Custom, Excise & Service Tax Tribunal
M/S. Madhan Agro Industries (India) ... vs Commissioner Of Central Excise, Salem on 25 June, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.E/111/08/MAS
[Arising out of Order-in-Original Sl. No.14/2007 (Commissioner) dated 12.12.2007 passed by the Commissioner of Central Excise, Salem ]
For approval and signature:
Honble Mr. P.G. CHACKO, MEMBER (J)
Honble Mr. P. KARTHIKEYAN, MEMBER (T)
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? :
3. Whether the Members wish to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
M/s. Madhan Agro industries (India) Private Ltd.
Appellants
Versus
Commissioner of Central Excise, Salem
Respondent
Appearance:
Shri Joseph Vellapally, Sr. Counsel.
Shri N. Viswanathan, Adv.
Smt. R. Bhagya Devi, SDR For the Appellants For the Respondent CORAM:
Mr. P.G. Chacko, Member (Judicial) Mr. P. Karthikeyan, Member (Technical) Date of hearing : 25.6.2008 Date of decision : 25.6.2008 Final Order No.____________ Per P. KARTHIKEYAN, This is an appeal filed by M/s. Madhan Agro Industries (India) Pvt Ltd (MAIL) against the Order-in-Original No.14/07 dt.12.12.07 passed by the Commissioner of Central Excise, Salem. MAIL is engaged in the manufacture of coconut oil from copra. They sell refined coconut oil in packages of different capacities from sachets of 5ml to cans of two litres. The issue involves classification of coconut oil sold in these packages. Till 28.02.05 these goods were classified under CSH 15.03 of first schedule to CETA 1985 (Tariff) as coconut oil. In the impugned order, the Commissioner revised the classification to CSH 3305 which covers hair oil not perfumed. The present appeal challenges this revision.
2. Effective from 01.03.2005, the Tariff entries were renumbered to align it with HSN. Commissioner found that simultaneously, Chapter Note No.2 of Chapter 33 covering essential oils, cosmetic and toilet preparations etc was amended deleting the following segment.
with labels, literature or other indications that they were for use as cosmetics or toilet preparations or put up in a form clearly specialized to such use and included products whether or not they contained subsidiary pharmaceutical or anti septic constituents, or are held out as having subsidiary curative or prophylactic value.
Till then Chapter Note 2 of Chapter 3 read as follows:
Heading Nos.3303 to 3307 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 were for use as cosmetics or toilet preparations or put up in a form clearly specialized 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. Commissioner found that Shanti coconut oil-edible oil , the impugned goods , was advertised with a picture of actress Sreedevi prominently displaying her flowing hair. Cooking oil usually carried on the containers pictures of models engaged in cooking. These circumstances triggered enquiry into the real end use of the Shanti coconut oil and its correct classification. Disposing five Show Cause Notices issued to the appellants proposing to revise the classification of the product of the appellants, Commissioner determined the correct classification to be CSH 33059011 as unperfumed hair oil. He found that coconut oil manufactured by the appellants was extremely pure and expensive for application by most people in the country as a cooking medium. The impugned goods were packed in sachets ranging in volume from 5 ml onwards. Commissioner decided that packets, jars and cans of upto two litres were used as hair oil. Majority of the people in the country used coconut oil not as a cooking medium. The popular use of the product as hair oil was obvious also from the fact that the mouth/opening of lower capacity containers was not wide; some of them had only nozzles. Boards Circular No145/56/95-CX dated 1.8.95 applied to reading the entries prior to 1.3.95. Coconut oil qualified for classification in CSH 33059019 as hair oil even without labeling in view of the amendment to the Chapter Note 2 of Chapter 33. The chapter note did not require labeling; the packing suggested application of the impugned goods as hair oil. The Chapter Note 2 was different from the related HSN Explanatory Notes. In the circumstances HSN did not apply. Impugned goods qualified to be classified equally under Chapter 15.13 and Chapter 33.05. Applying interpretative rule 3(c), goods had to be classified under the later entry in the tariff. Accordingly the impugned order was passed, demanding duty of Rs.5,21,55,897/-, appropriate interest and imposing penalty equal to duty on the Appellant . A quantity seized was confiscated and ordered redemption on payment of fine.
3. The learned Sr. Counsel submitted that by changes enacted effective from 01.03.05, the tariff was fully aligned with HSN. This was made clear in the objects and reasons for the enactment announced by the Finance Minister who had stated that the changes were not intended to alter the tax incidence but to facilitate trade. The circular and the HSN therefore applied and supported the continued classification of the product as coconut oil even after 01.03.05. Boards interpretation of the entry prior to 01.03.05 put the impugned goods under Chapter 15. With the alignment of tariff entries with HSN, the impugned goods more correctly qualified for classification under Chapter 15. It is not the departments case that coconut oil is not covered by Chapter 15. Commissioner has classified only those goods in packing of and below two litres under Chapter 33. Ld. Counsel argued that the item was specifically covered by the entry in Chapter 15. The CBEC Circular No.145/56/95-CX dated 1.8.95 unambiguously covered the impugned goods under Chapter 15. CESTAT had held the classification to be Chapter 15 in the following case law.
CASE LAW Commissioner had wrongly observed that the CESTAT had erred in these decisions. In India, coconut oil was mostly produced in Kerala and coconut oil was the widely used and choice medium of cooking of large sections of the countrys population. Commissioners findings to the contra were erroneous. During hearing the Ld Counsel for the appellants showed us certain cooking medium marketed under the brand name Pam packed in bottles which were designed to spray the contents into pans for cooking. He also showed us containers of honey and ghee sold in bottles with small openings/mouths.
4. The Ld. SDR reiterated the findings contained in the impugned order of the Commissioner.
5. We find that the competing entries during the material period in the Central Excise Tariff and the HSN are as follows:-
CHAPER 15 TARIFF HSN 1513 - Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified Coconut (copra) Oil and its fractions:
151311 00 Crude oil 151319 00 - Other 15.13 Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified (+).
- coconut (copra) oil and its fractions 1513.11 Crude oil 1513.19 Other 33.05 preparation for use on the hair 3305.10 - Shampoos:
330510 10 Containing spirit 330510 90 Other 33052000 Preparation for permanent waving or straightening 3305 30 00 Hair Lacquers 3305.90 Other:
- Hair Oil 3305 90 11 Perfumed 3305 90 19 Other 330590 20- Brilliantines (spirituous) 3305 90 30 Hair cream 3305 90 40 - Hair dyes (natural, herbal or synthetic) 3305 90 50 Hair fixers 3305 90 90 - Other 33.05 - Preparation for use on the hair 3305.10 Shampoos 3305.20- Preparation for permanent waving or straightening 3305.30 Hair lacquers 3305.90 - Other Note 3.
Headings 3303 to 3307 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 of a kind sold by retail for such use.
Note 3.
Headings 33.03 to 33.07 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 in packings of a kind sold by retail for such use.
CHAPER 15 TARIFF HSN 1513 - Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified Coconut (copra)oil and its fractions:
151311 00 Crude oil 151319 00 - Other Note 3.
Headings 3303 to 3307 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 of a kind sold by retail for such use. 15.13 Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified (+).
Coconut (copra) oil and its fractions 1513.11 Crude oil 1513.19 Other Note 3.
Headings 33.03 to 33.07 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 in packings of a kind sold by retail for such use.
33.05 Preparation for use on the hair 3305.10 Shampoos:
33051010 Containing spirit 33051090 Other 33052000 Preparation For permanent waving or straightening 33053000 Hair Lacquers 3305.90 Other:
- Hair oil 33059011 Perfumed 33059019 Other 33.05 - Preparation for use on the hair 3305.10 Shampoos 3305.20 -Preparation for permanent waving or straightening 3305.30 Hair lacquers 3305.90 - Other
5. The cardinal principle for classification is that, for legal purposes, one has to determine the classification according to the description given in the Heading No. under the tariff, read with relative Section Note or Chapter note, if any. From the above tariff entry, it is obvious that with effect from 01.03.05, refined coconut oil falls under CSH 15131900 . Moreover the tariff entry and the corresponding HSN entry are fully aligned as regards the coconut oil and its fractions.
6. Similarly Note 3 to Chapter 33 of the Central Excise Tariff and the HSN are identically worded. Prior to 1.3.2005, Note 2 to Chapter 33 (which got renumbered as Note 3 from 28.02.05) prescribed that Heading Nos. 3303 to 3307 applied, inter alia, to products suitable for use as goods of those 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 specialized to such use and included products whether or not they contained subsidiary pharmaceutical or antiseptic, curative or prophylactic value. However, the Chapter Note 3 Chapter 33 with effect from 1.3.2005 and the corresponding Note 3 under HSN (all along) read as, Headings 3303 to 3307 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 of a kind sold by retail for such use.
7. The above Explanatory Note in HSN is further clarified with the following notes:-
Preparations (e.g. Varnish) and unmixed products (e.g. unperfumed powered talc, fullers 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 packing 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 deodorizers; or,
b) put up in a form clearly specialized to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish).
The impugned product does not satisfy these notes and therefore does not fall for classification under CSH 3305.
8. Vide Circular No.145/65/95-CX dated 1.8.1995 the CBEC had clarified that coconut oil whether pure or refined or whether packed in small or large containers merited classification under Chapter Sub Heading No.1503 if it satisfied the criteria of fixed vegetable oil laid down in Chapter Note 3 of Chapter 15. It was also clarified that if the containers bore labels, literature etc. indicating that it was meant for the application on hair as specified under Note 2 of Chapter 33 and/or if the coconut oil had additives (other than BHL ) or had undergone processes which made it a preparation for use on hair as mentioned in Chapter 6 of Chapter 33 then the coconut oil merited classification under Chapter 33. In Amardeo Plastics Industries Vs. CCE, Belapur [2007 (210) ELT 360 (Tri. Mumbai)] Tribunal considered the above circular of the Board. In that case, the containers (HDPE bottles) carried the description edible oil and nowhere on the bottle it was written that it was meant for application on hair. The coconut oil had not undergone any processes or contained any additives. Noting these facts, the Tribunal observed that Chapter Note 2 of Chapter 33 excluded such oils from its purview. Accordingly it was held that coconut oil did not fall under Chapter Heading 33. That decision was also consistent with the following earlier decisions of the Tribunal cited in that case before it . In the above decision the Tribunal analysed the scope of Chapter Note 2 to Chapter 33 and observed that it laid down three conditions for classifying the products under Chapter 33.
i) Suitable for use as goods of these headings.
ii) Packing/labeling, literature/any other indications of their use as cosmetic or toilet preparations.
iii) Put up in a form clearly specialized to such use.
In that case, the bottles containing coconut oil did not indicate their use on hair. Further the bottles and other packings in which coconut oil was filled were not in form clearly specialized to the products use as Hair oil. As clarified in the HSN Note expression form clearly specialized to such use stood explained by giving an example nail varnish put up in small bottles along with brush required for applying the varnish. Similarly, packing of a talcum powder containing of puff for applying on the face, or a bottle of mascara or eye liner containing a specialized brush for application of the same would get covered by the expression form clearly specialized to such use. The packing of coconut oil in that case was not of the type referred to above or which could be solely and exclusively said to be meant for application on hair only. As such the Tribunal held that Chapter 2 to Chapter 33 was not applicable for classifying the goods in that case under Chapter 33.
9. HSN Explanatory Notes to Chapter 33 were same before and after 28.02.05. Moreover entries under Chapter 15 relating to coconut oil in the HSN and Central Excise Tariff after 28.02.2005 are also identical. Therefore, the decision of the Tribunal in the above case interpreting the scope of Chapter 15.13 and 33.05 of Central Excise Tariff applies to the corresponding entries even after 28.02.2005. The above ratio of the decision of the Tribunal therefore squarely applies to the present case also. We find that the impugned order is not consistent with the Tribunals reading of the Tariff entries and HSN Notes relating to the relevant entries of Chapters 15 and 33 of the first schedule to the CETA, 1985.
10. In the result, we set aside the impugned order and allow the appeal filed by M/s. Madhan Agro Industries (P) Ltd.
(Decision pronounced in open court)
(P. KARTHIKEYAN) (P.G.CHACKO)
MEMBER (T) MEMBER (J)
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