Supreme Court settles classification of “hair dye” under Central Excise Tariff Act: Godrej Industries Ltd. vs. D.G. Ahire (2008)

Date of the Judgment: 9th July 2008

Judges: Altamas Kabir, J., V.S. Sirpurkar, J.

Can a product be classified as a “hair lotion” under the Central Excise Tariff Act, or should it be considered a separate product? The Supreme Court addressed this classification issue in the case of Godrej Industries Ltd. vs. D.G. Ahire, focusing on whether “liquid hair dye” should be classified under Tariff Item 14F (hair lotion) or Tariff Item 68 (all other goods not elsewhere specified) of the Central Excise Tariff Act. The bench, comprising Justice Altamas Kabir and Justice V.S. Sirpurkar, delivered the judgment.

Case Background

Godrej Industries Ltd. has been manufacturing various cosmetics and toilet preparations, including “liquid hair dyes,” since May 1974. At that time, there was no specific entry for “hair dyes” under the Central Excise Tariff, but “hair lotion” was specified under Tariff Item 14F. Until July 13, 1982, the Excise Department did not raise any claims regarding “liquid hair dyes” under Tariff Item 14F, and no excise duty was demanded for this item.

Effective from March 1, 1975, Tariff Item 68 was introduced as a residuary entry in the Central Excise Tariff, relating to “all other goods not elsewhere specified.” As a result, all goods became excisable. Since the Excise Department had accepted that “liquid hair dye” did not fall under Tariff Item 14F, Godrej Industries began paying duty on the product under Tariff Item 68 from March 1, 1975. The classification list submitted by the company, classifying the product under Tariff Item 68, was duly approved.

On July 13, 1982, the first show-cause notice was issued to Godrej Industries, asking why its “liquid hair dye” should not be classified under Tariff Item 14F and charged with duty accordingly. The notice stated that pending the determination of the question, the classification of the product would continue under Tariff Item 68 on a provisional basis, and the company would have to execute a bond for provisional assessment under Rule 98. Godrej Industries responded to the notice with written submissions. Despite this, four specific demand notices were issued on August 2, 1982, October 11, 1982, December 27, 1982, and February 17, 1983. The demand notice dated October 11, 1982, was subsequently dropped. The remaining three notices covered the period from January 1982 to December 1982.

Timeline

Course of Proceedings

Being aggrieved by the notices and the demand, Godrej Industries moved the High Court in its writ jurisdiction, challenging the notices dated May 24, 1983, and June 2, 1983, and also prayed for appropriate interim orders regarding the demand notice. The writ petition was admitted, and interim orders were passed.

Elaborate submissions were made on behalf of the parties before the High Court regarding the classification of Godrej Industries’ product as a “hair lotion,” which would bring it within the ambit of Tariff Item 14F. Apart from the nature and character of the product in relation to the expression “hair dye” used in Tariff Item 14F, it was also submitted on behalf of the excise authorities that while excise duty for items classified under Tariff Item 68 was payable at 8%, the excise duty for items classified under Tariff Item 14F was 105%.

The High Court ultimately held that the “hair dye” manufactured by Godrej Industries was covered under Tariff Item 14F of the Central Excise Act, 1940. It further stated that even if the item was not covered under Tariff Item 14F but Entry No. 68, the company would still have to pay excise duty at 105% since the same had been collected from the consumers but not passed on to the respondents.

On the basis of this reasoning, the High Court dismissed the writ petition filed by Godrej Industries and vacated the interim order. A consequential direction was also given that the respondent would be entitled to recover the excise duty for the relevant period in terms of the impugned order and demand notices.

This appeal has been filed against the decision of the Bombay High Court.

Legal Framework

The central issue in this appeal concerns the classification of the appellant’s product, marketed as a “hair dye,” in relation to entries under the Central Excise Tariff. The relevant period for the demand of excise duty on “hair dye,” treating it as covered by Tariff Item 14F, is from January 1982 to December 1982. During this time, there was no specific entry for “hair dyes,” although “hair lotion” was specified under Tariff Item 14F. Tariff Item 68, a residuary entry, was introduced effective from March 1, 1975, making goods not specifically included under other tariff items exigible, though at a rate of 8% only.

The Finance Act, 1961, introduced Tariff Item 14F to cover Cosmetics and Toilet Preparations, as indicated below:

“14F – Cosmetic and Toilet Preparations not containing alcohol or Opium India Hemp or other Narcotic Drugs or Narcotics, namely:
(i) Face Cream and Snow;
(ii) Face Powder;
(iii) Talcum Powder;
(iv) Hair Lotion, Cream and Pomade.”

On March 1, 1975, the Finance Act, 1975, introduced a residuary entry, namely, Tariff Item 68, in the First Schedule to the Central Excise and Salt Act, 1944, which reads as follows:

“68 – All other Goods, not elsewhere specified.”

By virtue of this entry, all goods, including the liquid hair dye manufactured by the appellant, became exigible at the rate of 8%.

Arguments

Arguments by the Appellant (Godrej Industries Ltd.):

• Classification Under Tariff Item 68: The appellant argued that their “liquid hair dye” should be classified under Tariff Item 68, the residuary entry, as it did not fall under the specific categories listed in Tariff Item 14F (Cosmetics and Toilet Preparations), which included “hair lotion.”

• Reliance on Deputy Chief Chemist’s Opinion: The appellant emphasized that the Deputy Chief Chemist had opined that their “liquid hair dye” did not fall under Tariff Item 14F(II), supporting their claim that it should not be classified as a “hair lotion.”

• Reference to Chimanlal Beliram Mehta vs. M.G. Vaidya: The appellant cited this case, where a similar question was raised before the Bombay High Court, arguing that hair dye should not be considered a “hair lotion.”

• Application of “Common Parlance” Test: The appellant heavily relied on the principle of “common parlance” to argue that in the understanding of the common consumer and traders, “hair dye” and “hair lotion” are distinct products. They referred to the case of The King vs. Planter Nut and Chocolate Company to illustrate this point.

• Affidavits from Customers: The appellant submitted affidavits from customers stating that they considered “hair dye” and “hair lotion” as separate products, which should have been given due importance in classifying the product.

• Decision in Godrej Soaps Ltd vs. State of Andhra Pradesh: The appellant referred to this case, where the court decided that “hair dye” is a coloring material and not a medicinal preparation to cleanse the hair or for skin disorder, thus not a “hair lotion.”

• Exhaustive Interpretation of “Namely”: The appellant argued that the use of the word “namely” in Tariff Item 14F should be interpreted as exhaustive, confining the item only to the products specifically mentioned therein.

Arguments by the Respondent (Excise Department):

• “Hair Dye” as “Hair Lotion”: The respondent argued that “hair dye” is, in fact, a “hair lotion” and should be classified under Tariff Item 14F.

• Definition of “Pomade” and “Lotion”: Referring to the Chambers 20th Century Dictionary, the respondent submitted that a “pomade” is an ointment for the hair, whereas a “lotion” is a liquid preparation, either medicinal or of a cosmetic nature.

• Illustrative Use of “Namely”: The respondent contended that the expression “namely” used in Tariff Item No. 14F had been used in an illustrative and not in a restrictive sense.

• Reliance on Reports of Deputy Chief Chemist and Chief Chemist: The respondent stated that the Division Bench had considered the reports of the Deputy Chief Chemist, Mumbai, and the Chief Chemist, Central Revenue, New Delhi, before concluding that the product in question was a “hair lotion.”

• Interchangeable Use of “Hair Lotion” and “Hair Dye”: The respondent argued that the Division Bench had relied on standard textbooks to indicate that the two expressions, “Hair Lotion” and “Hair Dye,” could be used interchangeably in the commercial world.

Submissions Table

Issues Framed by the Supreme Court

1. Whether the appellant’s product sold in the market as a “hair dye” should be classified in relation to the entries under the Central Excise Tariff.

2. Whether the said product also acts as a hair lotion, is the question which calls for decision in order to establish whether the said product would fall under Tariff Item 14F.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The court considered the following cases and legal provisions:

1. Subhash Chandarnishat vs. Union of India [1979 ELT (J) 212] (Bombay High Court): The court considered this case, where it was held that “Vasmol Emulsified Hair Oil” and “Vasmol Pomade” did not fall under Tariff Item 14F. The appellant relied on this case to argue that their hair dye should also not be classified under Tariff Item 14F.

2. Chimanlal Beliram Mehta vs. M.G. Vaidya [2000 (124) E.L.T. 40 (Bom)] (Bombay High Court): The court noted that in this case, the plea that hair dye should not be exigible to duty as “hair lotion” was not accepted, and it was held that the same came within the definition of hair lotion and was thus exigible.

3. The King vs. Planter Nut and Chocolate Company (1951 Canada Law Reports – Exchequer Court p. 122): The court referred to this case to explain the concept of common parlance in describing a product.

4. Dunlop India Limited Vs. Union of India [1976 (2) SCC 241] (Supreme Court of India): The court cited this case, where it was held that in interpreting the meaning of words in a taxing statute, the acceptance of a particular word by the traders and its popular meaning should commend itself to the authority.

5. Ram Avtar Bhudiaprasad vs. Assistant Sales Tax Officer [1962 (1) SCR 279] (Supreme Court of India): The court referred to this case, where it was held that the word “vegetable” must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance.

6. Commissioner of Sales Tax, Madhya Pradesh, Indore vs. M/s Jaswant Singh Charan Singh [1967 (2) SCR 720] (Supreme Court of India): The court reiterated the same sentiments as were expressed in Ramavtar Budhiaprasad’s case (supra) while dealing with the word ‘charcoal’.

7. Godrej Soaps Ltd vs. State of Andhra Pradesh [1983 (53) STC 376] (Andhra Pradesh High Court): The court considered this case relating to the very same product, namely, “Godrej Permanent Hair Dye”, where the court decided whether “hair dye” is a “hair lotion”.

8. Tariff Item 14F of the Central Excise Tariff Act: The court analyzed this provision to determine whether “hair dye” could be classified as “hair lotion.”

9. Tariff Item 68 of the Central Excise Tariff Act: The court considered this residuary entry to determine whether it applied to “hair dye” if it was not covered under Tariff Item 14F.

Authority Treatment Table

Judgment

The Supreme Court allowed the appeal, set aside the order of the High Court, and quashed the demand Notices dated August 2, 1982, December 27, 1982, and February 17, 1983, covering the period from January 1982 to December 1982, demanding payment of excise duty under Tariff Item 14F of the First Schedule to the Central Excise and Salt Act, 1944.

Treatment of Submissions by the Court

Treatment of Authorities by the Court

• Subhash Chandarnishat vs. Union of India [1979 ELT (J) 212] (Bombay High Court): The court relied on this case to support the argument that “hair dye” should not be classified under Tariff Item 14F.
• Chimanlal Beliram Mehta vs. M.G. Vaidya [2000 (124) E.L.T. 40 (Bom)] (Bombay High Court): The court distinguished this case, as it held that hair dye came within the definition of hair lotion.
• The King vs. Planter Nut and Chocolate Company (1951 Canada Law Reports – Exchequer Court p. 122): The court referred to this case to explain the concept of common parlance.
• Dunlop India Limited Vs. Union of India [1976 (2) SCC 241] (Supreme Court of India): The court cited this case to emphasize the importance of traders’ and popular meaning of a word in a taxing statute.
• Ram Avtar Bhudiaprasad vs. Assistant Sales Tax Officer [1962 (1) SCR 279] (Supreme Court of India): The court referred to this case to support the argument that words should be understood in common parlance.
• Godrej Soaps Ltd vs. State of Andhra Pradesh [1983 (53) STC 376] (Andhra Pradesh High Court): The court considered this case to determine whether “hair dye” is a “hair lotion”.

What Weighed in the Mind of the Court?

The Supreme Court’s decision in Godrej Industries Ltd. vs. D.G. Ahire was influenced by several key factors:

• Common Parlance: The court emphasized the importance of understanding the terms “hair dye” and “hair lotion” as they are commonly understood by traders and consumers. This was a significant factor in distinguishing the two products.

• Chemical Composition and Usage: The court considered the chemical composition and actual usage of the product to determine whether it was merely a hair coloring agent or if it possessed the qualities of a hair lotion, such as medicinal or cleansing properties.

• Expert Opinion: The court took into account the opinion of the Deputy Chief Chemist, who stated that the product did not fall under Tariff Item 14F.

• Precedent Cases: The court relied on previous cases, such as Subhash Chandarnishat vs. Union of India and Godrej Soaps Ltd vs. State of Andhra Pradesh, to support the argument that “hair dye” should not be classified as “hair lotion.”

Sentiment Analysis Ranking

Flowchart of the Decision-Making Process

Conclusion

The Supreme Court’s judgment in Godrej Industries Ltd. vs. D.G. Ahire provides important guidance on the classification of products under the Central Excise Tariff Act. The court emphasized the importance of considering the common understanding of terms, the chemical composition and usage of the product, and expert opinions when determining the appropriate classification. This case clarified that “hair dye” should not be classified as “hair lotion” and should instead fall under the residuary entry, Tariff Item 68, if it does not possess the qualities of a hair lotion.