2026 (3) TMI 739 - AT - Central Excise

Product Classification as Ayurvedic medicaments confirmed; loan licence job work relieves principal of pre August excise liability.

Classification of the impugned formulations was determined by reference to statutory descriptions, licensing and certification as Ayurvedic medicines and ... Classification of goods - classifiable as medicaments under Chapter 30 Or as cosmetics under Chapter 33 - twin test (ingredient and common parlance) - loan licence - burden of proof - liability to pay central excise duty for goods manufactured by the job worker - limitation and extended period requires suppression or wilful misstatement - SSI exemption entitlement under Notification No. 08/2003-C.E. - demands, interest and penalties. Classification of goods - HELD THAT:- The Tribunal held that the products are Ayurvedic medicines/medicaments. The finding rests on the licences and certificates issued by the Directorate of ISM Drugs Control and Manufacture under the relevant drug licences, conformity of ingredients and dosages with authoritative Ayurvedic texts, and precedent including Sharma Chemical Works [2003 (4) TMI 102 - SUPREME COURT], which supports classification as medicaments where ingredients, dosage instructions and statutory licensing point to medicinal character. The Baidyanath line [2002 (1) TMI 93 - CEGAT, COURT NO. III, NEW DELHI] cited by Revenue was held inapplicable on the facts where manufacture and licensing as Ayurvedic medicines were established. Applying those legal principles, the Tribunal classified the goods under Chapter 30. [Paras 13] The products are to be classified as Ayurvedic medicines/medicaments under Chapter 30 and not as cosmetics. Liability of loan licensee for excise duty where job worker is manufacturer - HELD THAT:- The Tribunal applied the statutory test that duty is payable by the manufacturer and accepted that M/s. B.D. Enterprises, the job worker, was the manufacturer on a loan licence basis. Noting that the adjudicating authority itself found the job worker located in a rural area and not liable to pay duty, the Tribunal held that liability cannot be fastened on the loan licensee. The decision aligns with authority treating the job worker as manufacturer for excise purposes where manufacturing operations are carried out by the job worker. [Paras 14, 18] The demand for the period prior to August, 2011 is not sustainable against the appellant-company and is set aside. SSI exemption entitlement under Notification No. 08/2003-C.E. - Whether the appellant is entitled to SSI exemption for the period September, 2011 to February, 2012 and whether differential duty is payable from March, 2012 onwards - HELD THAT:- The Tribunal accepted the appellant's submission that total turnover for September 2011 to February 2012 was within the SSI threshold and accordingly entitled to exemption under Notification No. 08/2003-C.E. From March 2012 the appellant had obtained registration and discharged duty classifying the goods under Chapter 30 at the applicable rate; having held the goods to be medicaments, no differential demand is sustainable for that period. The Tribunal therefore granted exemption for the specified SSI period and rejected demands for differential duty from March 2012 onwards. [Paras 15, 16, 18] The appellant is entitled to SSI exemption for September, 2011 to February, 2012; from March, 2012 no differential duty is payable as the goods are correctly classified and duty has been paid accordingly. Imposition of penalty where classification and liability not sustainable - HELD THAT:- Having held that the demands for various periods were not sustainable-either because the appellant was not the manufacturer for the pre August 2011 period, was entitled to SSI exemption for September 2011-February 2012, and had paid appropriate duty from March 2012-the Tribunal concluded that imposition of penalty was not warranted. The Tribunal expressly found no ground for penalty against the company or its Director in the circumstances. [Paras 17, 18] No penalty is imposable on the appellant-company or its Director. Final Conclusion: The appeals are allowed: the goods are classified as Ayurvedic medicaments under Chapter 30; the demands prior to August 2011 are set aside as the job worker was the manufacturer; the appellant is entitled to SSI exemption for September 2011-February 2012; no differential duty is sustainable from March 2012 onwards; and no penalties are imposable. Issues: (i) Whether the impugned products are classifiable as medicaments under Chapter 30 of the Central Excise Tariff Act, 1985 or as cosmetics under Chapter 33 of the Central Excise Tariff Act, 1985; (ii) Whether the appellant-company is liable to pay central excise duty for the period prior to August 2011 on goods manufactured by the job worker under a loan licence; (iii) Whether the appellant is entitled to SSI exemption for the period September 2011 to February 2012 in terms of Notification No. 08/2003-C.E. dated 01.03.2003 and related consequences including penalties and differential demand.Issue (i): Whether the impugned products are medicaments under Chapter 30 or cosmetics under Chapter 33 of the Central Excise Tariff Act, 1985.Analysis: The products were manufactured under valid Ayurvedic drug licences and certified by the Directorate of ISM Drugs Control as Ayurvedic medicines; their formulations and dosages correspond to authoritative Ayurvedic texts; labeling complied with requirements for Ayurvedic medicines; judicial precedents and the twin test (ingredient test and common parlance test) were considered. The Revenue produced no contrary expert opinion or material that effectively rebutted the licensing and certification evidence. Classification is an interpretational issue and was assessed on the statutory description and the admitted licences and certification.Conclusion: The products are classifiable as Ayurvedic medicines/medicaments under Chapter 30 of the Central Excise Tariff Act, 1985. The conclusion is in favour of the assessee.Issue (ii): Whether the appellant-company is liable to pay central excise duty for the period prior to August 2011 on goods manufactured by the job worker under a loan licence.Analysis: Central excise liability rests on the manufacturer as defined under the Central Excise Act. The facts show M/s. B.D. Enterprises carried out manufacture on a principal-to-principal basis as the job worker; the loan licence arrangements and relevant precedents were examined to determine that the appellant was not the manufacturer for excise purposes for the period prior to August 2011. The adjudicating authority's finding that the job worker was exempt due to rural location does not convert the loan licensee into liable manufacturer.Conclusion: The appellant-company is not liable to pay central excise duty for the period prior to August 2011. The conclusion is in favour of the assessee.Issue (iii): Whether the appellant is entitled to SSI exemption for September 2011 to February 2012 and related reliefs including rejection of differential demand and penalties.Analysis: The appellant's turnover for September 2011 to February 2012 was within the SSI exemption threshold specified in Notification No. 08/2003-C.E. dated 01.03.2003; from March 2012 the appellant obtained registration and paid duty classifying goods under Chapter 30. The extended period and imposition of penalties require suppression or mens rea which was not established. Classification disputes are interpretational and the record shows disclosure to authorities.Conclusion: The appellant is entitled to SSI exemption for September 2011 to February 2012; no differential demand is sustainable from March 2012 onwards; and no penalty is imposable on the appellant or its director. The conclusions are in favour of the assessee.Final Conclusion: The appeals are allowed, the impugned orders are set aside, and consequential reliefs follow; the overall effect is that the demands and penalties challenged are quashed as set out above.Ratio Decidendi: Where products are manufactured under valid statutory drug licences, their composition and labeling conform to authoritative medicinal texts and are certified by the competent drug licensing authority, they qualify as medicaments under Chapter 30 of the Central Excise Tariff Act, 1985 and classification by the Revenue must be rebutted by cogent contrary evidence before differential duty or penalties can be sustained.