TMI Blog2000 (8) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... falling under CET sub-heading 3003.30. In the wake of intelligence gathered by the Directorate General of Anti-evasion that the products manufactured by IRLP were skin beautification creams, lotions, moisturisers, shampoos, etc., and were cosmetics and toilet preparations chargeable to duty @ 40% under Chapter 33 of the CETA but were being cleared as ayurvedic medicines on payment of duty @ 10% ad valorem, various premises of IRLP were searched by the officers of Directorate General of Anti-evasion on 17-1-96. Enquiries conducted by the Department revealed the following : 1. That IRLP are actually manufacturing and clearing cosmetics but with the intention of evasion of central excise duty, they are clearing their products as ayurvedic medicines. 2. They have fraudulently obtained a Licence under Drugs and Cosmetics Act 1940 by declaring use of certain herbals in their products but the cosmetics which are being used as essences, foaming agents, binding agents and giving bulk to the hair, cleansing agents, producing more lather, adjusting the PH value, chelating agents, astringents, having antiseptic property, chemical perfumes, humectants, skin softeners, etc., were not declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued on 10-4-96 alleging that IRLP are manufacturing and marketing and selling products only as cosmetics and that their products are treated as cosmetics in trade parlance. The notice also alleged that M/s. Ishaan Marketing P. Ltd. (herein after referred to as IMPL) through whom IRLP was marketing its products, and IRLP are related persons as per Section 4(4)(c) of the Central Excise Act and that the transactions between them are not at arms length. The notice alleged that since IMPL and IRLP are related persons and normally whole-sale price for goods sold in sizes other than 35 ml. did not exist at the factory gate, the price at which IMPL have sold the products was to be taken as the cum-duty price of the goods manufactured and cleared by IRLP, for levy of duty. The notice proposed recovery of Rs. 3,06,68,074.78 BED and Rs. 34,39,918,89 SED during the period 1-4-91 to 16-1-96 by invoking the extended period of limitation; penal action was also proposed against them. The notice was adjudicated by the Commissioner of Central Excise vide his Order-in-Original No. 5/98 dated 29-1-98, confirmed a duty demand of Rs. 3,10,17,993/- and imposed a penalty of Rs. 1 crore on M/s. IRLP unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds on the basis that the products were referred to as cosmetics by hotels to which they were supplied; that they are used as shampoos, moisturisers, etc., and not as medicines; that the literature of the appellants no where describes the products as medicines; that the shape and size of the containers also indicates that the products are cosmetics. She has held that the term ayurvedic medicines has been given on the label either above or below in very small size, that they do not claim any cureative or prophylactic properties against any ailment or disease and that, there is no evidence that these were prescribed by doctors or that any clinical trials were conducted thereon. She has further held that the definition of ayurvedic medicine under the Drugs and Cosmetics Act cannot apply to decide classification under the Central Excise Act, and, therefore, the popular meaning of the products is to be taken into account. She has relied upon the decision of the Tribunal in the case of Shri Baidyanath Ayurved Bhawan v. Collector of Central Excise reported in 1985 (22) E.L.T. 844 which has been affirmed by the Apex Court 1996 (83) E.L.T. 492 (S.C.). She has relied upon Note 1(d) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative text books of Ayurveda. I am enclosing the data and the comments for these items alongwith this note. 3. All the 66 products examined by me contain ingredients which are well documented in authoritative ayurvedic text books-references have already been given in each of the product data sheet. Under the Drugs and Cosmetics Act, all these items will be considered as patent or proprietary ayurvedic medicaments in terms of Section 3(h). 4. I have read the peculiar definition under the Excise Tariff mentioned in your letter with great interest. According to me, any ayurvedic medicament will be considered as a medicament even if it has cosmetic use but the definition quoted in your letter being peculiar, I have examined the data, the method of use and the lable claim of all these products. As I understand this peculiar definition, any cosmetic product which is used either as a toilet preparation or as a beauty aid (like skin care preparations or hair care preparations) would be treated as cosmetic or toilet preparations even if such products have subsidiary medicinal claims. In other words, unless and until the product is predominantly an Ayurvedic Medicament, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doshaghna - Brings balance in Tridoshic disorders. Kushtaghna - Useful for various types of skin disorders. Kanduvishphotaknashaka - It is anti-itching, anti-toxin and anti-inflammatory. Mangalya - Bahava Prakash has given this as a synomym which indicates overall good effect for user (Bahava Prakash Nigantu P. No. 529). BASE Q.S. (6) SLES Derived from Coconut Oil (7) SLS -do- -do- (Indian Pharmacopoeia (II) P. No. 475 (8) Cocodie -do- -do- (9) Sodium Benzoate Preservative -do- -do (II) P. No. 465 (10) Methyle Paraben -do- -do- -do- (I) P. No. 318 (11) Propyl Paraben -do- -do- -do- (I) P. No. 427 (12) Fragrance V.J.8. From natural sources Note : This product is made out of combination of five Ayurvedic constituents derived from plants sources. This is also authenticated by Pharmco Dynamics (Guna Dharma) as described in Ayurvedic Literature. In view of these ingredients this product is an Ayurvedic Medicine to cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offers vitalizing rasayana effect on face. It has four ingredients having medicinal properties based on Ayurvedic Pharmacoepia. The item placed at serial numbers 5, 6 and 7 are bases from vegetable oil acting as emulsifying agent. The Pot. Hydroxide is used to adjust pH. and glycerin is used to preserve its fluidity. The last two items listed are preservatives. .. Since the Ghrit Kumari has rasayan effect, it delays the process of ageing. Dushtavarnah cures chronic ulcer infection on the skin. It delays the process of ageing. The Gunakarma (Pharmaco dynamics) of main items at Sl. No. 1 to 4 indicate that it is good for the conditions like Dushtavarana (chronic ulcers) infections and wrinkles. BIO-COCONUT INGREDIENTS 1. NARIYAL PANI (3%) Raktapittanashak - Cures for the diseases where rakta dhatu and pitta doshas are disturbed. (Dravya Gun Vigyan P. No. 117) Varnya - Provides strength to the skin 2. DOODHAL (3.5%) Rupana - Active tissue regeneration Vishnashani - Removes toxins. Bhava Prakash Nighantu P. No. 458 3. MANJISTHA (2.1%) Kushtahara - Removes the skin disorders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OL (1%) Balya - Adds strengths to the affected tissue. Krimhara Disinfactant Putihara Removes pastulous material. (Bhava Prakash Nighantu P. No. 829) Base Q.S. 5. STEARIC ACID From vegetable oil Indian Pharmacopia (II) P. No. 481 6. GLYCERIN From vegetable oil (humectant) -do- (I) P. No. 234 7. CETYL ALCHOHOL Thickener and stabilizer -do- (II) P. No. 92 8. LANOLIN Animal Fat -do- (II) P. No. 545 9. METHYL PARABEN Preservative -do- (I) P. No. 318 10. PROPYL PARABEN Preservative -do- (I) P. No. 427 11. FLAVOUR VK DRAKKAR Natural Sources Note : This product contains four items of plant origin described in Ayurvedic treatises. Their application is emphasized in a clinical conditions called Padadari (Rhagades) both by Bahav Prakash and Raj Nighantu. In this clinical conditions skin cracks and becames painful because of on-going inflammatory changes. This disease is often seen in adults and in elderly people, mostly at the time of change in the season and the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 62 items adhere to the percentage. If they adhere to the percentage, addition of other excipients or other ingredients do they diminish the therapeutic effect of these ingredients? If the percentage is not fixed in the text books, on what basis we say the percentage of ingredients present in the medicaments have therapeutic effect. The learned Commissioner selected the following medicines for comments in this regard. 1. BIO-ALOEVERA 2. BIO-APPLE 3. BIO-APRICOT 4. BIO-BHRINGRAJ Please offer your expert opinion at your earliest convenience supported by references, if any, from authoritative texts on Ayurveda. Thanking you, Yours faithfully For ISHAAN RESEARCH LAB. PVT. LTD. Sd/- AUTHORISED SIGNATORY ISHAAN RESEARCH LABORATORIES PVT. LTD. Regd. Office : 901, Nirmal Tower, 26 Barakhamba Road, New Delhi-110001, Phone: 3738011-13 Works: S-35, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI-110020, PHONE: 6912832 21st November, 1997 Dr. V.N. Pandey ABMS, D.A.Y.M., PhD. Ayurveda Ex-Director Central Council for Research Ayurveda Siddha A-50, South Extn., Part-I, New Delhi-110049 Dear Sir, Please refer to our letter dated 13-11-97. On the same gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is a compromise document. The participation of each ingredient have been worked out into their percentages. Because, it is more difficult since the drug differ with respect to the land, season, source, flavour, taste, potency, post digestive effect and specification. Further it becomes more puzzling since the men and women differ with the respect to the body, morbid tendency, constitution, age, vitality, gastric fire, proclivities, homologation stage of disease. (Charaka, Kalpasthan Chapter-1, 1-6) The Ayurvedic drug action is not deduced as it is done in case of modern drugs (synthetic, semi-synthetic) of today. The Ayurvedic drug action depends upon its panchabhoutic composition (physico-chemical combination). The Dravya (matter) is a source material and Guna is property available in drug material. However, to simplify these qualities, the basis evolved by Ayurvedic philosophers and scientist to describe the Ayurvedic pharmaco-dynamics of medicament is being described in the following order :- 1. Rasa - (Taste) Indicating chemical composition based on taste buds 2. Guna Pharmacodynamics : Procedural details of preparatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thamansavashesha) 12.5%, 1/16 (sodasansavashesha) 6.25%. These decoctions are separate to that of swarash (juices) which are crushed and pressed to extract out their contents. 2. In the present formulations the percentages of the main ingredients range from 3 to 25% except certain packs, powders and balms. 3. In event of bringing out standard quality of drug the percentages are being given as it is followed in most of the Ayurvedic proprietory formulation by most of the firms. 4. The bases which have been added to the main ingredients do not have therapeutic effect since they are used as vehicle or excipients. They simply help in maintaining the proposed combination, their fine presentation. They do help in activating the synergestic action or at time potentiate their effect. The percentage of these vehicles or carriers are mostly to the extent of additional 25% only with slight variation if need be. Rest of the bulk is supplemented with pure water to make it 100%. 5. Charaka and other authorities of Ayurveda have righty said that the therapeutic effect are achieved through Pradhan dravyas (main ingredient) not through the vehicle or excipients. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re approximately 27% which do not have any therapeutic property. This preparation is mainly to be used in Darunaka (Dandruff) or wherever syboric obnoxious discharges are observed in the hair roots specially scalp. Shikakai acts as kaphaghana dravya and Aristaka along with Chhotiduddhi help as anti-itching, anti-toxin and anti-microbial agent. Brahmi acts there as a healing agent and vitalizers after the skin of the scalp becomes raw in a biological cleansing process. Samundrakai forms a jelly like structure after being dissolved in hot water. Its property as Mruduvirachaka (mild laxative) is used here in a different context. It soaks the discharges released by its hygroscopic action after pealing of the crust by Aristaka, Chhoti duddhi and Shikakai. The total quantity of base material used is approximately 27%. Rest is water. It helps in cleaning and biological healing of the tissues. Normally the local application in such conditions are kept below 10-15% which is inferred from Ayurvedic principle of Ashthamansavshesha (12.5%). [3] BIO-APRICOT It is an Ayurvedic medicament. It contains five medicinal plants mentioned in Ayurveda. Ayurvedic physicians are used to induce Avaga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ml are added. It is further supplemented by preservatives such as methyl paraben 1.5% and propyl paraben 0.1%. The rest is made 100% by adding pure water. It is a light application on face as a medicated fluid to save the skin from infections. It helps in recovering the bad smell and healing of molecular ulceration on face. The analysis of ingredients used in this item indicates Daruhaldi as a healing agent and help in avoiding itching and irritation of skin. Dhania dispels bad smell. Majuphal does not allow bad discharges from the skin because of its grahi (capacity to adsorb or absorb discharges). Lastly Pudina tail acts as an disinfectant and induces the feeling of being fresh due to its krimi prabhanjana property. The whole idea is to keep the face clean free from smell and inbuilt mechanism to do away with the local infection of short duration. [6] BIO-COCOBUTTER : It is very interesting that Sushruta the redactor and author of Sushruta Samhita (500 B.C.) makes a cautious appeal to Ayurvedic physicians to save the Ashananya prashva (pregnant women who is likely to deliver the baby soon) especially after seven month, be saved from the problem of kandu (itching) and strie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indications showing that they are for use as cosmetics or toilet preparation. The Court held that the product cannot be called cosmetics only for the reason that it is packed in attractive plastic bottles. The Court observed that the important factor is that the constituent (selenium sulfide) is the main ingredient and it is the only active ingredient and set aside the finding of the Excise authorities that selenium sulfide has only subsidiary curative or prophlactic value. Applying the test laid down by the Apex Court, let us examine whether the products in dispute in the present case are intended to cure or prevent certain diseases. For this purpose, we reproduce below the description given on the labels of the products : SL.NO. NAME OF THE PRODUCTS DESCRIPTION ON THE LABEL 01. BIO-APPLE : - - Cures scalp infections. Every day use does not effect the pH balance of the hair. 02. BIO-APRICOT : - Removes all microbes and pollutants. 03. BIO-ALOEVERA : - - Effective in eczema and psoriasis. Use every morning after moisturing. Protect skin from microbes pollutants, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to effective ingredients. 18. BIO-GEL : - - It removes microbes and pollutants from skin making it healthy and smooth. Follow with freshner and then mousturiser. 19. BIG-HONEY : - - Helps to tighten pores and removes traces of dirt and pollutants. Follow with moisturiser. 20. BIO-HENNA : - Stop hair fall, useful in alopecia. 21. BIO-HENNA LEAF : - Preventing hair loss and giving it a healthy look. 22. BIO-SANDAL : - - Antiseptic, anti infective qualities combat with skin problems. Use every morning after moisturising. 23. BIO-KELP : - Penetrate hair shafts, nourish scalp and retard hair loss. Use in Aloepecia. 24. BIO-LIP : - - - For chopped and dehydrated lips. Treats soars, swelling dry dehydrated chopped lips. Restore natural suppleness of the lips. 25. BIO-MILK : - - Nourishes dry and dehydrated skin. Helps to remove epithelial cells, cures white patchscane etc. Follow with Freshner and moisturiser. 26. BIO-LOTION : - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43. BIO-WEED : - Remove Dark circle under the eyes and increase blood circulation and brightness of the eyes. 44. BIO-WINTER CHERRY : - Removes skin infection and blemishes. It nourishes dry and dehydrated skin leaving it soft. 45. BIO-WINTERGREEN : - - Controls acne, pimples and other skin blemishes. May cause temporarily tengling sensation due to effective ingredients. 46. BIO-WALNUT : - Stops hair fall. 47. BIO-VERA : - Help to protect skin from environmental pollution and microbes. 48. BIO-VIT : - It stimulates blood circulation and helps relax the Body. 49. BIO-CHESTNUT : - It helps tighten facial muscles. It removes deep seated microbes and pollutants. It improves cell respiration and blood circulation. 50. BIO-ORANGE : - Cures skin infection 51. BIO-SEA KELP : - - It cleans without dehydrating. Removes all microbes and pollutants. 52. BIO-BASIL : - Provides day long protection from perspiration and bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure scalp infections Product at Sl. No. 34 - Bio-peach It is intended to cure pimples and acne and other skin infections Product at Sl. No. 35 - Bio-pro It is intended to cure pigmentation Product at Sl. No. 36 - Bio-quince It is intended for cure of skin diseases such as eczema, scabies, etc. Product at Sl. No. 38 - Bio-saffron It is intended for cure of pimples and acne Product at Sl. No. 39 - Bio-soya It is intended to cure alopecia Product at Sl. No. 42 45 - Bio-wheat and Bio-wintergreen It is intended to cure acne and pimples Product at Sl. No. 46 - Bio-walnut It prevents or cures hair fall. As for the product at Sl. No. 5 - Bio-bhringraj, we note that in the case of Collector of Central Excise, Pune v. Ramakrishna Vidyut (Final Order No. 847/99-C dated 16-8-99), the Tribunal has upheld the findings of the Commissioner that Mahabhringraj Hair Oil is to be classified as ayurvedic medicine, relying upon the CBEC Circular dated 3-4-94 reported in 1996 (83) E.L.T. T50 and upon the Apex Court decision in the case of BPL Pharmaceuticals Ltd. (supra). The ratio of the above decision would cover this product and, therefore, we hold that the product at S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances made by IMPL to IRLP, we note that interest was provided for on yearly basis and for the financial year 1995-96, it was debited on 31-3-1996. The third proviso to Section 4(1)(a) applies only where all the goods are sold through a related person and if some of the goods are sold to persons or entities other than related persons, 3rd proviso would not come into operation. In the case of M/s. Kirloskar Cummins Ltd. reported in 1991 (51) E.L.T. 325 (Bom) it was clearly held that sales to industrial consumers are also sales in whole-sale trade and the price charged to industrial consumers can be adopted as the basis for sales made to related persons as well, and the question of adopting the price charged by related persons cannot arise. Applying the ratio of this judgment, we hold that the price charged by IRLP to hotels should be taken as the basis of assessable value of the products in dispute. The Commissioner has referred to sales made to M/s. Prem Jewellers to whom the goods were sold in the same size packs that were being sold by IRLP to IMPL, in paragraph 34.7 of the impugned order. However, this is not relevant as no sales were made to Prem Jewellers by IRLP after July 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 dated 31-8-1998, 24/98 and 30/98 dated 30-4-1998 and 51/98 dated 31-8-1998 cannot arise. In terms of Notification issued under Section 4(a), where duty is charged on MRP, abatement of 50% is to be allowed from MRP. Further the price charged from the Delhi Depot has been adopted by the adjudicating authority for the purpose of duty demand; however, since sales were made by IMPL from various depots all over the country, in view of difference in local taxes, octroi and discount in the respective States, discount charges varied from one depot to another and, therefore, adoption of the price charged by the Delhi Depot is not legally permissible. The demand has been quantified without allowing for abatement of duty. Applying the ratio of the Larger Bench decision in the case of Sri Chakra Tyres reported in 1999 (108) E.L.T. 361, we hold that the sale price should be taken as the cum-duty price and duty payable should be abated therefrom. 5.2.2 In the case of show cause notice dated 2-5-97 (for the period 1-10-1996 to 31-3-1997) which culminated in Order-in-Original No. 51/98 dated 31-8-1998, the appellants paid duty under Chapter 33 under protest w.e.f. 3-10-1996 and, therefore, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted the appellants (who had submitted detailed information with regard to the formulae and manufacturing process of their products along with the application for grant of permission to manufacture Patent/Proprietary ayurvedic/unani medicines) to continue the manufacture under the drug licence - as a result of commencement of investigation by the Directorate General of Anti-evasion, the Drug Control authorities issued a notice directing the appellants to discontinue the manufacture. The appellants filed a Writ Petition before the Delhi High Court, but during the pendency of the petition, the Drug Control authorities permitted the appellants to continue manufacture under the existing licence and directed the appellants to specify on the label of the products that "the product is not a cosmetic item". The memorandum dated 17-4-96 of the Deputy Drugs Controller to the appellants in this connection is reproduced below : This has reference to the reply dated 9-4-96 received from the firm and their subsequent letters dated 15-4-96 and 16-4-96 and personal explanation given by Mrs. Vinita Jain, Managing Director of the firm in response to this Department show cause notice of even n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This clearly shows that the authorities clearly applied their mind before according approval. We also note that in the case of another manufacturer of similar products viz. Shehnaz Herbals, the claim for classification of similar products under Chapter 30 was accepted by the Department as seen from adjudication order No. 51/89 dated 29-8-89 passed by the Additional Collector of Central Excise, New Delhi (1052 to 1065 Vol. IV of the paper book) which was followed by the Assistant Collector (pages 1067-1070 Vol. IV of the paper book) vide his order dated 30-10-1992 in the case of Shehnaz Herbals. It is also relevant to note that immediately after the issue of the show cause notice alleging, inter alia, that presence in the products of ingredients which are not mentioned in the Ayurvedic Text Books is fatal to their claim for classification as ayurvedic medicines, the Collector of Central Excise, Delhi has issued Trade Notice No. 13/96 dated 22-4-96 permitting the presence of preservatives, excipients, binding agents, etc., even though those are not mentioned in the formulae prescribed in the authoritative text books. The Trade Notice is reproduced below : Trade Notice No. 13-CE (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by adjudication order No. 5/98 as time- barred. 5.3.1 To conclude our findings are summed up as follows : (a) The 22 products as set out in internal page Nos. 42 43 (para No. 5.1.4) are P P ayurvedic medicaments falling under CET sub-heading 3003.30. (b) The remaining products in dispute are cosmetics and toilet preparations falling under Chapter 33 of the Schedule to the CETA, 1985. (c) IRLP and IMPL are not related persons in terms of Section 4(4)(c) of the Central Excise Act and, therefore, the price at which IRLP sold the products is to be adopted as the basis for determining the assessable value. Similarly, IRLP and IRL Marketing are not related persons and hence the price at which IRLP sold the goods form the basis for determining the assessable value. (d) The extended period of limitation is not applicable in these cases. 6. The duty demand on the products held to be cosmetics and toilet preparations is to be requantified for the normal period of limitation of six months, adopting the price of IRLP as the basis for the computation of assessable value. The question of levying appropriate penalty on IRLP is left open to the Commissioner. 7. Penalties u ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
