Case: M/S. Colfax Laboratories (India) Limited &amp; Another Vs. The State of Goa &amp; Others

The Petitioner No.1 is a company incorporated under the Companies Act, 1956, having its registered Office at Rua de urem, Panaji, Goa and the Petitioner No.2 is the Managing Director of the said company. The Petitioners had applied for licence to manufacture cosmetics, namely shaving cream, body talcum, hair cream and after shave lotion under the trademark "Old Spice" on 14th February,1968 under the Drugs and Cosmetics Act, 1940 and they were granted a licence on 15th April,1968. They were also granted licence under the Medicinal and Toilet Preparations(Excise Duties) Act, 1955 (hereinafter referred to as the said Act, for short) by the Commissioner of Excise on 1st April, 1969. From the inception till the year 1984, the Petitioners paid excise duty on "Old Spice" after shave lotion on the basis that it was "toilet preparation". However, purportedly based on the Judgment of the Supreme Court in the case of Chimanlal Jagjivandas Sheth v. State of Maharashtra(AIR 1963 SC 665  ) the company had applied forof the product as "medicinal preparation", on 14th January, 1985, to the Commissioner of Excise, Government of Goa, and this application was allowed by holding that the product "after shave lotion" was required to be classified as "medicinal preparation" and not as "toilet preparation" under the Act. This Order was made effective from the date of issuance and consequently vide Order dated 12th June, 1985, the Excise Commissioner classified the production "after shave lotion" as falling within the ambit of Item No.1(i)(b) of the Schedule to the Act. The Petitioners then applied for refund of excise duty paid after the Order dated 23rd March, 1985 and the Excise Commissioner ordered refund of excise duty by his Orders dated 26th August, 1985 and 27th November, 1985.On 14th January, 1989, M/s. PJM Pharmaceuticals Pvt. Ltd. filed an application before the Drugs Controller, Govrnment of Goa, for manufacture of the following cosmetic products under Loan Licence with theBlue Stratos after shave lotion 50/100 ml. Splash and 50/100 ml.Blue Stratos after shave lotion 100 ml. TravelBlue Stratos cologne 50 ml. spray;Blue Stratos lather shaving cream 30/70said application was approved by the Drugs Controller by issuing licence on 13th February,1989 and by further Order dated 12th October, 1989, the Excise Commissioner approved the price inclusive of duty as well as the maximum price for the products and consequently the said M/s. PJM Pharmaceuticals Pvt. Ltd. started paying duty on the after shave lotions at the rates applicable to the "medicinal preparations". Thus, from the year 1985 till 1991, the despatchers were cleared under the classification of "medicinal preparations". However, by Demand Notice dated 13th March, 1991, issued under Rule 12 of the Medicinal and Toilet Preparations(Excise Duties) Rules, 1956(hereinafter referred to as the said Rules), the Petitioners were called upon to pay the short fall in duty amounting to Rs.92,43,684.08 in respect of "Blue Stratos" after shave lotion manufactured for M/s PJM Pharmaceuticals Pvt. Ltd. and by another Demand Notice dated 15th May, 1991, issued under Rule 12 of the said Rules the Petitioners were called upon to show cause as to why duty amounting to Rs.17,77,18,361.20 should not be recovered from them in respect of "Old Spice" range of after shave lotions cleared from 1985 onwards.The Demand Notice dated 13th March, 1991, was challenged by the Petitioners by filing Writ Petition No. 109 of 1991 which was disposed of by this Court on 22nd August, 1991. The Excise Commissioner was directed to treat the said Demand Notice dated 13th March, 1991 as Show Cause Notice and he was authorised to supplement the said Notice by any additional grounds/materials, if so desired. The Petitioners also challenged the Demand Notice dated 15th May, 1991, which was also disposed of in the same terms as in Writ Petition No.109 of 1991, on 23rd September, 1991. Accordingly, Supplemental Memorandum dated 6th September, 1991 and 30th September, 1991 were issued by the Commissioner under which the after shave lotions were proposed to be classified as "toilet preparations". The Petitioners filed their reply and were heard. By Order dated 7th November, 1991, the Commissioner of Excise held that the demands were substantially barred by limitation and that the correct classification of after shave lotions were required to be determined by the Standing Committee under the said Rules. This Order was challenged by the Respondents by filing appeals under Rule 127 of the Rules before the Chief Secretary, Government of Goa, whereas the Petitioners challenged the said Order as well as the filing of the appeals by the Respondents in Writ Petition No.84 of 1992 which was disposed of by a Division Bench of this Court on 21st/22nd December, 1994. This Court held that the Excise Commissioner and not the Standing Committee was empowered to classify and levy the duty prescribed under the Act. The Excise Commissioner was, therefore, directed to decide all the issues according to law after giving adequate opportunity of hearing to the Petitioners. The Excise Commissioner passed his Order on 12th August, 1998, holding that the product "after shave lotions" were "toilet preparations" and directed the Petitioners to pay the excise duty as per the Demand Notices dated 13th March, 1991 and 15th May, 1991 within 15 days of the said Order. This Order was challenged by the Petitioners in Writ Petition No.337 of 1998 and it was decided on 1st April, 1999. This Court held that Demand Notices dated 13th March, 1991 and 15th May, 1991 though purported to have been issued under Rule 12, were to be construed as having been issued in exercise of the powers under Rule 11 of the said Rules and consequently, the Excise Commissioner shall be entitled to recover the short paid duty on account of erroneous classification and/or calculation. It was further held that the classification as made by the Excise Commissioner as "toilet preparations" instead of "medicinal preparations" did not call for any interference. On the issue of quantification of duty as done by the Excise Commissioner this Court held that the phrase "ad valorem" appearing in the column of "rate of duty", in the schedule appended to the medicinal and toilet preparations(Excise Duty Act, 1955) referred to the value of excisable goods and, therefore, it would have to be worked out by applying the formula as laid down in Section 4(4)(d)(ii) of the Central Excise Act, 1944 and thus, the excise duty would be deducted from the wholesale price and the figure arrived at would be the value of the excisable goods. If the duty leviable is "ad valorem", 100% then it would be in the followingprice 100% duty Value of the at which goodsad valorem = excisable are actually sold goods meaning, thereby 50% of the wholesale price and 10% of the value arrived at by application of the aforesaid formula.4. Our Judgment dated 1st April, 1999, in Writ Petition No.337 of 1998 came to be challenged in Civil Appeal Nos.414 and 415 of 2000 by both the parties. The said appeals came to be decided by the Apex Court on 29th October, 2003 by confirming the findings of this Court that the subject products were required to be classified as "toilet preparations" and the quantification formula onbasis. The findings of this Court on the first issue were set aside and it was held that the impugned Demand Notices dated 13th March, 1991 and 15th May, 1991 were under Rule 12 of the Rules.In his Order dated 12th August, 1998 which was a subject matter of challenge in Writ Petition No.337 of 1998, the Excise Commissioner had held that the duty leviable after the period of Demand Notices dated 13th March, 1991 and 15th May, 1991 shall be the duty assessed and calculated at 100% ad valorem and demand on the same would be issued by the Excise Inspector attached to the factory after due approval of the Assistant Commissioner in the light of the observations made in the preceding paragraph 87. This Court while admitting Writ Petition No.337 of 1998 by Order dated 15th September, 1998, had granted interim relief in prayer (c) subject to the conditions set out therein. The relevant clause of the said Order of this Court reads asRespondents are at liberty to issue notices in connection with the alleged duty liability for the period referred to in paragraph 88 (ii) of the impugned Order, and it will be open to the Petitioners to contest the validity of the same. It is undertaken by the Petitioners that as and when such Notices are issued, they will not take up the defence that they have already deposited Rs.7.5 crores in this Court, or that they have furnished the Bank Guarantee as above. The Petitioners are at liberty to challenge the Orders passed on the Notices, in this Court.Accordingly, Notice dated 10th February, 1999 was issued against theto show cause why duty on the said goods should not be assessed as for the amount shown in Schedule (a), (b), (c) and (d) thereof and differences to the extent of Rs.29,21,59,143/(Rupees Twenty Nine Crores twenty one lakhs fifty nine thousand one hundred forty three only) should not be recovered from the Petitioners. Interim reply dated 24th February, 1999 raising preliminary submissions was placed before the Excise Commissioner. After Writ Petition No.337 of 1998 was decided on 1st April, 1999, the Petitioners again submitted a representation before the Excise Commissioner to await Judgment of the Supreme Court in the recent case. In its reply dated 12th August, 1999, the Petitioners specifically pleaded before the Excise Commissioner that the assessible value for the purpose of excise duty was required to be recomputed by treating the selling price of the after shave lotion as an "all inclusive cum duty price" while following the principle laid down by the Supreme Court in the case of Government of India v. Madras Rubber Factory Ltd.(1995(77) ELT 433). Similarly on 23rd August, 1999, submissions in writing were placed before the Excise Commissioner and ultimately by his Order dated 10th September, 1999, the Excise Inspector in charge of thedecided the Show Cause Notice issued by him on 10th February, 1999 and confirmed the demand of Rs.29,21,59,143/as per the said notice and called upon to pay the said amount on or before 27th September, 1999. The said decision of the Excise Inspector is a subject matter of challenge in this Petition.

Reasoning:
16. The Petitioners were fully aware that as per the Orders passed by this Court in Writ Petition Nos.109 of 1991 and 84 of 1992 the liability of payment of excise duty at 100% ad valorem could be cast if it was ultimately held that the classification of the subject products was made as toilet preparations. However, the Company did not despatch the products in compliance with the Rules and by filling in FormRule 9, 40 and 81 of the Rules read asTime and manner of payment of duty.(1) No dutiable goods shall be removed from any place where they are manufactured or any premises appurtenant thereto, which may be specified by the Excise Commissioner in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Excise Commissioner may require.Issue from a bonded manufactory.(1) Issues of alcoholic preparations and preparations containing opium, Indian hemp or other narcotic drugs and narcotics shall be made from a bonded manufactory on payment of duty. The licensee shall present before thean application in Form AR2 signed by him or by his authorized representative. Theshall, after checking the entries and realizing the duty payable, allow the required quantities to be removed after issuing a permit".Clearance on payment of duty.When the licensee desires to remove goods on payment of duty, he shall makean application in Formin triplicate, to theor the proper officer, as the case may be, at least twelve hours before he is intended to remove the goods. The officer shall, thereupon, assess the amount of duty leviable on the goods and on production of evidence that the sum has been paid into a treasury or the sum has been debited to the accountcurrent, as the case may be, shall allow the goods to be cleared".17. Formhas been appended to the Rules and contains the columns inter alia of "Value" and "Duty". Under the column "Duty" there are twonamely, "Rate" and "Amount". From the value shown in theForm , if duty is reduced, the wholesale price is arrived at and on this wholesale price 100% ad valorem will be the duty payable. In thefiled on behalf of the Respondents it has been stated in para 20 asorder to calculate the duties, it was necessary to get particulars from the assessee/Petitioner. The Department requested the assessee by letter datedto furnish copies of invoices from98 in respect of two products sold by them. The assessee by their letter datedsuggested that Department verifies the invoices at the factory premises itself. Accordingly, the officer of the Department undertook the process of verification of the invoices at the factory premises of the assessee."It is also obvious from the record that the Petitioners went on paying the duty at Rs.10/per proof litre and they have not indicated exactly the wholesale price and merely by paying the excise duty on proof per litre basis it cannot be accepted that it was a commodity price as shown in the invoices. It is thus clear that the onus of proving the issue ofprice squarely falls on the Petitioners and the learned Senior Counsel appearing for the Respondents fairly conceded that if this issue was proved, the formula as set out in the decision of this Court in Writ Petition No.337 of 1998 would be applicable. The Petitioners will have to submit theforms or any other documentary proof to arrive at the conclusion that the price shown by them was aprice and unless it is established that the price was aprice, the quantification in the manner advanced by the Petitioners cannot be undertaken.However, it is pertinent to note that the impugned Order is eloquently silent on the issue ofprice and the applicability of the formula set out in our Judgment in Writ Petition No. 337 of 1998. No reasons have 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 Petition Nos. 109 of 1991 and 84 of 1992, the Petitioners were aware of their ultimate liability in the products to be classified as toilet preparations. This reasoning does not suffice the legal requirements moreso when this Court has made applicable theformula devised in the case of Government of India v. Madras Rubber Factory Ltd.(supra) for the earlier period whilst deciding Writ Petition No.337 of 1998. The learned Senior Counsel appearing for the Petitioners was right in his contentions that the subsequent Affidavits filed cannot fill in this lacuna and the impugned Order, therefore, is unsustainable on this ground. The dispute of quantification of the excise duty after the decision of the Supreme Court partly confirming our Judgment in Writ Petition No.337 of 1998 is required to be adjudicated afresh for the relevant periods and it shall be the responsibility of the Petitioners to place before the appropriate authority all the relevant records so as to ascertain the issue of commodity price to adopt the formula set out in our Judgment in Writ Petition No.337 of 1998 for quantification of the excise duty for the subsequent periods covered by the impugned Order. We are not impressed with the contentions of the Petitioners that the quantification in this case is also required to be undertaken by following the same formula suo motu. 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 ofprice will have to be settled. No other issues raised in this Petition remain to be decided in view of our earlier decision in Writ Petition No.337of 1998.