1 IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO. 372/2005 1. M/s. Colfax (India) Pvt. Ltd., (formerly known as M/s. Colfax Laboratories (India) Limited, a Company incorporated under the Companies Act, 1956 having its Registered Office at CMM Building, Rua da Ourem, Panjim, Goa 403 001. 2. Mr. Eric Menezes, being the Managing Director and Shareholder of Petitioner No.1 abovenamed residing at Altinho, Mapusa, Goa. ......... Petitioners. V/s. 1. The State of Goa, through the Finance Secretary, Secretariat, Panaji, Goa. 2. The Commissioner of State Excise, Government of Goa, Panaji, Goa. 3. The Excise Inspector, In-charge Colfax Laboratories (India), Ponda, Goa. .......... Respondents. Mr. A. Hidayatullah, Senior Counsel with Mr. A. N. S. Nadkarni, Mr. S. M. Singbal and Mr. H. D. Naik, Advocates for the petitioners. Mr. M.S. Usgaonkar, Senior Advocate with Mr. Sanjay Sardessai, Advocate for the respondents No.2 and 3. CORAM : R.S. MOHITE & N.A. BRITTO, JJ DATE : AUGUST 14, 2007. 2 J U D G M E N T : (Per MOHITE, J.) This petition is filed by M/s. Colfax (India) Pvt. Limited (hereinafter referred to as “the petitioners”) against an order dated 11.6.05 passed by the Excise Inspector, Incharge, M/s. Colfex Laboratories (India) Pvt. Ltd., confirming a demand of Rs.29,21,59,143/- from the petitioners being the excise duty payable by the by the petitioners for the period 9.9.91 to 17.8.98 and directing the petitioners to pay the said amount. 2. The present petition has a chequered history which will have to be narrated, as it would be necessary to decide some of the points which have been raised in the petition. 3. A brief chronology of facts which gives rise to the filing of this petition, is as follows : (a) On 15.4.1968, the petitioners were granted a licence for manufacture of various types of cosmetics, including an after shave lotion to be marketed under the trade mark “Old Spice”. (b) On 1.4.1969, the petitioners were granted a further licence under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 for 3 manufacture of “Old Spice” as a toilet preparation. (c) Till the end of 1984, the petitioners paid excise duty on “Old Spice” after shave lotion on the basis that it was a toilet preparation. (d) On 14.1.85, the petitioners moved an application before the Commissioner of Excise, Government of Goa for reclassification of Old Spice after shave lotion as a “medicinal preparation” falling under tariff Item No.1(i)(b) in the Schedule to the Act, for the purpose of levy of excise duty. (e) By his Order dated 23.3.85, the Excise Commissioner declared Old Spice as “medicinal preparation” and by a further order dated 12.6.85, he classified Old Spice as falling within the ambit of item No.1(i)(b) of the Schedule to the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. Upon such orders being passed by the Excise Commissioner, the petitioners made an application for refund of excess excise duty paid after 23.3.1985, which was allowed by various orders dated 26.8.95, 27.11.85 and 27.12.85, passed by the then State Excise Commissioner. (f) On 14.1.89, another company by name M/s. PJM Pharmaceuticals Pvt. Ltd., moved an application before the Drugs Controller, Government of Goa for manufacture of some cosmetic products, including an after shave lotion to be marketed under the trade name “Blue Stratos” and which was to be manufactured under a loan licence granted by the petitioners. This application was approved and a licence to manufacture 4 was accordingly issued on 13.2.89. (g) On 3.10.89, the Superintendent of Excise addressed a letter to the petitioners informing them that pursuant to their application dated 15.9.89 to the Commissioner of Excise had approved the price of their products as prescribed in the letter with effect from 15.9.89. In this letter, seven variants of Old Spice after shave were mentioned. This letter of approval indicated a price inclusive of duty in respect of the 7 variants of “Old Spice” (emphasis provided). (h) By a further letter dated 12.10.89 issued by the Excise Officer and addressed to M/s. PJM Pharmaceuticals Pvt. Ltd., the said M/s. PJM Pharmaceuticals were informed that in pursuance of their application dated 5.10.89, the Commissioner of Excise had approved the price of the fair products as described in the letter with effect from 9.10.89. The four products as described in the said letter were four variants of “Blue Stratos” which was an after shave lotion for men. The letter indicated the approval of price inclusive of duty in respect of the 4 variants of “Blue Stratos” (emphasis provided). (i) On 13.3.1991, the Commissioner of Excise, Government of Goa issued a notice under Section 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 stating that it had been discovered that the petitioners as well as M/s. PJM Pharmaceuticals Pvt. Ltd., had 5 wrongly represented to his Office in their various applications that the rate of duty payable on Blue Statos products was Rs.10/- per proof litre only and due to inadvertence the Excise Authority had accepted the said misrepresentation and consequently, the duty had been wrongly calculated. It was further stated that the amount of duty short levied amounted to Rs.92,43,684-08 and, therefore, the petitioners were called upon to pay this amount within one month of the date of receipt of this notice. A copy of this notice was also sent to M/s. PJM Pharmaceuticals Pvt. Ltd. The notice contained an Annexure indicating the manner in which the demand pertaining to short duty had been calculated. (j) On the same day i.e. on 13.3.1991, the Excise Inspector, Ponda Taluka issued another letter to the petitioners informing that he had been directed by the Commissioner of Excise, Panaji to charge, with immediate effect the Excise Duty at the rate of 100 % ad valorem as prescribed by the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 and the Rules made thereunder. The petitioners were called upon to pay the excise duty at the rate of 100 % on all the products of Old Spice and Blue Stratos after shave lotions. The petitioners challenged the aforesaid demand notice dated 13.3.91 by filing a Writ Petition No. 109/91 before this Court. However, they could not obtain any interim relief in the said petition. (k) During the pendency of the Writ Petition No.109/91, on 6 15.5.1991, the Commissioner of Excise issued another demand notice under Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956. By this demand notice also, in respect of the product Old Spice, short duty amounting Rs.17,77,18,361-20 was demanded from the petitioners. The Annexure to the notice indicated the calculations on the basis of which the demand was raised. (l) By a Judgment and Order dated 22.8.91, a Division Bench of this Court finally disposed off the Writ Petition No.109/91 filed against the impugned demand notice dated 13.3.91. In this Judgment and Order, the Division Bench issued various directions, and it was held that the demand notice dated 13.3.91 was required to be treated as show cause notice to the petitioners. The petitioners were permitted to file their reply and it was directed that a final decision should be taken by the Excise Authorities after a personal hearing and by a speaking order. It was further directed that till a final decision was rendered, the respondents should defer the recovery pursuant to Exhibits M and N to the petition to the extent that they related to the demand of duty in excess of what had been levied, immediately prior to the issue of notice. It was, however, clarified that if, ultimately, the added liability was cast on the petitioners, as a result of the adjudication of the issue, the petitioners would be liable to pay the entirety of such liability, notwithstanding the intervening interim facility that was accorded under that 7 Judgment. The petitioners were also granted liberty to challenge the ultimate order of the Excise Authorities in case it was found to be adverse to the petitioners. (m) In the meanwhile, the petitioners had also filed another writ petition being Writ Petition No. 351/91, impugning the further demand notice dated 15.5.91. In view of the judgment passed in the earlier Writ Petition No.109/91, this writ petition was also disposed off in terms of the minutes of order dated 24.9.91. These minutes of order also provided that the demand notice dated 15.5.91 would be treated as a show cause notice and the petitioners would be entitled to file a reply and the Excise Authorities would be entitled to take a final decision within a period of four weeks, after giving personal hearing. It was provided in the Minutes that till the final decision was rendered, the Government would defer the recovery pursuant to the Exhibits Q and R to the Writ Petition. It may be stated here that under the Judgment of this Court dated 22.8.91 and the order in terms of minutes, passed by this Court on 23.9.91, what was, inter alia, deferred was the recovery pursuant to the order of the Excise Officer dated 13.3.91, which related to payment of future excise duty at the rate of 100 % ad valorem. (n) On 7.11.1991, The Excise Commissioner, State of Goa passed two orders dated 7.11.1991, finally disposing off the demand notices dated 13.3.91 and 15.5.91 along with supplementary memorandums issued by him 8 on 6.9.1991 and 30.9.1991, inter alia, holding that the two demand notices were substantially barred by limitation and further holding that the correct classification of the two after shave lotions was required to be determined by a Standing Committee under Rule 68 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956. (o) On 4.2.1992, the Finance Secretary, Goa preferred two appeals under Rule 127 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 before the Chief Secretary, Government of Goa against the two orders dated 7.9.91 referred to hereinabove and on receipt of these appeals being Appeal No. 1/91 and 2/91, on 16.2.1992, the Chief Secretary issued a notice calling for a hearing of the appeals on 14.2.1992. (p) During the pendency of those appeals, on 20.2.1992, the petitioners Company filed Writ Petition No.84/92 in this Court impugning the order dated 7.11.1991. It appears that the petitioners Company filed this writ petition as they were aggrieved by the findings of the Excise Commissioner to the effect that the correct classification of the after shave lotion was required to be determined by the Standing Committee under Rule 68 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956. (q) Pending the hearing and disposal of the Writ Petition No.84/92, an affidavit dated 9.4.94 affirmed by the Excise Commissioner, State of Goa came to be filed in the said writ petition. Annexed to the said 9 affidavit, were two invoices of the petitioner-Company which, according to the Excise Commissioner, indicated that the Company was actually charging their customers excise duty at the rate of 100 % ad valorem value. It was contended in this affidavit that after collecting excise duty at the rate of 100 % from their customers and showing the same as a component of sale price, the amount that was actually being paid to the Excise Department was Rs.10/- per litre of pure alcohol content. It was prayed in this affidavit that the petitioners should be directed to deposit the differential amount in the Court in the interest of securing public revenue and preventing unjust enrichment. (r) The Writ Petition No.84/92 was disposed off by a Judgment and Order passed by a Division Bench of this Court on 22.12.1994. By the said Judgment and Order, the petition filed by the petitioners was allowed, the two impugned orders dated 7.11.1991 were quashed and set aside and the Excise Commissioner was directed to decide the case afresh in the light of the observations made in the Judgment wherein it was observed that the Excise Commissioner was the 'Competent Authority' to decide all issues including the issue of classification in accordance with law. It was directed that the Excise Commissioner should pass a final order, after giving adequate opportunity of hearing to the petitioners. In the body of that Judgment, a 10 reference was made to the aforesaid contentions of the Excise Department that the petitioners were recovering duty at the rate of 100 % ad valorem from their customers, though they were actually paying a duty at the rate of Rs.10/- per proof litre on the basis that their product was a medicinal preparation. It was observed that an interim direction was sought against the petitioners to deposit the excess amount so collected, in the Court. It was mentioned that the Counsel for the petitioners had strongly refuted the allegations made by the respondents and had contended that the break up shown in the sale invoices was only a notional break up and that the petitioners were not actually recovering the excise duty at the rate of 100 % ad valorem, as alleged by the respondents. It was observed that the Court did not wish to express any opinion on this controversy since it was for the Excise Commissioner to decide this question. It was, however, made clear that the break up shown by the petitioners being only a notional break up as per their own contentions, therefore, in case the Excise Commissioner came to the conclusion that the classification submitted by the petitioners was wrong and that the petitioners' product was liable to be taxed as a toilet preparation, the Excise Commissioner should ignore this notional break up and levy the duty in accordance with the provisions of the Act. The question of limitation was also kept open to be decided by the Excise Commissioner. (s) On 17/8/1995, fresh proceedings commenced before the 11 Commissioner of Excise and this ultimately culminated in the passing of an order dated 12.8.1998, by the State Excise Commissioner, Government of Goa. By this order dated 12.8.98, the State Excise Commissioner classified “Old Spice” and “Blue Stratos” as “toilet preparations”, confirmed the demand made in the notices dated 13.3.91 and 15.5.1991 and directed the petitioners to pay the duty for the period beyond that covered by the said notices till 1.6.98 at the rate of 100 % ad valorem and from 2.6.1998 at the rate of 50 % ad valorem, the reduction of the rate being on account of an amendment in the Schedule. (t) On 2/9/1998, the petitioners filed a writ petition being Writ Petition No.337/98 impugning the aforesaid order dated 12.8.98 passed by the Excise Commissioner. (u) On 15.9.1998, an interim order was passed in the Writ Petition No. 337/98 directing the petitioners to deposit Rs.7.5 crores and to furnish a Bank Guarantee for Rs.11.20 lakhs. Liberty was given to the Excise Authorities to issue notices in connection with the alleged duty liability for the period beyond that covered by the show cause notices dated 13.3.91 and 15.5.91, subject to the rights of the petitioners to contest the validity of the same. In view of the directions given, stay of the impugned order dated 12 12.8.98 was granted in terms of prayer (d) of the said petition. (v) During the pendency of the Writ Petition No.337/98, on 10.2.99, the Excise Inspector issued notices to the Petitioners, calling upon them to show cause as to why the duty for the period 9.9.91 to 17.8.98 totally amounting to Rs.29,21,59,143/- should not be recovered from them. The petitioners did show cause by their representation dated 24.2.99 (w) By its Judgment dated 1.4.99, a Division Bench of this Court, disposed off the Writ Petition No.337/98, holding that the two after shave lotions were correctly classified as “toilet preparations”. This Court further held that the Rule 11 and not Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 was attracted to the demand notices. This Court directed the Excise Authorities to calculate the differential excise duty accordingly, based upon the Judgment of the Apex Court in the case of Government of India vs. MRF Tyres Limited. (x) On 12.7.1999 both, the petitioners as well as the State of Goa filed S.L.Ps. bearing No. 11418 of 1999 and 10982 of 1999, impugning the aforesaid Judgment and Order dated 1.4.1999 passed in Writ Petition No.337/98. 13 (y) On 10.9.1999, the State Excise Inspector after giving the petitioners a personal hearing on 12.8.99 and 23.8.99, passed an order confirming the demand contained in the show cause notice dated 10.2.1999 and directing the petitioners to pay amount of Rs.29,21,59,143/- as per notice dated 10.2.1999, on or before 27th September, 1999. (z) Being aggrieved by the order dated 10.9.99, the petitioners filed Writ Petition No.324/99 in this Court. (za)On 13.1.2000, the Apex Court granted leave in SLPs No. 11418 of 1999 and 10982 of 1999. As a consequence, the SLPs filed by the petitioners was renumbered as Civil Appeal No.415/2000 and the appeal filed by the State of Goa was numbered as 414/2000. Hearing of the appeals was expedited. However, the Apex Court rejected the stay applications. (zb) On 28.11.2000, the Government of Goa invoked recovery proceedings through the Mamlatdar for recovery of the arrears of State Excise Duty, amounting to Rs.29.21,59,143/-. (zc) By order dated 20.12.2000, the State Excise Department permitted the petitioners to restart their operations, subject to the company 14 depositing 100 % invoice value and 50 % excise duty before removal of the goods from the factory. (zd) By a Judgment and Order dated 29.10.2003 passed in Civil Appeals 414/2000 and 415/2000, the Apex Court disposed off the said appeals, inter alia, confirming that “Old Spice” and “Blue Stratos” were both toilet preparations and not medicinal preparations. On the question of limitation, the Apex Court held that Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 and not Rule 11, would be applicable to the two demand notices as Rule 11 applied only when duties or charge had been short-levied through inadvertence, error, collusion or misconstruction on the part of an Excise Officer, or through mis-statement as to the quantity or description of such goods on the part of the owner. They held that this requirement did not exist as 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 could not have taken a different view and had to proceed on the footing that the after shave lotions were a medicinal preparation. They held that being a subordinate officer, he was fully bound by the order of the highest excise authority and, therefore, the duties or charge could not be said to have 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 15 such goods on the part of the owner. As regards the quantification of the duties done by the Excise Commissioner, the Apex Court accepted the contention of the learned Senior Counsel for the petitioners that in case the product had cum-duty price, the assessment was required to be done on the basis of wholesale price and that excise duty payable would be as provided under Section 4(4)(d)(ii)of the Central Excise Act, 1944. They observed this Court had placed reliance on the case of Government of India vs. Madras Rubber Factory, 1975(77) ELT.433 for computation of assessable value on a cum-duty price. They accepted the finding of this Court that the phrase “ad valorem” appearing in the column “rate of duty” in the Schedule appended to the Act refers to the value of the excisable goods and, therefore, it will have to be worked out by applying the formula as laid down in Section 4(4)(d) of the Central Excise Act. They held that the view taken by this court was correct and called for no interference. In the result, the Apex Court partly dismissed the petitioners’ appeal and allowed the appeal filed by the State of Goa. It was held that the government would be entitled to recover the entire amount of duty which had been short-levied in accordance with the order of the Excise Commissioner dated 12.8.98. (ze) The petitioners filed a review petition before the Apex Court and the review petition was also rejected by the Judgment of the Apex 16 Court dated 22.1.2004, thus putting an end to the litigation pertaining to the demand of short levied excise duty for the products and periods mentioned in the demand notices dated 13.3.91 and 15.5.91. (zf) By a Judgment and Order dated 3.11.2004, a Division Bench of this court partly allowed Writ Petition No.324/99. In its Judgment, on the question of limitation, the Court recorded a concession made by the Counsel for the petitioners to the effect that the demand notice dated 10.2.99 could be treated as having been issued under Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 and held that the calculation of excise duty will have to be redone. After referring to the contentions of both sides, this Court concluded that the order impugned in the Writ Petition i.e. the order of the Excise Commissioner dated 10.9.99 was silent on the issue of cum-duty price and the applicability of the formula set out in the Judgment of this Court delivered in Writ Petition No.337/98. No reasons had been given as to why the same formula could not be adopted though it has been stated that as per the Orders passed by this Court in Writ Petitions No.109/91 and 84/1992 the petitioners were aware of their ultimate liability in the products to be classified as toilet preparations. It was held that this reasoning did not suffice the legal requirements. The Court observed that they were not impressed with the contentions of the petitioners that the quantification was also required to be undertaken by following the same 17 formula suo motu. It was directed that the petitioners will have to appear before the appropriate authority and on the basis of the record that may be available with them, the issue of cum-duty price will have to be settled. In the result, this court allowed the writ petition partly and quashed and set aside the impugned order only on the point of quantification. The Excise Inspector was directed to requantify the excise duty on the basis of the documents that the petitioners would submit before him, so as to ascertain whether the dispatches were done by showing cum-duty price or to work out the wholesale price with cum-duty, so as to adopt the formula devised in the case of Government of India vs. Madras Rubber Factory for determining a final liability of the petitioners Company in respect of the period covered by the notice dated 10.2.1999. The Excise Authorities were directed to adjudicate the issue of quantification within a period of three moths. (zg) That after the Judgment of this Court, on 13.12.2004, the petitioners addressed a letter to the State Excise Inspector further referring to the directions contained in the Judgment of this Court dated 3.11.2004 and submitted their working of excise duty short paid which, were, according to them, was as per Annexure I to the said letter. They submitted that the duty workings were based upon cum-duty price of the after shave lotion at the time of removal of the same from the factory. It was stated that they had arrived at the cum-duty price considering the value as shown in the State Excise Stock 18 Register and the actual duty paid. A sample page from the said State Excise Stock Register was attached as Annexure II to this letter. It was contended in the said letter that the documents annexed explained and detailed the clearances made on the day today basis from 1991 to 1998. The letter referred to the formula laid down by the Apex Court in the case of Government of India vs. Madras Rubber Factory giving a illustration as to how the said formula was to