TFM cannot be the determinative factor for classification of Soap

Hindustan Unilever Ltd. Vs Commissioner of Central Ex. (CESTAT Kolkata)

It is clear that the Revenue has suddenly taken upon itself the understanding that the Drugs & Cosmetics Act has distinguished the ‘toilet soaps’ that the content of 60% TFM and above alone are soaps and less than 60% are bath preparations which is totally misconstrued and erroneous understanding. A simple question was posed to learned Additional Solicitor General as to whether each soap manufactured in local and/or Khadhi industry with very low TFM content would be considered as bathing preparation as they are expensive, he attempted to explain that when the tariff does not make such a distinction, then the classification has to be adopted in that manner only. We are not impressed with this reply as the TFM content is not the basis for classification at all. Even in terms of the judgment of Hon’ble Apex Court in the case of Oswal Agro Mills Ltd. v. CCE as reported in 1993 (66) E.L.T. 37, it has been laid down that considered in the legal setting and commercial parlance, the Court observed that ‘toilet soap’ being of everyday household use for the purpose of bath and having removed its separate identity which it enjoyed preceding amendment and having been not specifically included in “other sorts”, it took its shelter in commercial parlance under “household”. The Hon’ble Apex Court proceeded to state that if anybody goes to the market and asks for toilet soap, he must ask only for household bathing purpose and not for industrial or other sorts. It further laid down that even the people dealing with it would supply it only for household purpose. It may be true that household consists of soap used for cleaning utensils, laundry used for cleaning soiled clothes and soap toilet is used for bathing but household is compendiously used, toilet soap is used only by the family for bathing purpose. It observed that individual preference or choice or taste of a particular soap for bath is not relevant. It laid down that the soap ‘toilet’ would therefore, fall within the meaning of the word ‘household’ in sub-item (1) of Item 15 of the Schedule. Taking this principle, we have to hold that Santoor toilet soap prescribed as bathing bar is also a household soap and the tariff distinguishes between toilet soap and non-toilet soap. Hence, the plea that TFM content does not refer separately to soap is well founded and requires acceptance. The soap whether it is toilet soap or non-toilet soap continues to fall under Chapter Heading 34, merely because TFM content is less than 60% and the item in question is not toilet soap and it does not go out of Chapter 34. The vary logic adopted by the Commissioner that ordinary toilet soap with less content of TFM in both preparations in terms of commercial understanding of the item is little surprising. Bath preparations as shown to us in terms of the understanding and product itself are very expensive item which are used for softening the item and leave the body scented. Hence, the item in question is soap only for classification under Chapter Heading 34 and it is not bath preparation for classification under Heading 33.07 of the Central Excise Tariff Act as contended by the Revenue.

FULL TEXT OF THE CESTAT JUDGEMENT

The appellants M/s. Hindustan Unilever-Dabgram are engaged in the manufacture of various Toilet Soaps under various brands and were clearing the same claiming classification under S. H. No. 3401.10 of CETA. Department issued a Show Cause Notice dated 24/04/1998 seeking to classify the products ‘Rexona’ and ‘Lux’ under sub-heading 3307.30 of CETA. The Show Cause Notice was confirmed by Commissioner vide Order-in-Original No. 09/Commr/CE/SLG/11-12 dated 16/03/2012.

2. Learned Counsel for the Appellant submits that the distinct feature of the Bathing Preparations and Toilet soaps substantiates classification of “Rexona” as soaps under S. H. No. 3401: Chapter note 1 (b) to Chapter 33 excludes from its purview Soap and other products of the Heading No.34.01. Bathing Preparations under Sub-Heading 3307.30 covers items like perfumed bath salts, Preparations for foam baths, Foams or Bath preparations i.e. items used to soften the water in terms of the extracts of bath preparation. Impugned product ‘Rexona’ is a simple soap used by the people for maintain personal hygiene. The show Cause Notice proposed to classify “Rexona” under sub-heading 3307.30 mainly alleging that totally fatty mater (TFM) content is less than 60% and therefore it is a bathing preparation and not toilet soap.

2.1. Learned Counsel submits that TFM cannot be the determinative factor for classification as held by the Tribunal in the case of Wipro Ltd.- 2001 (136) ELT 885 TRI. Explanatory Notes to HSN of Chapter 33 to 34 would support classification under Chapter 34. The claim of the appellant that “Rexona” is correctly classifiable under Sub-Heading 3401.10 and not under Sub-heading 3307.30 is supported by the following judgments:-

1. Wipro Ltd.-2001 (136) ELT 885 (Tri.)

2. Hindustan Lever Ltd.-2000 (121) ELT 451 (Tri.)

3. Maintained by S. C.-2002 (146) ELT A-214 (SC)

4. Hindustan Lever Ltd.-2005 (186) ELT 70 (Tri.)

5. Hindustan Lever Ltd. 2003 (151) ELT 387 (TRI)

6. Affirmed by SC-2013 (291) ELT 483 (SC)

7. Tata Oil Mills Co. Ltd. 1997 (94) ELT 277 (SC)

8. Hindustan Lever Ltd.-Order-in-Original No.17/2008(C) dated 31.10.2008

9. Hindustan Unilever Ltd.- Order-in-Original No.16/ Commr/CE/Kol.V/ADJN/09 dtd. 20.03.2009

2.2. The Supreme Court in the case of M/s. Hindustan Lever Ltd. (Supra) has rejected the Civil Appeal filed by the Department and upheld the decision of the Tribunal. CBEC vide Circular dated 03/12/1997 clarified that while interpreting any word in the Tariff resort must not be taken to its scientific or technical meaning given under Drugs and Cosmetics Act, 1940 and vide CBEC Circular No. 31/89 dt. 12/05/1989 clarified that “Nirma” brand toilet soap and similar soaps would fall under 3401 only. The Learned Counsel also submits that they have been filing the RT-12 returns and other reports were subjected to visits and audits by the Department regularly therefore, extended period cannot be invoked.

3. Learned Authorised Representative for the Department reiterates the findings of the OIO.

4. Heard both sides and perused the records of the case. We find that, the issue is no longer res-Integra. We find that the issue has been settled by the Tribunal in the case of appellants themselves in the case of Dove 2000(121) ELT 451 (TRI) and was upheld by the Supreme Court (Supra). We find that Tribunal in the case of Wipro (Supra) has dealt the issue elaborately and finds that held that

16. In that view of the matter, it is clear that the Revenue has suddenly taken upon itself the understanding that the Drugs & Cosmetics Act has distinguished the ‘toilet soaps’ that the content of 60% TFM and above alone are soaps and less than 60% are bath preparations which is totally misconstrued and erroneous understanding. A simple question was posed to learned Additional Solicitor General as to whether each soap manufactured in local and/or Khadhi industry with very low TFM content would be considered as bathing preparation as they are expensive, he attempted to explain that when the tariff does not make such a distinction, then the classification has to be adopted in that manner only. We are not impressed with this reply as the TFM content is not the basis for classification at all. Even in terms of the judgment of Hon’ble Apex Court in the case of Oswal Agro Mills Ltd. v. CCE as reported in 1993 (66) E.L.T. 37, it has been laid down that considered in the legal setting and commercial parlance, the Court observed that ‘toilet soap’ being of everyday household use for the purpose of bath and having removed its separate identity which it enjoyed preceding amendment and having been not specifically included in “other sorts”, it took its shelter in commercial parlance under “household”. The Hon’ble Apex Court proceeded to state that if anybody goes to the market and asks for toilet soap, he must ask only for household bathing purpose and not for industrial or other sorts. It further laid down that even the people dealing with it would supply it only for household purpose. It may be true that household consists of soap used for cleaning utensils, laundry used for cleaning soiled clothes and soap toilet is used for bathing but household is compendiously used, toilet soap is used only by the family for bathing purpose. It observed that individual preference or choice or taste of a particular soap for bath is not relevant. It laid down that the soap ‘toilet’ would therefore, fall within the meaning of the word ‘household’ in sub-item (1) of Item 15 of the Schedule. Taking this principle, we have to hold that Santoor toilet soap prescribed as bathing bar is also a household soap and the tariff distinguishes between toilet soap and non-toilet soap. Hence, the plea that TFM content does not refer separately to soap is well founded and requires acceptance. The soap whether it is toilet soap or non-toilet soap continues to fall under Chapter Heading 34, merely because TFM content is less than 60% and the item in question is not toilet soap and it does not go out of Chapter 34. The vary logic adopted by the Commissioner that ordinary toilet soap with less content of TFM in both preparations in terms of commercial understanding of the item is little surprising. Bath preparations as shown to us in terms of the understanding and product itself are very expensive item which are used for softening the item and leave the body scented. Hence, the item in question is soap only for classification under Chapter Heading 34 and it is not bath preparation for classification under Heading 33.07 of the Central Excise Tariff Act as contended by the Revenue.

6. In view of the above, we find that the issue is no longer Res Integra, being covered by the above decision and other decisions. The impugned order is liable to be set aside.

7. Accordingly, appeal E/373/2012 is allowed with consequential relief if, any as per law.