2008 (9) TMI 4 - SC - Central Excise

Classification upheld: 22 Ayurvedic medicaments under Chapter 30 entry 3003 taxed; 70 products classified as cosmetics under Chapter 33

SC affirmed Tribunal's classification: 22 products were Ayurvedic medicaments under Chapter 30 (entry for 3003) and taxed accordingly, while the remaining ... Classification of 22 products manufactured - Valuation and the Limitation - classified under Central Excise Tariff Sub-heading 3003.30 as 'Ayurvedic medicines' attracting 10% duty or under Chapter 33 as 'cosmetics' and 'toilet preparations' attracting 40% duty - Bio Aloevera, Bio Bhringraj, Bio-cucumber, Bio-coconut etc. - common parlance test - The remaining 70 products were held to be the 'cosmetic' and 'toilet preparations' falling under Chapter 33 of the Scheduled under Central Excise Act - Tribunal further held that IRLP and IMPL were not the related persons and further the extended period of limitation could not be made available to Revenue. HELD THAT:- We need not dilate on the judgment further in view of our observations and our detailed references made but we must reiterate that the judgment does consider the relevant Entries of Chapter 30 including the Entry under the heading 3003 as also 3003.19. It also refers to the HSN Notes in detail and also notes the pre-amendment position, i.e., before 1.3.1986 when the relevant entries came on the anvil. The judgment is also very relevant to note that the labels on the bottles are extremely relevant in coming to the conclusion as to whether the product is cosmetic or a drug. It further reiterates that merely because there is very small percentage of ingredients having therapeutic or prophylactic value and merely because the product can be used otherwise for beautification, it does not ipso facto become a cosmetic preparation. We must immediately point out that the expert opinion was pressed into service before the Tribunal of Dr.V.N. Pandey who had in details analysed all these products and noted that the products contained the elements having Ayurvedic medicinal value. It was also noted rightly by the Tribunal that all these products were produced under the drugs licence issued under the Drugs and Cosmetics Act. learned Senior Counsel for the Revenue could not dispute this fact. Further it was obvious from the labels of the products which we have ourselves inspected in the court that there is a claim made in each of the lable of the medicinal properties of the product. It is also found that there was a specific claim that this is not a cosmetic product. In this behalf learned Senior Counsel for the Revenue took us through the show cause notice and tried to point out that the products were sold to the Hotels, Beauty Parlours etc. Our attention was also invited to various orders as also to the literature and it was tried to be suggested that these products were treated to be the cosmetic products, if not by the assessee, at least by the customers. We have already pointed out that the common parlance test is not 'be all and end all' of the matter on the basis of which the case of Shri Baidyanath Ayurved Bhavan's case [1995 (3) TMI 109 - SUPREME COURT] was decided. We have further pointed out that thereafter firstly the entry was amended and in series of decisions this Court has held that merely because the product could be put to cosmetic use that would not by itself make it a cosmetic product provided there was a rightful claim made that it was an Ayurvedic product on the factual basis, and it contained the medicinal Ayurvedic medicament. The miniscule percentage used is also not a deciding factor and this court has, in series of decisions, held that the miniscule percentage does not change the nature of the product from medicament to the cosmetic products. In the wake of all these decisions it would have to be held that the products referred to above, excepting in respect of which Shri Lakshmikumaran has conceded, were the medicinal products and as such were covered by Chapter 30 and not under Chapter 33. We are of the clear opinion that the Tribunal was right in holding these products to be the medicinal products and we approve of the findings of the Tribunal in that behalf regarding the classification of the product. Valuation - learned counsel for the Assessee has specifically made a statement as regards the valuation - To this learned Senior Counsel for the Revenue has no objection. We, therefore, hold accordingly. Limitation - In view of our findings that these products were genuinely Ayurvedic medicaments, it would not be necessary for us to go into that question. However, since the parties have argued the question, we would consider the same. It was contended that since the appellants sold their products to boutiques, beauty parlours, hotels and traders, they should be held as 'cosmetics'. We have already taken stock of this argument and rejected the same. In that view we affirm the findings of the Tribunal regarding the limitation. In our opinion the Tribunal has considered all the facts brought before it and has come to the final findings in the following words. We are satisfied with the reasoning given by the Tribunal and affirm the same. Accordingly all the above Appeals are dismissed. Issues Involved:1. Classification of 22 products manufactured by IRLP.2. Valuation of the products.3. Applicability of the extended period of limitation.Detailed Analysis:1. Classification of 22 Products:The primary issue was whether the 22 products manufactured by IRLP should be classified under Central Excise Tariff Sub-heading 3003.30 as 'Ayurvedic medicines' attracting 10% duty or under Chapter 33 as 'cosmetics' and 'toilet preparations' attracting 40% duty. The Tribunal had earlier classified these products under Sub-heading 3003.30, a decision challenged by the Revenue.Arguments by Revenue:- The Revenue argued that these products were cosmetics, not Ayurvedic medicines, and should be classified under Chapter 33.- They relied on the common parlance test and various statements and literature suggesting the products were used for beautification.Arguments by Assessee:- The Assessee argued that the products contained Ayurvedic medicinal herbs and were marketed as Ayurvedic medicines.- They relied on the fact that the products were manufactured under a drugs license and were labeled as having medicinal properties.Court's Analysis:- The Court examined the ingredients, manufacturing licenses, and labels of the products.- It referred to previous judgments, including BPL Pharmaceuticals Ltd. v. Collector of Central Excise, Vadodara, which distinguished between cosmetics and drugs based on their intended use and labeling.- The Court noted that merely because a product could be used for beautification did not make it a cosmetic if it had medicinal properties and was marketed as such.- The Court upheld the Tribunal's classification of the 22 products under Sub-heading 3003.30, except for 'Bio-Heena' and 'Bio Heena Leaf,' which were conceded by the Assessee to be cosmetics.2. Valuation of the Products:The valuation issue was secondary but crucial for determining the assessable value for duty computation.Statement by Assessee:- The Assessee proposed that the least price charged to third parties should be taken as the basis for sales to IMPL.- If products were sold only to IMPL, the wholesale price charged by IMPL to dealers should be the basis.- Permissible deductions under Section 4 should be allowed.Revenue's Position:- The Revenue did not object to the Assessee's proposal.Court's Decision:- The Court accepted the Assessee's statement and held accordingly for valuation purposes.3. Applicability of the Extended Period of Limitation:The Tribunal had held that the extended period of limitation was not applicable, a finding challenged by the Revenue.Arguments by Revenue:- The Revenue sought to apply the extended period of limitation for the Show Cause Notices issued.Arguments by Assessee:- The Assessee argued that there was no suppression or mis-statement of facts to justify the extended period.- They cited the case of Shahnaz Ayurvedics v. Commissioner of Central Excise, Noida, where the extended period was not applied.Court's Analysis:- The Court compared the products in question with those in the Shahnaz Ayurvedics case and found them comparable.- It agreed with the Tribunal's finding that there was no suppression or mis-statement by the Assessee.- The Court affirmed the Tribunal's decision that the extended period of limitation was not applicable.Conclusion:The Supreme Court dismissed the appeals by the Revenue, upholding the Tribunal's classification of the 22 products as Ayurvedic medicines under Sub-heading 3003.30, accepting the Assessee's valuation method, and affirming that the extended period of limitation was not applicable. No costs were imposed.