Bombay High Court
Colgate Palmolive (India) Ltd. vs Union Of India And Others on 1 January, 1800
Equivalent citations: 1980CENCUS118D, 1980(6)ELT268(BOM)
ORDER
1. By this petition the petitioner-Company seeks an appropriate writ for setting aside the order dated 30th April, 1966 passed by the Assistant Collector of Central Excise, viz, the 2nd respondent the appellate order date 2nd May 1970 passed by the Appellate Collector of Central Excise viz. the 3rd respondent and the revisional order dated 30th September 1975 passed by the Joint Secretary to the Government of India. The 1st respondent is the Union of India.
2. The petitioner is a limited Company having its factory at Bombay where it manufacturers diverse toilet and allied preparations including Brushless shave Cream and Lather Shave Cream oil shampoo . For the preparation of its shampoo, the petitioner purchased liquid soap from at outside party one M/s. Gandhi Parekh Investment Corporation (Private) Ltd. and after adding water perfume and colour, sold the same under the trade name of the Palmolive Coconut Oil Shampoo. According to the petitioner neither its Brushless Shaving Cream nor its Lather Saving Cream nor its Coconut Oil Shampoo is commercially known as "soap".
3. On 24th November 1965, the petitioner received from the Excise Authorities a demand notice for Rs. 8,816.13 pertaining to its Shampoo and Lather Shaving Cream, categorised in the notice as "Toilet Soap", cleared by the petitioner between 1st March 1959 and 29th February 1960. By its letters dated 16th March 1966 and 20th April 1966, the petitioner objected to this demand on three grounds, viz., (i) that none of these products was commercially known as "soap"; (ii) that merely by adding water, perfume and colour to the liquid soap purchased from the outside party, the petitioner could not be said to manufacture shampoo; and (iii) the demand was time-barred. Nothing turns upon the last objection and no argument was advanced before me on that aspect of the matter.
4. Thereafter, the petitioner received further 5 demand notices, two dated 17th December 1965 and the remaining three dated 8th/9th February 1966, for an aggregate amount of Rs. 82,901.36 inn respect of the Lather Shaving Cream and Shampoo cleared by the petitioner between 1st March 1960 and 29th February 1964. To these notices of demand the petitioner raised the same objections as it had done to the earlier notice of demand dated 24th November 1965.
5. On 30th April 1966, the Assistant Collector, namely, the 2nd respondent, passed his impugned order confirming the demands made on the petitioner on the ground that the petitioner's products "have been found to be nothing else but soaps assessable under Item 15 (ii) of the Central Excise Tariff". On 28th July 1966, the petitioner filed the requisite appeal before the Appellate Collector, namely, the 3rd respondent, who by his order dated 2nd May 1970, dismissed the petitioner's appeal on the ground that the use of the petitioner's Lather and Brushless Shaving Creams is for shaving only and hence their uses are not different from those of saving sticks and cakes which are classifiable as "toilet soap", and liable to Central Excise duty. It was further held that "Toilet Soap", includes all forms of soap and hence the petitioner's shaving creams were rightly classifiable as "Toilet Soap" and liable to Central Excise duty under Item 15 of the Central Excise Tariff. Regarding the Petitioner's Coconut Oil Shampoo, it was held that its main function is the same as that soap, viz., cleaning and is, therefore, nothing other than soap with the only difference that it is produced after adopting certain processes to give it perfume, colour, etc. On that reasoning the appellate authority rejected as untenable the petitioner's contention that shampoo is not known commercially as "soap" The appellate authority also rejected the petitioner's contention that the process adopted by it for the preparation of the shampoo did not amount to "manufacture" on the ground that shampoo is obtained after soap undergoes some process such as dilution, filtration, etc. The additional ground was that the petitioner had not established that the outside party from whom the petitioner had purchased the liquid soap ad paid the duty on the liquid soap, hence the petitioner's shampoo was liable to be assessable to duty under Item 15. This last reasoning of the appellate authority makes strange reading as it penalises the petitioner for the default, if any, of its seller in paying duty on the liquid soap sold to the petitioner. Be that as it may nothing need further be said on this reasoning given by the appellate authority, for this ground was with his habitual fairness, rightly not canvassed by Mr. Dalal, the learned Counsel appearing on behalf of the respondents.
6. Against this appellate order, the petitioner filed a revision application before the revisional authority viz., the respondent, which by its impugned order dated 30th September 1975 dismissed the petitioner's revision application. It was held by the revisional authority that "shaving creams are variety of `Speciality Soap' which generally formulated by saponifying a mixture of coconut oil an stearic acid with mixture caustic potash and soda:, and that "shampoos are also a variety of liquidation". It was further held that boiled or hardened soap stock is a raw material for the manufacture of soap and is not commercially known as "soap". It is an intermediate between oil and soap and cannot be identified as "soap ". It was further held that the Lather Shaving Cream and Mentholated Shaving cream have percentages of soap as sodium and the coconut oil shampoo had also soap content.
7. Thereupon the petitioner filled the production petition. Here it may be stated that after the demands were initially manufacture the petitioner paid under protest, duty aggregating to Rs. 17,03,134.99 of which sum of Rs. 15,60,550.07 pertained to Lather Shaving Cream abc 233.57 to Brushless Shaving Cream and Rs. 1,08,351.35 to Shampoo. The petitioner also received a demand notice for Rs. 64,154.98 pertaining to Brushless Shaving Cream cleared by the Petitioner between 16th June 1969 and 30th June 1971. This amount has not been paid by the petitioner, but the petitioners furnished the requisite bank guarantee in respect of this amount in terms the interim order passed by this Court on 14th July 1976.
8. The Assistant Collector of Excise one Hemandas Ramchand Amarnani has filed an affidavit-in-reply dated 1st January, 1980. The sum and substance of that affidavit-in-reply is that the use of the petitioner's shaving cream is the same as that of shaving soaps, that the petitioner's shaving cream are treated and considered as shaving soaps by consumers and also in the trade, and that shop-keepers who sell shaving soaps also sell shaving creams. It is denied that shaving creams are not commercially regarded as "soap". Merely because they are in the form of a cream it does not mean that they are not commercially known as "shaving soap". Shampoo is nothing but soap and that merely by adding perfume and colour to the liquid soap the product does not become other than soap though called by a different trade name of shampoo.
9. Here it may be mentioned that by an order passed by the Central Government on 31st July 1979 (1979 Excise Law Times J567) it was held that Brushless Shaving Cream is not soap in commercial parlance and hence did not attract excise duty prior to 1st March 1973. However, the affidavit-in-reply filed by the Assistant Collector of Central Excise on 1st January 1980 proceeds on the basis that both the petitioner's lather and brushless shaving creams are assessable to duty on the grounds summarised earlier. Obviously the order passed six months earlier, viz. on 31st July 1979, by Central Government holding that brushless shaving cream did not attract duty prior to 1st March 1973, was not brought to the notice of the Assistant Collector when he made his affidavit-in-reply on 1st January 1980.
10. Hence the present controversy is restricted to whether any excise duty prior to 1st March 1973 is attracted in respect of the petitioner's Lathe Shaving Cream and shampoo.
11. In order to resolve this controversy, what must be ascertained is whether at the relevant time the petitioner's products in question were commercially known as "soap". If so, the petitioner must fail.
12. At this stage a reference must be made to the relevant entries in force during the material period. The classifications and rates prevailing till 1970 are as follows :- Item 14F pertains to cosmetics and toilet preparations not containing alcohol or opium, Indian hemp or other narcotic drugs or narcotics, viz. (i) preparations for the care of the skin including beauty creams, vanishing creams, cold creams, make-up creams, cleansing creams, skin foods and tonics, face powders, baby powders,toilet and talcum powders; (ii) hair lotion, cream and pomade. The rate of duty attracted is 25% ad valorem. Item 15 pertains to "Soap" and reads as under :-
"Soap" means all varieties of the product known commercially as soap-
I. Soap, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power or of steam for heating :
(1) Soap, household and laundry. ... 6 1/2 per cent
ad valorem.
(2) Other Sorts. ... 9 1/2 per cent
ad valorem."
II. Soap in or in relation to the manufacture of which no
process has been carried on with the aid of power or of steam for
heating.
... 6 1/2 per cent
ad valorem".
13. With effect from 1st March 1971, the item "Shampoos whether or not containing soap or detergent", was added as item (ii)(c) to Item 14F under the heading "Cosmetics and Toilet Preparations..." attracting duty at 25% ad valorem. Item 15 however, remained the same except for a minor increase in duty which is not germane for the purpose of this petition. With effect from 1st March 1973, the item "Shaving creams whether or not containing soap or detergents", was added as sub-item (iii) to Item 14F under the heading "Cosmetics and Toilet Preparations......." By Item 15, "Soap" continued to be defined as "all varieties of the product known commercially as soap".
14. The question that arises in this petition is whether the petitioner's Lather Shaving Cream and Shampoo can be said to be attracted to duty under Item 15. Mr. Setalvad, the learned Counsel appearing on behalf of the petitioner, urged that the question must be answered in the negative inasmuch as neither of these commodities can b classified as "soap" within the definition in Item 15 inasmuch as neither is "known commercially" as "soap" as required by that item in order to be assessable to duty. On the other hand according to Mr. Dalal, the learned Counsel appearing on behalf of the respondents, this question must be answered against the petitioner inasmuch as the Lather Shaving Cream and Shampoo are nothing but "soap" in a different form and are, in fact, used as "soap" inasmuch as shampoo is basically liquid soap and Lather shaving cream is for all practical purposes no different from a shaving stick or a shaving soap. Thus, according to Mr. Dalal, the petitioner's products attracted duty under Item 15.
15. It is not difficult to reject these submissions urged by Mr. Dalal. The logical conclusion of Mr. Dalal's contention would be that any article capable as being used as a "soap" would necessarily qualify for assessment under Item 15. In that way, I suppose saw-dust or ash or even dust can be used as a "soap" which in the olden days it was. Would that mean that such a cleanser would qualify as soap under Item 15? Most certainly not, for to do so would be to nullify the definition of soap appearing in Item 15, viz, that it must be "known commercially" as "soap".
"It is settled law that in a case of taxation the burden of proving that the necessary ingredients prescribed by the taxing provision are satisfied is entirely upon the taxing authority. It was primarily, therefor, for the taxing authority to satisfy the Court that the formulation of the Foron pigment in the form of Foron liquid is an entirely distinct commodity having entirely a distinct name, character and use as compared with the pigment itself............"
16. It may here be observed that even in the affidavit-in-reply, no attempt has been made to discharge this burden which was essentially on the department. In the affidavit-in-reply of the Assistant Collector, there is his ipse dixit that the use of the shaving cream is the same as that of shaving soap and that petitioner's creams are treated and considered as shaving soaps by consumers and in the trade. All this is untenable. What Item 15 postulates is that the articles must be known commercially as "soap" and not "shaving soap". The contention in the affidavit- in-reply that shopkeepers who sell shaving soaps also sell shavings creams, cannot by any stretch of imagination be construed as holding that thereby the petitioner's shaving cream or shampoo is known commercially as "soap" A shopkeeper may sell many things in addition to soaps and if the logic of the Assistant Collector of Central Excise as disclosed as him in his affidavit-in-reply is to be accepted, the result would be illogical to the point of being ridiculous inasmuch as on that logic any cleanser sold by the shopkeeper can qualify as "soap" and yet not be so known commercially to satisfy the requirement of Item 15.
17. Thus, Mr. Setalvad is correct when he says that the petitioner's shaving cream and shampoo not known commercially as "soap" and not having been established by the department to be known commercially as "soap", do not attract duty under Item 15. To the extent that Mr. Dalal says that the basic component of the petitioner's shampoo is soap, Mr. Dalal is correct because for the preparation of its shampoo the petitioner added water, perfume and colour to the liquid soap purchased by it. Surely that does not make shampoo to be known commercially as "soap". If it is not so known and has not been established by the department to be so known, that is the end of the matter and Item 15 cannot be attracted.
18. Mr. Dalal, however, relied on the decision of the Supreme Court in State of Gujarat v. Prakash Trading Co., (1972) 30 Sales Tax Cases 348, where it was held that shampoo is a kind of liquid soap and has all the essential ingredients of a soap. That decision can be of no assistance to the respondents before me. In that case the question was whether shampoo fell within entry 28 of Schedule C to the Sales Tax Act. That entry pertains to soaps. On a construction of that entry, the Supreme Court held that shampoo being a kind of liquid soap and having al the essential ingredients of a soap fell within that particular entry. However, the distinction in that matter and in the matter before me is that while entry 28 in the Sales Tax Act merely referred to soap, entry 15 before me goes a step further and defines soap as meaning "all varieties of the product known commercially as soap" Thus the question of the product being commercially known as "soap" was not before the Supreme Court while construing entry 28 of the Sales Tax Act.
19. Mr. Dalal urged that entry 15-I and II refers to manufacture respectively with or without the aid of power or stream for heating and that the petitioner's shampoo being made by either of these two processes, the same was vulnerable to duty under item 15. There is no merit in this contention inasmuch as, once again the question that must be asked and must be established by the department in whether the petitioner's shampoo is known commercially as "soap". This the department has not only failed to do but has not even attempted to do, with the result it now finds itself in the difficulty of its own making.
20. Furthermore, merely by adding water, perfume and colour to the liquid soap the petitioner cannot be said to have undertaken a manufacturing process inasmuch as by these additions what resulted was merely a change in the original substance, viz. liquid soap without detracting from its basic and essential quality. In Union of India v. Delhi Cloth and General Mills Co. Ltd., the word `manufacture' has been defined as under :-
"The word `manufacture' used as a verb is generally understood to mean as bringing into existence a new substance and does not mean merely `to produce some changes in a substance', however minor in consequence the charge may be."
In that case the Supreme Court quoted with approval a passage from Permanent Edition of Words and Phrases, Vol. 26, which runs as under :-
"Manufacture' implies a change, but every change is not manufacture and yet every change of an articles is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use:.
21. This concept was retained by the Supreme Court in South Bihar Sugar Mils Ltd. v. Tata Chemicals Ltd., , where at paragraph 14 of the judgment it was observed as under :-
"The word ` manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformations that new and different article must emerge having a distinctive name, character or use".
22. These decision of the Supreme Court have been referred to and followed by the Division Bench of this Court in Sandoz (India) Limited referred to earlier in another-context. Liquid soap which was liable to payment of duty by the outside party, could be used as shampoo which is not a trade name as suggested in the affidavit-in-reply. Merely by reason of the fact tat the petitioner added water, perfume and colour, it cannot be said that the petitioner undertook a process of manufacture resulting in an altogether new and different substance with a distinctive name, character or used and which is or can be said to be known commercially as "soap". What is also important is that this view finds support from the fact that it was not even within the contemplation of the legislature that shampoo or for that matter lather shaving cream which are essentially Toilet preparations could conceivably be known commercially as "soap". This is demonstrated by the fact that shampoos have been incorporated under Item 14F with effect from 1st March, 1971 under t heading "Cosmetics and Toilet Preparations" and not under the heading "Soap" under Item 15. Similarly, under Item 14F which came into effect from 1st March, 1973 shaving creams have been incorporated as sub-item (iii) in Item 14F under the same heading "Cosmetics and Toilet Preparations" and not under the heading "Soap" under Item 15. This is yet a further indication that neither of the petitioner's products were themselves regarded as "known commercially" as "soap" so as to attract duty under Item 15 during the relevant period.
23. In thee result, the impugned orders are set aside and the petition is allowed in terms of prayers (a) and (b). The respondents shall refund to the petitioner the sum of Rs. 17,03,134.99 within 4 months from today. The bank guarantee furnished by the petitioner in the sum of Rs. 64,154.98 in terms of the interim order passed on 14th July, 1976 do stand discharged. There will be no order as to costs. Rule is made absolute accordingly.