COMMNR. OF CENTRAL EXCISE Vs M/S. WOCKHARDT LIFE SCIENCE LTD.
Bench: H.L. DATTU,ANIL R. DAVE
Case number: C.A. No.-000783-000803 / 2004
Diary number: 20959 / 2003
Advocates: B. KRISHNA PRASAD Vs
RAJAN NARAIN
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.783-803 OF 2004
COMMNR. OF CENTRAL EXCISE ... APPELLANT
VERSUS
M/S.WOCKHARDT LIFE SCIENCES LTD...RESPONDENT
O R D E R
1. These appeals are directed against the judgment and
order passed by the Customs, Excise and Gold (Control)
Appellate Tribunal, West Zonal Bench at Mumbai in Appeal
Nos.E-1252-1271/02-MUM and E/3630-01-MUM dated
18.6.2003. By the impugned judgment and order, the
Tribunal has reversed the findings and conclusions reached
both by the Adjudicating Authority and the appellate
authority.
2. The primary issue that falls for our consideration in
these appeals is the classification of two products viz.
‘Povidone Iodine Cleansing Solution USP and Wokadine
Surgical Scrub for the purpose of levy of duty under the
provisions of Central Excise Tariff Act, 1985 (‘The Tariff Act’
for short).
1
3. The assessee is the manufacturer of Povidone Iodine
Cleansing Solution USP and Wokadine Surgical Scrub.
These two products have identical composition. The only
difference between these two products is that Wokadine is a
branded product whereas Povidone Iodine Cleansing
Solution is a generic name. The assessees' claim before the
authorities and also before the Tribunal is that the aforesaid
products are medicaments and, therefore, require to be
classified under Chapter sub-heading 3003 of the Tariff Act,
1985, whereas the revenue's stand was that the products in
question are detergents and, therefore, to be classified
under chapter sub-heading 3402.90.
4. The Adjudicating Authority had issued nearly 20 show
cause notices to the assessee for the period commencing
from September, 1992 to December, 1999. In the show
cause notices, it is alleged that the assessee has mis-
classified the product under chapter sub-heading
3003.10/20, instead of chapter sub-heading 3402.90 of the
Act with an intent to evade the payment of the duty by
suppressing vital facts regarding usage of the product and
the same amounts to contravention of Rule 173B of the
2
Central Excise Rules, 1944 (for short “Rules”). It is further
stated in the show cause notices that the products in
question are mainly used for the purpose of detergents
rather than medicaments. Accordingly, the assessee was
directed to show cause why the products in question should
not be classified under chapter sub-heading 3402.90 and
why the duty should not be demanded under Rule 9(2) read
with proviso to section 11A (1) of the Central Excise Act,
1944 (for Short “the Act of 1944”) along with interest
thereon under Section 11AB of the Act of 1944 and penalty
under Section 11 AC of the Act of 1944 read with Rule 173
Q of the Rules for short payment of excise duty.
5. After receipt of the show cause notices, the assessee
had filed its detailed reply, inter alia, bringing to the notice
of the adjudicating authority the contents of the products in
question, their labeling on the commodity and the user to
which the products are put. The assessee had also relied on
the various shades of meaning that is attributed to the
medicaments, in particular the expressions ‘therapeutic and
prophylactic’ and had contended that those medicines are
used for external treatment of a human-being. The assessee
3
had also placed reliance on the Indian Pharmacopoeia, the
United States Pharmacopoeia and the International
Pharmacopoeia. The assessee had also contended that the
‘Neutronix and Superamide’ are other two products with
which Povidone Iodine is mixed to contend that they are in
the nature of vehiculars for the spreading of the
medicament.
6. After receipt of the reply so filed, the adjudicating
authority has proceeded to conclude, that, since the
contents of Neutronix and Superamide are more than the
medicament, namely; Povidone Iodine, the product in
question requires to be classified as detergent and thereby,
would fall under chapter sub-heading 3402.90 and it has
also observed in its order that the product in question is
primarily used as a cleansing solution and, therefore,
cannot fall in the description of the medicament.
Accordingly, had confirmed the show cause notices issued
earlier and, thereby, had directed the assessee to pay the
difference in duty and also the penalty.
7. Aggrieved by the aforesaid order passed by the
4
adjudicating authority, the assessee had carried the matter
in appeal before the First Appellate Authority, who by his
order dated 29.11.2001 had sustained the order passed by
the adjudicating authority. According to the appellate
authority, since the product in question is mainly used as a
cleansing solution, the proper classification would be as a
detergent and would fall under tariff entry 3402.90.
8. The assessee, being aggrieved by the order so passed,
had carried the matter in appeal before the Tribunal. Even
before the Tribunal, the assessee had produced copious
material in the form of product literature and also the
dictionary meaning of the expression “medicaments”. The
Tribunal, while appreciating the rival contentions of the
revenue and the assessee, has considered the wide range of
literature on the above products, their composition and user
and accordingly has concluded that the ‘Povidone Iodine
Cleansing Solution USP’ is used as an antiseptic and
disinfectant. The Tribunal has further observed that the
main contention of the revenue is that the addition of
surface active agent and other substances would result in a
product in which ‘Prophylactic’ qualities of Povidone Iodine
5
would become subsidiary to its primary use as a washing
solution. The Tribunal, while rejecting the revenue’s
contentions and accepting the assesse’s stand, has observed
that the presence of the surface active agent and other
substances is only to ensure appropriate dispersible to the
product and not to render its use as a washing or cleansing
preparation. The Tribunal, while relying on the Affidavit
dated 9.8.2002 filed by the Senior President (Marketing) of
the assessee in order to show sale pattern of the goods, has
observed that the product is not used as a general cleansing
solution similar to medicated soaps used by ordinary
persons, but it is only used in places where practice of
surgery and medicine is being carried out. The Tribunal has
further observed that the products are packed in opaque
brown thick plastic bottles with plain labels, unlike, soaps
and other products which are packed in bright attractive
colors as used by ordinary household consumers. It has
also observed that the labeling of the product shows that it
is intended for preoperative use by the surgeon and his
team or on the patient. The Tribunal after referring to the
Explanatory Notes under heading 30.04 of the Harmonized
System of Nomenclature relating to medicament, which
6
covers Povidone Iodine as Polyvinyl Povidone Iodine and, the
test laid down for classification of the product as
medicament: has concluded that the product is purchased
primarily for its therapeutic or prophylactic qualities and
not for its qualities as organic surface active preparation. In
conclusion, the Tribunal, while allowing the appeal, has
held that the product in question is, primarily intended and
also actually, used for its antiseptic properties, therefore, it
is classifiable as medicament under Chapter 30 of the
Schedule to the Act. It is the correctness or otherwise of the
findings and conclusions reached by the Tribunal is the
subject matter of these appeals before us.
9. We have heard Shri R.P. Bhatt, learned senior counsel
appearing for the Revenue and Shri Ajay Aggarwal, learned
counsel appearing for the Assessee. Both the learned
counsel have dealt with the matter in detail and have also
relied upon some of the decisions of this Court to buttress
their submissions.
10. Shri R.P. Bhatt, learned senior counsel for revenue
would submit that the product in dispute, namely; Povidone
7
Iodine Solution or its patent and proprietary equivalent
Wokadine surgical scrub, contains only 80 kg of Povidone
Iodine and 250 kg of Neutronix in 1000 litres of
demineralised water and is essentially used as a medicated
detergent. He would contend that the said product
predominantly contain surface active agents which are
primarily used as a medicated cleaning agent for removal of
dirt, bacteria, fungi etc. In this regard, he would further
submit that the said product is admittedly used as an
antiseptic agent for washing hands of surgeons and is also
applied on the skin of the patients before operation. He
would further contend that the said product is not a
medicament in terms of Chapter Note 2(i) of the Tariff Act as
it neither has “Prophylactic” nor “Therapeutic” usage. He
would contend that in order to qualify as a medicament, the
goods must be capable of curing or preventing some disease
or ailment. Therefore the said products cannot be classified
under Chapter Heading 3003 of Tariff Act.
11. Shri Bhatt would further submit that Chapter Note 1(e)
of Chapter 30 clearly excludes soap or other products of
Chapter 34, containing added medicament, from their
8
classification under Chapter 30. He would, therefore,
submit that the product is more appropriately classifiable
under the Chapter 3402 as an organic surface active
agent/preparation, or cleansing preparation, irrespective of
the fact that it contains certain percentage of medicaments.
In other words, he would contend that even if said products
have added prophylactic effectiveness, they would be
considered as cleansing agent and not medicaments for the
purpose of classification in view of their primary and
essential use which is cleansing and their prophylactic or
therapeutic quality, by virtue of added medicament, is
secondary in nature. He has placed reliance on some
decisions of this Court in support of his submission that it
is the primary functional properties and composition of the
goods that would decide its classification under particular
Chapter. We will refer to the decisions on which reliance is
placed by learned counsel at an appropriate time.
12. Shri Ajay Aggarwal, learned counsel for the assessee,
has meticulously taken us through the judgment of the
Tribunal and supported its reasoning. He contended that
the revenue in their show cause notices has admitted that
9
the products in issue are antiseptic. He further submits that
the products are medicament in which some carriers are
added and therefore, it will fall under Chapter Sub-heading
3003 and not under Chapter 34.
13. In order to resolve the controversy that is raised before
us, we need to notice first the entries which the revenue and
the assessee relies upon to drive home their point of view.
The Tariff Items under Chapter sub-heading 3003 and
chapter sub-heading 3402.90, at the relevant time, are
extracted. The same reads as under:
Heading No.
Sub- heading
No.
Description of goods Rate of duty
30.03 Medicaments (including veterinary medicaments)
3003.10
Patent or proprietary medicaments, other than those medicaments which are exclusively Ayurvedic, Unani, Siddha, Homeopathic or Bio- chemic.
15%
3003.20
Medicaments (other than patent or proprietary) other than those which exclusively used in Ayurvedic, Unani, Siddha, Homeopathic or Bio-chemic
8%
10
systems Medicaments, including those in Ayurvedic, Unani, Siddha, Homeopathic or Bio- chemic systems.
34.02
Organic Surface active agents (other than soap): surface-active preparations, washing preparations (including auxiliary washing preparations and cleaning preparations, whether or not containing soap.
3402.90 Other 18%
14. The chapter note 2 (i) of Chapter 30 to the schedule of
Tariff Act pertaining to pharmaceutical products, define the
meaning of the expression “medicament”. It is as under :
Medicament” means goods (other than foods or
beverages such as dietetic, diabetic or fortified foods, tonic
beverages) not falling within heading No. 30.02 or 30.04
which are either:
(a) products comprising two or more constituents
which have been mixed or compounded together for
therapeutic or prophylactic uses; or
(b)unmixed products suitable for such uses put up in
measured doses or in packings for retail sale or for use in
hospitals.
11
15. Chapter note makes it clear that the products,
comprising two or more constituents which have been
compounded together either for therapeutic or prophylactic
uses, would fall within the meaning of the expression
Medicaments. In the present case, it is not in dispute that
along with the medicament, namely; Povidone Iodine, the
assessee while manufacturing the products in question uses
three other constituents, namely; Neutronix, Superamide
and Sodium Hydroxide as a preservative.
16. It is also relevant to explore the meaning of the word
‘prophylactic’ in medical parlance as well, in order to resolve
the controversy before us. The word ‘prophylactic’ derives
from Greek word ‘prophylaktikos’ which means "to take
precautions against" or "to keep guard before”. Dorland's
Medical Dictionary 1364 (28th ed. 1994) defines
“prophylactic” as “an agent that tends to ward off disease”.
Merriam-Webster's Medical Desk Dictionary 579 (1993)
defines it as “guarding from or preventing the spread or
occurrence of disease or infection”; Mosby's Dictionary 1284
(4th ed. 1994) defines it as a biologic, chemical, or
mechanical agent that prevents the spread of disease.
12
17. It is relevant to notice the composition, label and usage
of the products whose classification is in dispute before us.
The label of the products would stipulate its formula and
describe its usage. However, the labels of both the products
are identical. Therefore, we would consider ‘Povidone Iodine
Cleansing Solution USP’ which is presented in a maroon
coloured bottle of 500ml capacity on which a label has been
pasted which read as thus:
Povidone Iodine Cleansing Solution USP
“Povidone Iodine Cleansing Solution USP to be used as a surgical scrub.
Broad Spectrum topical microbicidal effective against bacteria, fungi, protozoa, yeasts and viruses.
Formula: Povidone-Iodine I.P. 7.5. w/v (Available Iodine 0.75% w/v) Phosphate Free”
Store in a cool place For External use only
Usage:
1. For preoperative cleansing and degerming of surgeon’s
and operating team’s hands
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a) Wet hands and forearms with water. Pour about 5
ml of surgical scrub with the help of the ‘elbow
dispenser’ on the palm and spread over both hands
and forearms scrubbing thoroughly over all areas for
about 5 minutes. Add little water to develop copious
suds. Rinse thoroughly under running water.
b) Complete the cleansing with another 5 ml of
surgical scrub in the same way.
2. For preoperative uses on Patients.
After the skin area is shaved, wet it with water. Apply
Povidone Iodine surgical scrub on the skin and scrub,
thoroughly for about 5 minutes. Rinse off by aid of
sterile gauze saturated with water. Now paint the skin
with Povidone-Iodine solution and allow to dry before
incision.”
18. The composition of the product per 1000 litres has
been produced below:
S.No. Ingredients Quantity 1. Povidone Iodine IP 80.21 Kgs.
2. Neutronix S-60(Anionic Detergent) (active content 58%)
250 Kgs.
3. Superamide L-9 (foaming agent)
12 Kgs.
4. Sodium Hydroxide (Preservative)
1.46 Kgs
5. Demineralised water Balance quantity
14
19. The said product contains– Povidone Iodine: The 7.5%
w/v of Povidone Iodine provides 0.75% w/v of available
iodine which is functions as disinfectant. Neutronix: The
25% of composition of the product is Neutronix which is
Anionics and used as detergents, wetting, emulsifying and
dispersing agents. Further the content of Superamide is just
1.2% in the said product which serves as an excellent
booster and stabilizer, viscosity builder and detergent with
wetting and soil suspending properties.
20. The assessee has relied on various pharmacopeias to
throw light on the essential composition of Povidone Iodine
Solution including surface active agents and their respective
functions. It is relevant to refer to these pharmacopeias in
order to appreciate and analyze the functions of various
ingredients contained in a Povidone Iodine Solution.
21. According to the US Pharmacopeia, Povidone Iodine is
a complex of Iodine with Povidone. It contains not less than
9.0% and not more than 12.0% of available iodine
calculated on the dried basis. Povidone Iodine cleansing
solution is a solution of Povidone Iodine with one or more
15
suitable surface active agents. It contains not less than 85%
and not more than 120% of the labelled amount of the
iodine. It may contain a small amount of alcohol. The only
difference between the two is that while the first product
has a suitable surface active agent, the second product does
not have surface active agent.
22. The Japan Pharmaceutical Reference notes that Iodine
Surgical Scrub is a disinfectant containing povidone-iodine
with a foaming agent and a surfactant – which exerts
disinfecting action by releasing iodine, which shows
disinfecting effect against broad range of micro-organisms
including bacteria, fungi and viruses.
23. Goodman & Gilman’s book titled ‘The Pharmacological
Basis of Therapeutics’ reads:
“The most widely used iodophor is povidone iodine, in which
the carrier molecule is povidone…… A standard surgical
scrub with a 10% solution (1% available iodine) will decrease
the usual cutaneous bacterial population by about 85%......
When the hands are contaminated by gram-negative
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bacteria, povidone-iodine is more effective scrubbing
disinfectant.”
24. Remington’s Pharmaceutical Sciences records that
Povidone Iodine USP is a virtually non-stinging, film
forming, water soluble iodine compound used as a topical
antiseptic that essentially retains the non-selective broad
range microbicidal activity of iodine. Povidone Iodine will
rapidly kill bacteria (both Gram positive and Gram negative
as well as antibiotic resistant organisms), fungi, viruses,
protozoa and yeasts, to cause a substantial reduction of the
microorganisms on the skin. Preoperatively, or as a post
surgical antiseptic scrub, its microbicidal action is fast
acting and is effective for a period of 6 to 8 hours. It is
further stated that povidone-iodine antiseptic preparations
are clinically indicated for the prevention and treatment of
surface infections as well as to degerm the skin prior to
injection and hyperalimentation procedures, for pre and
post operative scrubbing and washing of hospital operating
room personnel and for pre-operative skin preparation of
the patient of surgery.
17
25. In Martindale’s The Extra Pharmacopoeia, states that
Povidone-Iodine is an iodophore which is used as a
disinfectant and antiseptic mainly for the treatment of
contaminated wounds and pre-operative preparation of the
skin and mucous membranes. It is stated that solutions of
Povidone-Iodine gradually release iodine to exert an effect
against bacteria, fungi, viruses, protozoa, cysts and spores.
26. In Satoskar and Bhandarkar’s Pharmacology &
Pharmaco Therapeutics, it reads:
“Iodophors are developed by complexing iodine with
surfactants like non-ionic detergents. The detergents act
as solubilizers and carriers, combining detergent property
with anti-bacterial activity. They owe their germicidal
activity to the slowly released elemental iodine.”
27. The expression “therapeutic” or “prophylactic” is not
defined under the tariff entry. Therefore, useful reference
can be made to the dictionary meaning to these expressions.
In fact the assessee, in his reply to the show cause notices
issued, had relied upon the meaning of the expression
“therapeutic” and “prophylactic” from Webster's New 20th
18
Century Dictionary, Chambers English Dictionary, Websters
New 20th Century Dictionary. In our view, reference to all
other dictionary meanings may not be necessary. We intend
to confine ourselves only to the aforesaid three dictionaries.
In that the meaning of the expression “therapeutic” and
“prophylactic” is stated as under:
“To prevent, to guard against it, before, in medicine,
preventive protecting against disease.”; “Guarding
against disease, a preventive of disease; a condom;
preventive treatment against diseases.” and; “Serving
to cure or heal, Curative concerned in discovering and
applying remedies for diseases.”
28. Before we discuss the issue posed before us, it would
be useful to make reference to observation made by this
Court in the case of ICPA Health Products (P) Ltd. Vs.
Commissioner of Central Excise, Vadodara, (2004) 4 SCC
481, wherein this Court, after referring to the meaning of
the expression “prophylactic” from the Concise Oxford
Dictionary, 9th Edn., has noted that the expression
“prophylactic” means a medicament intended to prevent
diseases, a preventive medicine or course of action.
19
29. It is the specific case of the assessee before the
adjudicating authority that the products in question are
primarily used for external treatment of the human-beings
for the purpose of the prevention of the disease. This is not
disputed by the revenue, but their stand appears to be since
the products in question are primarily used as
detergents/cleansing preparation, they cannot be brought
under the definition of medicaments. As we have already
noticed, medicaments are products which can be used
either for therapeutic or prophylactic usage. Since the
product in question is basically and primarily used for the
prophylactic uses, in our view the Tribunal was justified in
coming to a conclusion that the adjudicating authority and
the first appellate authority were not right in classifying the
products under chapter sub-heading 3402.90 and,
therefore, had classified those products under chapter sub-
heading 3003.
30. There is no fixed test for classification of a taxable
commodity. This is probably the reason why the ‘common
parlance test’ or the ‘commercial usage test’ are the most
common [see A. Nagaraju Bors. v. State of A.P., 1994 Supp
20
(3) SCC 122]. Whether a particular article will fall within a
particular Tariff heading or not has to be decided on the
basis of the tangible material or evidence to determine how
such an article is understood in ‘common parlance’ or in
‘commercial world’ or in ‘trade circle’ or in its popular sense
meaning. It is they who are concerned with it and it is the
sense in which they understand it that constitutes the
definitive index of the legislative intention, when the statute
was enacted [see D.C.M. v. State of Rajasthan, (1980) 4 SCC
71]. One of the essential factors for determining whether a
product falls within Chapter 30 or not is whether the
product is understood as a pharmaceutical product in
common parlance [see CCE v. Shree Baidyanath Ayurved,
(2009) 12 SCC 413; Commissioner of Central Excise, Delhi
v. Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349]. Further,
the quantity of medicament used in a particular product will
also not be a relevant factor for, normally, the extent of use
of medicinal ingredients is very low because a larger use
may be harmful for the human body. [Puma Ayurvedic
Herbal (P) Ltd. v. CEE, Nagpur (2006) 3 SCC 266; State of
Goa v. Colfoax Laboratories (2004) 9 SCC 83 ; B.P.L
Pharmaceuticals v. CCE, 1995 Supp (3) SCC1]
21
31. However, there cannot be a static parameter for the
correct classification of a commodity. This Court in the case
of Indian Aluminium Cables Ltd. v. Union of India, (1985) 3
SCC 284, has culled out this principle in the following
words:
“13. To sum up the true position, the process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in with the expression used in the Tariff…”
32. Moreover, the functional utility and predominant or
primary usage of the commodity which is being classified
must be taken into account, apart from the understanding
in common parlance [see O.K. Play (India) Ltd. v. CCE,
(2005) 2 SCC 460; Alpine Industries v. CEE, New Delhi
(1995) Supp. (3) SCC 1; Sujanil Chemo Industries v. CEE &
Customs (2005) 4 SCC 189; ICPA Health Products (P) Ltd v.
CEE (2004) 4 SCC 481; Puma Ayurvedic Herbal (Supra);
Ishaan Research Lab (P) Ltd.(Supra) ; CCE v. Uni Products
India Ltd., (2009) 9 SCC 295].
22
33. A commodity cannot be classified in a residuary entry,
in the presence of a specific entry, even if such specific
entry requires the product to be understood in the technical
sense [see Akbar Badrudin v. Collector of Customs, (1990) 2
SCC 203; Commissioner of Customs v. G.C. Jain, (2011) 12
SCC 713]. A residuary entry can be taken refuge of only in
the absence of a specific entry; that is to say, the latter will
always prevail over the former [see CCE v. Jayant Oil Mills,
(1989) 3 SCC 343; HPL Chemicals v. CCE, (2006) 5 SCC
208; Western India Plywoods v. Collector of Customs, (2005)
12 SCC 731; CCE v. Carrier Aircon, (2006) 5 SCC 596]. In
CCE v. Carrier Aircon, (2006) 5 SCC 596, this Court held:
“14… There are a number of factors which have to be taken
into consideration for determining the classification of a
product. For the purposes of classification, the relevant
factors inter alia are statutory fiscal entry, the basic
character, function and use of the goods. When a commodity
falls within a tariff entry by virtue of the purpose for which it
is put to (sic. produced), the end use to which the product is
put to, cannot determine the classification of that product.”
23
34. In our view, as we have already stated, the combined
factor that requires to be taken note of for the purpose of
the classification of the goods are the composition, the
product literature, the label, the character of the product
and the user to which the product is put. However, the
miniscule quantity of the prophylactic ingredient is not a
relevant factor. In the instant case, it is not in dispute that
this is used by the surgeons for the purpose of cleaning or
degerming their hands and scrubbing the surface of the
skin of the patient before that portion is operated upon. The
purpose is to prevent the infection or disease. Therefore, the
product in question can be safely classified as a
“medicament” which would fall under chapter sub-heading
3003 which is a specific entry and not under chapter sub-
heading 3402.90 which is a residuary entry.
35. The learned senior counsel for the revenue has placed
reliance on several decisions of this Court in support of his
argument that the products requires to be classified as
medicament only when they are intended or meant to cure a
disease or prevent the occurrence of disease. He further
24
submits that the disease can only be prevented when there
are some symptoms of disease. We intend to refer to those
decisions relied by learned senior counsel Shri Bhatt to
sustain the submissions made before the Court.
36. In B.P.L. Pharmaceuticals Ltd. v. CCE, (Supra), the
issue before this Court was regarding the classification of
the “Selenium Sulfide Lotion USP” manufactured and sold
by assessee under the brand name “Selsun shampoo”.
According to the manufacturers this shampoo was a
medicated shampoo containing 2.5% Selenium Sulfide’ w/v
as the only active ingredient which was meant to treat a
disease of the hair, namely; dandruff, and the rest of the
ingredients of the shampoo merely serve the purpose of a
bare medium. The revenue contended that the product
contains 2.5% w/v of Selenium Sulfide which is only of a
subsidiary curative or prophylactic value and therefore,
notwithstanding the product having a medicinal value will
fall under Chapter 33. This Court held that having regard to
the preparation, label, literature, character, common and
commercial parlance, the product was liable to be classified
as a medicament under Chapter sub-heading 3003.19. This
25
decision would not assist the revenue because this Court
held after considering various factors that selsun shampoo
is a medicament as it has therapeutic property to treat
dandruff unlike ordinary shampoo which could be of
common use by common people.
37. In Alpine Industries v. CCE, New Delhi (Supra), the
issue which arose for the consideration of this Court was
whether the product ‘Lip salve’ is classifiable as a
medicament under Chapter Sub- Heading 30.03 or as
‘preparation for care of skin’ under Chapter Sub-heading
33.04. The stand of the assessee was that the product in
question was supplied exclusively to the military for use
while serving at high altitude. They claimed, by relying on
various literatures based on the composition of the product
that it was used as “medicament” and therefore, sought
classification under Chapter Sub- Heading 30.03. The stand
of the revenue was that it was used as “a preparation for
care of skin” to protect the skin on the lips against damage
by natural factors. This Court after considering the various
medical and pharmaceutical literatures held that the
Entries are not to be understood in their scientific or
26
technical sense, but by their popular meaning for the
purpose of interpretation. This court had observed that for
the purpose of classification, the commercial parlance
theory has to be applied and the chemical ingredients of the
product are not decisive. This Court after considering the
nature of the product and the use to which it is put had
observed that the ‘Lip salve’ is used for “care of skin” and
not “cure of skin” and just because it has some curative
effect, its primary use is not curative, therefore it is not
medicament and also needs no prescription from a doctor.
This Court also held that it is neither prescribed by any
doctor nor obtainable from the chemist or pharmaceutical
shops in the market. This decision would not assist revenue
as this Court had arrived at a conclusion that the product is
not medicament but cosmetic after considering the
commercial parlance test and primary user of the product.
38. In ICPA Health Products (P) Ltd. v. CCE (Supra), this
Court has considered the issue of classification of surgical
scrubs, namely’ Hexiprep, Hexiscrub (Surgiscrub) and
Hexiaque, manufactured by the assessee which was used as
a skin disinfectant to paint the skin before surgery and as a
27
wound disinfectant. It was admitted that Hexiprep is used
to paint the skin as required to disinfect the skin before
surgery. Hexiaque is used as a skin disinfectant to paint the
skin before surgery and as a wound, abrasions and minor
cuts disinfectant. Hexiscrub is used on hands and forearms
of surgeons for rapid hand disinfection prior to surgery. The
assessee claimed the classification of these products as
medicament under Chapter sub-heading 3003.10. Whereas,
the revenue contended that these products should be
classified as disinfectants under Chapter sub-heading
38.08. This Court had considered the report of the Chemical
examiner who opined that the products therein contained
‘chlorhexidine gluconate solution BP’ which had therapeutic
properties. However, he also opined that they were used as
disinfectant, therefore should be classified under Chapter
sub-heading 38.08. This Court after considering the label
and usage of products therein and dictionary meaning of
the word ‘prophylactic’ had observed that the products
therein were used to disinfect the skin prior to surgery, to
clean the wound and minor cuts, and therefore, they have
prophylactic usage and classifiable under Chapter sub-
heading 3003.10.
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39. In State of Goa v. Colfax Laboratories (Supra), the issue
before this Court was that whether the After Shave Lotion
(ASL) known as “Old Spice” and “Blue Stratos” are
classifiable as toilet preparations or medical preparations.
The assessee relying on various pharmacopoeia took the
stand that the product was “medicinal preparation” due to
the high percentage of alcohol content (above 60%). The
revenue contended that the use of after shave lotion was in
the form of “toilet preparations” and not “medicinal
preparation”. The revenue also pointed that the assessee
had obtained the license for manufacture of ASL as a
cosmetic product and not as a medicinal product. This
Court while rejecting the assessee’s contention held that the
high composition of alcohol in the product is not a relevant
factor for ASL to be considered a medicament. This Court
further observed that in order to come within the ambit of
“medicinal preparations”, the article must be used for the
purpose of either curing or mitigating the disease after its
symptoms have appeared or in prevention of any disease
and therefore, on a plain interpretation ASL cannot be
considered to be within the ambit of “medicinal
29
preparation”. Thus, in that case, this Court did not rely on
the composition of the product but relied on the principal
use and the common understanding of the product in the
market as the test for classification, in other words, the
classification of commodity does not depend on the
incidental character that the commodity takes but on its
primary character.
40. In CCE, Nagpur v. Vicco Laboratories, (2005) 4 SCC 17,
the point in consideration before this Court was that
whether the products, namely; Turmeric skin cream,
vajradanti toothpaste and tooth powder manufactured by
the assessee would be classifiable as Pharmaceutical
products under Chapter 30 or cosmetics under Chapter 33
of the Tariff Act. In that case, the assessee’s products were
classifiable as pharmaceutical products before and after the
enactment of the Tariff Act. However, the revenue issued
show cause notices on the basis of the decision of this Court
in Shree Baidyanath, (1996) 9 SCC 402 alleging that the
products are understood as cosmetics in common parlance.
The revenue further contended before this Court that the
product was classifiable under Chapter 33 as a cosmetic as
30
there was no need for a medical practitioner’s prescription
and the same was sold in general/departmental store. The
assessee took the stand that products were classifiable
under Chapter 30 as being pharmaceutical product. This
Court held that mere decision of a court of law without more
cannot be a 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. This Court has held
that the Show cause notices having issued on the
misapprehension of the tests laid down in Shree Baidyanath
cannot be sustained, even though, the adjudicating
authority had found from the market survey that the
products are understood as cosmetics in common parlance.
This Court also held that the product cannot be treated as
cosmetic only because it was not sold by chemists or under
doctor's prescription. We are afraid that decision would
assist the revenue as the show cause notices in that case
were issued on the misapprehension of the test laid down in
the Shree Baidyanath and this Court further observed that
the decision in Shree Baidyanath was based on its peculiar
facts.
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41. In Sujanil Chemo Industries v. CCE & Customs (Supra),
the question of classification of the product “licel”,
manufactured by the assessee, was raised before this Court.
The assessee claimed, on the basis of the reports of
chemical examiners and the Department of Dermatology
and Venereology, that the product is an insecticide and is
classifiable under Chapter Sub-heading 3808.10 whereas
the Department contended that the product is classifiable
as medicament under Chapter Sub-heading 3003.10. This
Court after referring to Chapter Note 1(d) of Chapter 38
which excludes “medicaments under Heading 30.03 or
30.04” from its ambit and considering the definition of
‘medicament’ in terms of Chapter Heading 2(i) of Chapter
30, had observed that in normal parlance, a product may be
considered to be an insecticide but if that product has any
therapeutic and prophylactic use then for purposes of
classification that product would fall under Chapter 30
instead of Chapter 38. This Court observed that Licel cures
the infection or infestation of lice in human hair which is a
disease; therefore, it is thus therapeutic. This Court further
observed that Licel is also prophylactic inasmuch as it
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prevents disease which will follow from infestation of lice.
This Court referring to its earlier decision in ICPA Health
Products (P) Ltd. v. CCE (Supra) has concluded that this
product for its therapeutic and prophylactic usages would
be classified as medicament under Chapter Sub-heading
3003.10. We are of the opinion that decision would not
come to rescue of the revenue as this Court in that decision
has clearly observed that the licel prevents as well as cures
the infection or infestation of the lice.
42. In Puma Ayurvedic Herbal (P) Ltd. v. Commissioner of
Central Excise, Nagpur (Supra), the issue before this Court
was that whether the ayurvedic goods manufactured by the
assessee are classifiable under the Central Excise Tariff Act,
1985 as cosmetics under Chapter 33 or as medicaments
under Chapter 30. The assessee contended that their
products are manufactured as per the Ayurveda
pharmacopoeia and other text books and have curative,
therapeutic or prophylactic value which are meant to give
relief in body ailments and they are not items of cosmetics.
The assessee further relied on the twin test: Whether the
product is used as medicament in common parlance; and
whether the ingredients used in the product are mentioned
33
in the authoritative ayurvedic textbooks. The assessee
further contended that the use of the product by the
customers should be taken into account for determining the
classification of products as these as the products which
have special and distinct use for treating a particular
ailment and are not items of common use. The revenue
argued that even if a product had some curative or
prophylactic value, it will still be cosmetic on the basis of
Note 2 of Chapter 33 of the Central Excise Tariff Act which
excludes cosmetics and toilet preparation having subsidiary
curative and prophylactic value. This Court while
appreciating the assessee’s contention observed that
revenue has miserably failed to prove that the products in
dispute are not medicament and not understood as
medicament by the common man. This Court had upheld
the twin test for classification of ayurvedic products relied
by the assessee and observed that the primary role or use of
the product has to be taken into account for the purpose of
classification, even though, it may happen that while
treating a particular medical problem, after the problem is
cured, the appearance of the person concerned may
improve. This Court further held that it is not necessary for
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the medicament to be sold only under doctor’s prescription
and its availability across the counter in shops is not
relevant for its classification as medicament. This Court
held that, therefore, the fact that use of medicinal element
in a product was minimal does not detract from it being
classified as a medicament. This Court concluded that the
products in dispute are medicinal products which are
intended to treat certain medical conditions of the human
body and improvement in appearance is subsidiary,
therefore, are liable to be classified as medicaments falling
under Chapter 30. This case would not assist revenue as
this Court had applied a primary user test of the products
in question which has certain medicinal ingredient.
43. In Commissioner of Central Excise, Delhi v. Ishaan
Research Lab (P) Ltd. (Supra), the issue before this Court
was whether the products manufactured by the assessee
would fall under Sub-Heading 3003.30 as medicament or
under Chapter 33 as cosmetics. The assessee contended
that each of the products was having ayurvedic medicinal
herbs in it and even the labels on these products claim
specifically the medicinal properties of the product. The
assessee further urged that even if the user of product leads
35
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 marketed as
such. According to the revenue, all these products were
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. This Court after inspecting the labels of
the product has held that the assessee had claimed in each
of the label regarding its medicinal properties and, the
product is not a cosmetic. This Court also observed that the
common parlance test is not “be all and end all”, and held
that the miniscule percentage used is also not a deciding
factor. This Court concluded that the products in question
are medicinal products and, therefore, are covered by
Chapter 30 and not under Chapter 33. That case would not
assist revenue as this Court after taking into account the
labels on the products observed that these products have
medicinal ingredients and are marketed as ayurvedic
medicines not cosmetics, however it incidentally improve the
appearance, and also held that the common parlance test
by itself is not conclusive.
36
44. In view of the above, we reject the Revenue's appeals
and confirm the order passed by the Tribunal with no order
as to costs.
Ordered accordingly.
............................J. (H.L. DATTU)
............................J. (ANIL R. DAVE)
NEW DELHI; FEBRUARY 22, 2012
37