MARCH 04, 2013

By CA Pradeep Jain, CA Preeti Parihar & Manish Vyas

BY amending notification 12/2013-CE, dated 01.03.2013, exemption from payment of Central excise duty has been granted to “Henna powder or paste, not mixed with any other ingredient” covered under Chapter 33.

The following articulation is about the exemption contained in this notification and the consequent ifs & buts that arise.

The history:-

Levy of Central excise duty on the “henna” has been a matter of dispute between the assessees and the department. The department has taken a consistent view that the henna is applied for beautification for hands/hairs and hence is classifiable under Chapter 33 of the Central Excise Tariff Act, 1985. The tariff heading under which demands are/were raised are 3304 and 3305. These tariff headings read as follows:-

“3304 Beauty or make-up preparations and preparations for the care of the skin other than medicaments.

3305 Preparations for use on the hair”

While raising the demands, henna powder is/was classified under tariff head 3305 and henna paste is/was classified under tariff head 3304. The assessees pleaded that the henna is applied on hands due to its customary value, rather than being used for the purpose of beauty or make-up. It was contended that since it is not used for beautification purpose, it cannot be classified under chapter 33, rather it will be classified under tariff heading 1404 which reads as follows:-

“1404 Vegetable products not elsewhere specified or included”

It was submitted by the manufacturers that since henna is not specified anywhere else in the Central Excise tariff it will fall under this heading. Their view was supported by the fact that prior to 1.1.2007, henna was specifically included under this tariff heading. This tariff head prior to 1.1.2007 [& w.e.f 28.02.2005 vide Central Excise Tariff (Amendment) Act, 2004] read as follows:-

“1404 Vegetable products not elsewhere specified or included”

140410 - Raw vegetable materials of a kind used primarily in dyeing or tanning:
             --- Henna

1404 10 11 ---- Henna leaves

1404 10 19 ---- Henna powder

The sub headings shown under tariff heading 1404 were omitted w.e.f. 1.1.2007. However, this was done merely to align the Excise Tariff with the Customs Tariff - see section 67(b) of the Finance Act, 2006, The Seventh Schedule, whereby in heading 1404, sub-heading 1404 10, tariff items 1404 10 11 to 1404 10 90 and the entries relating thereto were omitted.

Thus, it was contended that the henna powder is still included in the tariff heading 1404.

The dispute:-

The department was of view that the henna powder is classifiable under chapter 33 since the notification no. 6/2002-CE dated 1.3.2002 as superseded by notification no. 4/2006-CE dated 1.3.2006 included the henna powder under tariff heading 3304 with the excise duty prescribed @ 8%. This notification read as follows:-

This notification was superseded by notification no. 12/2012-CE which read as follows:-

Based on above entry in the notification, the department was of firm view that though henna powder is not specifically included in chapter 33, yet by virtue of this entry, it falls under the chapter 33 only.

However, the assessees were continuously pleading that their product henna powder falls under tariff heading 1404 which is chargeable to Nil Tariff rate.

Incidentally, on the subject matter of Classification of Henna powder, the Board Circular no. 256/90/96-CX dated 30.10.1996 also needs special mention.

The same is extracted below –

“I am directed to say that a doubt has been raised on the classification of Henna Powder made out of natural henna leaves by the leaves by the process of grinding or pulverising. The Notfn. No. 13/95-CE dt. 16.3.95 exempted Henna Powder considering it classifiable under Chapter 32. After rescinding of Notfn. No. 13/95-CE vide Notfn. No. 19/96-CE dated 23.7.96, Henna Powder if classifiable under Chapter 32 has become liable to duty at 20% adv. Consequently, representations have been received from the trade contending the classification of the side henna powder under Chapter 14.

The matter has since been examined in the Board. The Board has observed that the CEGAT Special Bench-C, New Delhi in its order No. 27/93-C, dated 11.2.93 in Appeal No. E/ 1666/92-C in case of Henna Export Corporation v. CCE "1993 (67) E.L.T. 907 (Tribunal)" has held that Henna powder in bulk is classifiable under Chapter Heading 14.01 of the Central Excise Tariff Act, 1985 and that in unit packings with indication to its use as a hair dye is classifiable under Heading 33.05 of the CET. The Appeal filed by the party before the Hon'ble Supreme Court against the said order of the CEGAT has been dismissed vide its order dated 1.5.95.

The Board has accepted the above said judgement of the CEGAT. Therefore, the classification of the said goods. i.e. Henna powder be decided in the light of the above said judgement of the CEGAT.”

Duty on Henna Powder over the years –

It may not be out of place to mention that ‘Henna Powder, not mixed with any other ingredient' and classifiable under Chapter 33 was subject to “nil” rate of duty by the following notifications over the period viz. 32/96-CE, 4/97-CE, 5/98-CE, 5/99-CE, 6/2000-CE, 3/2001-CE, 6/2002-CE.

This “nil” rate duty available under the earlier notification was then raised to @8% adv. by a new notification 4/2006-CE and then brought down to @6% adv. by a new notification 12/2012-CE.

It is this notification 12/2012-CE which has been amended by notification 12/2013-CE and which has given rise to the instant write up.

Inasmuch as now “Henna powder or paste, not mixed with any other ingredient [chapter 33]” is being exempted from excise duty.

The serial no. 134 of notification 12/2012-CE, as amended by notification no. 12/2013-CE dated 01.03.2013 now reads –

Henna issue on fire at the “Sojat city”:-

The dispute referred in the foregoing paragraphs was on fire a couple of months back in the “ Sojat city ” at Rajasthan which is known nation-wide for its quality henna. The department had initiated the proceedings against the henna manufacturers based at this place and places nearby. However, no manufacturer of henna was paying any duty on the clearances of the henna from this area. Consequent to these proceedings, the manufacturers have approached the various authorities with their representations.

Exemption to henna powder and paste:-

Perhaps the impact of these representations is shown in the Budget, 2013 wherein the government has issued notification no. 12/2013-CE dated 1.3.2013. This notification exempts the following:-

“Henna powder or paste, not mixed with any other ingredient”

However, this notification exempts the pure henna powder or paste not mixed with any other ingredient. This notification it is exempting the pure henna powder, no other chemical should be mixed with the henna powder. Normally, the manufacturers add some additives to increase the colour retention of the henna powder. However, there are manufacturers who are clearing the pure henna powder, so we can say that this exemption is not general, yet beneficial to a class of henna manufacturers. However, when it comes to “henna paste”, department may be stringent in view that there should be no ingredient in the henna paste too. Is it possible?

How can a “Paste” be made without any ingredient?

As per the language of this notification, there should be no ingredient in the henna paste. Is it possible to make a paste without any ingredient? The dictionary meaning of term “ingredient” is -

“ A component of a mixture or compound ” [ref.: http://ardictionary.com ]

“An element in a mixture or compound” [ref.: http://www.thefreedictionary.com ]

“a component part or element of something” [ref.: http://oxforddictionaries.com ]

As per above definitions, the term “Ingredient” means any element of a mixture. Or we can say that a mixture/compound is formed of various ingredients. In the case of “Henna Paste”, Water, Oil and Henna Powder are the ingredients. Thus, by literally interpreting this notification, its benefit may not be extended even to a single manufacturer of henna paste.

Notification under section 11C needed:-

The budget has though given exemption to henna powder and henna paste, but this exemption is of limited use as it is exempting pure henna powder and paste only. Further, this exemption is prospective only; as such, department is all set to take harsh steps for the previous years' demand. Therefore, this exemption will not suffice to relieve the henna manufacturers. Since it was the general practice at Sojat City , which is the largest producer of henna powder in India; an exemption notification is awaited under section 11C to relieve the poor assessees.

While winding:-

The henna powder has previously suffered the duty of 8% & 6% and is ultimately exempted now. But, since this notification extends the benefit of exemption to pure henna powder, it will be of limited use as normally henna manufacturers are using the additives in the henna powder. However, some sort of relief is extended to the manufacturers of henna powder, but so far as the henna paste is concerned, the language used therein seems to be bit ambiguous, particularly when the department has habit of exercising the principle of Literal Interpretation as its birth-right. Also, since it was a general practice of not paying the duty on the manufacture of the henna powder, it is expected that the notification is required under section 11C of the Central Excise Act, 1944. So, under above circumstances, it seems that there is going to be a second round of representations by the henna manufacturers for removing the ambiguity contained in the language of this notification as well as for a notification under section 11C of the Central Excise Act, 1944.

Let's see, how many more colours the henna powder and paste are going to show in Central Excise law…