COMMISSIONER OF CENTRAL EXCISE VAPI Vs M/S GLOBAL HEALTH CARE PRODUCTS LTD.&ORS
Bench: A.K. SIKRI,ROHINTON FALI NARIMAN
Case number: C.A. No.-005902-005909 / 2005
Diary number: 14426 / 2005
Advocates: B. KRISHNA PRASAD Vs
RAJAN NARAIN
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 5902-5909 OF 2005
COMMISSIONER OF CENTRAL EXCISE, VAPI .....APPELLANT(S)
VERSUS
M/S. GLOBAL HEALTH CARE PRODUCTS PARTNERSHIP FIRM & ORS. .....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 3569 OF 2006
J U D G M E N T
A.K. SIKRI, J.
The respondent No.1 (hereinafter referred to as the
'assessee') is engaged in the manufacture of different brands of
toothpaste and these are manufactured exclusively for M/s.
Hindustan Lever Limited, Mumbai (for short, 'HLL') since 1998.
Major brands of HLL manufactured by the assessee are Close-Up
Red, Close-Up Blue, Close-Up Green and Pepsodent falling
under Chapter 33 of the Excise Tariff. The assessee is registered
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with the appellant/Revenue and has been paying the excise duty
on the aforesaid products under Chapter sub-heading 3306.10 of
the tariff. There is no dispute about these products.
2) From July 01, 2001, a new product known as 'Close-Up
Whitening' was introduced by the assessee. The assessee
classified this product under Chapter sub-heading 3306.90. The
Revenue treated the aforesaid classification as erroneous as
according to it Close-Up Whitening also falls under Chapter
sub-heading 3306.10 and not 3306.90. It also suspected that this
product was deliberately misclassified in the said heading to
evade payment of proper central excise duties by resorting to
assessment of the product under Section 4 of the Central Excise
Act, 1944 (hereinafter referred to as the 'Act') instead of
assessment under Section 4A thereof. Investigation into the
matter was initiated resulting into searching of the premises of the
assessee. Some documents, which the Revenue claims to be
incriminating in nature, were seized under Section 12 of the Act,
including a Box File with Heading 'Production Manual', namely,
the literature containing pages 1 to 235 issued by the Dental
Information Centre of HLL.
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3) On the scrutiny of these documents, the Revenue noticed that the
difference in raw materials used for the product in question,
namely, Close-Up Whitening, and the other products, i.e.
Close-Up Red/Blue/Green is the additional presence of 2.8% and
0.2% w/s Silicon Agglomerate and Bluer Agglomerates
respectively in Close-Up Whitening and absence of 0.1% w/w
2,4,4 Tri Chloro 2 hydroxy Diphenyl Ehter in this product in
comparison with the other three products. It was also found that
as far as Close-Up Whitening is concerned, there was presence
of 'uniformity dispersed blue speckles'. Statements of certain
persons were also recorded. On the basis of the aforesaid
material, the Revenue took the position that the aforesaid
differences did not change the essential character of the product
in question which still remained 'toothpaste' and, therefore, it was
classifiable under Chapter sub-heading 3306.10.
4) Show-cause notice dated March 21, 2002 was issued proposing
confiscation of the goods and since these goods had already
been provisionally released on payment of full excise duty as
leviable on the goods under Chapter sub-heading 3306.10,
show-cause notice stated as to why the amount of differential duty
amounting to ₹22,64,176 be not confirmed under the provisions
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of Section 11A(1) of the Act and why redemption fine in lieu of
confiscation as well as penalty be not imposed. The assessee
filed its reply thereto contending that it was not a toothpaste and,
therefore, rightly classified by it under sub-heading 3306.90. The
aforementioned contention of the assessee was brushed aside by
the Commissioner in his Order-in-Original dated December 10,
2003, thereby confirming the excise duty demand as mentioned in
the show-cause notice. He, inter alia, recorded the following
findings in his order:
“(i) Close Up Whitening was known in the market or to the trade and public as tooth paste for cleaning the teeth as such it was nothing but tooth-paste used for cleaning the teeth.
(ii) M/s. Global Health Care Products in collusion with M/s. Hindustan Lever Ltd. by willfully suppressing the fact that Close-up Whitening was a variant of Close Up tooth paste classifiable under Tariff Heading 3306.10 failed to show particulars of classification, assessable value and duty leviable with an intention to evade payment of applicable central excise duties.
(iii) The contention of M/s. Global Health Care products that the product Close Up Whitening was classified under chapter sub heading No. 3306.90 was not accepted.
(iv) The said product was correctly classified under sub heading 3306.10 of the Tariff attracting the provisions of Section 4A of the Act.”
5) Aggrieved by the aforesaid order, the respondents herein filed
appeals before the Custom Excise & Service Tax Appellate
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Tribunal, Mumbai (for short, the 'Tribunal'). These appeals have
been allowed by the Tribunal vide impugned order dated March
11, 2005. In these appeals, validity and correctness of the
aforesaid order of the Tribunal is questioned by the Revenue.
6) Before proceeding further, it would be necessary to take note of
the exact language of the relevant entries. As mentioned above,
it is the entry Heading 3306 of Central Excise Tariff Act, 1985,
which is attracted in the present case. The only question is as to
whether the product in question is to be classified under
sub-heading 3306.90 or 3306.10. Chapter Heading 3306 of the
Tariff Act, with the aforesaid sub-headings, is reproduced below:
33.06 Preparations for oral or dental hygiene, including dentifrices (for example, toothpaste and tooth powder and denture fixative pastes and powders)
3306.10 Tooth powders and toothpaste 3306.90 Other.
7) The Chapter Heading makes it clear that it covers various
preparations for oral and dental hygiene. These preparations
specifically include dentifrices. Examples of such oral and dental
hygiene are also given, like toothpaste, tooth powder, denture
fixative pastes and powders. Out of these, two products which
are covered by sub-heading 3306.10 are toothpaste and tooth
powder. Other oral and dental hygiene preparations fall under the
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reminder sub-heading, i.e. 3306.90, nomenclature of which is
'Other'. Further, as pointed out above, the Revenue treats
Close-Up Whitening as 'toothpaste'. The plea of the assessee, on
the other hand, is that it is not toothpaste but a 'dental cleaner',
which is different from toothpaste and, therefore, has to
necessarily be covered by the residual sub-heading, i.e. 3306.90.
Therefore, the moot question is as to whether Close-Up
Whitening is toothpaste or not. If it is found to be toothpaste then
the stand of the Revenue would be justified. On the other hand, if
the product does not qualify to be a toothpaste, then the assessee
stands vindicated.
8) Having noticed the controversy involved, we would like to point
out the main ingredients of the product at this stage:
There is no dispute that most of the ingredients of the product
Close-Up Whitening are the same which are used in the
manufacture of the other products, namely, Close-Up Red/Blue/
Green, which are treated as toothpaste by the assessee itself.
There are, however, additional ingredients used in the
manufacture of the product in question, which are accepted by the
Revenue also and noticed above. Apart from additional presence
of Silicon Agglomerate and Bluer Agglomerate of specified
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percentage and absence of Tri Chloro 2 hydroxy Diphenyl Ether,
there is a presence of uniformity dispersed blue speckles in
Close-Up Whitening. There is also additional step of 'addition of
silica agglomerates'. In fact, it is this ingredient which felicitates
at getting uniformity dispersed speckles. It is on the basis of
these additional factors, one has to determine as to whether
Close-Up Whitening loses the character of toothpaste and
assumes the characteristics of another product, namely, dental
cleaner.
9) A reading of the order of the Commissioner, to which our attention
was drawn by Mr. K. Radhakrishnan, learned senior counsel
appearing for the appellant, with much emphasis, would disclose
that the Commissioner relied upon HSN Notes, i.e. Harmonized
Commodity Description and Coding System, wherein the
preparation of oral and dental hygiene is mentioned in the
following form:
33.06 - PREPARATIONS FOR ORAL OR DENTAL HYGIENE, INCLUDING DENTURE FIXATIVE PASTES AND POWDERS: YARN USED TO CLEAN BETWEEN THE TEETH (DENTAL FLOSS), IN INDIVIDUAL RETAIL PACKAGES.
3306.10 Dentifrices
3306.20 Yarn used to clean between the teeth (dental floss)
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3306.90 Other
This heading covers preparations for oral or dental hygiene such as:
(I) Dentifrices of all types:
(1) Tooth pastes and other preparations for teeth. These are substances or preparations used with a toothbrush, whether for cleaning or polishing the accessible surfaces of teeth or for other purposes such as anticaries prophylactic treatment.
Toothpastes and other preparations for teeth remain classified in this heading, whether or not they contain abrasives and whether or not they are used by dentists.
(2) Denture cleaners, i.e., preparations for cleaning or polishing dentures, whether or not they contain agents with abrasive properties.
(II) Mouth washes and oral perfumes.
(III) Denture fixative pastes, powders and tablets.
The heading also covers yarn used to clean between the teeth, in individual retail packages (dental floss).”
10) The Commissioner, thus, noted that in the HSN Notes,
sub-heading 3306.10 deals with dentifrices. The Commissioner
noted that the meaning of dentifrices as per the Concise Oxford
Dictionary is 'a paste or powder for cleaning of teeth'. On that
basis, he concluded that the product in question was paste,
namely, the toothpaste for cleaning the teeth and, therefore,
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would fall under sub-heading 3306.10. En passe, the
Commissioner also observed that there is no major difference in
these products, namely, Close-Up Whitening and Close-Up Red/
Blue/Green, except one ingredient used in the manufacture of
Close-Up Whitening and the addition of that ingredient does not
change the purpose, nature as well as definition of the product in
a common market parlance. He observed that in the market the
product was known as toothpaste. He also observed that it is
treated as toothpaste as per the product manual issued by the
Dental Invocation Centre, Mumbai. Discussion is summed up in
para 32 of the order passed by the Commissioner, which reads as
under:
“32. As narrated in the SCN that the tooth paste, being dentifrice has been correctly classified under the HSN and the Central Excise Tariff has been based on HSN. Accordingly it is essential to follow the correct classification of the product in question as described and classified under the relevant chapter of HSN. In this connection it may be mentioned that the Hon'ble Supreme Court in the case of CCE, Shillong vs. Wood Craft Product Ltd. Reported in 1995 (77) ELT 23 (SC) in para 18 has held that the structure of Central Excise Tariff is based on the internationally accepted nomenclature found in the HSN and therefore any dispute relating to tariff classification must, as far as possible be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated in the Central Excise Tariff Act, 1985 itself.
Further it may be mentioned that the Hon'ble Bombay High Court in the case of Jagdish
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D. Devgekar Vs. Collector of Central Excise, Poona reported in 1978 (2) ELT (J581) in para 6 has held that the correct test in interpreting any item mentioned in the first schedule to the Central Excise Act is to see the commercial sense in which the item is understood or the sense in which traders or persons dealing in that terms understand it and not the technical or scientific sense.
Even it may be mentioned that the Hon'ble Tribunal in case Veto Co. Vs. CCE reported in 1992 (62) ELT 584 (T) in para 6 has held that the goods have to be classified under the tariff schedule according to their popular meaning or as they are understood in their commercial sense and not as per their scientific or technical meaning. While holding so the Hon'ble Tribunal has referred to the observations of the Hon'ble Supreme Court's judgment in case of Plasmac Machine Mfg. Co. Pvt. Ltd. Vs. CCE reported in 1991 (51) ELT 161 (SC) (Para 13).”
11) The aforesaid approach adopted by the Commissioner has been
found fault with by the Tribunal. The Tribunal pointed out that
there was material difference in the sub-heading 3306.10 in the
Indian statute when contrasted with Harmonized Commodity
Description and Coding System. Whereas, as per the tariff entry
3306.10 in the Excise Act, it is 'tooth powder' and 'toothpaste',
under the Harmonized Commodity Description and Coding
System, what is mentioned is 'dentifrices'. It is further noticed by
the Tribunal that dentifrices was more generic in nature as it
recognized all three types of products, namely, (i) toothpaste, (ii)
other preparations for teeth and (iii) denture cleaners, than tooth
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powders and toothpaste. Thus, when under Indian statutory
regime there is a restricted sub-heading under 3306.10, namely,
tooth powder and toothpaste only, the approach of the
Commissioner in taking aid of HSN Notes was erroneous.
Discussion on this aspect runs as follows:
“A perusal of the HSN notes would indicate that all three types of 'Dentifrices' are recognized as (i) 'Toothpaste', (ii) Other preparations for teeth, and (iii) 'Denture cleaners'. The Note further explains that “Dentifrices” to include 'toothpaste' and “other preparations for teeth” whether for cleaning or polishing the assessable surface of teeth or for other purposes such an Anticaries prophylactic treatment. The Note also enumerates that 'toothpaste' and 'other preparations for teeth' remains classified under Heading 3306 whether or not they contain abrasives and whether or not they are used by dentist. The correct scope of the heading as per the submission of the appellants is that when one refers to HSN item 3306 and the bifurcations as also under CETA 1985 there is a variance seen. In other words, this bifurcation under Heading 3306 for HSN and is not pari materia and under CETA 1985 and therefore the sub heading structure of HSN would not apply to CETA. The CETA proves preparation for oral or dental hygiene including Dentifrices and Denture Fixative paste and powders under Heading 3306 and at the four digit level it is para material HSN. The scope of sub heading 3306.10 of CETA 1985 restricts it to only 'tooth powder and paste' and any entity which is not a 'toothpowder or toothpaste' would be covered under heading 3306.90. This submission has to be upheld.”
We find ourselves in agreement with the aforesaid approach of
the Tribunal having regard to the cogent reasons given by it.
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12) This Court in the case of Camlin Limited v. Commissioner of
Central Excise, Mumbai1 held that if the entries under HSN and
the entries under the Central Excise Tariff are different, then
reliance cannot be placed upon HSN Notes for the purposes of
classification of goods under Central Excise Tariff. This is so
stated in para 24 of the judgment that makes the following
reading:
“24. In our considered view, the Tribunal erred in relying upon the HSN for the purpose of marker inks in classifying them under Chapter Sub-Heading 3215.90 of the said Tariff. The Tribunal failed to appreciate that the entries under the HSN and the entries under the said Tariff are completely different. As mentioned above, it is settled law that when the entries in the HSN and the said Tariff are not aligned, reliance cannot be placed upon HSN r the purpose of classification of goods under the said Tariff. One of the factors on which the Tribunal based its conclusion is the entries in the HSN. The said conclusion in the order of the Tribunal is, therefore, vitiated and, accordingly, set aside. We agree with the findings recorded by the Commissioner (Appeals).”
13) The issue, therefore, has to be decided dehors HSN Notes as aid
thereof cannot be taken in the instant case.
14) Faced with the aforesaid position, Mr. Radhakrishnan argued that
the Commissioner has also come to the conclusion that mere
addition of one ingredient does not change the purpose, nature as
well as character of the product and further the product was 1 (2008) 9 SCC 82
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known in the market as 'toothpaste'. The Tribunal has differed
with the aforesaid view.
15) In the first place, it is pointed out that there is no evidence on
record placed by the Revenue which would reflect that the
product in question is known to the consumers as toothpaste.
When this was pointed out to Mr. Radhakrishnan, he was unable
to pinpoint any evidence in support that was led by the Revenue.
16) We may record that a finding is arrived at by the Tribunal to the
effect that Close-Up Whitening is not a toothpaste but a dental
cleaner. We are convinced that this finding is perfectly just and
proper for the following reasons:
(a) The Tribunal has pointed out the differences which are noted
above and accepted by the Department itself. From these
differences, it is held that ingredients and ratio of all the inputs
which go into the manufacturing of a toothpaste and dental
cleaner are different and varying. The dental cleaner, in addition,
has two more ingredients, namely, Silicon Agglomerate and Bluer
Agglomerates, which play an active role as abrasive.
(b) Even the manufacturing process of Close-Up toothpaste and
Close-up Whitening is different. While the total stages for
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manufacturing toothpaste were nine, the number of stages for
manufacture of Close-Up Whitening were eleven. It takes 120
minutes to manufacture a toothpaste tube, while it takes 155
minutes to effect the manufacture of Close-Up Whitening.
(c) Statement of one Mr. N.H. Bijlani, the only expert in this case and
whose statement was recorded on January 09, 2002, was
referred to by the Tribunal. In this statement, Mr. Bijlani has
explained the difference between toothpaste and dental cleaners
and has opined that Close-Up Whitening dental cleaner cannot be
equated with toothpaste.
(d) The Tribunal has also found that as per records, classification of
the same product in an earlier avtar/brand was acceptable to the
Department as the same was classified under a different name for
all these years when the rate of duty under Heading 3306.90 were
higher than that under Heading 3306.10. It, thus, observed that
mere change of duty and brand name cannot be the reason to
alter classification.
(e) Another important aspect, in conjunction with aforesaid features
which has to be kept in mind, is that in the instant case even Food
and Drug Authorities (FDA) from where prior permission is
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needed for manufacturing 'toothpaste' and sale thereof, had not
registered the product in question as 'toothpaste' but as a dental
cleaner. It becomes a supporting factor along with other features
of the product, which have been taken note of and discussed
above.
17) The upshot of the aforesaid discussion would be to hold that
Close-Up Whitening dental cleaner is not a 'toothpaste' but other
form of dental hygiene and, therefore will have to be classified
under sub-heading 3306.90 as a consequence. These appeals
are found bereft of any merits and are, accordingly, dismissed.
No costs.
.............................................J. (A.K. SIKRI)
.............................................J. (ROHINTON FALI NARIMAN)
NEW DELHI; JULY 28, 2015.
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