to be decided." 5. Board has accepted the aforesaid advice of the Ministry of Law." They contended that as per the Circular bathing bars are not covered under the provisions of Drugs Cosmetics Act/Rules. They stated that since this circular itself does not cover bathing bars, reliance on the circular issued by Drug Controller is unreasonable and unwarranted and hence sought for dropping of demands. (xiii) Stating that soap containing less than 60% of TFM requiring classification as per show-cause notice under sub-heading 3307.39 being not correct, they contended that the said Chapter Heading suggested is not appropriate at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 33.07 applies inter alia, to the following products :- "scented sachets'; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solutions; wadding, felt and non-wovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations." (xvii) Referring to the allegation to their quality control reports showing the TFM between 53% and 55%, they contended that the said reports were obtained to bring the correct TFM on the package. They stated merely because TFM percentage is indicated in the wrapper, that by itself, would not be justifiable reason for classifying under sub-heading 3307.39 as bathing preparations. 3.In view of the two contesting Chapter Headings only latter heading would be appropriate for classification, wherein the item was specifically fit in with specific Description in terms of Rule 3(a) of Rules for interpretation and hence, they contended that they satisfy with the criteria of the sub-heading 3401 being later entry and hence Chapter 33 is ruled out in terms of Rule 3(c) also. 4.They contended that all other manufacturers of soaps also bring TFM percentage and even in their cases percen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter Heading 33. No other reasons have been assigned nor there was discussions about headings and various pleas raised by the appellants with regard to the correct classification adopted. (iii) The Commissioner has held that there is suppression in the fact that as the appellants had not disclosed the total fatty matter in the classification list, hence there was intention to evade duty requiring for invocation of larger period. He has also held that penalty is imposable and on that grounds he confirmed the duties and penalties. 6.We have heard Sri R.Ravindran, learned advocate and Sri A.Padmanabhan, Corporate Legal Manager for the appellants and Sri V.T. Gopalan, learned Additional Solicitor General, assisted by Sri S. Kannan, learned D.R for the Revenue. 7.Learned advocate relied on all the grounds made out in reply to the show-cause notice and in the appeal memo. It was pleaded that the soaps meant for human bathing as toilet soaps and the toilet soap is associated with total fatty matter content, the higher content the quality of the soap is considered to be better. The fatty matter used in soap comes from vegetable oils. Even as the Government desired reduction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the Superintendent of Central Excise vide his letter No. 1734/97 dated 2-5-1997 had clearly indicated that the proceedings were initiated on the observations of the A.G. Audit, who in turn had referred to Drug Controllers circular, dated 15-4-1993 and there was no information with the department about the Drugs Controller letter and therefore, the question of alleged mis-declaration or mis-classification with an intent to evade duty does not arise. He also referred to the representations from Indian Soap Toiletries Makers' Association letter No. ISTMA/101/252/97 dated 8-10-1997 seeking clarification from the department with record to the classification. The Board has issued Circular No. 360/76/97-CX dated 3-12-1997 issuing guidelines for classification and clarifying that the resort should not be had to its scientific or technical meaning given under the Drugs Cosmetics Act, 1940. He contended that the HSN and circular of the Drugs Controller of India being public documents is deemed to have been known to the department, hence there is no question of suppression for extending the larger period. In this regard, the observations made by the Hon'ble Apex Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only 50% and for liquid form the content of TFM is only 25%. At page 51 it refers to 'Soft soaps' and in which soap content is about 40%. In the last para it also refers to 'Genuine Soft Soap', where the fatty acid percentage is referred shown as 33 or 39%. Referring to IS 285:1992 which is for specific laundry soap, the TFM of such soaps is 35 or 45%, they stated that Sunlight Laundry Soap mark has got 49.5% TFM and 501 Bar Laundry Soap has the content of 29.87% of TFM and both are marketed as Laundry Soaps. He submitted that liquid soap has been classified under sub-heading 34.01 by the Tribunal in the case of EPSI Industries Chemical v. CCE as reported in 2000 (115) E.L.T. 81. They also referred to show-cause notice that it is soap which is less than 60% of TFM and once it is accepted as soap, it only falls under sub-heading 34.01. 8.Referring to HSN Explanatory Notes at pages 518 519, he pointed out that the said Note covers the following items :- Toilet soaps; Household soaps; Rosin, tall oil or naphthenate soaps; and Industrial soaps. Referring to the judgment of Hon'ble Apex Court in the case of Oswal Agro Mills Ltd. v. CCE as reported in 1993 (66) E.L.T. 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCE v. Cotspun India Ltd. as reported in 1999 (113) E.L.T. 353. He contended that there is no cause for imposition of penalty under Section 11AC as the period covered is from January, 1994 to March, 1997 and Section 11AC does not have retrospective effect as held by the Tribunal in the case of Marcanday Prasad Radhakrishna Prasad Pvt. Ltd. as reported in 1998 (102) E.L.T. 705. He further contended that as there was no suppression, no penalty can be imposed in the matter as held in the case of CCE v. Unique Farmaid P. Ltd. as reported in 1999 (33) RLT 365. 11.Learned Additional Solicitor General supported the order impugned because bath preparation is not soap as held by the Commissioner. Bath preparation would not come under Chapter 34 and would be rightly classifiable only under Chapter 33 as held by the Commissioner. He pointed out that the party ought to have disclosed the contents of the test results in the classification list and as the same was not disclosed, it has clearly resulted in suppression calling for invocation of the larger period. He submits that the confirmation of demands is totally justified. He submits that inclusion of ISI standards and the circular of Drugs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g arrived at by the Commissioner. As admittedly 'Santoor toilet soap' was bathing bar meant for use of bathing, hence it was excluded from Chapter Heading 34 and classified under Heading 37.01 more specific. He pleaded that logically HSN Explanatory Notes cannot classify bathing preparations, hence ISI specifications were relied. He submitted that the literature relied upon by the party has no relevance as it pertains to Western Standards. He submitted that there was failure on the part of the appellants in disclosing of material facts and hence the department can proceed to invoke larger period. He submitted that bathing bar has an origin, which is Indian specific and the shortage of tallow was found in India, therefore, vegetable oil was used. When that was also under shortage, the TFM was reduced. When it is less than 60% of TFM, then it is no longer a toilet soap and a new category was termed as bathing bar by ISI, which are not toilet soaps and are not soaps to be sold as toilet soaps and as they are selling it as bathing bar, it has a different connotation to its origin and hence it has to be excluded under Chapter 34. He submitted that HSN Explanatory Notes has not thrown an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they were terming as item 'bathing bar' and such a term used on the wrapper for the purpose of its having less than TFM 60% would not ipso facto making it a bathing preparation which is not a soap and which falls in a different category as an item under Chapter 33. He contended that even as per ISI standard, bathing preparation is not a soap. He contended that cutting point of TFM 60% was an account of licensing purpose under Drugs Cosmetics Act, which was also amended suitably. He submitted that so far as the Central Excise Act and Tariff Act is concerned, there is no distinction between toilet soaps and non-toilet soaps. He contended that prior to 1993 the heading bifurcated the items between toilet and other than toilet soaps and the shaving soaps went in the category of 'other than toilet soaps'. He contended that TFM criteria has not been laid down in the tariff act for the purpose of classification. He contended that tariff heading 3401.11 and 3401.19 is on the basis of its use. He contends that soap 'other than toilet soaps' would fall under sub-heading 3401.11 and "others" would fall under sub-heading 3401.19. He contended that Drugs Cosmetics Act has now brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Epsi Industries Chemicals Pvt. Ltd. as reported in 1996 (82) E.L.T. 444, wherein the Hon'ble Apex Court had held that where the classification list is accepted by the department without demur, the department cannot take a somersault and contend to the contrary. He further contended that it is a changed view taken by the department and there was no suppression in the matter and hence larger period is not invokable in the matter. Even if, extreme view is taken against them, the demands have to be only in prospective in terms of the judgment of Hon'ble Supreme Court rendered in the case of Cotspun India Ltd. as reported in 1999 (113) E.L.T. 353. 13.We have carefully considered the submissions made by both sides and have perused the entire records of the case including the show-cause notice reply, evidence on record and the findings arrived at by the learned Commissioner. On a total perusal of the entire case, we are of the considered opinion that the Revenue has not made out any case for the purpose of re-classification of the product impugned under Chapter 33.07 and that the appellants have made out a case both on merits as well as on limitation for the following reasons :- A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of soap through Drugs Cosmetics Act was not known to the department. Ignorance of law being no excuse and the Revenue cannot plead that these factors were not known to them including the fact that the appellants item is not a soap but an item 'other than soap' in the form of bath preparation. The CBEC Circular No. 360/76/97-CX dated 3-12-1997 which has already been extracted above has clearly taken the opinion from the Ministry of Law Justice that the objects of Central Excise Tariff Act, 1985 and that of Drugs Cosmetics Act, 1940 are different and the two Acts operate in separate. The Circular referred to the judgment of Hon'ble Supreme Court rendered in the case of Shree Baidyanath Ayurved Bhawan Ltd. v. CCE (supra) wherein it had been pointed out that the primary object of the Central Excise Act is to raise revenue and for that purpose various products are differently classified. The Hon'ble Apex Court held that in interpreting a term under Central Excise Act, reason should not be had to its scientific or technical meaning given under the Drugs Cosmetics Act, 1940 and whether a product can be considered as drugs or cosmetics will have to be determined with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellants is well founded and the same requires acceptance. Even otherwise, the appellants have given the process of manufacture and total inputs and ingredients used for manufacture of the final product, the description of the product required for the purpose of classification had satisfied the authorities. If at all, the authority required further information, it is for them to have drawn samples and got it tested. In the present case, there is no retention or withholding of information in such a manner as to cause suppression of facts. The percentage of TFM had been brought out on the wrapper and made known to the purchaser. The TFM percentage had been clearly indicated on the wrapper and the same was being sold in such a manner and every purchaser was aware of the TFM content of the soap and the quality of the soap was being determined on the basis of TFM. It is a matter of common knowledge, therefore, it cannot be alleged by the Revenue that such an information was never disclosed to them and there was suppression in the matter. This is very hard to believe and it only speaks about the poor comprehension of the entire matter by the Revenue and more particularly the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue thought that these were the factors requiring for re-classification, then the Revenue could have been adopted to provisional assessment. The Revenue could have taken samples and got the TFM content analysed/tested and issued show-cause notice on those grounds. However, we notice that the show-cause notice merely proceeds to quote the circular to adopt a different tariff heading, thereby it is clear that it is a changed view which has prompted the Revenue to issue the show-cause notice on the basis of circular and therefore, the demands cannot have retrospective effect and it has to be only prospective in terms of the judgment of Hon'ble Apex Court rendered in the case of Cotspun India Ltd. (supra). The Hon'ble Apex Court has clearly held that there cannot be short levy in such circumstances and applying this ratio of the judgment, we have to clearly hold that the demands are not only barred by time but also the demands cannot be confirmed with retrospective effect. 14.Now turning out attention to the charge made out in the show-cause notice and analysing the same for the purpose of classification of the product, we notice from the show-cause notice that the Revenue has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are for use as cosmetics or toilet preparations. They have established before us that the item is a plain soap used for bathing purposes as like any other soaps and it is not toilet preparation and it does not have TFM content beyond 60% to be called toilet soap and that there is no packing with labels, literature or other indications that they are for use as cosmetics or toilet preparation. Therefore, in terms of Note 1(b) of Chapter 33, the item 'Santoor toilet soap' is clearly not classifiable under this heading. Furthermore, the Chapter Note 3 also indicates that the 'perfumery, cosmetic or toilet preparations' in Heading No. 33.07 applies, inter alia to the following products :- "scented sachets; perfumed papers and papers impregnated or coated with cosmetics, contact lens or artificial eye solutions; wadding felt and non-wovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations." Therefore, even in term of this Chapter Note 3, the item does not satisfy for inclusion in Chapter 33.07 as it does not have perfumery or cosmetic or toilet preparations. We further notice that Chapter Heading 33.07 has got the following items:- "Pre-shave, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove. The Note further explains as follows :- "The products of Headings 33.03 to 33.07 remain in these headings whether or not they contain subsidiary pharmaceutical or disinfectant constitutents, or are held out as having subsidiary therapeutic or prophylactic value [see Note 1 (d) to Chapter 30]. However, prepared room deodorizers remain classified in Heading 33.07 even if they have disinfectant properties of more than a subsidiary nature." A further explanation given indicates that Preparations (e.g. varnish) and unmixed products (e.g. unperfumed powdered tale, fuller's earth, acetone, alum) which are suitable for other uses in addition to those described above are classified in these headings only when they are : (a) In packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as perfumery, cosmetic or toilet preparations, or as room deodorisers; or (b) Put up in a form clearly specialised to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish). When we proceed to examine the sub-heading 3307.90 at page 512, wherein bath preparation as ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, tall oil or naphthenate soaps and industrial soaps. Therefore, on reading of the entire Chapter of Explanatory Notes both under Chapters 33 and 34, it is very clear that soaps are different from bathing preparations. The distinction is in the form of soap being an alkaline salt (inorganic or organic) formed from a fatty acid or a mixture of fatty acids containing at least 8 carbon atoms. The item in question fully satisfied the definition of soap and in terms of various certificates produced by the appellants. The appellants also produced large number of affidavits from various sources which includes opinions of experts, traders and consumers etc. all of them confirmed that the item is soap and not bathing preparation. The appellants have also produced a report of Cosmic Industrial Laboratories Ltd., which has analysed the sample and indicated that the item impugned is a soap satisfying to its definition. 15.The appellants have tried to explain that even bathing bar is a soap in terms of bathing bar specification issued by ISI and it is not bath preparation. The appellants have shown through technical literature and also through the extract from the book of Harry's Cosmeticolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... baths. The indication therein clearly discloses that the item bath preparation or perfumed bath salts in terms of technical understanding they are all perfumes to soften water and they are expensive and the item bath preparation goes along with similar items which are all in the same category and the nature of the products are identical in the form of personal deodorants, agarbatti etc. The item 'Santoor soap' cannot be considered to be falling under cream, pre-shave, shaving or after-shave preparations, personal deodorants and bath preparations, depilatories etc. which are totally different preparations. 16.In that view of the matter, it is clear that the Revenue has suddenly taken upon itself the understanding that the Drugs Cosmetics Act has distinguished the 'toilet soaps' that the content of 60% TFM and above alone are soaps and less than 60% are bath preparations which is totally misconstrued and erroneous understanding. A simple question was posed to learned Additional Solicitor General as to whether each soap manufactured in local and/or Khadhi industry with very low TFM content would be considered as bathing preparation as they are expensive, he attempted to explain th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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