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CASE NO.: Appeal (civil)  414 of 2000 Appeal (civil)  415 of 2000

PETITIONER: The State of Goa & Anr.                                  

RESPONDENT: M/s. Colfax Laboratories Ltd. & Anr.                     

DATE OF JUDGMENT: 29/10/2003

BENCH: S. Rajendra Babu & G.P. Mathur

JUDGMENT: JUDGMENT

G.P. Mathur, J.

1.      M/s Colfax Laboratories (India) Ltd. and State of Goa have preferred  these appeals by special leave against the judgment and order dated 1.4.1999  of High Court of Bombay (Goa Bench), by which the writ petition preferred  by M/s Colfax Laboratories (India) Ltd. was partly allowed.   2.      M/s Colfax Laboratories (India) Ltd. (for short ’Colfax’) was granted  a licence to manufacture various types of cosmetics including after shave  lotion under the trade mark ’Old Spice’ on 15.4.1968 under the Drugs and  Cosmetics Act.  A licence under the Medicinal and Toilet Preparations  (Excise Duties) Act, 1955 (for short ’the Act’)  in form L-1  for manufacture  of  ’Old Spice’ after shave lotion and cologne for men as toilet preparations  was granted on 1.4.1969.   Till the end of the year 1984 excise duty on ’Old  Spice’ after shave lotion (hereinafter called as ’ASL’) was paid on the basis  that it was a toilet preparation.   On 14.1.1985 Colfax moved an application  before the Commissioner of Excise, Government of Goa for reclassification  of Old Spice ASL as a ’medicinal preparation’ falling under Tariff Item  No.1(i)(b) of the Schedule to the Act for the purpose of levy of excise duty.    The Excise Commissioner vide his order dated 23.3.1985 classified the same  as ’medicinal preparation’.   Subsequently, by the order dated 12.6.1985 Old  Spice ASL was classified as falling within the ambit of Item No.1(i)(b) of  the Schedule.   Colfax thereafter made application for refund of excess  amount of the excise duty paid after 23.3.1985 which was allowed by the  Commissioner of Excise and orders for refund of the excess amount of the  excise duty were passed.

       M/s PJM Pharmaceuticals Pvt. Ltd. moved an application before the  Drugs Controller, Government of Goa on 14.1.1989 for manufacture of  some cosmetic products including ’Blue Stratos’ ASL under the loan licence  with M/s Colfax Laboratories (India) Ltd. which was approved and a licence  was issued on 13.2.1989.   The Excise Commissioner vide order dated  12.10.1989 approved the price inclusive of duty, the duty component thereon  as well as the maximum price for the products.   M/s PJM Pharmaceuticals  Pvt. Ltd. started paying duty on Blue Stratos ASL at the rate applicable to  medicinal preparations.

3.      On 15.5.1991, the Commissioner of Excise, Goa issued a notice under  Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules,  1956 to Colfax to pay balance of excise duty amounting to  Rs.17,77,16,361.20 (Rupees seventeen crore, seventy-seven lakh, sixteen  thousand, three hundred sixty one and paise twenty only) within 30 days  from the date of receipt of notice on the ground that w.e.f. 1.4.1985 the  company had paid excise duty on Old Spice range of ASLs as medicinal  preparation though it should have paid duty as toilet preparation.   On  13.3.1991, a notice was issued to M/s PJM Pharmaceuticals Pvt. Ltd. to pay

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balance of excise duty amounting to Rs.92,43.684.08 (Rupees ninetey two  lakh, forty three thousand, six hundred eighty four and paise eight only)  within 30 days from the date of receipt of notice on the ground that it had  paid excise duty on Blue Stratos ASL as a medicinal preparation though it  should have paid duty as toilet preparation. 4.      Colfax then filed Writ Petition Nos.109 of 1991 and 351 of 1991  challenging the aforesaid notices before the Bombay High Court (Goa  Bench) which were disposed of with a direction to the Excise Commissioner  to treat the demand notices as show cause notices and thereafter to pass a  final order after giving the Company an opportunity of hearing.   It was left  open for the Excise Commissioner to supplement the said notice by  additional grounds or materials, if he so desired.  Thereafter, supplementary  memorandum were issued by the Excise Commissioner on 6.9.1991 and  30.9.1991 to which Colfax gave a reply.   The Excise Commissioner after  hearing the parties gave his decision on 7.11.1991 which was challenged in   appeal by the State Government and Colfax preferred Writ Petition No.84 of  1992 before the High Court.   The High Court by its order dated 21.12.1994  directed the Excise Commissioner to decide all the issues afresh after giving  an opportunity of hearing to the company.    The Excise Commissioner, after  hearing the parties passed a detailed order on 12.8.1998 holding that after  shave lotions were toilet preparations and the company was liable to pay  excise duty as mentioned in the demand notices dated 13.3.1991 and  15.5.1991, which was challenged by Colfax by filing Writ Petition No.337  of 1998.  The High Court in its impugned order dated 1.4.1999 has held that  after shave lotions are toilet preparations and the Revenue was entitled to  recover short paid duty on account of erroneous classification of the  aforesaid goods.  The notices issued will have to be construed in exercise of  power under Rule 11 of the Rules.   Thus, the Revenue would be entitled to  recover short paid duty on the goods cleared for which the duty was short  paid within a period of six months immediately preceding the date of issue  of each of the notices.  It has been further held that the phrase ’ad valorem’  appearing in the column ’rate of duty’ in the Schedule appended to the Act  refers to the value of excisable goods and, therefore, it will have to be  worked out by applying the formula as laid down in Section 4(4)(d) of the  Central Excise Act, 1944 and consequently, the excise duty will have to be  deducted from the wholesale price and the figure arrived at would be the  value of the excisable goods.    

5.      M/s Colfax has preferred Civil Appeal No.415 of 2000 challenging  the finding of the High Court that ’Old Spice’ and ’Blue Stratos’ ASLs are  toilet preparations and not medicinal preparations.   The State of Goa has  preferred Civil Appeal No.414 of 2000 challenging the remaining part of the  order of the High Court, wherein the notices have been directed to be treated  to be under Rule 11 of the Rules and their right to recover the short paid  duty has been restricted to a period of six months immediately preceding the  date of issue of notices and also the direction regarding manner of  calculation of excise duty out of the wholesale price at which the goods in  question were sold.    

6.      We will first consider the appeal preferred by Colfax, wherein  challenge has been made to the finding of the High Court that ASLs are not  medicinal preparations but are toilet preparations.   Shri Ashok Desai,  learned senior counsel for Colfax has submitted that the term ’medicinal  preparation’ has been defined in Section 2(g) of the Act and it includes all  drugs which are a remedy or prescription intended to be used for or in the  treatment, mitigation or prevention of disease in human beings or animals.    ’Toilet preparation’ has been defined in Section 2(k) of the Act and it means  any preparation which is intended to be used in the toilet of the human body  or any substance intended to cleanse, improve or alter the complexion, skin,  hair or teeth and includes deodorants and perfumes.   Learned counsel has  submitted that the basic difference between the medicinal preparation and  toilet preparation is the intent and purpose for which it is used.   If the article  is used for the treatment, mitigation or prevention of disease, it is a  medicinal preparation but if it is used to cleanse, improve or alter the  complexion, skin, hair or teeth, etc. then it is a toilet preparation.  According

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to Colfax its ASL contains alcohol \026 62%, Propylene glycol \026 5%, Benzyl  alcohol \026 0.5% and the remaining is water.   Learned counsel has further  urged that the concentration of alcohol in various ASLs manufactured by  other companies is less than 60% whilst that manufactured by Colfax it is  62% and in fact actual test results show that it is 63%.   Where the alcohol is  less than 60% in any ASL, it cannot have any medicinal properties and it  will be treated as a toilet preparation, but where the concentration is more  than 60%, it will have medicinal properties.   In this connection Shri Desai  has referred to British Pharmacopoeia Codex and Remington Pharmaceutical  Science to show that if strength of alcohol increases beyond 60% to 90% and  beyond 90%, it has no microbiolisation. Reference has also been made to  Martindale Pharmacopoeia to show that benzyl alcohol has also bacterial  properties. Propylene glycol is a humectant and it promotes retention of  moisture.   It has been urged that after shaving skin may get fungus and,  therefore, propylene glycol is used as moisturizer.   Ethyle alcohol in a  concentration of  62% to 65% bacterise side effects.  It is astringent to  prevent penetration of bacterias and, therefore, it has antiseptic properties.    Propylene glycol is a humectant as well as inhabitant of fungus.  Benzyl  alcohol is a mild anaesthetic and has antiseptic properties.   Therefore,  composition of these products in the above mentioned proportion, it is  contended,  makes Old Spice and Blue Stratos ASLs made by the company  as medicinal products.   

7.      Shri M. Usgaonkar, learned Advocate General for the State of Goa,  has submitted that Colfax had a licence to manufacture cosmetics and even  the licence applied in the year 1989 for manufacture of Blue Stratos ASL for  PJM was also for a cosmetic product. Colfax also admits that such after  shave lotions which have a concentration of alcohol below 60% are toilet  preparations.   Merely because the alcohol content is slightly increased and it  goes up to 62% or 63%, it would not mean that the same will become a  medicinal preparation.   Learned counsel has submitted that ASL is basically  an acqueous alcohol solution containing a perfume.   The popular brands of  ASLs in UK contain 50% to 70% of ethyl alcohol by weight and in United  States the volume of alcohol recommended for ASLs is 40% to 60%.    Propylene glycol is preferred because it has low viscocity and high  volatility.   Learned counsel has also laid stress upon the fact  that after  shave lotions contain perfume as a key component and normally perfume is  not used in a medicinal preparation.  It has thus been urged that the products  Old Spice and Blue Stratos manufactured by Colfax are pure and simple  toilet preparations  and cannot be said to be medicinal preparations by any  stretch of imagination.    

8.      In order to appreciate the contention raised by learned counsel for the  parties, it is necessary to have in mind the relevant provisions of the Statute  under which the licence to manufacture the product is granted and the excise  duties are levied.   Section 2(a), 2(c), 2(g) and 2(k) of the Medicinal and  Toilet Preparations (Excise Duties) Act, 1955 read as under :

Section 2 (a)        ’alcohol’ means ethyl alcohol of any strength and  purity having chemical composition C2H5OH ;

(c)  ’dutiable goods’ means the medicinal and toilet  preparations specified in the schedule as being subject to  the duties of excise levied under this Act;

(g)     ’medicinal preparation’ includes all drugs which  are a remedy or prescription’ prepared for internal or  external use of human beings or animals and all substances  intended to be used for or in the treatment, mitigation or  prevention of disease in human beings or animals;

(k)     ’toilet preparation’ means any preparation which is  intended for use in the toilet of the human body or in  perfuming apparel of any description, or any substance  intended to cleanse, improve or alter the complexion, skin,

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hair or teeth, and includes deodorants and perfumes.     

       Sub-section (1) of Section 3 of the Act is the charging section and it  lays down that there shall be levied duties of excise at the rates specified in  the Schedule on all dutiable goods manufactured in India.   Sub-section (3)  of Section 3 lays down that subject to other provisions contained in the Act,  the duties aforesaid shall be collected in such manner as may be prescribed.    Item 1(i)(b) of the Schedule provides that the rate of duty on ’allopathic  medicinal preparations’ (other than patent or proprietory medicines) would  be Rs.10/- per litre of pure alcohol content.  Item No.4 of the Schedule  deals with toilet preparations and at the relevant time rate of duty for toilet  preparations containing alcohol was 100% ad valorem.   Section 6 of the  Act lays down that no person shall engage in the production or manufacture  of any dutiable goods or of any specified components, parts or ingredients  of such goods except under the authority and in accordance with the terms  and conditions of a licence granted under the Act.   Section 18(c) of the  Drugs and Cosmetics Act, 1940 lays down that no person shall himself or  by any other person on his behalf manufacture for sale or for distribution or  sale or stock or exhibit or offer for sale or distribute any drug or cosmetic  except under and in accordance with the conditions of the licence issued for  such purpose.   The definition of the term ’medicinal preparation’ in Section  2(g) of the Act shows that it will include all such drugs which are a remedy  or prescription prepared for internal or external use of human beings or  animals and all substance intended to be used for or in the treatment,  mitigation or prevention of disease in human beings or animals.   Therefore,  in order to come within the ambit of ’medicinal preparations’ the intended  use of the article must be for treatment, mitigation or prevention of disease.    The article must be used for the purpose of either curing or mitigating the  disease after its symptoms have appeared or in prevention of any disease.    If the intended use of the article is not for any one of the aforesaid purposes,  it cannot be described as a ’medicinal preparation’.   Therefore, the main  question to be examined is whether ’shaving’ results in some kind of a  disease which requires treatment by a medicine so that it may be cured or its  effect is mitigated or at least an effort has to be made to prevent the  happening of such disease by taking a preventive medicine.   ’Disease’  means an impairment of the normal state of the living animal that interrupts  or modifies the performance of the vital functions being a response to  environmental factors (as malnutrition, industrial hazards, or climate) or to  specific infective agents (as worms, bacteria, or viruses) or to inherent  defects of the organism (as various genetic anomalies) or to combinations  of these factors.   The process of shaving does not cause any kind of  impairment of the normal state of a person.  It does not in any manner  interrupt or modify the performance of any vital functions of the human  body.  Many people have been shaving regularly every day for 40-50 years  but no one has ever suffered any kind of a disease.   If the process of  shaving would have resulted in some kind of a disease, the best preventive  measure to be adopted was not to shave.   The number of persons who  shave every day and have been shaving for years would run into crores even  in our own country and except for a very insignificant percentage thereof,  who belong to affluent class, no one uses any after shave lotion. But they  have not suffered any disease.  Therefore, on a plain interpretation of the  statutory provisions an after shave lotion cannot come within the ambit of a  "medicinal preparation" as defined in Section 2(g) of the Act.

9.      Section 3(aaa) of the Drugs and Cosmetics Act defines a ’cosmetic’  and it means any article intended to be rubbed, poured, sprinkled or sprayed  on, or introduced into, or otherwise applied to, the human body or any part  thereof for cleansing, beautifying, promoting attractiveness, or altering the  appearance, and includes any article intended for use as a component of  cosmetic.   Section 3(b) of the same Act gives a very exhaustive definition  of ’drug’.   Sub-clause (i) thereof  lays down that drug may include all  medicines for internal or external use of human beings or animals and all  substances intended to be used for or in the diagnosis, treatment, mitigation  or prevention of any disease or disorder in human beings or animals,  including preparations applied on human body for the purpose of repelling

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insects like mosquitoes.   Sub-clause (ii) thereof lays down that drug will  include such substances (other than food) intended to affect the structure or  any function of human body or intended to be used for the purpose of  destruction of vermin or insects which cause disease in human beings or  animals as may be specified from time to time by the Central Government  by notification in the Official Gazette.   The definition of the terms  ’cosmetic’ and ’drug’ in this Act will also show that until the intended use  of the article is for diagnosis, treatment, mitigation or prevention of any  disease or disorder, it cannot be a drug.     

10.     The technical material produced by Colfax shows that various kinds  of after shave lotions (Aqua Velva, Park Avenue, Monarch, Emami,, etc.)  generally contain concentration of alcohol below 60%.   The only  distinguishing feature pointed out by Colfax is that the alcohol content of  the ASLs manufactured by it, viz., Old Spice and Blue Stratos is 62%.   No  authoritative scientific text has been placed before us to show that only on  account of a marginal increase of alcohol content to 62% an ASL will  acquire any such property so as to make it a medicinal preparation within  the meaning of Section 2(g) of the Act.   It may be noted that according to  Colfax the ASLs manufactured by it contain alcohol - 62%, Propylene  Glycol - 5%, Benzyl alcohol \026 0.5%  and the remaining 32.5% is water.   They also contain some perfume.   According to Harry’s Cosmeticology,   after shave lotion is basically an acqueous alcohol solution containing a  perfume.   The desired balance of ’mild astringency’ and ’coolness’ is  achieved by controlling ratio of ethyl alcohol to water.   Popular brands of  after shave lotions in UK contain 50% to 75% of ethyl alcohol by weight.    In the United States also volume of alcohol in after shave lotions range  from 40% to 60%.   It is necessary to emphasise that we are not concerned  here with the properties of alcohol simplicitor but a solution which contains  62% alcohol and 33% water.   The said solution on account of presence of  water cannot yield the same result as that of alcohol simplicitor.   Even a  small percentage of presence of one ingredient may completely alter the  chemical properties of another ingredient.   Therefore, the scientific  literature relied upon by the learned counsel for Colfax in support of his  submission regarding the properties of the alcohol cannot be a safe guide to  determine the characteristic of the products Old Spice and Blue Stratos.

11.     There is another aspect of the matter which also deserves to the  noticed.  The Company (Colfax) issued an advertisement in December,  1990 inviting deposits from public for fixed period and offering 14%  interest.  In the details and particulars submitted as per the Companies  (Acceptance of Deposits) Rule, 1975, it was stated that the Company is  engaged in the manufacture of cosmetics such as Old Spice ASL, Cologne,  etc.   Therefore, till as late as December, 1990, the Company itself was  giving out that it is engaged in manufacture of cosmetics and not of any  medicinal preparation.    

12.     Shri Ashok Desai has placed great reliance in support of his  submission on BPL Pharmaceuticals Ltd. Vs. Collector of Central Excise,  1995 Supp. (3) SCC 1, wherein the decision of CEGAT holding ’Selsun’  Shampoo as a cosmetic product was reversed by this Court and it was held  to be a drug or medicine.   The judgment shows that the Court went into the  chemical components of the article, the nature of use  and the contents of  the label on the bottle.   The main factors which weighed with the Court  were : (i) the article was used for treatment of a disease known as dandruff;  (ii) it was manufactured under a drug licence;  (iii) the Food and Drugs  Administration had certified it as a ’drug’; (iv) it was sold only on a  doctor’s prescription and was used as a medicine; (v) it was marketed as a  patent or proprietory medicine through registered pharmacists who hold  valid drug licence and not by any dealer like other shampoos; (vi) it was  included as a drug in the US Pharmacopoeia and other standard books and  treatises; and (vii) the label on the bottle specifically mentioned that it was a  poison, should be used twice weekly and was for external use only and  should be kept out of the eyes and away from the children.   None of these  factors are present in the case in hand and, therefore, the decision cited can

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be of no assistance at all to the company.   

13.     The Excise Commissioner, Goa, after a detailed consideration of  scientific and technical material, has recorded a finding that ASLs  manufactured by Colfax are ’toilet preparations’ within the meaning of  Section 2(k) of the Act.   The High Court has also examined the matter  threadbare and has arrived at the same finding.   We find absolutely no  reason to disagree with the view taken by the Excise Commissioner, who is  an expert in the field.   Therefore, the contention raised by learned counsel  for Colfax that Old Spice and Blue Stratos ASLs are medicinal preparations  and not toilet preparations, has no substance and has to be rejected.

14.     The second question which requires consideration is whether the  notices issued by the Excise Commissioner on 13.3.1991 and 15.5.1991  requiring Colfax to deposit the balance of excise duty should be treated to  be one under Rule 11 or Rule 12 of the Rules.   In the notices it is  specifically mentioned that the same are being issued in exercise of power  under Rule 12 of the Rules.   The Excise Commissioner in his order dated  12.8.1998 held that the balance amount of excise duty has to be paid w.e.f.  23.3.1985, when the product was classified as medicinal preparation.   The  High Court has held that the notices should be treated to have been issued  under Rule 11 of the Rules and the balance amount of excise duty can be  recovered only for a period of six months immediately preceding the date of  issue of each of the notices.

15.     Shri Mukul Rohtagi, Addl. Solicitor General and Shri M. Usgaonkar,  learned Advocate General for the State of Goa, have strenuously urged that  the case in hand is squarely covered by Rule 12 of the Rules and the Excise  Commissioner was fully justified in directing recovery of balance amount  of duty w.e.f. 23.3.1985, when the order was passed holding the product  ASL as a medicinal preparation and the company started paying excise duty  on its basis and the view to the contrary taken by the High Court is not  correct.  Shri Ashok Desai, learned senior counsel for the company has, on  the other hand, submitted that the case is covered by Rule 11 of the Rules  and Rule 12, which is a residuary provision, can have no application and,  therefore, the order passed by the High Court in that regard is perfectly  correct and calls for no interference.

16.     Before examining the rival contentions, it will be useful to take note  of the scheme of the Medicinal and Toilet Preparations (Excise Duties)  Rules, 1955 (for short ’Rules).   Sub-rule (1) of Rule 9 provides that no  dutiable goods shall be removed from any place where they are  manufactured or any premises appurtenant thereto which may be specified  by the Excise Commissioner in this behalf, whether for consumption, export  or manufacture of any other commodity in or outside such place until the  excise duty leviable thereon has been paid at such place and in such manner  as is prescribed in these Rules or as the Excise Commissioner may require.    Rule 81 lays down that when the licensee desires to remove goods on  payment of duty, he shall make an application in Form A.R.-2, in triplicate,  to the officer-in-charge or the proper officer, as the case may be, at least  twelve hours before he intends to remove the goods.   The officer shall,  thereupon, assess the amount of duty leviable on the goods and on  production of evidence that the sum has been paid into a treasury or the sum  has been debited to the account-current, as the case may be, shall allow the  goods to be cleared. Sub-rule (2) of Rule 9 provides that if any dutiable  goods are in contravention of  Sub-rule (1) deposited in, or removed from,  any place specified therein. the manufacturer thereof shall pay the duty  leviable on such goods and shall also be liable to a penalty to be determined  by the Excise Commissioner which may extend to two thousand rupees and  such goods shall also to be liable to confiscation.   Sub-rule (1) of Rule 40  and Rule 81 read as under : Rule 40.        Issue from a bonded manufactory \026 (1) Issues of    alcoholic preparations and preparations containing opium,  Indian hemp or other narcotic drugs and narcotics shall be made  from a bonded manufactory on payment of duty.   The licensee

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shall present before the officer-in-charge an application in Form  A.R.-2 signed by him or by his authorised representative.   The  officer-in-charge shall, after checking the entries and realizing  the duty payable, allow the required quantities to be removed  after issuing a permit :

       Provided that issues to another bonded warehouse shall  be made without payment of duty under proper security  governed by the rules in Chapters VII and VIII.

Rule  81.       Clearance on payment of duty. \026 When the licensee  desires to remove goods on payment of duty, he shall make an  application in Form A.R.-2, in triplicate, to the officer-in-charge  or the proper officer, as the case may be, at least twelve hours  before he is intended to remove the goods.   The officer shall,  thereupon, assess the amount of duty leviable on the goods and  on production of evidence that the sum has been paid into a  treasury or the sum has been debited to the account-current, as  the case may be, shall allow the goods to be cleared.

       Form A.R.-2 is the prescribed proforma of application for clearance  on payment of duty from bonded manufactory/warehouse and it is in three  parts.  The first part deals with the description of goods, their contents and  the amount of excise duty.  This portion has to be filled in by the owner of  the bonded manufactory or his authorised agent.   The second part is  Assessment Memorandum, wherein the total number of containers, quantity  of goods, rate of duty and total duty payable has to be mentioned and has to  be signed by the officer-in-charge of the bonded manufactory/warehouse.   The third part relates to the receipt of amount of excise duty in the treasury  which has to be signed by the concerned officer of the treasury/bank. The  combined effect of Rules, 9, 40 and 81 is that every time when a  manufacturer or licensee desires to remove goods, he has to make an  application in form A.R.-2  in triplicate to the officer-in-charge.   The officer  has to then assess the amount of duty leviable on the goods which has to be  deposited in the treasury.   The goods can be cleared only after payment or  deposit of the assessed duty.   If a manufacturer or licensee is aggrieved by  an order of the Excise Officer, he has got a right of appeal to the Excise  Commissioner or to the State Government, as the case may be, under Rule  127 of the Rules and there is a further right of revision under Rule 128.   The  scheme of the Medicinal and Toilet Preparations (Excise Duties) Rules is  entirely different from Chapter VII-A of the Central Excise Rules, 1944,  which deal with removal of excisable goods on determination of duty by  producers, manufacturers or private warehouse.   This chapter contains the  provisions for the self removal of excisable goods.   The rules in Chapter  VII-A permits an assessee to remove  excisable goods without any physical  supervision.   The assessee has to himself determine the duty payable and  clear the goods under a gate pass.   He is required to file monthly returns of  the goods cleared to the concerned Excise Officer.   In essence, the  provisions of these Rules enable the removal of notified excisable goods by  a manufacturer thereof on payment of a sum determined as duty on the basis  of broad decisions given to him by approved officers of the department.  The  assessee has to file the declaration of the goods proposed to be manufactured  by him giving the description thereof, the item number of the schedule to the  Central Excise Tariff Act under which such goods fall, the rate of duty  leviable on each of such goods and such other particulars as may be  prescribed by the Commissioner vide Rule 173-B of the Central Excise  Rules, 1944. In fact, Rule 173-B specifically provides that the proper officer  shall after such inquiry, as he deems fit, approve the list with such  modifications as are considered necessary and return one copy of the  approved list to the assessee who shall, unless otherwise directed by the  proper officer, determine the duty payable on goods intended to be removed  in accordance with such list.  Rule 173-B also provides that when the dispute  about the rate of duty has been finalised and a modification of the rate or  rates of duty is necessitated for any reason, the proper officer shall make

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such modification and inform the assessee accordingly.   Under the  Medicinal and Toilet Preparations (Excise Duties) Rules, 1955, the Excise  Commissioner has no independent power of classification.   The Excise  Officer has to assess the duty every time when the manufacturer or licensee  applies in Form A.R.-2 for removal of goods.  If the manufacturer or  licensee is aggrieved by the assessment so made, he can prefer an appeal  under Rule 127 and has also a right of revision. 17.     As mentioned earlier, Colfax moved an application on 14.2.1968 for  grant of a cosmetic licence for Old Spice ASL.   The Assistant Drugs  Controller granted a cosmetics licence for manufacture of Old Spice ASL on  15.4.1968.   The licence was renewed from time to time as a toilet  preparation.   Colfax continued to pay excise duty on ASL as a toilet  preparation till the end of 1984.   It was for the first time on 14.1.1985 that  Colfax moved an application before the Commissioner of State Excise,  Government of Goa stating that their product ASL is essentially a medicinal  preparation and should be classified under Tariff Item No.1(i)(b) of the  Schedule appended to the Act and a prayer was made to reclassify the  product.   The Commissioner of Excise after noticing the contention of  Colfax sent a reply on 24.1.1985 requiring Colfax to show cause as to why  its request should not be rejected in toto.   Colfax gave a reply and thereafter  the Commissioner of Excise passed an order on 23.3.1985 holding that   After Shave Lotion is to be classified as a ’Medicinal’ preparation and not as  a ’Toilet Preparation’ under the Medicinal and Toilet Preparations (Excise  Duties) Act, 1955 and the order shall be effective from the date of issue of  the same.         M/s PJM Pharmaceuticals Pvt. Ltd. had moved an application before  the Drugs Controller, Government of Goa on 14.1.1989 for manufacture of  Blue Stratos ASL under a loan licence with M/s Colfax Laboratories (India)  Ltd. and in this application they clearly mentioned that they want to  manufacture cosmetic products.   Colfax sent a letter to M./s PJM  Pharmaceuticals Pvt. Ltd. on 2.2.1989 and in the last paragraph of the letter  it was stated \026 "We undertake further to keep record of alcohol consumed  for the manufacture of your product and pay excise duty as specified by the  State Excise Department at the time of dispatch on your behalf."   In the  licence issued by the Drugs Controller, Blue Stratos ASL was described as a  cosmetic product.  The licences for manufacture of both the ASLs namely  Old Spice and Blue Stratos were as a cosmetic product and they were  throughout renewed for manufacture of cosmetic product.   At no stage  Colfax had any licence to manufacture any medicinal preparation or drug.    Section 18(c) of the Drugs and Cosmetics Act clearly lays down that no  person shall manufacture any drug except under and in accordance with the  licence issued for such purpose.   A detailed procedure for grant of licence  for manufacture of drugs is given in Chapter VII of Drugs and Cosmetics  Rules, 1945.   Manufacture of drugs without a licence is an offence under  Section 27 of the Drugs and Cosmetics Act and the person so manufacturing  is liable for punishment with imprisonment for a term which shall not be less  than one year but may extend to two years with fine.  If as asserted by  Colfax it was manufacturing a drug or medicinal preparation it was clearly  committing an offence and was liable for punishment as it had no licence for  the said purpose.   In spite of these facts a very strange procedure was  adopted by the Commissioner of Excise, Goa in entertaining an application  from Colfax for reclassifying its products, issuing a notice to it to show  cause why its request should not be rejected and thereafter passing an order  on 23.3.1985 classifying the ASL as a medicinal preparation and not as a  toilet preparation under the Act.  There was no requirement in law to issue a  show cause notice before rejecting such an application. There being no  provision for a prior classification of product under the Medicinal and Toilet  Preparations (Excise Duties) Act and the Rules made thereunder the entire  proceedings commenced on the basis of the application given by Colfax and  culminating with the order of the Commissioner of Excise are wholly  without jurisdiction.   The order passed by the Commissioner of Excise on  23.3.1985 being without jurisdiction is a nullity in the eyes of law and is  liable to be ignored.    18.     Rule 11 of the Rules will apply when duties or charge have been short  levied through inadvertence, error, collusion or misconstruction on the part

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of an excise officer or through misstatement as to the quantity or description  of such goods on the part of the owner.   After the order dated 23.3.1985 had  been passed by the Commissioner of Excise, Goa, the concerned Excise  Officer who made the relevant entries in Form A.R.-2 submitted by Colfax  could not have taken a different view and had  to proceed on the footing that  ASL was a medicinal preparation.  Being a subordinate officer he was fully  bound by the order of the highest excise authority of the State. Thereafter,  till 1991 when notices were issued and the matter was finally decided by the  Excise Commissioner, he had to proceed treating the ASL as medicinal  preparation.  In the fact situation, the concerned Excise Officer who made  entries in Form AR-12 will be the Excise Officer for the purposes of Rule 11  and 12 as the matter was not dealt with by any other authority.  In such  circumstances it cannot be held that the duties or charge had been short  levied through inadvertence, error, collusion or misconstruction on the part  of the concerned Excise Officer or through misstatement as to the quantity  or description of such goods on the part of the owner.   Collusion means a  secret agreement for a fraudulent purpose or a secret or dishonest  arrangement in fraud of the rights of another.   It is a deceitful agreement  between two or more persons for some evil purpose, such as to defraud a  third person of his rights.   The concerned Excise officer who made the  relevant entries in Form A.R.-2 and cleared the goods at the spot being a  subordinate officer had absolutely no option but to act in accordance with  the order dated 23.3.1985 of the Commissioner of Excise. In these  circumstances Rule 11 of the Rules can have no application to the facts of  the case.   Rule 12 confers residuary powers for recovery of sums due to  Government.   It provides that where the Rules do not make any specific  provision for the collection of any duty or of any deficiency in duty, if the  duty has, for any  reason, been short levied or of any other sum of any kind  payable to the collecting Government under the Act or the Rules, such duty,  deficiency in duty or sum shall, on written demand made by the appropriate  officer be paid to such person and at such time and place as the proper  officer may specify.   There being no specific provision for a case like the  present one for collection of duty which has been short levied, the provisions  of Rule 12 of the Rules will be applicable.   There is no period of limitation  prescribed under Rule 12.   In view of the fact that the order dated 23.3.1985  of the Commissioner of Excise was an order passed wholly without  jurisdiction and consequently was a nullity, the Government is entitled to  recover the deficiency in duty w.e.f. the said date.  The ratio of Collector of  Central Excise v. Cotspun Ltd., 1997 (7) SCC 633, reliance on which was  placed by Shri Desai, can have no application here as the said case turned on  the interpretation of Rules 10, 173-B and 173-C of Central Excise Rules,  1944, whereunder the whole scheme is different as discussed earlier.  The  view taken by the Excise Commissioner on this point in his order dated  12.8.1998 is, therefore, perfectly correct.   The High Court clearly erred in  setting aside the order of the Excise Commissioner and in directing that the  notices be treated to have been issued under Rule 11 of the Rules.  The order  passed by the High Court in this regard is, therefore, liable to be set aside.   19.     The third point relates to the quantification of duties done by the  Excise Commissioner.   The learned senior counsel for Colfax has submitted  that in case of a product which has a cum-duty price, the assessment is  required to be done on the basis of wholesale price less excise duty payable,  as provided under Section 4(4)(d)(ii) of the Central Excise Act, 1944.    Learned Additional Solicitor and learned Advocate General for the State of  Goa have urged that the chart annexed to the show cause notices takes into  account the prices indicated by the manufacturer after excluding the duty  and its on this price that the excise duty has to be worked out.  The High  Court has placed reliance upon a decision of this Court in Govt. of India v.  Madras Rubber Factory, 1975 (77) ELT 433 for computation of assessable  value in a cum-duty price.   It has held that the phrase ’ad valorem’  appearing in the column ’rate of duty’ in the Schedule appended to the Act  refers to the value of the excisable goods and, therefore, it will have to be  worked out by applying the formula as laid down in Section 4(4)(d) of  Central Excise Act.   We are of the opinion that the view taken by the High  Court is perfectly correct and calls for no interference.     20.     In the result, Civil Appeal No.415 of 2000 filed by M/s Colfax

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Laboratories (India)  Ltd.  is dismissed with costs.   Civil Appeal No.414 of  2000 filed by State of Goa is partly allowed.   The judgment and order of the  High Court in so far as it holds that notices dated 13.3.1991 and 15.5.1991,  though purported to have been issued under Rule 12, would have to be  construed as having been issued in the exercise of powers under Rule 11 of  the said Rules and that the Government is entitled to recover the short paid  duty on the goods cleared only for a period of six months immediately  preceding the date of each notice is set aside.   The Government will be  entitled to recover the entire amount of duty which has been short levied in  accordance with the order of Excise Commissioner dated 12.8.1998.