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TMI Blog2021 (6) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... ules 25, 26 and 27 of the Central Excise Rules 2002. 3. The first four show cause notices dated 29.12.2011 (for the period 01.10.2010 to 30.09.2011), 06.11.2012 (for the period 01.10.2011 to 30.06.2012), 26.07.2013 (for the period 01.07.2012 to 31.03.2013) and 01.05.2014 (for the period 01.04.2013 to 31.03.2014) were adjudicated upon by a common order dated 20.01.2015 holding that the products mentioned in the show cause notices were cosmetics falling under Chapters 33/34 of the Tariff Act. This order dated 20.01.2015 has been assailed by the appellant in Excise Appeal No. 21079 of 2015. 4. The fifth show cause notice dated 24.04.2015 (for the period 01.04.2014 to 31.03.2015) was adjudicated upon by an order dated 11.04.2016 holding that the products mentioned in the show cause notice would be classified under Chapters 33/34 of the Tariff Act. This order has been assailed by the appellant in Excise Appeal No. 21387 of 2016. 5. The sixth show cause notice dated 19.04.2016 (for the period 01.04.2015 to 31.03.2016) was adjudicated upon by an order dated 27.02.2017 holding that the products mentioned in the show cause notices would be classified under Chapters 33/34 of the Tariff Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,02,55,010/- 20.02.2018 (i) Indulekha Skin Care Oil (ii) Bringha Oil (iii) Akrot Face Pack (vi) Skin Care Cream (v) Baby Oil (vi) Coconut Milk Shampoo (vii) Hair Care Oil 33049990 33059019 33049910 33049990 33049990 33049990 33059019 Rs. 8,06,50,304/- 9. The first show cause notice dated 29.12.2011 mentions that the outer covers of the two products namely Indulekha Complete Skin Care Oil and Indulekha Gold Complete Hair Care Oil do not contain the description "ayurvedic medicine"; from the advertisements it can be seen that Indulekha Complete Skin Care Oil was portrayed and perceived as a product that enhances the beauty and not as an ayurvedic medicine; and the disclaimer in the advertisement issued for Indulekha Gold Complete Hair Care Oil would show that it cannot be used in diagnosis, treatment or prevention of any disease or disorder. The show cause notice, therefore, states that both the products were cosmetics under Chapter 33 of the Tariff Act. The relevant allegations contained in this show cause notice are as follows: 12. In order to determine whether a product is to be classified as a medicament or a cosmetic, the perception of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were adjudicated upon by a common order dated 20.01.2015. The products manufactured and cleared by the appellant were classified as cosmetics under Chapters 33/34 and not as ayurvedic medicaments under Chapter 30 of the Tariff Act and accordingly, the demands have been confirmed with interest and penalty. 12. The impugned order records a finding that though the products contain ingredients which are ayurvedic as they are mentioned in the ayurvedic texts but the products have specific Headings under Chapter 33 of the Tariff Act and so even if the products have therapeutic value, they would be classified under Chapter 33. The impugned order also mentions that even if the license issued to the appellant recognizes the products as ayurvedic drugs, still the classification has to be made as per the rules of interpretation. The impugned order also takes notice of the fact that there was an amendment in Chapter Note 2 of Chapter 33 from 28.02.2005 as a result with which the products must be suitable for use as goods of these Heading and put up in packing of a kind sold by retail for such use. This apart, the impugned order also records a finding that even if the products are classifiable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Further, the description under Chapter 30.03 prior to 28.02.2005 stood as Medicaments (including veterinary medicaments) Patent or proprietary medicaments, other than those medicaments which are exclusively Ayurvedic, Unani, Siddha, Homeopathic or Bio-chemic. Erstwhile Chapter Note 2 (ii) of Chapter Heading 30 defines "Patent or proprietary medicament' Presently, there is no definition of Patent or Proprietary Medicines. In fact there is no mention of Patent or proprietary medicaments. 08(vii). Relevant rules for the interpretation of the schedule are set out below:- ****** Accordingly, even if the products are classifiable under two different headings, then they shall be classified under the heading which occurs last in the numerical order. In terms of this rule also in case of a dispute between Chapter 30 and Chapter 33, classification is to be done under Chapter 33 as it occurs last in the numerical order. 09(i). It has been argued that during the period of the Notice the Products manufactured are Ayurvedic Medicines and not Cosmetics. They have referred to the Drug Licence, Commercial Taxes Registration, Export Certificates, Products Certificates, revised trademark a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by order dated 19.06.2019. In so far as the advertisement and packing material is concerned, the impugned order records a finding that they cannot be considered for determining the real nature and character of the product and that the opinion given by the Superintendent of a District Hospital would have no relevance for determining the classification of the products. The order mentions that the preparation of the products meet the requirements of medicaments prescribed under Chapter 30 and all that has to be seen is whether they are used for therapeutic purpose or beauty enhancement purpose. A finding has thereafter been recorded that the products would not fall under the category of cosmetics but would deserve classification under Chapter 30 of the Tariff Act. Since they are used for disorder/ diseases of the skin and scalp. 14. Ms. Nisha Bineesh learned counsel for the appellant made the following submissions; (i) The appellants are admittedly manufacturing ayurvedic products and all the products are manufactured using ayurvedic/medicinal plants as referred in authoritative books. The Department has not disputed this fact at any stage of the investigation or during the adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Himani Ltd. vs. Commissioner of Commercial Taxes, Lucknow [ 2011 (263) E.L.T. 335 (All)]; and (f) Commissioner of Central Excise, Chennai-IV vs. Hindustan Lever Ltd. [ 2015 (323) E.L.T. 209 (S.C.)]; (vi) In order to classify a product as cosmetics or medicament, the principle of Twin Test as drawn by the Courts has to be applied. The principle employs a common parlance test and also a determination as to whether the ingredients used for making the product are mentioned in the authoritative texts books on Ayurveda.; (vii) The Department has not rebutted the contention of the appellant that people use or treat the products as a medicament. The license that the appellant has been holding is a Drug license. The Sales Tax department has also considered the products as Drugs. It is undisputed that the ingredients used in the products of the appellant are ayurvedic products only having therapeutic or prophylactic or curative properties. The Courts have held what is important is the curative attributes of such ingredients that render the products as medicament; and (viii) The need to apply clause 3(c) of the General Rules of Interpretation of the Schedule to the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 01.09.2011 informed that the Indulekha brand preparations are cosmetics and not Ayurvedic. 16. The submissions advanced by the learned Counsel for the appellant and the learned Authorized Representative of the Department have been considered. 17. The appellant claims to be engaged in the manufacture and clearance of various ayurvedic products. It classified them under Chapter 30 of the Tariff Act. Initially when the appellant had started manufacturing the products by the name of Indulekha Hair and Skin Care Oil in 2009, the appellant held a cosmetics licence dated 15.06.2009 but the appellant surrendered this licence and was granted a licence by the ASU Drugs Controller w.e.f. 17.08.2010. The list of drugs attached to the said licence describes in detail the ingredients to be used; Malayalam, Sanskrit and Botanical names; the parts of the plants to be used; the quantum of each of the ingredients; and the ayurvedic text reference. Subsequently, the Deputy Drugs Controller (Ayurveda) and Licensing Authority issued a letter stating that the approval given to the products in the Licence dated 17.08.2010 was for Ayurvedic Proprietory Drugs namely: (a) Indulekha Skin Care Oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for determining the classification of the product. 20. The following four issues, therefore, would arise for consideration in these appeals: (A) Whether the amendments made in the provisions of the Tariff Act w.e.f. 28.02.2005 have effected any change in the classification of the products in dispute as claimed by the department; (B) Whether the department has discharged its burden to prove that the products are classifiable under Chapter 33 of the Tariff Act; (C) Whether the products of the appellant are classifiable as medicament under Chapter 30 or as cosmetics under Chapter 33 of the Tariff Act; and (D) Whether Clause 3(c) of the General Rules can be applied in this case as held by the Adjudicating Authority. A 21. The Adjudicating Authority placed much emphasis on the amendments made in the Tariff Act w.e.f. 28.02.2005 in regard to classification of the products. The Adjudicating Authority observed that the products could be classified as drugs under Chapter 30 of the Tariff Act prior to 28.02.2005, but the amendments made in Chapter Note 2 to Chapter 33 w.e.f. 28.02.2005 changed the situation because the requirement that the label in the packing should mention tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; After amendment from 28.02.2005 CHAPTER 30 PHARMACEUTICAL PRODUCTS NOTES 1. This Chapter does not cover: (a) to (c) ************ (d) Preparations of Heading 3303 to 3307, even if they have therapeutic or prophylactic properties; ************** CHAPTER 33 ESSENTIAL OILS AND RESINOIDS; PERFUMERY COSMETICS OR TOILET PREPARATIONS NOTES 1. ********* 2. ********* 3. Headings 3303 to 3307 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use. 24. A perusal of Chapter Note 1(d) of Chapter 30 prior to 28.02.2005 shows that the said Chapter would not cover preparations of Chapter 33 even if they have therapeutic or prophylactic properties. Even after amendment, Chapter Note 1(d) shows that Chapter 30 would not cover preparations of Headings 3303 to 3307 even if they have therapeutic or prophylactic properties. Thus, even before the amendment or after the amendment Chapter 30 would not cover preparation of Chapter 33 or preparation of Headings 3303 to 3307 of Chapter 33. It has, therefore, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rature and other indications showing that they are for use as cosmetic or toilet preparation. 26. It was, therefore, absolutely necessary for the Adjudicating Authority to record a finding that the products were "cosmetics" under Chapter 33 even after the amendment was made in Chapter Note 1(d) of Chapter 30 w.e.f. 28.02. 2005. B 27. Thus, what has to be seen is whether Department has discharged its burden of proving that the products were classifiable as cosmetics under Chapter 33 of the Tariff Act. The contention of the learned Counsel for the appellant is that the Department did not produce any evidence to establish that disputed products were cosmetics under Chapter 33 of the Tariff Act. It is seen that the Adjudicating Authority had noted that the products of the appellant contained ingredients which were ayurvedic in as much as they were mentioned in ayurvedic texts. The Department, however, failed to establish conclusively that the products manufactured by the appellant were cosmetics and only an inference that the products were cosmetics has been drawn because of the amendments made on 28.02.2005. C 28. The Third issue is as to whether the products of the appellant are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under a doctor's prescription. Similarly availability of the products across the counter in shops is not relevant as it makes no difference either way. (emphasis supplied) 30. Learned Counsel for the appellant submitted that in order to classify a product as cosmetics or medicament, the principle of twin tests formulated by the courts have to be applied. These two test are (i) the common parlance test and (ii) whether the ingredients used for making the product find mention in the authoritative text books on ayurveda. 31. For the first test it has to be seen how the people who actually use the products, think or understand the product to be. According to the appellant, people use or treat the products as medicament as the products address the medical issues faced by them. For this reliance has been placed on a Malayalam Daily where people have considered the products as medicament and not as cosmetics. No evidence has been led by the Department to controvert this statement of the appellant. The impugned order also recognizes that the products contain ingredient which are ayurvedic in as much as these are ingredients mentioned in ayurvedic text. The list of drugs attached to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered with Drug Controller and is being manufactured under a drug licence. (emphasis supplied) 33. The Supreme Court in Naturalle Health Products (P) Ltd. vs. Collector of C. Ex., Hyderbad [2003 (158) E.L.T.257 (S.C.)] also pointed out that the articles enumerated in the tariff schedules must be construed as far as possible in the sense a common man understands it. The relevant potion of order is reproduced below: 39. We are also of the opinion that when there is no definition of any kind in the relevant taxing statute, the articles enumerated in the tariff schedules must be construed as far as possible in their ordinary or popular sense, that is, how the common man and persons dealing with it understand it. If the customers and the practitioners in Ayurvedic medicine, the dealers and the licensing officials treat the products in question as Ayurvedic medicines and not as Allopathic medicines, that fact gives an indication that they are exclusively ayurvedic medicines or that they are used in Ayurvedic system of medicine, though it is a patented medicine. This is especially so when all the ingredients used are mentioned in the authoritative books on Ayurveda. As rightly conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the quantum of each ingredient; and the ayurveda text reference. It also provides the purpose for which the medicine are to be used and the dosage. 37. It will be useful to refer to the decision of Supreme Court in Naturalle Health Products. The Supreme Court pointed out that the products prepared from natural herbs mentioned in authenticated ayurvedic text books would be classifiable under Chapter 30. The observations are: 21. It is not in dispute that the products in question are Vicks Medicated cough drops and Vicks Vaporub throat drops. The appellants manufacture these products under Ayurvedic Drug Licence. All the ingredients contained in these products are admittedly mentioned in authoritative Ayurvedic Text Books mentioned in Schedule III to the Drugs and Cosmetics Act. However, the formula of preparing the products is proprietary to the appellant in C.A. No. 2072/1996. The appellant submitted that the ingredients contained in the products are manufactured from natural herbs like menthol etc., but purified to the pharmaceutical grade. The appellant claims the classification of the products in question as patented/proprietary Ayurvedic medicaments under Heading 3003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only known as dandruff), etc. I find that the department has not denied this claim of the noticee. (emphasis supplied) 39. The Commissioner thereafter examined whether the products were used for therapeutic/prophylactic purposes or beauty enhancement and on examination of the documents and submissions advanced on behalf of the appellant concluded that the products manufactured and cleared by the appellant were not meant for daily use or as a substitute for regular cosmetic products. The contention on behalf of the appellant that they were meant for therapeutic/prophylactic purposes was, therefore, accepted. The relevant findings of the Commissioner are as follows: 17. Let me now examine the character of the preparations manufactured by the - noticee, whether these are intended as medicaments or as cosmetics. It is also the submission of the noticee that the products manufactured and sold by them are not used as a substitute for any other products as its price is very high compared to the ordinary products in the respective categories. Thus, it is not meant for a daily use or as a substitute for the regular cosmetic products. On the other hand, the products covered under chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not apply in the instant case. (emphasis supplied) 40. The aforesaid findings of the Commissioner are based on appreciation of the legal and factual position emerging from examination of the products manufactured and cleared by the appellant. The Commissioner also observed that the products were neither meant for daily use nor they were cosmetics and were ayurvedic medicines classifiable under Chapter 30 of the Tariff Act. D 41. The fourth issue is as to whether clause 3(c) of the General Rules would be applicable as has been held in the impugned order. The relevant General Rules are as follows: 2. General rules for the interpretation of this Schedule Classification of goods in this Schedule shall be governed by the following principles: 1. ********* 2. ********* 3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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