In the case of Commissioner Of Central Excise, Vapi Vs. M/s. Global Health Care Products , the Supreme Court held that ‘Close up’ should be classified as dental cleaner, not toothpaste on account of different and varing ingredients and ratio of all the inputs which go into the manufacturing of a toothpaste and dental cleaner.
Brief facts of the Case
The assessee is engaged in the manufacture of different brands of toothpaste and these are manufactured exclusively for M/s. Hindustan Lever Limited, Mumbai (for short, ‘HLL’) since 1998. Major brands of HLL manufactured by the assessee are Close-Up Red, Close-Up Blue, Close-Up Green and Pepsodent falling under Chapter 33 of the Excise Tariff. The assessee is registered with the appellant/Revenue and has been paying the excise duty on the aforesaid products under Chapter sub-heading 3306.10 of the tariff. From July 01, 2001, a new product known as ‘Close-Up Whitening’ was introduced by the assessee. The assessee classified this product under Chapter sub-heading 3306.90. The Revenue treated the aforesaid classification as erroneous as according to it Close-Up Whitening also falls under Chapter sub-heading 3306.10 and not 3306.90. It also suspected that this product was deliberately misclassified in the said heading to evade payment of proper Central excise duties by resorting to assessment of the product under Section 4 of the Central Excise Act, 1944 (hereinafter referred to as the ‘Act’) instead of assessment under Section 4A thereof.
Investigation into the matter was initiated resulting into searching of the premises of the assessee. Some documents, which the Revenue claims to be incriminating in nature, were seized under Section 12 of the Act, including a Box File with Heading ‘Production Manual’, namely, the literature containing pages 1 to 235 issued by the Dental Information Centre of HLL.
On the scrutiny of these documents, the Revenue noticed that the difference in raw materials used for the product in question, namely, Close-Up Whitening, and the other products, i.e. Close-Up Red/Blue/Green is the additional presence of 2.8% and 0.2% w/s Silicon Agglomerate and Bluer Agglomerates respectively in Close-Up Whitening and absence of 0.1% w/w 2,4,4 Tri Chloro 2 hydroxy Diphenyl Ehter in this product in comparison with the other three products. It was also found that as far as Close-Up Whitening is concerned, there was presence of ‘uniformity dispersed blue speckles’.
On the basis of the aforesaid material, the Revenue took the position that the aforesaid differences did not change the essential character of the product in question which still remained ‘toothpaste’ and, therefore, it was classifiable under Chapter sub-heading 3306.10.
Show-cause notice was issued alleging short payment of duty. The assessee filed its reply thereto contending that it was not a toothpaste and, therefore, rightly classified by it under sub-heading 3306.90. The aforementioned contention of the assessee was brushed aside by the Commissioner in his Order-in-Original thereby confirming the excise duty demand as mentioned in the show-cause notice.
Aggrieved by the aforesaid order, the respondents herein filed appeals before the Custom Excise & Service Tax Appellate Tribunal, Mumbai. These appeals have been allowed by the Tribunal.
In the present appeal, validity and correctness of the aforesaid order of the Tribunal is questioned by the Revenue.
Held by Hon’ble Supreme Court of India
The Hon’ble Supreme Court noted the exact language of the relevant entries in the tariff.
Chapter Heading 3306 of the Tariff Act, with the aforesaid sub-headings, is reproduced below:
The Chapter Heading makes it clear that it covers various preparations for oral and dental hygiene. These preparations specifically include dentifrices. Examples of such oral and dental hygiene are also given, like toothpaste, tooth powder, denture fixative pastes and powders. Out of these, two products which are covered by sub-heading 3306.10 are toothpaste and tooth powder. Other oral and dental hygiene preparations fall under the reminder sub-heading, i.e. 3306.90, nomenclature of which is ‘Other’.
Further, as pointed out above, the Revenue treats Close-Up Whitening as ‘toothpaste’. The plea of the assessee, on the other hand, is that it is not toothpaste but a ‘dental cleaner’, which is different from toothpaste and, therefore, has to necessarily be covered by the residual sub-heading, i.e. 3306.90.
The Hon’ble Court stated that there is no dispute that most of the ingredients of the product Close-Up Whitening are the same which are used in the manufacture of the other products, namely, Close-Up Red/Blue/ Green, which are treated as toothpaste by the assessee itself. There are, however, additional ingredients used in the manufacture of the product in question, which are accepted by the Revenue also and noticed above. Apart from additional presence of Silicon Agglomerate and Bluer Agglomerate of specified percentage and absence of Tri Chloro 2 hydroxy Diphenyl Ether, there is a presence of uniformity dispersed blue speckles in Close-Up Whitening.
There is also additional step of ‘addition of silica agglomerates’. In fact, it is this ingredient which felicitates at getting uniformity dispersed speckles. It is on the basis of these additional factors, one has to determine as to whether Close-Up Whitening loses the character of toothpaste and assumes the characteristics of another product, namely, dental cleaner.
Further, the Hon’ble Court noted the chapter heading related to dental cleaner and is reproduced below:-
This heading covers preparations for oral or dental hygiene such as:
(I) Dentifrices of all types:
(1) Tooth pastes and other preparations for teeth. These are substances or preparations used with a toothbrush, whether for cleaning or polishing the accessible surfaces of teeth or for other purposes such as anticaries prophylactic treatment.
Toothpastes and other preparations for teeth remain classified in this heading, whether or not they contain abrasives and whether or not they are used by dentists.
(2) Denture cleaners, i.e., preparations for cleaning or polishing dentures, whether or not they contain agents with abrasive properties.
(II) Mouth washes and oral perfumes.
(III) Denture fixative pastes, powders and tablets.
The heading also covers yarn used to clean between the teeth, in individual retail packages (dental floss).”
The Hon’ble Court referred to the case of Camlin Limited v. Commissioner of Central Excise, Mumbai in which this court held that if the entries under HSN and the entries under the Central Excise Tariff are different, then reliance cannot be placed upon HSN Notes for the purposes of classification of goods under Central Excise Tariff.
The Hon’ble court pointed out that there is no evidence on record placed by the Revenue which would reflect that the product in question is known to the consumers as toothpaste. The Hon’ble Court stated that the Tribunal has correctly pointed out the differences and held that ingredients and ratio of all the inputs which go into the manufacturing of a toothpaste and dental cleaner are different and varying. The dental cleaner, in addition, has two more ingredients, namely, Silicon Agglomerate and Bluer Agglomerates, which play an active role as abrasive. Even the manufacturing process of Close-Up toothpaste and Close-up Whitening is different. While the total stages for manufacturing toothpaste were nine, the numbers of stages for manufacture of Close-Up Whitening were eleven. It takes 120 minutes to manufacture a toothpaste tube, while it takes 155 minutes to effect the manufacture of Close-Up Whitening.
Another important aspect, in conjunction with aforesaid features which has to be kept in mind, is that in the instant case even Food and Drug Authorities (FDA) from where prior permission is needed for manufacturing ‘toothpaste’ and sale thereof, had not registered the product in question as ‘toothpaste’ but as a dental cleaner. It becomes a supporting factor along with other features of the product.
In view of the above, the Hon’ble Supreme Court held that Close-Up Whitening dental cleaner is not‘toothpaste’ but other form of dental hygiene and, therefore will have to be classified under sub-heading 3306.90 as a consequence. The appeal is accordingly dismissed.