Full Judgment Text
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CASE NO.:
Appeal (civil) 1854-1855 of 2001
PETITIONER:
M/s. Mercantile Company
RESPONDENT:
Commnr. of Central Excise, Calcutta
DATE OF JUDGMENT: 11/10/2007
BENCH:
ASHOK BHAN & V.S. SIRPURKAR
JUDGMENT:
J U D G M E N T
BHAN, J.
1. Assessee has filed these appeals under section 35L(b) of the
Central Excise Act, 1944 (hereinafter called the \021Act\022) against the
final order no.1419-1420/Cal/2000 dated 31st August 2000 in appeal no.
E/R-156-157/99 passed by the Customs, Excise & Gold (Control) Appellate
Tribunal, Eastern Bench, Calcutta (hereinafter called the Tribunal)
whereby the Tribunal has dismissed the appeal filed by the appellant
herein.
FACTS:
2. Acting on the basis of intelligence, a team of officers from CPO
of Calcutta I Central Excise Commissionerate, Headquarters visited the
factory-cum-office of the appellant on 5th September, 1997 and
conducted a search operation. Search resulted in seizure of 3 files,
9700 pieces of Philips Ultra cleaner, 500 pieces of degreasing &
cleansing fluid, 700 pieces of Switch cleaning oil all bearing brand
name of Philips. These were detained and later seized on 9th February,
1998. Also, some 13 files belonging to M/s. T. Paul & Sons were
tendered by the partner of the appellant firm. Certain other documents
were also handed over to/seized by the raiding party.
3. On the basis of the statements made by Shri Arun Kanti Paul
partner of the appellant and other records recovered from the said
premises on the day of search, it was found that the orders were being
received from M/s. Philips India Ltd., by M/s. T. Paul & Sons and the
same were executed by the appellant on the basis of arrangement with
M/s. T. Paul & Sons to the effect that the appellant gets a job charge
of paise 0.20 per 50 ml. bottle of the said product. The price at
which M/s. T. Paul & Sons raised bills to M/s. Philips India Ltd. is
controlled by M/s. Philips India Ltd. and it appears from the cost
sheet given in the statement of Shri Arun Kanti Paul that M/s. Philips
India Ltd., had allowed a profit of 10%. The raw materials and packing
materials supplied by M/s. T. Paul & Sons was being received directly
at the factory premises of the appellant and the dispatch of the said
products was directly from 298, Rabindra Sarani, Calcutta 700 073 to
the consignment agent of M/s. Philips India Ltd. The goods received
were filtered and put into 50 ml. plastic container by the appellant
both manually and mechanically at its factory premises. After sealing,
bottles were pasted with Philips Labels & holograms. Multi-colour
holograms were received directly from M/s. Philips India Ltd.
4. Samples of seized goods were got tested from Departmental Chemical
Laboratory at Customs House, Calcutta. The report of the Chemical
Examiner was that Audio Tape Head Cleaner is in the form of colour less
liquid and has the characteristics of methanol. Similarly, for
Degreasing Cleansing Fluid, the report was that it is in the form of
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colour less transparent liquid and has characteristics of iso-prophyle
alcohol. The sample of Switch Cleaning is in the form of colour less
transparent liquid containing mixture of liquid hydrocarbon.
5. On 18th February, 1998, a show cause notice was issued to the
appellant alleging therein that the activities carried on by the
appellant amounted to manufacture and the products being filtered and
repacked were classifiable under entry 3402.90. The larger period of
limitation was also invoked under the proviso to Section 11A on the
ground that the appellant was guilty of fraud, concealment, etc. with a
view to evade the payment of excise duty.
6. Assessee filed detailed reply to the show cause notice explaining
that the activities carried on by the appellant did not amount to
manufacture and that the classification proposed by the department was
incorrect. Various other contentions on limitations as well as on
merits were raised. According to the appellant, during the said
period, the appellant worked as a job worker undertaking filtering,
repacking and labeling the materials supplied to it and the same would
not amount to manufacture.
7. Commissioner of Central Excise Calcutta 1 in its order in original
dated 27th January, 1999, confirmed the demand of duty. It was held
that sub-heading 3402.90 covers surface-active preparations, washing
preparations and cleansing preparations, whether or not containing
soap. Explanatory notes of HSN were referred to and relied upon wherein
it has been provided that washing preparation act on the surfaces by
bringing the soil on the surface into a state of solution or
dispersion. With reference to the degreasing preparation, it was
stated that these preparations are used with a basis inter alia of
solvents and emulsifiers. That the goods covered under the heading
34.02 are selected basically on the properties/characteristics of the
products than on the basis of the constituents from which the goods
were manufactured.
8. Chapter note 6 of Chapter 34 which reads as follows:
\0236. In relation to products of sub-heading No.3402.90,
packing or repacking into smaller packs, including packing or
repacking of bulk packs to retail packs or adoption of any
other treatment to render the product marketable to the
consumer shall amount to \023manufacture\024.\024
was relied upon to hold that the activity of repacking, re-labeling
amounted to manufacture. Chapter note 6 was introduced to Chapter 34
with effect from 1st March, 1994.
9. On the question of limitation, it was held that the letter dated
8th March, 1994 relied upon by the appellant did not disclose the
entire facts and did not reflect the situation in its proper
perspective. The Department was not informed about the actual activity
undertaken by the appellant. It was not disclosed as to whether a new
name has been given and the applicability and functions of the products
were not clearly stated. That new and distinctive product came into
existence which was sold and known in the commercial world under a
separate name having different and distinct qualities. Commissioner of
Central Excise, Calcutta 1, confirmed the demand of duty Rs.42,62,862/-
proposed in the show cause notice and also levied a penalty of Rs.10
lakhs on the appellant under Section 11AC and the interest under
Section 11AB. A redemption fine of Rs.20,000/- was also imposed.
10. Aggrieved against the order passed by the Commissioner of Central
Excise Calcutta 1, appellant filed the appeals before the Tribunal.
Tribunal upheld the order of the Commissioner. It was held that
the adjudicating authority had rightly held that the various products
are classifiable under heading 3402.90. The findings recorded on the
question of limitation were also confirmed. Demand of duty, interest
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and penalty were also upheld. As regards personal penalty imposed
under the provisions of Section 11AC, it was noted that these
provisions came into existence on 28th September, 1996. Since the
provisions of Section 11AC were not retrospective in nature, the
penalty under the said provision could not be imposed for the period
prior to 28th September, 1996. For the period prior to the said date,
penalty could be imposed under Rule 173Q only. As no segregation of
quantum of duty confirmed for the period prior to the said date and for
the period after the said date was there, the case was remanded to the
adjudicating authority for imposing penalty for the period prior to
28th September, 1996 in terms of the provisions of Rule 173Q and for
period subsequent to 28th September, 1996 in terms of the provisions of
Section 11AC, depending upon the quantum of duties confirmed for both
the periods.
11. Demand of duty has been confirmed on the following products by
treating the same as classifiable under sub-heading no.3402.90: -
(i) Ultraclean Audiotape Headcleaner.
(ii) DCF-847-Degreasing and Cleansing Fluid.
(iii) SCO-846-Switch Cleaning Oil-cleans and lubricates switch
controls.
12. Shri S.K. Bagaria, learned Counsel appearing for the appellant
contended that the activities undertaken by the appellant of filtering,
packing and labeling resulting in emergence of the said product cannot
be a manufacturing activity. That filtering and re-packing thinner,
liquid paraffin and Isoprophile Alcohol, which fell under tariff
heading 3814.00, 2710.90 and 2905.90, respectively of the Central
Excise Tariff Act, from bulk to small containers would not amount to
manufacture. He submits that raw materials are not classifiable under
Chapter 34 and their nature and identity do not get changed after
filtration and re-packing into smaller packs. The said note was
applicable to the products of Chapter 34 only. It is further submitted
that with effect from 1st March, 1997, a note similar to Chapter note 6
of Chapter 34 was inserted in Chapters 29 and 38, and, if at all the
activity undertaken by the appellant amounts to manufacture, then the
same shall be with effect from 1st March, 1997 only. That re-packing,
re-labeling and re-naming of a product would not amount to manufacture
and the resultant goods shall not be liable to duty. Marketing of the
product in smaller containers under a different name shall also not
amount to manufacture unless the nature and identity of the product is
changed. Since in the present case, the identity of the product did
not change, the activity undertaken by the appellant cannot be held to
be manufacture of a new product.
13. On the point of limitation, it was submitted by him that the
demand has been confirmed from 1st March, 1994 to 5th September, 1997
whereas the show cause notice was issued on 18th February, 1998, well
beyond the period of limitation. It was admitted by him that no
classification list was filed by the appellant. He has drawn our
attention to a letter dated 8th March, 1994 written by the appellant to
the Assistant Collector of Central Excise, Calcutta disclosing the
activity undertaken by the appellant and requesting the Revenue to let
the appellant know about the Central Excise formalities required to be
observed. That the writing of the letter well in advance shows the
bona fides of the appellant and that there was no suppression,
misstatement, etc., on the part of the appellant with an intent to
evade payment of duty and the authorities below erred in holding to the
contrary.
14. As against this, learned Counsel for the Revenue, Shri M.M.
Paikadey, supported the Commissioner\022s findings recorded in the order-
in-original. It was submitted by him that the process undertaken by the
appellant was not as simple as has been projected by him. That the
items in question have been given specific names and the same were used
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for specific purpose for which the raw material cannot be used. The
impugned goods were specially packed in the cardboard packages and are
known differently in the commercial as well as common circles. That the
appellant\022s products are cleansing products and deserved to be
classified under Chapter 34 and the adjudicating authority has rightly
classified them under heading 3402.90.
15. As regards limitation, it was submitted on behalf of the Revenue
that the letter dated 8th March, 1994 written by the appellant did not
state the entire facts. The same was vague and lacking in particulars.
In the letter, it was not disclosed by the appellant that the products
were being marketed as \023cleanser\024 and gave the impression as if they
are only re-packing the raw material into smaller packs. It was not
disclosed that a new name has been given to the products. That the
appellant did not disclose the applicability and functions of the
products. The correspondence between T. Paul & Sons and M/s. Philips
India Ltd. clearly indicates that there was a doubt as to whether the
products would invite the Central Excise duty. To overcome this, they
obtained the opinion of an Advocate and the Advocate advised them that
instead of solvent, the word \021thinner\022 should be printed on the carton
to avoid the Central Excise Rules.
16. Counsels for the parties have been heard at length.
17. It would be necessary to refer to the relevant entries to Chapters
34, 27, 29 and 38 to appreciate the controversy involved in the case.
18. Chapter 34 deals with soap and organic surface-active agents, etc.
Heading No. 34.02 reads as under: -
______________________________________________________________________
Heading Sub-Heading Description of goods Rate of
No. No.
duty
(1) (2) (3)
(4)
34.02 Organic surface-active agents
(other than soap); surface-active
preparations, washing prepara-
tions (including auxiliary washing
preparations) and cleaning prepar-
ations, whether or not containing
soap.
3402.10 - Sulphonated caster oil, fish oil or
sperm oil NIL
3402.90 - Other 30%
19. Chapter 27 deals with Minerals Fuels, Mineral Oils & Products of
Their Distillation: Bituminous Substances; Mineral Waxes. Sub-heading
27.10 reads as under:
______________________________________________________________________
Heading Sub-Heading Description of goods Rate of
No. No.
duty
(1) (2) (3)
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(4)
27.10 Petroleum oils and oils obtained
from bituminous minerals, other
than crude; preparations not
elsewhere specified or included,
containing by weight 70% or
more of petroleum oils or of oils
obtained from bituminous
minerals, these oils being the
basic constituents of the
preparations.
2710.11 - XXX
2710.12 - XXX
2710.13 - XXX
2710.14 - XXX
2710.90 - Other 10%
20. Chapter 29 deals with Organic Chemicals. Sub-heading 29.05 reads
as under:
______________________________________________________________________
Heading Sub-Heading Description of goods Rate of
No. No.
duty
(1) (2) (3)
(4)
II. ALCOHOLS AND THEIR HALOGENATED,
SULPHONATED, NITRATED OR NITRO-
SATED DERIVATIVES.
29.05 Acyclic alcohols and their
halogenated,
sulphonated, nitrated
or nitrosated derivatives.
2905.10 Methanol 20%
2905.90 Other 20%
21. Chapter 38 deals with Miscellaneous Chemicals Products. Sub-
heading 38.14 reads as under:
______________________________________________________________________
Heading Sub-Heading Description of goods Rate of
No. No. d
uty
(1) (2) (3) (
4)
38.14 3814.00 Organic composite solvents
and thinners, not elsewhere
specified or included; prepa-
red paint or varnish removers. 20%
22. Chart (as per appellant) showing the material supplied and the
relevant headings under which the said material would fall, activity
undertaken and the description on the labels put on the bottles reads
as under: -
S.No.
Materials supplied to
the Appellant
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Activities
undertaken by
the Appellant
Description on the
labels
(a)
Thinners falling
under SH 3814.00
Filtering,
packing in
small plastic
containers or
bottles and
pasting of
labels and
holograms of
Phillips India
Ltd.
Ultraclean Audio Tape
Head cleaner (Special
thinner for cleaning all
kinds of recording head,
pinch rollers and
capstans of audio tape-
recorders).
(b)
Liquid Paraffin
falling under SH
2710.90
-do-
SCO- 845 \026 Switch
cleaning oil \026 cleans
and lubricates switch
controls
(c)
Isopropyl Alcohol
falling under SH
2905.90
-do-
DCF 847 \026 de-greasing
and cleaning fluid
(specially packed for
servicing audio/video
industry).
23. It is not in dispute that the raw materials out of which the
impugned goods have been manufactured by way of filtering, repacking,
etc. were classifiable under a separate heading prior to the activities
undertaken by the appellant.
24. The goods covered under heading 34.02 are selected basically on
the properties/characteristics of the products than on the basis of
constituents from which the goods are manufactured.
25. The outer coverage of 3 products shown to us during the course of
hearing shows that the ULTRA CLEAN-AUDIO TAPE HEAD CLEANER is a special
thinner for cleaning all kinds of recording heads pinch rollers and
capstans of audio tape recorders. SWITCH CLEANING OIL cleans and
lubricates switch controls. DEGREASING AND CLEANING FLUID is used for
servicing in the Audio/Video recorders industry. The above shows that
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the products in question are different commercial commodities than the
raw materials out of which the same were manufactured. The impugned
goods became fit for commercial use by the target consumers only after
the process undertaken by the appellants. Chapter Note 6 of Chapter 34
provides that the packing or repacking of products of sub-heading
No.3402.90 into smaller packs, including packing or repacking of bulk
packs to retail packs or adoption of any other treatment to render the
product marketable to the consumer shall amount to \021manufacture\022.
26. The basic property of mixture is cleansing as is evident from the
statement of the partner of M/s. Thinner & Company.
27. Extracts of H.S.N. under Chapter 34 sub heading No. 3402.90
provides: -
\023Cleaning preparation whether or not containing soap,
other than those heading 34.01 and cleaning preparation serve
for cleaning floors, windows, or other surface.\024
28. The clause of \021manufacture\022 with reference to repacking from bulk
packs to retail packs introduced by the Finance Act from 1994 clearly
points to the fact that even if the bulk material is identifiable
excisable goods, the fact of repacking from bulk to retail pack would
render the product separately classifiable. Admittedly, the product
manufactured by the appellant is used as cleanser. It no longer
remained the product which was supplied to the appellant. It was known
in the market by a different name and for a different use. The same
would not fall either under Chapter 27, 29 or 38. The same would fall
under sub-heading No. 34.02 as a cleansing product.
29. Contention of the counsel for the appellant that a note similar to
Chapter Note 6 of Chapter 34 was introduced in Chapter 29 and 38 with
effect from 1.3.1997 and till that date the repacking or re-labeling of
the goods supplied to it which were classifiable under Chapters 27, 29
and 38 could not be covered under Chapter 34 cannot be accepted as the
goods after repacking were being supplied and marketed as cleansing
products, which is evident from the outer cover of the 3 products shown
to us by the appellant during the course of hearing.
30. On the question of limitation, the submission made by the counsel
for the appellant that the letter dated 8th March, 1994 disclosed the
entire facts to the authorities regarding the items manufactured by the
appellant cannot be accepted. The letter dated 8th March, 1994 did not
disclose the entire facts. The letter did not disclose the situation
in its proper perspective. The authorities were not informed about the
actual activity undertaken by the appellant. The authorities were also
not informed that a new name has been given to the products. The
applicability and functions of the new products was also not clearly
stated. The new and distinct product which had come into existence was
sold and known in the commercial world under a separate name having
different and distinct qualities. The appellant had not produced
sample of the subject goods along with the letter. For the aforestated
reasons, it cannot be held that the authorities had full knowledge
about the activities undertaken by the appellant.
31. It appears that duty liability under the Central Excise Act &
Rules was well known to the appellant as is evident from the
correspondences made by Shri Arun Kanti Paul (who is the common partner
of M/s. T. Paul & Sons and the appellant) on 23rd August, 1995 with
M/s. Philips India Ltd. Shri Arun Kanti Paul, in his letter has
stated that they could avoid Central Excise liability by printing
\021thinner\022 instead of \021solvent\022 on the packs of bottles. M/s. Philips
India Ltd., by its letter No. HD/CE/ACCY dated 6th September, 1995,
endorsed the same and permitted M/s. Paul & Sons to print \021thinner\022
instead of \021solvent\022 on the outer pack. The direction of M/s. Philips
India Ltd. was actually executed by the appellant by printing \021thinner\022
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instead of \021solvent\022 on the cartons. Shri Arun Kanti Paul during
examination, when asked to throw some light on the correspondence with
M/s. Philips India Ltd., stated that he had some doubt about the excise
liability of these products and accordingly he obtained legal opinion
regarding the same and persuaded M/s. Philips India Ltd., to allow them
to print \021thinner\022 against \021solvent\022 on the cartons. It clearly shows
that the appellant although was conscious of the fact that the products
manufactured by them could attract the Excise Duty, made a deliberate
attempt to evade the same by printing \021thinner\022 instead of \021solvent\022 on
the cartons.
32. The Tribunal has rightly come to the conclusion that the
department could under the circumstances invoke larger period of
limitation.
33. For the reasons stated above, we do not find any merit in these
appeals and dismiss the same with no order as to costs.