2025 (6) TMI 593 - AT - Central Excise

Classification of goods - Petroleum Jelly Aloe Vera and Petroleum Jelly Baby - to be classified under Tariff Item 3304 9990 (cosmetics) or under Tariff Item 2712 10 90 (petroleum jelly)? - HELD THAT - The issue regarding classification of the disputed products namely Petroleum Jelly Aloe Vera and Petroleum Jelly Baby has been decided by us in the appellant s own case for an earlier period 2024 (7) TMI 923 - CESTAT CHENNAI for an earlier period where it was held that the products in question viz petroleum jelly Baby and petroleum jelly Aloe Vera are those meant exclusively for the care of skin petroleum jelly meant for skin care specifically excluded from CTH 2712 and therefore they are cosmetics which are correctly classifiable under CTH 3304. Further there are no deviating fact/s being placed on record by the Revenue to take a different view as against the view in the earlier order in the appellant s own case. Nor there are any order/judgement of higher judicial fora against order whereby earlier order is reversed or held to be bad in law. Nor has the Revenue placed on record order of stay of the earlier order. Conclusion - The appellant s classification of Petroleum Jelly - Aloe Vera and Petroleum Jelly - Baby under tariff item 3304 9990 as cosmetics was upheld. In view of the above there are no reasons to deviate from earlier order although for an earlier period decided vide the above final order and hence the impugned order cannot sustain; the same is accordingly set aside - appeal allowed.

Summary

The core legal question considered by the Tribunal was whether the appellant was correct in classifying the disputed products, namely Petroleum Jelly - Aloe Vera and Petroleum Jelly - Baby, under tariff item 3304 9990 (cosmetics) rather than under tariff item 2712 1090 (pure petroleum jelly). This classification issue was central to the dispute, as it determined the applicable excise duty rates and compliance requirements.

Another related issue implicitly considered was whether the appellant's activity of heating, stirring, and repacking the yellow petroleum jelly constituted "manufacture" under Section 2(f) of the Central Excise Act, 1944, thereby entitling them to certain CENVAT credits and classification benefits.

Regarding the classification issue, the Tribunal examined the relevant tariff headings under the Central Excise Tariff Act (CETA) and the Harmonized System of Nomenclature (HSN). Heading 2712 covers petroleum jelly in pure form, while Heading 3304 covers cosmetics and preparations for the care of skin, excluding medicaments. The Tribunal noted that petroleum jelly suitable for skin care is specifically excluded from Heading 2712 and falls under Heading 3304.

The Tribunal relied heavily on authoritative precedents, including the Supreme Court's decision in Heinz India Ltd., which articulated a nuanced three-step test for distinguishing medicaments from cosmetics. Key principles from this test include that the proportion of pharmaceutical ingredients is not decisive; over-the-counter sale does not preclude a product from being a medicament; the primary function (care versus cure) is determinative; packaging alone cannot dictate classification; and licensing under the Drugs Act is not always decisive.

Applying these principles, the Tribunal found that the disputed products were intended primarily for skin care-to act as barrier creams preventing skin cracking-and contained additives such as fragrance and aloe vera. These factors supported classification as cosmetics rather than medicaments. The Tribunal emphasized that the presence of additives and the product's use for skin care justified classification under Heading 3304.

The Tribunal further underscored the importance of HSN explanatory notes as a "safe guide" for classification interpretation, citing multiple Supreme Court rulings. These notes explicitly exclude petroleum jelly suitable for skin care from Heading 2712, reinforcing the appellant's classification under Heading 3304.

Regarding the manufacturing issue, the Tribunal analyzed the appellant's process of receiving duty-paid yellow petroleum jelly in bulk, heating it to melt, stirring for homogeneity, removing air bubbles by blowing cold air, and repacking into retail containers. The Tribunal held that these processes did not result in the emergence of a new and distinct product with a different name, character, or use. Consequently, such activities did not amount to "manufacture" under Section 2(f) of the Central Excise Act.

The Tribunal referred to a series of Supreme Court decisions clarifying that the nature of the process is less relevant than whether the end product is new and distinct. Mere repacking, heating, or minor processing that does not change the essential character or use of the product is not manufacture. The Tribunal cited the Osnar Chemical case, which held that mere improvement in quality does not amount to manufacture.

In light of this, the Tribunal concluded that the inputs used (yellow petroleum jelly and packing materials) were not "inputs" within the meaning of Rule 2(k) of the CENVAT Credit Rules, 2004, since they were not used in the manufacture of a final product. Therefore, the appellant was not entitled to CENVAT credit on these materials under Rule 3 of the CENVAT Credit Rules.

The Tribunal also clarified that provisions relating to rebate of duty on exported goods (Rules 18 and 19 of the Central Excise Rules, 2002) and certain CBEC circulars could not be used to redefine the meaning of "manufacture" under the Central Excise Act.

In assessing the competing arguments, the Tribunal gave due weight to the appellant's submissions and documentary evidence, including the Food and Drugs Administration license and additional endorsements for the new products. The Tribunal found no contradictory facts presented by the Revenue that would justify deviating from the appellant's earlier successful classification for an earlier period, which had been upheld in Final Order No. 40856/2024 dated 15.07.2024.

The Tribunal also noted that the Revenue had not produced any higher judicial authority or stay order that would undermine the earlier order. Consequently, the Tribunal declined to overturn its prior decision and set aside the impugned order demanding additional duty.

Significant holdings established by the Tribunal include the following:

"When a product is used for skin care and is intended as a cosmetic, it falls under Heading 3304 and is excluded from Heading 2712, which covers pure petroleum jelly."

"The mere presence of additives such as fragrance or aloe vera, and the product's primary use for skin care, are sufficient to classify the product as a cosmetic rather than a medicament."

"The test for manufacture under Section 2(f) of the Central Excise Act is whether the process results in a new and distinct product having a different name, character, and use. Mere heating, stirring, and repacking of petroleum jelly does not amount to manufacture."

"Inputs used in processes that do not amount to manufacture cannot be considered inputs under Rule 2(k) of the CENVAT Credit Rules, and duty paid on such inputs is not eligible for CENVAT credit under Rule 3."

"HSN explanatory notes are a paramount guide for classification and must be given due consideration."

"The proportion of ingredients, prescription requirements, packaging, and licensing under the Drugs Act are not solely determinative of classification as medicament or cosmetic; the primary function and character of the product are decisive."

In conclusion, the Tribunal allowed the appeal, holding that the appellant was correct in classifying the disputed Petroleum Jelly - Aloe Vera and Petroleum Jelly - Baby under tariff item 3304 9990 as cosmetics. The impugned order demanding additional duty on the basis of classification under tariff item 2712 1090 was set aside. The Tribunal's decision reaffirmed the principles governing classification, manufacture, and CENVAT credit eligibility in the context of excise law.