“REPORTABLE”

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos.7357-7372 OF 2001

Commissioner of Central Excise, Delhi…. Appellant

Versus

Ishaan Research Lab (P) Ltd. & Ors. …. Respondents

WITH

CIVIL APPEAL No.2517 OF 2002

Commissioner of Central Excise, Delhi…. Appellant

Versus

Ishaan Research Lab (P) Ltd. …. Respondent

J U D G M E N T

V.S. SIRPURKAR, J

1.This judgment will dispose of Civil Appeal Nos.7357-7372 of 2001 as

also the Civil Appeal No.2517 of 2002.

2.All these appeals relate to the order passed by Customs Excise and

Gold (Control) Appellate Tribunal, New Delhi whereby the Tribunal held

that 22 products manufactured by M/s.Ishaan Research Lab Private

Limited (hereinafter referred to as “IRLP”) are covered under the Central

Excise Tariff Sub-heading 3003.30 and not under Chapter 33 of Central

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Excise Tariff and thus the said products would invite the duty as “Ayurvedic

medicines” at the rate of 10% advalorem and not at the rate of 40%

advalorem as claimed by the Revenue Department. The Revenue

Department’s claim was that these products were cosmetics such as skin

beautification creams, lotions, moisturisers, shampoos, etc., and were as

such the “cosmetics” and “toilet preparations” chargeable to 40% duty.

The Tribunal further held that IRLP and M/s.Ishaan Marketing Private

Limited (hereinafter referred to as “the IMPL”) were not related persons in

terms of Section 4(4)(c) of the Central Excise Act and as such the price at

which IRLP sold the products was to be adopted as the basis for

determining the assessable value. Similarly, the IRLP and IRL Marketing

Pvt. Ltd. (hereinafter referred to as “IRL (M)”) were also not related

persons and as such the price at which the IRLP sold the goods would

form the basis for determining the assessable value. The Tribunal further

held that the extended period of limitation was not applicable in all the

cases. Resultantly, the Tribunal held that the duty demand on the products

which were held to be cosmetics by the Commissioner, Central Excise was

to be re-quantified with the normal period of limitation of six months,

adopting the price of IRLP as the basis of the computation of the

assessable value. The Tribunal, however, left open the question of penalty

on IRLP to be decided by the Commissioner, Central Excise. The Tribunal

further set aside the penalities imposed upon IMPL, IRL (M) and Smt.Vinita

Jain under Rule 209A of Central Excise Rules in view of the finding that the

IRLP, IRMP and IRL(M) are not the related persons as also the finding that

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the extended period of limitation was not applicable. Lastly the Tribunal set

aside the confiscation of land and machinery.

3.The proceedings in these cases were initiated by Show Cause

Notice dated 10.4.1996 covering the period of 1

st

April, 1991 to 16

th

January, 1996, demanding a total duty of Rs.3,10,17,993/- and imposed a

penalty of Rs.1 crore on IRLP, Rs.25 lakhs on IMPL and Rs.35 lakhs on

one Ms.Vineeta Jain. The second notice was given on 30.9.1996 covering

a period of 17.1.1996 to 31.3.1996 demanding a duty of Rs.60,16,359/-.

The Third Notice was dated 31.12.1996 whereby the duty of

Rs.1,15,68,744/- was demanded and a consolidated penalty under Second

and Third Show Cause Notices was imposed to the tune of Rs.40 lakhs on

IRLP, Rs.25 lakhs on IMPL and Rs.40 lakhs on Ms.Vineeta Jain. Fourth

Show Cause Notice was dated 2.5.1997 covering a period of 1.10.1996 to

31.3.1997 whereby the duty demanded was Rs.92,82,309/- whereas the

penalty imposed was Rs.20 lakhs on IRLP, Rs.15 lakhs on IMPL, Rs.15

lakhs on IRL(M) and Rs.20 Lakhs on Ms.Vineeta Jain. The last Show

Cause Notice was dated 28.10.1997 covering the period from 1.4.1997 to

30.6.1997 wherein the duty demanded was Rs.68,26,881/- and the penalty

imposed was Rs.10 lakhs on IRPL, Rs.5 lakhs on IRL(M) and Rs.2 lakhs

on Ms.Vineeta Jain.

5.Commissioner, Central Excise, New Delhi, in respect of the first

Show Cause Notice, confirmed the demand of duty amounting to

Rs.3,06,68,074.78 as Basic Excise Duty and Rs.34,39,918.89 as Special

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Excise Duty under Rule 9(2) of Central Excise Act, 1944 read with proviso

to Sub-section (1) of Section 11A of Central Excise Act on IRLP. He also

directed the confiscation of land, building, plant and machinery used by

M/s.IRLP with an option to redeem the same on payment of Rs.25 lakhs. A

further penalty of Rs.1 crore was imposed on IRLP under Rule 173Q of

Central Excise Rules. A penalty of Rs.25 lakhs was imposed on IMLP

under Rule 209A of Central Excise Rules. Lastly a penalty of Rs.35 lakhs

was imposed on Ms.Vineeta Jain. Thus, the Commissioner held that the

classification would be under Chapter 33. He also held that IRLP and

IMPL were related persons and further that the Revenue was entitled to the

extended period of limitation.

6.On the appeals filed before the Tribunal, the Tribunal allowed the

claim of the IRLP in respect of as many as 22 products out of the total 92

products in respect of which the Show Cause Notices were given, they

were at Sl.Nos.3,8,9,10,17,20,21,23,25,27,28,29,34,35,36,38,39,42,45 and

46, The remaining 70 products were held to be the “cosmetic” and “toilet

preparations” falling under Chapter 33 of the Scheduled under Central

Excise Act. The Tribunal further held that IRLP and IMPL were not the

related persons and further the extended period of limitation could not be

made available to Revenue in all the cases.

7.In the present appeals we are concerned only with those 22 products

which have been held by the Tribunal as falling under Sub-heading

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3003.30. The appeals are basically filed by the Revenue challenging the

above findings regarding the 22 products.

8.Shri K. Radhakrishnan, learned Senior Advocate, appearing on

behalf of the Revenue initially very strenuously urged before us that the

Tribunal was in error in holding the 22 products as Ayurvedic medicines

and those falling under Entry 3003.30. According to him all these products

were bound to be held as “cosmetics” and “toilet preparations” and were as

such covered by Chapter 33 inviting the duty at the rate of 40%. Apart

from the contentions raised in respect of classification of these items, the

learned counsel also addressed us on the question of valuation. The

learned counsel also invited our attention towards the aspect of limitation

and urged that the Tribunal was not right in holding that some show cause

notices were barred by limitation and that the Revenue would not be

entitled to the extended period of limitation under Section 11A of the

Central Excise Act.

9.We have, therefore, to decide on the three aspects, they being the

Classification, Valuation and the Limitation.

10.We shall first take up the aspect of classification.

11.To begin with, we are concerned with the following 22 items:

i) Bio-Apple

ii)Bio Aloevera

iii)Bio Bhringraj

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iv)Bio-cucumber

v)Bio-coconut

vi)Bio-costus

vii)Bio-fruit

viii)Bio-henna

ix)Bio-Henna leaf

x)Bio-kelp

xi)Bio-milk

xii)Bio-mud

xiii)Bio-myristica

xiv)Bio-margosa

xv)Bio-peach

xvi)Bio-pro

xvii)Bio-quince

xviii)Bio-saffron

xix)Bio-soya

xx)Bio-wheat

xxi)Bio-wintergreen

xxii)Bio-walnut

During the debate Shri V. Lakshmikumaran, learned counsel for the

Assessee fairly conceded that the products “Bio-Heena” and “Bio Heena

Leaf” may not be called as Ayurvedic medicines and hence gave up his

claim of the classification of these products under Chapter 30 and more

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precisely under Entry 3003.30. We are, therefore, not considering these

products.

12.Again the learned Senior Counsel for the Revenue Shri

Radhakrishnan very fairly conceded at the beginning of the debate itself

that the following products would not be “cosmetics”, they being:

i) Bio-apple

ii)Bio-fruit

iii)Bio-mud

iv)Bio-myristica

and as such would not fall under Chapter 33 and instead would be covered

under Chapter 30, Entry 3003.30 inviting 10% duty and not 40%. We,

therefore, leave these four more products out of consideration, barring 16

products, which we have to consider, they being:

i) Bio Aloevera

ii)Bio Bhringraj

iii)Bio-cucumber

iv)Bio-coconut

v)Bio-costus

vi)Bio-kelp

vii)Bio-milk

viii)Bio-margosa

ix)Bio-peach

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x)Bio-pro

xi)Bio-quince

xii)Bio-saffron

xiii)Bio-soya

xiv)Bio-wheat

xv)Bio-wintergreen

xvi)Bio-walnut

13.Shri Radhakrishnan, learned Senior Counsel, appearing on behalf of

the Revenue took us through the various entries of Chapter 33 and more

particularly Entries 3304 and 3305 which are as under:

“3304 – Wadding, gauze, bandages and similar articles (for

example, dressing, adhesive, plasters, poultices),

impregnated or coated with pharmaceutical substances or put

up in forms or packings for medical, surgical, dental or

veterinary purpose.

3305 – Pharmaceutical goods, not elsewhere specified.”

Learned counsel contended that the said products contain certain other

ingredients also which cannot be said to be “Ayurvedic medicines”. In

support of his claim he invited our attention to the Show Cause Notice

dated 10.4.1996 and more particularly para 6(i) referring to the statement

of one S.V. Rasalkar, Technical Director, M/s.IRLP who had furnished the

list of about 29 ingredients used in the said 16 products. Our attention was

also invited to para 6(vi) of the Show Cause Notice where the statement of

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Mr.Yakub Usman Kapadia is also referred. He also relied on the statement

of one S.K. Handa, Manager (Account). Learned counsel also heavily

relied on other paras of the Show Cause Notice like para 10 to suggest

that these products were generally being sold to the Hotels like Park Hotel,

Hotel Taj Mansingh, Hotel Taj Palace, New Delhi, etc. Further a reference

was also made by the learned counsel and more particularly para 12 which

refers to the literature published by M/s.IRLP on the Skin Care Naturals

wherein it is suggested that the use of Biotique Products would make the

skin beautiful and would help the user retain the bloom of youth. From

this the main argument was that all these products were only helpful as the

cosmetics or toiletries and they were also understood to be the same.

Learned counsel took us painstakingly to Show Cause Notice to suggest

that even IRLP was treating all these products as the products for

enhancement of beauty and not as medicines much less Ayurvedic

medicines. It was also contended that the user of non-Ayurvedic products

in these products would essentially take these products out of the caption

of “Ayurvedic Medicines”. Learned counsel very heavily relied on a

decision of this Court in Shri Baidyanath Ayurved Bhavan Ltd. V.

Collector of Central Excise, Nagpur, etc. [(1996) 9 SCC 402). In short,

the main contention of the learned counsel is that we must apply common

parlance test for all these products which was accepted by this Court in

that decision. According to the learned counsel the Tribunal should have

followed the law laid down to the effect that since all these products were

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understood to be the “cosmetics” in common parlance and not actually the

“Ayurvedic medicines” for various reasons, the said products should have

been held to be covered under Chapter 33. Learned Counsel, during his

address, also referred to the leading decision of this Court in BPL

Pharmaceuticals Ltd. V. Collector of Central Excise, Vadodara [1995

(77) ELT 485 (SC)].

14.As against this, the learned counsel appearing on behalf of the

Assessee Shri Lakshmikumaran heavily relied on the decision of BPL

Pharmaceutical’s case (supra). He urged that there is a line of decisions

following BPL Pharmaceutical’s case and pointed out that the decision in

Shri Baidyanath Ayurved Bhavan’s case and BPL Pharmaceutical’s

case were dealt with in another decision in Commissioner of Central

Excise, Nagpur v. Vicco Laboratories [2005 (179) ELT 17 (SC)]. He also

invited our attention to the decision in Megthdoot Gramodyog Sewa

Sansthan v. Commissioner of Central Excise, Lucknow [2004 (174)

ELT 14 (SC)] following the decision in Commissioner of Central Excise,

Allahabad v. Himtaj Ayurvedi Udyog Kendra [2003 (154) ELT 323

(SC)]. Our attention was also invited to some other decisions to which we

would make reference hereinafter.

15.Shri Lakshmikumaran, during his address, took us through the Notes

as also the definitions, more particularly covered under Section 3(a) and 3

(h) of Drugs and Cosmetics Act defining drug and patent of proprietary

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medicines. Relying on these provisions and further relying on the

provisions of Chapter 30 Note No.2, the learned counsel further pointed

out that this controversy as to when a particular product should be covered

under the “cosmetics” and as to when it should be held as “medicament”

has been set at rest in BPL Pharmaceutical’s case where the Court has

crystallized the guiding principles. He pointed out that each of the product

was having Ayurvedic medicinal herbs in it and even the labels on these

products claim specifically the medicinal properties of the product. This is

apart from the fact that on labels the product was specifically “NOT”

described as “cosmetic product”. He further pointed out that the reliance

on the decision of Shri Baidyanath Ayurved Bhavan’s case by the

Revenue was also uncalled for as the relevant Entry at the relevant time in

that case was:

“All drugs, medicines, pharmaceuticals and drug intermediaries

not elsewhere specified”.

He further pointed out that there was no definition of “medicaments” under

Tariff Item 68 as it stood then unlike the definition contained in Note 2 to

Chapter 30 which is applicable to the present case. He further contended

that in Shri Baidyanath Ayurved Bhavan’s case Tribunal has held that in

common parlance the product in question could not be described as

“medicinal preparation” and could only be described as “toilet preparation”

on account of the fact that one of the ingredients Geru (red earth) was

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largely used as a filler or colouring agent and was not described as a

medicine in common parlance.

16.Further contention raised by Shri Lakshmikumaran is that all the

products in question have been manufactured under the Drugs Licence

under the Drugs and Cosmetics Act and, therefore, the learned counsel

says that grant of Drugs licence for the manufacture of these products

would answer that test in favour of the assessee. Learned counsel also

invited our attention to the decision of this Court in Commissioner of

Central Excise, Calcutta v. Sharma Chemical Works [2003 (154) ELT

328 (SC)] as also the Puma Ayurvedic Herbal (P) Ltd v. Commissioner,

Central Excise, Nagpur [(2006) 3 SCC 266] to which decision one of us

(Ashok Bhan, J.) was a party. Learned counsel, therefore, urges that even

if the user of product leads to improvement in appearance of a person, that

by itself cannot bring it into the category of “cosmetics” if otherwise the

product is having a medicinal value and is claimed and marketed as such.

17.The learned counsel also invited our attention to the decision of the

Tribunal delivered in CCE, Pune v. Ramakrishna Vidyut Ltd. (Final Order

No.847/99-C dated 16.8.1999 of Tribunal) which was affirmed by this

Court in Civil Appeal No.2353 of 2000 (judgment delivered on 15.3.2005)

holding that Mahabringaraj Hair Oil is classifiable under Tariff Item 3003

and not as a “cosmetic”.

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18.Going back to the List of Items in para 11, Item No.(ii) Bio Bhringraj

would stand covered by that decision. On this backdrop we are thus left

with 15 items. Shri Radhkrishnan also did not dispute this position regarding

item No.(ii) Bio Bhringraj.

19.In BPL Pharmaceutical’s case a clear cut distinction was made in

the “cosmetics” and the “drugs”. Observations made in para 31 are:

“The contention based on Chapter notes is also not correct.

One of the reasons given by the Authorities below for holding

that Selsun would fall under Chapter 33 was that having regard

to the composition the product will come within the purview of

note 2 to Chapter 33 of the Schedule to Central Excise Tariff

Act, 1985 is without substance. According to the Authorities

the product contains only subsidiary pharmaceutical value and,

therefore, notwithstanding the product having a medicinal

value will fall under Chapter 33. We have already set out Note

2 to Chapter 33. In order to attract Note 2 to Chapter 33 the

product must first be a cosmetic, that the product should be

suitable for use as goods of Headings 33.03 to 33.08 and they

must be put in packing as labels, literature and other

indications showing that they are for use as cosmetic or toilet

preparations. Therefore, Note 2 to Chapter 33 is not

attracted.” (EMPHASIS SUPPLIED)

20.This Court in BPL Pharmaceutical’s case (supra) was considering

the question as to whether a product called Selsun Shampoo was a

“cosmetic” and/or “toilet preparation” or a “medicament”. The Court noted

the main objections by Revenue as under:

“(a)That the other manufacturers of similar type of product

were holding the licence for cosmetics and bore the tag

of cosmetics on the respective bottles.

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(b)That the medicinal properties, i.e. Selenium Sulfide

which was claimed to prevent Dandruff was only 2.5%

and was only a minor constituent against the total

composition of the product while the percentage of the

remainder were of forming agent, flavouring agent,

thickening agent and buffer etc.

(c)That in fact Selsun Suspension was an Anti Dandruff

Shampoo.

(d)That its usage was also comparable to the other

shampoos available in the market.

(e)That in common parlance the said product was known

as Selsun Shampoo and was sold as such.

(f)That the product was not sold by the owner of the

medical shop on presentation of Doctor’s prescription.

(g)That the words “Dandruff Treatment Shampoo” were

deleted which were there in the old bottles only with an

intention to evade Central Excise duty and were

substituted by the words “Selenium Sulfide Lotion USP

Selsun the medical treatment for Dandruff”.

21.This Court noted firstly the definitions in Chapter 30 and the

language of Entry 3003 as also the relevant provisions in Chapter 33 and

more particularly the HSN Notes under the heading “Essential Oils and

Resin Oils: perfumuery, cosmetic or toilet preparation”. It also took into

account the Entries at 33.05, 3305.90, 33.06, 3306.00 and 33.08. In para

17 it noted the previous Tariff Items as they stood prior to 1.3.1986 i.e.,

314E and 14F - 14E being “Patent or Proprietary Medicines” and 14-F

being “Cosmetics and Toilet Preparations”. The Court also noted the label,

literature and medicinal properties concerning the product in question and

noted that the label gave out specifically that:

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“Firstly, it was a poison;

Secondly, there was a cautionary note that it should be used

for external use and should be kept out of the eyes and away

from children and also that it should be used immediately after

bleaching, tinting or permanent waving of hair or on inflamed

scalp;

Thirdly, it should be used twice weekly initially and then as

often as necessary;

Fourthly, that it was a medical treatment for dandruff;

Fifthly, it contains Selenium Sulphide USP 2.5% w/v;

Sixthly, the hairs should be washed first and then the Selsun

should be massaged into the scalp.

The Court also perused the literature which suggested that it was for the

use of registered Medical Practitioner or a Hospital or Laboratory and that

it further indicated that the product controls Dandruff and has beneficial

effect on the scalp as it is helpful in controlling acne, otitis externa and

Bleph-aritis. The Court also relied on the affidavits filed by the appellants.

The Court found that the product was classified by the Excise Authorities

as a patent and proprietary medicine accepting the decision of the Central

Board of Excise and Customs rendered on 17.1.1981 and it was only

because of the new Central Excise Tariff Act, 1985 that the entry was

sought to be changed.

22.In para 26 of the above judgment there is a specific reference to the

argument by the learned counsel for the Revenue that the relevant chapter

applicable would be Chapter 33 and not Chapter 30. The Court went on to

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distinguish between the terms “cosmetic” and “drug”. It noted the definition

of cosmetics and drugs which is as under:

“A ‘cosmetic’ means any article intended to be rubbed, poured,

sprinkled or sprayed on, or introduced into, or otherwise

applied to the human body or any part thereof for cleansing,

beautifying, promoting attractiveness, or altering the

appearance, and includes any article intended for use as a

component of cosmetic.”

AND

“A ‘drug’ includes all medicines for internal or external use of

human beings or animals and all substances intended to be

used for or in the diagnosis, treatments, mitigation or

prevention of any disease or disorder in human being or

animals, including preparations applied on human body for the

purpose of repelling insects”.

It then recorded a finding that the product in question was not intended for

cleansing, beautifying, promoting attractiveness or altering appearance

and held that it was intended to cure certain diseases as mentioned. The

court came to the further conclusion that merely because the product was

described as “Selsun Shampoo” it would not conclude the controversy.

23.In para 31 the contention raised on the basis of the Chapter Notes

was considered wherein the court gave an unequivocal finding that in order

to attract Note 2 to Chapter 33, the product must first be a cosmetic

product and that it should be used as such and it should also be put in

such packing as declaring it to be a cosmetic product. We have already

quoted the part of the finding in para 31 in para 19 of this judgment. The

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emphasized portion is more than telling. In that very para the court also

rejected the claim that merely because there was a very small percentage

of medicament and the rest of the contents were not having medicinal

value would also be of no use. The court again relied on the earlier

decision by the Central Excise Authorities in accepting the decision of the

Central Excise Board and Excise and Customs wherein the product was

treated as patent and proprietary medicines. The Court relied on as many

as 13 reasons, some of these reasons are extremely relevant for our case

also, e.g.:

Firstly, the court held that the product was useful for a

treatment of a disease;

Secondly, it held that it was manufactured under a drug

licence;

Thirdly, it held that the Foods and Drugs Administration had

certified it as a drug;

Fourthly, that the Drug Controller had opined that Selenium

Sulphide present in Selsun was in a therapeutic concentration;

Fifthly, that it was included as a drug in the National formulary,

US Pharmacoepia and the Merck Index;

Sixthly, that it fulfils the requirement of a drug as understood in

the common parlance;

Seventhly, that it was certified in standard books and treaties;

Eighthly, it was marketed as a patent; and

Ninthly, that its literature referred to it as drug and the literature

was addressed to the physician.

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The Court on this basis went on to hold the product as medicinal product

and further held that it would fall under Tariff Item 3003.19. A very heavy

reliance was placed and since this happens to be a leading judgment

which was followed throughout for more than 10 years, we are specifically

referring to the details of the judgment.

24.We need not dilate on the judgment further in view of our

observations and our detailed references made but we must reiterate that

the judgment does consider the relevant Entries of Chapter 30 including

the Entry under the heading 3003 as also 3003.19. It also refers to the

HSN Notes in detail and also notes the pre-amendment position, i.e.,

before 1.3.1986 when the relevant entries came on the anvil. The

judgment is also very relevant to note that the labels on the bottles are

extremely relevant in coming to the conclusion as to whether the product is

cosmetic or a drug. It further reiterates that merely because there is very

small percentage of ingredients having therapeutic or prophylactic value

and merely because the product can be used otherwise for beautification, it

does not ipso facto become a cosmetic preparation.

25.Shri Radhakrishnan, however, wanted to use this judgment in the

light of the earlier referred judgment in Shri Baidyanath Ayurved

Bhavan’s case (supra). His argument was that the common parlance test

was accepted as one of the relevant tests in this judgment though the

product was manufactured as a drug under the drug licence. It is true that

the common parlance test has been referred to in this judgment, however,

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it is in entirely different context and again the judgment does not entirely

depend upon the common parlance test as in Shri Baidyanath Ayurved

Bhavan’s case (supra). The judgment instead notes and holds that even

if the product is known as Shampoo and could be used as shampoo that

by itself will not be a deciding factor. We would have a further opportunity

to compare this judgment and refer to its findings as the judgment has

been referred to and followed right till today in number of decisions.

26.On the heels of this judgment came the further judgment of this

Court in Commissioner of Central Excise, Calcutta v. Sharma

Chemical Works [2003 (154) ELT 328 (SC)]. In that judgment the

product called Banphool Oil was in question. CEGAT had held it to be

classified under Tariff Item 3003.30, i.e., Ayurvedic Medicament. This was

challenged by the Revenue. It is to be noted that after the judgment in

BPL Pharmaceutical’s case (supra) which did not relate to Ayurvedic

product, this was by far the first judgment in respect of the product claimed

as Ayurvedic Medicament. This Court went into the questions in detail. It

was argued that 98% of Bhanpool Oil consists of “til oil” and remaining 2%

are Ayurvedic ingredients like amla, chandan camphor, etc., and also that

it was being sold across the counter and was not stored just by chemists

but even by ordinary grocers. In short, it was submitted that in common

parlance it was not called as perfumed hair oil. The court also referred to

the law laid down in Shri Baidyanath Ayurved Bhavan’s case (supra)

and Alpine Industries v. Collector of Central Excise, New Delhi [(2003)

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3 SCC 111] and took stock of the arguments that the common parlance

test as laid down in these two cases was the only relevant test. On the

other hand it was pointed out by the assessee that Chapter 30 dealt with

all types of medicines and not only Ayurvedic medicines. It was further

urged that the medicaments could be as per the formula set out in various

pharmacopoeias or they could be under some patented formula of a

particular party and further the product having medicinal properties in very

small percentage did not matter. If the percentage of such ingredients

having medicinal properties was more, it could be harmful to the human

body. It was also argued directly on the lines of the BPL

Pharmaceutical’s case (supra) that merely because there were

fillers/vehicles in order to make that medicament palatable and/or usable

did not take it out of the entry of medicament. Example was given of Vicks

Vaporub which contained 98% Paratin Wax and only 2% of methol. It was

also pointed out that every ingredient in Banphool Oil was contained in

various pharmacopoeias and text books which deal with Ayurvedic

medicines and further pointed out that even in “Bhavaprakash”, “til oil” was

mentioned as Ayurvedic ingredient. It was also pointed out that there was

a Board Circular dated 5.12.1991 providing that in case of any doubt, the

matter should be referred to the State Drug Licensing Authority concerned

with Ayurveda and that if a further reference is necessary then it should be

sent to Advisor, Ayurveda/Sub Commissioner in the office of the Drug

Controller of India. It was also pointed out that accordingly Banphool oil

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was sent for the opinion of the Drug Controller and that the Drug Controller

by his letter dated 13.5.1985 opined that Banphool Oil was an “Ayurvedic

preparation”. The Court also approved of the further arguments that the

onus of establishing that the product falls within a particular item is always

on the Revenue and if the Revenue did not lead evidence then the onus is

not discharged. The argument raised in BPL Pharmaceutical’s case

(supra) about the label claiming that it was a medicament was also

pressed in service. The Court also took note of Chapter Notes 2 and 6 of

Chapter 33. The Court thereafter extensively quoted from the BPL

Pharmaceutical’s case (supra) which was heavily relied upon in the

present case. Even the decision in Amrutanjan Ltd. v. Collector of

Central Excise [(1996) 9 SCC 413] was also referred to. It is to be

remembered that in that decision this Court had come to the conclusion

that merely because a product contained the ingredients not known to

Ayurveda would not by itself make it a non-Ayurvedic product. The

following observation in para 12 are extremely relevant in the present

controversy:

“Generally the percentage or dosage of the medicament will be

such as can be absorbed by the human body. The

medicament would necessary 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 text books. Of course the formula may

not be as per the text book but a medicament can also be

under a patented or proprietary formula. The main criteria 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 an hair oil was on the

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revenue. This burden is not discharged as no such proof is

adduced. On the contrary we find that the oil can be used for

treatment of headache, eye problem, night blindness, reeling,

head weak memory, hysteria, ammenesia, blood pressure,

insomnia etc. The dosages required are also set out on the

label. The product is registered with Drug Controller and is

being manufactured under a drug licence.” (EMPHASIS

SUPPLIED)

27.Following the above judgment this Court held in favour of the

assessee in Calcutta Chemicals Co. Ltd. v. Commissioner of Central

Excise, Chennai reported in 2003 (154) ELT 326 (SC) in respect of Maha

Bringaraj Oil to which we have already made a reference and also in the

decision in Commissioner of Central Excise, Calcutta-IV v. Pandit D.P.

Sharma reported in 2003 (154) ELT 324 (SC) in case of Himtaj Oil. Thus

in the aforementioned judgment this Court followed the law laid down in

BPL Pharmaceutical’s case (supra) even after noting the judgment in

Shri Baidyanath Ayurved Bhavan’s case (supra). We, therefore, cannot

and would not accept the argument by Shri Radhakrishnan that we must

ignore all these judgments in preference to Shri Baidyanath Ayurved

Bhavan’s case (supra). These judgments were then followed in

Meghdoot Gramodyog Sewa Sansthan v. Commissioner of Central

Excise, Lucknow [2004 (174) ELT 14 (SC)]. Again the product in

question was Ayurvedic hair oils like Bhringraj Tail, Trifla Brahmi tail and

Neem herbal sat. The aforementioned judgments by Variava, J as also the

judgment in BPL Pharmaceutical’s case (supra) were approved. This

22

was an appeal by the assessee against the Tribunal’s judgment holding

that these products were the “cosmetic products” and were, therefore,

covered by Chapter 33 where the Tribunal had held that the appellant-

assessee had not produced any evidence to show except for certain letters

from the doctors that the products were prescribed by the medical

practitioners as medicines; secondly there was nothing to show that the

patients were kept under observation and/or the results said to have been

achieved by the use of the products were obtained by keeping the patients

in hospitals over a period of time and thirdly the packing of the products

would indicate that the products were cosmetic and not medicines or

drugs. All these three arguments were rejected by this Court and the law

laid down in the aforementioned judgments by Variava, J. was followed.

28.On the heels of judgment in Meghdoot Gramodyog Sewa

Sansthan’ case (supra) came the judgment in Commissioner of Central

Excise, Nagpur v. Vicco Laboratories [2005 (179) ELT 17 (SC)]. This

was the closest decision given by the Three Judge Bench of this Court.

Same question came for consideration. The products which fell for

consideration were the turmeric skin cream and vajradanti toothpaste and

tooth powder. The products in this case were initially classified as patent

or proprietary medicines not containing alcohol, opium, Indian hemp or

other narcotic drugs or other narcotics other than those medicines under

heading 14-E of the First Schedule of the 1944 Act. Again the basis of

show cause notice was the decision in Shri Baidyanath Ayurved

23

Bhavan’s case (supra). The test applied by the Revenue was: firstly,

whether the products were being used daily and were sold without

prescription by a medical practitioner and secondly, whether the products

were available in General Store Department/Grocery Shops. In para 4, the

Court came to the conclusion that a mere decision of a court of law without

more cannot be justification enough for changing the classification without

a change in the nature of a product or a change in the use of the product,

or a fresh interpretation of the tariff heading by such decision. The said

decision was distinguished on the ground that the aforementioned tests

were not applicable there. In para 5 it is pointed out by the court in the

following words:

“The court did not itself affirmatively hold that what was laid

down by the Tribunal as a test to be ‘ordinarily’ followed was

invariably to be the sole test for determining whether a product

is to be proved as a medicine or as a cosmetic.”

The Court then went on to approve the law laid down in BPL

Pharmaceutical’s case (supra) and other cases, namely, Sharma

Chemical Works (supra) and Meghdoot Gramodyog Sewa Sansthan’

case (supra) and ultimately held in favour of the assessee and against the

Revenue.

29.Lastly the same question came to be considered in details in Puma

Ayurvedic Herbal (P) Ltd. v. Commissioner Central Excise, Nagpur

24

[(2006) 3 SCC 266] though on the question of valuation. One of us (Ashok

Bhan, J) was a party to this decision. The products which fell for

consideration were namely, Puma neem facial pack (Neemal), Puma Anti-

pimple herbal powder (Pimplex), Puma herbal facial pack (Herbaucare),

Puma herbal remedy for facial blemishes, Puma hair tonic powder

(Sukeshi), Puma anti-dandruff oil (Dandika), Puma Shishu Rakshan tel,

Puma neel tulsi, etc. After referring to the decisions referred to above and

other decisions like CCE v. Richardson Hindustan Ltd. [(2004) 9 SCC

156; CCE v. Pandit D.P. Sharma[(2003) 5 SCC 288; Naturalle Health

Products (P) Ltd. v. CCE [(2004) 9 SCC 136], Amrutanjan Ltd. v. CCE

[(1996) 9 SCC 413], BPL Pharmaceuticals Ltd. v. CCE [1995 Supp (3)

SCC 1], Muller & Phipps (India) Ltd v. CCE [(2004) 4 SCC 787]; Dabur

India Ltd. v. CCE [(2004) 4 SCC 9], Manish Pharma Plasto (P) Ltd. v.

Union of India [(1999) 112 ELT 22 (Del)], the court came to the

conclusion that the word “medicament” was not defined anywhere while

the word “cosmetic” is defined in the Drugs and Cosmetics Act, 1940. The

court specifically held that the extent of the quantity of medicament used in

a particular product and the fact that the use of the medicinal element in

the product was minimal does not detract from it being classified as a

medicament. It also held in para 22 that it was not necessary that the item

must be sold under a doctor’s prescription. Similarly, availability of the

product across the counter in shops is not relevant as it makes no

difference either way. As regards the Chapter Notes, the court found that

25

the use of the word “subsidiary” in the said note, i.e., Note No.2 of Chapter

22 was overlooked by the Revenue. It was also held that Revenue had

failed to make any case in support of its stand that all the products fell

under Chapter 33. However, the court rejected the claim of the assessee

in respect of some of the products like herbal massage for women and

Puma scalp tonic powder. We have gone through this judgment in

extensor and even at the cost of repetition we may note that the judgment

in BPL Pharmaceutical’s case (supra) was approved and relied upon.

30.All these cases would, therefore, suggest that the products in

question were found to be and rightly held to be covered under Chapter 30

and not Chapter 33. We must immediately point out that the expert

opinion was pressed into service before the Tribunal of Dr.V.N. Pandey

who had in details analysed all these products and noted that the products

contained the elements having Ayurvedic medicinal value. It was also

noted rightly by the Tribunal that all these products were produced under

the drugs licence issued under the Drugs and Cosmetics Act. Shri

Radhakrishnan could not dispute this fact.

31.Further it was obvious from the labels of the products which we have

ourselves inspected in the court that there is a claim made in each of the

lable of the medicinal properties of the product. It is also found that there

was a specific claim that this is not a cosmetic product. In this behalf Shri

Radhakrishnan took us through the show cause notice and tried to point

out that the products were sold to the Hotels, Beauty Parlours etc. Our

26

attention was also invited to various orders as also to the literature and it

was tried to be suggested that these products were treated to be the

cosmetic products, if not by the assessee, at least by the customers. We

have already pointed out that the common parlance test is not “be all and

end all” of the matter on the basis of which the case of Shri Baidyanath

Ayurved Bhavan’s case (supra) was decided. We have further pointed

out that thereafter firstly the entry was amended and in series of decisions

this Court has held that merely because the product could be put to

cosmetic use that would not by itself make it a cosmetic product provided

there was a rightful claim made that it was an Ayurvedic product on the

factual basis, and it contained the medicinal Ayurvedic medicament. The

miniscule percentage used is also not a deciding factor and this court has,

in series of decisions, held that the miniscule percentage does not change

the nature of the product from medicament to the cosmetic products. In

the wake of all these decisions it would have to be held that the products

referred to above, excepting in respect of which Shri Lakshmikumaran has

conceded, were the medicinal products and as such were covered by

Chapter 30 and not under Chapter 33.

32.Even at the cost of repetition we must observe that there has been

no attempt on the part of the Revenue to prove that these products are

cosmetic as has been held in BPL Pharmaceutical’s case (supra). In

that view we are of the clear opinion that the Tribunal was right in holding

27

these products to be the medicinal products and we approve of the findings

of the Tribunal in that behalf regarding the classification of the product.

33.That brings us to the second aspect of “valuation”. Shri

Lakshmikumaran has specifically made a statement as regards the

valuation in the following terms:

“(1)Wherever IRPL had sold products to the IMPL as also

to independent third parties including Hotels, the least price

charged to the third parties may be taken as the basis for the

sales made by IRPL to IMPL for arriving at the assessable

value for such products.

(2)Wherever the products were never sold by IRPL to the

independent third parties, but only to IMPL, the wholesale

price of IMPL charged to the wholesale dealers for such

products, may be taken as the basis for arriving at the

assessable value.

(3)While arriving at the assessable value, discounts,

freight excise duty, sales tax and other taxes and other

permissible deductions under Section 4 should be allowed in

accordance with the law.”

To this Shri Radhakrishnan has no objection. We, therefore, hold

accordingly.

34.Lastly, the question was raised regarding the limitation. In view of

our findings that these products were genuinely Ayurvedic medicaments, it

would not be necessary for us to go into that question. However, since the

parties have argued the question, we would consider the same.

28

35.The Show Cause Notices in this case were given on 10.4.1996,

30.9.1996, 31.12.1996, 2.5.1997 and 28.10.1997. The Revenue sought to

take advantage of the extended period of limitation. On 10.4.2008 this

Court had passed the following order in respect of limitation:

“As far as the question of limitation is concerned, following the

decision of High Court of Allahabad in the case of Shahnaz

Ayurvedics Vs. Commissioner of Central Excise, Noida 2004

(173) ELT 337, it was held that the extended period of

limitation is not applicable. Against the said decision of the

High Court of Allahabad, a petition being SLP (C) No. 21585

of 2004 [CC 8996/04] was filed in this Court in the case of

Commissioner of Central Excise, Noida Vs. M/s. Shahnaz

Ayurvedics & Anr. 2004(174) ELT A34 which was dismissed

on 8

th

October, 2004.

To enable us to compare the similarity between the

products in question in the present case and the products

which were in question before the High Court of Allahabad in

the case of Shahnaz Ayurvedics (supra), we direct counsel for

the respondents to produce the literature of the 22 products in

question. We also direct counsel for the appellant to place on

record the literature of the products which were in question in

the case of Shahnaz Ayurvedics (supra) in the High Court.”

36.Accordingly, the counsel produced the literature of the product which

was comparable to the products in Shahnaz Ayurvedics v.

Commissioner of Central Excise, Noida [2004 (173) 338 (All.)]. We

have seen the literature ourselves. Though Shri Radhakrishnan contends

that there is no similarity between the products mentioned in Shahnaz

Ayurvedics case (supra) and the products of the IRPL, we do not agree.

It is obvious that the products in the present case are comparable, if not

identical with the products in Shahnaz Ayurvedics case (supra). We,

29

therefore, have no reason to take a different view that was taken by the

Allahabad High Court and against which the Special Leave Petition was

dismissed by this Court. We also do not agree that there was any mis-

statement of facts or suppression of material facts. It was contended that

since the appellants sold their products to boutiques, beauty parlours,

hotels and traders, they should be held as “cosmetics”. We have already

taken stock of this argument and rejected the same. In that view we affirm

the findings of the Tribunal regarding the limitation. In our opinion the

Tribunal has considered all the facts brought before it and has come to the

final findings in the following words:

“This would also go to show that a dispute prevailed in the

matter of classification of such products. In the above

circumstances, the appellants cannot be held to be guilty of

suppression or mis-statement and hence the charge of

suppression is not sustainable. We, therefore, hold that the

proviso to Section 11A(1) of the Central Excise is not

applicable to these 3 cases, and hence set aside the demand

covered by adjudication order No.5/98 as time barred.”

We are satisfied with the reasoning given by the Tribunal and affirm the

same.

37.Accordingly all the above Appeals are dismissed. However, in the

facts and circumstances of the case we do not propose to inflict any costs.

……………………………….J.

(Ashok Bhan)

30

……………………………….J.

(V.S. Sirpurkar)

New Delhi;

September 8, 2008.

31

Digital Performa

Case No. :CA 7357-7372 of 2001

Date of Decision: 08.09.2008

Cause Title : Commissioner of Central Excise, Delhi

Vs.

Ishaan Research Lab (P) Ltd. & Ors.

Coram : Hon’ble Mr. Justice Ashok Bhan

Hon’ble Mr. Justice V.S. Sirpurkar

Judgment delivered by : Hon’ble Mr. Justice V.S. Sirpurkar

Nature of Judgment : Reportable

32