SUPREME COURT OF INDIA
Commissioner of Central Excise, Surat
Vs
Messrs Zandu Pharmaceutical Works Limited
Appeal (Civil) 7849 of 2004
(S. B. Sinha and Dalveer Bhandari, JJ)
10.11.2006
S. B. SINHA, J.
Respondent herein manufacture hair oil under the brand name of "Alma
Lio". It was classified under SH No.3003.39 of the Schedule appended to
the Central Excise Tariff Act, 1985 (for short, 'the
1985 Act'). The said entry provides for excise duty at the rate of 8% ad
valorem being Ayurvedic Medicament. A show cause notice was issued as to why
the said product shall not be classified under SH No.3305.99 being a cosmetic
product attracting excise duty at the rate of 30% ad valorem. It was alleged
that by wrong classification of its product there had been a short payment of
central excise duty amounting to Rs.11, 12, 129/-. A demand of the said amount
in terms of Rule 9(2) of the Central Excise Rules, 1944 (for short, 'the
Rules') read with section 11A of the Central Excise Act,
1944 (for short, 'the 1944 Act') was issued. A penal action in terms of
rule 173-Q of Rules was also proposed. Because having been shown by Respondent,
the matter was heard by the Deputy Commissioner, who opined that the product
was classifiable under SH 3305.99 of the 1985 Act. Respondent was directed to
make good the short payment. A penalty of Rs.11, 12, 129/- was also imposed
upon it together with interest. An order for recovery of interest under section
11 AB of the 1944 Act was also passed. The appeal preferred by Respondent
before the Commissioner (Appeals) was dismissed by an order dated 17.4.2003.
He, however, opined that the product being not perfumed and being hair tonic,
and as such different from hair oil, could be classified under Chapter Heading
No.3305.99 falling in the residuary group. He also directed valuation of the
goods to be done under Section 4A of the 1944 Act. On a further appeal made by
Respondent before the Tribunal, the product was held to be classifiable under SH-3305.10
as 'perfumed hair oil'. The matter was remanded to the Adjudicating Authority
for recomputing the duty of excise payable.
Appellant is, thus, before us. Mr. Mohan Parasharan, the learned Additional
Solicitor General of India, appearing on behalf of Appellant, submitted that
the Tribunal went wrong in classifying the product of Respondent as perfumed
hair oil although it never disclosed the manufacturing process involved
therein.
Mr. Madhav Rao, the learned counsel appearing on behalf of Respondent, on the
other hand, supported the judgment.
Before the assessing authority, Respondent disclosed the manufacturing process
undertaken by it, which is as under:
(a) Aqueous extract of Mehandi, Bhringraj, Amla, Doodhi Seeds, Renukbeej,
Ambagotti, is prepared and concentrated.
(b) Coconut oil in hearted with Nagarevel Pan.
(c) Concentrated equeous extract is added to coconut oil and boiled.
(d) Milk solution is added to hot Coconut oil and boiled. Then kapur kachli
powder is added.
(e) Bulk is cooled and fragrance is added. It is kept for 7 days and
filtered."
The assessing authority in its order furthermore noticed:
"They further submitted that the Coconut oil is used in the said Product
for the purpose of using the same as base to enable application of the above
referred Ayurvedic Ingredients. Their product contains, time tested herbs with
well known properties. They submitted the various properties of the said
Ayurvedic. Ingredients ultimately ensured dandruff free hair, and also
strengthen and promotes of the various ingredients use is the said
"Almalio" the details against each of the said Ingredients:-
(A) Mehandi, Amlaki & Kapur Kachli : To strengthen and promote healthy hair
growth.
(B) Bhringraj : To make hair dark, luxuriant and prevent dandruff.
(C) Doodhibeej & Dugdha : To cool head
(D) Renuk beej & Amaresthi : To Nourish the scalp.
They submitted that the use of the above Ingredients in their product
"Almalio" are having Pre- dominant curative or prophylactic value and
the use of the same cannot be compared with any other ordinary preparation
intended to be use on hair."
It is, therefore, not correct to contend that Respondent never disclosed the
manufacturing process. The assessing authority, inter alia, held :
"(x) Assuming with admitted (sic) their product merits classification
under Chapter 33 as cosmetics or toilet preparation, then it deserves to
classify under Chapter Sub Heading No. 3305.10 and not under 3305.99 as alleged
in the Show Cause Notice. The Chapter Sub Heading No. 3305.10 is applicable to
the perfumed hair oil whereas Chapter Sub Heading No.3305.99 covers preparation
for use on the hair other than perfumed hair oil and hair fixer. They submitted
that going by the contents of their product and manufacturing process set out
hereinabove, their product does contain Sugandhi Dravya i.e. perfume and
accordingly it merits classification as perfume hair oil under 3305.10. In this
context they refer to and rely upon the decision of Honourable Supreme Court of
India in the case of Dumlop India Ltd., wherein the court has held as under:-
"When an article has by all standard reasonable claims to be classified
under an enumerated item in a Tariff Schedule then it would be against the very
principle of classification to deny it a parentage and consign it to an
orphanage to the residuary clause (Para-37)".
The Tribunal, on the other hand, as indicated hereinbefore, proceeded on the
basis that only because some ingredients of the product are mentioned in the
authoritative books of Ayurveda, the same would not make the product a
medicament. It also noticed the ingredients and the therapeutic or prophylactic
uses of the product stating:
"Further the properties of the various ingredients used in the manufacture
of the impugned product has been described by the Appellants as under:-
Ingredients Properties
(i) Mehandi, Amla & Kapur Kachli To strengthen and promote healthy hair growth
(ii) Bhringraj To make hair dark luxuriant and prevent dandruff.
(iii) Doodhi Beej and Dugdha To cool head
(iv)Ronuk Beej and Amarasthi To nourish the scalp.
The Tribunal, however, proceeded to consider the alternative submission made on
behalf of Respondent to hold:
"The learned Counsel has alternatively claimed the classification under sub-heading No. 3305.10 as perfumed hair oil. The Commissioner (Appeals) has classified the impugned product under sub-heading 3305.99 as there was nothing on record to show that the product is being perfumed. The learned Advocate has mentioned that fragrance is added in the impugned product at the end of the manufacturing process. This is apparent from the manufacturing process detailed in the Adjudication Order. We, therefore, hold that the impugned product is classifiable under sub-heading 3305.10 and the matter is remanded to the jurisdictional Adjudicating Authority to recompute the duty of excise payable by the appellants. We also agree with the learned advocate that the issue involved being classification of a product for which classification declaration was filed by the Appellants, penalty under Rule 173Q of the Central Excise Rules, 1944 is not imposable. We, therefore, set aside the penalty imposed on the Appellants.Respondent, as noticed hereinbefore, not only disclosed the ingredients of its products, but also disclosed the manufacturing process. On almost identical situation, as would appear from the discussions made hereinafter, such a product has been held to be an Ayurvedic product.
The relevant entries are as under :
"Heading No
Sub-heading No
Description of goods
Rate of duty
30.03
3003.39
Other
8%
33.05
3305.10
Perfumed hair oils Other
18%
33.05
3305.99
Other
30%"
Note 2 of Chapter 33 reads as follows:-
"2. Heading Nos. 33.03 to 33.07 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 with
labels, literature or other indications that they are for use as cosmetics or
toilet preparations or put up in a form clearly specialized to such use and
includes products whether or not they contain subsidiary pharmaceutical or
antiseptic constituents, or are held out as having subsidiary curative or
prophylactic value."
In Commissioner of Central Excise, Calcutta v. Sharma Chemical Works ,
this Court noticed its earlier decisions to hold that onus of proof to show
that a particular product is classifiable under one entry or the other is on
the Revenue. "Banphool Oil" was held therein as classifiable as an
Ayurvedic Medicament under sub-heading 3003.30 stating :
"Mere fact that a product is sold across the counters and not under a
doctor's prescription, does not by itself lead to the conclusion that it is not
a medicament. We are also in agreement with the submission of Mr Lakshmikumaran
that merely because the percentage of medicament in a product is less, does not
also ipso facto mean that the product is not a medicament. Generally the
percentage or dosage of the medicament will be such as can be absorbed by the
human body. The medicament would necessarily be covered by fillers/vehicles in
order to make the product usable. It could not be denied that all the
ingredients used in Banphool Oil are those which are set out in the Ayurveda
textbooks. Of course the formula may not be as per the textbooks but a
medicament can also be under a patented or proprietary formula. The main
criterion for determining classification is normally the use it is put to by
the customers who use it. The burden of proving that Banphool Oil is understood
by the customers as a hair oil was on the Revenue"
In Alpine Industries v. Collector of Central Excise, New Delhi (SC)] :
this Court held that 'Lip salve' is a kind of 'barrier cream' or a
protective cream against skin irritants and, therefore, not a medicament,
stating :
"Such preparations which have a subsidiary curative or prophylactic value
clearly fall under Entries 33.03 to 33.07 as per Note 2 under Chapter 33. The
product clearly is covered by Entry 33.04 read with Note 5 of Chapter 33, it essentially
being a preparation for protection of lips or skin. We have also gone through
the minority opinion expressed by one of the members of the Tribunal and the
reasoning therein supported before us on behalf of the appellant"
The Tribunal in Commissioner of Central Excise, Cochin v. Kerala Ayurvedic
Pharmacy Ltd. 2005 Indlaw CESTAT 612 followed
Alpine Industries (supra), holding:
"The Respondent's product 'Kesini oil' is a preparation for use on hair
and fits the description in chapter heading 33.05 of the schedule. Once a
product is a preparation for use in hair, the fact that it has therapeutic
values does not take it away from the purview of chapter 33. The impugned
product is classifiable under chapter 33. We set aside the order of the Commissioner
(Appeals) and allow the appeals."
A special leave petition filed thereagainst was dismissed by this Court.
Recently, however, in Puma Ayurvedic Herbal (P) Ltd. v. Commissioner, Central
Excise, Nagpur (SC) : 'Puma Hair Tonic Powder' and 'Puma Anti-Dandruff
Oil', 'Puma Shishu Rakshak Tel' were held to be medicinal products having
regard to the medicinal property. Respondent, therefore, could contend that
there product also is an Ayurvedic medicament. Tribunal, however, proceeded on
the alternative submissions made on its behalf. No appeal has been filed
against the order of the Tribunal refusing to classify the product of
respondent as an Ayurvedic Medicament.
We are, therefore, only left with the contention that the product of Respondent
is a 'perfumed hair oil'. Indisputably, perfume is added. Addition of perfume
is a part of manufacturing process. It is one of the ingredients of the
product.
We therefore without going into the question as to whether the product of
Respondent has any therapeutic value or not would agree with the judgment of
the Tribunal. We, thus, find no merit in this appeal. It is dismissed
accordingly. However, in the facts and circumstances of the case, there shall
be no order as to costs.