Classification of Henna Powder - Burden of Proof of Classification

PJ/Case Laws/2012-13/1041

Case: IN RE: SHUBHAM GOLDIEE MASALA (P) LTD.

Citation: 2009 (235) E.L.T. 569 (Commr. Appl.)

Issue:- Classification of Henna powder – whether under Chapter 33 or under sub-heading 1404 10 19 – No literature on package suggesting use for hair dye but only on hands & feet - Henna powder classifiable under Tariff Item 1404 10 19.

Burden of Proof of classification issues is on the Revenue Department.

Brief Facts:- Appellant were engaged in manufacture and clearance of ‘Henna Powder’ in the unit containers intended to be sold to retail buyers under the brand name ‘Goldiee Marwari Mehndi’ and were not registered with the Department. In terms of S. N. 66 of Notfn. No. 4/2006 dated 1-3-2006 read with explanatory notes to the Finance Bill for the year 2006-07, exemption from payment of excise duty on ‘Henna Powder’ not mixed with any other ingredient, falling under Chapter 33 of the Schedule to the CETA 1985 was withdrawn and the same became chargeable to excise duty @8% adv. w.e.f. 1-3-2006.

Department asked them to get themselves registered and to pay duty on goods cleared w.e.f. 1-3-2006 and to furnish a sample along with details of the goods cleared w.e.f. 1-3-2006. Appellant claimed that they were in the manufacture and sale of pure ‘Henna Powder’ which was a vegetable product falling under Chapter sub-heading 1404 10 19 of the Schedule to the Central Excise Tariff Act, 1985, chargeable to Nil Cenvat.

The Appellant also furnished the details of goods cleared during the period from March ‘06 to Sept. ‘06 and sample of a sachet of 40 gms bearing MRP of Rs. 6.00.

The department issued Show cause notice for subsequent period from April, 2007 to September, 2008 proposing for classification under Chapter 33, demand of duty amounting to Rs. 4,40,478/- (including Education Cess and Sec. Higher Education Cess) in addition to demand of interest and imposition of penalties which was adjudicated vide impugned order. In the impugned order, the Adjudicating Authority decided the classification of ‘Henna Powder’ under Chapter 33, confirmed the amount of proposed demand and demanded interest under Section 11AB of Central Excise Act, 1944. Penalties of Rs. 4,40,478/- and Rs. 5,000/- were also imposed on the Appellant under Section 11AC of Central Excise Act, 1944 read with Rule 25 of Central Excise Rule, 2002 and Rule 27 of said rules respectively.

Being aggrieved, the Appellant filed the Appeal along with stay application.

Appellant’s Contention: - Appellant submitted that the Respondent ought to have appreciated the fact that the Applicants were manufacturing pure Henna Powder and the Henna Powder was not mixed with any other ingredients and under Chapter 1404 10 19 of Central Excise Tariff Act, 1985, the product Henna Powder was classified under a specific entry and the learned Adjudicating Authority has grossly erred by dragging the classification of Henna Powder on Residuary Entry of Chapter 33 of Central Excise Tariff Act, 1985.

That the learned Adjudicating Authority ought to have followed the principle of law laid down by Supreme Court that for the purpose of classification of a product specific entry cannot be overridden by a General/Residuary Entry. Reliance is placed on the following decision:-

(i)      Dunlop India Ltd. and Madras Rubber Factory Ltd. v. UOI & Others - 1983 (13) E.L.T. 1566 (S.C.),
(ii)     Moorco India Ltd. v. CCE, Madras reported in 1994 (74) E.L.T. 5 (S.C.).

That the department had grossly erred in classifying the Appellants pure Henna Powder as a preparation for use on the Hair and/or Cosmetic Preparation. That it is a settled law through catena of decision of the Hon’ble Supreme Court that with regard to classification of the goods and the matter relating to chargeability, the burden is heavily cost upon the Revenue which has to prove its case with positive evidence. In the Appellants case there is no evidence whatsoever and howsoever that the Appellants were marketing their Pure Henna Powder as a preparation for use on the Hair. Reliance is placed on the following decision:

(i)      HPL Chemicals Ltd. v. CCE, Chandigarh reported in 2006 (197) E.L.T. 324 (S.C.).
(ii)     UOI v. Garware Nylons Ltd. reported in 1996 (87) E.L.T. 12 (S.C.).

The Respondent ought to have considered the decision of Hon’ble Supreme Court in CCE Nagpur v. Vicco Laboratories, reported in 2005 (179) E.L.T. 17 (S.C.).

That the case of Henna Export Corporation v. CCE reported in 1993 (67) E.L.T. 907 was distinguishable inasmuch as in the said case classification of ‘Red Rose Henna for Hair Dye’, was finalized which was clearly distinguishable from the case of the appellants who were clearing Pure Henna Powder an/or Mehndi.

That the Appellants say that even in Harmonized Commodity Description and Coding System, Henna Powder has been classified as a raw vegetable material of a kind used primarily dying or tanning.
That the Appellants while relying upon the explanatory notes of HSN for classifying Pure Henna Powder under Chapter 14 rely upon the following decision.

(a) CCE, Hyderabadv. Bakelite Hylam Ltd 1997 (91) E.L.T. 13 (S.C.).
(b) O.K. Play (India) Ltd. v. CCE, Delhi-III 2005 (180) E.L.T. 300 (S.C.)

That the learned Respondent has misdirected himself in law inasmuch as he has grossly erred in invoking penal provisions against the Appellants when issue was purely for classification and there was also neither any contumacious conduct or deliberate violation of statute on the part of the Appellants. The order imposing penalty under Section 11AC of the Central Excise Act, 1944 is liable to be set-aside on this ground alone. Reliance is placed on the decision of Hon’ble Supreme Court in Hindustan Steel Ltd. v. State of Orissa - 1978 (2) E.L.T. (J 159).

That the learned adjudicating Authority ought to have followed the principle of judicial discipline by not following the observation made by the Commissioner (Appeals), Central Excise, Kanpur in Order-in-Appeal No. 79-C.E./APPL/KNP/2008 dated 27-2-2008 as such the order passed by the adjudicating authority is not sustainable and liable to be set aside only on this ground alone. Reliance is placed on Geep Industrial Syndicate Ltd. v Asst. Commissioner- 1990 (48) E.L.T. 3 (Alld. HC).

The issue of classification is no more Res-integra and the same has already been settled by the Commissioner (Appeals), Kanpur in the identical matter of Appellant for different period.

Reasoning of Judgment: - The Commissioner (A) noted thatinstant appeal has been filed against demand of duty arising out of classification of Henna Powder under Chapter 33 instead of Chapter 1404 10 19, as claimed by the appellant. Demand of interest and imposition of penalties have also been contested by the appellant. The issue of classification of goods under reference had already been decided by this office vide O-in-A referred by the Appellant.

The Commissioner (A) observed that the Adjudicating Authority has restored to alternate classification of Henna Powder packed and marketed by the Appellant as Goldie Marwari Mehandi under Chapter 33 holding that Henna Powder in unit packing is classifiable under Chapter 33 attracting central excise duty @8% Adv. by virtue of Notfn. No. 4/2006 dated 1-3-2006 (S.N. 66) depending on the end-use of the product. Also reliance is placed on the case of Henna Export Corporation v Collector-1993 (67) E.L.T. 907 (Trib.). On the other hand, the Appellant has categorically pleaded that principle of law laid down by the Apex Court has not been followed that for the purpose of classification specific entry cannot be overridden by a General/residuary entry; that pure Henna Powder is not a preparation for use on the Hair and/or cosmetic preparation as evident from packing material, that it is a settled law that with regard to classification of goods and matter relating to chargeability, the burden is heavily cast upon the Revenue which has to prove its case with positive evidence, which has not been done and that the case of Henna Export Corporation v. CCE - 1993 (67) E.L.T. 907 is distinguishable in as much as in the said case classification of ‘Red Rose Henna for Hair Dye’ was decided which is distinguishable from the present case who were clearing Pure Henna Powder.

The Commissioner (A) found that the Adjudicating Authority has preferred the alternate classification of Henna Powder under Chapter 33 and no sub-heading thereof has been referred to. On perusal of findings it appears that the Adjudicating Authority has decided the classification under chapter sub-heading 3305 relating to preparations for use on the Hair. On perusal of sub-headings of Chapter 3305, the Commissioner (A) found that chapter deals with preparations which are exclusively used on hair and no specific sub-heading provides the entry as Henna, Henna leaves or Henna Powder. On the other hand Vegetable Products not else where specified or included - Henna Powder finds a specific sub-heading as 1404 10 19 and it has been mentioned in the impugned order itself. Further it found force in the Appellant’s contention that facts and circumstances of the case of Henna Export Corporation v. CCE - 1993 (67) E.L.T. 907 (Trib.) are distinguishable from the case under reference. The Commissioner (A) found no indication on the literature of packing material brought to notice of the department since very beginning that the item is projected to be a preparation to be used for hair.

Further The Commissioner (A) found that it is settled law that classification of goods is a matter relating to chargeability and burden of proof is squarely upon revenue - if department intends to classify a goods under a particular heading or sub-heading different from claimed by assessee, department has to adduce proper evidence and discharge burden of proof which has not been adduced to. Also no evidence has been brought on record in respect of end-use of goods under reference as a preparation used for hair. On the other hand-Method of use (Prayog Vidhi) written on the pack clearly and categorically mention of its use in Hand, Feet etc. In the circumstances, there is sufficient material to hold that Henna Powder manufactured by the Appellant merits classification under specific sub-heading 1404 10 19 of the Schedule to CETA 1985 and demand of duty and imposition of penalties are not maintainable. Similar view has been taken in the Order-in-Appeal No. 314-C.E./APPL/KNP/2007 dated 13-9-2007 issued by this office in the appellant’s case itself issued in respect of preceding period.

Decision:- Appeal allowed.

Comment:- This is very detailed and good decision on classification of a product. This decision has clearly underlined the principle that the onus lies on the department to prove that the particular product falls under particular tariff heading if he intends to classify a product in that particular tariff heading.

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PJ/Case Laws/2012-13/1041

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