2003 Supreme(SC) 1061

2003(8) Supreme 972
SUPREME COURT OF INDIA
(From Bombay High Court at Goa, Panaji)
S. Rajendra Babu and G.P. Mathur, JJ.
The State of Goa and Anr. -Appellants
versus
M/s Colfax Laboratories Ltd. and Anr. -Respondents
Civil Appeal No. 414 of 2000
With
(C.A. No. 415 of 2000)
Decided On 29-10-2003
Counsel for the Parties :
For the Appellants : Mukul Rohtagi, Additional Solicitor General, M.S. Usgaoncor, Sr. Advocate, Dhruv Mehta, Ms. Shalini Gupta, Mohit Chaudhary, S.K. Gupta, Advocates.
For the Respondents : Ashok H. Desai, Sr. Advocate, Vikram Nankani, Ms. Ruby Singh Ahuja, R.N. Karanjawala, Mrs. Manik Karanjawala and Ms. Pragya, Advocates.

IMPORTANT POINT
After Shave Lotions manufactured by Colfax are toilet preparations within the meaning of Section 2(k) of the Medicinal and Toilet Preparations (Excise Duties) Act.

Headnote:Medicinal and Toilet Preparations (Excise Duties) Act, 1955-Sections 2(a), 2(c), 2(g), 2(k), 3 and 6-Medicinal and Toilet Preparations (Excise Duties) Rules, 1956-Rule 12-Drugs and Cosmetics Act, 1940-Sections 3(aaa) and 18(c)- Toilet preparation and medicinal preparations - Old spice after shave lotion-Till the end of year 1984 excise duty on old spice was paid on basis that it was a toilet preparation-Colfax moved an application before the Commissioner of Excise for reclassification of Old Spice ASL as a medicinal preparation falling under Tariff Item No. 1(i)(b) of the Act-Excise Commissioner classified it as medicinal preparation -Application for refund of excess amount of excise duty paid after 23-3-1985 allowed-In 1991, Commissioner of excise issued a notice under Rule 12 to Colfax to pay balance of excise duty as it should have paid duty on Old Spice ASLs as toilet preparation-Writ petition-High Court held that after shave lotions are toilet preparations and Revenue was entitled to recover short paid duty on account of erroneous classification of these goods-Appeal against-ASLs manufactured contain 62 Propylene Glycol (alcohol) and 33 water-Whether Excise Commissioner and High Court were justified in classifying Old Spice and Blue Stratos ASLs as toilet preparations within the meaning of Section 2(k) of the Act-(Yes)-Whether notices issued by Excise Commissioner requiring respondents to deposit balance of excise duty should be treated as one under Rule 11 or Rule 12 of the Rules.

       Held : The only distinguishing feature pointed out by Colfax is that the alcohol content of the ASLs manufactured by it, viz., Old Spice and Blue Stratos is 62 . No authoritative scientific text has been placed before us to show that only on account of a marginal increase of alcohol content to 62 an ASL will acquire any such property so as to make it a medicinal preparation within the meaning of Section 2(g) of the Act. It may be noted that according to Colfax the ASLs manufactured by it contain alcohol - 62 , Propylene Glycol - 5 , Benzyl alcohol - 0.5 and the remaining 32.5 is water. They also contain some perfume. According to Harry s Cosmeticology, after shave lotion is basically an acqueous alcohol solution containing a perfume. The desired balance of mild astringency and coolness is achieved by controlling ratio of ethyl alcohol to water. Popular brands of after shave lotions in UK contain 50 to 75 of ethyl alcohol by weight. In the United States also volume of alcohol in after shave lotions range from 40 to 60 . It is necessary to emphasise that we are not concerned here with the properties of alcohol simplicitor but a solution which contains 62 alcohol and 33 water. The said solution on account of presence of water cannot yield the same result as that of alcohol simplicitor. Even a small percentage of presence of one ingredient may completely alter the chemical properties of another ingredient. Therefore, the scientific literature relied upon by the learned counsel for Colfax in support of his submission regarding the properties of the alcohol cannot be a safe guide to determine the characteristic of the products Old Spice and Blue Stratos. There is another aspect of the matter which also deserves to the noticed. The Company (Colfax) issued an advertisement in December, 1990 inviting deposits from public for fixed period and offering 14 interest. In the details and particulars submitted as per the Companies (Acceptance of Deposits) Rule, 1975, it was stated that the Company is engaged in the manufacture of cosmetics such as Old Spice ASL, Cologne, etc. Therefore, till as late as December, 1990, the Company itself was giving out that it is engaged in manufacture of cosmetics and not of any medicinal preparation. (Paras 10 and 11)

       The Excise Commissioner, Goa, after a detailed consideration of scientific and technical material, has recorded a finding that ASLs manufactured by Colfax are toilet preparations within the meaning of Section 2(k) of the Act. The High Court has also examined the matter threadbare and has arrived at the same finding. We find absolutely no reason to disagree with the view taken by the Excise Commissioner, who is an expert in the field. Therefore, the contention raised by learned counsel for Colfax that Old Spice and Blue Stratos ASLs are medicinal preparations and not toilet preparations, has no substance and has to be rejected. (Para 13)

       In the notices it is specifically mentioned that the same are being issued in exercise of power under Rule 12 of the Rules. The Excise Commissioner in his order dated 12.8.1998 held that the balance amount of excise duty has to be paid w.e.f. 23.3.1985, when the product was classified as medicinal preparation. The High Court has held that the notices should be treated to have been issued under Rule 11 of the Rules and the balance amount of excise duty can be recovered only for a period of six months immediately preceding the date of issue of each of the notices. (Para 14)

       Rule 11 of the Rules will apply when duties or charge have been short levied through inadvertence, error, collusion or misconstruction on the part of an excise officer or through misstatement as to the quantity or description of such goods on the part of the owner. After the order dated 23.3.1985 had been passed by the Commissioner of Excise, Goa, the concerned Excise Officer who made the relevant entries in Form A.R.-2 submitted by Colfax could not have taken a different view and had to proceed on the footing that ASL was a medicinal preparation. Being a subordinate officer he was fully bound by the order of the highest excise authority of the State. Thereafter, till 1991 when notices were issued and the matter was finally decided by the Excise Commissioner, he had to proceed treating the ASL as medicinal preparation. In the fact situation, the concerned Excise Officer who made entries in Form AR-12 will be the Excise Officer for the purposes of Rule 11 and 12 as the matter was not dealt with by any other authority. In such circumstances it cannot be held that the duties or charge had been short levied through inadvertence, error, collusion or misconstruction on the part of the concerned Excise Officer or through misstatement as to the quantity or description of such goods on the part of the owner. Collusion means a secret agreement for a fraudulent purpose or a secret or dishonest arrangement in fraud of the rights of another. It is a deceitful agreement between two or more persons for some evil purpose, such as to defraud a third person of his rights. The concerned Excise officer who made the relevant entries in Form A.R.-2 and cleared the goods at the spot being a subordinate officer had absolutely no option but to act in accordance with the order dated 23.3.1985 of the Commissioner of Excise. In these circumstances Rule 11 of the Rules can have no application to the facts of the case. Rule 12 confers residuary powers for recovery of sums due to Government. It provides that where the Rules do not make any specific provision for the collection of any duty or of any deficiency in duty, if the duty has, for any reason, been short levied or of any other sum of any kind payable to the collecting Government under the Act or the Rules, such duty, deficiency in duty or sum shall, on written demand made by the appropriate officer be paid to such person and at such time and place as the proper officer may specify. There being no specific provision for a case like the present one for collection of duty which has been short levied, the provisions of Rule 12 of the Rules will be applicable. There is no period of limitation prescribed under Rule 12. In view of the fact that the order dated 23.3.1985 of the Commissioner of Excise was an order passed wholly without jurisdiction and consequently was a nullity, the Government is entitled to recover the deficiency in duty w.e.f. the said date. (Para 18)