CASE STUDY

Prepared By: CA Neetu Sukhwani
 & Meet Jain

 
Introduction:-

M/s Pushp Enterprises, (hereinafter referred as assessee) are engaged in the manufacture of Heena Powder/Powder Hair Dye having industrial unit in Sojat City. On account of investigation being conducted in their premises, it was alleged that they manufacture products that fall under chapter 33 that are leviable to excise duty on their clearance from the factory. Furthermore, the samples of heena leaves and heena powder was also taken from their factory premises and sent to government approved laboratory, (CRCL) for testing so as to ascertain whether the product is mixed with ingredients such as artificial dyes or not.  However, the assessee contended that their product is natural product falling under chapter 14 having social and religious value that attracts nil rate of excise duty and so they have rightly cleared their goods without payment of excise duty. Subsequently, show cause notice was issued to them proposing the excise duty demand of Rs. 3,04,03,248/- along with interest and penalty. The outcome of the show cause notice is the subject matter of the present case study.
 
M/S PUSHP ENTERPRISES
 [OIO NO. JOD-EXCUS-000-COM-0011-14-15-COMMISSIONER DATED 20.03.2015]
 
Relevant Legal Provisions:
i)      Chapter 14 of Central Excise Tariff Act, 1985: Vegetable plaiting materials; vegetable products, not elsewhere specified or included.
ii)     Chapter 3304 of Central Excise Tariff Act, 1985:-Beauty or make up preparations for the care of the skin (other than medicaments), including sunscreen or suntan preparations, manicure or pedicure preparations.
iii)            Notification No. 12/2013-CE dated 01.03.2013


Brief Facts:-
The show cause notice proposes to recover excise duty amounting to Rs. 2,92,04,576/- on the clearances of Mehandi Powder for the period from 01.03.2013 to 31.01.2014 by classifying product of assessee under chapter 33 and also denying the benefit of serial no. 134 of the Notification no. 12/2013-CE dated 01.03.2013. The reason for denying the benefit of the exemption notification is the Test Report received from CRCL, New Delhi vide C. No. 35-CRCL/2012/CL-108 C.Ex. dated 24.08.2012 mentions that the sample of heena powder tested contains organic colouring matter whose identity could not be established. It has been alleged that the benefit of the exemption notification is admissible only if heena powder does not contains any other ingredient and as the test report mentions presence of certain un-identified ingredient, the exemption is not available to them. Moreover, excise duty has also been proposed on the clearances of Powder Hair Dye Black amounting to Rs. 11,98,672/-. Consequently, the show cause notice proposes a total excise duty demand of Rs. 3,04,03,248/-.
The present show cause notice is the third show cause notice on same issue. The first show cause notice no. V(33) Adj/JPR-II/65/2013/31 dated 01.04.2013 was issued after investigation was carried out in their premises and second show cause notice having no. as V (33) Adj/JPR-II/139/2013/518 dated 01.05.2013 has also been issued on similar lines. The very basis of the first show cause notice was the test report of CRCL having no. as 35-CRCL/2012/CL-108 C.Ex. dated 24.08.2012 which stated presence of organic colouring matter whose identity could not be established. The assessee submitted that since the issuance of the first show cause notice they have been contesting the CRCL test report. Consequently, on receipt of first show cause notice itself, they made an application for re-testing of the samples of heena powder drawn from their factory premises vide our letter dated 30.04.2013 as they were not satisfied with the CRCL test report. Thereafter, they sent reminder letter for re-testing dated 01.06.2013 consequent to which it was intimated that there is no provision for grant of permission for re-testing of sample lying with them. Subsequently, they again made request for re-testing of sample from a government approved laboratory vide their letter dated 23.07.2013 for first and second show cause notice. It is submitted that in response to the their letter dated 23.07.2013 for both the show cause notices, a letter having reference as V(33) Adj./JPR-II/65/2013/2176 dated 01.08.2013 was received from the office of the Commissioner, Jaipur that the matter relating to re-testing/ re-drawing of samples has been taken up by the department itself. It is pertinent to note that the excise officers had visited their factory premises and took sample of heena leaves and heena powder from their running stock on 30.07.2013 for determining whether the heena powder manufactured by them contained any other ingredient or not. This fact is also substantiated by the Test Memo No. 06/2013-14 dated 13.09.2013. The subsequent test report was issued by CRCL in favour of assessee wherein it was held that the heena powder manufactured by the assessee is natural heena powder without any artificial dye contained in it.
The impugned show cause notice proposes to deny the benefit of exemption notification no. 12/2013-CE dated 01.03.2013 by placing reliance on the first test report issued by CRCL against the assessee which confirmed presence of certain substance whose identity could not be established. It is alleged that the benefit of the notification is available only if no ingredient is mixed in the heena powder.

Assessee’s Contentions:- The assessee made following submissions before the adjudicating authority:-
1.            It was submitted that the product manufactured by the assessee was classifiable under chapter 14 and not under chapter 3304 as contended by the revenue. The chapter headings under consideration reads as follows:-
“3304 Beauty or make-up preparations and preparations for the care of the skin other than medicaments”
3305 Preparations for use on the hair”
Thus, the tariff entry 3304 includes the beauty and make-up preparations for the care of skin. But their product “henna” has social and religious values and it is applied on hands and feet due to these values. The importance of applying henna in our culture is clear from the following:-
·         No social function is completed without the application of henna on the hands and feet – whether the function is of engagement, marriage, baby shower, etc.
·         When there is birth of any child at home, there is tradition of distributing the henna to all the neighborhood and relatives. This tradition is still alive in many parts of Rajasthan including Jodhpur. 
·         It is considered as a symbol of “akhand saubhagya” in Hindu culture and it is to be essentially applied hands and feet on various fasts like “karva chauth”, “gangaur”, “teej”, etc. It is even required during the pooja in these fasts.
·         It is an essentially to be there in the items of “pooja” of goddesses like Laxmi, Parvati, etc. In all the temples of these goddesses, henna is an important item which is applied on the hands and legs of statues of these deities, particularly on the festivals. 
·         No hawan/yagya is complete without applying henna.
·          It is applied by Indian girls and ladies on all the occasions and festivals. On the diwali pooja, it is considered customary to sit there with henna on the hands.
·         The application of henna is not merely limited to hindu culture, rather it is an essential part of muslim festivals like Eid-ul-Fitr and Eid-ul-Azha.
Thus, the above traditions as prevalent in Indian culture are evident of the fact that henna has strong social values and it is not an item of beautification as alleged in the impugned show cause notice.
Further a strong Reliance was placed on the subsequent CRCL Test Report no. 35-CRCL/2014/CL-280 dated 24.09.2014 in their favour:-
They submit that the sole basis of raising the excise duty demand on the clearances of heena/mehandi powder was the earlier CRCL Test Report dated 24.08.2012 which stated presence of certain ingredient in the mehandi powder manufactured by them which lead to denial of the benefit of the exemption contained in serial no. 134 of the Notification no. 12/2013-CE dated 01.03.2013 because the exemption was available only to heena powder not mixed with any other ingredient. However, the CRCL test report dated 24.08.2012 was erroneous and misleading due to the fact that the sample of heena powder taken from their factory premises was matched with the powder of heena leaves grown in the CRCL laboratory. They further submit that due to difference of minerals in soil content, climate etc., the plants grown at different areas have different contents. This is for the reason that the heena leaves of Sojat city is famous in the country. They submit that as the basis of testing in the CRCL test report dated 24.08.2012 was not proper, the test report fetched misleading results. However, when the samples of heena leaves and heena powder were taken from their factory premises, the results were accurate. The test report dated 24.09.2014 stated as follows:- 
“On thin layer chromatography examination of samples with the forwarded leaves it has been observed that their chromatographic pattern matches with each other and no additional spot of other ingredients has been observed.”
The report clearly answers the question of the revenue department that whether any other ingredient is present in the heena powder manufactured by them in negative. Therefore, when the subsequent report of CRCL dated 24.09.2014 is clearly in assessee’s favour that the heena powder manufactured by them is pure heena powder, the benefit of the serial no. 134 of the notification no. 12/2013-CE dated 01.03.2013 specifying Nil rate of duty for “Heena powder not mixed with any other ingredient” is rightly admissible to them and the demand raised vide the above show cause notice is not at all tenable. Moreover, it is also worth observing that the test report pertains to sample drawn from their factory premises on 30.07.2013 and the period of the present show cause notice is also from 01.03.2013 to 31.01.2014 which means that the result of test report of CRCL dated 24.09.2014 is clearly applicable for the said period. Hence, the proceedings initiated vide the present show cause notice should be vitiated and dropped.
2.            The assessee further contended that their product is “Pure Natural Heena Powder” classifiable under chapter 14 of the Central Excise Tariff Act, 1985:-
They reiterated that their product is a pure derivation of heena leaves into heena powder and merits classification under chapter 1404 of the Central Excise Tariff Act, 1985 which reads as follows:-
“1404 VEGETABLE PRODUCTS NOT ELSEWHERE SPECIFIED OR INCLUDED
The above tariff heading includes all the vegetable products not elsewhere specified. Henna is not specified anywhere else in the central excise tariff; as such, it will fall under this heading. This is clarified by the fact that the henna powder is a pure derivation of henna leaves which are dried and grinded through pulverisers/grinders so as to form a powder. It is a natural derivation without adding any chemical therein. Also, the front-side of assessee’s henna pouch bears the description “Pure Natural”. Also, the backside of the pouch contains the words “100% shuddh”, which means 100% pure. Further, the ingredients as mentioned on the pouch also include only one thing “henna powder”. All these facts clearly indicate that the henna powder sold by them is 100% pure with no other ingredients therein. Moreover, the above cited CRCL Test Report no. 35-CRCL/2014/CL-280 dated 24.09.2014 also clearly reveals that their product is natural heena powder without having any other ingredient.  Thus, the product which is derived out of plant with no chemicals added therein and not elsewhere specified; will be included under the tariff heading 14 only. The impugned show cause notice taking a chance to classify our product under chapter 33 is void ab initio and is liable to be dropped.
3.            The assessee further submitted that in their interim reply it was mentioned that the heena powder was specifically mentioned in the Central Excise Tariff Act, 1985 under heading 1404. However, in order to align the Central Excise Tariff with the Customs Tariff, certain amendments were made which were effective from 01.01.2007. But, the intention of the amendment was only to align the Central Excise Tariff with the Customs Tariff and nothing more which is clear from the fact that heena powder was not specifically added under any other tariff heading w.e.f. 01.01.2007. As such, the heena powder derived from heena leaves is still included in the chapter 1404. We submit that their product is classifiable under chapter heading 14 of the Central Excise Tariff Act, 1985 and is leviable to nil rate of excise duty. However, even if the contention of the impugned show cause notice that their product is classifiable under chapter 33 is accepted for the sake of argument only, then too, they are not liable to pay any excise duty because serial no. 134 of the notification no. 12/2013-CE dated 01.03.2013 specifies nil rate of duty for “heena powder or paste, not mixed with any other ingredient”. They submit that even if the contention of the revenue department is accepted for the sake of argument, then too, since their product is natural heena powder, not mixed with any other ingredient, it is eligible for availing the benefit of exemption notification no. 12/2013-CE dated 01.03.2013. Therefore, the proceedings initiated vide the impugned show cause notice should be vitiated. 
4.            In continuation to above, it is submitted that they cannot take the contents of the notification to decide the classification of any product. This is because the Notifications are always subsidiary to the contents of the Act. If there is any conflict between the notification and the Act, the Act will always have the precedence. This is known as “Gunpradhan principle” which has been laid down by the hon’ble Supreme Court in the case of ISPAT INDUSTRIES LTD. VERSUS COMMISSIONER OF CUSTOMS, MUMBAI [2006 (202) E.L.T. 561 (S.C.)].
It is further submitted that the Commissioner (Appeals), Central Excise Kanpur in his order passed in the case of SHUBHAM GOLDIEE MASALA (P) LTD [(2009 (235) E.L.T. 569 (Commr. Appl.)] has held that Mehandi powder is classifiable under chapter 14 and exempted from excise duty even if sold in retail packing. In this decision, the department has imposed the excise duty on the pure henna powder by alleging its classification under tariff heading 3405. While rejecting this plea of the department, hon’ble Commissioner Appeals has decided that the pure henna powder marketed by the assessee cannot be classified under tariff heading 3405. Rather, it would be classified under tariff heading 14041019 and will be chargeable to NIL rate of duty. This is exactly their case, as such, extending the benefit of above decision, the impugned show cause notice is not tenable and is liable to be set aside
5.            In continuation to above it is submitted that the pure vegetable products without any additives thereupon are classified under chapter 14 if not elsewhere specified. The hon’ble Supreme Court has held in the case of Commissioner v. Beauty Cosmetics Ltd. - 2008 (221) E.L.T. A28 (S.C.)] that the herbal shikakai powder if cleared in bulk is classifiable under chapter 14 of the CETA. In the present case, the henna is primarily used for applying on hands and feet due to social and religious customs. However, alternatively it can be used for applying on the hairs also. But shikakai powder has no other use than applying on the hairs. It is specifically prepared for being applying on the hairs. Inspite of this vital fact that renders it classifiable under tariff heading 3405, hon’ble Supreme Court has classified the same under chapter 14 as it was purely a natural product without any chemical ingredient therein irrespective of the fact that the same was being used for applying on the hairs. In their case, the henna is being primarily used for application on hands; its application on the hairs is its secondary use depending on the wish of user. Further, it is natural with no chemical derivatives therein. As such, being a natural product, it merits classification under chapter 14 of the Central Excise Tariff Act, 1985 and thus the impugned show cause notice alleging its classification under tariff heading 3404 and 3405 is not sustainable and is liable to be quashed.
6.            It is further submitted that in the case of PESHAWAR SOAP & CHEM. WORKS VERSUS COMMR. OF C. EX., CHANDIGARH [2001 (138) E.L.T. 855 (Tri. - Del.)], while deciding the classification of Kesh Nikhar branded cake/bar, it was held that the preferences of the customers is not relevant while deciding the classification. In this case, the assessee was classifying their product Kesh Nikhar branded cake/bar under sub-heading No. 3401.12 as soap in the form of cake/bar. The department sought to classify the same under Heading No. 33.05 as preparations for use on the hair. While deciding the case, hon’ble Tribunal held that the way the product was advertised could not be the sole basis for classification. The product has been identified as a soap which could be used both on the body and on the hair. It has been explained that for marketing the product, its use on the hair was highlighted. In this regard, the decision of Supreme Court in the case of Oswal Agro Mills Ltd. v. CCE - 1993 (66) E.L.T. 37 (S.C.) was relied wherein the Apex Court had observed that the individual preference, choice or taste for a particular soap for bathing purposes was not relevant and held that the Kesh Nikhar branded cake/bar was correctly classified under tariff heading 340112 as a soap in the form of cake/bar. Going by this analogy, their product henna is basically a natural product meant for applying on hands and feet. But in order to enhance the sale, even if it is marketed as a product that can be applied on hairs, it would not render its quality of being a natural henna powder as ineffective so as to classify it under any other head. In their case, they are selling their product “pushp brand henna powder” for applying on the hands and feet and a clear indication to this effect has been given on the packet of henna. Thus, the classification of their product will be done accordingly under chapter 14, irrespective of the fact that it can also be used by the buyer on hairs. Therefore, by applying the ratio of above decision in their case, the impugned show cause notice should be set aside.
7.            They further submit that the impugned show cause notice has proposed to raise demand on their products under tariff heading 3304 and 3305 by assessing the same as per section 4A of the Central Excise Act, 1944. While assessing their liability, the proposed demand has been calculated under MRP based valuation by giving abatement of 35% during the period 01.04.2012 to 28.02.2013. In this regard, it was submitted that as already proved in forgoing paras their product does not fall under tariff heading 3304 and 3305 and therefore  MRP based valuation is not applicable. Their product falls under tariff heading 1404 on which MRP based valuation is not applicable as it is not listed in schedule III to the Central Excise Tariff Act, 1985. Therefore, the demand proposed on the basis of MRP based valuation is not sustainable and is liable to be quashed.  
8.            It is also submitted that the impugned show cause notice has been totally incorrect in calculating the demand proposed by it. Notwithstanding the fact that the MRP based valuation is not applicable to us; we submit that even if it is accepted for the sake of argument also that the same is applicable; then too, the demand arrived at by the impugned show cause notice is totally imaginary and superfluous. It is submitted that the demand for the period prior to this show cause notice, i.e. from 01.01.2008 to 31.03.2012 has been raised vide show cause notice no. V (33) Adj/JPR-II/65/2013/31 dated 01.04.2013 which was based on detailed investigation and wherein the MRP submitted by us was not considered and a totally new and different method of computing the assessable value under section 4A of the Central Excise Act, 1944 has been arrived at. The same unusual method that is nowhere prescribed in the Act or the Rules has been applied with respect to computation of assessable value with respect to the subsequent period covered by the present show cause notice. We further submit that during the investigation proceedings of the first show cause notice, we were asked the details of the MRP also, it is a different matter that the MRP submitted by us was blindly brushed aside but with respect to the present show cause notice, we were merely asked the value of clearance/sale value of the Heena powder for the period under consideration. We submit that such an act clearly depicts the rigidness of the department to make a case against us and that too on ad-hoc calculations. We submit that it is totally against the principles of natural justice and moreover, the presumption and assumptions of the first show cause notice cannot be deemed to be applicable in the facts and circumstances of the present show cause notice as the MRPs for the period under consideration were readily available with us. Accordingly, raising such an imaginary demand without substantial evidences is totally against the provisions of law and consequently the impugned show cause notice should be quashed.
9.            It is submitted that the demand has been raised on us in the show cause notice by adopting the MRP based valuation under section 4A of the Central Excise Act, 1944. However, the procedure adopted for calculating the demand amount is totally absurd. It is worth mentioning here that the taxable value as per MRP based valuation has been taken as thrice the invoice value. The logic behind multiplying the billed value of the product by three is derived from the investigations of the prior period’s show cause notice wherein it was alleged that on comparing the MRP of the products vis a vis the actual billed value during the period pertaining to first show cause notice, it has been found that the MRP submitted by us is twice the actual billed value. It is further alleged that on comparing the billed value with MRP existing just prior to the investigation period, the MRP is three times in case of Henna powder. Due to this finding, the demand has been calculated by the impugned show cause notice on the basis of total value of clearances by taking the MRP three times of the billed value of henna powder. In other words, the demand in the impugned show cause notice has been calculated as follows:-
 
For henna powder: Billed value during the period in issue * 3 times = Total MRP of henna powder.
 
The value arrived by applying the above formula has been taken as the total MRP, thereafter abatement has been allowed and remaining value has been taken as the assessable value for calculating the duty demand. With reference to this, we submit that this manner of calculating the demand is totally erroneous and cannot be accepted under provisions of Central Excise Act, 1944. In this regard, it is submitted that the MRP based valuation has been implemented vide section 4A of the Central Excise Act, 1944. The relevant portion of this section reads as follows:-
 
“(1)   The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Legal Metrology Act, 2009 (1 of 2010)or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply.
 
(2)   Where the goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, then, notwithstanding anything contained in section 4, such value shall be deemed to be the retail sale price declared on such goods less such amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette…..”
 
Thus, in case of goods subject to MRP based valuation, the value shall           be “RETAIL SALE PRICE” (RSP or MRP) declared on such goods. Further, in case of any ambiguity, the manner of arriving at the RSP/MRP for the purpose of this section has been given in the explanation 1 & 2 to this section which are reproduced as follows:-
 
“Explanation1.— For the purposes of this section, “retail sale price” means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like and the price is the sole consideration for such sale:
 
Providedthat in case the provisions of the Act, rules or other law as referred to in sub-section (1) require to declare on the package, the retail sale price excluding any taxes, local or otherwise, the retail sale price shall be construed accordingly.
 
Explanation2.— For the purposes of this section, -
 
(a)    where on the package of any excisable goods more than one retail sale price is declared, the maximum of such retail sale prices shall be deemed to be the retail sale price;
 
(b)    where the retail sale price, declared on the package of any excisable goods at the time of its clearance from the place of manufacture, is altered to increase the retail sale price, such altered retail sale price shall be deemed to be the retail sale price;
 
(c)     where different retail sale prices are declared on different packages for the sale of any excisable goods in packaged form in different areas, each such retail sale price shall be the retail sale price for the purposes of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates.
The analysis of above abstract from section 4A makes it clear that the duty payable under this section is to be calculated on the basis of retail sale price as printed on the packets of the goods. It is further clarified by way of explanations to this section that where the MRP printed on the package is altered, the altered MRP will be taken for the purpose of assessment under this section. All the three explanations to this section are evident of the fact that the MRP to be taken for the purpose of this section should be one which is printed on the pack of goods. No other value can be taken or considered as MRP for the purpose of valuation under this section. On the other hand, the impugned show cause notice has taken a value based upon assumptions that MRP of our goods is always equal to invoice value multiplied by three in case of heena powder. This approach is not sustainable in view of section 4A and the demand proposed in the impugned show cause notice is liable to be set aside.
10.          In continuation to above it is submitted that if the show cause notice is alleging that our goods are subject to MRP based valuation, then their valuation should also be in the manner as prescribed in section 4A of the Central Excise Act, 1994. There are two sections governing the valuation of goods for the purpose of levying the excise duty. The main or default section for valuation of excisable goods is section 4 of the Central Excise Act, 1944 which prescribes that the assessable value of excisable goods will be the transaction value. According to this section, transaction value is the price actually payable by the buyer at the time of sale and includes certain other expenses as provided in this section.  Section 4A has overriding effect on this section and it applies to those selective goods which are listed in third schedule to Central Excise Tariff Act, 1944. Section 4A prescribes that the assessable value in case of such goods will be the MRP (retail sale price as printed on the packet of the goods) as reduced by the prescribed percentage of abatement. Thus, there are only two sections for valuation of excisable goods in the Central Excise Act. Since the impugned show cause notice is alleging that our goods are subject to MRP based valuation, their assessment should also have been on the basis of MRPs submitted by us. However, this has not been done and rather, no MRP has been demanded from us for computing the assessable value and a third value derived from a totally new manner has been taken as assessable value stating that this is the MRP for the purpose of valuation of our goods. This value is neither MRP as printed on our goods nor it is the transaction value under section 4; it is totally new value calculated on the basis of assumptions and presumptions which is ultra vires the provisions of Central Excise Act, 1944. Thus, the “value” so calculated without any authentication under Central Excise Act cannot be termed as “assessable value” neither under section 4 nor under section 4A. Therefore, the impugned demand being ultra vires the provisions of Central Excise Act, 1944 is liable to be quashed.
 
11.          It is further submitted that the alleged MRP as per show cause notice has been calculated by taking a value equal to three times of invoice value in case of henna powder. However, no justification for this method has been given in the show cause notice. However, in the show cause notice for the prior period, the same proportion has been taken as per calculations made with reference to clearances just prior to date of investigation. This approach is not justified as there cannot be a standard formula for calculating the MRP, it varies from time to time and place to place. There may be substantial increase in the transportation charges, packing material, labour cost, etc. It is worth mentioning here that the MRP is decided after including all the expenses incurred in the chain from manufacturer to dealers till retailers selling the goods to ultimate customers. All the expenses and profit margins of the intermediaries are determinant factors in deciding the MRP. This discussion makes it clear that the proportion of invoice value to MRP cannot be taken as a constant factor and, it may vary from time to time. However, the impugned show cause notice has not considered these factors and has applied a common factor namely 3 times to the invoice value which is not justified. It is reiterated that the MRP of a product cannot be derived on the basis of any fixed proportion and it has to be taken on actual basis. Therefore, the impugned show cause notice is not sustainable and is liable to be quashed.
12.          In continuation to above it is submitted that the MRP submitted for the demand of earlier show cause notice has not been accepted by the department. Also, the MRPs existing during the period in show cause notice have also not been demanded. It is worth mentioning here that the data related to clearances was demanded from us. However, the MRPs were not demanded. Also, the MRP chart submitted for the prior period was also not considered and a totally new method has been adopted for calculating the demand which is void ab initio. Thus, the show cause notice has been issued without due diligence and without and without considering the evidences on record like MRP chart submitted during the investigation. Accordingly, the demand for the subsequent period pertaining to the present show cause notice has also been determined in a similar fashion without even considering the need to provide us opportunity to submit MRP for the products. In this regard, it is submitted that where any allegation is raised, it has to be proved with the help of cogent and corroborative evidences. It has been held in various cases that the allegations without being proved with the cogent and corroborative evidences are not sustainable. Reliance is placed on the following cases:-
 
·         CC Chennai v/s M/s Flemingo (DFS) Pvt Ltd [2010-TIOL-60-HC-MAD-CUS]–
 
Customs – Duty Free Shop – show cause notice issued without any tangible evidences and based only on inferences involving unwarranted assumptions is vitiated by an error of law: It is well settled that when an allegation is made, the burden is on the person who alleges, to prove it beyond doubt: It is well settled that when an allegation is made, the burden is on the person who alleges, to prove beyond doubt and the burden can be discharged only on the basis of concrete evidence and admission statements from the persons concerned or opinion from a technical expert.
 
It was further held that – “It is also a settled law that the show cause notice issued without any tangible evidences and based only on inferences involving unwarranted assumptions is vitiated by an error of law. In this case, the Department has presumed that the signatures on the bills were forged on the basis of a mere visual examination. Such a presumption, unless re-enforced with specific and clear evidences, would vitiate the proceedings and result in miscarriage of justice:MADRAS HIGH COURT;
 
·         K. Harinath Gupta vs Collector of Central Excise, Hyderabad [1994 (71) ELT 980 (Tribunal):-
           
 “Offence - Clandestine removal - Evidence- Burden on Department - Charge based on entries in alleged No. 2 account (Anamath account) but no other credible corroboration thereof forthcoming - Source of procurement of raw rubber (a controlled commodity) not established, buyers of finished goods not contacted and receipt of sale proceeds not proved - Department cannot ask the assessee to prove the negative - Benefit of doubt to assessee warranted and given - Rules 9(2) and 173Q of Central Exise Rules, 1944.
 
·         M/s Monarch Metals Pvt Ltd v/s CCE, Ahmedabad/Bhavnagar [2009-TIOL-1936-CESTAT-AHM]
 
Central Excise – Allegation of irregular availment of CENVAT credit without actual receipt of inputs – Statement of transporter being co-accused cannot be sole evidence unless corroborated by other evidences – Contrarily assessee produced ample evidence for receiving inputs from first stage dealer and making payments by demand draft – Burden to prove non-receipt of inputs requires to be discharged by revenue with sufficient evidence – Credit not deniable: AHMEDABAD CESTAT;
 
·         M/s Aviat Health Care Pvt Ltd Vs CC & CE, Belapur [2008-TIOL-1924-CESTAT-MUM.] -
Allegations are purely conjectural and ipse dixit in nature - It is trite law that it is for the Revenue to substantiate its allegations and not for the assessee to prove the contrary - Revenue loses Rs.5.62 Crores Central Excise undervaluation case at the hands of the Tribunal. :MUMBAI CESTAT;
·         Sify Technologies Ltd Vs CST, Chennai [2009-TIOL-1450-CESTAT-MAD]
Service Tax - Rs. 1.86 Crore demanded as differential tax - Difference occurred due to errors in the returns - Commissioner had not attempted to verify and ascertain the correct figures. The reconciliation between the two sets of figures cited would have been possible only if the details like realization from exempted services, realization from export of services, realization from sales, realization towards VAT/Sales Tax etc. were removed from the details furnished on 18-10-2006. The Commissioner came to pass the impugned demand as the above exercise was avoided. The Commissioner found variations between the figures furnished along with the reply to the show-cause notice and those furnished in the ST-3 returns. However, the demand was raised ignoring one class of variations.
Matter remanded: the ends of justice require that the impugned order be set aside and the matter remanded for fresh adjudication after allowing the appellants adequate opportunity for presenting their case. The appeal is thus allowed by way of remand.:CHENNAI
 
13.          In the light of above decisions, it is ample clear that the allegations raised without proving with cogent and corroborative evidences are not sustainable. In the instant case, the impugned show cause notice has not proved the allegation raised by it that the MRPs submitted by us for the prior period are not correct and consequently, it has been presumed that the method of calculation of assessable value is applicable for the demand pertaining to the subsequent period also. If the MRP chart submitted by us was not acceptable to department, then it should have investigated further to bring out the correct MRPs. But this has not been done rather demand has been raised solely on the basis of assumptive figures without proving the allegation that the MRPs submitted by us were not correct. Such a demand based upon the unproved allegations is not justified and is liable to be quashed.
14.          It is submitted that we are clearing the henna powder in bulk and the unit packets are also cleared in bulk only. It is also clear from our invoices that we are clearing our product in KGs and not as per pouches, therefore it is clear that we are making bulk clearances of our product. Also, our product does not fall under heading 3305 and 3304. Therefore, MRP based valuation is not applicable to us and we are not liable to clear our product at MRP. The Mehandi/Henna Powder is correctly cleared by us on the transaction value.
 
15.          It is submitted that in the impugned show cause notice, it is further alleged that we have not taken registration under Central Excise Department and are clearing our goods i.e. Henna Powder packed in pouches on which MRP is printed. In this regard, it is submitted that merely because MRP is printed on our product will not render it liable to assessment under section 4A of the Central Excise Act, 1944. Rather, the product should be specified under the III schedule to CETA. Our product does not fall under heading 3304 and 3305 but falls under heading 14.01 as it is being cleared in bulk in the light of decision of M/s Shubham Goldie Masala Supra and section 4A does not apply on chapter 14 of the Central Excise Tariff Act, 1985. As such, the MRP based valuation is not applicable, rather these are clearances of exempted goods and therefore there is no requirement to take registration under the Central Excise Department. Therefore, the impugned show cause notice alleging clandestine removal is not sustainable and is liable to be set aside.
16.          It is submitted that the Board vide Circular No. 256/90/96-CX, dated 30-10-1996 had clarified the issue of Henna Powder. The said Circular was issued based on the judgment of the Tribunal in the case of Henna Export Corporation v. C.C.E [1993 (67) ELT 907 (Tribunal)] which was further upheld by the Hon’ble Apex Court. The Circular is reproduced hereunder for ready reference:
 
Government of India
 
Ministry of Finance (Department of Revenue)
 
Central Board of Excise & Customs, New Delhi
 
Subject: Classification of Henna Powder.
 
I am directed to say that a doubt has been raised on the classification of Henna Powder made out of natural henna leaves by the process of grinding or pulverising.The Notification No. 13/95-C.E., dated 16-3-1995 exempted Henna Powder considering it classifiable under Chapter 32. After rescinding of Notification No. 13/95-C.E., vide Notification No. 19/96-C.E., dated 23-7-1996, Henna Powder if classifiable under Chapter 32 has become liable to duty at 20% ad valorem Consequently, representations have been received from the trade contending the classification of the said henna powder under Chapter 14.
 
The matter has since been examined in the Board. The Board has observed that the CEGAT Special Bench-C, New Delhi in its order No. 27/93-C, dated 11-2-1993 in Appeal No. E/1666/92-C in case of Henna Export Corporation v. C.C.E. - 1993 (67) E.L.T. 907 (Tribunal) has held that Henna Powder in bulk is classifiable under Chapter Heading 14.01 of the Central Excise Tariff Act, 1985and that in unit packings withindication to its use as a hair dye is classifiable under Heading 33.05 of the CET.The Appeal filed by the party before the Hon’ble Supreme Court against the said order of the CEGAT has been dismissed vide its order dated 1-5-1995.
 
The Board has accepted the above said judgment of the CEGAT. Therefore, the classification of the said goods, i.e. Henna Powder be decided in the light of the above said judgment of the CEGAT.
 
This may be brought to the notice of the field formations.
 
The analysis of above circular makes it clear that it is relying upon the decision of hon’ble Tribunal in the case of M/s Henna Export Corporation supra which was upheld by the hon’ble Supreme Court under citation M/s Henna Export Corporation v. Collector - 1996 (87) E.L.T. A206 (S.C)]. Hence, it is clear from the above that the hon’ble Apex Court as well as circular clarifies that the Henna powder cleared in bulk is classifiable under chapter 14 of the Central Excise Tariff Act, 1985. However, in order to classify it under the tariff heading 3305, it should be cleared in unit packing with an indication to use it as a hair dye. Thus, as per this circular, henna powder will be classified under tariff heading 3305 only if two conditions are satisfied:-
·         Henna is cleared in unit packings; and
·         There is an indication on the packing that it is to be used as hair dye.
 
Unless both the above conditions are satisfied, henna cannot be classified under tariff heading 3305. In this respect, it is submitted that we are clearing the henna powder which is purely made of henna leaves without any chemicals added therein as proved by the CRCL, New Delhi’s report. However, what we mean by a “hair dye” in general parlance is a proper mixture of dyes, modifiers, antioxidents, alkalizers, soaps, ammonia, wetting agents, fragrance, and a variety of other chemicals used in small amounts that impart special qualities to hair (such as softening the texture) or give a desired action to the dye (such as making it more or less permanent). The dye chemicals are usually amino compounds, and show up on hair dye ingredient lists with such names as 4-amino-2-hydroxytoluene and m-Aminophenol. These ingredients are always indicated on the packing of the hair dye. Thus, a conclusion can be drawn that the hair dye is nothing but a mixture of chemicals so as to give desired colour and texture to the hairs. On the other hand, not a single chemical is being added to our henna powder so as to constitute it as a hair dye. It is a natural henna powder to be used for application on hands and feet due to social and traditional values. However, merely because, it can be used for applying on the hairs would not make it a hair dye what we understand in normal parlance, unless specialized chemicals are added to natural henna powder. Further, we are clearing the henna powder in bulk and invoicing is also being done accordingly. As such, in the light of above circular, the henna powder manufactured by us will be classified under chapter 14 rather than tariff heading 3304 and 3305 as alleged in the impugned show cause notice. Thus, in the light of above decision and circular, the impugned show cause notice is not tenable and is liable to be quashed.
17.          In continuation to above it is submitted that as clarified in above para, in the light of the above board circular, the henna powder manufactured by us is classifiable under chapter 14 and it will not fall in purview of tariff heading 3305 as alleged in the impugned show cause notice. It has been held in the case of Collector of Central Excise, Bombay v/s Kores (India) Limited [2002-TIOL-414-SC-CX] that the board circulars are binding on the department and the department cannot take a stand contrary to the same. Since the board circulars are binding on the department, we should be extended the benefit of above circular and the impugned show cause notice should be set aside.
 
 
18.          We further submit that the impugned show cause notice is proposing to impose penalty under Rule 25 (a) of the Central Excise Rules, 2002. In this regard, it is submitted that there was no malafide intention to evade duty or to suppress facts from the department. Thus, penalty is not imposable as held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation.
 
 
19.          We submit that we have acted under bona fide belief based upon the decisions cited in forgoing paras that our finished goods fall under heading 14.01 on which Nil rate of duty is levied. Therefore, we have neither taken registration nor have paid excise duty. Therefore, no penalty can be imposed on us as the mala fide intention to evade payment of duty is absent. Reliance is placed on the following decisions:-
·         M/s Jocil Ltd Vs CC & CCE, Guntur [2009-TIOL-1169-CESTAT-BANG]:-
“Central Excise - Suo moto availment of credit of excess duty paid in PLA - When there is no malafide intent penalty under Rule 25 not leviable :BANGALORE CESTAT;”
·         M/s General Motors India (P) Ltd Vs CCE, Vadodara [2009-TIOL-849-CESTAT-AHM]:-
“Central Excise - Credit to be reversed when capital goods are cleared to ancillary units on non-returnable basis - No malafide attributable as non-reversal was not due to any ulterior motive - Duty confirmed but penalties set aside:AHMEDABAD CESTAT;”
Reliance is also placed on the following judgments:-
 
·         2010 (258) ELT 465 (SC) – Sanjiv Fabrics
·         2007 (207)  ELT 27 (P &H) – UT Ltd
·         2007  (5) STR 251 (P & H) – Kamal Kapoor
·         2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
·         2009 (238) ELT 209 (P&H) – J. R. Fabrics
·         2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
·         2008 (228) ELT 31 (Del) – K. P. Pouches
 
In the above cases, it was held that penalty is not imposable if the malafide intention is not proved. In the instant case, no malafide intention is proved but we have categorily proved that there was neither any suppression of facts nor any ill intention to evade payment of duty. In absence of these pre-requisites, extending the ratio of above cited decisions, the impugned show cause notice is not tenable and is liable to be set aside.
 
 
20.          It is further submitted that our factory is situated at Sojat which is famous for henna throughout India. A no. of units are engaged in manufacture of products which are being manufactured by us. However, no action is taken against majority of the units by your good office. Proceedings are initiated against us only, out of a no. of similarly placed units. This is discrimination and gross violation of natural justice which is not sustainable. Such a discriminatory approach is not justified in the light of decision of hon’ble Calcutta High Court in the case of FITWELL FASTNER (INDIA) PVT. LTD. VERSUS COLLECTOR OF CUSTOMS [1993 (68) E.L.T. 50 (CAL.)]. In this case it is held that the discrimination as between two assessees located in two different cities is unfair and improper and voilative of Article 14 of Constitution of India. There cannot be discrimination between the assessee who are similarly placed and Department cannot take a different stand for different assessee. Reliance is placed on the following case laws:-
 
·DAMODAR J. MALPANI V. CCE [2002 (146) ELT 483 (SC)]
·MALLUR SIDDESWARE SPINNING MILLS (P) LTD. VS. CCE [2004 (166) ELT 154 (SC)]
·QUINN INDIA LTD. VS. CCE [2006 (198) ELT 326 (SC)]
·SPL SIDDHARTHA LTD. VS CCE [2006 (204) ELT 135 (TRI.-DEL.)]
·JAYASWALS NECO LTD. VS. CCE [2006 (195) ELT 142 (SC)]
·FITWELL FASTNER (INDIA) PVT. LTD. VS CC [1993 (68) ELT 50 (CAL.)]
·CCE VS. AMAR BITUMEN & ALLIED PRODUCTS PVT. LTD. [2006 (202)ELT 213(SC)]
·INDIAN OIL CORPORATION LTD. VS CCE [2006 (202) ELT 37 (SC)]
·U.O.I. & OTHERS VS. KAUMUDINI NARAYAN DALAL & ANOTHER [2001 (10) SCC 231]
·CCE VS. TATA ENGINEERING & LOCOMOTIVES CO. LTD. [2003(158) ELT 130 (SC)]
·BIRLA CORPORATION LTD. VS. CCE [2005 (186) ELT 266 (SC)]
Similar views has been held by the Hon’ble CESTAT in the case of COLLECTOR OF CENTRAL EXCISE, BANGLORE AND OTHERS VERSUS UNITED GLASS AND OTHERS [1987 (31) ELT 786 (Tribunal)] as follows:-
 
“Excise is an indirect tax, uniformity in valuation and assessment of the goods ought to be ensured so that different manufacturers producing similar goods in the country are not discriminated. With this object in view, it has been the practice of the Tribunal to respectfully follow the Judgment delivered by a High Court on particular issue so long as there is no contrary Judgment by another High court on the same issue. [para 10]”
 
In the light of above decisions, no discrimination is required to be made between the assessees placed under similar circumstances. As such, when no action is being initiated against other henna manufacturer, the proceedings initiated against us on discriminatory basis are also liable to be set aside in the light of above decisions.
 
21.          Without prejudice to the above, we also submit that we strongly contend that we are not liable to pay any duty as our product is pure heena that is classifiable under the chapter 14 which specifies NIL rate of duty but even if it is accepted for the sake of argument itself that we are required to pay duty, then also the demand calculated by the impugned show cause notice is totally erroneous as the value of clearances taken in the show cause notice also includes a portion of the clearances that represents “trading” activity of henna powder. In this respect it is submitted that the excise duty is leviable on any process applied on the inputs which brings into existence a new and distinct commodity identified as such in the market. This is known as the process amounting to ‘manufacture’ in terms of section 2(f) of the Central Excise Act, 1944 which is subject to excise duty. On the other hand, in case of trading activity, there is no change in the identity of the goods. The goods purchased are sold as such. Thus, no excise duty is leviable on the trading activity carried out by us. The cardinal principle that excise duty is not leviable on trading of goods is supported by the decisions given in the following cases:
Ø  JAI BHAWANI CON-CAST PVT. LTD. Versus COMMISSIONER OF C. EX., JAIPUR-I [2008 (230) E.L.T. 632 (Tri. - Del.)]:-
Demand - Clandestine removal - Evidence - Income from ‘other receipts’ shown in balance sheet - Revenue alleged that such incomes are in respect of sale of manufacturing product which were cleared without payment of duty - Assessee registered with Revenue authorities regarding their trading activity and also produced invoices/bills and copies of return filed with sales tax authorities - Appellants also providing service of Clearing and Forwarding agent - No evidence on record to show that appellants received unaccounted raw materials which are used in manufacture of final product which cleared without payment of duty - Demand not sustainable - Section 11A of Central Excise Act, 1944. [para 5]
Ø  TARAPUR CABLES (I) LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI [2004 (172) E.L.T. 320 (Tri. - Mumbai)]:-
Demand - Trading of goods similar to goods manufactured- Rules 51A and 52A of erstwhile Central Excise Rules, 1944 do not provide for payment of duty by a person who is not the manufacturer of goods - Demand not sustainable - Rule 11 of Central Excise Rules, 2002. [para 3]
In light of the above decisions, it is crystal clear that no excise duty liability arises on trading of goods as the Central Excise Laws do not provide for payment of duty by a person who is not the manufacturer of goods. Accordingly, the benefit of this decision should be extended to us and the demand computed on erroneous basis should be set aside.
 
22.          Aligning with above, the details of Trading Purchase and Sale for the Period 01.03.2013 to 31.01.2014 are enclosed alongwith copies of relevant invoices in Annexure - 2. An abstract of these details is given as follows:-
 

 
Duty amount on the above clearances as per method prescribed in the impugned show cause notice is as follows:
 
Value of Clearance= Rs. 49,73,329
 
MRP Based Value
(Bill Value x 3)        = Rs. 1,49,19,987
 
      Abatement 35%     = Rs. 52,21,995
 
      Assessable Value     = Rs. 96,97,992/-
      (MRP Value less Abatement)
 
      Rate of Duty              = 12.36% (inclusive of Cess)
 
      Duty Payable              = Rs. 11,98,672/-
 
We submit that the duty liability to the extent of Rs. 11,98,672/- has been wrongly included in the duty raised vide the impugned show cause notice. In view of this, even if it is accepted for the sake of argument also that the allegations raised in the impugned show cause notice are sustainable, then too, out of total demand of Rs. 3,04,03,248/-; the demand of Rs. 11,98,672/- pertains to pure trading activity which is void ab initio and is liable to be quashed.
23.          We further submit that our product is classifiable under chapter 14 of the Central Excise Tariff Act, 1985 which is chargeable to Nil rate of duty. However, even if it is accepted for the sake of argument only that our product merits classification under chapter 33, then too, we are not liable to pay any excise duty as we will be eligible for claiming the benefit of the exemption notification no. 12/2013-CE dated 01.03.2013 which reads as follows:-
 

 
As clarified above also that our product heena powder is a pure deviation of heena leaves and no additives or chemicals are added therein. As such, our product is “Heena Powder not mixed with any other ingredient” and is squarely covered by the above exemption notification. Therefore, even if the revenue department alleges that our product is classifiable under chapter 33, then too, no excise duty is payable by us as there is complete exemption from payment of excise duty on pure heena powder. As such, the demand raised by the impugned show cause notice is not at all tenable and deserves to be set aside.
 
24.          In continuation to above it is submitted that the impugned show cause notice has held that the benefit of notification no. 12/2012-CE is not available to us as the test report of CRCL indicates that some ingredients have been mixed in our heena product. In this respect, it is submitted that we strongly contest the said test report and have applied for re-testing of our samples and it is most likely that the test results would be in our favour. We further submit that whenever any demand is confirmed, consequential benefits should also be allowed to the assessees. In this regard, reliance is placed on the following decisions:-
 
Ø  M/s Shah Yarn Tex (P) Ltd. Vikash J Shah vs Commissioner of Central Excise, Coimbatore [2008-TIOL-1975-CESTAT-MAD.]:-
 
In this case, the appellant had cleared the mercerized without payment of duty. On confirmation of demand, they had asked to utilize the Cenvat Credit accumulated with them. The lower authorities rejected this request by saying that they have not followed the procedural provisions like filing the declaration, etc. Hon’ble tribunal has decided the case in favour of the appellant by saying that where the demand is confirmed against the assessee, they should be allowed the substantive right emerging to them in consequence of the confirmation of the demand.
 
Ø  Further, in the case of S.R. SPRINGS PVT. LTD. Versus COMMISSIONER OF C. EX. & CUS., BBSR-II [2002 (150) E.L.T. 757 (Tri. - Kolkata)], hon’ble Tribunal has allowed the Cenvat Credit on inputs to the appellants while confirming the demand for clandestine removal of goods. This case was maintained by the Highest Court of India and the judgment was reported at2003 (154) ELT A180 (Supreme Court).
 
Ø  It has also been held in the case of SUPER STEEL MFG. CO. (P) LTD. Versus COMMISSIONER OF CENTRAL EXCISE, INDORE [2003 (152) E.L.T. 166 (Tri. - Del.)] that if the demand is confirmed credit should be allowed.
 
25.          The analysis of these decisions makes it clear that in the cases where demand is confirmed the related benefits should also be allowed. Applying the ratio of these decisions in the instant case, we can hold that where the duty demand is confirmed, the benefit of exemption notification applicable on the products falling under chapter 33 should also be allowed if the conditions of the notification are satisfied. In the instant case, our product is a pure herbal henna powder. Therefore, if the allegation of the impugned show cause notice is accepted for the sake of argument also that our product is classifiable under chapter 33, then the benefit of notification no. 12/2013-CE dated 01.03.2013 should also be allowed to us. In view of these judgments, the impugned show cause notice is not justified in calculating the duty demand without giving benefit of exemption notification no. 12/2013-CE dated 01.03.2013 and is liable to be set aside.
 
 
 
Reasoning adopted by the adjudicating authority:
The learned commissioner have gone through the Show cause Notice, corrigendum, Case records, reply to the show cause notice, written submission, documents furnished by the assessee as well as the submissions made during course of personal hearing.
He finds that vide clause 67 of the Finance Bill 2006, certain changes in the Central Excise Tariff Act,1985 were proposed, 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 also reproduced as below:-
THE SEVENTH SCHEDULE   [See clause 67(b)]
In the First Schedule to the Central Excise Tariff Act:
(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, subheading 1404 10, tariff items 1404 1() 11 to 1404 10 90 and  the entries relating thereto shall be omitted;
Further, vide THE FINANCE ACT, 2006 [No. 21 of 2006] [18th April, 2006] the financial proposals of the Central Government for the financial year 2006-2007, proposed vide Finance Bill 2006 were approved as follows:
(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 110, tariff items 1404 10 11 to 1404 10 90 and the entries relating thereto shall be emitted;
In view of above changes, it is clear, that the entries relating to henna under Tariff items 140410 were omitted with effect from 01.01.2007, as such, in view of these legislative changes / omission, henna powder or paste is no more classifiable under Chapter 14 now and accordingly the Circular No. 256190196-CX dated 300/96 clarifying that henna powder is classifiable under Chapter 14 has no relevancy. Further, I find that the entries relating to Tariff Item No. 1401 also does not apply on henna powder or paste as the same is related to vegetable material of a kind used primarily for plaiting (for bamboos, rattans, reeds, rushes, osier, raffia, cleaned, bleached or dyed cereal straw, and lime bark). In view of these legislative changes, henna powder in not classifiable under Chapter 14 and the arguments made by the assessee as well as case laws cited by them do not support their contention. The contention of the assessee that still the henna powder is covered under Chapter 14 is neither sustainable legally nor on merits.
After omission of sub-heading 1404 10, tariff items 1404 10 11 to 1404 10 90 and the entries relating thereto in heading 1404 to the Central Excise Tariff, he also find that no other heading of chapter 14 covers the products manufactured by the assessee, thus next question arises that after these omissions and legislative amendments in the Central Excise Tariff, the products manufactured by the assessee are classifiable under which chapter of the Central excise?
In view of above and the entries made in the Chapter 33 of the Central Excise Tariff Act, 1985, he find that the entries of chapter 33 to the Central Excise Tariff covers heena powder as well as henna paste/ cones. From the analysis of the entries made in Chapter 33, he find that:-
(a) the henna powder and paste/cone is classifiable under heading No 3304 of First Schedule to the Central Excise Tariff Act, 1985 if used as preparation for beauty or make-up or for care of skin
(b) the henna powder is classifiable under sub-heading No. 33059040 if used for colouring (dyeing) hair.
In view of above, now , the learned commissioner has come to the point whether the assessee is eligible to avail exemption under notification no. 12/2012-CE dated 17.03.2012 as amended or not.

 
Further, he find that above said Notification No. 12/2012 CE dated 17.03.2012 was amended vide notification No. 12/2013 CE dated 01.03.2013 and for serial number 134 and the entries relating thereto, the following serial number and the entries were substituted, namely:-

 
The period of demand in this show cause notice is 01.03.2013 to 31.01.2014. as such, the effective rate of central excise duty on henna powder or paste falling under Chapter 33, not mixed with any other ingredients was MI.  
He find in the Show Cause Notice, CRCL Test Report C.No. 35/CRCL/2012/CL-108/C. Ex. dated 24.08.2012 has been relied but it is seen that this report is not related to M/s Pushp Enterprises. The correct CRCL report No. is 35/CRCL/2012/CL-105/C.Ex. dated 24.08.2012 related to Test Memo No. 01/2012 drawn on 14.05.2012 vide which sample of natural henna/mehandi were drawn by the Department.
He further find that in the present case the period of demand is 01.03.2013 to 31.01.2014 and for this period of demand, representative sample of Henna powder and leaves were drawn by the Range Officer under test memo number 06/2013-14 dated 30.07.2013 and forwarded to the CRCL, New Delhi to ascertain:
(i)            What are the exact contents of both samples separately.
(ii)           Whether Heena powder is bearing another ingredients in it or not.
The contents of the report C. No. 35-CRCL/2014/CL-280 C.Excise dt 24.09.2014 dt -3-11-14 in respect of Test Memo No. 06/2013-14 dated 30.07.2013 received from the CRCL, New Delhi is as under :-Test Report:-On opening the sealed packet it was found to contain two samples packets in separate heat sealed plastic bags out of two one is in the form of greenish coloured dried vegetable leaves and other is brownish green coloured powder having described contents.
“On thin layer chromatography examination of samples with the forwarded leaves has been observed that their chromatographic pattern matches with each other and no additional spot of other ingredients has been observed. Sealed remnant samples returned"
He also finds that the Test report C. No. 35-CRa/2012/CL-108 C.Ex. dated 24.08.2012 as relied in the instant Show Cause notice dated 08.04.2014 is not relevant in the present case as the same is not related to the assessee. CRCL Report C.No. 35-CRCL/2012/CL-105 C.Ex. dated 24.08.2012 is related to M/s Pushp Enterprises but I find that this report is not conclusive. Further I find that the period of demand is from 01.03.2013 to 31.01.2014 for which present Show Cause notice dated 08.04.2014 has been issued is different and representative samples of henna powder manufactured by the assessee for the relevant period of demand i.e. 01.03.2013 to 31.01.2014 were drawn on 3 0.07.2013 and CRCL has provided their report vide Test report C.No. 35-CRCL/2o14/CL-28o C.Excise dt 24.09.2014 dt -3-11-14. As such, this report is relevant to decide and determine the eligibility of exemption notification no. 12/2012 CE dated 17.03.2012 as amended vide Notification No. 12/2013-CE dated 01.03.2013.The CRCL New Delhi, in its report has categorically provided that chromatographic pattern matches with each other and no additional spot of other ingredients has been observed, from which, it can be inferred safely that no any other ingredients were mixed by the assessee in the henna powder manufactured by them during the period from 01.03.2013 to 31.01.2014, as such the assessee is eligible for exemption in respect of manufacture and clearance of henna powder for the period from 01.03.2013 to 31.01.2014 under Serial No. 134 to the notification no. 12/2012 CE dated 17.03.2012 as amended vide notification no. 12/2013 CE dated 01.03.2012.
He further finds that besides the henna powder, demand of central excise duty has also been proposed in respect of "powder Hair dye". I find the assessee has provided the details  of clearance for the period from 01.03.2013 to 31.01.2014 including the details of clearance of hair dye (Trading sale) vide their letter dated 02.04.2014. The details show that the clearance of hair dye is related to trading sale. The assessee has also submitted copies of invoices showing purchase of duty paid goods falling under CETH no. 33059040 as well as copies of invoices issued by them. They also contended that the value of clearances taken in the show cause notice also includes a portion of the clearances that represents "trading" activity of henna powder. I also find that no tests memo from the trading items and that there is no allegation of carrying out any process on the trading goods which amounts to manufacture in terms of section 2(f) to the Central excise Act, 1944 as well as note no. 5 to Chapter 33 to the Central Excise Tariff.
As such, the learned Commissioner hold that demand of duty attributable to trading of hair dye sale is not sustainable.
 
In view of above discussions and finds, he holds that:-
(i)                 The henna powder manufactured and cleared by the assessee (other than trading sale) during the period of demand i.e. 01.03.2013 to 31.01.2014 is classifiable under chapter 33049990 of the First Schedule to Central Excise Tariff Act, 1985.
(ii)                The CRCL Report C. No. report C. No. 35-CRCL/2014/CL-280 C.Excise dt 24.09.2014 dt -3-11-14 relating to Test Memo No. 06/2013-14 dated 30.07.2013 of henna powder provided that no additional spot of other ingredients has been observed, As such, on the basis of CRCL report relevant for the period of demand i.e. 01.03.2013 to 31.01.2014, the henna powder manufactured and cleared by the assessee (other than Trading goods) was not mixed with any other ingredients.
(iii)                In view of the CRCL Test Report C.No. 35-CRCL/2014/CL-280 C.Excise dt 24.09.2014 dt -3-11-14 relating to Test Memo No. 06/2013-14 dated 30 .07.2013 of henna powder, the assessee is eligible to avail the benefits under Serial No. 134 of Notification No. 12/2012 CE dated 17.03.2012 as amended vide Notification No. 12/2013 CE dated 01.03.2013, in respect of the manufacture and clearance of henna powder (other than trading goods) during the period from 01.03.2013 to 31.01.2014.
(iv)                The demand of duty amounting to Rs. 2,92,04,576/- for the period from 01.03.2013 to 31.01.2014 relating to henna powder manufactured and cleared by the assessee is not sustainable; accordingly, he also hold that the demand of interest is also not sustainable and no penalty under Rule 25 of the Central Excise Rules, 2002 readwith section 11AC of the Central Excise Act, 1944 is imposable on the assessee to this extent.
(v)                The demand of duty amounting to. Rs. 1,198,672/- for the period from 01.03.2013 to 31.01.2014 relating to trading/sale of hair dye is not sustainable, therefore, I also hold that the demand of interest is also not sustainable and no penalty under Rule 25 of the Central Excise Rules, 2002 readwith section 11AC of the Central Excise Act, 1944 is imposable on the assessee to this extent. And accordingly, he passed the following Order:-
The learned Commissioner dropped the proceedings initiated vide Show Cause Notice C. No. V(33)Adj.11013R-11/113/2014/60-62 dated 08.04.2014 against M/s Pushp Enterprises, Sojat Road Marg, Sojat City, Dist- Pali (Raj).

Decision:-Show cause notice dropped.

Conclusion:-The order passed by the Commissioner although drops the huge demand of excise duty running into crores of rupees proposed against the assessee but actually seeks to provide relief to the assessee only with respect to period covered by the show cause notice. The assessee has been raised excise duty demand for the period since 2008 wherein the erstwhile exemption notification no. 4/2006-CE dated 1.3.2006 and 12/2012-CE dated 1.3.2006 provided concessional rate of excise duty at the rate of 5% and 6% respectively. The order has been passed by classifying the product heena powder under chapter 33 and extending the benefit of notification no. 12/2013-CE dated 1.3.2013 wherein nil rate of duty is prescribed and dropped the excise duty demand. However, for the prior period, even if the benefit of exemption notification is extended, then too, the assessee will be liable to pay certain excise duty demand because there is concessional rate of excise duty for products falling under chapter 3304. Moreover, the product of the assessee is pure heena powder derived from natural heena leaves that merits classification under chapter 14 which prescribes nil rate of duty for vegetable products. It is submitted that in the present case, the assessee is left with no option to litigate the issue of classification further in appellate forum even when no duty demand has been confirmed against them because non-filing of appeal against the present order will tantamount to accepting classification of their product under chapter 3304 and paying excise duty demand for the prior period.
 
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