Customs, Excise and Gold Tribunal - Delhi
Shahnaz Ayurvedics vs Commissioner Of Central Excise on 16 November, 1998
Equivalent citations: 1999(114)ELT136(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. These are five applications as under for waiver of pre-deposit and stay of recovery of amount of Central Excise duty and penalty demand and imposed by Commissioner of Central Excise under the impugned order dated 7-8-1998 :
(i) M/s. Shahnaz Ayurvedics... Rs. 3,68,04,850/-(Duty) Okhla Indl. Area... Rs. 3,68,04,850/-(Penalty) (ii) M/s. Shahnaz Ayurvedics,... Rs. 4,80,84,599/-(Duty) Noida ... Rs. 4,80,84,599/ (Penalty) (iii) M/s. Shahnaz Ayurvedics... Rs. 92,30,773/-(Duty) Noida ... Rs. 92,30,773/-(Penalty) (iv) M/s. Shaheeb Cosmetics... Rs. 25,00,000/-(Penalty) (v) M/s. Shahnaz Hussain... Rs. 50,00,000/-(Penalty)
The learned Sr. Advocate submitted that M/s. Shahnaz Ayurvedics, manufacture patent & proprietory Ayurvedic medicines since 1986; that they had applied and obtained a Drug licence from the Drug Authority under the Drugs and Cosmetics Act, 1940; that the entire demand is barred by limitation and pertains to a period six months prior to the issuance of the show cause notice; that commencing from 1987, when the Central Excise officers first visited their factory premises, the Department has consistently held the view that their products are Ayurvedic medicines and not Cosmetics; that the proceedings initiated in the years 1987,1989,1992 and 1994 were all concluded with the clear and unequivocal findings that the impugned products are Ayurvedic medicines and not Cosmetics; that no appeal was ever filed by the Department against any of the orders. He specifically mentioned that the Additional Collector under Order No. 51/89 held that the products being manufactured by the applicants are Ayurvedic medicines and not Cosmetics and that the extended period of limitation was not invokable for issuing the demand. He further mentioned that in 1994, the duty became payable in respect of Ayurvedic medicine due to Budgetary changes; that they filed a classification list before the respective jurisdictional Asstt. Commissioners; that while granting provisional approval, both the Asstt. Collectors, Delhi and Noida called upon them to explain as to how their products were Ayurvedic medicines and why they should not be classified as cosmetics; that after conducting the necessary inquiry, both the Asstt. Collectors granted final approval to the classification list holding the products to be Ayurvedic medicines.
3. He mentioned that show cause notices dated 28-2-1997, 1-4-1997, and 30-7-1997 were issued for demanding duty for extended period after the visit to their premises by the officers of the Directorate General of Anti Evasion. The learned Sr. Counsel contended that in view of various orders issued in the past, it cannot be held that the Department was not aware of the manufacturing activity or the true nature of their products nor it can be alleged that they had suppressed or concealed or mis-stated facts before the Department; that any demand against an approved classification list can be raised only after modifying the classification list on the basis of cogent reasons and not arbitrarily. Regarding finding of the Commissioner that the applicants had the drug licence by concealing and mis-stating facts before the Drug Controller and hence the extended period of limitation is invokable, the learned Sr. Advocate submitted that no facts had been concealed or suppressed from the Drug Controller; that the authority to decide whether there was an suppression is the Drug Controller and not the Excise Department; that their drug licence has been recently again been renewed from the period commencing from 1-1-1998 and ending 31-12-1999. He also mentioned that Shri G.C. Lal, Deputy Drug Controller, the licencing authority, has in his cross-examination stated, inter alia, that all information as required by the Drug Controller was given by the Applicant Company and the Drug Controllers office was satisfied that the products in question are Ayurvedic medicines.
4. Regarding classification of the impugned products, the learned Sr. Counsel submitted that products in question are Ayurvedic medicines and their classification has to be done in accordance with the definition of Ayurvedic medicine contained in Chapter 30 of the Schedule to the Central Excise Tariff Act; that there is no allegation in the notice that the impugned products did not satisfy the definition of medicine as provided in the Tariff Act or that they are not manufactured in terms of the Ayurvedic System of Medicine or that the ingredients do not find a mention in the classical texts of the Ayurvedic System of Medicine; that all the active ingredients have therapeutic and prophylactic values, that the excipients, which have been termed as chemicals by the Department, are inert and do not have any therapeutic or prophylactic values which would interfere with the working of the active ingredients; that the affidavits of doctors/Vaidyas and letters from users clearly demonstrate that even in common trade parlance and usage the impugned products are treated and perceived as Ayurvedic medicines. He also submitted that any change in the classification is permissible only prospectively and cannot be held retrospectively and relied upon C.C.E. v. Bhiwani Textile Mills, [1996 (88) E.L.T. 639 (S.C.)]. He also stated that M/s. Shaheeb Cosmetics are not related person and the price at which the goods were sold by the applicant company to M/s. Shaheeb Cosmetics is the correct assessable value; that Shaheeb Cosmetics has no interest in the business of the applicant company and mere relationship between the partners is not sufficient to justify their treatment as related persons. Reliance was placed on the decision in M.P. Steel Works v. C.C.E., [1998 (98) E.L.T. 552 (T)]. The learned Sr. Counsel mentioned that the total demand on the ground of valuation is Rs. 25 lakhs and even otherwise it is not more than Rs. 1 crore. He relied upon the Stay Order Nos. 128-130/98-C, dated 7-8-1998 in the case of Ishan Research Laboratories v. C.C.E. in which unconditional stay was granted in respect of the similar products and submitted that similar matters should receive similar treatment as was held by the Delhi High Court in Deeksha Suri v. IT. Appellate Tribunal, [1998 (102) E.L.T. 524 (Del)]; that the Supreme Court in Vishnu Trader v. State of Haryana and Ors., [1995 Supple (1) S.C.C. 461] has held that "the need for consistency of approach and uniformity in the exercise of judicial discretion respecting similar causes and the desirability to eliminate occassion for grievance of discriminatory treatment requires that all similar matters should receive similar treatment.
5. He finally submitted that penalty order Section 11 AC of the Central Excise Act can not be imposed as the demand pertains to the period from 1-2-1992 to 31-10-1996 whereas the provision was introduced with effect from 26-9-1996 only. Reliance was also placed on Maruti Udyog Ltd. v. C.C.E., [1998 (25) RLT 246. Further once penalty has been imposed on the proprietorship or partnership concern, no penalty can be imposed upon the proprietors or partners as held in Puran Mal Bansal v. C.C.E., [1998 (100) E.L.T. 482 (T)].
6. Countering the arguments, Shri Lakhinder Singh, learned Jt CDR, submitted that it is not correct to say that no proceedings were pending before the Drug Controllers as show cause notice dated 11-4-1996 has been issued to the applicant company which is apparant even from the record of cross-examination of Shri G.C. Lal; that Shri Lal has nowhere mentioned that the impugned products were not Cosmetics; that the manufacture of the impugned product by the applicant company was suspended. He further mentioned that Shri Lal in his cross-examination had also stated that the case was not decided during his tenure for want of some clarification from the Drug Controller General of India and contended that this all goes to show that the matter regarding drug licence has not been finalised by the Competent Authority; that the clarification sought was whether chemical ingredients used as pharmaceutical aids, colours, fragrance, preservatives etc. should be allowed in the manufacture of Po2P Ayurvedic medicine and whether such non-medical aids shall be required to be displayed on the label of the products. He also referred to paragraphs 19,20 and 33 of the impugned order in which it was mentioned that in view of the properties and uses described in the literature/brouchures, the impugned products are cosmetics and toilet preparations as these are suntan cream, under-eye cream, skin cleaners, peel off skin treatment cream, etc. and the therapeutic and prophylactic claim was clearly susidiary to the properties of soothing, protecting, cleansing, conditioning, etc; that the impugned products are exported as Beauty Creams/Cosmetics; that the impugned products have been supplied to five star hotels against orders placed for shampoos, talcum powder etc. Regarding availability of extended time for demanding duty the learned Jt. CDR submitted that the evidence that had come to light during the course of investigation was not before the earlier Adjudicating Authorities; that M/s. Shahnaz Hussain herself in her Book "Shahnaz Hussain's Beauty Book" had described these products as herbal cosmetics; that in the advance licence application for fixation of input output norms under the DEEC Scheme the products had been described as beauty cream etc.; that the applicant company had deliberately mis-stated facts and suppressed the fact that the impugned products were cosmetics when furnishing declaration to the Central Excise authorities and there is no evidence to show that the kind of evidence gathered by Ann" Evasion Officers was ever brought to the knowledge of the officers who passed the earlier orders; that the true and actual nature of the products was never brought to the notice of the Department and the products were wilfully mis-stated to be Ayurvedic medicine with the intention to evade payment of proper duty. He also relied upon the decision in the case of Brij Mohan v. Commissioner Income Tax [1979 (120)ITR1].
7. We have considered the submissions of both the sides. The issue regarding classification of the impugned products is highly debatable. We also observe that the Deputy Drugs Controller has issued a show cause notice to the applicant company to show cause as to why their licence should not be cancelled under Rule 159 of the Drugs and Cosmetics Rule 1945 as the chemicals used by them were neither declared nor got approved and use of such chemicals, colours & fragrances do not find place in the Authoritative Ayurvedic Book prescribed in Schedule-I of the Drugs & Cosmetics Act. The classification of the products has to be examined in detail after considering the ingredients used and by referring to the decisions of the Apex Court and Tribunals at the time of regular hearing and not at this stage. The applicants have not made out a prima facie strong case on the classification aspect. However, they have made out a prima facie case about the time limit. The demand except for two months is beyond the normal period specified in Section 11A of the Central Excise Act. Even for these two months' demand the matter is before the Larger Bench of the Supreme Court in Cotspun case. We observe that the learned Senior Counsel mentioned that on the question of valuation, the duty involved is Rs. 25 lakhs approximately or Rs. 1 crore, if the view of the Department is found to be correct considering the product to be drugs or cosmetics. We, therefore, direct the Applicant Company to deposit Rs. 1 crore within 12 weeks from 16-11-1998. On complying with this direction there will be waiver of pre-deposit of remaining amount of duty and entire amount of penalty imposed on all applicants and the recovery of the same will be stayed during the pendency of the appeals. Failure to comply with this direction will result in dismissal of appeals automatically without any further notice. The matter to come up on for reporting compliance on 22nd February, 1999.