Customs, Excise and Gold Tribunal - Delhi
Three N. Products (P) Ltd. vs Commissioner Of Central Excise on 1 June, 2004
Equivalent citations: 2004(170)ELT425(TRI-DEL)
ORDER
V.K. Agrawal, Member (T).
1. The issue involved in this appeal, filed by M/s. Three N. Products Pvt. Ltd., is whether the goods manufactured by them are classifiable under Heading No. 33.02 of the Schedule to the Central Excise Tariff Act as mixture of odoriferous substances and mixture with a basis of one or more substance of a kind used in industry or under Heading Nos. 33.04 & 33.05 as preparations for the care of skin and hair as confirmed by Revenue.
2. Shri B.L. Narasimhan, learned Advocate, submitted that the Appellants manufacture Ayur brand shampoo and cream in three factories at Delhi, Jabalpur and Bhiwadi; that with a view to maintain uniform quality of the final products, they manufacture raw materials for their final products in their units in Mangolpuri and Ranjit Nagar, Delhi; that they make following compounds which are packed in Jerry cane of 25/50 kgs. each:-
(1) TNP - 00IS (shampoo), (2) TNP - 020S (shampoo), (3) TNP - 002C (cream) (4) TNP- 013C (cream) (5) TNP- 018C (cream) (6) TNP - 059C (cream) 2.2 He mentioned that these six compounds are the main raw materials for the manufacture of their Ayur brand shampoo and cream; that these compounds are not capable of being used as shampoo or cream since it would have adverse effect on the user; that the shampoo is manufactured by the addition of the compound with other raw materials like sodium lauryl sulphate (SLR), sodium lauryl ether sulphate (SLES) and D.M. water; that the cream is manufactured by mixing the compounds and various other components like stearic acid, LLP, Perfume and D.M. water. He explained the manufacturing process of TNP compounds as follows; TNP compound is manufactured by mixing its basic constituents in a manufacturing vessel; the mixture is heated and then allowed to cool; the resultant product is TNP compound and is cleared in 25 kg./50 kg. Packing; that in order to identify the products, the containers are labelled as either shampoo or cream with the appropriate code.
3.1 The learned Advocate, further, submitted that Note 2 to Chapter 33 of the Tariff unambiguously states that for a product to fall under Headings 33.03 to 33.07 must be suitable for use as goods in resultant form put up in packing and affixed with labels, accompanied with literature indicating clearly that the product used as cosmetics or toilet preparations; that the impugned products are used as raw materials for the manufacture of shampoos and cream; that these compounds by themselves cannot be used as shampoos or creams because, firstly they are highly concentrated form and, secondly, other compounds need to be added in the pre-determined portion to these compounds to obtain the desired final product; that the compounds are also not accompanied with labels and literature which would provide any indication that they can be used as shampoo or cream; that there is no indication whatsoever on packings that the goods are meant for retail sale and shampoos, etc.; that on the other hand, the labels on the products clearly indicate that they are "raw materials" for industrial use; that thus the impugned goods do not satisfy the conditions set out in Note 2 to Chapter 33 of the Tariff and, therefore, cannot be classified under Headings 33.03 to 33.07 of the Tariff. He relied upon the decision in the case of B.P.L. Pharmaceuticals Ltd. v. C.C.E., Vadodara, 1995 (77) E.L.T. 485 (S.C.) wherein the Apex Court has held as under :-
"In order to attract Note 2 to Chapter 33 the product must first be a cosmetic, that the product should be suitable for use as goods of Headings 33.03 to 33.08 and they must be put in packings as labels, literature and other indications showing that they are for use as cosmetic or toilet preparations."
3.2 Reliance has also been placed on the decision in Twin City Organics Pvt. Ltd. v. C.C.E., Mumbai, 2002 (148) E.L.T. 568 (T) wherein the Camphor sold in the form of 25 kgs. blocks without any labels has been held to be classifiable under Sub-heading No. 2914.20 and not under Sub-heading 3307.41 as the goods were not put up in packings of a kind sold by retail for use as incense with label literature or other marks indicating that the products were meant for such use.
4. He also mentioned that the Commissioner, in the impugned Order, has held that the products have the essential character of shampoos and cosmetics and hence by the application of Interpretative Rule 2(a) they would get classified under Heading 33.04/33.05 of the Tariff; that this finding is contrary to the Explanatory Notes which clearly provides that in view of the scope of Heading of Sections I & VI, Rule 2(a) does not normally apply to goods of these Sections; that hence in view of the mandate of HSN, Rule 2(a) cannot be invoked to classify the compounds under Heading 22.04/33.05. He further mentioned that as per the impugned Order for classifying the compounds under Heading 33.02, they must contain substances of Heading 33.01 only or odoriferous constituents isolated from Heading 33.01 or synthetic compound; that the test applied by the Commissioner is that all the components of the compounds must be derived from or must contain substances falling under Heading 33.01; that this finding is not correct as Heading 33.02 covers also "a mixture with a basis of one or more of these (odoriferous) substances"; that this part of the Heading applies to products which are not mixtures of odoriferous substances but are a mixture with a basis of odoriferous substances; that a product would, therefore, remain under Heading 33.02 by virtue of the second part even if it contains other substances. He relied upon the judgment in C.C., Bombay v. S.H. Kelker & Co. Ltd., 1998 (102) E.L.T. 241 (S.C.). Finally, the learned Advocate, submitted that the extended period of limitation cannot be invoked since they had filed classification declarations, cleared the impugned goods on payment of duty and filed RT-12 returns; that the show cause notice itself has been issued based on the scrutiny of RT-12 Returns; that, therefore, merely because Revenue is seeking a different classification, suppression of facts can not be alleged against them; that it has been held by the Tribunal in the case of Pranav Vikas (India) Ltd. v. C.C.E., New Delhi - 2002 (148) E.L.T. 963 (T) that when the show cause notice relies upon the statutory documents filed by the assessee, Proviso to Section 11A(1) of the Central Excise Act is not invocable; that as the entire compounds in question are cleared to their other units, those units would be eligible to Modvat credit of the duty; that as such entire issue is revenue neutral and so Proviso to Section HA cannot be invoked. Reliance has been placed on the decision in the case of Hindustan Copper Ltd. v. CCE, 2001 (135) E.L.T. 1342 (T).
5.1 Countering the arguments, Shri V. Valte, learned SDR, submitted that Note 7 to Chapter 33 provides that "The expression "Odoriferous substances" of Heading No. 33.02 refers only to the substances of Heading No. 33.01, to Odoriferous constituents isolated from those substances or to "synthetic aromatics"; that as per Explanatory Notes of H.S.N., Heading 33.02 covers the following mixture :
(a) Mixture of essential oils,
(b) Mixture of resinoids,
(c) Mixture of synthetic aromatics,
(d) Mixture consisting of two or more odoriferous substances (essential oils, resinoids, and synthetics aromatics),
(e) Mixture consisting of two or more odoriferous substances (essential oils, resinoids, extracted oleoresins or synthetic aromatics),
(f) Mixture of one or more odoriferous substances (essential oils, resinoids, extracted oleoresins or synthetic aromatics) combined with added diluents or carriers such as vegetable oil, dextrose or starch,
(g) Mixtures, whether or not combined with a diluent or carrier or containing alcohol, of products of other Chapters (e.g. spices) with one or more odoriferous substances provided these substances form the basis of the mixture.
5.2 The learned SDR contended that thus goods to be covered under Heading 33.02 should contain the substances of Heading 33.01 only or odoriferous constituents isolated from the substance of Heading 33.01 only and or synthetic aromatics; that synthetic aromatic compounds should necessarily have aroma and the benzene ring; that inputs SLES, SLS, amid urea, sodium chloride, borex, silicon oil, etc. used in the preparation of impugned compounds are neither the compounds of Heading 33.01 nor mixture of oleoresin of other Chapters nor they are synthetic aromatic compounds; that thus the impugned goods are not covered under Heading 33.02. He further contended that as the impugned goods have attained the essential character of complete or finished goods of Heading 33.04 or 33.05, they are classifiable under these headings only. He relied upon the decision in the case of M.M. Khambhatwala v. C.C.E., Ahmedabad, 1997 (92) E.L.T. 162 (T) wherein it has been held by the Tribunal that M-37, a mixture of essential oils, aromatic chemicals and perfumes, a concentrate for the preparation of hair oil, is classifiable under Sub-heading 3305.90 as it does not lose its use as a preparation for use on hair.
6.1 We have considered the submissions of both the sides. The rival Headings read as under : -
"33.02 Mixture of odoriferous substances and mixture with a basis of one or more of these substances of a kind used as raw materials in industry; other preparations based on odoriferous substances, of a kind used for the manufacture of beverages.
33.04 Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen and sun-tan preparations; maincure or pedicure preparations.
33.05 Preparations for use on the hair"
6.2 It is the contention of the Appellants that the compounds in question manufactured by them are used as raw materials for the manufacture of shampoos or creams and these cannot be used as such as shampoos or cream because these are in highly concentrated form. The Revenue has not brought any material to show that the impugned products as such can be used as shampoos or cream. Once these products cannot be used as shampoos or cream, they cannot be classified under Heading 33.04 or 33.05. We agree with the learned Advocate that Rule 2(a) of the Rules for the Interpretation of Schedule cannot apply as the impugned goods firstly, cannot be said to have the essential character of finished goods as it is only a compound for the manufacture of goods falling under Heading 33.04/33.05 and secondly these are products by themselves. It has been held by the Tribunal in the case of Shivaji Works Ltd. v. CCE, 1994 (69) E.L.T. 674 that "Rule 2(a) does not permit us to conclude that when an article squarely falls under a particular tariff heading it can be made to fall under another heading by invoking the concept of essential character. This is against the plain reading of Rule 2(a)." Further, Explanatory Notes of HSN for Rule 2(a) clearly mentions that "In view of the scope of the headings of Sections I to VI, this part of the Rules does not normally apply to goods of these Sections." Chapter 33 of the Tariff falls under Section VI of the Tariff. Moreover Note 2 to Chapter 33 of the Tariff provides that the Heading Nos. 33.03 to 33.07 apply to products 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 specialized to such use. The impugned goods do not satisfy any of the requirements mentioned in Note 2 to Chapter 33 inasmuch they are not goods suitable for use as goods for beauty or make up (Heading 33.04) or preparations for use on the hair (Heading No. 33.05) as these are in highly concentrated form. Further Revenue has not rebutted the contention of the Appellants that the impugned goods are packed in 25 kgs./50 kgs. packing which is not a form clearly specialized to use as shampoo or cream. Moreover these goods, as per learned Advocate and which has not been controverted by Revenue, are not accompanied with labels and literature to the effect that the impugned goods are for use as cosmetics or toilet preparations. In the case of Twin City Organics Pvt. Ltd., supra the Tribunal has held that the goods did not satisfy the requirements of Note 2 to Chapter 33 of the Tariff as the goods were cleared in the form of 25 kgs. blocks and without any label, literature or other marks indicating that the products were meant for use as cosmetics or toilet preparation. The Tribunal in view of these facts has held that "the products in question did not pass the test of the above Chapter Note and hence stood excluded from the coverage of Tariff Heading 33.07." The decision in the case of M.M. Khambhatwala is not applicable as Note 2 to Chapter 33 was not considered at all in the said decision.
7. The Commissioner in the impugned Order has recorded a specific finding that as the TNP compounds are not exclusively manufactured from the odoriferous substances or synthetic aromatic compound, these are not classifiable under Heading No. 33.02. Heading 33.02 applies to "Mixture of Odoriferous substances" and "mixtures with a basis of one or more of these substances." As it is not the case of Revenue that there are no basis of one or more of odoriferous substances in the impugned products, their classification under Heading No. 33.02 cannot be denied. It has been held by the Supreme Court in S.H. Kelker & Co., supra, that the Product "Abbalide", a mixture with a basis of odoriferous substance, and which contained diethyl phthalate, a non-odoriferous solvent, and used as a perfume in the manufacture of soaps, cosmetics, detergents, etc., is classifiable under Heading 33.02 of the Customs Tariff as the product consists of various isomers and is an and has been dissolved in a non-odoriferous substance and used as raw material in industry. The Supreme Court did not accept the contention of the Respondents therein that as other non-odoriferous substance has been mixed, the product is not an odoriferous substance. We, therefore, hold that the impugned products are classifiable under Heading No. 33.02 of the Central Excise Tariff. The appeal is thus allowed.