2003 (10) TMI 48 - SC - Central Excise

Court classifies After Shave Lotions as toilet preparations, not medicinal. Recovery of short-paid excise duty allowed beyond six months.

The court classified After Shave Lotions (ASLs) as toilet preparations, not medicinal preparations, due to lacking disease treatment properties. The ... Medicinal preparation - toilet preparation - intended use test for classification - classification order without jurisdiction - Rule 11 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1955 - Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1955 - residuary power of recovery - ad valorem duty and computation by Section 4(4)(d) formulaMedicinal preparation - toilet preparation - intended use test for classification - Whether Old Spice and Blue Stratos after shave lotions are 'medicinal preparations' or 'toilet preparations'. - HELD THAT: - The Court held that classification turns on the intended use of the article; a 'medicinal preparation' must be intended for treatment, mitigation or prevention of disease. Shaving and use of after shave lotion do not cause a disease or impairment of vital functions such that a medicinal purpose is established. Technical material showed many after shave lotions contain alcohol in similar ranges and the products here are aqueous alcohol solutions containing perfume. No authoritative material established that marginally higher alcohol content converts the product into a medicine. The Excise Commissioner and the High Court's conclusion that these products fall within the statutory concept of a 'toilet preparation' and not a 'medicinal preparation' was accepted by this Court. [Paras 8, 10, 13]The contention that the after shave lotions are medicinal preparations is rejected; they are toilet preparations.Classification order without jurisdiction - licence to manufacture - Validity of the Excise Commissioner's order dated 23-3-1985 purporting to classify the product as a medicinal preparation. - HELD THAT: - Under the statutory scheme there is no provision for prior classification of a product by administrative fiat outside the prescribed licensing and clearance mechanism. The company held licences only for manufacture of cosmetics and never held licences to manufacture medicines; manufacture of drugs without a licence would be an offence under the Drugs and Cosmetics Act. The proceedings initiated on the basis of Colfax's application and culminating in the Commissioner's order of 23-3-1985 therefore lacked jurisdiction. The order of 23-3-1985 was a nullity and liable to be ignored for the purposes of lawful classification and recovery. [Paras 17, 18]The Commissioner's order dated 23-3-1985 is without jurisdiction and a nullity.Rule 11 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1955 - Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1955 - residuary power of recovery - Whether the recovery notices dated 13-3-1991 and 15-5-1991 should be treated as issued under Rule 11 (limiting recovery to six months) or under Rule 12 (residuary power without prescribed limitation), and the consequent period of recoverability of short levied duty. - HELD THAT: - Rule 11 applies where duty has been short levied through inadvertence, error, collusion or misconstruction on the part of the concerned excise officer or through misstatement by the owner. Here, after the Commissioner's (null) order of 23-3-1985 subordinate excise officers necessarily acted on that order and could not be said to have committed the kinds of errors contemplated by Rule 11. There is no factual foundation of collusion or misstatement by the owner. Where the Rules contain no specific provision, Rule 12 furnishes residuary recovery powers and prescribes no period of limitation. Given the Commissioner's order of 23-3-1985 was without jurisdiction, the Government is entitled to recover the deficiency of duty under Rule 12 and not constrained by the sixmonth limit applied by the High Court. [Paras 18]Notices are properly governed by Rule 12; recovery is not limited to six months and the Government may recover the entire shortlevied duty as directed by the Excise Commissioner.Ad valorem duty - ad valorem duty and computation by Section 4(4)(d) formula - Method of computation of excise duty where the Schedule shows 'ad valorem' rate and the price is cum-duty. - HELD THAT: - The Court agreed with the High Court's reliance on precedent that the phrase 'ad valorem' in the Schedule refers to the value of the excisable goods and where the price is a cumduty price the assessable value must be worked out by applying the formula in Section 4(4)(d) of the Central Excise Act (i.e., deducting duty from the wholesale/cum-duty price to arrive at assessable value). The High Court's approach to computation was upheld. [Paras 19]Ad valorem duty is to be computed by applying the Section 4(4)(d) formula to derive assessable value from a cumduty wholesale price.Final Conclusion: Colfax's appeal is dismissed - the after shave lotions are toilet preparations. The State's appeal is partly allowed: the High Court's characterization of the notices as under Rule 11 and its sixmonth recovery limit are set aside; the Government may recover the entire shortlevied duty in accordance with the Excise Commissioner's order and ad valorem duty is to be computed by the Section 4(4)(d) formula. Issues Involved:1. Classification of After Shave Lotions (ASLs) as medicinal preparations or toilet preparations.2. Validity and jurisdiction of the Excise Commissioner's order dated 23-3-1985.3. Applicability of Rule 11 or Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 for recovery of short-paid excise duty.4. Method of quantifying duties on products with cum-duty prices.Detailed Analysis:1. Classification of After Shave Lotions (ASLs)The primary issue was whether 'Old Spice' and 'Blue Stratos' ASLs are medicinal preparations or toilet preparations. Colfax argued that their ASLs, containing 62% alcohol, propylene glycol, benzyl alcohol, and water, should be classified as medicinal preparations due to their antiseptic and bactericidal properties. The State of Goa contended that ASLs are toilet preparations, emphasizing their cosmetic use and the presence of perfume. The judgment highlighted the statutory definitions under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, and concluded that ASLs do not treat, mitigate, or prevent any disease, thus classifying them as toilet preparations. The Excise Commissioner and the High Court's findings were upheld, rejecting Colfax's contention.2. Validity and Jurisdiction of the Excise Commissioner's OrderColfax had applied for reclassification of their ASLs as medicinal preparations, which was approved by the Excise Commissioner on 23-3-1985. The judgment noted that Colfax's licences were for cosmetics, and they did not have a licence to manufacture medicinal preparations. The order for reclassification was deemed without jurisdiction and null, as it contravened the statutory requirement for a drug licence under the Drugs and Cosmetics Act, 1940. Consequently, the reclassification order was considered a nullity.3. Applicability of Rule 11 or Rule 12 of the RulesThe High Court treated the excise duty recovery notices as issued under Rule 11, limiting recovery to six months preceding the notices. The Supreme Court, however, held that Rule 12, a residuary provision, was applicable since the short-levy resulted from a jurisdictionally invalid order. Rule 12 allows recovery without a specific limitation period. The judgment emphasized that the Excise Officer acted under the binding order of the Commissioner, making Rule 11 inapplicable due to the lack of inadvertence, error, collusion, or misconstruction by the officer. Thus, the entire short-paid duty from 23-3-1985 was recoverable.4. Method of Quantifying DutiesThe High Court's method of quantifying duties by applying the formula under Section 4(4)(d) of the Central Excise Act, 1944, was upheld. This method involves calculating the excise duty based on the wholesale price less the duty payable, ensuring the correct valuation of excisable goods. The judgment affirmed the High Court's approach, aligning with the precedent set in Govt. of India v. Madras Rubber Factory.Conclusion:- Civil Appeal No. 415 of 2000 filed by Colfax was dismissed with costs.- Civil Appeal No. 414 of 2000 filed by the State of Goa was partly allowed, setting aside the High Court's limitation on recovery to six months and permitting recovery of the entire short-paid duty as per the Excise Commissioner's order dated 12-8-1998.