AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2009 (9) TMI 938
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....as a subsidiary of Global Synergy International, LLC (USA). On 22-4-2009, the said Company transferred the entirety of shares to Guthy-Renker India (Mauritius). A certificate from the Chartered Accountant has been enclosed with the written submissions which shows that Guthy Renker India, Mauritius holds 10,296,274 equity shares in the applicant-Company and the other shareholder - Guthy Renker Global Holdings, LLC - an USA company holds one share as a nominee of Guthy Renker India. The applicant is therefore eligible to seek advance ruling. 2.The applicant desires to enter into the business of import and sale of acne treatment products imported from USA. For this purpose, the applicant will import four products, namely, Proactiv Solution Revitalizing Toner, Proactiv Solution Renewing Cleanser, Proactiv Solution Repairing Lotion and Proactiv Solution Refining Mask in individual packs (in the form of bottles or tubes). "Proactiv" appears to be a brand name. These products will either be sold to consumers individually or packed into kits at the factory from where the kits will be sold to the consumers through the distributors' network. The products that will be imported and commerci....
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....It is stated that the content of two drugs, namely Benzoyl peroxide and sulphur in items of 2 to 4 is of sufficiently high level to have a primary therapeutic or prophylactic effect against acne. 3.Questions raised in the application relate to their classification under the Customs Tariff Act and the method of valuation of goods in question for the purpose of levy of additional customs duty (described as countervailing duty-CVD in the application). The following questions are formulated by the applicant for the purpose of seeking advance ruling : (a) What is the classification of the four individual products namely Proactiv Solution Revitalizing Toner, Proactiv Solution Renewing Cleanser, Proactiv Solution Repairing Lotion and Proactiv Solution Refining Mask? (b) Whether CVD is required to be paid at the time of import of the Category-I products on a value determined under Section 4 or Section 4A of the Central Excise Act, 1944? (c) Whether CVD is required to be paid at the time of import of Category-II Products on a value determined under Section 4 or Section 4A of the Central Exc....
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....ther than medicaments)[5] including sunscreen or suntanpreparations, manicure or pedicure preparations 3304 10 00 - Lip make-up preparations Kg. 10% - 3304 20 00 - Eye make-up preparations Kg. 10% - 3304 30 00 - Manicure or pedicure preparations Kg. 10% - -- other : 3304 91 -- Powders, whether or not compressed : 3304 91 10 Face powders Kg. 10% - xx  xx xx     xx      xx xx xx xx 3304 99 -- Other : 3304 99 10 --- Face creams Kg. 10% - 3304 99 20 --- Nail polish or lacquers Kg. 10% - 3304 99 30 --- Moisturising lotion Kg. 10% - 3304 99 40 --- Sindur, bindi, kumkum Kg. 10% - 3304 99 50 --- Turmeric preparations Kg. 10% - 3304 99 90 --- Other Kg. 10% - 5.Various tests and approaches have been adopted by the Supreme Court in classifying the goods under one or the other Entry of the Tariff Schedule. It is settled law "that the onus or burden to show that a pr....
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....vedic Doctors, who have prescribed these for treatment of rickets. As against this, the Revenue has not made any effort and not produced any evidence that in common parlance the product is not understood as a medicament". 5.2In the case of Puma Ayurvedic Herbal Pvt. Ltd. v. Commissioner of CE, Nagpur - 2006 (196) E.L.T. 3, the Supreme Court referred to twin tests, the first being, whether in common parlance the item was accepted as a medicament. The second test applied was whether the ingredients used in the product were mentioned in the authoritative text books on Ayurveda (in that case, the classification of ayurvedic products came up for consideration). In Commissioner of CE v. Sharma Chemical works (supra), it was observed that "the main criteria for determining classification is normally the use it is put to by the customers who use it." 5.3We would like to point out in this context that the common or commercial usage test is not an inflexible test or a rigid formula capable of being applied in all situations. The common parlance test is applied where the goods in the market are referred to and understood in a particular terminology by the traders and consumers. But the ....
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.... be used for treatment of specific ailments and the ingredients used are those specified in the medical or pharmacology books, that is a strong pointer of the product being a medicament. 6.1Coming to the crucial issue, the Revenue wants to classify the products in question under the heading 3304 occurring in Chapter 33. It reads : "beauty or make up preparations and preparations for the care of the skin (other than medicaments)". It is not in dispute that 'revitalizing toner' which is used for cleansing the skin as a prelude to the application of other products falls under the heading 3304 (to be more specific t.i. 3304 99 90). The question, therefore, is whether 'Proactiv' Renewing Cleanser and Repairing Lotion which contain Benzoyl Peroxide to the extent of 2.5% and Refining Mask having 6% Sulphur content can be treated as medicaments. If they appropriately fall within the description of medicaments dealt with in Chapter 30, the classification under Chapter 33 cannot obviously be resorted to in view of the clear exclusionary words - "other than medicaments". 6.2Chapter 30 prescribes the tariff for "pharmaceutical products". Heading No. 3004 speaks of medicaments consisting ....
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....reparations", it is stated thus : This part covers : (1) xxxxxx (2) xxxxxx (3) Other beauty or make-up preparations and preparations for the care of the skin (other than medicaments), such as : face powders (whether or not compressed), baby powders (including talcum powder, not mixed, not perfumed, put up for retail sale), other powders and grease paints, beauty creams, cold creams, make-up creams, cleansing creams, skin foods (including those containing bees 'royal jelly') and skin tonics or body lotions; petroleum jelly, put up in packings of a kind sold by retail for the care of the skin; barrier creams to give protection against skin irritants, anti-acne preparations (other than soaps of heading 34.01) which are designed primarily to cleanse the skin and which do not contain sufficiently high levels of active ingredients to be regarded as having a primary therapeutic or prophylactic effect against acne.........(emphasis supplied). 6.4The relevant items under the Customs Tariff Act correspond to the internationally evolved Harmonized Commodity Description and Coding System (a....
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....e body where they are used. In that sense they may have some therapeutic value, yet they remain cosmetic." The distinction between primary and subsidiary therapeutic use was highlighted at paragraph 24 of the judgment in Puma Ayurvedic case. While stating that "a subsidiary curative or prophylactic use will not convert a cosmetic into medicament", the example of a bald man treating his baldness by the use of Ayurvedic Product was given. "The curative use of the product is primary in that example and not subsidiary. The subsidiary result is improvement in appearance", it was observed. Then, it was clarified that the products which fall under Heading 3304 are primarily beauty or make up preparations. "They may incidentally help in protection against skin irritants. They may also help as a skin tonic, yet they are cosmetics because skin protection is subsidiary benefit". 7.Thus, in considering the question whether the goods which fall broadly within the description of skin care products are to be classified as medicaments, the test that has to be applied is whether they are intended primarily for use in the treatment of skin disorders or diseases and whether the ingredient....
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....ent of fungal skin infections, such as tinea pedis although other drugs are usually preferred." xx xx xxxx "Acne. Benzoyl peroxide applied topically in concentrations of upto 10 per cent is probably the most widely used first-line drug in the management of mild acne." In the same book, 'acne' is stated to be "a disorder of the pilosebaceous follicle; common features include increased sebum production, follicular keratinisation, colonization by Propionibacterium acnes, and localized inflammation. Mild acne is characterized by open or closed comedones (blackheads and whiteheads), some of the latter developing into inflamed lesions such as papules and pustules. In moderate acne, the papules and pustules are more widespread, and there may be mild scarring. Severe acne is characterized by the presence of nodular abscesses or cysts in addition to widespread pustules and papules, and may lead to extensive scarring." 7.4In Modern Pharmacology (Second Edition) edited by Charles R.Craig & Robert E. Stitzel, while stating that anti-biotics including tetracycline is found to be useful in the management of acne, it is observed thus, under the heading 'Keratol....
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....atment' with dosage forms. Then, in 1995, the Food & Drugs Administration, USA, published another Monogram containing the 'proposed rule', under the heading "Topical Drug Products containing Benzoyl peroxide, Required labeling". The opening para says: "FDA is proposing additional labeling (warning and directions) for all topically applied acne treatment drug products containing Benzoyl peroxide". The Warning advises consumers "to avoid unnecessary sun exposure and use of sun screen when using Benzoyl peroxide product to treat acne". Then, after referring to the views of the Committee and the comments received from other sources, it was observed : "The agency agrees that marketing of Benzoyl peroxide should continue while the ongoing studies are being completed. The agency agrees that information should be provided to consumers and that no warning statement concerning cancer should be included in the labeling of Benzoyl peroxide drug products because currently available data are inconclusive." xx xx xx xx xx Benzoyl peroxide is a widely used and effective ingredient in the topical treatment of acne. As noted above, the Committee recommended unanimous....
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....order in human beings or animals ......." In view of the therapeutic potential of the products in question in controlling 'acne', the products conform to the inclusive definition of drug in Section 3(b) of Drugs and Cosmetics Act. 9.The learned departmental representative has made a feeble attempt to counter the effect of the above material by contending that in the instant case, the contents of the Benzoyl peroxide should necessarily be less than 2.5 per cent in view of the restriction placed by the Drugs licensing authority and therefore, its therapeutic value is doubtful. The label emanating from the manufacturer shows the percentage of active ingredient i.e. Benzoyl peroxide as 2.5 per cent. Even if it is slightly less than 2.5%, that minimal difference does not justify the plea that it should be taken out of the category of medicament on the premise that it has no therapeutic effect. 10.Then, in the additional written submissions filed after the hearing was concluded, the Revenue sought to place strong reliance on the report of the Chemical Examiner Gr. II of the New Custom House Laboratory, Mumbai. The report contains a repetitive comment against each item that "the act....
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....Book on Modern Pharmacology (referred to Supra) sulfur among other Drugs is referred to as a skin peeling agent (keratolytic) used in the treatment of acne. In Dorland's Illustrated Medical Dictionary (28th Edition), it is stated that sulfur is used in diseases of the skin. The license for import issued by the competent authority of the Government of India also covers Refining Mask. Thus, it cannot be denied that Refining Mask containing 6 per cent sulfur has its primary use in the treatment of acne in mild form. In the report of the Chemical Examiner, it is stated that "the preparation is meant to manage the acne blemishes and is intended to promote the attractiveness and to alter the appearance". Then, without indicating any basis for the opinion, it is stated in the report that "the active medicinal ingredient - Sulphur 6% does not have primary therapeutic and prophylactic function". We find it difficult to accept this bald statement which goes contrary to the opinion of various authorities adverted to above. The fact that it clears up blemishes caused by acne does not lead to the inference that it is not a medicament having primary therapeutic effect. The fact that the removal ....
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.... premises, the applicant would pay Central excise duty on the MRP based value of the entire kit. The applicant has stated that a specific declaration will be made at the port itself that the products will not be sold individually but will be sold as part of the kit. Learned counsel for the applicant has contended that category II products imported by the applicant are not intended for retail sale as the products will not be sold individually but only as part of the kit and secondly by reason of Rule 2-A of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977, they get excluded from Chapter II of the Rules, the applicant being an "industrial consumer" of the individual products. In view of the non-applicability of Chapter II of PC Rules, as well as the Drugs (Prices Control) Order, there is no obligation to comply with the rule which makes it mandatory to print the MRP on the individual products (that will go into the kit). It is, therefore, contended that the applicant is required to pay additional duty on the individual products imported based on the transaction value as per sub-section (2) of S.3 of Customs Tariff Act read with Section 14 of the Customs Act, 196....
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....red on the imported article less such amount of abatement, if any, from such retail sale price as the Central Government may, by notification in the Official Gazette, allow in respect of such like article under sub-section (2) of section 4A of the Central Excise Act." 15.2As the additional duty of customs (loosely termed as CVD) is co-related to the excise duty leviable on a like article produced or manufactured in India, it would be appropriate to make a reference to the relevant provisions of Central Excise Act (hereafter referred to as C.E. Act). Section 3 is the charging section which ordains that "there shall be levied and collected in such a manner as may be prescribed (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods.................which are produced or manufactured in India and at the rates set-forth in the First Schedule to the Central Excise Tariff Act, 1985". The mode of valuation of excisable goods is dealt with under two sections i.e. section 4 and section 4A of the said Act. Section 4A deals with "Valuation of excisable goods with reference to retail sale price". It says : 4A : (1)The Central Government may, by notifi....
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....oms Tariff Act corresponds to S.4A of C.E. Act and the same scheme of valuation and abatement is spelt out by these provisions. 15.4 As noted earlier, the proviso to Section 3(2) of the Tariff Act is the crucial provision relevant to the present controversy. If the proviso is excluded, then the additional duty is leviable in terms of the main sub-section (2). In such a case, the transaction value as contemplated by Section 14 plus the basic customs duty has to be adopted for determining the additional duty. The question, therefore, is whether the proviso to Section 3(2) is attracted in the instant case. If the proviso applies, the retail sale price declared on the imported article less the amount of abatement notified will be the basis of valuation of that article. The proviso to Section 3(2) has two limbs. Both of them lay down the conditions for the application of the proviso by virtue of which the retail sale price criterion has to be adopted for the purpose of valuation. Under the first limb, there must be a statutory obligation to declare on the package the retail sale price of the article. That obligation may flow either under the provisions of the Standards of Weights and....
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....tement on medicaments has to be worked out with reference to the retail price to be displayed under the DPCO, but not under any other law. 16. We shall, therefore, address the question whether DPCO obligates the applicant to declare on the label of container of the imported article the retail price thereof. Cl. (1)(4) of the Order says that it "shall also be applicable on imported medicines with effect from 1-3-2007". Under the DPCO, the Govt. is empowered to fix retail price of scheduled formulations. But, the imported medicaments/formulations in respect of which the ruling has been sought are not specified in the Schedule. If at all, they are non-scheduled formulations as defined in cl. 2(v) of DPCO. Therefore the relevant provision which has to be considered is cl.15. It bears the heading - "Display of prices of non-Scheduled formulations and price list thereof ". Cl. 15 of the DPCO in so far as it is relevant is extracted hereunder : "(1) Every manufacturer, importer or distributor of a non-Scheduled formulation intended for sale shall display in indelible print mark, on the label of container of the formulation and the minimum pack thereof offered....
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....l or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 (23 of 1940), and which is used as such or as an ingredient in any formulation. The first part of definition is undoubtedly satisfied. The question then is, does it conform to phamacopoeial or other standards specified in the Second Schedule to the Drugs and Cosmetics Act? The Second Schedule to the Drugs and Cosmetics Act sets out the standards to be complied with by imported drugs and drugs manufactured for sale etc. The "patent or proprietary medicines" (other than Homeopathic medicines) is the first item in the Schedule. The definition of patent or proprietary medicine is given in Section 3(h) of the Drugs and Cosmetics Act. In relation to any system of medicine other than Ayurvedic, Siddha or Unani Tibb systems, the said expression is defined to mean "a drug which has a remedy or prescription presented in a form ready for internal or external administration of human beings....and which is not included in the addition of the Indian pharmacopoeia or any other pharmacopoeia authorized in this behalf by the Central Govt." As already discussed, the products in question are drugs and they are ....
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....Thus, by this process of analysis of various provisions, we reach the conclusion that the medicinal substances containing Benzoyl Peroxide and Sulphur which are being imported have to be treated as non-Scheduled formulations and therefore cl.15 of DPCO is attracted. However, in order to exclude the application of cl.15, the learned counsel for the applicant has advanced an argument that the non-Scheduled formulation imported is not "intended for sale". It is contended that the drug imported is not intended to be sold as it is but it is intended for the manufacture of kit containing the three or four products, as the case may be, and what is sold ultimately is that larger kit. It is submitted that the definition of 'manufacture' in Section 2(l) of DPCO is wide enough to cover any process for packing, labelling or adapting any drug with a view to its sale and distribution and therefore the imported articles (non-Scheduled formulations) are intended for manufacture but not sale. We do not think that the contention, though plausible, deserves acceptance. The fact that each product imported, be it in bottles or tubes, is not sold individually is, in our view, not material. Even if they ....
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....d be the Central excise duty payable? The valuation and rate should be with reference to the like article manufactured in India, but not on the basis of subsequent action of further 'manufacture' of a kit as in the instant case. It is at the point of time of import that the obligation or otherwise of displaying the MRP on the imported article/package has to be judged both for the purposes of Section 3(1) and the proviso to S.3(2) of Customs Tariff Act. The factum of printing MRP on the kit and paying Central excise duty thereon on the basis of such MRP has no bearing on the point at issue. The argument of the applicant's counsel cannot therefore be sustained. 18.There is one more point to be discussed in relation to the product 'Revitalizing Toner' which is admittedly classifiable under the heading 3304 as make up or skin care preparation. DPCO has no application to that product. The question to be examined is whether the obligation to exhibit the MRP on the package or label arises by virtue of the Packaged Commodities Rules (PC Rules) framed under Standards of Weights and Measures Act. Let us notice those Rules in Chapter II of PC Rules. Rule 1(3) says that the Rules apply to c....
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..........inclusive of all taxes. Explanation. - For the purpose of the clause "maximum price" in relation to any commodity in packaged form shall include all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be . 18.1The learned counsel for the applicant relies on Rules 2A and 3 to contend that Revitalizing toner to be packed in a composite kit and not sold individually cannot be brought within the sweep of PC Rules. In other words, it is contended that there is no obligation to print or exhibit the MRP on the product, having regard to these two crucial Rules. 18.2The contention that the package containing the Revitalizing toner imported by the applicant is not intended for sale or retail sale cannot be accepted. The reasons given by us at paragraph 16.3 repelling a similar argument based on the language of cl. 15 of the Drugs (Prices Control) Order will equally hold good in refuting this contention. We have expressed the view that each one of the products imported ought to be treated as articles intended for sale irrespective of the fact that ....