Whether appellant is required to pay Excise duty on the Henna Cone paste manufactured by them?

M/S Prem Mehandi Center Final Order No. 53529/2018 dated 19.12.2018

Prepared By: Adit Gupta

Introduction: M/s Prem Mehandi Center, (hereinafter referred to as appellant) is engaged in manufacture of heena cone paste having central excise registration number as AFNPG4306BEM001. The said heena cone paste falls under Chapter no. 33 of the first schedule to the Central Excise Tariff Act, 1985. A show cause notice was issued to the appellant alleging there under that they have wrongly availed the benefit of exemption notification no. 12/2012-CE dated 17.03.2012 ( as amended by notification no. 12/2013-CE dated 01.03.2013). The said exemption is available to “Henna Powder or paste, not mixed with any other ingredient” only. During the audit of the appellant, it was found that the paste that the appellant made was not pure henna paste. The appellant also agreed that they also use water along with oil to manufacture the henna paste.
Relevant Legal Provisions:

Section 35 of the Central Excise Act, 1944.
Chapter 33 of the first Schedule to the Central Excise Tariff Act, 1985.
Notification no. 12/2012-CE dated 17.03.2012 (as amended by notification no. 12/2013-CE dated 01.03.2013).
Section 11AB/ 11AA of the Central Excise Act, 1944.

Issue Involved: Whether appellant is required to pay Excise duty on the Henna Cone paste manufactured by them?

Brief Facts:The appellant has filed the present appeal under section 35B of the Central Excise Act, 1944 against the impugned Order-in-Appeal No. 155 (AK)CE/JPR/2018 dated 25.06.2018passed by the learned Commissioner (Appeals), Central Excise & CGST, Jaipur. By the said impugned Order-in-Appeal the learned Commissioner has upheld the Order-in-Original dated 13.10.16 passed by the learned Additional Commissioner and held that the appellant is not entitled to claim benefit of Notification No. 12/2012-CE as amended vide Notification No. 12/2013-CE dated 01.03.2013 [Sl. No. 134].

Assessee’s Contention:

I. Mere mixing of Oil with water to make henna paste, will not result into denying the benefit of Notification No. 12/2013-CE:
1. The SCN admits the fact that the appellant was adding oil with water to make henna paste. It was due to this fact that the SCN proposed to deny the benefit of Notification No. 12/2013-CE [Sl. No. 134] to the appellant.

2. This allegation of the department, it is respectfully submitted, it is totally contrary to the Circular dated 10.07.14 of the CBEC which clarified that the exemption under Sl. No. 134 of Notification No. 12/2012-CE as amended will be available to Henna Powder mixed with a liquid, so far that the liquid is a medium to change the form of Henna Powder into Paste but, excludes products like Henna Dye and such other products which are cosmetics.

3. In the present case, only oil and water are liquids which are medium to change the form of Henna Powder into Paste. The SCN admitted the said fact and it was not even the case of the department in the SCN that the appellant was adding any chemical or dye in the said henna paste. The appellant had duly clarified in the present proceedings that the purpose of adding oil is to make it a stable henna paste and preserve the same for the purpose of making it marketable by giving it the desired shelf life. The purpose of adding the said liquid is only to form stable henna paste and to provide the desired shelf life by inhibiting bacterial and fungal growth that usually starts developing in henna paste within 24-48 hrs after mixing of henna powder only with water. Using only water with henna powder for making paste will result in the product developing high microbial growth and off-odour, making the same unsafe for human use. The said oil cannot be construed as dye or cosmetics.

4. The learned Commissioner (Appeals) has totally misconstrued the expression “other ingredients” by treating the oil mixed with henna powder as ‘other ingredients’ and holding that the henna paste manufactured by the appellant during the impugned period was mixed with other ingredients and was not pure henna and, therefore, the benefit of Notification No. 12/2012-CE as amended vide Notification No. 12/2013-CE dated 01.03.2013 [Sl. No. 134] was not available to the appellant. This is contrary to the plain language of the Notification as well as clarification issued by the CBEC.

5. In any event, the issue is now no longer res integra and, covered by the decision of this Hon’ble Tribunal in the case of CCE Jaipur Vs Meenakshi Henna Powder – Final Order dated 13.03.18 passed in Excise Appeal No. 50997/2018 wherein, while dealing with a case where benefit of Notification No. 12/2012-CE as amended was denied to the assessee on identical allegations, that benefit under the notification would not be available due to addition of oil and water, it was held, by relying upon the Circular, that benefit of the said notification cannot be denied, by observing as under: -

“The appellant stated that they noted that the objection of the Revenue, that no other ingredients should have been added to claim the exemption, is correct. However, the facts of the present case did not reveal that any other ingredients at all have been added in making the henna paste. Admittedly, the clove oil is a liquid used to make henna paste from powder and make it marketable as such paste in cones. It is noted that the said process is for making the paste marketable/useable much later by the customers. There is no addition of any active ingredients to henna powder to make the henna paste other than the said oil or liquid. Based on the clarification issued by the Board cited above and the materials on record, the appellant find no justification to interfere with the findings recorded in the impugned order. The cross objection filed by the appellant also stands disposed as not pressed. The appeal by the Revenue is dismissed.”

6. In view of the abovementioned admitted facts and settled legal position, the impugned order passed by the learned Commissioner (Appeals) is liable to be set aside by extending the benefit of Notification No. 12/2012-CE as amended vide Notification No. 12/2013-CE dated 01.03.2013 [Sl. No. 134] on the product in question viz., Henna Paste.

II. Classification of product under chapter 14:
The appellant hereby makes submissions as regards the fact that their product merits classification under chapter 14. In this regard, the appellant wishes to narrate the history of the amendments made in chapter 14 of the Central Excise Tariff Act, 1944 from time to time.

The Chapter 14 of the Central Excise Tariff Act, 1985 upto 31.12.2006 is produced for the sake of convenient reference as follows:-

*Tariff Item*	*Description of goods*	*Unit*	*Rate of duty*
1404	Vegetable products not elsewhere specified or included
140410	-Raw vegetable materials of a kind used primarily in dyeing or tanning
	--- Heena:
1404 10 11	Heena Leaves	Kg	Nil
1404 10 19	Heena Powder	Kg	Nil

Thereafter, vide clause 67 of the Finance Bill 2006, certain changes in Central Excise Tariff Act, 1985 were introduced which are as under:-
Excise tariff
67. “In the Central Excise Tariff Act, 1985, the First Schedule shall,— (a) be amended in the manner specified in the Sixth Schedule; and (b) with effect from the 1st day of January, 2007, be also amended in the manner specified in the Seventh Schedule
The relevant portion of seventh schedule is reproduced below:-
(14) in Chapter 14,— (i) for Notes 3 and 4, the following Note shall be substituted, namely:— “3. Heading 1404 does not apply to wood wool (heading 4405) and prepared knots or tufts for broom or brush making (heading 9603).”;
(ii) tariff item 1402 00 00 and the entries relating thereto shall be omitted; (iii) heading 1403, sub-heading 1403 00, tariff items 1403 00 10 and 1403 00 90 and the entries relating thereto shall be omitted;
(iv) in heading 1404, sub-heading 1404 10, tariff items 1404 10 11 to 1404 10 90 and the entries relating thereto shall be omitted;
In view of the above changes, the entries relating to henna under tariff items 140410 were omitted with effect from 01.01.2007.
It is submitted that the Customs Tariff Act, 1975 and the Central Excise Tariff Act, 1975 are similarly designed and framed. However, from Budget 2006-07, the Customs Tariff Act, 1985 was being amended to make it at par with the Harmonized Commodity Description and Coding System. Consequently, with effect from 01.01.2007, the Central Excise Tariff Act, 1985 was also aligned with the Harmonized System of Nomenclature (HSN) and so certain amendments were made in the Central Excise Tariff. However, the basic purpose of the amendments was to make the Central Excise Tariff Act, 1985 at par with the HSN. Consequently, as the product heena leaves and heena powder are not popular worldwide, the entries relating to the same being 1404, 1404 10, 1404 10 11 and 1404 11 90 were omitted from the Central Excise Tariff Act, 1985. However, this omission was made only to align the Central Excise Tariff with the HSN code. As stated, the product heena powder and heena leaves not being used worldwide, and so do not find specific tariff heading in HSN. Consequently, the specific tariff entries mentioned in the Central Excise Tariff for heena powder and heena leaves were also omitted. However, it is pertinent to note here that after omission of the specific entries of heena powder and heena leaves from Chapter 14, the said product heena powder and heena leaves were not added under any other chapter heading. This means that the omission of entries pertaining to heena leaves and heena powder was not with intention to change its classification from chapter 14 to any other chapter and rather the omission was to make Central Excise Tariff at par with the HSN codes. As such, even after the omission, the product heena powder and heena leaves are more appropriately classifiable under chapter 14 of the Central Excise Tariff Act, 1985. It is submitted that if a particular product is specifically included under a chapter and after its omission, the said product is not specifically included under any other chapter, and if the reason for omission was alignment of the Central Excise Tariff with HSN codes, then, even after the omission, the said product is classifiable under the chapter in which it was specifically included. In order to substantiate the submission that the omission of entries relating to heena powder and heena leaves was only for alignment of Customs Tariff Act, 1975 and the Central Excise Tariff with the HSN codes, reliance is placed on the TRU letter DOF No. 334/3/2006-TRU dated 28.02.2006, the relevant extracts wherein reads as follows:-
“31. Other Amendments in Customs and Central Excise Act and Rules
5. First Schedule to the Customs Tariff Act, 1975, is being amended so as to incorporate the amendments approvedby the Customs Cooperation Council (World Customs Organization) in the legal text of the International Convention on the Harmonized Commodity Description and Coding System (Harmonized System). These changes would align the First Schedule of the Customs Tariff Act with the Harmonized System. This amendment will come into force with effect from 1.1.2007.
10. First Schedule to the Central Excise Tariff Act, 1985 is being amended so as to align it with the Customs Tariff Act, 1975 (CTA), in line with the amendments proposed in CTA with effect from 1.1.2007.
The above extracts from the TRU letter clearly substantiates the point that the only reason for amendment in the Customs Tariff and the Central Excise Tariff was to align it with the HSN coding followed internationally. It is reiterated that as the product heena powder and heena leaves is not popular worldwide so as to be governed by specific entry, the entries of chapter 14 pertaining to heena leaves and heena powder were being omitted. However, the fact that the said products were not specifically added under any other chapter heading proves that the classification of the said products even after the amendment is more appropriate under chapter 14.

III.No manufacturing involved so no excise duty payable:-
The impugned order in original had also contended that since the product falls under chapter 33 of the Central Excise Tariff Act, 1944, the activity of making heena powder from heena leaves and heena paste from heena powder amounts to manufacture and is leviable to central excise duty. In this respect, the reliance has been placed on the meaning of preparation given by the Oxford Dictionary. The provisions of chapter note regarding ‘deemed manufacture’ are not applicable in their case. Moreover, the impugned order in original seeks to place reliance on the dictionary meaning of preparation to justify their stand that the process of crushing of dried heena leaves into powder amounts to manufacture of preparation covered under chapter 33 which is not legally acceptable. The impugned order in original has simply rejected the reliance placed by the appellant on a number of decisions rendered by Supreme Court and High Court clearly stating that change in physical form does not amount to manufacture. The appellant submits that the judicial pronouncements relied upon by them hold much significance than the general meaning given in Oxford Dictionary. Consequently, the impugned order in original simply rejecting the reliance placed on number of judicial pronouncements without even assigning any justifiable reasons is non-est and non-speaking order which is not tenable in the eyes of law.
The appellant reiterate that erroneous excise duty demand has been raised against appellant as for levy of excise duty there should be manufacture but the appellant has not undertaken any manufacturing process under excise. The appellant submit that the process of converting heena powder into heena paste does not amount to manufacture so as to levy excise duty. This is for the reason that whether the customer purchases heena powder or purchases heena paste, the end use remains the same. Moreover, the heena powder purchased by customers is mixed with liquids to form paste so as to use it. As such, the product heena powder and heena paste are supposed to have the same use. Hence, when there is no manufacture as only the state of heena powder in solid form is being changed to paste, the excise duty demands are not at all sustainable. In this context, reliance may be placed on following judicial pronouncements:-

COMMISSIONER OF C. EX., CHANDIGARH VERSUS DABUR INDIA LTD. [2015 (325) E.L.T. 613 (Tri. – Del.)]:-

Manufacture - Chemical change - Conversion of raw tamarind into tamarind paste/concentrate subjecting to the process of boiling, washing, filtering, squeezing, concentrating - Tamarind not loses its natural character, intended purpose of use and no new product of different category emerged - No chemical change produced, product remains same from starting point to end point of process undertaken - Only pulp formulated and added water/moisture removed - No process amounting to manufacture involved - Sections 2(f) and 3 of Central Excise Act, 1944. [paras 6, 7]

SANDOZ INDIA LIMITED VERSUS UNION OF INDIA AND OTHERS [1980 (6) E.L.T. 696 (Bom)]:-

Manufacture - Change in physical form does not amount to manufacture - Section 2(f).
- The processing cannot be equated with manufacture therefore, merely a change in the physical form of a substance or a commodity would not by itself lead to the conclusion that a new article has been manufactured because to attract excise duty it must be shown that a new and different article having a distinct name character or use has emerged due to manufacturing process. [paras 10 and 15]
Manufacture - Chemical reaction or change in chemical composition necessary before a process can be treated as manufacture Section 2(f).
- If a certain process merely changes the physical form of a substance without bringing any change in the chemical composition or resulting in any chemical reaction, then such a process cannot be equated with manufacture as it does not bring into existence a new product. [paras 14 and 15]
Synthetic dye stuff - Conversion of Foron pigment to Foron liquids does not amount to manufacture - Section 2(f) and Tariff Item 14D.
- Since the formulation of Foron pigment merely changes its physical form from solid state to liquid state without bringing any change in its chemical composition or resulting in any chemical reaction, therefore the resultant article which is Foron liquid cannot be said to be a manufacture of new commodity because the Foron liquid does not cease to be Foron dyestuff or pigment even after its conversion from solid state to liquid state.[paras 14 and 16]
Taxing provision - Burden of proof on the department.
- It is settled law that in a case of taxation the burden of proving that the necessary ingredients presented by a taxing provision are satisfied, is entirely upon the taxing authority. [para 11].

TATA EXPORT LTD. VERSUS UNION OF INDIA AND OTHERS [1985 (22) E.L.T. 732 (M.P.)] AFFIRMED BY SUPREME COURT REPORTED AS [U.O.I. V. TATA EXPORT LTD. - 1997 (95) E.L.T. A221 (S.C)]

Pigment slurry prepared by mixing pigment powder with water consisting of chemical wetting agents does not amount to manufacture of a new and different commodity - Pigment slurry is only pigment powder in wet formand not “water pigment finishes for leather” hence not liable to duty under Item No. 14-I (2) (iii) of the Central Excise Tariff - Classification of goods with reference to their end use is totally irrelevant.
Manufacture - Mere change in physical form i.e. from powder to liquid does not amount to manufacture - Production of a new article having its own character, use and name necessary - Section 2(f) of the Central Excises and Salt Act, 1944.
- When the properties and characteristics of a article remains unchanged even after change in the physical form i.e. from powder to liquid, it does not amount to manufacture of a new commodity hence not liable to excise duty. The end use of a article is irrelevant. [1983 E.L.T. 1566 : 1977 E.L.T. (J 199); 1978 E.L.T. (J 336) and 1980 E.L.T. 696; 1982 E.L.T. 10; 1985 (20) E.L.T. 257 and 1985 (20) E.L.T. 179 (S.C.) followed.) [paras 4 and 5]

COROMANDAL PRODORITE PVT. LTD. VERSUS GOVT. OF INDIA AND OTHERS [1985 (20) E.L.T. 257 (Mad)]:-

Manufacture - Change in form - Synthetic resin in solid form mixed with alcohol to convert it into liquid form does not amount to manufacture. - The end product which is brought into existence by mixing the synthetic resin with alcohol is not a product different in character, nature and use, so as to be excisable - Sections 2(f) and 3 of the Central Excises Act - Item 15A of the Central Excise Tariff.
In light of the above decisions rendered by various High Courts and affirmed by the Supreme Court, it is very much clear that mere change of state of product from solid to liquid (paste) does not amount to manufacture unless and until a new product with different use emerges. In present case, heena powder is mixed with liquid to obtain heena paste which has the same use. Moreover, customers purchasing heena powder will also mix it with liquid to form paste so as to use it. As such, when there is no manufacture, the question of levying excise duty does not arise at all. Hence, the impugned order in original confirming huge excise duty demand is not at all tenable and is liable to be set aside.

IV. Issue involved is purely interpretative in nature and, therefore, present case is not a fit case for imposition of penalty:
(1)The learned Commissioner (Appeals) has committed an error in upholding imposition of penalty on the appellant even thought the facts and circumstances mentioned above clearly establishes that the issue involved was purely of interpretation of notification.

(2)In fact, the stand adopted by the appellant has already been accepted by the learned Tribunal in the case Meenakshi Henna Products (supra) and, there is nothing alleged in the SCN regarding presence of any other ingredients in the henna powder and paste manufactured by the appellant.

(3)Therefore, no penalty under section 11AC of the Act could be imposed on the appellant as held by the Hon’ble Supreme Court in the case of Unflex Cables Ltd. v CCE, Surat-II -2011 (271) ELT 171 (SC) followed by the Hon’ble MP High Court in the case of UOI v Beryl Drugs Ltd. -2015 (322) ELT 261 (MP).

(4)The learned Commissioner (Appeals) erred in upholding the imposition of the penalty on the appellant by observing that the appellant had mis-classified the product with intent to evade payment of duty without appreciating that the present is not a case of mis-classification, as may be appreciated from the show cause notice but the issue relates to availability of exemption benefit under notification no. 12/2013-CE. For this reason also, the imposition of penalty is not sustainable in the facts of the present case.

(5)The learned Commissioner (Appeals) erred in applying the ratio of the decision of the Hon’ble Supreme Court in the case of Union of India v Dharmendra Textiles Ltd. – 2008 (231) ELT 3(SC) which is clearly not applicable in the facts of the present case.

Reasoning adopted: -At first, the learned Counsel submitted that the henna paste containing other ingredients is not covered by the said exemption. However he later countered the same by stating that henna paste is mixed with clove oil mainly, to give longevity and preservation of the henna for later use, after many days. This is required for marketing the product. Moreover no other ingredients useable are added in the henna powder to make the henna paste. Admittedly, the clove oil is a liquid used to make henna paste from powder and make it marketable as such paste in cones. Hence, the exemption notification will be applicable on the said product.

Conclusion: - The gist of the case is that the appellant is not required to pay duty of excise on the Henna paste cone. The benefit of exemption notification no. 12/2012-CE dt. 17.03.2012 (as amended by notification no. 12/2013- CE dt. 01.03.2013) will be available to the appellant. In the said notification, it has been mentioned that the duty of excise would be NIL as against Henna only when it is not mixed with any other ingredient. In the present case, the appellant has mixed the henna powder with water and oil in order to make henna paste. It has been justified that the same has been done as a method of marketing so as to make the product marketable. Thereby, the exemption notification will be available to the appellant implying no payment of duty of excise.

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