2026 (3) TMI 13 - AT - Central Excise

Classification as Ayurvedic Medicine upheld; central excise duty, interest, penalties and confiscation quashed on appeal.

Products were held to be Ayurvedic medicines under Chapter 30 of the First Schedule based on valid drug manufacturing licence, GMP certificate and ... Classification of impugned products as Ayurvedic medicaments - onus on the Revenue to prove products are cosmetics or toiletry preparations - failure to disclose material evidence in show cause notice amounts to mala fides Classification of impugned products as Ayurvedic medicaments - onus on the Revenue to prove products are cosmetics or toiletry preparations - Whether the goods manufactured by the appellants are dutiable as cosmetics/toiletry preparations or are Ayurvedic medicines falling under Chapter 30 - HELD THAT: - The Tribunal examined the licences, Certificate of GMP and the opinion of the Directorate of ISM Drugs Control produced by the appellants and recorded that these documents showed manufacture of Ayurvedic medicines. The Tribunal applied the settled principle that the burden lies on the Revenue to show that a product falls within a particular Tariff Item, and noted absence of any test reports or other documentary evidence produced by the Revenue to demonstrate that the impugned products are cosmetics or toiletry preparations. Reliance was placed on the legal approach in Sharma Chemical Works that classification depends on the nature and use of the product and that registration/licence and dosage/label information are material. On the facts, the Tribunal concluded that the Revenue did not discharge its burden and that the products are Ayurvedic medicines falling under Chapter 30. [Paras 17, 20] Products are Ayurvedic medicines under Chapter 30; demands of duty, interest, penalties and confiscation premised on classification as cosmetics/toiletry preparations are unsustainable and set aside. Failure to disclose material evidence in show cause notice amounts to mala fides - Whether the Show Cause Notice(s) were issued after properly disclosing and relying upon material evidence including the Directorate's opinion - HELD THAT: - The Tribunal found that the Directorate of ISM Drugs Control's opinion and the licences relied upon by the appellants had been obtained by the appellants but were not disclosed or relied on by the Show Cause Notice issuing authority. That non-disclosure was held to demonstrate mala fides in issuance of the Show Cause Notice(s). This procedural defect was taken into account in concluding that the adjudication confirming demands and penalties could not be sustained. [Paras 16, 20] Non-disclosure of the Directorate's opinion in proceedings showed mala fides; the impugned adjudications based on the defective show cause process are unsustainable. Final Conclusion: The appeals are allowed; the adjudication confirming duty, interest, penalties and confiscation was set aside after holding the products to be Ayurvedic medicines and finding that the Revenue failed to prove otherwise and that material evidence was not disclosed in the show cause proceedings. Issues: Whether the products manufactured and cleared by the appellants are Ayurvedic medicines falling under Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985, or cosmetics/toiletry preparations falling under Chapter 33; and whether the demands of central excise duty, interest, penalties and confiscation confirmed by the adjudicating authority are sustainable.Analysis: The record includes a valid drug manufacturing licence, a GMP certificate, and an opinion from the Directorate of ISM Drugs Control certifying the products as Ayurvedic medicaments under the statutory scheme for Ayurvedic drugs. The revenue did not produce test reports or other documentary evidence to rebut the classification as medicaments. Relevant tariff notifications and the statutory scheme for drugs and cosmetics were considered. Precedent establishes that the burden to prove that a product does not fall within a particular tariff item lies on the revenue, and sale without prescription or over-the-counter availability is not conclusive of cosmetic classification. The show cause notices failed to rely on or disclose the Directorate's opinion at the time of issuance, and the documentary materials on record support classification as Ayurvedic medicines.Conclusion: The products are Ayurvedic medicines within Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985. The confirmed demands of duty and interest, imposition of penalties, and confiscation of seized goods are not sustainable and are set aside. The appeals are allowed with consequential relief, if any.