2003 (5) TMI 407 - AT - Central Excise

Medicaments - Medicines - Ayurvedic medicine - Cosmetics - Shahnaz beauty care products - Valuation - Demand - Limitation - Penalty

Summary

Issues Involved:
1. Classification of goods as Ayurvedic Medicaments or Cosmetics.
2. Determination of related persons under Section 4 of the Central Excise Act.
3. Invocation of the extended period of limitation for demanding Central Excise duty.
4. Imposability of penalties on the appellants.

Detailed Analysis:

1. Classification of Goods:
The primary issue was whether the goods manufactured by the appellants were Ayurvedic Medicaments classifiable under Chapter 30 or Cosmetics under Chapter 33 of the Central Excise Tariff Act. The appellants argued that their products were Ayurvedic Medicines, supported by a Drug Licence and historical classification by the Central Excise Department. The Department, however, contended that the products were cosmetics, citing the use of common cosmetic chemicals, marketing as beauty products, and sales to beauty parlours and hotels.

The Tribunal held that the products were indeed cosmetics, emphasizing that the therapeutic or prophylactic uses must be the main uses for classification as medicaments. The Tribunal noted that the products were marketed and perceived as beauty care products, and even if they had some therapeutic properties, they remained classifiable under Chapter 33 as per Note 2 to Chapter 33 and Notes 1(d) and 2(i) to Chapter 30.

2. Determination of Related Persons:
The issue was whether M/s. Shaherb Cosmetics were related persons to M/s. Shahnaz Ayurvedics under Section 4 of the Central Excise Act. The Tribunal found that Shahnaz Hussain, the proprietress of Shahnaz Ayurvedics, and her son, Sameer Hussain, were partners in Shaherb Cosmetics, which bought 97% of Shahnaz Ayurvedics' production. The Tribunal upheld the Commissioner's findings that the two entities were related persons, as they had mutual interests in each other's business, with Shaherb Cosmetics handling advertising, selling, and distribution for Shahnaz Ayurvedics.

3. Invocation of Extended Period of Limitation:
The Tribunal considered whether the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act was applicable. The appellants contended that the Department was aware of the facts since 1987 and had previously classified their products as Ayurvedic Medicines. However, the Tribunal found that there was suppression of facts regarding the relationship with Shaherb Cosmetics, justifying the invocation of the extended period for demanding duty.

4. Imposability of Penalties:
The Tribunal addressed the imposition of penalties under Section 11AC of the Central Excise Act and Rule 209A of the Central Excise Rules. It noted that penalties under Section 11AC could not be imposed for periods before its insertion on 28-9-96. Consequently, penalties imposed under Order No. 16/98 were set aside for the period before the insertion of Section 11AC. The Tribunal upheld penalties on M/s. Shahnaz Ayurvedics and M/s. Shaherb Cosmetics but reduced the amounts, considering the circumstances and lack of evidence for fraud or suppression for the subsequent periods.

Conclusion:
The Tribunal concluded that the goods were classifiable as cosmetics under Chapter 33, M/s. Shaherb Cosmetics were related persons to M/s. Shahnaz Ayurvedics, the extended period of limitation was applicable due to suppression of facts, and penalties were imposable but reduced. The case was remanded for recomputation of the duty payable.