Ayurvedic proprietary medicine classification prevailed; capsule processing was held to amount to manufacture for tax purposes.

Technical and documentary evidence established that the product was an Ayurvedic proprietary medicine, including its licences, literature and prior expert material; it was not treated as a food supplement, and common parlance was not decisive on those facts. Processing bulk imported material into capsules was held to change the character of the goods and amount to manufacture, so the finished product could not be taxed merely as an imported item sold through a particular marketing channel. The revisions were allowed, the adverse orders were interfered with, and the goods were directed to be treated and taxed as Ayurvedic preparations.

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Issues: (i) Whether the goods in question were Ayurvedic proprietary medicine or food supplement. (ii) Whether the product, after processing and filling into capsules, amounted to manufacture and could not be taxed as a mere imported product sold through a particular marketing channel.

Issue (i): Whether the goods in question were Ayurvedic proprietary medicine or food supplement.

Analysis: The classification had to be decided on the basis of the evidence showing the nature of the product, the licences obtained for its manufacture, the literature describing it as an Ayurvedic proprietary preparation, and the expert material relied upon in earlier proceedings concerning the same product. The material on record did not support the view that the goods were merely food supplements. The common parlance approach was not appropriate where the documentary and technical evidence established the medicinal character of the product.

Conclusion: The goods were Ayurvedic proprietary medicine and not food supplement, in favour of the assessee.

Issue (ii): Whether the product, after processing and filling into capsules, amounted to manufacture and could not be taxed as a mere imported product sold through a particular marketing channel.

Analysis: The product imported in bulk form was subjected to processing and conversion into capsules before marketing. That process changed the character of the goods and constituted manufacture. The fact that the goods were imported originally did not determine the tax classification of the finished product. Likewise, the method of sale, including multi-level marketing, was not a valid criterion for enhancing the rate of tax where the nature of the goods was otherwise established.

Conclusion: The processing amounted to manufacture and the goods could not be treated as a mere imported product for the purpose of higher taxation, in favour of the assessee.

Final Conclusion: The revisions succeeded, the impugned orders were interfered with, and the goods were directed to be treated and taxed as Ayurvedic preparations rather than food supplements.

Ratio Decidendi: A product shown by technical and documentary evidence to be an Ayurvedic proprietary medicine cannot be classified as a food supplement merely because it is imported in bulk or marketed through a particular channel, and processing that converts it into capsules constitutes manufacture for tax purposes.

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