Custom, Excise & Service Tax Tribunal
R.M. Dhariwal (Huf) vs Pune Ii & Iii on 1 October, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. E/319 & 3961/2005 E/CO-134/2005 (Arising out of Order-in- Original No: 49/CEX/PIII/2004 dated 07/12/2004 & P-III/346/2005 dated 17/100/2005 passed by the Commissioner of Central Excise, Pune II & Order-in-Appeal No: P-III/346/2005 dated 17/100/2005 passed by the Commissioner of Central Excise (Appeals), Pune) For approval and signature: Hon'ble Ms. Jyoti Balasundaram, Vice President And Hon'ble Mr. A. K. Srivastava, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3. Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4. Whether Order is to be circulated to the Departmental authorities?
:
Yes ====================================================== R.M. Dhariwal (HUF) ...Appellant Vs Commissioner of Central Excise Pune II & III ...Respondent Appearance:
Shri Mayur Shroff with Mr. S.N. Kantawala, Advocates for the appellant Shri B.K. Singh, Authorized Representative (Jt.CDR) for the respondent CORAM:
Hon'ble Ms. Jyoti Balasundaram, Vice President and Hon'ble Mr. A. K. Srivastava, Member (Technical) Date of decision: 13/01/2009 ORDER NO....................................................
Per: A. K. Srivastava, Member (Technical)
1. The Common issue involved in both these Appeals is the classification and dutiability of the product 'Attar Hina'.
2. While it is the revenue's contention that the product 'Attar Hina' is classifiable under CSH 3302.10 and liable to duty, the Appellants have contended that the product 'Attar Hina' is classifiable under CSH 33.01 and was thus exempt from payment of duty during the relevant period by virtue of exemption notification No. 167/86 dated 1.3.86.
3. The facts in brief in appeal No. E/319/05 are that M/s. R.M. Dhariwal (H.U.F.), Ghodnadi, were supplying 'Hina Attar' to M/s. Dhariwal Tobacco Products Ltd. without payment of C. Ex. duty. The manufacture was carried out in the premises of the Appellants and the same was undertaken by Kannauj based M/s. Mohammad Sufian & Brothers; represented by Mohammad Sufian & his brother Najmul Islam, and the Appellants paid Rs. 350/kg to M/s. Mohammad Sufian & Brothers. For the said purpose, the Appellants supplied the raw materials and necessary equipments. Hina Attar was manufactured in the premises of the Appellants without the aid of power. For this purpose, the Appellants had also entered into a contract dated 8-6-2000 with the aforesaid M/s. Mohammad Sufian & Brothers. A Show Cause Notice was issued to the Appellants in June, 2003 for the period 5-9-98 to 23-9-02 and duty of Rs. 2,31,82,404/- was demanded on the basis that Attar Hina was a mixture of odoriferous substances and thus classifiable under Ch. 3302.10 of the First schedule to the C. Ex. Tariff Act 1985. Since CSH 3302.10 was excluded from the benefit of Notification 167/86 dated 1-3-86, duty was demanded on Attar Hina. Extended period of limitation was also invoked on the basis that the Appellants had wilfully suppressed the fact that they had been manufacturing 'Attar Hina' and clearing the same without payment of duty. The notice also proposed imposition of penalty under Section 11AC of the Central Excise Act, 1944 and recovery of interest under Section 11AB of the said Act.
4. The appellants contested the Show Cause Notice vide their reply dated 11-9-03 and also filed additional submissions. The appellants had, inter-alia, contended that fragrant stream in the form of vapours, produced on boiling of various herbs, was condensed and collected on Sandal wood Oil. No fermentation or blending was involved. They also submitted that the vapours were allowed to settle on sandal wood oil, which was base oil. The Appellants thus contended that Attar Hina was a concentrate of essential oil collected in sandal wood oil base. They thus submitted that the product was classifiable under Chapter Heading 3301.00 and was thus exempt under Notification 167/86 dated 1-3-86. The Appellants had also contended that the art of Attar manufacture was a specialty of Kannauj and no duty was paid on the said product by the Attar manufacturers in Kannauj. It was their contention that they had been informed that there were hundreds of manufacturers of Attar Hina in the country and no excise duty was paid by any of the manufacturers. In their additional submissions, the Appellants had also enclosed a copy of letter dated 27-9-04 from their Range Superintendent informing about the proposed visit by the Laboratory Officers for a study. They also enclosed a copy of letter dated 20-9-2004 from the Laboratory, J.N. Customs House Navasheva, which informs that the sample of Attar Hina is composed of essential oil. They also enclosed a copy of letter O. No. II (39) S.S.I/Suptd/93/284 dated 5-7-95 from Assistant Commissioner, Central Excise, Farrukhabad addressed to M/s. Hargovindas & Sons, Kannauj, an Attar manufacturer alongwith the copy of test results of the samples of Attar Hina sent by the Chief Chemist, Central Excise, New Delhi under letter C. No. 63 Ex. 6/94 dated 18-5-95, which, inter-alia, stated that the sample was composed of concentrates of essential oil. The Appellants also submitted that there was no suppression or intention to evade duty on their part and extended period was not invokable against them.
5. Vide Order-in-Original No. 49/CEX/PIII/2004 dated 30-11-04, the Commissioner of Central Excise, Pune II has held that 'Attar Hina' was classifiable under Chapter Sub Heading 3302.10 of the Central Excise Tariff Act, 1985 and was thus not entitled to exemption under Notification No. 167/86 dated 1-3-86. He has thus confirmed the duty demand of duty of Rs. 2,31,82,404/- together with interest. The Commissioner has also imposed an equal amount of penalty of Rs. 2,31,82,404/- on the Appellants under Section 11AC of the Central Excise Act, 1944. Aggrieved by this Order, the Appellants have filed this appeal. The Appellants and the Revenue were heard at length and both the sides were directed to file written submissions in the matter.
6. Shri Mayur Shroff, learned Advocate, submitted that Attar Hina was appropriately classifiable under Chapter Heading 33.01 and thus no duty was payable on the said product by virtue of exemption under Notification 167/86 dated 1-3-86. He submitted that the product Attar Hina was a concentrate of essential oil in sandalwood oil base and sandalwood oil was used as a fixative. He submitted that Attar Hina was manufactured by traditional process, whereby the receiver was filled with base material and the vapours formed on heating the various herbs in a pot, were allowed to condense on the base material. He also submitted that for condensation of vapours, the receiver had to be cooled and there was no heating of the vapours and base oil at any stage. The base material always remained in the receiver, while the water formed over the base was separated and removed from the receiver. He referred to the article on "Fragrances, flavours & Attar: Kannauj" by Fragrance & Flavour Development Centre, Kannauj and referred to the process of manufacture of Attar in the said article. He stated that Attars were manufactured by distillation. He also stated that as per the aforesaid article, the receiver in the distillation of attar, was filled with the base material and the vapours were allowed to condense on the base material. The receiver had to be cooled and there was no heating of receiver carried out at any stage. The base material always remained in the receiver, while the water formed over the base was separated and removed from the receiver. The traditional base material, as stated in the article, was sandalwood oil and for cheaper varieties of Attar, Di-octyl Pthalate (DOP) or liquid paraffin was used. He stated that no heating of vapours of herbs and sandalwood was ever carried out and the finding of the adjudicating authority and the averment to that effect in the impugned notice was patently erroneous and without any basis. He referred to the finding of the adjudicating authority to the effect that it was essential to mix or to blend the vapours of herbs with the sandal wood oil so as to get the desired product i.e. 'Attar Hina' and thus the ready mix was heated for a few days and submitted that the conclusion that heating of vapours and sandal wood oil resulted in the mixing of the vapours and oil was erroneous, as no heating of vapour and oil was carried out. He submitted that the order was factually erroneous and could not be sustained. He also referred to the rival Tariff Headings are CSH 3301.00 & CSH 3302.10 and submitted that 'Attar Hina' was a concentrate of essential oil in a fixed oil base falling under CSH 3301.00 and not a mixture of odoriferous substances falling within the meaning of CSH 3302.10. He referred to aforesaid article on "Fragrances, flavours & Attar: Kannauj", wherein it was stated that Attars were traditionally made by the 'Deg & Bhapka system' and submitted that sandal wood oil remained the traditional base irrespective of the type of Attar; whether Rose Attar or Kevra Attar or Hina Attar. He stated that the odoriferous constituent of the Attar was extracted by boiling the various ingredients in the pot and the particular aroma of the Attar thus formed was fixed by allowing the vapours formed on boiling to settle on the sandal wood oil base. As far as the role of sandal wood oil was concerned, he submitted that sandalwood oil played the role of a fixative and submitted that sandal wood oil was traditionally used in all attars, because it vaporized at a high temperature, which ranged between 285 to 290 degrees centigrade and was not readily volatile at the ordinary room temperature. He relied upon the judgment of the Hon'ble Madras High Court in Mettur Sandalwood Oil Company Vs. The State of Madras- [1965] 016 STC 009W, wherein the Hon'ble Madras High Court had held that sandalwood oil was a vegetable oil falling within serial no. 20 of the First Schedule of the Sales Tax Act and stood excluded from serial number 51, which referred to 'scents and perfumes, powders, snows and scented hair oils'. The Hon'ble High Court had observed that fixatives were defined as substances which were of low volatility than the odoriferous elements and which retard and even up the rate of evaporation of the various odorous constituents and had further observed that it was common experience that sandalwood oil as sold in the market did not vaporize readily, to serve the purpose of common perfume as it had to be rubbed hard on the hand or some other part of the body so that the temperature can be raised by friction and better vaporization takes place. The learned Advocate submitted that in the case of Attars, no alcohol was used but the aromatic vapours of the essential oil produced by distillation, were allowed to settle on the base of sandal wood oil, because of its very low volatility compared to the vapours of essential oil. The vapours of the essential oil were thus fixed on the sandal wood oil base. The sandalwood oil thus prevented rapid volatilization of volatile vapours of the Attar, provided uniformity in the rate of volatilization and increased the odour life the Attar. The learned Advocate also referred to the judgment of the Hon'ble Bombay High Court in the case of Commissioner of Sales Tax, Maharashtra State, Bombay Vs. Gordhandas Tokersey - [1983] 052 STC 0381 W, wherein the Hon'ble Bombay High Court had held that sandalwood oil is itself not a perfume but was extensively used in the preparation of perfumes. The Hon'ble High Court in the said judgment had also considered the brochure (Marketing series No. 128) on the marketing of sandalwood and its oil in India issued by the Government of India, Ministry of Food and Agriculture, inter-alia, stating that the main function of sandalwood oil was that of a fixative to hold the perfume for long lasting fragrance in view of its very high boiling point. The Hon'ble High Court also considered the letter of February 1971, addressed by V.P. Anantanarayan, Joint Agricultural marketing adviser to the Government of India, Ministry of Food and Agriculture, C.D. & Co-operation to M/s. Sorabji Nowroji & Co., wherein the aforesaid brochure on the marketing of sandal wood oil was referred to for communicating that sandal wood oil cannot be called as a perfume on its own but was only a vehicle for high-class perfumes as its own value as perfume was insignificant. The learned Advocate thus submitted that the role of sandal wood oil was merely that of a fixative or base oil and the attributes of the particular fragrance like Hina or Rose or Kevra were imparted by the vapours, which were allowed to be settled on the sandal wood oil base. He further referred to the report of the Chief Chemist dated 18-5-95, issued under C. No. 63 Ex. 6/94 in respect of Attar Motia manufactured by M/s. Hargovindas & Sons, Kannauj stating that the sample was composed of concentrates of essential oil absorbed in sandal wood oil base (a-fixative) and also stating that the sample had got the characteristic of Attar, other than mixture of odoriferous substances. The said test report also comprised of test results for Attar Kevra, Oul Hina & Attar Hina and stated that the samples were composed of concentrates of essential oil absorbed in mineral Hydro Carbon (Liquid Paraffin) fixative. The learned Advocate submitted that when the Attar Motia was held to be a concentrate of essential oil in sandalwood oil base and when the other Attars were held to be concentrates of essential oil in mineral Hydro Carbon (Liquid Paraffin) fixative and when both, sandal wood oil and liquid paraffin were held to be fixatives, the Attar Hina in Appellants' case was nothing but a concentrate of essential oil in sandalwood oil and sandal wood oil was nothing but a fixative for the concentrate of essential oil. He also referred to the letter dated 5-7-05 addressed to M/s. Hargovindas & Sons by the Assistant Commissioner, Central Excise, Farrukhabad specifically communicating to the said Attar manufacturer that the sample drawn from them had the characteristics of Attar/ other than mixture of odoriferous substances as per the analysis report of Chief Chemist, New Delhi, and did not merit classification under Chapter Heading No. 3302.90. It was submitted that when the Attars manufactured by the Kannauj based manufacturers had been tested and were reported not to be mixtures of odoriferous substances but concentrates of essential oil in a fixative and further when the said Attars were held to have characteristics other than mixture of odoriferous substances, there was no basis to hold that the Attar Hina forming the subject of dispute was a mixture of odoriferous substances and not concentrate of essential oil in sandal wood oil base. He stated that the adjudicating authority had unjustifiably held that the Test report dated 18-5-95 pertaining to Attar Motia and Attar Hina cannot be made applicable to the case of the Appellants, as the same were in respect of the products manufactured by M/s. Hargobindas & Sons and M/s. Munna Lal Sons & Co. He submitted that when Attar was manufactured by the same manufacturing process and Attar Motia was held to be a concentrate of essential oil absorbed in sandalwood oil base (a fixative) and furthermore an Attar absorbed in sandalwood oil base was held to be other than a mixture of odoriferous substances, the learned Commissioner could not have ignored the said test report, as the Attar Hina was also Attar absorbed in sandal wood oil base. He submitted that the concentrate of essential oil, having the fragrance of Motia, was known as Attar Motia and when the concentrate of essential oil had the fragrance of Hina, it was known as Attar Hina. The sandal wood oil in both the cases was a fixative for holding the fragrance to make it last longer. The finding of the adjudicating authority to the effect that the Test report dated 18-5-95 pertained to product, which was absorbed in mineral hydrocarbon was inapplicable as in the Appellants' case the essential oil in the form of vapours got mixed with sandal wood oil, which was also an essential oil and thus both the products are different was assailed on the basis that when Attar Motia, a concentrate of essential oil absorbed in sandal wood oil base, was not considered to be a mixture of essential oil in the form of vapours and sandal wood oil by the chief chemist and was held to be other than mixture of odoriferous substances by him, the Attar Hina, a concentrate of essential oil and sandalwood oil, could not possibly be considered to be a mixture of essential oil in the form of vapours and sandal wood oil or a mixture of odoriferous substances. He also submitted that the fixative base, whether sandal wood or liquid paraffin, did not make any difference, as the difference was only as regards quality and not identity; the sandal wood oil based Attar Hina was costlier, while that based on mineral hydrocarbon was cheaper. The learned Advocate also referred to the letter dated 20.9.2004 of Chemical Examiner Gr. I as per the communication dated 27-9-04 of the Range Superintendent, wherein it was stated that the sample of Attar Hina, in Appellants' case, was composed of Essential oil. He stated that though the letter stated that the Chemical examiner wanted to visit the factory to study the manufacturing process and ascertain the correct classification, there was no such visit from the Chemical examiner. The learned Advocate emphasized that when the letter dated 20-9-04 stated that the product was composed of essential oil and nowhere stated that the product was a mixture of odoriferous substances, there was no basis for the conclusion that Attar Hina was a mixture of odoriferous substances classifiable under CSH 3302.10. He also submitted that the finding of the adjudicating authority that vapours of the herbs in actual are aqueous distillates of essential oils was erroneous. He referred to Para (D) of the explanatory notes of HSN of CSH 33.01and submitted that aqueous distillates were nothing but remnants of distillation after the decantation of the essential oil after it was extracted by steam distillation. He further submitted that the Attar Hina was the concentrate of essential oil in sandal wood oil base, whereas the aqueous distillate referred to in the HSN was the water, which was removed from the oil base after separation, and contained a small part of the essential oil. He also submitted that the reliance of the adjudicating authority on the Explanatory notes to CSH 33.02, wherein it was stated that the said heading covered perfume bases consisting of mixtures of essential oils and fixatives, not ready for use until after the addition of alcohol was erroneous, as the Attar Hina undisputedly did not contain any alcohol. He also submitted that Attar Hina was not a perfume base but a perfume in the nature of Attar. He further submitted that attars had been in existence, much prior to the existence of Gutka Industry and had been traditionally used as a perfume to be worn on the body. The learned Advocate further submitted that the classification of Attar under CSH 33.01 was also borne out by the fact that the New 8 Digit Central Excise Tariff - 2005-06 specifically covered Attars of all kinds in fixed oil base under C.S.H. 3301 90 31. He further submitted that even as per notification no. 14 (RE-98)/97-02 dated the 14th August 1998 issued by the Government of India, Ministry of Commerce, the Exim Code allotted to Attars was 3301 9031and it was thus apparent that the Attars were classifiable under CSH 3301 9031 even during the relevant period. He submitted that classification under the 8 digit tariff can be relied upon to determine the earlier classification as per the following judgments:-
i) Chadha Metals Vs. Commissioner of Customs, New Delhi- 2005 (179) ELT 78 (Tri-Del.)
ii) C-Net Communications (I) Pvt. Ltd. Vs. Commr. Of Customs (Import), Mumbai- 2004 (170) ELT 446 (Tri-Del.)
7. The learned Advocate submitted that denial of exemption under Notification No. 167 /86 dated 1.3.86 on the basis that Attar Hina was out of the purview of the said notification as it was classifiable under CSH 3302.10 was even otherwise erroneous as no excise duty was paid by the Attar manufacturers during the time, when the aforesaid notification was in force. He submitted M/s. Dhariwal Industries Ltd., the buyers of Attar Hina from the Appellants, were also purchasing Attar Hina and other Attars from various Kannauj based manufacturers. He referred to the invoices of M/s. Hargovind Das & Sons and S. Md. Ayub Md. Yakub (Perfumers) Pvt. Ltd. in support of his submission that no duty was paid on Attar Hina by the other manufacturers. He further submitted that even as per the Departmental perception, the Attar Hina was not a mixture of odoriferous substances covered under Chapter 33.02; as apparent from the letter dated 5-07-05 by the Assistant Commissioner, Central Excise, Farrukhabad to M/s. Hargovindas & Sons. He submitted that the aforesaid notification was in force during the relevant period and was withdrawn only subsequently vide Notification No. 21/2006-C.E., dated 1-3-2006 and hence the demand was not sustainable. The learned Advocate further submitted that when the same products produced by their competitors were not subjected to duty, the Attar Hina supplied by the Appellants could also not be subjected to duty as that would amount to discrimination against the Appellants vis-`-vis other manufacturers of the same goods. He referred to the judgment of the Tribunal in M/s. Narendrakumar & Co.- A/624 to 625/08/CII/EB dated 25/07/2008, wherein the Tribunal relied upon the judgment of the Hon'ble Supreme Court in Damodar J. Malpani Vs. Collector of Central Excise- 2002 (146) ELT 483 (S.C.) and held that when the Appellants therein had produced evidence that identical products of their competitors were either not taxable or reported as exempted falling under Chapter 09, in various Commissionerates, the question of classifying the products in question under Chapter 21, as excisable, would give rise to a dichotomous situation. He also relied upon the judgments of the Hon'ble Tribunal in the case of Thermosystems Vs. Commissioner of Central Excise, Hyderabad- 2004 (178) ELT 402 (Tri- Del.) and the following judgments:-
i) R.K. Chemicals Vs. Commissioner of Customs (G), Mumbai.- 2007 (220) ELT 160 (Tri.- Mumbai)
ii) Larsen & Toubro Ltd. Vs. Collector of Central Excise, Mumbai-II- 2005 (189) ELT 439 (Tri. -Mumbai) It was submitted that in view of the above position, the finding of the adjudicating authority that the non-payment of duty by other manufacturers cannot be a reason for not levying duty on the product manufactured by the assessee is patently erroneous and unsustainable.
8. The learned Advocate also submitted that the major portion of demand was barred by limitation as the Show Cause Notice, issued in June, 2003, covered the period 5-9-98 to 23-9-02. In this connection, it was submitted that the Appellants were under a bonafide belief that no duty was payable on Attar Hina supplied by them. In this connection, he referred to the statement of Shri Prakash Dhariwal recorded on 11-6-02, wherein he had stated that the Appellants had not declared product 'Attar-Hina' to the Central Excise Department as it was not an excisable product. In the aforesaid statement, Shri Prakash Dhariwal had further stated that Attar Hina was a natural product i.e. Attar of natural spices and the product was a Kannauj based product where no excise duty was levied upon and had also produced invoice of M/s. Md. Shoeb & Sons Kannauj, U.P., bearing their invoice no. 7 dated 28-8-2000 with his dated signature to support his contention. The learned Advocate also referred to the statement of Shri R.M. Dhariwal, Karta of R.M. Dhariwal (H.U.F.), recorded on 8th April 2003, wherein the said Karta had stated that they had not included Attar Hina in Central Excise License as no Central Excise duty was leviable on the said product which was an 'Essential Oil' and moreover nobody was paying Central Excise Duty on such product in the country as the same did not attract Central Excise duty. It was submitted that the aforesaid statements established that the Appellants harboured a belief that the product was not excisable on the basis of the fact that the other manufacturers of the said product were not paying Central Excise duty. It was further submitted that when Attar Hina and other Attars were being supplied to M/s. Dhariwal Industries Ltd. by other Attar manufacturers without payment of duty, as borne out by the invoices of various manufacturers like Hargovind Das & Sons & S.Md. Ayub Md. Yakub (Perfumers) Pvt. Ltd., no duty could be demanded from the Appellants. It was also submitted that when the testing of samples of manufacturers in Kannauj had resulted in the report dated 18-5-95 that Attar Motia was a concentrate of Essential Oil in sandalwood oil base (a fixative) and Attar Hina was reported to be a concentrate of essential oil in mineral hydrocarbon (liquid Paraffin) Fixative, there was justification on the part of the Appellants to hold a belief that Attar Hina was not classifiable under CSH 33.02 as a mixture of odoriferous substances. It was further submitted that in the letter dated 5-7-95 to M/s. Hargovandas & Sons, it was specifically communicated by the Assistant Commissioner that the samples were concentrates of essential oils in Sandalwood Oil Base (a Fixative) and had got the characteristics of Attar/other than mixture of odoriferous substances and that the product did not merit classification under Chapter Heading 3302.90. Thus even in the Departmental perception, the essential oil in sandal wood oil base was not a mixture of odoriferous substances classifiable under Chapter Heading 3302.90. The Advocate further submitted that M/s. Hargovandas were also supplying Attar Hina to M/s. Dhariwal Industries Ltd. and were not paying any excise duty on the Attar Hina as is apparent from invoice no. 34 dated 20-2-03 of M/s. Hargovandas & Sons. Under the circumstances, there was no justification in invoking the extended period of limitation against the Appellants. The learned Advocate further submitted that it was not as if the Appellants were clandestinely removing the Attar Hina manufactured in their premises. They had declared the relevant details to Maharashtra State Sales Tax Authority and Income Tax Department. The Attar Hina was cleared from the Appellants' premises under the cover of invoices and the demand in the Annexure A to the Show Cause Notice dated June, 2003 is based on the invoices of the Appellants. He also stated that the averment in the impugned notice dated June, 2003 that Shri Prakash R. Dhariwal stated that they have not disclosed to the Department that they were manufacturers of 'Attar Hina' and cleared from their manufacturing place without payment of duty intentionally was contrary to his statement dated 11-6-02 as Shri Prakash Dhariwal has, in fact, stated that they had not declared product 'Attar-Hina' to Central Excise Department as it was not an excisable product and that Attar Hina was a natural product i.e. Attar of natural spices and the product was a Kannauj based product where no excise duty was levied upon. Further, Shri Prakash Dhariwal had also produced invoice of M/s. Md. Shoeb & Sons Kannauj, U.P., bearing their invoice no. 7 dated 28-8-2000 with his dated signature to support his statement. The learned Advocate thus submitted that the non-payment of duty was based on bonafide and justifiable belief and longer period of limitation was not invokable as there was no suppression or intent to evade duty on the part of the Appellants. The Advocate, inter-alia, relied on the following judgments in this connection:-
i) Tamil Nadu Housing Board Vs. Collector of Central Excise, Madras- 1994 (74) ELT 9 (SC)
ii) Pushpam Pharmaceuticals Company Vs. Collector of C. Ex., Bombay -1995 (78) E.L.T. 401 (S.C.)
iii) Padmini Products Vs. Collector of C. Ex.- 1989 (43) E.L.T. 195 (S.C.)
iv) Gopal Zarda Udyog Vs. Commissioner of Central Excise, New Delhi -2005 (188) E.L.T. 251 (S.C.)
v) Cosmic Dye Chemical v. Collector - 1995 (75) E.L.T. 721 (S.C.)
9. The Appeal No.E/3961/05 is against Order-in-Appeal No.P-III/346/2005 dated 17.10.2005 passed by the Commissioner (Appeals) Pune-III. The said order upholds the Order-In-Original No.7/CEX/05 dated 30.05.05 by the Additional Commissioner whereby demands raised vide two Show Cause Notices dated 16.07.04 & 22.12.04 were confirmed. Besides confirmation of duty demand alongwith interest, a penalty of an amount equivalent to the duty demand was imposed. The issue involved is the same as in case of Appeal No. E/319/05. Besides reiterating the submissions made in respect of the previous Appeal, the learned Advocate states that in the proceedings before the lower authorities, it was also specifically submitted that the demand was not sustainable as the Appellants were not the manufacturers of Attar Hina but the manufacturer was the job worker- M/s. Mohammad Suffian & Brothers, Kannauj (U.P.). The learned Advocate submitted that Attars were made by skilled artisans from Kannauj by following the traditional process. He submitted that the Appellants had entrusted the manufacture of Attar Hina to M/s. Mohammad Suffian & Brothers in terms of the contract entered into with them and as per the contract, the said job-workers were to carry out the manufacture in their independent capacity as job workers and were to employ their own workers. He submitted that since the Attar making was a skilled job and was a hereditary occupation of the job-workers, they were the manufacturers. He submitted that the relationship between the job-workers and the Appellants was on principal to principal basis as the job-workers were responsible for the loss of any materials and were paid on the basis of Rs. 350/kg of the product manufactured. Thus the Appellants were not the manufacturers and the duty liability was on the job-workers and not the Appellants. He further submitted that merely because the raw materials, fire wood and utensils were supplied by the Appellants, it could not be held that the relationship was not on principal to principal basis or that the Appellants were the manufacturers of Attar Hina. He also stated that the payment of Sales Tax or deduction of tax at source from payments made to job workers did not make the Appellants manufacturers of Attar Hina. The learned Advocate relied upon the following decisions in support of his submission that the job workers and not the Appellants were the manufacturers of Attar Hina:-
i) M/s. India Rayon & Industries Ltd. Vs. Commissioner of Central excise Bangalore -I - 2007 (212) ELT 358 (Tri.- Bangalore)
ii) Hindustan Petroleum Corporation Vs. Commissioner of Central Excise Bhopal- 2004 (174) ELT 31 (Tri. - Del.)
iii) M/s. Blue Star Ltd. Vs. Collector of Central Excise, Madurai- 1999 (107) ELT 609 (Tribunal)
iv) Tamil Nadu Electricity Board Vs. Commissioner of C. Excise Coimbatore- 2001 (133) ELT 639 (Tri-Del.)
v) Nahar Spinning Mills Ltd. Vs. Commissioner of Central Excise, Bhopal- 2002 (141) ELT 379 (Tri.- Del.)
vi) Punjab Project & Construction Pvt. Ltd. Vs. CCE, Bhubaneshwar- 2002 (142) ELT 154 (Tri.- Del.)
vii) India Cements Ltd. Vs. Additional Commissioner of C. Excise., Madurai.- 2000 (117) ELT 131 (Tribunal.)
10. On behalf of the Department, the learned Jt. CDR contended that Attar Hina was rightly held to be classifiable under C.S.H. 33.02. It was submitted by him that there could be no dispute that Attars in fixed oil base were covered under CTH 33.01 and the eight digit Central Excise Tariff covered Attars of all kinds in fixed oil base under C.S.H. 3301 90 31. He submitted that, however, the Attar Hina of the Appellants was not Attar in fixed oil base as sandalwood oil was not a fixed oil. The learned Jt. CDR further submitted that there was a difference between a fixed oil and a fixative and sandalwood oil was not a fixed oil but a volatile oil which was capable of distillation. In this connection, the learned Jt. CDR referred to the definition of essential oil in Wikipedia, wherein it has been, inter-alia, stated that an essential oil is a concentrated, hydrophobic liquid containing volatile aromatic compounds from plants and the said oils are also known as volatile or ethereal oils. He also referred to the aforesaid definition in Wikipedia and submitted that as stated in the Wikipedia, the essential oils were extracted by distillation. He further referred to the definition of fixed oil from Biology-Online. Org and stated that from the said definition, it was clear that fixed oil was a fatty oil in contrast to a volatile oil and was not capable of distillation. He also referred to the definition of fixed oil as per Your Dictionary.Com, wherein fixed oil has been defined as a non-volatile oil, esp. one found in fatty animal tissue and the seeds of various plants, including cotton, corn, flax, sunflowers, peanuts, coconuts and olives. He further stated that Fixed Vegetable Oils or "Carrier" Oils originated from non-volatile oily part of plants and referred to the description of Fixed Vegetable Oil by Florame organic aromatherapy in www.florame.com. He further submitted that Fixed Vegetable Oils were covered under Chapter 15 of the Central Excise Tariff Act, 1985, whereas Sandal wood Oil was specifically covered under CSH 3301 29 37 under the eight digit Central Excise Tariff as an essential oil. Thus the Attar Hina, which was Attar in sandal wood oil base, was not covered under CSH 3301 9031, which covered Attars of all kinds in fixed oil base. He thus submitted that Attar Hina cleared by the Appellants was not classifiable under Chapter Heading 33.01. The learned Jt. CDR also referred to the article The Fragrance of greatness by Harpreet Kaur from the site www. Dancewithshadows.com. He referred to the process of making Attars as per the aforesaid article. In the said article it is, inter-alia, stated as follows:-
" ... In the traditional process various flowers, roots, herbs, spices, etc. are hydro-distilled in copper vessels into a receiving vessel containing sandal wood oil.
A certain proportion of flowers or other aromatic plants are put into copper vessel containing water, sealed and heated. Their aromatic vapours rise through bamboo pipes and pass into another copper vessel containing sandal wood oil, sitting below the larger distilling one.
Sandalwood oil is the base with which each extracted oil has to be mixed to give a distinctive smell and whiff. These vapours condense, and after days of distillation, the water and oil separate, allowing most of the aromatic molecules to become adsorbed in the sandal wood oil."
On the basis of the aforesaid article, the learned Jt. CDR submits that Attar Hina is a mixture of extracted oil with sandal wood oil and thus the said Attar is classifiable under CSH 33.02 as a mixture of odoriferous substances and not under CSH 33.01 as contended by the Appellants. The learned Jt. CDR also referred to the decision of the Tribunal in J.M. Perfumery Unit- II Vs. Commissioner of Customs & C. Ex., Vapi- 2004 (171) ELT 20 (Tri.- Mumbai), wherein it was held that Attar Hina Special and Attar Shamma were mixtures of odoriferous substances and being used as raw material in the industry were, prima facie, covered by Heading 33.02. He also referred to the decision of the Tribunal in Jagatjit Industries Ltd. Vs. Commissioner of C.Ex. New Delhi- 1998 (102) ELT 746 (Tribunal), wherein it was held that Polyrome Bonificateur, which was a mixture of several oils such as cinnamon, winter green and clove etc., was classifiable under CSH 3302.10 and not under 3301.19. The learned Jt. CDR further submitted that the submission that the other manufacturers of Attars were not paying duty was not correct, as there were instances, where duty was paid on Attars. He relied on the judgment of the Tribunal in Collector of Central Excise, Kanpur Vs. Kothari Products -2002 (148) ELT 1056 (Tri.-Del.) in support of his submission. On the point of limitation, the learned Jt. CDR referred to the findings of the adjudicating authority at Para 21 and submitted that the Appellants had not declared the activity of manufacture of Attar Hina to the Central Excise Department and the Department had no occasion to know the manufacture and clearance of the said product. He thus submitted that extended period was invokable. The learned Jt. CDR also referred to the following judgments in support of his submission:-
i) Vivek Jhangiani Vs. Commissioner of Central Excise, Mumbai -I- 2008 (226) ELT 735 (Tri.- Mumbai)
ii) Dharampal Satyapal Vs. Collector of Central Excise, New Delhi- 2002 (150) ELT 871 (Tri. - Del.)
iii) Dharampal Satyapal Vs. Commissioner of Central Excise, New Delhi-2005 (183) ELT 241 (S.C.)
iv) Hindustan Motors Ltd. Vs. Collector of Central Excise, Madras- 2001(130) ELT 71 (Tri.- Chennai)
v) Indian Strips Vs. Commissioner of Cus. & C. Ex. Ahmedabad- 2004 (173) ELT 265 (Tri.- Mumbai)
11. In connection with the contention that the Appellants were not the manufacturers of Attar Hina but the manufacturer was the job worker- M/s. Mohammad Suffian & Brothers, Kannauj (U.P.), the learned Jt. CDR submitted that the requisite raw material and the utensils were supplied by the Appellants, the Appellants had paid Sales Tax and issued TDS certificates to the contractors and manufacture was carried out in the Appellants' premises. Thus the Appellants were the manufacturers of Attar Hina. The learned Jt. CDR placed reliance on the following judgments in support of his proposition that the Appellants and not M/s. Mohammad Suffian & Brothers were the manufacturers of Attar Hina:-
i) Interscape Vs. Commissioner of C. Excise, Calcutta -I- 2001 (135) ELT 942 (Tri. -Cal.)
ii) Mistry Brothers Vs. Commissioner of Central Excise, Ahmedabad- 2006 (200) ELT 350 (Tri. - Mumbai.)
iii) Maruti Udyog Ltd. Vs. Collector of Central Excise, New Delhi- 2001 (134) ELT 188 (Tri.- Del.)
12. In his rejoinder, the learned Advocate has submitted that the terms "Attars of all kinds in fixed oil base" would cover "Attars in sandal wood oil base". He submitted that sandal wood oil functioned as a fixative for holding the fragrance and retarding the evaporation rate. This function was achieved by allowing the volatile vapours of herbs to settle on sandal wood oil. The words 'fixed oil base' accompanying the description 'Attars of all kinds" were to be considered in the context of perfumery industry. He referred to Hawley's Condensed Chemical Dictionary (Eleventh Edition), wherein fixative in the perfumery industry was defined as a fixing agent for the perfume. He also referred to the definition of fixing agent (perfume) in the said dictionary wherein fixing agent (perfume) was defined as follows:-
"Fixing agent (perfume): A substance which prevents too rapid volatilization of the components of a perfume and tends to equalize their rates of volatilization. It thus increases the odor life of a perfume and keeps the odour unchanged. For many years the chief fixatives were animal products (ambergris, civet, musk, castoreum), but these have been largely replaced by synthetics."
He also referred to definition of fixed oil in the aforesaid dictionary, wherein fixed oil has been defined as a nonvolatile, fatty oil characteristic of vegetables as opposed to the volatile essential oils of flowers. The learned Advocate submitted that sandal wood oil had low volatility as compared to the vapours of essential oil formed on distillation, the vapours were fixed on sandal wood oil base and the sandal wood oil slowed down the rate of evaporation of the more volatile oil constituting the individual fragrance of the Attar. He submitted that the individual fragrance of the Attar was imparted by the volatile oil and not sandal wood oil. Thus Attar Gulab in sandal wood oil gave the fragrance of Rose and Attar Khus in sandal wood oil gave the fragrance of Khus. Similarly, Attar Motia or Attar Hina derived its identity by the peculiar fragrance emitted by the distilled vapours, which settled on the fixative base, whether sandal wood oil or liquid paraffin base. The learned Advocate further submitted that the term ' fixed oil' in perfume industry referred only to the fixative property of the oil and in this context fixative was also known as fixed oil. He referred to the following literature in this connection:-
i) Aromatherapy basics from kalyx.com, wherein fixative was defined as follows:-
"Fixative (AKA fixed oil) In perfumery, a material that slows down the rate of evaporation of the more volatile materials in a perfume composition. So-called vegetable oils fall into this category."
ii) Definition of Aromatherapy Terms compiled by Jacquelyn Close, defining the word fixative as follows:-
Fixative (AKA fixed oil): In perfumery, a material that slows down the rate of evaporation of the more volatile materials in a perfume composition. So-called vegetable oils fall into this category.
The learned Advocate also submitted that even otherwise sandal wood oil comprised of a large amount of fixed oil as well as volatile oil and thus the description "Attars of all kinds in fixed oil base" would appropriately cover Attar Hina, wherein sandal wood oil was used as a fixative. He referred to page 181 of the The Chemistry of Essential Oil and Artificial Perfumes by Ernest J. Parry- Fourth Edition in this connection. The Advocate also submitted that it was because of the fact that sandal wood oil had a high boiling point and had low volatility that it was used as a fixative in the preparation of Attars to ensure long lasting fragrance and was not known as a perfume but a substance used extensively in preparation of perfumes as held by the Hon'ble High Court of Madras in Mettur Sandalwood Oil Company Vs. The State of Madras- [1965] 016 STC 009W & the Hon'ble Bombay High Court in Commissioner of Sales Tax, Maharashtra State, Bombay Vs. Gordhandas Tokersey - [1983] 052 STC 0381 W. He further submitted that the expression fixed oil was not defined in either the chapter notes to Chapter 33 or in the relevant section notes and the definition of 'fixed vegetable oils' in Chapter 15 was restricted to oils covered under Chapter 15 only as apparent from Supplementary note 2 to the said chapter. Thus the Attar Hina in sandal wood oil base cannot be excluded from the purview of CSH 3301 90 31 on the ground that sandal wood oil was not a fixed oil within the purview of Chapter 15 and was an essential oil falling under CSH 3301 29 37. He further submitted that though sandal wood oil was covered under CSH 3301 29 37 as an essential oil, it functioned as a fixed oil or a fixative in relation to the volatile vapours extracted from plants and flowers and fixed their aroma because of its low volatile nature in comparison to the vapours. He further submitted that in the eight digit, tariff there were many products which figured in Chapter 15 as fixed vegetable oils as well as in Chapter 33 as essential oils. Pointing out to specific instances he stated that Turmeric Oil was covered under CSH 1515 90 30 as a fixed vegetable oil as well as in CSH 3301 29 49 as an essential oil. He stated that similarly Garlic Oil was covered under CSH 1515 90 30 as a fixed vegetable oil as well as under CSH 3301 29 47 as an essential oil. Thus merely because sandal wood oil was covered under CSH 3301 29 37 as an essential oil, it could not be said that the description "Attars all kinds, in fixed oil base" would exclude Attars in sandal wood oil base. He further submitted that Attars were traditionally made with sandalwood oil and all kinds of Attars were covered under Chapter 3301 90 31. Thus the reference to such Attars in fixed oil base had to be interpreted as having relation to its role as a fixative in conjunction with the volatile aroma of the condensate settled on the oil. Since sandal wood oil was non volatile oil in comparison to the aroma and functioned as base oil for retarding the rate of evaporation and for holding the fragrance, the entry -Attars of all kinds in fixed oil base would include Attars in sandalwood oil base. It was urged that the classification under Chapter Heading 33.02 is not appropriate, as the Attars in sandalwood oil fixative, were not mixtures of odoriferous substances and the Chapter Heading 33.02 contained no mention of any Attars. He further submitted that the Test report dated 18-5-95, issued under C. No. 63 Ex. 6/94 in respect of Attar Motia manufactured by M/s. Hargovindas & Sons, Kannauj, referred to by him earlier, specifically stated that the sample was composed of concentrates of essential oil absorbed in sandal wood oil base (a-fixative) and also stated that the sample had got the characteristic of Attar, other than mixture of odoriferous substances. He urged that in view of the above Test report dated 18-5-95 of the Chief Chemist, Central Revenues, it was abundantly clear that concentrate of essential oil in sandal wood oil base was not a mixture of odoriferous substances and thus it was not open to the Department to contend otherwise in respect of Attar Hina in Appellants' case when it was also manufactured by the traditional process involving settlement of vapours of essential oil on sandal wood oil. Further, when the letter dated 5-07-05 by the Assistant Commissioner, Central Excise, Farrukhabad to M/s. Hargovindas & Sons based on the aforesaid Test report specifically communicated that Essential Oils absorbed in Sandal wood Oil were not mixtures of odoriferous substances and the product did not merit classification under Chapter Heading 33.02, it was obvious that the Attars in Sandal wood Oil fixative were not mixtures of odoriferous substances even as per Departmental perception and during the relevant period, no duty was charged from Kannauj based manufacturers, who were also supplying Attar Hina and other Attars to M/s. Dhariwal Industries Ltd. He further submitted that even after the exemption under Notification 167/86 dated 1-3-86, was withdrawn on 1-3-06 the Attar manufacturers were classifying Attars under Chapter Heading No. 33.01 and not under Chapter Heading 33.02 and also submitted sample copies of Invoices issued by Attar manufacturers, after the withdrawal of exemption and showing classification under CSH 3301 9090. He thus submitted that Attars were classifiable under Chapter Heading 33.01 only as under the 6 digit tariff, the classification under Chapter Heading 33.01 only comprised of one entry 3301.00 and consequently classification under Chapter Heading 33.02 was incorrect.
13. Further, the learned Advocate stated it was never the Department's case that Attars of all kinds in fixed oil base would not cover Attars based in sandalwood oil as sandalwood oil was not a fixed oil. He submitted that the Show Cause Notice proceeded on the footing that 'Attar Hina' was not classifiable under Chapter S. H. No. 3301.00 as it was not obtained by extracting fresh materials of vegetable origin, and therefore, it was not essential oil and also averred that the said Attar was not also an aqueous distillate or aqueous solution of essential oil, as it was not an extract obtained directly from plant by steam distillation. On adjudication, the adjudicating authority held that vapours of herbs on condensation became essential oil but the vapours of herbs were mixed / blended with sandalwood oil by heating the vapours and sandalwood oil for a few days and thus Attar Hina was a mixture of two essential oils namely sandalwood oil and condensed vapours of herbs, the vapours of the herbs in actual were aqueous distillates of essential oil, the product cleared from the Appellants' factory premises was a mixture of the said vapours and sandalwood oil and the aforesaid mixture was appropriately classifiable under CSH 33.02. He further submitted that apart from the factual error in the finding about heating of sandalwood oil and vapours, the averment in the impugned notice about Attar Hina not being an essential oil was mistaken as apparent finding of the adjudicating authority that the vapours of herbs were essential oil. Further, while the impugned notice alleged that Attar Hina was not a aqueous distillate or aqueous solution of essential oil, the adjudicating authority arrived at a finding that the vapours of herbs were actually aqueous distillates of essential oil. Thus there were contradictions in the allegations and findings. However, it was never the Department's case that Attars in fixed oil base would not cover Attars based in sandalwood oil as sandalwood oil was not a fixed oil. He submitted that the point now canvassed by the learned Jt. CDR was extraneous to the impugned order and the impugned notice and the Revenue was precluded from raising it. He relied on the following judgments in this connection:-
i) Reckitt & Colman of India Ltd. Vs. Collector of Central Excise- 1996 (88) E.L.T. 641 (S.C.)
ii) Prince Khadi Woollen Handloom Prod. Coop. Indl. Society Vs. C.C.E .- 1996 (88) E.L.T. 637 (S.C.)
iii) SACI Allied Products Ltd. Vs. Commissioner of C. Ex., Meerut- 2005 (183) E.L.T. 225 (S.C.)
14. We have carefully considered the rival submissions, the case records and the submissions filed by the Appellants after the conclusion of the hearing. Attar Hina, according to the Appellants, is classifiable under Chapter Heading 33.01, whereas as per the Department it is classifiable under 33.02. The headings at the relevant time were as under:-
33.01 Essential oils (terpeneless or not),including concretes and absolutes; resinoids; extracted oleoresins; concentrates of essential oils, in fats, in fixed oils, in waxes or the like; terpenic by-products of the deterpenation of essential oils; aqueous distillates and aqueous solutions of essential oils 33.02 Mixtures of odoriferous substances and mixtures 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
15. We find that Attars are traditionally made by hydro distillation of flowers, herbs or spices in sandal wood oil and are traditionally used as perfumes to be worn on the body. It is also seen that the art of making natural Attars has developed and progressed in and around Kannauj. From the article "Fragrances, flavors & Attar: Kannauj" by Fragrance & Flavour Development Centre, Kannauj, it is seen that Attars are manufactured by hydro-distillation of flowers, herbs and spices in sandal wood oil, whereby the fragrant vapours of flowers, herbs and spices are condensed on a receiver containing sandal wood oil. While the traditional base material in the receiver is sandal wood oil, Di-octyl Pthalate (DOP) or liquid paraffin is used for cheaper varieties of Attars.
16. The manufacture of Attar Hina has been undertaken in the Appellants' premises by M/s. Mohammad Suffian & Brothers of Kannauj. Attar Hina is manufactured by mixing different herbs like Balchad, Sugandha Bala, Chharila, Mautri, Nagar Motha and Kapoor Kachier with water in a pot and heating the pot and collecting the vapours so generated in pots containing sandalwood oil. The Commissioner has held that it was essential to mix or to blend the vapours of herbs with the sandal wood oil so as to get the desired product i.e. 'Attar Hina' and thus the ready mix was heated for a few days. The Show Cause Notice also alleges that after the vapours are collected in the pot of sandal wood oil, the pot is heated directly for a few days and kept aside for fermentation. We find that from the manufacturing process placed on record by the Department, there is no such heating of vapours of herbs and sandal wood oil. Thus the finding of the Commissioner that the heating of vapours and sandal wood oil has resulted in the mixing of the vapours and oil is fallacious. The consequent conclusion that Attar Hina is a mixture of Sandal wood oil and condensed vapour of herbs is thus incorrect in view of his finding that mixing or blending of vapours of herbs was essential to get Attar Hina and for this purpose, the ready mix was heated for a few days. In the aforesaid article "Fragrances, flavors & Attar: Kannauj" by Fragrance & Flavour Development Centre, Kannauj, the traditional manufacturing process has been given and even from the said article, it can be seen that the receiver is allowed to cool after the vapours are condensed into the base material. Thus the above finding of the Commissioner is unsustainable.
17. The Commissioner has arrived at a finding that the vapours of herbs are not concentrates of essential oil but in actual are aqueous distillates of essential oil as mentioned in Para D of the explanatory notes of HSN, to CSH 33.01. From Para (D) of the explanatory notes of HSN, it can be seen that that aqueous distillates are aqueous portions of the distillates resulting when essential oils are extracted from plants by steam distillation. The said para (D) further states that after the essential oils have been decanted, the aqueous distillates still retain their fragrance due to presence of small quantities of essential oils. It is apparent that the vapours of herbs, which condense on sandal wood oil, are composed of essential oil and are not remnants after decantation of essential oil. The aqueous distillate referred to in the HSN is the aqueous portion containing a small quantity of the essential oil. Thus the finding of the Commissioner is erroneous.
18. The Commissioner has also relied on explanatory notes to CSH 33.02 in HSN to hold that the product is covered under CSH 3302.10 of the Central Excise Tariff Act, 1985. For holding that Attar Hina is appropriately classifiable under CSH 3302.10, he has placed emphasis to the following portion of the Explanatory notes:-
".................................................................. .. ...........................................................................
In particular, the heading covers perfume bases consisting of mixtures of essential oils and fixatives, not ready for use until after the addition of alcohol. This heading also includes solutions in alcohol (e.g. Ethyl alcohol, isopropyl alcohol) of one or more odoriferous substances, provided these solutions are of a kind used as raw materials in the perfumery, food, drink or other industries."
19. Attar Hina is not a perfume base but a perfume having the characteristic of Attar and it has been worn on the body since ancient times. Further, Attars do not contain alcohol and no alcohol has to be added to Attar Hina to make it ready for use. The reliance on the aforesaid Explanatory notes to hold that Attar Hina is classifiable under CSH 33.02 is mis-placed. Natural Attars are used in Gutka Industry but that, per se, does not make them raw materials of a kind used in Gutka Industry as the traditional use of Attars, as such, is not as a raw material but as a perfume for body wear. The Gutka Industry developed much later.
20. The fact that Attar Hina, a concentrate of essential oil in sandal wood oil, is not a mixture of odoriferous substances, is also borne out by the report of the Chief Chemist dated 18-5-95, issued under C. No. 63 Ex. 6/94. The said Test Report is, inter-alia, in respect of Attar Motia manufactured by M/s. Hargovindas & Sons, Kannauj and states that the sample is composed of concentrates of essential oil absorbed in sandal wood oil base (a-fixative) and further states that the sample has got the characteristic of Attar, other than mixture of odoriferous substances. The said test report also comprises of test results for Attar Kevra, Oul Hina & Attar Hina and states that the samples are composed of concentrates of essential oil absorbed in mineral Hydro Carbon (Liquid Paraffin) fixative.
In his letter dated 5-7-95, addressed to M/s. Hargovindas & Sons, the Assistant Commissioner, Central Excise, Farrukhabad has specifically conveyed to the said Attar manufacturer that the sample drawn from them had the characteristics of Attar/ other than mixture of odoriferous substances as per the analysis report of the Chief Chemist, New Delhi, and did not merit classification under Chapter Heading No. 3302.90. The traditional process followed for the manufacture of natural Attars is the same and vapours of essential oil is allowed to settle on base oil. We see force in the submission of the Advocate that when Attar Motia, having the characteristic of Attar, was tested and found to be a concentrate of essential oil absorbed in sandal wood oil base (a -fixative) and further found to be other than mixture of odoriferous substances and further when the Assistant Commissioner, Farrukahabad, had, vide his letter dated 5-7-05 specifically communicated to M/s. Hargovindas & Sons, Kannauj that the Attar did not merit classification under Chapter Heading 3302.90, the Attar Hina of the Appellants, also consisting of concentrates of essential oil absorbed in sandal wood oil, could not be held to merit classification under Chapter Heading 3302.90.
21. The role of sandal wood oil as a fixative has been discussed by the Hon'ble Madras High Court in Mettur Sandalwood Oil Company Vs. The State of Madras- [1965] 016 STC 009W. The Hon'ble Madras High Court has held that sandalwood oil was a vegetable oil falling within serial no. 20 of the First Schedule of the Sales Tax Act and stood excluded from serial number 51 viz. 'scents and perfumes, powders, snows and scented hair oils'. As per the Hon'ble High Court, the fixatives were defined as substances which were of low volatility than the odoriferous elements and which retard and even up the rate of evaporation of the various odorous constituents. The Hon'ble High Court had also observed that it was common experience that sandalwood oil as sold in the market did not vaporize readily, to serve the purpose of common perfume as it had to be rubbed hard on the hand or some other part of the body so that the temperature can be raised by friction and better vaporization takes place. In the judgment of the Hon'ble Bombay High Court in the case of Commissioner of Sales Tax, Maharashtra State, Bombay Vs. Gordhandas Tokersey - [1983] 052 STC 0381 W, the Hon'ble Bombay High Court has held that sandalwood oil is itself not a perfume but is extensively used in the preparation of perfumes. The Hon'ble Bombay High Court has considered the brochure (Marketing series No. 128) on the marketing of sandalwood and its oil in India issued by the Government of India, Ministry of Food and Agriculture, wherein it has been stated that the main function of sandalwood oil is that of a fixative to hold the perfume for long lasting fragrance in view of its very high boiling point. Relying on the said brochure and after considering the letter addressed by V.P. Anantanarayan, Joint Agricultural marketing adviser to the Government of India, Ministry of Food and Agriculture, C.D. & Co-operation, communicating that sandal wood oil cannot be called as a perfume on its own but was only a vehicle for high-class perfumes as its own value as perfume was insignificant, the Hon'ble Bombay High Court arrived at a conclusion that sandal wood oil was not a perfume. We thus find force in the submission of the learned Advocate that sandal wood oil is a traditional fixative because of its high boiling point and low volatility and its role is to prevent rapid volatilization, provide uniformity in the rate of volatilization and to increase the odour life of the Attar. Hawley's Condensed Chemical Dictionary (Eleventh Edition) defines fixative in the perfumery industry as a fixing agent for the perfume and also defines fixing agent (perfume) as a substance which prevents too rapid volatilization of the components of a perfume and tends to equalize their rates of volatilization. From the Hawley's Condensed Chemical Dictionary, it can also be seen that the fixing agent increases the odour life of a perfume and keeps the odour unchanged. The Test report dated 18-5-95 of the Chief Chemist, Central Revenues in respect of Attar Motia, reported as a concentrates of essential oil in sandal wood oil (a fixative), and further stating that it is not a mixture of odoriferous substances also makes it manifest that the volatile vapours impart the characteristic fragrance of the particular Attar, while the sandal wood oil constitutes the base on which the fragrance is fixed. The fact that different kinds of Attars like Attar Gulab, Attar Kevra, Attar Motia, Attar Hina etc. are being manufactured by Attar manufacturers and sandal wood oil is used as a base for all such Attars also establishes that the characteristic fragrance of the Attar is imparted by the volatile vapours and not by the sandal wood oil. Sandalwood oil merely fixes the peculiar fragrance of Attar and is used in manufacture of Attars for the purpose of retention of fragrance of the particular Attar. From the monograph in Volume 1 of ' The Chemistry of Essential Oils and Artificial Perfumes' by Ernest J. Perry (Fourth Edition), it can be seen that Sandal-wood Oil contains a large amount of fixed oil as well as volatile oil. Further, the perusal of literature of Aromatherapy basics from kalyx.com, the 'Definition of Aromatherapy Terms' compiled by Jacquelyn Close shows that a fixative is also known as a fixed oil in perfumery and is a material that slows down the rate of evaporation of the more volatile materials in a perfume composition. There is also force in the submission of the learned Advocate that the expression fixed oil is not defined in either the chapter notes to Chapter 33 or in the relevant section notes and the definition of 'fixed vegetable oils' in Chapter 15 is restricted to oils covered under Chapter 15 only as per Supplementary note 2 to the said chapter. Thus the Attar Hina in sandal wood oil base cannot be excluded from the purview of CSH 3301 90 31 on the ground that sandal wood oil is not a fixed oil within the purview of Chapter 15 but an essential oil falling under CSH 3301 29 37. A reference to the eight digit tariff shows that there are instances, where the same item figures in Chapter 15 as a fixed vegetable oil as well as in Chapter 33 as an essential oil. Turmeric Oil is covered under CSH 1515 90 30 as a fixed vegetable oil as well as in CSH 3301 29 49 as an essential oil. Similarly, Garlic Oil is covered under CSH 1515 90 30 as a fixed vegetable oil as well as under CSH 3301 29 47 as an essential oil. We thus find that the inclusion of sandal wood oil in CSH 3301 29 37 as an essential oil would not be fatal to the inclusion of Attars based in sandal wood oil in CSH 3301 90 31. The contention that eight digit 8 digit tariff can be relied upon to determine the earlier classification for the earlier period is also valid. In Chadha Metals Vs. Commissioner of Customs, New Delhi- 2005 (179) ELT 78 (Tri-Del.), it has been held that the 8 digits classification Customs Tariff in 2004 is only a more detailed and expanded classification. Similarly, in C-Net Communications (I) Pvt. Ltd. Vs. Commr. of Customs (Import), Mumbai- 2004 (170) ELT 446 (Tri-Del.) support was drawn from the classification under the 8 Digit Tariff for the view taken on earlier classification. We find that when Attars are specifically included in CSH 3301 90 31 and do not figure in Chapter Heading 33.02 in the 8 digit tariff, it can be deduced that Attars were classifiable under Chapter Heading 33.01 and not under Chapter 33.02 in the earlier tariff. The fact that the Exim Code allotted to Attars was 3301 90 31 under notification no. 14 (RE-98)/97-02 dated the 14th August 1998 issued by the Government of India, Ministry of Commerce, the Exim Code also indicates that Attars were classifiable under Chapter Heading 33.01 during the relevant period.
22. In Jagtjit Industries Ltd. vs. Commissioner of Central Excise, New Delhi 1998 (102) ELT 746 (Tribunal), it was held that Polyrome Bonificateur, which was a mixture of several oils such as cinnamon, winter green and clove etc. and was thus classifiable under CSH 3302.10, as mixtures of odoriferous substances, and not under 3301.19 as essential oil of citrus fruit. In the said case, the Tribunal was not concerned with classification of Attars. The data-sheet supplied by the suppliers, per se, indicated that the imported substance was a mixture of several oils such as cinnamon, winter green and clove, etc. Furthermore, in the said case, the importer had claimed classification under Heading 3301 in the Bill of Entry despite the fact that the invoice, which was in the hands of the importers itself had shown classification of the subject goods under Sub-heading 3302.00. Thus the said judgment could not be made applicable in the present case, where Attar is produced on heating various herbs and the vapours of essential oil formed on heating are allowed to settle on fixative viz. sandalwood oil. The test report of the Chief Chemist dated 18-5-95 in the case of Hargovindas & Sons, Kannauj itself indicates that such Attars comprising of concentrates of essential oil in sandalwood oil fixative are not mixtures of odoriferous substances. Thus the judgment in Jagatjit Industries Ltd. vs. Commissioner of Central Excise, New Delhi cannot be made a basis for holding that the Attar Hina is a mixture of odoriferous substances.
23. The learned Jt.CDR also relied upon the judgment of Hon'ble Calcutta High Court in the case of Bharat Rabi Oil Mills 2000 (126) ELT 408 (Cal.). We have examined this judgment. We find that in this case the Hon'ble Calcutta High Court was addressing the question as to whether the expression "vegetable non-essential oil" could be applied to fixed oil or fatty oil obtained from mustard seeds and whether it fell for classification as "Vegetable Non-essential Oil" in the First Schedule to the Central Excise and Salt Act, 1944. The Hon'ble High Court held that there was no vagueness attached to the expression "Vegetable non-essential oil", which mandated exclusion of mustard oil from its fold. The Hon'ble High Court also noted that the United States recognized both the natural and synthetic oils as 'Volatile Oil of Mustard' or 'Allyl Isothiocyanate'. The Hon'ble High Court held that since the Petitioners therein were extracting only the fixed oil from mustard seeds, the mustard oil was covered under the expression "Vegetable non-essential oil". In the present case, the dispute is whether the sandalwood oil used as a fixative in perfumery industry can be held to be a fixed oil base in the context of Attars, which are traditionally manufactured in sandalwood oil base. From the various definition of fixative in the context of perfumery industry; from the fact that sandalwood oil is used as a fixative because of its high boiling point and low volatility; from the fact that sandalwood oil comprises of a large amount of fixed oil as well as volatile oil, as seen from The Chemistry of Essential Oil and Artificial Perfumes by Ernest J. Parry - Fourth Edition and; from the evidence to the effect that fixative in perfumery industry is also known as fixed oil, as per the literature of Aromatherapy basics from kalyx.com and definition of Aromatherapy Terms compiled by Jacquelyn Close, it can be seen that sandalwood oil in the context of Attars would be covered by the expression "fixed oil base" and the entry "Attars of all kinds in fixed oil base" would cover Attar Hina in sandalwood oil base. Thus the judgment of the Hon'ble High Court in Bharat Rabi Oil Mills 2000 (126) ELT 408 (Cal.) is not applicable in the present case.
24. We also find that Dhariwal Industries Ltd., to whom the Appellants have supplied Attar Hina, have purchased Attars, including Attar Hina, from other manufacturers and no excise duty was being paid by the said suppliers of Attars during the relevant period. The Appellants have enclosed copies of the invoices of the other manufacturers. From the invoices of Attar manufacturers like M/s. Hargovind Das & Sons and S. Md. Ayub Md. Yakub, it is seen that no excise duty was being charged on Attars during the relevant period. From the test report dated 18-5-95 of the Chief Chemist, Central Revenues and the letter dated 5-7-05, addressed to M/s. Hargovindas & Sons, by the Assistant Commissioner, Central Excise, Farrukhabad, it is seen that Attars in sandal wood oil base were considered as other than mixture of odoriferous substances as per the analysis report of Chief Chemist, New Delhi, and did not merit classification under Chapter Heading No. 3302.90. It is thus seen that the exemption under Notification No. 167 /86 dated 1.3.86 was found to be applicable to Attars manufactured traditionally without the aid of power. The Appellants had specifically contended before the Commissioner that other manufacturers were not paying any excise duty on the Attars manufactured by them. The aforesaid contention has not been rebutted by the Commissioner but he has proceeded to hold that the Appellants were liable for payment of duty on the basis that the non payment of duty by the manufacturers at Kannauj and other parts of the country could not be a reason for not levying duty on the Appellants. There is force in the contention of the Appellants that saddling the Appellants with duty liability would amount to discrimination, when identical products manufactured by their competitors were not subjected to duty. In M/s. Narendrakumar & Co.- A/624 to 625/08/CII/EB dated 25/07/208 the Tribunal, relying, inter-alia, upon the judgment of the Hon'ble Supreme Court in Damodar J. Malpani Vs. Collector of Central Excise- 2002 (146) ELT 483 (S.C.), has held that uniformity in classification has to be maintained and when the Appellants had produced evidence that identical products of their competitors were either not taxable or reported as exempted falling under Chapter 09, in various Commissionerates, the question of classifying the products in question under Chapter 21, as excisable, would give rise to a dichotomous situation. The learned Jt. CDR has relied upon the judgment of the Tribunal in Collector of Central Excise, Kanpur Vs. Kothari Products -2002 (148) ELT 1056 (Tri.-Del.) in support of his contention that there were instances, where duty was paid on Attars. We find that the aforesaid decision does not deal with the issue of classification or dutiability of Attars and is on the point of availability of modvat credit on perfumed sandal wood oil in a situation where sandal wood oil was sent to job-workers for manufacture of 'mixture of odoriferous substances' falling under sub-heading 3302.90 and the job-workers returned perfumed sandal wood oil to the Appellants therein. The Appellants therein had never contended that what was returned to them was Attar nor had the job-workers contended that they were manufacturing Attars. Thus the said decision could not be a basis for holding that duty was paid on Attars by the other Attar manufacturers. Further, the Appellants' contention that other manufacturers based in Kannauj and other parts of the country were not paying excise duty has not been disputed by the Commissioner. We thus hold that demand of duty from the Appellants would amount to discrimination against the Appellants, when the duty was not being paid by the other manufacturers of Attars during the relevant period. We, therefore, hold that Attar Hina manufactured in the Appellants' premises is rightly classifiable under CSH 33.01.
25. We also find that extended period of limitation is not attracted in the present case. In his statement recorded 11-6-02, Shri Prakash Dhariwal, has specifically stated that the Appellants had not declared product 'Attar-Hina' to Central Excise Department as it was not an excisable product. He has further stated that Attar Hina was a natural product i.e. Attar of natural spices and the product was a Kannauj based product where no excise duty was levied upon and had also produced invoice of M/s. Md. Shoeb & Sons Kannauj, U.P., bearing their invoice no. 7 dated 28-8-2000 with his dated signature in support. Shri R.M. Dhariwal, Karta of R.M. Dhariwal (H.U.F.), in his statement recorded on 8th April 2003, has stated that the Appellants had not included Attar Hina in Central Excise License as no Central Excise duty was leviable on the said product which was an 'Essential Oil' and moreover nobody was paying Central Excise duty on such product in the country as the same did not attract Central Excise duty. The contention that no duty was being paid by other manufacturers of Attars has also not been rebutted by the Commissioner. Further, the Assistant Commissioner of Central Excise, Farrukhabad, had specifically communicated to M/s. Hargovind Das & Sons vide his letter dated 05/07/1995 that the sample of Attar motia is composed of concentrates of essential oil absorbed in sandalwood oil base (a fixative), as per the Test report dated 18-5-95 of the Chief Chemist and had got characteristics of Attar other than that of mixture of odoriferous substances and did not merit classification under Chapter Heading No. 3302.90. Thus there was reason for the Appellants to hold a belief that Attar Hina did not attract excise duty. The Appellants had been supplying Attar Hina to M/s. Dhariwal Industries Ltd. under the cover of invoices and were paying Sales Tax and other dues to the Government. Thus there was no wilful suppression of facts or intent to evade duty on the part of the Appellants. As held by the Hon'ble Supreme Court in Cosmic Dye Chemical V. Collector-1995 (75) E.L.T. 721 (S.C.), longer period of limitation can be invoked only when there is wilful suppression on the part of the assessee. In Pushpam Pharmaceuticals Company V. Collector of Central Excise, Bombay- 1995 (78) ELT 401 (S.C.), it has been held for invocation of longer period, the suppression should be deliberate to escape from payment of duty. In Gopal Zarda Udyog Vs. Commissioner of Central Excise, New Delhi -2005 (188) E.L.T. 251 (S.C.), it has been held by the Hon'ble Supreme Court that unless there is evidence that the manufacturer knew that the goods were liable to duty or he was required to take out a licence, there is no scope to invoke the proviso to Section 11A (1). The Hon'ble Apex Court further held that for invoking the extended period of limitation, duty should not have been paid or short-levied or short-paid or erroneously refunded on account of fraud, collusion or wilful suppression or misstatement of facts or wilful contravention of the Act or the Rules with the intention to evade payment of duty and mere failure to pay duty or to take out a licence was not necessarily due to fraud, collusion etc. In Tamil Nadu Housing Board Vs. Collector of Central Excise, Madras- 1994 (74) ELT 9 (SC), the Hon'ble Apex Court has held that the proviso to Section 11A was in the nature of an exception to the principal clause and its exercise was hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with intention to evade payment of duty. It was further held that both must concur to enable the Excise Officer to proceed under this proviso and invoke the exceptional power. The ratio laid down by the Apex Court in the aforesaid judgments is clearly applicable in the present case. We have also perused the judgments cited by the learned Jt. CDR. In the case of Vivek Jhangiani Vs. Commissioner of Central Excise, Mumbai -I- 2008 (226) ELT 735 (Tri.- Mumbai), the Tribunal had held that plea of bonafide belief was not available as the Appellants themselves had doubts about excisability of the item and had not mentioned scrabble in the body of the declaration filed with the Department. The said judgment is inapplicable in the present context, where the belief was harboured on the basis that the other Attar manufacturers were not paying duty. In case of Dharampal Satyapal Vs. Commissioner of Central Excise, New Delhi -2005 (183) ELT 241 (S.C.), the Apex Court had upheld the judgment of the Tribunal in Dharampal Satyapal Vs. Collector of Central Excise, New Delhi- 2002 (150) ELT 571 (Tri. - Del.) on the basis that the extended period was invokable as in the course of business, the assessee had dealt with similarly situated traders and despite being fully aware that those traders, who produced similar compounds had their units licensed or registered, and the assessee did not take steps to get the above two units, in which the impugned compound (kimam) was manufactured, registered or licensed. The Apex Court further held that the assessee had been buying similar kimam from various traders and the circumstances constituted evidence that there was no justification for holding a belief that the product did not attract duty. The aforesaid judgment was distinguished by the Apex Court in Gopal Zarda Udyog Vs. Commissioner of Central Excise, New Delhi -2005 (188) E.L.T. 251 (S.C.) on the basis that in the case of Dharampal Satyapal there was a finding of the Commissioner that the assessee M/s. Dharampal Satyapal knew that kimam was liable to duty and that it was required to obtain 'L-6' licence because M/s. Dharampal Satyapal used to buy Lucknowi Kimam from the other manufacturers, who used to manufacture Lucknowi Kimam after obtaining registration and the requisite licence. The Apex Court held that the judgment of M/s. Dharampal Satyapal would not apply as there was no such finding in the case of Gopal Zarda Udyog. In the present case, the Appellants have specifically contended before the Commissioner that no other Attar manufacturers were paying duty on Attars and the said contention has not been disputed by the Commissioner. Further, the Appellants had also produced documentary evidence of non-payment of duty by other Attar manufacturers at the time the statement of Shri Prakash Dhariwal was recorded. In the facts and circumstances of the present case, the judgment of the Apex Court in Dharampal Satyapal Vs. Commissioner of Central Excise, New Delhi -2005 (183) ELT 241 (S.C.) is not applicable. In the case of Hindustan Motors Ltd. Vs. Collector of Central Excise, Madras- 2001(130) ELT 71(Tri.- Chennai), extended period was found invokable as there was no justification found on the part of the Appellants therein to remove Jigs & Fixtures manufactured by them without payment of duty and there was conscious violation of the condition of the notification 220/86-C.E. dated 2-4-86 by removal of the said Jigs & Fixtures without payment of duty and without intimation to the Department. The facts in the present case are on a different footing. The Appellants had a bonafide belief that Attars were not chargeable to duty and the belief was based on the fact that the other manufacturers, who were supplying Attars to M/s. Dhariwal Industries Ltd., were not paying any duty on the Attars manufactured by them. In the Indian Strips vs. Commissioner of Customs & Central Excise, Ahmedabad 2004 (173) ELT 265 (Tri - Mumbai), the Tribunal held that larger period of limitation was invokable on the basis of evidence of awareness on the part of the Appellants therein that the activity amounted to manufacture. The Tribunal thus held that the Appellants therein chose not to get themselves registered with intent to evade duty. In the present case, there could be no such awareness attributed to the Appellants. The fact that the other suppliers to Dhariwal Industries Ltd. were not being charged to duty, formed sufficient justification for holding a belief that no duty was payable on Attar Hina. Thus the facts in Indian Strips are distinguishable. In the facts and circumstances of the case, we hold that extended period of limitation is not invokable against the Appellants. Thus in Appeal No. E/319/2005 we hold that the extended period of limitation is not invokable against the appellants.
26. The facts in Appeal No.E/3961/05 are identical to that in Appeal No. E/319/05 except that the demand is within the normal period of limitation.
27. In the light of our detailed findings and discussions, we hold that the demand of duty in Appeal No. E/319/2005 is not sustainable both on the grounds of merit and time bar and the demand of duty in Appeal No. E/3961/2005 is not sustainable on merits. The same are set aside.
28. When the demands of duty themselves have been held to be unsustainable and set aside, the question of imposition of penalties and demanding interest does not arise. The same are set aside
29. Since we have allowed the appeals of the appellants, we refrain from recording any findings on the issue raised in Appeal No. E/3961/2005 as to who is the manufacturer of Attar Hina - the appellants or M/s. Mohammad Suffian and Brothers.
30. The Cross-Objection filed by the department is dismissed.
(Pronounced in Court on 13/01/2009) (Ms. Jyoti Balasundaram) Vice President (A. K. Srivastava) Member (Technical) */as 51 51