2003 (11) TMI 69 - SC - Central Excise

Supreme Court reclassifies products as Ayurvedic medicaments, allowing appeals.

The Supreme Court allowed both appeals, setting aside the CEGAT's orders. The Court held that the products should be classified as Ayurvedic medicaments ... Classification of medicaments under Central Excise Tariff - common parlance test - ingredient test - ingredients mentioned in authoritative Ayurvedic texts - patent or proprietary medicaments versus Ayurvedic medicaments - onus of proof on the Revenue for tariff classification - relevance of drug licence and regulatory categorisation as evidentiary materialClassification of medicaments under Central Excise Tariff - common parlance test - ingredient test - ingredients mentioned in authoritative Ayurvedic texts - patent or proprietary medicaments versus Ayurvedic medicaments - relevance of drug licence and regulatory categorisation as evidentiary material - onus of proof on the Revenue for tariff classification - Vicks Medicated cough drops, Vicks Vaporub throat drops and Sloan's Balm/Rub are classifiable as Ayurvedic medicaments under sub heading 3003.30 of the Central Excise Tariff and not as patent or proprietary medicaments under sub heading 3003.10. - HELD THAT: - The Court applied the tests accepted in Richardson Hindustan: (i) whether in common parlance the product is known as an Ayurvedic medicament and (ii) whether all ingredients are mentioned in authoritative Ayurvedic texts. The authorities and the Government Circular adopting those twin tests are binding guidance. The Court held that where the taxing statute and tariff do not define 'Ayurvedic medicine', the ordinary/popular understanding and trade/practitioner usage are relevant. The appellants established that all ingredients appear in authoritative Ayurvedic books, that the products were manufactured under Ayurvedic drug licences and that affidavit and other evidence indicating popular and trade recognition as Ayurvedic medicaments were not rebutted by the Revenue. The Court rejected the Tribunal's reliance on foreign patent/marketing characterisations and the restrictive application of the Drugs Act definition, finding that those factors did not outweigh the twin tests or permit reclassification by the Revenue. The Court further reiterated the settled principle that the burden of proving a product falls in a particular tariff item is on the Revenue, and where the Revenue produced no contrary evidence the appellants' case must prevail. Applying these principles to the facts, the Court concluded that the products possess the characteristics of Ayurvedic medicaments and are therefore classifiable under sub heading 3003.30. [Paras 38, 39, 40, 41, 42]Both appeals are allowed and the impugned orders are set aside; the products are to be classified as Ayurvedic medicaments under sub heading 3003.30 of the Central Excise Tariff.Final Conclusion: The Supreme Court allowed the appeals, holding that the contested medicaments satisfy the accepted twin tests (common parlance and ingredients in authoritative Ayurvedic texts), that the appellants' Ayurvedic drug licences and unrebutted evidence support classification, and that the products are classifiable under sub heading 3003.30 (Ayurvedic medicaments) rather than under sub heading 3003.10. Issues Involved:1. Classification of medicated cough drops and throat drops as Ayurvedic Medicaments for central excise duty.2. Classification of 'Sloan's Balm' and 'Sloan's Rub' as Ayurvedic medicines under central excise duty.Issue-wise Detailed Analysis:1. Classification of Medicated Cough Drops and Throat Drops:The appellants, M/s. Naturalle Health Products (P) Limited, Hyderabad, filed a classification list under Rule 173B of the Central Excise Rules, 1944, claiming their goods under sub-heading 3003.30, attracting nil rate duty. The Assistant Collector of Central Excise issued a show cause notice, proposing classification under sub-heading 3003.10, chargeable at 15% ad valorem. The Assistant Collector's order, upheld by the Collector of Central Excise and the CEGAT, classified the goods as Patent or Proprietary Medicaments under sub-heading 3003.10. The Vice-President of CEGAT suggested referring the matter to a Larger Bench due to its industry-wide importance. The appellants contended that their products, manufactured under a loan license for Ayurvedic drugs, should be classified under sub-heading 3003.30.2. Classification of 'Sloan's Balm' and 'Sloan's Rub':The appellants manufactured 'Sloan's Balm' and 'Sloan's Rub' using ingredients listed in Ayurvedic texts and principles. They filed classification lists under sub-heading 3003.30, attracting nil rate duty. The Assistant Collector issued show cause notices, proposing classification under sub-heading 3003.10. The Assistant Collector's orders were appealed, and the Collector of Central Excise (Appeals) remanded the case for de novo adjudication. The Assistant Collector reissued show cause notices, and upon rejection of the appellants' contentions, the Collector of Central Excise (Appeals) upheld the classification under sub-heading 3003.30. The CEGAT, however, allowed the Revenue's appeal, leading to the present appeal by the appellants.Detailed Analysis:Classification of Medicated Cough Drops and Throat Drops:The appellants argued that their products, manufactured under a license for Ayurvedic drugs, should be classified under sub-heading 3003.30. They contended that the definition of Ayurvedic medicines in Section 3(a) of the Drugs and Cosmetics Act should not apply to classification under the Central Excises and Salt Act, 1944. They emphasized the common parlance test and the ingredients listed in Ayurvedic texts. The Revenue argued that the products did not follow Ayurvedic formulae and should be classified under sub-heading 3003.10. The Supreme Court considered previous judgments, including the Amrutanjan Limited case, which supported the appellants' contention that ingredients refined to pharmaceutical grade do not alter their Ayurvedic nature. The Court also noted the Government's acceptance of the common parlance test and the ingredients test in Circular No. 25/91, dated 3-10-1991.Classification of 'Sloan's Balm' and 'Sloan's Rub':The appellants provided evidence, including authoritative texts, licenses, and clinical trial reports, to support their classification under sub-heading 3003.30. The Revenue argued that the products did not meet the criteria for Ayurvedic medicaments. The Supreme Court referred to the Larger Bench decision in Himtaj Ayurvedic Kendra, which held that sub-heading 3003.30 includes both classical and patent or proprietary Ayurvedic medicaments. The Court emphasized the importance of the common parlance test and the ingredients listed in authoritative Ayurvedic texts. The Court also noted that the products were manufactured under an Ayurvedic drug license, further supporting their classification under sub-heading 3003.30.Conclusion:The Supreme Court allowed both appeals, setting aside the CEGAT's orders. The Court held that the products in question should be classified as Ayurvedic medicaments under sub-heading 3003.30 of the Central Excise Tariff. The Court emphasized the common parlance test, the ingredients listed in authoritative Ayurvedic texts, and the Government's circular clarifying the classification criteria. The appellants were allowed to discharge their bank guarantees, and no orders as to costs were made.