By TIOL News Service

NEW DELHI, JULY 29, 2015: THE respondent 'assessee is engaged in the manufacture of different brands of toothpaste and these are manufactured exclusively for M/s. Hindustan Lever Limited, (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. There is no dispute about these products.

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 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.

The Commissioner in his Order-in-Original dated December 10, 2003, thereby confirming the excise duty demand as mentioned in the show-cause notice. He, inter alia, recorded the following findings:

"(i) Close Up Whitening was known in the market or to the trade and public as tooth paste for cleaning the teeth as such it was nothing but tooth-paste used for cleaning the teeth.

(ii) M/s. Global Health Care Products in collusion with M/s. Hindustan Lever Ltd. by willfully suppressing the fact that Close-up Whitening was a variant of Close Up tooth paste classifiable under Tariff Heading 3306.10 failed to show particulars of classification, assessable value and duty leviable with an intention to evade payment of applicable central excise duties.

(iii) The contention of M/s. Global Health Care products that the product Close Up Whitening was classified under chapter sub heading No. 3306.90 was not accepted.

(iv) The said product was correctly classified under sub heading 3306.10 of the Tariff attracting the provisions of Section 4A of the Act."

The Tribunal set aside the order of the Commissioner and the aggrieved Revenue is before the Supreme Court.

The only question is as to whether the product in question is to be classified under sub-heading 3306.90 or 3306.10. Chapter Heading 3306 of the Tariff Act, with the aforesaid sub-headings, is reproduced below:

The Supreme Court noted that 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. Therefore, the moot question is as to whether Close-Up Whitening is toothpaste or not. If it is found to be toothpaste then the stand of the Revenue would be justified. On the other hand, if the product does not qualify to be a toothpaste, then the assessee stands vindicated.

The Commissioner, thus, noted that in the HSN Notes, sub-heading 3306.10 deals with dentifrices. The Commissioner noted that the meaning of dentifrices as per the Concise Oxford Dictionary is 'a paste or powder for cleaning of teeth'. On that basis, he concluded that the product in question was paste, namely, the toothpaste for cleaning the teeth and, therefore, would fall under sub-heading 3306.10. En passe, the Commissioner also observed that there is no major difference in these products, namely, Close-Up Whitening and Close-Up Red/ Blue/Green, except one ingredient used in the manufacture of Close-Up Whitening and the addition of that ingredient does not change the purpose, nature as well as definition of the product in a common market parlance . He observed that in the market the product was known as toothpaste. He also observed that it is treated as toothpaste as per the product manual issued by the Dental Invocation Centre, Mumbai.

The Tribunal pointed out that there was material difference in the sub-heading 3306.10 in the Indian statute when contrasted with Harmonized Commodity Description and Coding System. Whereas, as per the tariff entry 3306.10 in the Excise Act, it is 'tooth powder' and 'toothpaste', under the Harmonized Commodity Description and Coding System, what is mentioned is 'dentifrices'. It is further noticed by the Tribunal that dentifrices was more generic in nature as it recognized all three types of products, namely, (i) toothpaste, (ii) other preparations for teeth and (iii) denture cleaners, than tooth powders and toothpaste. Thus, when under Indian statutory regime there is a restricted sub-heading under 3306.10, namely, tooth powder and toothpaste only, the approach of the Commissioner in taking aid of HSN Notes was erroneous.

The Supreme Court in the case of Camlin Limited v. Commissioner of Central Excise, Mumbai - 2008-TIOL-165-SC-CX 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 issue, therefore, has to be decided dehors HSN Notes as aid thereof cannot be taken in the instant case.

The Supreme Court agreed with the findings of the Tribunal that Close-Up Whitening is not a toothpaste but a dental cleaner, for the following reasons:

(a) The Tribunal has pointed out the differences which are noted above and accepted by the Department itself. From these differences, it is 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.

(b) Even the manufacturing process of Close-Up toothpaste and Close-up Whitening is different. While the total stages for manufacturing toothpaste were nine, the number 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.

(c) Statement of one Mr. N.H. Bijlani, the only expert in this case and whose statement was recorded on January 09, 2002, was referred to by the Tribunal. In this statement, Mr. Bijlani has explained the difference between toothpaste and dental cleaners and has opined that Close-Up Whitening dental cleaner cannot be equated with toothpaste.

(d) The Tribunal has also found that as per records, classification of the same product in an earlier avtar/brand was acceptable to the Department as the same was classified under a different name for all these years when the rate of duty under Heading 3306.90 were higher than that under Heading 3306.10. It, thus, observed that mere change of duty and brand name cannot be the reason to alter classification.

(e) 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, which have been taken note of and discussed above.

Held: Close-Up Whitening dental cleaner is not a 'toothpaste' but other form of dental hygiene and, therefore will have to be classified under sub-heading 3306.90.

Revenue Appeal Dismissed

(See 2015-TIOL-157-SC-CX)