Ayurvedic medicament classification and excise liability: Chapter 30 treatment, no duty shift to loan licence holder, SSI relief applied.

Goods manufactured under a valid Ayurvedic drug licence and shown to have therapeutic or prophylactic character were classified as medicaments under Chapter 30, not cosmetics under Chapter 33. Central excise duty for the pre-August 2011 period could not be fastened on the loan licence holder because duty attaches to the manufacturer, and the goods were made by the job worker. For September 2011 to February 2012, SSI exemption applied on the facts found, so no differential duty or penalty survived. The connected demands and penalties were set aside.

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Issues: (i) Whether the goods were classifiable as medicaments under Chapter 30 or as cosmetics under Chapter 33 of the Central Excise Tariff Act, 1985. (ii) Whether duty liability for the period prior to August 2011 could be fastened on the loan licence holder when the goods were manufactured by the job worker. (iii) Whether the appellant was entitled to SSI exemption for the period September 2011 to February 2012 and, consequently, whether any differential duty or penalty survived.

Issue (i): Whether the goods were classifiable as medicaments under Chapter 30 or as cosmetics under Chapter 33 of the Central Excise Tariff Act, 1985.

Analysis: The goods were manufactured under Ayurvedic drug licences issued by the competent drug licensing authority, and the record showed that the products were described and approved as Ayurvedic medicines. The classification dispute was resolved by applying the therapeutic and prophylactic character of the products, the licensed Ayurvedic formulation framework, and the principles recognised in classification jurisprudence for distinguishing medicaments from cosmetics. The revenue's reliance on cosmetic classification was found inapposite on the facts.

Conclusion: The goods were held to be medicaments classifiable under Chapter 30, not cosmetics under Chapter 33.

Issue (ii): Whether duty liability for the period prior to August 2011 could be fastened on the loan licence holder when the goods were manufactured by the job worker.

Analysis: Duty under central excise is fastened on the manufacturer. The manufacturing for the relevant period was carried out by the job worker under the loan licence arrangement, and the fact that the loan licence holder had obtained drug licence recognition did not convert it into the manufacturer for excise purposes. The circumstance that the job worker was treated as not liable in the impugned order could not be used to shift duty liability to the loan licence holder.

Conclusion: The loan licence holder was not liable for central excise duty for the period prior to August 2011.

Issue (iii): Whether the appellant was entitled to SSI exemption for the period September 2011 to February 2012 and, consequently, whether any differential duty or penalty survived.

Analysis: For the relevant period, the turnover remained within the SSI exemption limit under the notification relied upon, and once the goods were held to be medicaments, the concessional regime applied. After registration, duty was being paid on the correct classification, so no differential demand survived. In the facts found, the demand and the consequential penalties could not be sustained.

Conclusion: The appellant was entitled to SSI exemption for September 2011 to February 2012, and no differential duty or penalty survived.

Final Conclusion: The classification adopted by the appellant was accepted, the pre-August 2011 demand was unsustainable against the loan licence holder, the SSI benefit was available for the relevant intermediate period, and the connected penalties were set aside.

Ratio Decidendi: Goods manufactured under a valid Ayurvedic drug licence and shown to possess therapeutic or prophylactic character are classifiable as medicaments under Chapter 30, and excise duty cannot be shifted to a loan licence holder unless it is the manufacturer in law for central excise purposes.

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