The
State of Goa & Anr Vs. M/S. Colfax
Laboratories Ltd. & Anr [2003] Insc 541 (29 October 2003)
S. Rajendra
Babu & G.P. Mathur G.P. Mathur, J.
Appeal (civil) 415 of 2000
1. M/s
Colfax Laboratories (India) Ltd. and State of Goa have preferred these appeals by special leave
against the judgment and order dated 1.4.1999 of High Court of Bombay (Goa
Bench), by which the writ petition preferred by M/s Colfax Laboratories (India) Ltd. was partly allowed.
2. M/s
Colfax Laboratories (India) Ltd. (for short 'Colfax') was granted a licence to
manufacture various types of cosmetics including after shave lotion under the
trade mark 'Old Spice' on 15.4.1968 under the Drugs and Cosmetics Act. A licence
under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (for
short 'the Act') in form L-1 for manufacture of 'Old Spice' after shave lotion
and cologne for men as toilet preparations was granted on 1.4.1969. Till the
end of the year 1984 excise duty on 'Old Spice' after shave lotion (hereinafter
called as 'ASL') was paid on the basis that it was a toilet preparation. On
14.1.1985 Colfax moved an application before the Commissioner of Excise,
Government of Goa for reclassification of Old Spice ASL as a 'medicinal
preparation' falling under Tariff Item No.1(i)(b) of the Schedule to the Act
for the purpose of levy of excise duty.
The
Excise Commissioner vide his order dated 23.3.1985 classified the same as
'medicinal preparation'. Subsequently, by the order dated 12.6.1985 Old Spice
ASL was classified as falling within the ambit of Item No.1(i)(b) of the
Schedule. Colfax thereafter made application for refund of excess amount of the
excise duty paid after 23.3.1985 which was allowed by the Commissioner of
Excise and orders for refund of the excess amount of the excise duty were
passed.
M/s
PJM Pharmaceuticals Pvt. Ltd. moved an application before the Drugs Controller,
Government of Goa on 14.1.1989 for manufacture of some cosmetic products
including 'Blue Stratos' ASL under the loan licence with M/s Colfax Laboratories
(India) Ltd. which was approved and a licence
was issued on 13.2.1989. The Excise Commissioner vide order dated 12.10.1989
approved the price inclusive of duty, the duty component thereon as well as the
maximum price for the products. M/s PJM Pharmaceuticals Pvt. Ltd. started
paying duty on Blue Stratos ASL at the rate applicable to medicinal
preparations.
3. On
15.5.1991, the Commissioner of Excise, Goa issued a notice under Rule 12 of the
Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 to Colfax to pay
balance of excise duty amounting to Rs.17,77,16,361.20 (Rupees seventeen crore,
seventy-seven lakh, sixteen thousand, three hundred sixty one and paise twenty
only) within 30 days from the date of receipt of notice on the ground that w.e.f.
1.4.1985 the company had paid excise duty on Old Spice range of ASLs as
medicinal preparation though it should have paid duty as toilet preparation. On
13.3.1991, a notice was issued to M/s PJM Pharmaceuticals Pvt. Ltd. to pay
balance of excise duty amounting to Rs.92,43.684.08 (Rupees ninetey two lakh,
forty three thousand, six hundred eighty four and paise eight only) within 30
days from the date of receipt of notice on the ground that it had paid excise
duty on Blue Stratos ASL as a medicinal preparation though it should have paid
duty as toilet preparation.
4.
Colfax then filed Writ Petition Nos.109 of 1991 and 351 of 1991 challenging the
aforesaid notices before the Bombay High Court (Goa Bench) which were disposed
of with a direction to the Excise Commissioner to treat the demand notices as
show cause notices and thereafter to pass a final order after giving the
Company an opportunity of hearing. It was left open for the Excise Commissioner
to supplement the said notice by additional grounds or materials, if he so
desired. Thereafter, supplementary memorandum were issued by the Excise
Commissioner on 6.9.1991 and 30.9.1991 to which Colfax gave a reply. The Excise
Commissioner after hearing the parties gave his decision on 7.11.1991 which was
challenged in appeal by the State Government and Colfax preferred Writ Petition
No.84 of 1992 before the High Court. The High Court by its order dated
21.12.1994 directed the Excise Commissioner to decide all the issues afresh
after giving an opportunity of hearing to the company. The Excise Commissioner,
after hearing the parties passed a detailed order on 12.8.1998 holding that
after shave lotions were toilet preparations and the company was liable to pay
excise duty as mentioned in the demand notices dated 13.3.1991 and 15.5.1991,
which was challenged by Colfax by filing Writ Petition No.337 of 1998. The High
Court in its impugned order dated 1.4.1999 has held that after shave lotions
are toilet preparations and the Revenue was entitled to recover short paid duty
on account of erroneous classification of the aforesaid goods. The notices
issued will have to be construed in exercise of power under Rule 11 of the
Rules. Thus, the Revenue would be entitled to recover short paid duty on the
goods cleared for which the duty was short paid within a period of six months
immediately preceding the date of issue of each of the notices. It has been
further held that the phrase 'ad valorem' appearing in the column 'rate of
duty' in the Schedule appended to the Act refers to the value of excisable
goods and, therefore, it will have to be worked out by applying the formula as
laid down in Section 4(4)(d) of the Central Excise Act, 1944 and consequently,
the excise duty will have to be deducted from the wholesale price and the
figure arrived at would be the value of the excisable goods.
5. M/s
Colfax has preferred Civil Appeal No.415 of 2000 challenging the finding of the
High Court that 'Old Spice' and 'Blue Stratos' ASLs are toilet preparations and
not medicinal preparations. The State of Goa has preferred Civil Appeal No.414
of 2000 challenging the remaining part of the order of the High Court, wherein
the notices have been directed to be treated to be under Rule 11 of the Rules
and their right to recover the short paid duty has been restricted to a period
of six months immediately preceding the date of issue of notices and also the
direction regarding manner of calculation of excise duty out of the wholesale
price at which the goods in question were sold.
6. We
will first consider the appeal preferred by Colfax, wherein challenge has been
made to the finding of the High Court that ASLs are not medicinal preparations
but are toilet preparations. Shri Ashok Desai, learned senior counsel for
Colfax has submitted that the term 'medicinal preparation' has been defined in
Section 2(g) of the Act and it includes all drugs which are a remedy or
prescription intended to be used for or in the treatment, mitigation or
prevention of disease in human beings or animals.
'Toilet
preparation' has been defined in Section 2(k) of the Act and it means any
preparation which is intended to be used in the toilet of the human body or any
substance intended to cleanse, improve or alter the complexion, skin, hair or
teeth and includes deodorants and perfumes. Learned counsel has submitted that
the basic difference between the medicinal preparation and toilet preparation
is the intent and purpose for which it is used. If the article is used for the
treatment, mitigation or prevention of disease, it is a medicinal preparation
but if it is used to cleanse, improve or alter the complexion, skin, hair or
teeth, etc. then it is a toilet preparation. According to Colfax its ASL
contains alcohol 62%, Propylene glycol 5%, Benzyl alcohol 0.5% and the
remaining is water. Learned counsel has further urged that the concentration of
alcohol in various ASLs manufactured by other companies is less than 60% whilst
that manufactured by Colfax it is 62% and in fact actual test results show that
it is 63%. Where the alcohol is less than 60% in any ASL, it cannot have any
medicinal properties and it will be treated as a toilet preparation, but where
the concentration is more than 60%, it will have medicinal properties. In this
connection Shri Desai has referred to British Pharmacopoeia Codex and Remington
Pharmaceutical Science to show that if strength of alcohol increases beyond 60%
to 90% and beyond 90%, it has no microbiolisation. Reference has also been made
to Martindale Pharmacopoeia to show that benzyl alcohol has also bacterial
properties. Propylene glycol is a humectant and it promotes retention of
moisture. It has been urged that after shaving skin may get fungus and,
therefore, propylene glycol is used as moisturizer. Ethyle alcohol in a
concentration of 62% to 65% bacterise side effects. It is astringent to prevent
penetration of bacterias and, therefore, it has antiseptic properties.
Propylene
glycol is a humectant as well as inhabitant of fungus. Benzyl alcohol is a mild
anaesthetic and has antiseptic properties. Therefore, composition of these
products in the above mentioned proportion, it is contended, makes Old Spice
and Blue Stratos ASLs made by the company as medicinal products.
7. Shri
M. Usgaonkar, learned Advocate General for the State of Goa, has submitted that
Colfax had a licence to manufacture cosmetics and even the licence applied in
the year 1989 for manufacture of Blue Stratos ASL for PJM was also for a
cosmetic product. Colfax also admits that such after shave lotions which have a
concentration of alcohol below 60% are toilet preparations. Merely because the
alcohol content is slightly increased and it goes up to 62% or 63%, it would
not mean that the same will become a medicinal preparation. Learned counsel has
submitted that ASL is basically an acqueous alcohol solution containing a
perfume. The popular brands of ASLs in UK
contain 50% to 70% of ethyl alcohol by weight and in United States the volume of alcohol recommended
for ASLs is 40% to 60%.
Propylene
glycol is preferred because it has low viscocity and high volatility. Learned
counsel has also laid stress upon the fact that after shave lotions contain
perfume as a key component and normally perfume is not used in a medicinal
preparation. It has thus been urged that the products Old Spice and Blue Stratos
manufactured by Colfax are pure and simple toilet preparations and cannot be
said to be medicinal preparations by any stretch of imagination.
8. In
order to appreciate the contention raised by learned counsel for the parties,
it is necessary to have in mind the relevant provisions of the Statute under
which the licence to manufacture the product is granted and the excise duties
are levied. Section 2(a), 2(c), 2(g) and 2(k) of the Medicinal and Toilet
Preparations (Excise Duties) Act, 1955 read as under:
Section
2 (a) 'alcohol' means ethyl alcohol of any strength and purity having chemical
composition C2H5OH ;
(c)
'dutiable goods' means the medicinal and toilet preparations specified in the
schedule as being subject to the duties of excise levied under this Act;
(g)
'medicinal preparation' includes all drugs which are a remedy or prescription'
prepared for internal or external use of human beings or animals and all
substances intended to be used for or in the treatment, mitigation or
prevention of disease in human beings or animals;
(k)
'toilet preparation' means any preparation which is intended for use in the
toilet of the human body or in perfuming apparel of any description, or any
substance intended to cleanse, improve or alter the complexion, skin, hair or
teeth, and includes deodorants and perfumes.
Sub-section
(1) of Section 3 of the Act is the charging section and it lays down that there
shall be levied duties of excise at the rates specified in the Schedule on all
dutiable goods manufactured in India.
Sub-section (3) of Section 3 lays down that subject to other provisions
contained in the Act, the duties aforesaid shall be collected in such manner as
may be prescribed.
Item
1(i)(b) of the Schedule provides that the rate of duty on 'allopathic medicinal
preparations' (other than patent or proprietory medicines) would be Rs.10/- per
litre of pure alcohol content. Item No.4 of the Schedule deals with toilet
preparations and at the relevant time rate of duty for toilet preparations
containing alcohol was 100% ad valorem. Section 6 of the Act lays down that no
person shall engage in the production or manufacture of any dutiable goods or
of any specified components, parts or ingredients of such goods except under
the authority and in accordance with the terms and conditions of a licence
granted under the Act. Section 18(c) of the Drugs and Cosmetics Act, 1940 lays
down that no person shall himself or by any other person on his behalf
manufacture for sale or for distribution or sale or stock or exhibit or offer
for sale or distribute any drug or cosmetic except under and in accordance with
the conditions of the licence issued for such purpose. The definition of the
term 'medicinal preparation' in Section 2(g) of the Act shows that it will
include all such drugs which are a remedy or prescription prepared for internal
or external use of human beings or animals and all substance intended to be
used for or in the treatment, mitigation or prevention of disease in human
beings or animals. Therefore, in order to come within the ambit of 'medicinal
preparations' the intended use of the article must be for treatment, mitigation
or prevention of disease.
The
article must be used for the purpose of either curing or mitigating the disease
after its symptoms have appeared or in prevention of any disease.
If the
intended use of the article is not for any one of the aforesaid purposes, it
cannot be described as a 'medicinal preparation'. Therefore, the main question
to be examined is whether 'shaving' results in some kind of a disease which
requires treatment by a medicine so that it may be cured or its effect is
mitigated or at least an effort has to be made to prevent the happening of such
disease by taking a preventive medicine. 'Disease' means an impairment of the
normal state of the living animal that interrupts or modifies the performance
of the vital functions being a response to environmental factors (as
malnutrition, industrial hazards, or climate) or to specific infective agents
(as worms, bacteria, or viruses) or to inherent defects of the organism (as
various genetic anomalies) or to combinations of these factors. The process of
shaving does not cause any kind of impairment of the normal state of a person.
It does not in any manner interrupt or modify the performance of any vital
functions of the human body. Many people have been shaving regularly every day
for 40-50 years but no one has ever suffered any kind of a disease. If the
process of shaving would have resulted in some kind of a disease, the best
preventive measure to be adopted was not to shave. The number of persons who
shave every day and have been shaving for years would run into crores even in
our own country and except for a very insignificant percentage thereof, who
belong to affluent class, no one uses any after shave lotion. But they have not
suffered any disease. Therefore, on a plain interpretation of the statutory
provisions an after shave lotion cannot come within the ambit of a
"medicinal preparation" as defined in Section 2(g) of the Act.
9.
Section 3(aaa) of the Drugs and Cosmetics Act defines a 'cosmetic' and it means
any article intended to be rubbed, poured, sprinkled or sprayed on, or
introduced into, or otherwise applied to, the human body or any part thereof
for cleansing, beautifying, promoting attractiveness, or altering the
appearance, and includes any article intended for use as a component of
cosmetic. Section 3(b) of the same Act gives a very exhaustive definition of
'drug'. Sub-clause (i) thereof lays down that drug may include all medicines
for internal or external use of human beings or animals and all substances
intended to be used for or in the diagnosis, treatment, mitigation or
prevention of any disease or disorder in human beings or animals, including
preparations applied on human body for the purpose of repelling insects like
mosquitoes. Sub-clause (ii) thereof lays down that drug will include such
substances (other than food) intended to affect the structure or any function
of human body or intended to be used for the purpose of destruction of vermin
or insects which cause disease in human beings or animals as may be specified
from time to time by the Central Government by notification in the Official
Gazette. The definition of the terms 'cosmetic' and 'drug' in this Act will also
show that until the intended use of the article is for diagnosis, treatment,
mitigation or prevention of any disease or disorder, it cannot be a drug.
10.
The technical material produced by Colfax shows that various kinds of after
shave lotions (Aqua Velva, Park Avenue,
Monarch, Emami,, etc.) generally contain concentration of alcohol below 60%.
The only distinguishing feature pointed out by Colfax is that the alcohol
content of the ASLs manufactured by it, viz., Old Spice and Blue Stratos is
62%. No authoritative scientific text has been placed before us to show that
only on account of a marginal increase of alcohol content to 62% an ASL will
acquire any such property so as to make it a medicinal preparation within the
meaning of Section 2(g) of the Act. It may be noted that according to Colfax
the ASLs manufactured by it contain alcohol - 62%, Propylene Glycol - 5%,
Benzyl alcohol 0.5% and the remaining 32.5% is water.
They
also contain some perfume. According to Harry's Cosmeticology, after shave lotion
is basically an acqueous alcohol solution containing a perfume. The desired
balance of 'mild astringency' and 'coolness' is achieved by controlling ratio
of ethyl alcohol to water. Popular brands of after shave lotions in UK contain 50% to 75% of ethyl alcohol by weight.
In the
United States also volume of alcohol in after
shave lotions range from 40% to 60%. It is necessary to emphasise that we are
not concerned here with the properties of alcohol simplicitor but a solution
which contains 62% alcohol and 33% water. The said solution on account of
presence of water cannot yield the same result as that of alcohol simplicitor.
Even a small percentage of presence of one ingredient may completely alter the
chemical properties of another ingredient. Therefore, the scientific literature
relied upon by the learned counsel for Colfax in support of his submission
regarding the properties of the alcohol cannot be a safe guide to determine the
characteristic of the products Old Spice and Blue Stratos.
11.
There is another aspect of the matter which also deserves to the noticed. The
Company (Colfax) issued an advertisement in December, 1990 inviting deposits
from public for fixed period and offering 14% interest. In the details and
particulars submitted as per the Companies (Acceptance of Deposits) Rule, 1975,
it was stated that the Company is engaged in the manufacture of cosmetics such
as Old Spice ASL, Cologne, etc. Therefore, till as late as
December, 1990, the Company itself was giving out that it is engaged in manufacture
of cosmetics and not of any medicinal preparation.
12. Shri
Ashok Desai has placed great reliance in support of his 1995 Supp. (3) SCC 1,
wherein the decision of CEGAT holding 'Selsun' Shampoo as a cosmetic product
was reversed by this Court and it was held to be a drug or medicine. The
judgment shows that the Court went into the chemical components of the article,
the nature of use and the contents of the label on the bottle. The main factors
which weighed with the Court were :
(i) the
article was used for treatment of a disease known as dandruff;
(ii) it
was manufactured under a drug licence;
(iii) the
Food and Drugs Administration had certified it as a 'drug';
(iv) it
was sold only on a doctor's prescription and was used as a medicine;
(v) it
was marketed as a patent or proprietory medicine through registered pharmacists
who hold valid drug licence and not by any dealer like other shampoos;
(vi) it
was included as a drug in the US Pharmacopoeia and other standard books and
treatises; and
(vii) the
label on the bottle specifically mentioned that it was a poison, should be used
twice weekly and was for external use only and should be kept out of the eyes
and away from the children. None of these factors are present in the case in
hand and, therefore, the decision cited can be of no assistance at all to the
company.
13.
The Excise Commissioner, Goa, after a detailed consideration of
scientific and technical material, has recorded a finding that ASLs
manufactured by Colfax are 'toilet preparations' within the meaning of Section
2(k) of the Act. The High Court has also examined the matter threadbare and has
arrived at the same finding. We find absolutely no reason to disagree with the
view taken by the Excise Commissioner, who is an expert in the field.
Therefore, the contention raised by learned counsel for Colfax that Old Spice
and Blue Stratos ASLs are medicinal preparations and not toilet preparations,
has no substance and has to be rejected.
14.
The second question which requires consideration is whether the notices issued
by the Excise Commissioner on 13.3.1991 and 15.5.1991 requiring Colfax to
deposit the balance of excise duty should be treated to be one under Rule 11 or
Rule 12 of the Rules. In the notices it is specifically mentioned that the same
are being issued in exercise of power under Rule 12 of the Rules. The Excise
Commissioner in his order dated 12.8.1998 held that the balance amount of
excise duty has to be paid w.e.f. 23.3.1985, when the product was classified as
medicinal preparation. The High Court has held that the notices should be
treated to have been issued under Rule 11 of the Rules and the balance amount
of excise duty can be recovered only for a period of six months immediately
preceding the date of issue of each of the notices.
15. Shri
Mukul Rohtagi, Addl. Solicitor General and Shri M. Usgaonkar, learned Advocate
General for the State of Goa, have strenuously urged that the case in hand is
squarely covered by Rule 12 of the Rules and the Excise Commissioner was fully
justified in directing recovery of balance amount of duty w.e.f. 23.3.1985,
when the order was passed holding the product ASL as a medicinal preparation
and the company started paying excise duty on its basis and the view to the
contrary taken by the High Court is not correct. Shri Ashok Desai, learned
senior counsel for the company has, on the other hand, submitted that the case
is covered by Rule 11 of the Rules and Rule 12, which is a residuary provision,
can have no application and, therefore, the order passed by the High Court in
that regard is perfectly correct and calls for no interference.
16.
Before examining the rival contentions, it will be useful to take note of the
scheme of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1955
(for short 'Rules). Sub-rule (1) of Rule 9 provides that no dutiable goods
shall be removed from any place where they are manufactured or any premises
appurtenant thereto which may be specified by the Excise Commissioner in this
behalf, whether for consumption, export or manufacture of any other commodity
in or outside such place until the excise duty leviable thereon has been paid
at such place and in such manner as is prescribed in these Rules or as the
Excise Commissioner may require.
Rule
81 lays down that when the licensee desires to remove goods on payment of duty,
he shall make an application in Form A.R.-2, in triplicate, to the
officer-in-charge or the proper officer, as the case may be, at least twelve
hours before he intends to remove the goods. The officer shall, thereupon,
assess the amount of duty leviable on the goods and on production of evidence
that the sum has been paid into a treasury or the sum has been debited to the
account-current, as the case may be, shall allow the goods to be cleared.
Sub-rule (2) of Rule 9 provides that if any dutiable goods are in contravention
of Sub-rule (1) deposited in, or removed from, any place specified therein. the
manufacturer thereof shall pay the duty leviable on such goods and shall also
be liable to a penalty to be determined by the Excise Commissioner which may
extend to two thousand rupees and such goods shall also to be liable to
confiscation. Sub-rule (1) of Rule 40 and Rule 81 read as under :
Rule
40. Issue from a bonded manufactory
(1)
Issues of alcoholic preparations and preparations containing opium, Indian hemp
or other narcotic drugs and narcotics shall be made from a bonded manufactory
on payment of duty. The licensee shall present before the officer-in-charge an
application in Form A.R.-2 signed by him or by his authorised representative.
The officer-in-charge shall, after checking the entries and realizing the duty
payable, allow the required quantities to be removed after issuing a permit :
Provided
that issues to another bonded warehouse shall be made without payment of duty
under proper security governed by the rules in Chapters VII and VIII.
Rule
81. Clearance on payment of duty. When the licensee desires to remove goods on
payment of duty, he shall make an application in Form A.R.-2, in triplicate, to
the officer-in-charge or the proper officer, as the case may be, at least
twelve hours before he is intended to remove the goods. The officer shall,
thereupon, assess the amount of duty leviable on the goods and on production of
evidence that the sum has been paid into a treasury or the sum has been debited
to the account-current, as the case may be, shall allow the goods to be
cleared.
Form
A.R.-2 is the prescribed proforma of application for clearance on payment of
duty from bonded manufactory/warehouse and it is in three parts. The first part
deals with the description of goods, their contents and the amount of excise
duty. This portion has to be filled in by the owner of the bonded manufactory
or his authorised agent. The second part is Assessment Memorandum, wherein the
total number of containers, quantity of goods, rate of duty and total duty
payable has to be mentioned and has to be signed by the officer-in-charge of
the bonded manufactory/warehouse.
The
third part relates to the receipt of amount of excise duty in the treasury
which has to be signed by the concerned officer of the treasury/bank. The
combined effect of Rules, 9, 40 and 81 is that every time when a manufacturer
or licensee desires to remove goods, he has to make an application in form
A.R.-2 in triplicate to the officer-in-charge. The officer has to then assess
the amount of duty leviable on the goods which has to be deposited in the
treasury. The goods can be cleared only after payment or deposit of the
assessed duty. If a manufacturer or licensee is aggrieved by an order of the
Excise Officer, he has got a right of appeal to the Excise Commissioner or to
the State Government, as the case may be, under Rule 127 of the Rules and there
is a further right of revision under Rule 128. The scheme of the Medicinal and
Toilet Preparations (Excise Duties) Rules is entirely different from Chapter
VII-A of the Central Excise Rules, 1944, which deal with removal of excisable
goods on determination of duty by producers, manufacturers or private
warehouse. This chapter contains the provisions for the self removal of
excisable goods. The rules in Chapter VII-A permits an assessee to remove
excisable goods without any physical supervision. The assessee has to himself
determine the duty payable and clear the goods under a gate pass. He is
required to file monthly returns of the goods cleared to the concerned Excise
Officer. In essence, the provisions of these Rules enable the removal of
notified excisable goods by a manufacturer thereof on payment of a sum
determined as duty on the basis of broad decisions given to him by approved
officers of the department. The assessee has to file the declaration of the
goods proposed to be manufactured by him giving the description thereof, the
item number of the schedule to the Central Excise Tariff Act under which such
goods fall, the rate of duty leviable on each of such goods and such other
particulars as may be prescribed by the Commissioner vide Rule 173-B of the
Central Excise Rules, 1944. In fact, Rule 173-B specifically provides that the
proper officer shall after such inquiry, as he deems fit, approve the list with
such modifications as are considered necessary and return one copy of the
approved list to the assessee who shall, unless otherwise directed by the
proper officer, determine the duty payable on goods intended to be removed in
accordance with such list. Rule 173-B also provides that when the dispute about
the rate of duty has been finalised and a modification of the rate or rates of
duty is necessitated for any reason, the proper officer shall make such
modification and inform the assessee accordingly. Under the Medicinal and
Toilet Preparations (Excise Duties) Rules, 1955, the Excise Commissioner has no
independent power of classification. The Excise Officer has to assess the duty
every time when the manufacturer or licensee applies in Form A.R.-2 for removal
of goods. If the manufacturer or licensee is aggrieved by the assessment so
made, he can prefer an appeal under Rule 127 and has also a right of revision.
17. As
mentioned earlier, Colfax moved an application on 14.2.1968 for grant of a
cosmetic licence for Old Spice ASL. The Assistant Drugs Controller granted a
cosmetics licence for manufacture of Old Spice ASL on 15.4.1968. The licence
was renewed from time to time as a toilet preparation. Colfax continued to pay
excise duty on ASL as a toilet preparation till the end of 1984. It was for the
first time on 14.1.1985 that Colfax moved an application before the
Commissioner of State Excise, Government of Goa stating that their product ASL
is essentially a medicinal preparation and should be classified under Tariff
Item No.1(i)(b) of the Schedule appended to the Act and a prayer was made to
reclassify the product. The Commissioner of Excise after noticing the
contention of Colfax sent a reply on 24.1.1985 requiring Colfax to show cause
as to why its request should not be rejected in toto. Colfax gave a reply and
thereafter the Commissioner of Excise passed an order on 23.3.1985 holding that
After Shave Lotion is to be classified as a 'Medicinal' preparation and not as
a 'Toilet Preparation' under the Medicinal and Toilet Preparations (Excise
Duties) Act, 1955 and the order shall be effective from the date of issue of
the same.
M/s
PJM Pharmaceuticals Pvt. Ltd. had moved an application before the Drugs
Controller, Government of Goa on 14.1.1989 for manufacture of Blue Stratos ASL
under a loan licence with M/s Colfax Laboratories (India) Ltd. and in this application they
clearly mentioned that they want to manufacture cosmetic products. Colfax sent
a letter to M./s PJM Pharmaceuticals Pvt. Ltd. on 2.2.1989 and in the last
paragraph of the letter it was stated "We undertake further to keep
record of alcohol consumed for the manufacture of your product and pay excise
duty as specified by the State Excise Department at the time of dispatch on
your behalf." In the licence issued by the Drugs Controller, Blue Stratos
ASL was described as a cosmetic product. The licences for manufacture of both
the ASLs namely Old Spice and Blue Stratos were as a cosmetic product and they
were throughout renewed for manufacture of cosmetic product. At no stage Colfax
had any licence to manufacture any medicinal preparation or drug.
Section
18(c) of the Drugs and Cosmetics Act clearly lays down that no person shall
manufacture any drug except under and in accordance with the licence issued for
such purpose. A detailed procedure for grant of licence for manufacture of
drugs is given in Chapter VII of Drugs and Cosmetics Rules, 1945. Manufacture
of drugs without a licence is an offence under Section 27 of the Drugs and
Cosmetics Act and the person so manufacturing is liable for punishment with
imprisonment for a term which shall not be less than one year but may extend to
two years with fine. If as asserted by Colfax it was manufacturing a drug or
medicinal preparation it was clearly committing an offence and was liable for
punishment as it had no licence for the said purpose. In spite of these facts a
very strange procedure was adopted by the Commissioner of Excise, Goa in
entertaining an application from Colfax for reclassifying its products, issuing
a notice to it to show cause why its request should not be rejected and
thereafter passing an order on 23.3.1985 classifying the ASL as a medicinal
preparation and not as a toilet preparation under the Act. There was no
requirement in law to issue a show cause notice before rejecting such an
application. There being no provision for a prior classification of product
under the Medicinal and Toilet Preparations (Excise Duties) Act and the Rules
made thereunder the entire proceedings commenced on the basis of the
application given by Colfax and culminating with the order of the Commissioner
of Excise are wholly without jurisdiction. The order passed by the Commissioner
of Excise on 23.3.1985 being without jurisdiction is a nullity in the eyes of
law and is liable to be ignored.
18.
Rule 11 of the Rules will apply when duties or charge have been short levied
through inadvertence, error, collusion or misconstruction on the part of an
excise officer or through misstatement as to the quantity or description of
such goods on the part of the owner. After the order dated 23.3.1985 had been
passed by the Commissioner of Excise, Goa,
the concerned Excise Officer who made the relevant entries in Form A.R.-2
submitted by Colfax could not have taken a different view and had to proceed on
the footing that ASL was a medicinal preparation. Being a subordinate officer
he was fully bound by the order of the highest excise authority of the State.
Thereafter, till 1991 when notices were issued and the matter was finally
decided by the Excise Commissioner, he had to proceed treating the ASL as
medicinal preparation. In the fact situation, the concerned Excise Officer who
made entries in Form AR-12 will be the Excise Officer for the purposes of Rule
11 and 12 as the matter was not dealt with by any other authority. In such
circumstances it cannot be held that the duties or charge had been short levied
through inadvertence, error, collusion or misconstruction on the part of the
concerned Excise Officer or through misstatement as to the quantity or
description of such goods on the part of the owner. Collusion means a secret
agreement for a fraudulent purpose or a secret or dishonest arrangement in
fraud of the rights of another. It is a deceitful agreement between two or more
persons for some evil purpose, such as to defraud a third person of his rights.
The concerned Excise officer who made the relevant entries in Form A.R.-2 and
cleared the goods at the spot being a subordinate officer had absolutely no
option but to act in accordance with the order dated 23.3.1985 of the
Commissioner of Excise. In these circumstances Rule 11 of the Rules can have no
application to the facts of the case. Rule 12 confers residuary powers for
recovery of sums due to Government. It provides that where the Rules do not
make any specific provision for the collection of any duty or of any deficiency
in duty, if the duty has, for any reason, been short levied or of any other sum
of any kind payable to the collecting Government under the Act or the Rules,
such duty, deficiency in duty or sum shall, on written demand made by the
appropriate officer be paid to such person and at such time and place as the
proper officer may specify. There being no specific provision for a case like
the present one for collection of duty which has been short levied, the
provisions of Rule 12 of the Rules will be applicable. There is no period of
limitation prescribed under Rule 12. In view of the fact that the order dated
23.3.1985 of the Commissioner of Excise was an order passed wholly without
jurisdiction and consequently was a nullity, the Government is entitled to
recover the deficiency in duty w.e.f. the said date. The ratio of Collector of
Central Excise v. Cotspun Ltd., 1997 (7) SCC 633, reliance on which was placed
by Shri Desai, can have no application here as the said case turned on the
interpretation of Rules 10, 173-B and 173-C of Central Excise Rules, 1944, whereunder
the whole scheme is different as discussed earlier. The view taken by the
Excise Commissioner on this point in his order dated 12.8.1998 is, therefore,
perfectly correct. The High Court clearly erred in setting aside the order of
the Excise Commissioner and in directing that the notices be treated to have
been issued under Rule 11 of the Rules. The order passed by the High Court in
this regard is, therefore, liable to be set aside.
19.
The third point relates to the quantification of duties done by the Excise
Commissioner. The learned senior counsel for Colfax has submitted that in case
of a product which has a cum-duty price, the assessment is required to be done
on the basis of wholesale price less excise duty payable, as provided under Section
4(4)(d)(ii) of the Central Excise Act, 1944.
Learned
Additional Solicitor and learned Advocate General for the State of Goa have
urged that the chart annexed to the show cause notices takes into account the
prices indicated by the manufacturer after excluding the duty and its on this
price that the excise duty has to be worked out. The High Court has placed
reliance upon a decision of this Court in Govt. of India v.Madras Rubber
Factory, 1975 (77) ELT 433 for computation of assessable value in a cum-duty
price. It has held that the phrase 'ad valorem' appearing in the column 'rate
of duty' in the Schedule appended to the Act refers to the value of the
excisable goods and, therefore, it will have to be worked out by applying the
formula as laid down in Section 4(4)(d) of Central Excise Act. We are of the
opinion that the view taken by the High Court is perfectly correct and calls
for no interference.
20. In
the result, Civil Appeal No.415 of 2000 filed by M/s Colfax Laboratories
(India) Ltd. is dismissed with costs. Civil Appeal No.414 of 2000 filed by
State of Goa is partly allowed. The judgment and order of the High Court in so
far as it holds that notices dated 13.3.1991 and 15.5.1991, though purported to
have been issued under Rule 12, would have to be construed as having been
issued in the exercise of powers under Rule 11 of the said Rules and that the
Government is entitled to recover the short paid duty on the goods cleared only
for a period of six months immediately preceding the date of each notice is set
aside. The Government will be entitled to recover the entire amount of duty
which has been short levied in accordance with the order of Excise Commissioner
dated 12.8.1998.
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