SUPREME COURT OF INDIA
Messrs Muller and Phipps (India) Limited
Vs.
Collector of Central Excise, Bombay-I
(S. R. Babu and G. P. Mathur JJ.)
05.05.2004
JUDGMENT
Rajendra Babu CJI., J.
1.
In these appeals arising out of an order passed by the Customs, Excise and Gold
(Control) Appellate Tribunal (hereinafter referred to as the 'Tribunal')
question raised for our consideration is whether Johnson's Prickly Heat Powder
and Phipps Processed Talc are patent or proprietary medicines classifiable for
the purposes of excise duty under the erstwhile tariff item 14E (as prior to
1.3.1986) and Heading 30.03 (subsequent to 1.3.1986) as claimed by the
appellants or whether they are cosmetics or toilet preparations falling under
the erstwhile tariff item 14F (prior to 1.3.1986) and Heading 33.04 (after
1.3.1986) as claimed by the Department.
2. The Tribunal held that the products in question are 'cosmetics' and not
'medicament' on the basis that boric acid, salicylic acid and zinc oxide
present in the product are subsidiary pharmaceutical or antiseptic constituents
and their curative and prophylactic value is subsidiary and, therefore, the
product is a preparation for the care of the skin and is classifiable under
tariff item 14F upto 28.2.1986 and under heading No. 33.04 from 1.3.1986 and
there is no legal infirmity in the order issued under Section 37B of the
Central Excise Act, 1944.
3. The relevant entries of tariff item 14F and Heading No. 33.03 are as
follows:-
“14F. Cosmetics and toilet preparations not containing alcohol or opium, Indian
hemp or other narcotic drugs or narcotics, namely:-
(i) Preparations for the care of the skin, beauty or make-up preparations and
manicure or pedicure preparations, such as beauty creams, vanishing creams,
cold creams, make-up creams, cleansing creams, skin foods and skin talcs, face
powders, baby powders, toilet powders, talcum powders and grease paints,
lipsticks, eye-shadow and eye-brow pencils, nail polishes and varnishes,
cuticle removers and other preparations for use in manicure or chiropody,
sun-burn preventive preparations and sun-tan preparations, barrier creams to
give protection against skin irritants, personal (body) deodorants,
depilatories.
(ii) Preparations for the care of the hair, such as : brilliantine’s, perfumed
hair oils, hair, lotions, pomades and creams, hair dyes, shampoos whether or
not containing soap or organic surface active agents.
(iii) Shaving creams, whether or not containing soap or organic surface active
agents.
Explanation. I. "Alcohol", "Opium", "Indian
Hemp", "Narcotic Drugs" and "Narcotics" have the
meanings respectively assigned to them in section 2 of the Medicinal and
Toilet Preparations (Excise Duties) Act, 1955.
Explanation II.- This Item includes cosmetics and toilet preparations whether or
not they contain subsidiary pharmaceutical or antiseptic constituents, or are
held out as having subsidiary curative or prophylactic value.
Explanation III.- this Item includes, unmixed products, only when they are in
packing of a kind sold to the consumer and put up with labels, literature or
other indications that they are for use as cosmetics or toilet preparations or
put up in a form clearly specialised to such value."
"33.04: Beauty or make-up preparations and preparations for the care of
the skin (other than medicaments), including sunscreen and suntan preparations;
manicure or pedicure preparations."
4. The case put forth before us on behalf of the appellants is that prickly
heat powder contains a range of medicines and are used only for the treatment
and prevention of a skin ailment known as Milaria Rubra commonly known as
prickly heat; that prickly heat powders are manufactured under a Drug Licence
issued under the Drug and Cosmetics Act, 1940 and have been treated as a drug
and not a cosmetic by the authorities under the Drugs Act; that on a reference
made by the Finance Ministry, the Drug Controller of India has opined that due
to the high content of 5% boric acid in a prickly heat powder, it would be
classifiable as a drug or medicament and not as cosmetics; that from 1970 till
1985 prickly heat powders have been classified and assessed under tariff item
14E of the old tariff as "Patent or Proprietary Medicines"; that the
Collector (Appeals), disagreeing with the authorities, has taken the view that
in view of the medicinal ingredients, namely, salicylic acid and boric acid
which are meant to cure the disease called Milaria Rubra, prickly heat powder
is a drug and, therefore, classifiable as a drug or a medicinal preparation;
that whereas the Tribunal reversing the order of the Collector took the view
that prickly heat powders are cosmetics and not 'medicament'. It is contended
that prickly heat powder not only relieves prickly heat faster but actually
helps prevent it; that when a person perspires profusely the sweat stays on the
skin too long and the person becomes a potential victim of prickly heat; that
specially formulated prickly heat powder absorbs the sweat better and faster
and prevents the build-up of bacteria on the skin; that, therefore, the person
avoids getting a red rash, itching and burning; that no person who requires
ordinary talc for the purposes of beautifying her or himself would use the said
products, which contain the aforesaid active therapeutic ingredients; that the
said products are known as prickly heat/Milaria Rubra; that the sale of the
said products are much higher in hot summer months when this disease frequently
erupts. It is further submitted that the Central Government by its order dated
22.3.1970 held that the product was a drug; that the Sales Tax Tribunal by its
order dated 4.2.1970 held that the product was a drug and not a cosmetic; that
the Central Board of Excise and Customs had also passed an order dated
17.1.1981 holding that selsum shampoo was not a cosmetic but was a drug and the
basis for arriving at that decision was that Johnsons' prickly heat powder and
NYCIL have been recognised as a drug and selsum stood on a stronger ground. Our
notice was drawn to the decision of this Court in BPL Pharmaceuticals Ltd. vs.
CCE, , and the decision of the Andhra Pradesh High Court in State of A.P.
vs. Koduri Satyanarayana & Co.1, wherein it was held that
Sales Tax Tribunal was right in considering Johnson's prickly heat powder as
falling under Entry 37 (drugs) and not under Entry 36 (cosmetics). It is
further contended that the price of the product was fixed under the Drug Price
Control Order, 1970 as it had been manufactured under a Drug Licence issued
under the Drugs Act; that under the Drug Act there are two regimes, namely, one
for drugs and the other for cosmetics; that before a drug licence is issued
various conditions as required by Rule 17 of the Drugs and Cosmetics Rules,
1945 have to be complied with; that the product is known and understood in
commercial parlance as a patent or proprietary medicine used for the prevention
and treatment of the disease, prickly heat; that the Head of the Pharmacology
Department of the Grant Medical College, Mumbai has also opined that Johnson's
prickly heat powder contains active ingredients like salicylic acid and boric
acid and it is of medicinal value and can be used in the treatment of skin
disorders. Various text books have been referred in support of the argument. In
analysing and understanding the meaning of the relevant entries of the tariff
items our attention is drawn to various tariff items. It was noticed by the
Secretariat of the HSN that it had no specific information concerning a
classification practice with regard to prickly heat powders in other countries
and that a product known as Dakosan, which was described as prickly heat powder
had been classified under heading 33.07, that is, deodorant. The Government,
however, pointed out to the Secretariat of the HSN that Dakosan could not be
compared with the prickly heat powder whose classification was under scrutiny
because of the 5% content of boric acid. It was pointed out that the Government
had consulted the Drug Controller who had opined that because of the high
concentration of boric acid the product may be treated as a drug.
5. The view of the Secretariat of HSN is under strong attack before us. It is
stated that the question to be considered is whether the product had the
essential character of preparations of heading 33.03 or medicaments of heading
30.04. the Secretariat thereafter purported to consider certain examples given
in Martindale's Extra Pharmacopoeia and came to the conclusion that in those
examples the active ingredients were higher. It is stated that boric acid was
described in pharmaceutical literature as having feeble antibacterial and
antifungal properties and that the European Committees had issued a directive
relating to cosmetic products indicating that boric acid could be used in
cosmetics in specified maximum concentration limited to 5% Salicylic acid was
described as a keratolytic substance having bacteriostatic and fungicidal
properties used in the treatment of fungus infections of the skin, zinc oxide
was stated tobe applied externally in dusting powders and a mild astringent,
Chlorphensin which is the active ingredient in Nycil was described as having
antibacterial antifungal and antitrichomanal properties and was used in dusting
powders in concentration of 1%. In that view, the Secretariat questioned the
classification of Johnson's prickly heat powder and Shower to Shower as a
medicament and stated that in view of its use and composition it would lean
towards classification of these two products as preparations for the care of
the skin falling under Heading 33.04. However, it is stated that Nycil should
be considered as a medicament falling under Heading 30.04.
6. What is required to be considered in the matters of this nature where
commodity taxation is taken up by the State authorities the court should be
guided by the manner of classification of the goods which are brought to tax
rather than the etymological meaning of the product in question or expert's
opinion thereto.
7. The Tribunal in the present cases has heavily relied on Explanation II to
tariff Item No. 14F of the Tariff Act which reads as "this item includes
cosmetics and toilet preparations whether or not they contain subsidiary
pharmameutical or antiseptic constituents, or are held out as having subsidiary
curative or prophylactic value". This Court in BPL Pharmaceuticals Ltd.
held that selenium sulfide product not intended for cleansing, beautifying,
promoting attractiveness or altering appearance and having regard to
preparation, label, literature, character, common and commercial parlance
understanding and earlier decisions of the Central Board of Excise and Customs
held the product was a drug or medicinal product covered by Sub-heading 3003.19
and there was no good reason to change the classification merely on ground of
coming into force of the Tariff Act. Value of earlier understanding and
precedents was emphasised.
8. The Tribunal in the present cases adverted to BPL Pharmaceuticals Ltd. and
differentiated the same on the basis that facts that arose for consideration by
this Court in that case were different from the one they had to decide. The
Tribunal stated that the label affixed to the containers of the prickly heat
powder did not indicate that it was a medicine to be used under a doctor's
advice or under a doctor's prescription. The Tribunal also noted that the
product is not known as a prominent medicine but only as an aid to prevent
prickly heat. The Tribunal enumerated various arguments advanced on behalf of
the appellants and took the view that:
"Now examining the product before us, we find that the composition of the
product 'prickly heat powder' is salicylic acid 0.8% to 1.5%, boric acid 5%,
zinc oxide 10% to 16%, talc base of hydrate Magnesium silicate. Now the
question is whether salicylic acid 0.8% to 1.5% boric acid 5% and zinc oxide
10% to 16% are subsidiary pharmaceutical or antiseptic constituents. The
assesses represented that these ingredients were not subsidiary but were
significant ingredients. In support of their contention, they cited and relied
upon the Drug Controller's opinion wherein the Drug Controller in the case of
shower to shower had opined that because of high conc. Of boric acid, the
product cannot be used as talcum powder. Against this, we find that Secretariat
of the C.C.C.N. in their note in para 28 opined that "In researching the
question of the classification of the prickly heat powders of concern to the
Indian administration, the Secretariat has determined that certain 'dusting
powders' containing boric acid and zinc oxide or salicylic acid are used for
their therapeutic value in the treatment of certain skin diseases. However, in
such preparations, according to examples cited in the Martindale Extra
Pharmacopoeia, the level of active ingredients is rather high. For example,
'compound zinc durting powder' specified in the section on dermatological
agents on page 460, contains zinc oxide (25%), boric acid (5%), sterilised
purified talc (35%) and starch (3%). Another cited preparation zinc and
salicylic acid dusting powder containing zinc oxide (20%), salicylic acid (5%)
and starch (75%) but no boric acid". Then again in para 30, the
Secretariat had opined that the conc. Of boric acid in talc is limited to 5%.
Regarding salicylic acid, the Secretariat opined that they would lean towards
classification of shower to shower and Johnson's princkly heat powder as
preparations for the care of skin in heading No. 33.04."
9. After noticing the finding of the Harmonized System Committee the Tribunal
noted that the Central Excise Tariff is now based on HSN and the opinion and
recommendation of the Committee cannot just be brushed aside simply because
similar products are manufactured or sold under drug licence.
10. Indeed, the effect of Harmonised System of Nomenclature (HSN)
classification came up for consideration before this Court in Collector of
Central Excise, Shillong vs. Wood Craft Products Ltd., This Court stated
therein that when the Central Excise Tariffs are based on internationally
accepted nomenclature found in the HSN, any dispute relating to tariff
classification must so far as possible be resolved with reference to
nomenclature indicated by HSN unless there be an express different intention
indicated by the Central Excise Tariff Act, 1985 itself and it was further
emphasised therein that when the Central Excise Tariff Act is enacted on the
basis and pattern of the HSN the same expression used in the Act must as far as
practicable be construed to have the meaning which is expressly given to it in
the HSN when there is no indication in the Indian tariff of a different
intention.
11. But in the present case when throughout the meaning given to products in
question not only by the department itself but also by other departments like
Drug Controller and the Central Sales Tax authorities is that the product in
question is a medicinal preparation should be accepted.
12. Applying the principles enunciated in BPL Pharmaceuticals Ltd. case and
taking into consideration various circumstances as to the manner in which the
goods had been treated on the earlier occasions by the department and the product
having been utilised with reference to the commercial parlance and
understanding, that it had been treated as a drug it would not cease to be one
notwithstanding the fact that new tariff act has come into force. What is to be
seen in such cases is when in the common parlance, for purpose of the Drug Act,
for purpose of Sales Tax Act and in various findings recorded on earlier
occasions by the department itself having been noticed, the conclusion is
inevitable that the products in question must be treated as medicinal
preparations.
13. Therefore, we have no hesitation in reversing the view of the Tribunal and
restore that of the Collector. The appeals are allowed accordingly.
11987 Indlaw AP 51 (AP)