TaxTMI 
TaxTMI 
2003 (5) TMI 407
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....ants. 2.1 Shri Vivek Kohli, learned Advocate, submitted that M/s. Shahnaz Ayurvedics is a sole proprietorship concern of M/s. Shahnaz Hussain, having work premises at Okhla, New Delhi and NOIDA Phase II, U.P.; that they are engaged in the activity of manufacturing various Patent and Proprietory Ayurvedic Medicines since 1986; that from the time of initiation, their products were considered as P and P Ayurvedic Medicines by the Central Excise Department also and as such, they were not required to comply with Excise formalities; that, however, they were complying with the formalities stipulated under the Drugs and Cosmetics Act; that they have obtained a Drugs Licence which has been renewed from time to time, that as of the present, the licence has been renewed till December, 1999. 2.2 He mentioned that after the search of their premises by the officers of the Department in April, 1996, show cause notices were issued for demanding Central Excise duty and imposing penalties on the ground that the products manufactured by them were cosmetics under Chapter 33 of the Central Excise Tariff and not ayurvedic medicines; various chemicals used by them were commonly used in Co....
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.... new evidence had come to light during the course of the investigation conducted by the officers of the Anti-Evasion Directorate is not correct as no new evidence has been brought on record; that the impugned Order does not say what is the new evidence; that all evidence, which is relied upon now, was before the Additional Commissioner while passing the Order dated 29-8-1989. He mentioned that the Appellants had done all that they were supposed to do and required to do and all that it could do to bring to the notice of the Department and making it aware of the process employed by them to manufacture the impugned products and the correct classification of the same; that it is thereafter upon the Department to conduct such enquiry as it may have deemed fit and proper. He relied upon the decision in Commissioner of Central Excise, Calcutta v. Dewarance Manceill & Co. Ltd. [1991 (56) E.L.T. 645 (T) = 1991 (37) ECR 268] wherein it has been held that once the classification lists have been held approved by the Proper Officer, it cannot be said that the assessees were guilty of any suppression, etc., misdeclaration, etc., and the Proper Officer could very well ask them to furnish the comp....
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....s mind carefully before approving the same. It is noteworthy that a person makes a declaration and prays in accordance with his understanding of the law and the facts. The presumption, if any, has to be that of bona fides unless proved otherwise. If the description of the goods was not considered as sufficient for the purpose of approval it was open to the Assistant Collector to have called, for more details but it was not open to him to mechanically sign of." (iv) Punjab National Fertilizers & Chemicals Ltd. v. CCE [1991 (54) E.L.T. 115 (T) = 1991 (34) ECR 166 (T)] (v) Padmini Product v. CCE, Bangalore [1989 (43) E.L.T. 195 (S.C.) = 1989 (25) ECR 289 (S.C.)] 3.4 The learned Advocate mentioned that the extended period of limitation has also been invoked on the ground that the Drugs Licence for ayurvedic medicines was obtained fraudulently by concealing and misstating facts before the Drug Controller, the Chemicals being used by them were never declared before the Drug Controller; a show cause notice had been issued by Deputy Drug Controller. He submitted that no facts had been concealed or suppressed or misst....
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....or 'Quantity sufficient'. He, therefore, contended that there was no suppression or concealment or misstatement on their part. 4.1 The learned Advocate contended that the correct classification of the products manufactured by the Appellants would be under Chapter 30 and not under Chapter 33 of the Central Excise Tariff; that there was no definition of 'Ayurvedic Medicines' given in the Central Excise Tariff Act till 1994; that goods coming under sub-heading 3003.30 including Ayurvedic medicines were exempted from duty under Notification No. 32/89-C.E., dated 1-3-89 and subsequently under Notification No. 9/93-C.E., dated 28-2-93; that in 1994 Notification No. 75/94, dated 29-3-94, exemption was not granted to all categories of medicaments under sub-heading 3003.30; that a specific definition was provided to Ayurvedic Medicines by the said Notification as under : (i) Medicaments used in Ayurvedic systems, manufactured exclusively in accordance with the formulae described in the Authoritative books specified in the First Schedule to the Drugs and Cosmetics Act and sold under the name as specified in such books; (ii) &....
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....tment has relied upon the book "Shahnaz Hussain's Beauty Book" to claim that the products are cosmetics and not Ayurvedic medicines; that the said book was authored for the purpose of the "Festival of India" organized by the Government of India in France, U.K and various other countries in 1985; that the book was meant to be sold only abroad; that in any case, the settled position of law is that a product cannot be classified in accordance with the nomenclature used by the manufacturer; that if reliance is placed upon the common trade parlance test, it is that test alone which decides the classification; that it has been held by the Supreme Court in ESPI Industries and Chemicals Pvt. Ltd. v. CCE, 1996 (82) E.L.T. 444 (S.C.) that "mere fact that it is also described as a beauty cream does not necessarily exclude it from being a barrier cream." Reliance has also been placed on the decision in Leukoplast India Pvt. Ltd. v. Union of India, 1985 (20) E.L.T. 70 (Bom.) wherein it has been held that "Advertisements are published by the manufacturers of a product in order to attract consumers and have nothing to do with the classification of the same product for levying of duty ....; that p....
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....ought on record various evidences in support of their contention that the products manufactured by them are medicaments. These evidences are - (i) Affidavits of doctors/vaidyas and affidavits/letters from users - These affidavits/letters clearly demonstrate that even in the common trade parlance and usage, the subject products are treated and perceived as Ayurvedic Medicines; the learned Advocate has referred to an affidavit of one Sardar Avtar Singh according to which after doing treatment for about three months which required him to visit Shahnaz Ayurvedics on a monthly basis and the use of their medicines twice a day, the itching and irritation totally stopped, his hair also stopped falling and dandruff also more or less totally cured, that one S.R. Choudhary has thanked Shahnaz Hussain for the best ayurvedic medicine, that were used for his daughter's skin disease, eye cure and scalp care. (ii) Client prescription cards - Separate and individual records and prescription cards for each customer/client are maintained by Shahnaz Hussain Herbal. In these cards, all relevant information, such as history of....
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....fficer to reject affidavits summarily on his own subjective opinion without disclosing any basis therefor. He also referred to the decision in Union of India v. Vicco Laboratories - 2000 (123) E.L.T. 431 (Bom.) in which the Bombay High Court, on the basis of evidence led by the plaintiff in the form of examination of general practitioners of Ayurvedic medicines as well as an expert, dentist, chemists and users has held that the products are medicines. 5.3 The learned Advocate also referred to the Board's Circular No. 196/30/96-CX., dated 3-4-1996 wherein it has been clarified that the benefit of Notification No. 75/94-C.E. should not be denied to Ayurvedic medicines if they have manufactured in accordance with the formulae prescribed in the authoritative text books and sold under the generic name mentioned in the said text books but contain preservatives, inert excepients, binding agents etc., not having any therapeutic value. He also relied upon the decision in M/s. Ishaan Research Laboratories P. Ltd. v. Commissioner of Central Excise - 2001 (137) E.L.T. 293 (Tribunal) Final Order Nos. 381-396/2000-C, dated 28-8-2000 wherein the products curing Scalp Infections, Excessive....
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....f Central Excise - 1998 (98) E.L.T. 552 (T) that mutuality of business of assessee and partnership firm has to be established before two firms can be considered as related and mere relationship between partners of two firms is not sufficient. Reliance has also been placed on the decision in Commissioner of Central Excise v. T.I. Millers Ltd. - 1988 (35) E.L.T. 8 (S.C.) wherein it has been held that "the assessee and the person alleged to be a related person must have interest, direct or indirect in the business of each other. Each of them must have a direct or indirect interest in the business of the other." He contended that admittedly Shaherb Cosmetics has no interest in the business of Shahnaz Ayurvedics and it has not even been alleged so in the show cause notice; that the Department has neither adduced any evidence for and nor established that there is any mutuality in the business of both the firms. He also contended that separate independent units, even if they are owned by husband and wife, are not liable to be termed as related person until and unless the mutuality of business is first established by the Department. Reliance has been placed on the decision in Cooling Syste....
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....s low as 10%; that on the other hand, the gross profit earned by Shahnaz Ayurvedics at the end of even one of the years under consideration was not less than 50% and in some of the years it was as high as 70%; that as such it is quite apparent that no part of the profit that should have accrued to Shahnaz Ayurvedics has been passed on to Shaherb Cosmetics. 7. Finally, the learned Advocate submitted that penalty under Section 11AC of the Central Excise Act imposed on Shahnaz Ayurvedics is untenable in law as the said Section was introduced in the Act only on 28-9-96; that penalty under Section 11AC cannot be imposed in respect of any duty confirmed for a period prior to the said date. He relied upon the decision in Commissioner v. Marcandy Prasad Radhakrishna Prasad P. Ltd. v. Commissioner of Central Excise - 1998 (102) E.L.T. 705 (T) and Commissioner v. Marcandy Prasad Radhakrishna Prasad P. Ltd. - 1999 (107) E.L.T. A121 (S.C.). He also submitted that once penalty has been imposed on the proprietorship or partnership concern, no penalty can be imposed upon the proprietors or partners and relied upon the following decisions - (i) Shree ....
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....her than medicaments) including sunscreen, suntan preparations; that Note 5 to Chapter 33 and the Explanatory Notes of HSN clarify that the said heading includes not only beauty creams but also vanishing creams, cold creams, make up creams, cleansing creams, skin foods, skin tonics, beauty lotions, face powders, body powders, toilet powders, talcum powders and grease paints, lipsticks, eye shadow and eye brow pencils, etc., but also barrier creams to give protection against skin irritants, anti-acne preparations, etc., whether or not they contain subsidiary pharmaceutical antiseptic constituents or are held out as having subsidiary curative or prophylactic value. 8.3 The learned Advocate also contended that the Charts of medicines, affidavits of doctors, vaidyas and the letters from users, clinical test reports, client cards, etc., do not establish that the products in question are Ayurvedic medicines or these products were being used for the treatment or mitigation of the various diseases; that the so called 'clinic' is not a medical clinic but a 'beauty clinic'; that the client cards only indicate as how to use the beauty products which is apparent from the perusal of the....
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....attached to them by those using the products." He contended that the Commissioner has adjudicated the matter on the basis as to how the users are going to use the impugned products. He referred to the article by John Ellison in "Cosmetics World News" in which he mentions about "beautician Shahnaz Hussain who sells her herbal products in London and Paris" and the Article in "Arab News" according to which "India's well-known herbal beautician Shahnaz Hussain has cautioned Middle Eastern Women against the use of Western Synthetic Cosmetics" and it is mentioned that herbal Cosmetics are ideal for skin. The learned Advocate also mentioned that the customers of the impugned product treat them as cosmetics which is apparent from the Order dated 27-11-93 placed by Hotel Agra Ashok for "Shampoo Bottles packed in 8 ml" and not for medicine or from the Order placed by Hotel Chandela, Khajuraho which was for Daily Wash shampoo, Moisturisers, Talcum Powder, Body Gel, Mouth Wash, Tooth Paste. He also highlighted the fact that for the purpose of Central Excise, the products are Ayurvedic medicines and for the purpose of exports they are cosmetics. Reliance has also been placed on the decisions....
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....a under Heading 33.06 as a tooth powder. He also mentioned that the decision in Ishaan Research Laboratories case is not applicable as the said matter was decided on the basis of expert's report which had not been rebutted by the Revenue; that moreover products in the present appeals are different and there is no report specific to the impugned products. He, therefore, contended that the impugned products are cosmetics and toilet preparations under Chapter 33 of the Tariff. 9. He submitted that the extended period of limitation for demanding duty is invokable as there was wilful misstatement and suppression of facts on the part of the Appellants inasmuch as the products were claimed to be cosmetics in various literatures and to the buyers whereas the same were misdeclared to be ayurvedic medicines to the Central Excise Authorities; that the evidences which have come to light during the course of present investigation were not before the officers who had earlier passed the orders inasmuch as they had no knowledge that Shahnaz Hussain herself, has described these products as herbal cosmetics/beauty creams, etc., in her book and in the advance licence application for fixation ....
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....ed Order to the effect that in Deeds of Agreement entered into by Shaherb Cosmetics with the various distributors, they were referred to as the supplier of Shahnaz Ayurvedic Products; that they were appointing distributors for the products; were approving advertisements to be given by the distributors in local papers, running a School of Beauty Therapy and a clinic at Greater Kailash Part I; were signing franchise agreements with parties interested in opening Shahnaz Herbal Clinics; Beauty School or Flower Power Body Shops. He also mentioned that investigation carried out by the Department revealed that the products were not available for sale to any other domestic buyer in the course of wholesale trade, except the airlines and Hotels which are a different class of buyers, at the prices and on the terms and conditions at which these were being sold to Shaherb Cosmetics; that the first point at which the impugned goods were sold in the course of wholesale trade was the point of sale by Shaherb Cosmetics. He also pointed out that the distributors, as per agreement, undertook to buy against full payments for a minimum value specified in the agreement and would also give a lump sum int....
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....s comprising two or more constituents which have been mixed or compounded, together for therapeutic or prophylactic uses; or (b) Unmixed products suitable for such uses put up in measured doses or in packings for retail sale or for use in hospitals. 12.2 It is thus apparent from Note 2 to Chapter 30 that any product for being treated as medicament must have therapeutic or prophylactic uses. It is the requirement for being classified under Heading 30.03 of the Tariff that the therapeutic or prophylactic uses must be the main uses of the product. The mere fact that some ingredients are mentioned in the Authoritative text books on Ayurveda would not make the product a "medicament" within the meaning assigned to the said term in Note 2 to Chapter 30. This is also evident from Note 1(d) to Chapter 30 which mentions that "This Chapter does not cover preparations of Chapter 33 even if they have therapeutic or prophylactic properties." A reading of Note 1(d) with Note 2(i) to Chapter 30 makes it very clear that preparations which fall under Chapter 33 even if they have therapeutic or prophylactic properties are not covered under Heading 30.03 as medicaments. 12.3 Th....
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....sage and known denominations of trade and therefore, for the purpose of classification under the Central Excise Tariff, the provision contained in Drugs and Cosmetics Act cannot be resorted to." On Appeal filed by Shree Baidyanath, the Supreme Court affirmed the said view of the Tribunal by holding as under [as reported in 1996 (83) E.L.T. 492 (S.C.)] - "The Tribunal rightly points out that in interpreting statutes like the Excise Act the primary object of which is to raise Revenue and for which purpose various products are differently classified, resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning; that is to say, the meaning attached to them by those using the product. It is for this reason that the Tribunal came to the conclusion that scientific and technical meanings would not advance the case of the Appellants if the same runs counter to how the product is understood in popular parlance." 13.2 Both the Tribunal and the Supreme Court did not accept the Certificates and affidavits given by the Vaidyas and statements of the consumers as well as the description given in certain Ayurvedic Books a....
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....e immense scope of Indian herbal remedies in the international Cosmetic Market. I pointed out that there was no reason why herbal cosmetics manufactured in India should not find a prominent place in international stores, with their therapeutic values and element of safety." It is thus apparent that the products are cosmetics falling under Chapter 33 of the Tariff and they may have some therapeutic or prophylactic value which does not take them away from Chapter 33 in view of Note 2 to Chapter 33 and Notes 1(d) and 2(i) to Chapter 30. The learned Advocate for the Appellants has referred to the list of Medical stores purchasing/selling their products. He has also referred to their invoices in which the products have been sold as Ayurvedic Medicines. In our view the argument does not advance the case of the Appellants as it is general knowledge that Medical Stores sell cosmetics also besides medicines. Mere mention of words "Ayurvedic medicines" in invoices would not make the products as medicines which are for skin treatment, etc. The Revenue has contended that the Affidavits/Certificates given by doctors/users/patients are in very general terms. For example Dr. D.R. Khurana has ment....
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....inciple, enunciated by the Supreme Court, the products manufactured by the Appellants are products for care of skin or beauty or make-up preparation or preparation for use on the hair or preparation for oral or dental hygiene. The learned Advocate for the Appellants has himself conceded that 30 products are not Ayurvedic medicine. This list includes products such as 'Flower Power - Ayurvedic After Bath Body treatment Lotion", 'Herbbase', 'Honey Health Ayurvedic Fresheners Lotion (Skin Tonic), Shacure (useful in Acne and skin inflammation), etc. In respect of another 30 products, he has mentioned that these are borderline cases. These products, on perusal, also are products falling under Chapter 33 of the Tariff. For example "Himalyan Herb Ayurvedic Deep skin treatment cream" is nothing but a product for care of skin. The learned Advocate himself has mentioned that Flower Power - Ayurvedic Deep Skin Treatment cream is not Ayurvedic medicament. Further, "Shasmooth" is Almond under Eye cream, Shaglow is honey intensive Moisturising Cream. 'Shahsmule Paste' is for treatment for dental health which is covered by Heading 33.06. Similarly "Flower Power Ayurvedic Hair Conditioning Lo....
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....ts, namely, "Shaeyes", "Shadrink" and Shahnaz Hussain - Thandai Powder would not be classifiable as Ayurvedic Medicines as they would fall under Chapters 33 and 21 of the Tariff. As such these products are also not classifiable as Ayurvedic Medicines. It is observed that these products are also made of ingredients mentioned in Authoritative Ayurvedic Text Book such as Bhav Prakash and medicinal uses include cure vomiting diarohea, mitigate Pitha, mitigate Kapha and Vata, cure itching and eye disease. For these reason we do not find any force in the submissions of the Appellants that the following products are Ayurvedic Medicines for Pet - (i) Sha Pet - Ayurvedic Antiseptic Balm. (ii) Sha Pet - Ayurvedic Antiseptic Skin oil. (iii) Sha Pet - Anti Parastic Lotion. (iv) Sha Pet - Ayurvedic Anti Tick Hair Lotion. (v) Sha Pet - Ayurvedic Hair cream Balm. For example product No. (i) above is to provide proper nutrients to Pet's hair and acts also as a protectant against skin infections; Regular use prevents skin infestations and ....
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....t matters. 14.1 Now we come to the question whether M/s. Shahnaz Ayurvedics and M/s. Shahnaz Cosmetics are related persons under Section 4 of the Central Excise Act at the relevant time. It is not in dispute that M/s. Shahnaz Hussain is the proprietress of Shahnaz Ayurvedics and she along with her son Sameer Hussain are the partners of Shaherb Cosmetics. It is also not in dispute that Shahnaz Ayurvedics sells approximately 97% of its goods to Shaherb Cosmetics. It has been held by the Supreme Court in Calcutta Chromotype Ltd. v. Commissioner of Central Excise - 1998 (99) E.L.T. 202 (S.C.) that "...... once it is found that persons behind the manufacturer and the buyer are the same, it is apparent that buyer is associated with the manufacturer, i.e. the assessee and then regard being had to the common course of natural events, human conduct and public and private business it can be presumed that they have interest directly or indirectly, in the business of each other........ It is, however, difficult to lay down any broad principle to hold as to when corporate veil should be lifted or if on doing that, could it be said that the assessee and the buyer are related persons. Tha....
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....n of the impugned products. The decision in the case of Besta Cosmetics is not applicable as there was only a common director in manufacturing company and the buyer company. We, therefore, uphold the findings in the impugned Order that both M/s. Shahnaz Ayurvedics and M/s. Shaherb Cosmetics are related persons. 15. The third issue relates to the invocation of extended period of limitation for the purpose of demanding duty of excise. The learned Advocate has contended that the Department was aware of all the facts regarding their products being described as cosmetics and beauty care products as the dispute about their classification had been raised in 1987 after the officers had visited their premises and no new facts have come to light. There is force in this contention inasmuch as the show cause notice was issued alleging that the products manufactured by them were beauty or make-up preparations/preparations for the care of skin/preparation for use on hair and preparation for dental hygiene and not Ayurvedic medicines. The Additional Collector, under Adjudication Order dated 29-8-1989, had held that their products were Ayurvedic Medicines. The Department has further approv....
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....said decision of the Larger Bench of the Tribunal we find no reason to interfere with this finding of the Commissioner contained in Paragraph 64 of the Order-in-Original No. 16/98. Accordingly, all the eight appeals filed by the Revenue are rejected. 17.1 As the excisable goods manufactured by M/s. Shahnaz Ayurvedics have been removed without payment of proper duty and the assessable value has not been determined correctly, penalty is imposable on them. For the same reason penalty is also imposable on M/s. Shaherb Cosmetics under Rule 209A of the Central Excise Rules as they have dealt with the excisable goods which they knew were liable to confiscation. We, however, observe that the Commissioner, under Order-in-Original No. 16/98 has imposed penalty on M/s. Shahnaz Ayurvedics, Okhla Industrial Area, New Delhi only under Section 11AC of the Central Excise Act in respect of goods removed during the period from 1-2-1992 to 30-9-1996. It is settled law that penalty under Section 11AC of the Act cannot be imposed for a period prior to 28-9-96, the date on which Section 11AC was inserted in the Central Excise Act. [Marcandy Prasad Radhakrishna Prasad Pvt. Ltd. v. Commissioner of....