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of <h1>'Nomark' Cream: Ayurvedic Medicine, Not Cosmetic Product. Entities Not Related. Penalties Overturned.</h1> The Tribunal held that 'Nomark' cream is classified as an Ayurvedic medicine under heading 3003.39, not a cosmetic product. It determined that Seagull ... Classification of goods - 'Nomark' cream - cosmetic product or Ayurvedic medicine - Held that:- the product in question i.e. Nomark is a medicament classifiable under heading 3003.39 and is not a cosmetic product classifiable under heading 3304. The revenue has not discharged its burden to prove that the product was known in the market as cosmetics. - Decided in favor of assessee.Related person - whether SDA and OPL are related persons in terms of Section 4(4)(c ) of CEA, 1944 - held that:- OPL was a limited company whereas SDA was a proprietory firm of Mrs. Geeta Sehgal. The mere fact that Mrs. Geeta Sehgal was holding 10% share capital of OPL is not sufficient to treat both as related persons. The department has failed to prove any mutuality of interest or money flow back in two units. - Decided in favor of assessee. Issues Involved:1. Classification of 'Nomark' cream.2. Relationship between Seagull Drug Ayurvedic (SDA) and Ozone Pharmaceuticals Ltd. (OPL).3. Applicability of extended period of limitation.4. Imposition of penalties on SDA, OPL, and its Managing Director.Detailed Analysis:1. Classification of 'Nomark' Cream:The primary issue was whether 'Nomark' cream should be classified as a cosmetic product under heading 3304.00 or as an Ayurvedic medicine under heading 3003.39 of the Central Excise Act. The Commissioner initially classified 'Nomark' cream as a cosmetic product, but SDA contended that it was an Ayurvedic medicine.- Previous Classification of Wanish Cream: SDA had earlier manufactured 'Wanish' cream, classified as an Ayurvedic medicine under heading 3003.39, which the Department accepted without appeal.- Ingredients and Usage: The ingredients of 'Nomark' and 'Wanish' creams were similar, with minor differences. Both creams contained medicinal ingredients like Aloe vera, Neem, Turmeric, and were used for treating scars, pigmentation, and stretch marks.- Drug License: 'Nomark' was manufactured under a proper Drug License issued by the Drug Controller, treating it as an Ayurvedic medicine.- Marketing and Sales: Despite being sold through general stores and beauty parlors, 'Nomark' was primarily marketed for treating specific medical conditions, not as a general beauty product.The Tribunal concluded that 'Nomark' cream had medicinal and therapeutic value, classifying it under heading 3003.39 as an Ayurvedic medicine.2. Relationship Between SDA and OPL:The Department argued that SDA and OPL were related persons under Section 4(4)(c) of the Central Excise Act because Mrs. Geeta Sehgal, the proprietor of SDA, held 10% shares in OPL.- Mutuality of Interest: The Tribunal found no evidence of mutuality of interest or money flow between SDA and OPL. OPL was a limited company, and SDA was a proprietary firm.- Pricing: SDA sold products to OPL and other buyers at the same price, indicating no preferential treatment.The Tribunal held that SDA and OPL were not related persons under the Act.3. Applicability of Extended Period of Limitation:The Commissioner invoked the extended period of limitation under the proviso to Section 11A of the Central Excise Act, alleging suppression of facts by SDA.- Grounds for Extended Period: The Commissioner justified the extended period based on the alleged relationship between SDA and OPL.- Suppression of Facts: The Tribunal found no suppression or misstatement by SDA regarding the classification of 'Nomark'. The duty demand arose from reclassifying the product, not from any concealment.The Tribunal ruled that the extended period of limitation was not applicable.4. Imposition of Penalties:Penalties were imposed on SDA under Section 11AC of the Central Excise Act and on OPL and its Managing Director under Rule 209A of the erstwhile Central Excise Rules.- Validity of Penalties: Since the duty demand was set aside, there was no justification for penalties. The Tribunal also found no evidence of connivance or purchase at depressed prices by OPL and its Managing Director.The Tribunal set aside all penalties imposed on SDA, OPL, and its Managing Director.Conclusion:The Tribunal set aside the impugned order, holding that 'Nomark' cream is classifiable under heading 3003.39 as an Ayurvedic medicine. It also ruled that SDA and OPL are not related persons, the extended period of limitation is not applicable, and there is no justification for penalties. All three appeals were allowed with consequential relief.
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