2026 (3) TMI 744 - AT - Central Excise

Classification of Ayurvedic Formulations: authorised active ingredients and therapeutic labelling determine medicine status, not cosmetic categorisation.

The text clarifies classification between patent and proprietary Ayurvedic medicines and cosmetics by applying the essential-character test: a formulation ... Classification of Products - Patent and Proprietary Ayurvedic medicines Or cosmetics - consequence of classification on demand of duty and penalties - Classification of Patent and Proprietary Ayurvedic medicines versus cosmetics - HELD THAT:- The Tribunal found on the material on record that the products were manufactured from ingredients listed in authoritative Ayurvedic texts and were manufactured under a licence under the Indian System of Medicine. The presence of excipients or common cosmetic/pharmaceutical auxiliaries does not deprive a preparation of its essential character as an Ayurvedic PP medicine; excipients that provide bulk do not displace the active ingredients which determine the product's character. The Tribunal examined the scope of the chapter notes and the Supreme Court's analysis in Puma Ayurvedic Herbal (P) Ltd. [2006 (3) TMI 141 - SUPREME COURT] and applied them to the factual matrix: where the labels, composition chart and licence show the products are marketed and formulated as Ayurvedic PP medicines, they must be classified accordingly. Applying these principles to the disputed goods, the Tribunal held they are Patent and Proprietary Ayurvedic medicines and not cosmetics. [Paras 7, 10, 11, 12] The disputed products are Patent and Proprietary Ayurvedic medicines and not cosmetics. Consequence of classification on demand of duty and penalties - HELD THAT: - Having held that the products are Ayurvedic PP medicines, the Tribunal concluded that the classification in the impugned orders as cosmetics was incorrect. As the classification was unsustainable, the consequential demand of duty, interest and the imposition of penalties founded on that classification could not be sustained. [Paras 13] The demand of duty, interest and the penalties cannot be sustained. Final Conclusion: Both appeals were allowed; the impugned orders classifying the products as cosmetics were set aside, and the consequential demand of duty, interest and penalties was held unsustainable. Issues: Whether the disputed products are patent and proprietary Ayurvedic medicines (P&P) or cosmetics, and consequently whether the demand of duty, interest and penalties sustained in the impugned orders can be upheld.Analysis: The Court examined the formulation of the disputed products, the table of active ingredients, the authoritative Ayurvedic texts cited for those ingredients, and the manufacturing licences under the Indian System of Medicine. The Court considered the definitions under Section 3(a) and Section 3(h) of the Drugs and Cosmetics Act, 1945 and the Chapter notes to the Central Excise Tariff (including Note 1(d) to Chapter 30 and Note 2 to Chapter 33). The Court rejected the reasoning that the presence of excipients, fillers or ingredients used also in cosmetics necessarily destroys the medicament character of a formulation, noting that pharmaceutical preparations commonly contain non-active excipients which do not determine the essential character of the product. The Court applied the principle that a product's essential character is determined by its active medicinal ingredients and its marketed and labelled therapeutic purpose. The Court also considered precedent on the effect of Chapter notes and the distinction between primary therapeutic use and subsidiary cosmetic benefits, and evaluated market presentation, labelling and ingredient provenance as relevant to classification.Conclusion: The disputed products are patent and proprietary Ayurvedic medicines and not cosmetics; the classification as cosmetics in the impugned orders cannot be sustained and the consequent demand of duty, interest and penalties cannot be sustained - decision is in favour of the assessee.Ratio Decidendi: A formulation containing authorized ayurvedic active ingredients remains a patent and proprietary ayurvedic medicine notwithstanding the presence of excipients or substances also used in cosmetics; the essential character is determined by the active medicinal ingredients and the primary therapeutic purpose, and products falling under Chapter 33 remain cosmetics only where their primary character and market presentation are cosmetic or their therapeutic effect is merely subsidiary.