TaxTMI 
TaxTMI 
2000 (6) TMI 99
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....ow-cause the appellants as to why 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 allo....
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....thout any proposal for modification, whatsoever. (iv) They contended that chemically, soaps are the result of hydrolysis of fats and oils with alkalies. This process is called Saponification. The soaps themselves are in the form of sodium or potassium salts of 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, t....
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....necessary declarations. They availed credit of money in respect of various prescribed vegetable oils used in the manufacture of soaps under Rule 57K read with Notification issued thereunder upto 23-7-1996 and they were allowed the Modvat credit for the reason that final product was soap falling under Chapter Heading 3401. (ix) They stated that the percentage of total TFM containable in 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 ind....
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.... 2. A doubt arose on a question of law, as to how and on what basis a distinction between drugs & cosmetics is to be made when the assessee is holding a valid drug licence under the Drugs & Cosmetics Act, 1940 for a product which is sought to be classified under the Central Excise Tariff. 3. The matter has been examined in Board's office in consultation with the Ministry of Law & Justice. 4. The Ministry of Law & Justice have opined that: "the objects of the Central Excise Tariff Act, 1985 and Drugs & Cosmetics Act, 1940 are different and the two Acts operate in separate and different fields. 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 ....
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....ecialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents or are held out as having subsidiary curative or prophylactic value." (xvi) They contended that the item had not specified about the terms as only those items would fall under Chapter 33 which are suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are used for cosmetics for toilet preparations. They contended that the item is not sold in such a manner and hence in terms of Note 2 to Chapter 33 the product cannot be classified in the Chapter. (xvi) They referred to Note 3 of Chapter 33 and contended that it does not specify this criteria also as Chapter Note 3 clearly suggests that perfumery or cosmetic or toilet preparations in Heading 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." (xvi....
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....nbsp; The Commissioner has held that alternative classification suggested by the department under Heading 33.07 is a correct classification, as the Chapter 33 does not cover "soap or other products of Heading 34.01 like gum, wood or sulphate turpentine or other products of Chapter 38" and also perfumery, cosmetics and toilet preparations containing alcohol or opium, Indian hemp or other narcotics, as the item is not falling under Chapter 34.01 and as it does not come within exclusion items mentioned in Note 1(b) & 1(c) of Chapter 33, they have to be held to be classified under sub-heading 3307.30. He has held that as per Rule 3(a) of Rules for Interpretation clearly applies where the goods impugned are prima facie classified under two or more headings, the heading which provides more specific description to a heading providing more general description. Hence he proceeded to hold that the item impugned is required to be classified under Chapter 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)  ....
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.... intent to evade duty. He relied on the Board's Circular No. 31/89-CX III dated 12-5-1989, which clearly clarified that the essential character of the soap is that the product containing sodium salt of fatty acids, therefore, the item is clearly having sodium salt fatty acid and it cannot be considered as any other item than as soap. He referred to various classification lists. Reiterating the points on TFM value percentage, he pleaded that the circular issued by the Drugs Controller is only for the purpose of the standards prescribed under Drugs and Cosmetics Act and no toilet soap containing less than 60% TFM should be allowed to be marketed. He stated that the bathing bar is not covered under the provisions of Drugs & Cosmetics Act/Rules. Further, he stated that this has also since been superceded by a fresh Circular No. X/19013/1/93D, dated 30th July, 1999, therefore, the test adopted by the department, no longer survives, as the Drug Controllers themselves dropped their circular. He contended 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 i....
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....xford Dictionary of English at page 1948 which refers to the term 'toilet soaps' which gives the meaning soap for washing and to the term "toiletries" which gives the meaning articles used in washing and taking care of one's body such as soap, shampoo and toothpaste, they contended that it is squarely classifiable under Chapter Heading 3401 only. He also referred to technical literature from the book. 'Their Chemistry and Technology' by Sri J.G. Kane at pages 43 to 52 of the paper book under the Chapter 'Classification of Soap Products', which exhaustively lists different types of soaps. In the said Chapter it is clarified that the contents of TFM in 'A heavily silicated soap' at 20% , in 'A low-silicated soap' the TFM at 40-45% and in 'Soap with mixed fillers' the percentage of TFM at 25% are considered as soaps and at page 48 of the said book under the heading "Jelly Soaps" the TFM content is between 45 to 50%. At page 50 of the said book in para 2 of chemical preparations, the TFM content is 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 Soa....
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....ies and other perfumery, cosmetics or toilet preparations and the item in question does not satisfy the descriptions thereunder. Referring to the term 'bath preparation', they contended that in bath preparation, the item which is used to soften the water in terms of the extracts on 'bath preparations from Harry's Cosmeticology which discussed number of items like bath cubes, bath oils and emulsions, foam baths, foaming bath oils, Body or Dusting Powder and they did not consider soap as bath preparations. Bath preparations should contain perfumes in terms of literature relied more particularly extract from the "Formulation and Function of Cosmetics" by Dr. J. Stephan Jellinek, Perfumes, Cosmetics & Soaps by Sri William A. Poucher in Vol. III at pages 19-21 of the paper book. 10.Ld. Advocate further contended that in future re-classification on changed view calls for demands to be confirmed prospectively in the absence of any suppression as held by the Hon'ble Apex Court in the case of 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, 1....
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....r soap/bathing preparation, therefore, Drugs & Cosmetics Act specification is justified. He also relied on the judgment of Hon'ble Apex Court in the case of CCE v. Wood Craft Products Ltd. as reported in 1995 (77) E.L.T. 23. He submitted that being bathing bar used for preparation for personal hygiene and the same is having content of TFM more than 60%, could not be classified as toilet soap under Chapter 34 and hence the Revenue's contention is required to be accepted. He submitted that wherever specific of other enactments are excluded, then we have to abide by the expressed intention of the statute and one cannot go against it. He submitted that conversely where residuary to other enactments are not excluded, then reliance upon the other enactments could be permissible subject only to this limitation that by relying upon other enactments expressed terms of present enactment is not overruled. He submitted that there is no exclusive reliance on Drugs & Cosmetics Act as per the finding 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 spe....
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....tely no ambiguity in the language of the tariff. He submitted that upto 22-7-1996, there was no dispute about the item calling only soap under Chapter Heading 3307 and also with regard to the item being granted exemption under Notification No. 12/94 dated 1-3-1994. After 23-7-1996, Notification No. 12/94 had been merged in the tariff. A simple look at the terms of the Notification and the description of the tariff under Chapter 34 would make it clear that it had been divided into two parts namely (i) "Soap for toilet use" and (ii) 'Soap for non-toilet use' carrying nil rate of duty. He contended that the use of the item soap for various purposes is a criteria adopted for the purpose of classification. He again referred to definition of the term 'soap' appearing under New Oxford Dictionary at page 1948, where the term has been referred to as for washing purposes. He contended that Chapter 34.01 is based on the use of the product whether the toilet soap or non-toilet soap. He contended 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....
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....d the order impugned with a view to confirm the demands, without application of mind. He further contended that Chapter Heading 33 does not include soaps and the principle of Noscitur A Socis applies in terms of the principles. The item has to be classified in terms of the company it keeps. He submitted that the items specified under Heading 33.07 are in the nature of shaving soap, pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetics or toilet preparations not elsewhere specified or included and items like kumkum, kajal, sindur, alta or mahavar, preparations for perfuming or deodorizing rooms, including odoriferous preparations used during religious rites, agarbatti, dhoop and similar preparations. He contended that the item is used for the purpose of washing and bathing and therefore, the items of principle of Noscitur cannot classified within this heading. He relied on the judgment rendered in the case of 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 d....
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....ame is being utilised for washing purposes. It is also not in dispute that content of TFM beyond 60% only adds to the quality of the item. It is also not in dispute that the Government had brought within the ambit of the Drugs & Cosmetics Act through its circular dated 15-4-1993, the percentage of TFM to be 60% for the purpose of treating the same as toilet soap to be in consonance with BIS standard No. IS 2888:1983. These facts of the case indicate that the Government had introduced this bifurcation with the sole aim of reducing the use of vegetable oil by the soap manufacturers as the result of restriction of import of animal fats popularly known as tallow being not available in sufficient quantities in the country. The existence of the Drugs & Cosmetics Act, regulates the licence for manufacture of the items indicated therein according to its standards is a fact which is to be taken judicial notice and it cannot be said that ISI specification for soaps and the regulation of its 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 fac....
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....n the basis of its use as a bath product or product for personal hygiene. On this understanding there is no challenge in the show-cause notice. Therefore, it is quite surprising that the Commissioner ought to have suddenly taken a different view without basing his case in terms of the principle laid down for classification of the product under the Central Excise Tariff Act. As has been well settled, the ISI standards are only for the purpose of maintaining the quality of the product and it cannot determine the classification of the product at all. It is beyond our comprehension and understanding as to how there could be a suppression in the matter merely because the classification list did not indicate the TFM percentage. Nowhere in the Section Note, Chapter Note of both tariff headings namely 33 and 34 of the Rules of Interpretation, is indicated that the TFM percentage is required to be disclosed for the purpose of classification of the product namely soap. This contention raised 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....
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....as confirmed the huge amounts towards duty besides imposed very high penalty is totally unjustified and uncalled for. The plea that there was no suppression and the demands cannot be confirmed on the stated grounds has also not appreciated properly. Furthermore, the show cause notice itself indicates about the changed view for classification having been taken for the reason that the Drugs & Cosmetics Act and BIS Standard No. IS 2888 construes the TFM percentage to be the cutting point for treating soap and bathing bars. This is a changed view and not guided by principles of tariff understanding. Therefore, it cannot be said that there were such factors available for invoking of larger period in the matter i.e. on account of mis-declaration and suppression. There is no compelling ground to arrive at a conclusion that these factors were required to have been disclosed by the party. These factors were available as they were all statutory directions in the form of circulars and if the 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 conten....
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....is not a soap. Chapter Note 2 of Chapter 33 clearly indicates that terms of Heading Nos. 33.03 to 33.07 (bathing preparations) apply, inter alia, to products whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils) suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value. They pointed out to Chapter Note 1(b) of Chapter 33 which clearly indicates that this Chapter 33 does not apply soap or other products of Heading No. 34.01. The appellants have contended that the bathing preparation is indicated in Chapter sub-heading 33.07 and it should be put up in packings with labels, literature or other indications that they 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 doe....
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....ing to description of this item and understanding under the Explanatory Notes to HSN, we notice that at page 505 to 513, it is seen that very Chapter Note 4 of Chapter 33 states that "The expression 'perfumery, cosmetics or toilet preparations' in Heading No. 33.07 applies, inter alia, to the following products : scented sachets; odoriferous preparations which operate by burning; 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. Further explanation given below is that the above description indicates that Headings 33.03 to 33.07 include products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use (see note 3 to this Chapter). Note 3 has already been discussed above. 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 ....
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....der Chapter 34 clearly indicates that soap is an alkaline salt (inorganic or organic) formed from a fatty acid or a mixture of fatty acids containing at least eight carbon atoms, in practice, part of the fatty acids may be replaced by rosin acids. The Explanatory Notes further states that the heading covers only soap soluble in water, i.e. to say true soap. Soaps form a class of anionic surface-active agents, with an alkaline reaction, which lather abundantly in aqueous solutions. It merely gives various categories of soaps falling thereunder including toilet soaps besides hard soaps, soft soaps and liquid soaps. It adds description of glycerin soaps and indicates shaving soaps would fall under sub-heading 33.07 but incorporates medicated soaps and disinfectant soaps and excludes disinfecting preparations of Heading 38.08. It also includes Abrasive soaps but excludes abrasive scouring pastes and powders which should fall under Heading 34.05. It refers also to household soaps, which may be coloured or perfumed, abrasive of disinfectant; rosin, tall oil or naphthenate soaps and industrial soaps. Therefore, on reading of the entire Chapter of Explanatory Notes both under Chapters 33 a....
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....the book of Perfumes Cosmetics & Soaps with Especial Reference to Synthetics by William A. Poucher in Vol. III at page under Chapter I in Bath Preparations, it is indicated that bath crystals constitute the most popular bath preparation today in spite of the use, in approved formulae, of industrial methylated spirit for the manufacture of bath cologne etc. and they are sold in elegant and expensive packs by the high-class perfumers and in an inexpensive form by the cheap stores. The principles states that the principal difference between the two types is in the quality of the perfume and in the cost of the containers. Therefore, on examination of the technical literature on bath preparation, it is clear that bath preparation or perfumes which are used for softening water. Even in terms of understanding of HSN, it may be preparation for personal hygiene but it is certainly not a soap for the purpose of cleaning. A further reading of HSN at page 512 very clearly states that bath preparations are perfumed bath salts and preparations for foam baths. The indication therein clearly discloses that the item bath preparation or perfumed bath salts in terms of technical understanding they ar....