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1994 Supreme(Bom) 689
IN THE HIGH COURT OF BOMBAY
(PANAJI BENCH)
Dr. E.S. Da Silva A.P. Shah, JJ.
M/s. Colfax Laboratories (India) Limited and another .... Petitioners.
Versus
The State of Goa and others .... Respondents.
Writ Petition No. 84 of 1992, decided on 21/22-12-1994.
Advocates appeared :
A.H. Hidayatulla with V.B. Nadkarni, Vikram Nadkarni, Singbal, P. Kamat and T. Nasnodkar, for the petitioners.
T.R. Andhyarujina, A.G., with M.S. Usgaonkar, K.J. Presswala, C.M. Mehta and S.S. Usgaonkar, for the respondents.
The authorities under the Medical and Toilet Preparations (Excise Duty) Act, 1955 have the power to classify goods for the purpose of levy of duty and issue of licenses, and Rule 94 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1965 does not require them to classify the goods as per the license issued under the Drugs and Cosmetics Act, 1940.
Headnote:
EXCISE DUTY - CLASSIFICATION OF GOODS - JURISDICTION OF AUTHORITIES - ACT AND RULES - INTERPRETATION - LIMITATION - MAINTAINABILITY OF APPEALS - RECOVERY OF EXCISE DUTY - NO DIRECTION TO DEPOSIT AMOUNT IN COURT.
Fact of the Case:
The petitioner, a company manufacturing After Shave Lotions, applied for re-classification of its product "Old Spice After Shave Lotion" as a medicinal preparation under the Medical and Toilet Preparations (Excise Duty) Act, 1955 (the Act). The Commissioner of State Excise re-classified the product as a medicinal preparation and further classified it under Item 1(i)(b) of the Schedule to the Act. The company challenged the demand notices issued for short levy of excise duty on the ground that After Shave Lotions are toilet preparations and not medicinal preparations. The Excise Commissioner held that he had no power to decide the issue of classification and referred the matter to the Central Government for decision under Rule 68 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1965 (the Rules). The company filed a petition challenging the legality and validity of the Commissioner's orders.
Finding of the Court:
The Court held that the Excise Commissioner was in error in referring the issue of classification to the Central Government under Rule 68 of the Rules, as the Standing Committee constituted under the Rule could not decide the classification of the product unless it was capable of being misused or consumed as an alcoholic beverage. The Court further held that the authorities under the Act had the power to classify the goods for the purpose of levy of duty and issue of licenses, and that Rule 94 of the Rules, which required an applicant for a license to manufacture medicinal or toilet preparations to hold a requisite license under the Drugs and Cosmetics Act, 1940 (the Drugs Act), did not mean that the authorities under the Act were bound by the classification of goods under the Drugs Act.
Issues: 1. Whether the Excise Commissioner had the power to classify the goods for the purpose of levy of duty and issue of licenses under the Act and the Rules? 2. Whether Rule 94 of the Rules required the authorities under the Act to classify the goods as per the license issued under the Drugs Act?
Ratio Decidendi: 1. The Court held that the Act and the Rules provided a complete machinery for levy, assessment, and collection of excise duty on medicinal and toilet preparations, as well as for the issue, grant, renewal, alteration, suspension, and cancellation of licenses to manufacture dutiable goods. The Court found that the Excise Officer appointed under the Act was duty-bound to assess the dutiable goods to determine the appropriate rate of duty as per the charging section read with the Schedule. The Court also found that the Excise Officer was competent to determine the classification of the goods for the purpose of levy of duty under the Act and the Rules. 2. The Court held that Rule 94 of the Rules did not require the authorities under the Act to classify the goods as per the license issued under the Drugs Act. The Court found that the Drugs Act mainly dealt with the standards of quality of drugs and cosmetics and did not provide any machinery for classification of goods. The Court also found that a literal interpretation of Rule 94 would lead to absurd consequences, as an applicant for a license to manufacture toilet preparation under the Act would also require to hold a license for manufacture of medicinal preparation under the Drugs Act.
Final Decision: The Court quashed and set aside the impugned orders passed by the Excise Commissioner and directed him to decide the case afresh in the light of the observations made in the judgment. The Court also held that the Excise Commissioner should decide all the issues, including the issue of classification, in accordance with law and after giving an adequate opportunity of hearing to the petitioners.
2.In 1989 another company by name M/s. PJM Pharmaceuticals Private Limited ('M/s. PJM', for short) made an application to the Commissioner of State Excise dated February 2, 1989 to manufacture, inter alia, its product "Blue Stratos After Shave Lotion" under Loan Licence of the company. The said M/s. PJM intimated to the Commissioner of State Excise that the duty payable shall be under Item 1(i)(b) of the Schedule.
3.By a demand dated March 13, 1991, issued under Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1965 ('the Rules' for short), the company was called upon to make payment of an alleged short levy of Rs. 92,43,684.08 in respect of Blue Stratos After Shave Lotion cleared between April 1989 to March 11, 1991. Similarly, by a demand dated May 15, 1991, the company was called upon to pay Rs. 17,73,18,361.20 ps. in respect of Old Spice After Shave Lotion cleared between April 1, 1985 to May 15, 1991. The said demand notices appear to have been issued on the basis that After Shave Lotions are toilet preparations and as such duty payable is 100% ad valorem and not under Item 1(i)(b) of the Schedule. However, these were ex parte demands without prior show cause notices or an opportunity of hearing. The company challenged the said demand notices by two separate Writ Petitions bearing Nos. 101 of 1991 and 351 of 1991 in this Court. By orders dated August 22, 1991 and September 23, 1991, this Court, inter alia, directed the Excise Commissioner to treat the said demand notices dated March 13, 1991 and May 15, 1991, as show cause notices and to supplement the same by any additional ground or materials if he chose to do so and to thereafter serve a supplementary memorandum and also to take final decision in the matter after giving an opportunity of hearing to the company.
4.Pursuant to the orders passed by this Court, the Excise Commissioner issued supplemental memoranda dated September 6, 1991 and September 30, 1991. The company filed replies to both the supplemental memoranda taking a stand, inter alia, that their After Shave Lotion had to be classified as medicinal preparations. By two separate orders both dated November 7, 1991, the Commissioner held that under the Act he has no powers to decide the issue of classification of goods and that the said issue of classification i.e., whether the said goods are to be treated and continued to be treated as genuine medicinal or toilet preparations for the purposes of the Act needs to be referred to the Central Government for its decision under sub-rule (2) of Rule 68 after taking advice from the Standing Committee constituted under sub-rule (1) of the said Rules. The Commissioner further held that the notices issued under Rule 12 in respect of "Old Spice" were unreasonably delayed as issued after six years of the clearances being made and therefore barred by limitation. In respect
