Ayurvedic medicament classification prevails over cosmetic tariff where labels, ingredients and drug licence support therapeutic use.

Products manufactured under a drug licence and marketed with medicinal claims were treated as Ayurvedic medicaments, not cosmetics, because their labels, ingredients and therapeutic character supported classification under Chapter 30; the Revenue failed to prove they were cosmetics under Chapter 33. Valuation was to follow the wholesale-price basis, with lawful deductions, since the parties were not related persons. The extended limitation period was unavailable because the record showed a continuing classification dispute and did not establish suppression or wilful misstatement. The Tribunal's view on classification, valuation and limitation was affirmed.

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Issues: (i) whether the disputed products were classifiable as Ayurvedic medicines under Sub-heading 3003.30 or as cosmetics and toilet preparations under Chapter 33; (ii) whether the assessable value had to be determined on the basis of related-person pricing; (iii) whether the extended period of limitation under Section 11A of the Central Excise Act, 1944 was available to the Revenue.

Issue (i): whether the disputed products were classifiable as Ayurvedic medicines under Sub-heading 3003.30 or as cosmetics and toilet preparations under Chapter 33

Analysis: The products were examined in the light of earlier authorities distinguishing cosmetics from medicaments. The decisive factors were the product labels, their claimed medicinal properties, the presence of Ayurvedic ingredients, the drug licence under which they were manufactured, and the settled principle that a product does not cease to be a medicament merely because it may also be capable of beautifying use or contains medicinal ingredients in a small percentage. The common parlance test was not treated as conclusive where the product otherwise answered the description of an Ayurvedic medicament. The Revenue did not discharge the burden of showing that the products were cosmetics.

Conclusion: The products were held to fall under Chapter 30 and not Chapter 33, and the classification in favour of the assessee was upheld.

Issue (ii): whether the assessable value had to be determined on the basis of related-person pricing

Analysis: The valuation question was addressed on the footing that the parties were not related persons and that the price adopted for assessment should reflect the relevant wholesale price structure with permissible deductions. The agreed approach was that where sales to independent buyers existed, the least third-party price could be used as the benchmark, and where only inter-company sales existed, the wholesale price charged by the purchasing concern could be used, subject to lawful deductions such as discounts, freight, duty and taxes.

Conclusion: The valuation was to be worked out on the indicated wholesale-price basis, and the assessee's position was accepted.

Issue (iii): whether the extended period of limitation under Section 11A of the Central Excise Act, 1944 was available to the Revenue

Analysis: The Court found no basis to invoke the extended period because the dispute itself showed a continuing controversy over classification, and the products were materially comparable to earlier cases in which the extended period had been rejected. The facts did not establish suppression or wilful misstatement sufficient to sustain the longer limitation period.

Conclusion: The extended period of limitation was held to be unavailable, and the demand beyond the normal period was barred.

Final Conclusion: The Tribunal's view on classification, valuation and limitation was affirmed, with no interference called for in the Revenue's appeals.

Ratio Decidendi: A product manufactured under a drug licence and claimed with medicinal properties will be classified as a medicament, not as a cosmetic, where its essential character and labeling support therapeutic use; mere possible cosmetic use, or a small percentage of medicinal ingredients, does not by itself bring it under the cosmetic tariff, and the extended limitation cannot be invoked absent suppression or wilful misstatement.

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