2025 (9) TMI 871 - AT - Central Excise

Face-pack held to be ayurvedic medicament, not cosmetic, as manufacturer met twin-test evidence and revenue failed to rebut

M/s. Warrier’s Hospital & Panchakarma Centre Versus Commissioner of Central Excise & Customs, Thiruvananthapuram

CESTAT held that the face-pack product is classifiable as an ayurvedic medicament rather than under cosmetics. The appellant produced overwhelming ... Classification of manufactured goods - Dhatri Brand Fairness Face Pack - classifiable under Chapter sub heading 30049011 as ayurvedic medicament or under Chapter sub-heading 33049990 of CETA, 1985? - HELD THAT:- It is found that even though the appellant had produced overwhelming evidences to establish that the manufactured product is medicament, which is also sold as ayurvedic medicament mentioning effectively on the packing of the products. No contrary evidence has been placed by the Revenue. It is found that the appellant has satisfied the twin tests laid down by the Hon’ble Supreme Court in the case of CCE, Hyderabad Vs. Richardson Hindustan Ltd. [2013 (8) TMI 467 - SUPREME COURT] and subsequently followed in a series of cases. In the result, the impugned orders are set aside. The impugned orders are set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the product described as a 'fairness face pack' is classifiable as an ayurvedic medicament under Chapter sub-heading 30049011 or as a cosmetic/skin care preparation under Chapter sub-heading 33049990 of the Central Excise Tariff Act, 1985. 2. Whether classification under Chapter 30 can be sustained based on (a) the 'twin tests' (recognition in popular parlance as an ayurvedic medicine and composition matching ingredients in authoritative ayurvedic texts), (b) a licence/certification from drug control authorities and (c) evidence of prescribing by medical practitioners. 3. Whether the burden to prove correct classification lies on the Revenue and, if so, whether the Revenue satisfied that burden in this case. 4. Whether the imposition of differential duty (under MRP assessment) with interest and penalties is justified where the classification challenged by Revenue is not supported by evidence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proper classification: medicament (Chapter 30) v. cosmetic (Chapter 33) Legal framework: Classification is governed by the tariff headings and applicable Chapter Notes. Chapter 30 covers medicaments (including ayurvedic medicaments put up for retail sale); Chapter 33 covers beauty or make-up preparations and preparations for the care of the skin (other than medicaments). Note 1(d) to Chapter 30 excludes preparations of Chapter 33 even if they have therapeutic or prophylactic properties; Note 2 to Chapter 33 covers products put up as cosmetics even if containing subsidiary pharmaceutical constituents or held out as having subsidiary curative value. Precedent treatment: The Tribunal's twin tests (product known in popular parlance as ayurvedic medicine; ingredients found in authoritative ayurvedic texts) have been accepted by higher courts and adopted in Board circulars as criteria for classifying ayurvedic medicaments. Higher court jurisprudence also emphasizes functional test (primary use - cure/treatment v. care/beautification), and that the proportion of pharmaceutical ingredients is not decisive. Chapter Notes and judicial decisions have been applied to hold that products with primary curative intent and therapeutic attributes qualify as medicaments even if sold over-the-counter. Interpretation and reasoning: The Court applied the twin tests and functional principles. The Dhatri product's ingredient list corresponds to authoritative ayurvedic texts, and packaging displayed an Ayurvedic licence; affidavits from medical practitioners confirm prescription/use for treating specific skin ailments. The Court emphasized primary purpose: medicament treats or cures medical conditions whereas cosmetics primarily improve appearance. Note 2 to Chapter 33 was read to mean that only subsidiary curative/prophylactic properties will not convert a cosmetic into a medicament; where curative use is primary, Note 2 does not apply to convert a medicament into a cosmetic. Note 1(d) to Chapter 30 was considered but interpreted consistently with the twin tests and functional analysis: exclusion of Chapter 33 items from Chapter 30 does not preclude classification as medicament where the product meets the medicament criteria. Ratio vs. Obiter: Ratio - The product meets the twin tests and functional test for medicament; primary use determines classification; small proportion of medicinal ingredients does not negate medicament character. Obiter - Illustrative examples (e.g., baldness treatment) and extended discussion of Note 2 nuance serve explanatory purposes but align with the operative ratio. Conclusion: The product is classifiable as an ayurvedic medicament under Chapter sub-heading 30049011 rather than as a cosmetic under Chapter sub-heading 33049990. Issue 2 - Role of drug licence/certification and authoritative texts in classification Legal framework: Classification is by tariff interpretation, guided by popular meaning and Chapter Notes; administrative certifications (drug licences) and authoritative texts are relevant but not conclusively determinative. Precedent treatment: Earlier decisions and Board circulars recognize drug licences and authoritative texts as important evidence but caution that drug licence alone is not conclusive. The twin tests require popular recognition and matching of ingredients to authoritative ayurvedic works; courts have accepted licences and textual conformity as strong supporting evidence when accompanied by other indicators. Interpretation and reasoning: The Court treated the drug licence and packaging information as supporting evidence, not as sole determinative. The appellant produced the authoritative text showing constituent ingredients and affidavits from prescribing doctors. The Court found that these materials, collectively, satisfied the twin tests and established the product's medicament character in popular parlance and composition. Ratio vs. Obiter: Ratio - Drug licence and conformity with authoritative ayurvedic texts constitute significant, admissible evidence; when combined with other indicators (marketing, practitioner use), they can establish classification under Chapter 30. Obiter - Statements emphasizing that licences are only a guide and not a determinative factor reiterate settled precedent. Conclusion: The licence and textual conformity were admissible, probative evidence and-together with affidavits and packaging-satisfied the twin tests supporting classification as an ayurvedic medicament. Issue 3 - Burden of proof and evidentiary obligations of Revenue Legal framework: The Revenue bears the onus to justify reclassification and to lead evidence supporting a change in tariff treatment; classification disputes require evidentiary support from the party challenging the declared classification. Precedent treatment: Jurisprudence holds that where the assessee places evidence supporting a claimed classification, the department must produce material to discharge its burden for reclassification; failure to lead evidence renders allegations in show-cause notices insufficient. Interpretation and reasoning: The show-cause notices alleged cosmetic classification but did not present evidence showing popular perception or functional use contrary to the appellant's materials. The authorities below rejected the appellant's evidence without producing contrary proof. The Court relied on precedent emphasizing departmental burden and held that absent supporting evidence from Revenue, the allegation of misclassification was a bare assertion not sufficient to displace the appellant's evidence. Ratio vs. Obiter: Ratio - The Revenue must lead evidence to justify differential classification; bare allegations in showcause notices are inadequate. Obiter - Reference to specific case law principles reiterating burdens and evidentiary standards. Conclusion: The Revenue failed to discharge its onus; therefore the reclassification claim could not be sustained. Issue 4 - Consequences: differential duty, interest and penalties Legal framework: Differential duty under the MRP (Section 4A) and interest/penalties may follow from successful reclassification where the department proves misclassification or suppression. Precedent treatment: Penalties and interest are not justified where classification change is not supported by evidence or where departmental onus is unmet. Courts have set aside demands when reclassification is not demonstrated. Interpretation and reasoning: Since the Court concluded the appellant met the criteria for medicament classification and Revenue failed to provide contrary evidence, the demands for differential duty, interest and penalties premised on reclassification were unsustainable. The Court set aside impugned orders and allowed relief consequentially as per law. Ratio vs. Obiter: Ratio - Where reclassification is not established by Revenue, consequential demands for additional duty, interest and penalties must be set aside. Obiter - None beyond application of settled remedial principles. Conclusion: Differential duty, interest and penalties based on proposed reclassification were unjustified and set aside; appeals allowed with consequential relief as per law.