K.S. Venkataramani, Member (T)

1. This is an appeal filed against the order dated 15-1-1992 passed by the Collector of Central Excise (Appeals), New Delhi. The facts briefly are that the appellants herein filed a classification list w.e.f. 10-12-1990 for various items which included the two items namely, Henna Powder and Herbal Shikakai Powder. Both these items were approved for classification under Heading 1401.00 CETA, 1985 which covered "Vegetable plaiting materials; vegetable products, not elsewhere specified or included". The appellants were subsequently issued a show cause notice on 6-6-1991 in respect of these two products since it appeared to the Department that the assessee had not given correct description of their product and had also not declared that the same were cleared under the brand name of Red Rose Henna Powder/Henna Powder and Rose Herbal Shikakai Powder. The Department found that on the basis of the material available that the goods were correctly classifiable under sub-heading 3305.90 CETA, 1985 which covers "preparation for use on the hair", at a higher rate of duty. Demand of differential duty of Rs. 72,126.65 was also raised besides proposal for imposing penalty on the appellants herein. By the order dated 10-10-1991, the Assistant Collector of Central Excise, Division-I Faridabad confirmed the demand and imposed a penalty of Rs. 2,500 on the appellants. The Assistant Collector found that it was only after the literature of the product were examined by the Department which was not submitted at the time of approval of classification list that the Department has proposed to change the classification of the product to Heading 3305.90. The Assistant Collector for the purposes of the change in the classification relied upon the Chapter Note 2 and Chapter Note 4 to Chapter 33 CETA and he came to the conclusion that it is clear from these chapter notes that any preparation which is suitable for use on the hair when put up in packings with labels or literature to show that they are meant for use as cosmetics or toilet preparations would be classifiable under heading 3305.90 and also further that in relation to Heading 3305 any labelling or relabelling or repacking or any other terms to making products marketable is to be treated as manufactured. He rejected the appellants' contention that they are only mixing various ingredients and packing them and that, therefore, they are not manufacturing any new goods, by holding that the very fact that they are purchasing the inputs grinding and mixing them in fixed ratio and then packing them in unit containers as well as in gunny bags for ease of transportation or sale, in itself clearly established that they are manufacturing goods classifiable under sub-heading 3305.90. He also noted that there was clear indication in the literature obtained from the party that in the case of Rose Herbal Shikakai powder it is indicated as being very useful for making the hair silky, black, smooth and shining. In the case of Henna powder, he noted that the pamphlets of the product indicate clearly that they can be used as a hair dye and is good hair conditioner. He also dismissed their alternative claim for classification of the product as Ayurvedic medicaments as an after thought and for want of evidence. The Assistant Collector also imposed the penalty of Rs. 2,500 on the appellants. The Collector of Central Excise (Appeals) by impugned order upheld the Assistant Collector's classification of the products. He further found no case for sustaining the penalty and, therefore, set aside the penalty.

2. Shri Lakshmikumaran, the learned Counsel, arguing for the appellants submitted that there was no process of manufacture involved in preparation of the Henna powder. What is done by the appellants is to collect natural Henna leaves in dried form which is powdered by them by grinding through pulverisers or grinders. The powder so made is mixed thoroughly by manual process. Therefore, it