CASE STUDY

Prepared By: CA Neetu Sukhwani &
Kavita Thanvi
 

Introduction:-
 
M/s Prem Mehandi Centre, are engaged in the manufacture of Heena Powder, Heena Dye Powder and Cone having industrial factory at Sojat. On account of investigation being conducted in their premises, it was alleged that as they manufacture products that fall under chapter 33 that are leviable to excise duty on their clearance from the factory while the assessee contended that their product is natural product falling under chapter 14 that attracts nil rate of excise duty and so they have rightly cleared their goods under nil rate of excise duty. Subsequently, show cause notice was issued to them which culminated into Order in Original No. 09/CE/JP-II/2013 dated 30.01.2013 confirming the excise duty demand along with interest and penalty. Aggrieved by this order, the appellant filed appeal along with stay application before the Commissioner (Appeals). The outcome of this stay application is the subject matter of the present case study.
 
 
PREM MEHANDI CENTRE [OIO NO. 09/CE/JP-II/2013, DT. 30.01.2013]
 
Relevant Legal Provisions:
 
 
Central Excise Tariff Act, 1985:-
 
Chapter 14Vegetable plaiting materials; vegetable products, not elsewhere specified or included
 
Chapter 33Essential oils and resinoids; perfumery, cosmetics or toilet preparations
 
 
 
Issue Involved:
 
The issue involved in this case was that-
Whether heena powder, heena dye powder and cones classifiable under chapter 14 or chapter 33 of the Central Excise Tariff Act, 1985?
 
Brief Facts:
 
M/s Prem Mehandi Centre, the appellants, are manufacturer of Henna Powder, Henna Dye Powder and Cone falling under sub-heading no. 3304 and 3305 respectively of the First schedule to the Central Excise Tariff Act, 1985.
 
A show cause notice was issued to the appellant on the allegation that they have evaded Central Excise Duty amounting to Rs. 31,88,818/- by clearing their product henna powder without payment of duty when the same was classifiable under chapter heading no. 33059040 of the Central Excise Tariff Act, 1985 by suppressing the facts from the Central Excise Department and liable to duty under MRP based valuation under section 4A of the Central Excise Act, 1944.
 
The appellant filed reply to the above mentioned show cause notice vide their letter dated 20.08.2012 wherein it was primarily contended that their product merits classification under chapter 14 of the Central Excise Tariff Act, 1985 which prescribes nil rate of duty on such products rather than under chapter 33 of the Central Excise Tariff Act, 1985 as contended by the revenue.
 
The notice was adjudicated and the impugned order in original no. 09/CE/JP-II/2013-Additional Commissioner dated 29.01.2013 was passed for confirming the duty demand of Rs. 3188918/- alongwith interest and equal amount of penalty under section 11AC of the Central Excise Act, 1944. An option of availing benefit of 25% penalty was also given. The confiscation of goods valued at Rs. 4945502/- was ordered under rule 25 of the Central Excise Rules, 2002. An option was given to redeem these goods by paying the amount @ 25% of the value of confiscated goods. Penalty of Rs. 500000/- was also imposed upon Sh. Chatura Ram, the proprietor of the firm.
 
The appellant provisionally deposited the entire duty demand of Rs. 31,88,918/- vide Challan no. 50236 dated 02.03.2013. The interest of Rs. 797230/- is also deposited vide Challan no. 50128/- dated 2.3.2013. The penalty of Rs. 14,03,046/- by availing benefit of 25% penalty has also been deposited vide Challan no. 50138 dated 2.3.2013. All the amount of demand, interest and penalty has been deposited under protest.
 
Aggrieved by the impugned order in original to the extent it confirms the demand along with interest and penalty, the appellant filed appeal before Commissioner (Appeals) along with stay application. The stay application was filed for the redemption fine imposed and the personal penalty of Rs. 5,00,000/- imposed on the proprietor of the firm. This case study covers the outcome of the stay application only.
 
 
 
 
Appellant’s Contention:The appellant made following contentions before the Commissioner Appeals:-
 
 
The appellant submitted that the impugned order has held that the products manufactured by the appellant fall under tariff heading 3304 and 3305 only and these are not classifiable under chapter 14 of the Central Excise Tariff Act, 1985. In this regard, the impugned order has referred the chapter note 3 of the chapter 33 of the first schedule of the Central Excise Tariff Act, 1985. With reference to the said Chapter note, it is submitted that the above chapter note is applicable to products specified in tariff headings from 3303 to 3307. On the other hand, the henna powder or cone cannot be classified under chapter 33 at all. As already submitted in their reply to show cause notice, 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 order. It is worthwhile to mention here that the majority of sale of henna is due to its social values. All this makes it ample clear that the henna is not an item of beautification of skin as alleged in the impugned show cause notice and hence it cannot be classified under chapter heading 3304 which is particularly meant for products used for beautification and make up of skin. It is further alleged that the henna powder is classifiable under tariff heading 3305 which is meant for the preparations of use in hairs. In this regard, they reiterate that the henna is sold because of its social values. Merely because it has alternate uses like application on the hairs would not make it classified under the tariff heading meant particularly for the hair preparations. Due to these facts, the henna cannot merit classification under chapter 33; therefore, the question of applicability of chapter note 3 to chapter 33 does not arise at all. The above mentioned submission was also given in the reply to show cause notice; but it has not been discussed while passing the impugned order. Such an order passed by the learned adjudicating authority without considering their submissions is not sustainable and is liable to be set aside.
 
The impugned order has further placed reliance on the section note 2 of Section VI titled “Products of the Chemicals or Allied Industries”. With regard to that section note, it is submitted that it is not applicable in their case due to following reasons:-
 

1. This section note relates to the Section VI titled “Products of the Chemicals or Allied Industries”. Thus, in order to make this section note applicable, the first and foremost thing is that the product should be primarily of the Chemical or allied industry which is not the case here. The product manufactured by the appellant is a product abstracted from nature. On the other hand, as per Wikipedia, “The chemical industry comprises the companies that produce industrial chemicals. Central to the modern world economy, it converts raw materials (oil, natural gas, air, water, metals, and minerals) into more than 70,000 different products.” Thus, to belong to chemical industry, the product should be of such nature that it is further used by various industries to manufacture their final product. This is not the case here as the henna powder and cone does not belong to the chemical or allied industry which is further used for industrial purpose. Thus, this section note is not relevant in their case.

1. Further, even if it is accepted for the sake of argument also that the above section note is relevant here; then too, it cannot be made applicable on the appellant’s product. In this regard, it is submitted that this section says that it will be applicable only if the goods are “classifiable” under tariff heading 3304 or 3305. The words used in the language of this section note is “classifiable” which indicates that the foremost condition to be checked for applicability of this section note is that the goods should be classifiable under 3304 or 3305 which is not the case here. The product of the appellant is a derivation of vegetable abstract which merits classification in the chapter 14; thus, it cannot be classified under chapter 33 in any case. When their product cannot be classified under chapter 33, the question of applicability of section note 2 of section VI does not arise at all.

 
In view of above discussion, the reliance place by the impugned order on the section note 2 of section VI is totally incorrect and is liable to be withdrawn. The impugned order confirming the duty demand by relying on this section note is also liable to be quashed.
 
It is further submitted that the impugned order has held that “From above status of law as well as the impugned goods are being packed in the unit contains upto 25 kg. with indication of its use as well as retail sale price printed on them meant for retail sale therefore, in view of Weight & Measurement Act read with Legal Metrology Act, 2009 will not fall under tariff heading 1404 of the First Schedule to the Central Excise Act, 1985.” In this regard, the appellant submit that the impugned order has alleged that the henna powder and paste will not fall under tariff heading 1404 due to the “above status of law” and “in view of Weight & Measurement Act read with Legal Metrology Act, 2009”. By mention of “above status of law”, the impugned order is referring to the legal provisions discussed by it, i.e. the chapter note 3 of chapter 33 and section note 2 of Section VI. The appellant has already rebutted the applicability of these chapter and section notes. The discussion made in the forgoing paras is clear evident of the fact that these section and chapter notes are not applicable in the given case. Further, the impugned order has also held that “…in view of Weight & Measurement Act read with Legal Metrology Act, 2009 will not fall under tariff heading 1404 of the First Schedule to the Central Excise Act, 1985”. This allegation is void ab initio as it has attempted to decide the classification of a product on the basis of Legal Metrology Act, 2009. In this regard, it is submitted that the Legal Metrology Act, 2009 is subsidiary to Central Excise Tariff Act, 1985 and it cannot be used to decide the classification of a product. It is further submitted that first of all the classification of the product is to be decided and for this purpose Central Excise Tariff Act, 1985 is the prime Act. After deciding about the classification, the provision of Legal Metrology Act, 2009 alongwith the provisions contained in III schedule to CETA are to be checked to decide whether the MRP based valuation is applicable or not. As per Central Excise Tariff Act (CETA), 1985; the product of the appellant merits classification under tariff heading 1404 and this tariff heading is not prescribed under III schedule. Therefore, the MRP based valuation cannot be applied to them. The impugned order is thus not justified in classifying their product under tariff heading 1404 by giving reference of the Legal Metrology Act, 2009 and chapter note 3 to Chapter 33 and section note 2 to Section VI. The impugned order passed by placing reliance on these provisions is not tenable and is liable to be set aside.
The impugned order has also held that the contesting classification by the appellant by placing reliance on the decision given in the case of Henna Export Corporation v CCE [1993 (67) ELT 907 (Tribunal)] which was further upheld by the Apex Court is not sustainable as the decision cited is prior to the amendment made in the chapter note so it is not applicable after the amendment made vide the Finance Act, 2005. In this respect, the appellant submit that the above referred chapter note does not apply in their case as their product does not fall in the chapter 33 itself. The chapter note 3 to chapter 33 will come into play only if chapter 33 is applicable. On the other hand, their product is not specified in any tariff heading of chapter 33. Further, it does not merits classification under any tariff heading of chapter 33 which are related to products for beautification of skin and hairs. On the other hand, their product is a natural product sold because of its customary values. Thus, it merits classification under chapter 14 only which covers “Vegetable products not elsewhere specified or included”. The said tariff heading 1404 reads as “1404 VEGETABLE PRODUCTS NOT ELSEWHERE SPECIFIED OR INCLUDED”. Thus, this 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. This fact is proven by the CRCL, New Delhi’s testing report vide C no. 35-CRCL/2011/CL/60210/Exp dated 20.1.2011 as mentioned in the impugned show cause notice. Thus, the product which is derived out of plant with no chemicals added therein and not elsewhere specified will be included under this tariff heading. The above discussion makes it clear that their product is a natural product classifiable under chapter 14 only. Since the chapter 33 is not applicable, the question of applicability of chapter note 3 also does not arise. Thus, the impugned order attempting to classify their product under tariff head 3304 and 3305 is not viable and is liable to be quashed.
 
The appellant submit that the impugned order at last para of page no. 15 is alleging that “……the report received from the CRCL, New Delhi reveals that the presence of additives in herbal mehandi could not be ascertained, therefore, all the goods packed in measured doses are rightly classified in Chapter heading 3304 of the Central Excise Tariff Act, 1985 …….” By raising this allegation, the impugned order is stating that the report of CRCL could not find out the additives in the samples. On the other hand, the impugned show cause notice has clearly brought out this fact that no chemical was found in their product as per CRCL report. This fact is mentioned at para no. 7 of the impugned show cause notice. The relevant portion is reproduced as “No chemical content was found in the Henna powder as per the CRCL, New Delhi’s testing report vide C. No. 35-CRCL/2011/CL/60210/Exp dated 20.1.2011.” Thus, no chemical was found in the product manufactured by them and this fact was clearly mentioned in the show cause notice itself. This proves that their product is pure natural derivation which merits classification in the chapter heading 1401. On the other hand, the impugned order has simply questioned the CRCL report despite fact that the show cause notice has clearly brought out the result of CRCL report. Such an approach is not justified as it has simply been done to weaken their case and to confirm the duty demand. This is not sustainable and makes the impugned order liable to be quashed.
 
The appellant further submit that the impugned order has confirmed a demand that was ascertained by invoking the extended period of limitation. To justify the same, it is alleged in the impugned order that there has been a deliberate act on the part of the appellant to suppress the information in as much as they neither provided details in any form during the said period nor paid central excise duty. The reliance has also been placed in the order on the decision given in the case of Continental Foundation Jt. Venture v/s CCE, Chandigarh-I [2007(216) E.L.T. 177S.C.] and that given in the case of Chemfab Alkalis Ltd. v/s CCE Pondicherry [2010 (251) E.L.T. 264 Tri.-Chennai] wherein it has been held that “It cannot be a case of anybody that since all the excisable units are being audited by the department from time to time, the extended period of limitation will not apply in respect of any unit. Such an interpretation would render the relevant legal provision regarding application of extended period of time totally redundant and hence cannot be accepted”. In case of Union of India v/s Rajasthan Spinning and Weaving Mills, reported at 2009 (238) E.L.T. 3 (SC), the Hon’ble Supreme Court observed that “in case the non-payment etc. of duty is intentional and by adopting any means as indicated in the proviso then the period of notice and a priory the period for which duty can be demanded gets extended to five years (Para 11)”. It is alleged in the impugned order that from the principle laid down by the Apex court as well as CESTAT in the above judgments it follows that in case where non-payment of duty/tax is intentional i.e., with intend to evade payment of tax by adopting any means as indicated in proviso to Section 73 of the Finance Act, 1994 (or 11A of Central Excise Act, 1944) i.e., Suppression, fraud, collusion, willful misstatement or contravention of any of the provisions of the law with intend to evade is present, therefore, extended period is invokable. In this respect, the appellant submit that allegation of suppression has not been proven by the impugned order. On the other hand, the Sojat city is known nation-wide for manufacture and clearance of henna. However, the appellant were manufacturing and clearing pure henna without any chemicals as supported by the CRCL report which is classifiable under tariff heading 1401 which does not attract any excise duty. Thus, they had not registered themselves on account of genuine belief that their product does not attract excise duty. Thus, there has been no suppression on their part and that the impugned order has placed erroneous reliance on the above cases. The fact of wrong reliance being placed on the cited cases is justified in the decision given in the case of Continental Foundation Jt. Venture vs CCE, Chandigarh-I [2007 (216) E.L.T. 177 S.C.]. The analysis of this decision makes it clear that Hon’ble Supreme Court has also held that suppression of facts must be with the intention to evade payment of duty. In the case of appellant, the non-registration and non-payment of excise duty on the clearances of henna products was on account of genuine belief that the product is classifiable under chapter 14, attracting nil rate of duty. Thus, in the above case, Hon’ble Supreme Court has given the decision which is favouring their contention and impugned order has placed wrong reliance on the same. Therefore, the contention of the impugned order that there was suppression on part of the appellant is not tenable and is liable to be quashed.
 
Similarly, wrong reliance has been placed on the decision given in the case of Chemfab Alkalis Ltd. and Rajasthan Spinning & Weaving Mills, cited above. The appellant submit that they never contended that since audit of their unit has been conducted, the extended period of limitation cannot be invoked in their case while in the cited case, it was primarily held that merely because the audit has been done by the central excise authorities cannot be the grounds for not invoking the extended period of limitation. Therefore, the decision given in the Chemfab case is not relevant in the instant case. Moreover, in the case of Rajasthan Spinning & Weaving Mills also it was held that larger period of limitation is invokable only if the non-payment of duty is intentional. The appellant is also contending that extended period of limitation is not invokable in the present case as there is no intention to evade payment of duty and rather they are not liable to pay any duty as the products cleared by them fall under chapter 14 wherein Nil rate of duty is specified and so the extended period of limitation is not invokable in the instant case. Hence, the impugned order in original confirming demand by invoking larger period of limitation is not sustainable and is liable to be set aside.
 
The appellant submit that the impugned order has ordered for the confiscation of packaged henna powder and loose henna powder seized from the premises of the unit. In this regard, the appellant submit that the impugned order has ordered the confiscation without even discussing their submissions made against this allegation. It was submitted in the reply to show cause notice that the impugned show cause notice has proposed the confiscation of seized goods without proving their illicit act. It is a set rule that the confiscation cannot be effected simply on the grounds that there was suspicion. However, corroborative evidences are to be given to prove the suspicions. It has been held in the case of MITEXCO Versus COMMISSIONER OF CUSTOMS (E.P.), MUMBAI [2003 (155) E.L.T. 69 (Tri. - Mumbai)] that mere suspicion cannot take place of reasonable belief. This decision held that the suspicion howsoever grave cannot take place of evidence. And as such, confiscation cannot be effected unless the allegations are proved. It is further submitted that no evidence has been put forth by the department to show that there was an attempt of evasion. Even the show cause notice or the order is not bringing out any evidence that the goods were to be cleared without payment of duty. Simply stating that the goods were intended to be removed clandestinely cannot be a basis of confiscation. It should be supported by the corroborative evidences which prove that it was attempt for duty evasion. Any seizure of goods without proving the attempt for duty evasion is not sustainable in the light of decision of hon’ble Tribunal in the case of Kanthal India Ltd. vs. CCE [1999 (108) ELT 385 (Trib.)]and Vintech Electronics Pvt. Ltd. vs CCE [2002 (48) RLT 94 (Trib.)]. In these cases it was held that unless the department shows evidences to prove that duty evasion was done or intended to be done by the assessee, the goods lying at the factory premises are not liable to be seized. Following are some more decisions wherein it is held that unless the duty evasion is proved by the evidences, the seizure of goods cannot be affected. These cases are produced as follows:-
 

• Mehrotra Engg. Works Pvt. Ltd. vs Commissioner of C. Ex., Patna [2004 (169) E.L.T. 187 (Tri. - Kolkata)]
• Anil Sunil Trade & Investments (P) Ltd. vs CCE, Bangalore-III [2001 (129) E.L.T. 616 (Tri. - Bang.)]
• Kripal Springs (India) Ltd. vs Commissioner of Central Excise, BBSR-II [2003 (156) E.L.T. 768 (Tri. - Kolkata)]:-
• Garden Silk Mills vs Collector of Central Excise [1991 (51) E.L.T. 373 (Tribunal)]
• Indra Metal Works vs Commissioner of C. Ex. And Cus., Pune [1999 (108) ELT 745 (Tribunal)]
• Commissioner of Central Excise, Rajkot vs Bhajrang Industries [2004 (173) ELT 304 (Tri.-Mumbai)]

 
In the above stated cases, it was held that confiscation is not legally sustainable unless the department proves with the corroborative evidences that the goods lying in the factory was so kept to be removed clandestinely with an intention to evade the Central Excise Tariff Act, 1985 which are payment of duty. On the other hand, they have proved that the goods manufactured by them are classifiable under chapter 14 of exempt from payment of duty. The manufacturer of exempted goods is not liable to following the procedure prescribed in the Central Excise Act and rules framed there under. Therefore, impugned order confirming the confiscation is not justified. The appellant had given the submissions with respect to non-confirmation of confiscation and had also cited the above referred case laws in support of their contention in the reply to show cause notice. However, the impugned order has not even spelled out these decisions while ordering the confiscation. Such a non-speaking order is not sustainable and is liable to be set aside.
 
The appellant submit that the impugned order has confirmed the penalty under section 11AC of the Central Excise Act, 1944. In this regard, it is submitted that the penalty under this section is imposable only if there was willful suppression of facts with an intent to evade payment of excise duty. On the other hand, there was no suppression of facts on their part as all the manufacturers of henna in this industry are following the same practice of classifying the product under chapter 14. Due to this belief, no manufacturer at their area of Sojat city (which is the largest manufacturer of henna in India) is paying the excise duty thereupon. Thus, the reason of not getting registered under the Central Excise was very genuine and based upon general practice as followed by the manufacturers of same line. Such a general practice cannot be attributed to suppression of facts so as to impose the penalty. In this regard, the appellant also wishes to place reliance on the decision given in the case of R. M. Dhariwal (HUF) vs Commissioner of C.Ex., Pune-II & III [2009 (242) E.L.T. 391 (Tri.-Mum)].
 
As, in the instant case also, the appellant has not paid duty as no henna manufacturer was paying duty on the belief that their product is classifiable under the chapter 14, the benefit of the above cited decision should be extended to them and the impugned order demanding duty liability by invoking extended period of limitation should be set aside.
 
Aligning with the above, the appellant also wishes to place reliance on the decision given in the case of M/s Uniworth Textiles Ltd. vs Commissioner of Central Excise, Raipur [2013-TIOL-13-SC-CUS] whereby it was concluded that mere non- payment of duties is not equivalent to collusion or willful misstatement or suppression of facts and the burden of proof of proving malafide conduct lies with the revenue. Therefore, it is for the revenue to specify as to how the extended period of limitation is invokable and that there was malafide intention of them to evade payment of duty and as this has not been justified in the impugned order, it deserves to be quashed and the appeal should be allowed.
 
In continuation to above it is submitted that the impugned order has confirmed the penalty without discussing and distinguishing their submissions made in this regard in the reply to show cause notice. It was submitted therein that no penalty was imposable as there was no malafide intention to evade duty or to suppress facts from the department in light of the below cited decisions:-
 

• Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]
• Orient Ceramics and Industries [1987 (32) ELT 218 (I)]
• CCE, Bangalore v/s M/s ITC Limited [2010-TIOL-594-HC-KAR-CX]

 
In these decisions, it was held that the malafide intention is the pre-condition to impose the penalty. However, in the instant case, there was a genuine belief that their product fall under tariff heading 1401 which attracts NIL rate of duty. Thus, they had not paid the duty. These decisions were supposed to be discussed and distinguished before confirming the penalty. However, these have not been discussed and the impugned order has confirmed the penalty without discussing the same. Such a non-speaking and non-reasoned order is void ab initio and is liable to be set aside.
 
The appellant submit that most of the submissions made in their reply have not been considered by the learnedAdditional Commissioner while passing the impugned order in original due to which the said order turns out to be a non-speaking order which is not tenable in the eyes of law and is liable to be quashed as it is against the principles of natural justice. Some of the submissions not considered, have already been discussed in the forgoing paras. Besides these, the other submissions that have been made in their reply and not considered are listed as follows:
 
It was submitted that the henna is classifiable under tariff heading 1404 of the First Schedule to the Central Excise Act, 1944 which covers “Vegetable products not elsewhere specified or included”. The said tariff heading 1404 reads as “1404 VEGETABLE PRODUCTS NOT ELSEWHERE SPECIFIED OR INCLUDED”. Thus, this tariff heading includesall 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. This fact is proven by the CRCL, New Delhi’s testing report vide C no. 35-CRCL/2011/CL/60210/Exp dated 20.1.2011 as mentioned at para no. 7 of the impugned show cause notice. Thus, the product which is derived out of plant with no chemicals added therein and not elsewhere specified will be included under this tariff heading. Therefore, the contention of the impugned show cause notice that it is classifiable under tariff heading 3304 and 3305 is not tenable and is liable to be quashed.
 
It was also submitted that the henna powder sold by them may be used by the buyer for dyeing hair but they are not mixing the henna with any chemicals for the same to act as a hair dyeing agent. It is submitted that in the impugned show cause notice itself it is stated that, the CRCL, New Delhi’s testing report dated 20.01.2011 found that no chemical content was present in Henna Powder. Thus, it is submitted that they are clearing Henna powder for application on hands and feet and therefore the same is not classifiable under headings 3305 and 3304. Thus, it is classifiable under tariff heading 1404 only and the contention of the impugned show cause notice is not tenable and is liable to be set aside.
 
It was further submitted that the department is alleging that henna powder fall under tariff heading 3305 as it is specifically included in the exemption notification no. 4/2006-CE dated 1.3.2006. As such, since this notification specifically includes the henna powder, it will be classified under this head, as there is no other specific entry in the Central Excise Tariff for henna powder during the period in show cause notice. In this regard, it is submitted that prior to 1.1.2007; henna leaves and henna powder were specifically classified under chapter 14. Thus, the central excise tariff specifically included the henna powder under tariff heading 1404. Now, let’s come to the contention of the impugned show cause notice that the henna powder fall under tariff entry 3305 as it is included in notification no. 4/2006-CE dated 1.3.2006. The department’s allegation is solely based upon the fact that the henna powder is included under tariff heading 3305 of this notification. Prior to this notification, the same exemption was under notification no. 6/2002-CE dated 1.3.2002 under serial no. 62. This serial no. also exempted henna powder falling under chapter 33 if not mixed with any other ingredient. During this time also; the henna powder was specifically included in tariff heading 1404 and this is beyond any doubt. Thus, if accept the contention of the impugned show cause notice that the henna was included in the tariff heading 3305 by virtue of exemption notification no. 6/2002 or 4/2006; then what was the purpose of inclusion of specific tariff entry 1404 for the henna leaves and powder in the Central Excise Tariff? If the contention of the impugned show cause notice is accepted, it would mean that the classification is to be decided on the basis of exemption notifications irrespective of anything contained in the Central Excise Tariff Act, 1985.
 
In continuation to above, it was submitted that one 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.)]. In this case, it was held that the Act is primary and all the drafts issued under this Act are subsidiary to it. As such, in case of any conflict between the two, the Act will have precedence. In the above case, there was conflict between the language of rule 9(2) of the Customs Valuation Rules, 1988 and section 14 of the Customs Act, 1962. It was decided that the Customs Act is the primary and the rules are accessories; therefore, the Act would prevail in case of conflict. In the instant case, the Central Excise Tariff Act, 1985 is primary while the notification no. 6/2002 and 4/2006 are accessories to the same. Thus, in the light of above decision, the Act would prevail and the classification of henna powder will be under tariff heading 1404 irrespective of the fact that the same is also included in any exemption notification with tariff entry 3305. As such, the contents of Act will always prevail and the henna will continue to be classified under tariff heading 1404 during the above period.
 
From the discussion done in above paras it is ample clear that the exemption notifications during the period prior to show cause notice, included the henna powder under tariff entry 3305 irrespective of the fact that the henna powder was specifically included in the Central Excise Tariff under tariff entry 1404. However, as clarified above, whatever is mentioned in the Act is final and part of notification, if contrary to the contents of the Act, is not sustainable. The factual position prior to period in show cause notice is clear and it still exists - this fact would be clarified from the discussion hereunder. In this regard it is submitted that the Central Excise Tariff was aligned to Customs tariff by virtue of budget 2006-07. “In 2005, the excise tariff was revised so as to align it with the 8 digit Customs Tariff. But the notifications continued to have the earlier tariff heads, sub-headings and the then existing rates were protected by virtue of certain deeming notifications. This year, it has been attempted to incorporate the tariff lines as per the 8 digit tariff.
 
Thus, the amendments in Central Excise Tariff were done to align the same with the Customs Tariff and were effective as from 1.1.2007. It is worthwhile to mention here that there was no deletion of the main entry of tariff heading 1404; as such, the henna powder is still included therein. This fact is further clarified by the fact that the henna powder was not specifically added under any other tariff heading w.e.f. 1.1.2007. Thus, the henna powder is still included in the tariff entry 1404. As such, the henna powder will continue to be classified under tariff heading 1404 irrespective of the fact that it is included in exemption notification no. 4/2006. Thus, the above discussion done for the period prior to the period contained in the show cause notice will still hold good here. Thus, the classification of henna powder under tariff heading 1404 is very correct and the impugned show cause notice is liable to be quashed.
 
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.)] had 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.
 
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 their 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. 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.
 
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, our 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. Further, even if their product is sold as henna powder for applying on hands and feet but the customers prefer it to be used for applying on hairs; it would not alter its nature of being a natural henna powder classifiable under chapter 14 of the Central Excise Tariff Act, 1985. Therefore, by applying the ratio of above decision in their case, the impugned show cause notice should be set aside.
 
It was further submitted 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 38% during the year 2008-09 and 35% during the year 2009-10, 2010-11 and 2011-12. In this regard it is 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.
 
It was submitted that they were clearing the henna powder in bulk and the unit packets are also cleared in bulk only. It is also clear from their invoices that they were clearing their product in KGs and not as per pouches, therefore it is clear that they are making bulk clearances of their product. Also, their product does not fall under heading 3305 and 3304. Therefore, MRP based valuation is not applicable to them and they are not liable to clear their product at MRP. The Mehandi/Henna Powder is correctly cleared by them on the transaction value.
 
It was submitted that in the impugned show cause notice, it is further alleged that they have not taken registration under Central Excise Department and were clearing their goods i.e. Henna Powder, Henna Dye Powder and Cone packed in pouches on which MRP is printed. In this regard, it is submitted that merely because MRP is printed on their 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. Their 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.
 
It was 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 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 they 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 they 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 their 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, they 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 them 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.
 
In continuation to above it was submitted that as clarified in above para, in the light of the above board circular, the henna powder manufactured by them 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, they should be extended the benefit of above circular and the impugned show cause notice should be set aside.
 
It was also submitted that the extended period of limitation was not invokable in view of the decisions as follows:
 

• Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)]

• Chemphar Drug & Limits reported in (2002-TIOL-266-SC-CX)

• PADMINI PRODUCTS vs. CCE[1989 (43) ELT 195 (Supreme Court)]

• LARSEN & TOUBRO LTD. Versus COMMISSIONER OF C. EX., PUNE-II [2007 (211) ELT 513(S.C.)]

 
It was further submitted that their 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 them. However, no action is taken against any other unit by department. Proceedings are initiated against them 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 violative 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)].
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.
 
Without prejudice to above, it was also submitted that the impugned show cause notice has proposed the confiscation of duty paid goods but it has not extended the benefit of notification no. 4/2006-CE which allows the concessional rate of duty on the products intended to be manufactured by use of these duty paid inputs. In other words, on the one hand, the liability has been imposed without extending the consequential benefits to them. This is not justified and is against the principles of natural justice. Therefore, the impugned show cause notice is not tenable and is liable to be quashed.
 
Aligning with the above, the appellant submit that in view of the fact that most of the submissions made by them have not been considered while passing the impugned order, the said order turns out to be a non-speaking and non-reasoned order which has no relevance in the eyes of law and is liable to be quashed. The appellant also wishes to place reliance on the following cases:

• Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]
• CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]
• State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]

 
The analysis of these decisions makes it clear that the order passed without giving reasons for the same is not justified in the eyes of law. In the case of appellant also, no reasons has not also been assigned why the above referred submissions and case laws cited by them are not applicable and why their benefit has not been extended to them. As such, the impugned order passed without assigning the reasons is not justified and is liable to be quashed. The appeal should therefore be allowed.
 
The appellant further submitted that even if it is accepted for the sake of argument that the henna powder is classifiable under chapter heading 3304 itself, then also, they would like to throw light on the Notification no. 12/2013-CE, dated 01.03.2013, wherein exemption from payment of Central excise duty has been granted to “Henna powder or paste, not mixed with any other ingredient” covered under Chapter 33. The said amendment is clear indicator of the intention of the government to provide exemption to henna powder and paste from the levy of central excise duty, considering the social, cultural and traditional values of the product. It is worth mentioning that the chapter heading in this notification is being specified as 33 and so seeing the intention of the government to grant exemption to henna powder and paste, the impugned order confirming the demand along with interest and penalty should be set aside and the appeal should be allowed as interpretation of provision should not be taken against the intention of the legislature. The appellant further submit that the intention of law makers is most important and justice requires that the same should be implemented. It has been held in the case of BALWANT SINGH Versus JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)] that while interpreting any provision, intention of law makers is to be kept in mind. The analysis of this decision makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision. In the instant case also, the intention of the government is to provide exemption to the henna powder, the same should be considered and the appeal should be allowed by quashing the impugned order in original. On the basis of these submissions made by them it is crystal clear that the impugned Order is not viable and it should be quashed and the appeal should be allowed.
 
Further while submitting the written submissions, the appellant contended that theirfactory 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 falling under the same jurisdiction. Proceedings are initiated against them and few other units 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 violative 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)]

• 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)]. 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 them on discriminatory basis are also liable to be set aside in the light of above decisions.
On the basis of above submissions it is ample clear that the impugned order in original passed by the learned Additional Commissioner is totally erroneous and is liable to be quashed.
 
 
 
Order of the Commissioner (Appeals):- The Commissioner (Appeals) held that the appellant has deposited substantial amount of demand confirmed i.e., Rs. 5389194/- (Rs. 3188918+797230+1403046) as such they are inclined to accept the appellant’s request. Thus, they waive the recovery of penalty imposed on Sh. Chatura Ram and grant stay till final disposal of the appeal.


Decision:-The stay was granted.
 
Conclusion:- It is submitted that although stay application was allowed on the ground that substantial demand stands deposited by the appellant but even if the assessee would not have deposited any amount then also the appellant had strong case on merits. From the justifications pleaded by the appellant, it is quite convincing that their product merits classification under chapter 14 and not under chapter 33. Moreover, their view is also backed by a number of cases in their favour. It is hoped that the outcome of the final hearing turns in favour of the appellant.
 

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