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Tuesday, July 28, 2015

Close-Up Whitening, and the other products, i.e. Close-Up Red/Blue/Green is the additional presence of 2.8% and 0.2% w/s Silicon Agglomerate and Bluer Agglomerates respectively in Close-Up Whitening and absence of 0.1% w/w 2,4,4 Tri Chloro 2 hydroxy Diphenyl Ehter in this product in comparison with the other three products. It was also found that as far as Close-Up Whitening is concerned, there was presence of 'uniformity dispersed blue speckles'. - M/s. Hindustan Lever Limited, Mumbai (for short, 'HLL') since 1998. Major brands of HLL manufactured by the assessee are Close-Up Red, Close-Up Blue, Close-Up Green and Pepsodent falling under Chapter 33 of the Excise Tariff. The assessee is registered with the appellant/Revenue and has been paying the excise duty on the aforesaid products under Chapter sub-heading 3306.10 of the tariff. There is no dispute about these products.=We may record that a finding is arrived at by the Tribunal to the effect that Close-Up Whitening is not a toothpaste but a dental cleaner. We are convinced that this finding is perfectly just and proper for the following reasons: (a) The Tribunal has pointed out the differences which are noted above and accepted by the Department itself. From these differences, it is held that ingredients and ratio of all the inputs which go into the manufacturing of a toothpaste and dental cleaner are different and varying. The dental cleaner, in addition, has two more ingredients, namely, Silicon Agglomerate and Bluer Agglomerates, which play an active role as abrasive. (b) Even the manufacturing process of Close-Up toothpaste and Close-up Whitening is different. While the total stages for manufacturing toothpaste were nine, the number of stages for manufacture of Close-Up Whitening were eleven. It takes 120 minutes to manufacture a toothpaste tube, while it takes 155 minutes to effect the manufacture of Close-Up Whitening. (c) Statement of one Mr. N.H. Bijlani, the only expert in this case and whose statement was recorded on January 09, 2002, was referred to by the Tribunal. In this statement, Mr. Bijlani has explained the difference between toothpaste and dental cleaners and has opined that Close-Up Whitening dental cleaner cannot be equated with toothpaste. (d) The Tribunal has also found that as per records, classification of the same product in an earlier avtar/brand was acceptable to the Department as the same was classified under a different name for all these years when the rate of duty under Heading 3306.90 were higher than that under Heading 3306.10. It, thus, observed that mere change of duty and brand name cannot be the reason to alter classification. (e) Another important aspect, in conjunction with aforesaid features which has to be kept in mind, is that in the instant case even Food and Drug Authorities (FDA) from where prior permission is needed for manufacturing 'toothpaste' and sale thereof, had not registered the product in question as 'toothpaste' but as a dental cleaner. It becomes a supporting factor along with other features of the product, which have been taken note of and discussed above. The upshot of the aforesaid discussion would be to hold that Close-Up Whitening dental cleaner is not a 'toothpaste' but other form of dental hygiene and, therefore will have to be classified under sub-heading 3306.90 as a consequence. These appeals are found bereft of any merits and are, accordingly, dismissed. No costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOS. 5902-5909 OF 2005


|COMMISSIONER OF CENTRAL EXCISE,             |                            |
|VAPI                                        |.....APPELLANT(S)           |
|VERSUS                                      |                            |
|M/S. GLOBAL HEALTH CARE PRODUCTS            |                            |
|PARTNERSHIP FIRM & ORS.                     |.....RESPONDENT(S)          |

                                   W I T H
                        CIVIL APPEAL NO. 3569 OF 2006


                               J U D G M E N T


A.K. SIKRI, J.
                  The  respondent  No.1  (hereinafter  referred  to  as  the
'assessee') is engaged in the manufacture of different brands of  toothpaste
and these are manufactured exclusively for  M/s.  Hindustan  Lever  Limited,
Mumbai (for short, 'HLL') since 1998.  Major brands of HLL  manufactured  by
the assessee are Close-Up Red, Close-Up Blue, Close-Up Green  and  Pepsodent
falling under Chapter 33 of the Excise Tariff.  The assessee  is  registered
with the appellant/Revenue and has  been  paying  the  excise  duty  on  the
aforesaid products under Chapter sub-heading 3306.10 of the  tariff.   There
is no dispute about these products.

From July 01,  2001,  a  new  product  known  as  'Close-Up  Whitening'  was
introduced by the assessee.  The  assessee  classified  this  product  under
Chapter  sub-heading   3306.90.    The   Revenue   treated   the   aforesaid
classification as erroneous as  according  to  it  Close-Up  Whitening  also
falls under Chapter sub-heading 3306.10 and not 3306.90.  It also  suspected
that this product was deliberately misclassified  in  the  said  heading  to
evade payment of proper central excise duties by resorting to assessment  of
the product under Section 4 of the Central  Excise  Act,  1944  (hereinafter
referred to as the 'Act') instead of assessment under  Section  4A  thereof.
Investigation into the matter was initiated resulting into searching of  the
premises of the assessee.  Some documents, which the Revenue  claims  to  be
incriminating in nature, were seized under Section 12 of the Act,  including
a  Box  File  with  Heading  'Production  Manual',  namely,  the  literature
containing pages 1 to 235 issued by the Dental Information Centre of HLL.


On the scrutiny of these documents, the Revenue noticed that the  difference
in raw  materials  used  for  the  product  in  question,  namely,  Close-Up
Whitening, and the other  products,  i.e.  Close-Up  Red/Blue/Green  is  the
additional presence of 2.8% and  0.2%  w/s  Silicon  Agglomerate  and  Bluer
Agglomerates respectively in Close-Up Whitening  and  absence  of  0.1%  w/w
2,4,4 Tri Chloro 2 hydroxy Diphenyl Ehter  in  this  product  in  comparison
with the other three products.  It was also found that as  far  as  Close-Up
Whitening is concerned, there was presence  of  'uniformity  dispersed  blue
speckles'.  Statements of certain persons were also recorded.  On the  basis
of the aforesaid material, the Revenue took the position that the  aforesaid
differences did not  change  the  essential  character  of  the  product  in
question  which  still  remained  'toothpaste'  and,   therefore,   it   was
classifiable under Chapter sub-heading 3306.10.

Show-cause notice dated March 21, 2002 was issued proposing confiscation  of
the goods and since these goods had already been provisionally  released  on
payment of full excise duty as leviable on  the  goods  under  Chapter  sub-
heading  3306.10,  show-cause  notice  stated  as  to  why  the  amount   of
differential duty  amounting  to  ?22,64,176  be  not  confirmed  under  the
provisions of Section 11A(1) of the Act and why redemption fine in  lieu  of
confiscation as well as penalty be not  imposed.   The  assessee  filed  its
reply thereto contending that  it  was  not  a  toothpaste  and,  therefore,
rightly classified by it  under  sub-heading  3306.90.   The  aforementioned
contention of the assessee was brushed aside  by  the  Commissioner  in  his
Order-in-Original dated December 10, 2003,  thereby  confirming  the  excise
duty demand  as  mentioned  in  the  show-cause  notice.   He,  inter  alia,
recorded the following findings in his order:
“(i)  Close Up Whitening was known in the market or to the trade and  public
as tooth paste for cleaning the teeth as such  it  was  nothing  but  tooth-
paste used for cleaning the teeth.

(ii)  M/s. Global Health Care Products  in  collusion  with  M/s.  Hindustan
Lever Ltd. by willfully suppressing the fact that Close-up Whitening  was  a
variant of Close Up tooth paste classifiable under  Tariff  Heading  3306.10
failed to show particulars of  classification,  assessable  value  and  duty
leviable with an intention to evade payment  of  applicable  central  excise
duties.

(iii)  The contention of M/s. Global Health Care products that  the  product
Close Up Whitening was classified under chapter sub heading No. 3306.90  was
not accepted.

(iv)  The said product was correctly classified under  sub  heading  3306.10
of the Tariff attracting the provisions of Section 4A of the Act.”

Aggrieved by the aforesaid  order,  the  respondents  herein  filed  appeals
before the Custom Excise &  Service  Tax  Appellate  Tribunal,  Mumbai  (for
short, the 'Tribunal').  These appeals have been  allowed  by  the  Tribunal
vide impugned order dated March 11, 2005.  In these  appeals,  validity  and
correctness of the aforesaid order of the  Tribunal  is  questioned  by  the
Revenue.

Before proceeding further, it would be necessary to take note of  the  exact
language of the relevant entries.  As  mentioned  above,  it  is  the  entry
Heading 3306 of Central Excise Tariff Act, 1985, which is attracted  in  the
present case.  The only question is as to whether the  product  in  question
is to be classified under sub-heading 3306.90 or 3306.10.   Chapter  Heading
3306 of the Tariff Act,  with  the  aforesaid  sub-headings,  is  reproduced
below:
|33.06        |Preparations for oral or dental hygiene,     |
|             |including dentifrices (for example,          |
|             |toothpaste and tooth powder and denture      |
|             |fixative pastes and powders)                 |
|3306.10      |Tooth powders and toothpaste                 |
|3306.90      |Other.                                       |


The Chapter Heading makes it clear that it covers various  preparations  for
oral  and  dental  hygiene.    These   preparations   specifically   include
dentifrices.  Examples of such oral and dental hygiene are also given,  like
toothpaste, tooth powder, denture  fixative  pastes  and  powders.   Out  of
these, two products which are covered by sub-heading 3306.10 are  toothpaste
and tooth powder.  Other oral and dental  hygiene  preparations  fall  under
the reminder sub-heading, i.e. 3306.90, nomenclature of  which  is  'Other'.
Further, as pointed out above, the  Revenue  treats  Close-Up  Whitening  as
'toothpaste'.  The plea of the assessee, on the other hand, is  that  it  is
not toothpaste but a 'dental cleaner', which is  different  from  toothpaste
and, therefore, has to necessarily be covered by the  residual  sub-heading,
i.e. 3306.90.  Therefore, the  moot  question  is  as  to  whether  Close-Up
Whitening is toothpaste or not.  If it is found to be  toothpaste  then  the
stand of the Revenue would be justified.  On the other hand, if the  product
does not qualify to be a toothpaste, then the assessee stands vindicated.

Having noticed the controversy involved, we would  like  to  point  out  the
main ingredients of the product at this stage:
            There is no dispute that most of the ingredients of the  product
Close-Up Whitening are the same which are used in  the  manufacture  of  the
other products, namely, Close-Up  Red/Blue/  Green,  which  are  treated  as
toothpaste  by  the  assessee  itself.  There   are,   however,   additional
ingredients used in the manufacture of the product in  question,  which  are
accepted by the Revenue also  and  noticed  above.   Apart  from  additional
presence  of  Silicon  Agglomerate  and  Bluer  Agglomerate   of   specified
percentage and absence of Tri Chloro 2 hydroxy Diphenyl Ether,  there  is  a
presence of  uniformity  dispersed  blue  speckles  in  Close-Up  Whitening.
There is also additional step of  'addition  of  silica  agglomerates'.   In
fact,  it  is  this  ingredient  which  felicitates  at  getting  uniformity
dispersed speckles.  It is on the basis of  these  additional  factors,  one
has to determine as to whether Close-Up Whitening  loses  the  character  of
toothpaste and assumes  the  characteristics  of  another  product,  namely,
dental cleaner.

A reading of the order of the  Commissioner,  to  which  our  attention  was
drawn by Mr. K. Radhakrishnan, learned  senior  counsel  appearing  for  the
appellant, with much emphasis, would disclose that the  Commissioner  relied
upon HSN Notes, i.e. Harmonized Commodity  Description  and  Coding  System,
wherein the preparation of oral and  dental  hygiene  is  mentioned  in  the
following form:
|33.06 -   |PREPARATIONS FOR ORAL OR DENTAL HYGIENE, INCLUDING|
|          |DENTURE FIXATIVE PASTES AND POWDERS: YARN USED TO |
|          |CLEAN BETWEEN THE TEETH (DENTAL FLOSS), IN        |
|          |INDIVIDUAL RETAIL PACKAGES.                       |
|          |                                                  |
|3306.10   |Dentifrices                                       |
|          |                                                  |
|3306.20   |Yarn used to clean between the teeth (dental      |
|          |floss)                                            |
|          |                                                  |
|3306.90   |Other                                             |

      This heading covers preparations for oral or dental hygiene such as:

(I)  Dentifrices of all types:

(1)  Tooth pastes and other preparations for teeth.   These  are  substances
or preparations used with a toothbrush, whether for  cleaning  or  polishing
the accessible surfaces of teeth or for other purposes  such  as  anticaries
prophylactic treatment.

            Toothpastes and other preparations for teeth  remain  classified
in this heading, whether or not they contain abrasives and  whether  or  not
they are used by dentists.

(2)   Denture  cleaners,  i.e.,  preparations  for  cleaning  or   polishing
dentures, whether or not they contain agents with abrasive properties.

(II)  Mouth washes and oral perfumes.

(III)  Denture fixative pastes, powders and tablets.

            The heading also covers yarn used to clean  between  the  teeth,
in individual retail packages (dental floss).”


The Commissioner, thus, noted that in the  HSN  Notes,  sub-heading  3306.10
deals  with  dentifrices.   The  Commissioner  noted  that  the  meaning  of
dentifrices as per the Concise Oxford Dictionary is 'a paste or  powder  for
cleaning of teeth'.  On  that  basis,  he  concluded  that  the  product  in
question was paste, namely, the  toothpaste  for  cleaning  the  teeth  and,
therefore,  would  fall  under   sub-heading   3306.10.    En   passe,   the
Commissioner also observed that  there  is  no  major  difference  in  these
products, namely, Close-Up Whitening and Close-Up  Red/  Blue/Green,  except
one ingredient used  in  the  manufacture  of  Close-Up  Whitening  and  the
addition of that ingredient does not change the purpose, nature as  well  as
definition of the product in a common market parlance.  He observed that  in
the market the product was known as toothpaste.  He also  observed  that  it
is treated as toothpaste as per the product  manual  issued  by  the  Dental
Invocation Centre, Mumbai.  Discussion is summed up in para 32 of the  order
passed by the Commissioner, which reads as under:
“32.  As narrated in the SCN that the  tooth  paste,  being  dentifrice  has
been correctly classified under the HSN and the Central  Excise  Tariff  has
been based on HSN.  Accordingly  it  is  essential  to  follow  the  correct
classification of the product in question as described and classified  under
the relevant chapter of HSN.  In this connection it may  be  mentioned  that
the Hon'ble Supreme Court in the  case  of  CCE,  Shillong  vs.  Wood  Craft
Product Ltd. Reported in 1995 (77) ELT 23 (SC) in para 18 has held that  the
structure of Central Excise Tariff is based on the internationally  accepted
nomenclature found in the HSN and therefore any dispute relating  to  tariff
classification must, as far as possible be resolved with  reference  to  the
nomenclature indicated by the HSN  unless  there  be  an  express  different
intention indicated in the Central Excise Tariff Act, 1985 itself.

            Further it may be mentioned that the Hon'ble Bombay  High  Court
in the case of Jagdish D. Devgekar Vs. Collector of  Central  Excise,  Poona
reported in 1978 (2) ELT (J581) in para 6 has held that the correct test  in
interpreting any item mentioned in the first schedule to the Central  Excise
Act is to see the commercial sense in which the item is  understood  or  the
sense in which traders or persons dealing in that terms  understand  it  and
not the technical or scientific sense.

            Even it may be mentioned that the Hon'ble Tribunal in case  Veto
Co. Vs. CCE reported in 1992 (62) ELT 584 (T) in para 6 has  held  that  the
goods have to be classified under the tariff  schedule  according  to  their
popular meaning or as they are understood in their commercial sense and  not
as per their scientific or technical meaning.  While holding so the  Hon'ble
Tribunal has referred to the observations of  the  Hon'ble  Supreme  Court's
judgment in case of Plasmac Machine Mfg. Co. Pvt. Ltd. Vs. CCE  reported  in
1991 (51) ELT 161 (SC) (Para 13).”

The aforesaid approach adopted by the  Commissioner  has  been  found  fault
with by the Tribunal.  The Tribunal pointed  out  that  there  was  material
difference in the sub-heading 3306.10 in the Indian statute when  contrasted
with Harmonized Commodity Description and Coding System.   Whereas,  as  per
the tariff entry 3306.10 in  the  Excise  Act,  it  is  'tooth  powder'  and
'toothpaste', under the Harmonized Commodity Description and Coding  System,
what is mentioned is 'dentifrices'.  It is further noticed by  the  Tribunal
that dentifrices was more generic in  nature  as  it  recognized  all  three
types of products, namely,  (i)  toothpaste,  (ii)  other  preparations  for
teeth and (iii) denture cleaners, than tooth powders and toothpaste.   Thus,
when under Indian statutory regime there is a restricted  sub-heading  under
3306.10, namely, tooth powder and  toothpaste  only,  the  approach  of  the
Commissioner in taking aid of HSN Notes was erroneous.  Discussion  on  this
aspect runs as follows:
“A perusal of  the  HSN  notes  would  indicate  that  all  three  types  of
'Dentifrices' are recognized as (i) 'Toothpaste',  (ii)  Other  preparations
for teeth, and (iii) 'Denture cleaners'.  The  Note  further  explains  that
“Dentifrices” to include 'toothpaste' and  “other  preparations  for  teeth”
whether for cleaning or polishing the assessable surface  of  teeth  or  for
other purposes such an Anticaries prophylactic  treatment.   The  Note  also
enumerates that 'toothpaste' and  'other  preparations  for  teeth'  remains
classified under Heading 3306 whether or  not  they  contain  abrasives  and
whether or not they are used by dentist.  The correct scope of  the  heading
as per the submission of the appellants is that when one refers to HSN  item
3306 and the bifurcations as also under CETA 1985 there is a variance  seen.
 In other words, this bifurcation under Heading 3306  for  HSN  and  is  not
pari materia and under CETA 1985 and therefore the sub heading structure  of
HSN would not apply to CETA.   The  CETA  proves  preparation  for  oral  or
dental hygiene including Dentifrices and Denture Fixative paste and  powders
under Heading 3306 and at the four digit level  it  is  para  material  HSN.
The scope of sub heading 3306.10 of CETA 1985 restricts it  to  only  'tooth
powder and paste' and any entity which is not a 'toothpowder or  toothpaste'
would be covered under heading 3306.90.  This submission has to be upheld.”

            We find ourselves in agreement with the  aforesaid  approach  of
the Tribunal having regard to the cogent reasons given by it.

This Court in the case of Camlin Limited v. Commissioner of Central  Excise,
Mumbai[1] held that if the entries under  HSN  and  the  entries  under  the
Central Excise Tariff are different, then reliance  cannot  be  placed  upon
HSN Notes for the purposes of classification of goods under  Central  Excise
Tariff.  This is so stated in  para  24  of  the  judgment  that  makes  the
following reading:
“24.  In our considered view, the Tribunal erred in  relying  upon  the  HSN
for the purpose of marker  inks  in  classifying  them  under  Chapter  Sub-
Heading 3215.90 of the said Tariff.  The Tribunal failed to appreciate  that
the entries under the  HSN  and  the  entries  under  the  said  Tariff  are
completely different.  As mentioned above, it is settled law that  when  the
entries in the HSN and the said Tariff are not aligned, reliance  cannot  be
placed upon HSN r the purpose of classification  of  goods  under  the  said
Tariff.  One of the factors on which the Tribunal based  its  conclusion  is
the entries in the HSN.  The said conclusion in the order  of  the  Tribunal
is, therefore, vitiated and, accordingly, set  aside.   We  agree  with  the
findings recorded by the Commissioner (Appeals).”

The issue, therefore, has to be decided dehors  HSN  Notes  as  aid  thereof
cannot be taken in the instant case.

Faced with  the  aforesaid  position,  Mr.  Radhakrishnan  argued  that  the
Commissioner has also come to the  conclusion  that  mere  addition  of  one
ingredient does not change the purpose, nature as well as character  of  the
product and further the product was known in  the  market  as  'toothpaste'.
The Tribunal has differed with the aforesaid view.

In the first place, it is pointed out that there is no  evidence  on  record
placed by the Revenue which would reflect that the product  in  question  is
known to the consumers as toothpaste. When  this  was  pointed  out  to  Mr.
Radhakrishnan, he was unable to pinpoint any evidence in  support  that  was
led by the Revenue.

We may record that a finding is arrived at by the  Tribunal  to  the  effect
that Close-Up Whitening is not a toothpaste but a dental  cleaner.   We  are
convinced that this finding is perfectly just and proper for  the  following
reasons:
(a)   The Tribunal has pointed out the differences  which  are  noted  above
and accepted by the Department itself.  From these differences, it  is  held
that  ingredients  and  ratio  of  all  the  inputs  which   go   into   the
manufacturing of a toothpaste and dental cleaner are different and  varying.
 The dental cleaner, in addition, has two more ingredients, namely,  Silicon
Agglomerate and Bluer Agglomerates, which play an active role as abrasive.

(b)   Even the manufacturing process of  Close-Up  toothpaste  and  Close-up
Whitening  is  different.   While  the  total   stages   for   manufacturing
toothpaste were nine, the number  of  stages  for  manufacture  of  Close-Up
Whitening were eleven.  It takes 120 minutes  to  manufacture  a  toothpaste
tube, while it takes 155 minutes  to  effect  the  manufacture  of  Close-Up
Whitening.

(c)   Statement of one Mr. N.H. Bijlani, the only expert in  this  case  and
whose statement was recorded on January 09, 2002, was  referred  to  by  the
Tribunal.  In this statement,  Mr.  Bijlani  has  explained  the  difference
between  toothpaste  and  dental  cleaners  and  has  opined  that  Close-Up
Whitening dental cleaner cannot be equated with toothpaste.

(d)   The Tribunal has also found that as  per  records,  classification  of
the same product in an earlier avtar/brand was acceptable to the  Department
as the same was classified under a different name for all these  years  when
the rate of duty under Heading 3306.90 were higher than that  under  Heading
3306.10. It, thus, observed that mere change of duty and brand  name  cannot
be the reason to alter classification.

(e)   Another important  aspect,  in  conjunction  with  aforesaid  features
which has to be kept in mind, is that in the  instant  case  even  Food  and
Drug  Authorities  (FDA)  from  where  prior  permission   is   needed   for
manufacturing 'toothpaste' and sale thereof, had not registered the  product
in question  as  'toothpaste'  but  as  a  dental  cleaner.   It  becomes  a
supporting factor along with other features of the product, which have  been
taken note of and discussed above.

The upshot of the aforesaid  discussion  would  be  to  hold  that  Close-Up
Whitening dental cleaner is not a 'toothpaste'  but  other  form  of  dental
hygiene and, therefore will have to be classified under sub-heading  3306.90
as a consequence. These appeals are found bereft  of  any  merits  and  are,
accordingly, dismissed.
            No costs.


                             .............................................J.
                                                                (A.K. SIKRI)



                             .............................................J.
                                                     (ROHINTON FALI NARIMAN)

NEW DELHI;
JULY 28, 2015.
-----------------------
[1]   (2008) 9 SCC 82

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