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NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1941 OF 2006

COMMISSIONER OF CENTRAL EXCISE,  CHENNAI-IV

.....APPELLANT(S)

VERSUS

HINDUSTAN LEVER LTD. .....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

The issue involved in the present appeal is as to whether Vaseline

Intensive Care Heel Guard (for short, 'VHG') is to be treated as merely a

skin care preparation or  it  is  a medicament  having curing properties.

Based on  the  answer  to  the  aforesaid  question,  classification  of  this

product will be determined.  If it is only a skin care preparation then VHG

is classifiable under Chapter Heading 3304.00 of the First Schedule to

the Central  Excise Tariff  Act,  1985 (for  short,  the 'Act').  On the other

hand, if  it  is to be treated as a medicament, VHG would get covered

under Chapter Heading 3003.10 of the First Schedule. The rate at which

the excise duty is payable depends on the said classification.    

2) Chapter 33 under which the Revenue wants to cover VHG pertains to

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'essential oils and resinoids; perfumery, cosmetic or  toilet preparations'

and,  therefore,  40%  duty  is  paid.  Entry  33.04  thereof,  which  is

specifically sought to be attracted by the Revenue, reads as under:

“33.04  Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen and suntan preparations; manicure or pedicure preparations”

3) If  a particular product is to be covered under the aforesaid Entry, the

basic trait of the said product is that it is beauty or make-up preparations

and preparations for the care of the skin. Some products like sunscreen

and  suntan  preparations;  manicure  or  pedicure  preparations  are

specifically included, meaning thereby they are to be treated as beauty

or make-up preparations or preparations for care of the skin. At the same

time, medicaments are specifically excluded therefrom. We would also

like  to  point  out  here certain  chapter  notes of  Chapter  30 which are

pressed  into  service  by  the  Revenue  in  order  to  claim  that  VHG is

nothing but preparation for the care of the skin. These are chapter notes

2 and 5 and we reproduce the same as under:  

“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.”

“5.  Heading No. 33.04 applies,  inter alia,  to the following

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products : beauty creams, vanishing creams, cold creams, make-up creams, cleansing creams, skinfoods, skin tonics, face  powders,  baby  powders,  toilet  powders,  talcum powders  and  grease  paints,  lipsticks,  eyeshadow  and eyebrow  pencils,  nail  polishes  and  varnishes,  cuticle removers and other preparations for use in manicure or chiropody  and barrier  creams to  give  protection  against skin irritants.”

4) On the other hand, as per the assessee VHG is a medicament and,

therefor, it  should  be covered by Chapter  30.  Chapter  30 deals  with

'pharmaceutical products'. Entry 30.03, within which the assessee seeks

to cover this product, reads as under:

“30.03 Medicaments (including veterinary medicaments”

    3003.10   – Patent  or  proprietary  medicaments, other than those medicaments which are  exclusively  Ayurvedic,  Unani, Siddha, Homoeopathic or Bio-chemic

  3003.20   – Medicaments  (other  than  patent  or proprietary)  other  than  those  which are  exclusively  used  in  Ayurvedic, Unani,  Siddha,  Homoeopathic  or Bio-chemic systems

                      –  

Medicaments,  including  those used in Ayurvedic, Unani, Siddha, Homoeopathic  or  Bio-chemic systems;

  3003.31   – Manufactured  exclusively  in accordance  with  the  formulae described  in  the  authoritative books  specified  in  the  First Schedule  to  the  Drugs  and Cosmetics Act, 1940 (23 of 1940) or  Homoeopathic  Pharmacopoeia of  India  or  the  United  States  of America or the United Kingdom or

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the  German  Homoeopathic Pharmacopoeia, as the case may be,  and sold  under  the  name as specified  in  such  book  or pharmacopoeia.

  3003.32   – Medicaments (including veterinary medicaments) used in bio-chemic system  and  not  bearing  a  brand name.

  3003.39   – Other”

5) The position which is taken by the assessee is that VHG is patent or

proprietary  medicament  and  is,  therefore,  classifiable  under  Chapter

Heading 3003.10 and only  15% duty is paid.  There are certain chapter

notes attached to Chapter 30 as well and first two notes are relevant for

our purposes which we reproduce below:

“1.   This Chapter does not cover:

(a) Foods or beverages (such as, dietetic, diabetic or fortified foods, food supplements, tonic beverages and mineral  waters) (Section 1V);

(b) Plasters specially calcined or finely ground for use in dentistry (Chapter 25);

(c) Aqueous  distillates  or  aqueous  solutions  of essential oils, suitable for medicinal uses (Chapter 33);

(d) Preparations  of  Chapter  33  even  if  they  have therapeutic or prophylactic properties;

(e) Soap or other products of  Chapter 34 containing added medicaments;

(f) Preparations  with  a  basis  of  plaster  for  use  in dentistry (Chapter 34);

(g) Blood albumin not prepared for therapeutic or for

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prophylactic uses (Chapter 35).

2. For the purposes of heading No. 30.03—

(i) 'medicaments'  means goods (other than foods or beverages  such  as  dietetic,  diabetic  or  fortified foods, tonic beverages) not falling within heading No. 30.03 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;

(ii) 'Patent  or  proprietary  medicaments'  means  any drug or medicinal preparation, in whatever form, for use in the internal or external treatment of, or for the  prevention  of  ailments  in  human  beings  or animals,  which  bears  either  on  itself  or  on  its container or both, a name which is not specified in a monograph, in a Pharmacopoeia,  Formulary or other publications, namely:— (a) The Indian Pharmacopoeia:

(b) The International Pharmacopoeia;

(c) The British Pharmacopoeia;

(d) The British Pharmacopoeia;

(e) The British Pharmaceutical Codex;

(f) The British Veterinary Codex;

(g) The United States Pharmacopoeia;

(h) The National Formulary of the U.S.A.;

(i) The Dental Formulary of the U.S.A; and

(j) The State Pharmacopoeia of the U.S.S.R.;

or which is a brand name, that is, a name or a registered trade mark under the Trade and Merchandise Marks Act, 1958 (43 of 1958), or any other mark such as a symbol, monogram,  label,  signature  or  invented  words  or  any writing which is used in relation to that medicine for the purpose of indicating or so as to indicate a connection in the  course  of  trade  between  the  medicine  and  some person, having the right either as proprietor or otherwise

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to use the name or mark with or without any indication of the identity of that person.”    

6) While  contrasting the two Entries,  namely, Entry 3304.00 on the one

hand and 3003.10 on the other, it can be discerned that if it is a product

for care of the skin, then it would fall under Chapter Heading 3304.00 but

if it is for the cure of skin disease then the product in-question would be

medicament; meaning thereby the inquiry has to be whether it is a care

product or a product meant for cure. Another aspect, while comparing

the two Entries,  which  needs  to  be  mentioned is  that  Entry  3304.00

specifically excludes medicaments. The obvious purpose is that if it is a

medicament, it  has to fall  under Chapter 30. Because of  this specific

exclusion  of  medicament  from  Chapter  Heading  3304.00,  necessary

consequence is that if the Revenue wants to cover it under 3304.00, the

onus is  on the Revenue to show that  the particular  product  is  not  a

medicament. At the same time, reading of this Entry along with chapter

notes  2  and  5,  already  extracted  above,  would  indicate  that  if

pharmaceutical or antiseptic constituents contained in the product are

only subsidiary in nature, or having subsidiary curative or prophylactic

value, then that would not make the product as medicament.   Again,

certain  preparation  for  skin  like  preparations  for  use  in  manicure  or

chiropody and barrier creams which give protection against skin irritants

are still to be treated as preparations for care of the skin and would not

be treated as curing the skin diseases.  That is the clear intent of chapter

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note 5 of  Chapter 33.  This is made further clear with the heading of

chapter  note  no.  1(d)  of  Chapter  30  which  specifically  excludes

preparation of Chapter 33 even if they have therapeutic or prophylactic

properties. However, a conjoint reading of note 5 of Chapter 33 and note

1(d) of Chapter 30 needs us to clarify that in order to see as to whether a

particular preparation falls under Chapter 33 or not (or gets excluded

from Chapter 30), such therapeutic or prophylactic properties have to be

subsidiary  in  nature.  Further, medicaments  are  specifically  defined in

note 2 of Chapter 30 and the attributes of this definition are to be kept in

mind in order to decide whether a particular product is a medicament or

not.   

To put it in a nutshell, if a particular product is substantially for the care

of  skin  and  simply  because  it  contains  subsidiary  pharmaceutical  or

antiseptic constituents or  is  having subsidiary curative or  prophylactic

value, it  would not become medicament and would still  qualify as the

product for the care of the skin. There would be certain products which

would be purely for the care of skin and certain other products would be

clearly medicament and such  cases may not  pose any problem. The

issue of determination as to whether a particular product falls in Chapter

33 or  Chapter  30 would arise in  those cases where certain products

have the shades or qualities of both, namely, skin care as well as cure of

skin diseases.  In such cases,  the necessary exercise requires to be

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undertaken.  Whenever product has curative or  prophylactic value as

well, but the Department still wants the said product to be brought under

Chapter Heading 3304.00, onus is on the Department to show that it is

not medicament.  For this, it  will  have to demonstrate that curative or

prophylactic  value  is  only  subsidiary  in  nature  or  that  the  product  is

covered by the description under chapter notes 5, namely, either it  is

chiropody or barrier cream to give protection against skin irritants. If the

Department fails to discharge this onus, the product has to be treated as

medicament and would be covered under Chapter 30.

7) In  BPL Pharmaceuticals Ltd.  v.   CCE, Vadodra1, this Court has laid

down the principles which are to be kept in mind while deciding as to

whether  a  particular  product  would  fall  under  Chapter  30  or  under

competing  Chapter  33.   That  was  a  case  where  the  assessee  was

engaged  in  manufacture  of  Selenium Sulfide  Lotion  which  contained

2.5%  selenium  sulfide  W/V.   The  assessee  was  manufacturing  this

product  under  a loan licence from Abbott  Laboratories in  accordance

with Abbott's specifications, raw materials, packing materials and quality

control.  It was sold under the private name 'Selsun'.  The assessee in

that case claimed that this product was used in the therapeutic quantity

i.e. 2.5% W/V which was the only active ingredient and other ingredient

1

(1995) Supp 3 SCC 1

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merely served the purpose of a bare medium.  It was also claimed that

the product is manufactured under a drug licence issued by the Food

and Drug Administration.  The assessee, thus, wanted the product to be

classified  under  heading  3003.19  as  Pharmaceutical  Product  under

Chapter 30.  However, the Revenue took the plea that it would fall under

sub-heading  3305.90  i.e.  under  Chapter  33.   Thus,  the  respective

contentions of the Department as well as the assessee were almost on

the same lines as in the present case, namely, whether the said product

was Pharmaceutical  product  or  it  was a cosmetic/toiletry  preparation.

The only difference was of sub-headings under those Chapters.  This

Court went into the essential characteristics of the product and found it

that dominant use of the product was medicinal, as it was sold only on

medical prescription as a medicine for treatment of disease known as

Seborrhoeic  Dermatitis,  commonly  known  as  Dandruff.   It  was

manufactured under a Drug Licence; the Food and Drug Administration

had certified  it  as  a  Drug;  and  the  Drug  Controller  had  categorically

opined that  Selenium Sulfide  present  in  Selsun was in  a  therapeutic

concentration  etc.   The  relevant  passages  from  the  said  judgment

throwing light on these aspects are reproduced below:

“19. So far as medicinal  properties of  the product are concerned it can be gathered from the technical and/or pharmaceutical  references  that  Selenium  Sulfide  has anti-fungal and anti-seborrhoeic properties and is used in a detergent medium for the treatment of dandruff on the scalp which is milder form of Seborrhoeic Dermatitis and  Tinea  Versicolour  2.5%  of  this  compound  is  the

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therapeutic quantity.

xx xx xx

24. Elaborating  the  above  submissions,  the  learned counsel  for  the  respondents  invited  our  attention  to chapter notes of Chapter 30 and Chapter 33 and also the  rules  of  interpretation.  According  to  the  learned counsel a careful reading of chapter notes of Chapter 30 would show that preparations of Chapter 33 even if they have therapeutic or prophylactic properties would not fall under Chapter 30. However, he fairly admitted that ‘medicaments’ are those that have therapeutic or prophylactic uses. Nevertheless those medicaments, if they are classifiable under Chapter  33 or Chapter  34 will not fall under Chapter 30, according to him, if they are more specifically preparations falling under Chapter 33 or Chapter 34. In other words, he wants to equate the product in question to ‘shampoo’ enumerated under Heading No. 33.05. He also invited our attention to the fact that the appellants before the coming into force of the new Tariff  Act  described the product  as shampoo and they have omitted the word ‘shampoo’ deliberately only to claim that the product would fall under Chapter 30.

25. We  do  not  think  that  we  can  accept  all  the contentions of the learned counsel for the respondents except  certain  obvious  admitted  positions.  The submission  that  the  product  in  question  must  be equated to shampoo falling under Chapter 33 is not at all correct.

26. It is true that the learned counsel for the appellants have  placed  reliance  on  the  definition  of  the  words “cosmetic  and  drug”  as  defined  in  the  Drugs  and Cosmetics Act, 1940. On a perusal of the definitions, we  can  broadly  distinguish  cosmetic  and  drug  as follows:

“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.”

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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, treatment, mitigation or prevention of any disease or disorder in human  beings  or  animals,  including  preparations applied on human body for the purpose of repelling insects.”

27. We cannot  ignore  the  above broad  classification while  considering  the  character  of  the  product  in question.  Certainly,  the  product  in  question  is  not intended  for  cleansing,  beautifying,  promoting attractiveness  or  altering  appearance.  On  the  other hand  it  is  intended  to  cure  certain  diseases  as mentioned supra.

xx xx xx

35.  The  learned  counsel  also  placed  reliance  on  a number of  judgments to support  his argument that in common  and  commercial  parlance  the  product  is known as medicine  rather  than cosmetic.  As  pointed out already and in support of that submission, affidavits and letters from chemists, doctors and customers are filed to show that the product is sold under prescription only in chemists’ shops unlike shampoos sold in any shop  including  provision  shops.  This  conclusion, namely, that the product is understood in the common and commercial  parlance as a patent and proprietary medicine  was  also  found  by  the  Central  Board  of Excise and Customs as early as in 1981 and accepted by the Excise authorities and in the absence of any new material  on  the  side  of  the  respondents  there  is  no difficulty in accepting this contention without referring to decision cited by the counsel for the appellants.”

8) The aforesaid case draws and delineates a clear distinction between a

'cosmetic' and a  'drug'.  It further lays down that essential character of

the product in question is to be kept in mind for ascertaining whether it

would be a cosmetic or a drug. Another relevant consideration, which is

highlighted, is to see whether in common and commercial parlance the

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product  is  known as  medicine  or  cosmetic/skin  care  product.   If  the

product is registered as medicament by the Drug Controller, that would

be a strong factor to consider it as having curative or prophylactic value

and it is not for the care of the skin per se.

9) This  Court  in  Muller  & Phipps (India)  Ltd.  v.  Collector  of  Central

Excise, Bombay-I2 was called upon to decide as to whether prickly heat

power,  which  was  manufactured  and  marketed  by  the

appellant/assessee  therein  under  the  brand  name  Johnson's  Prickly

Heat Powder and Phipps Processed Talc,  was a medicament or  was

simply a product for care of the skin. The case put-forth by the assessee

therein was that prickly heat power contains a range of medicines and is

used only for the treatment and prevention of a skin ailment known as

Milaria Rubra,  commonly known as prickly heat.  Prickly heat powders

are  manufactured  under  a  Drug  Licence  issued under  the  Drug  and

Cosmetics  Act,  1940  and  have  been  treated  as  a  drug  and  not  a

cosmetic by the authorities under the Drugs Act.  On a reference made

by the Finance Ministry, the Drug Controller of India has opined that due

to the high content of 5% boric acid in a prickly heat powder, it would be

classifiable as a drug or  medicament and not as a cosmetic.  From 1970

till 1985, prickly heat powders have been classified and assessed under

Tariff Item 14E of the old tariff as  'Patent or Proprietary Medicines'.   It

2 2004 (167) ELT 374 (SC)

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was also contended that prickly heat power not only relieves prickly heat

faster but actually helps prevent it.  When a person perspires profusely

the sweat stays on the skin too long and the person becomes a potential

victim of  prickly  heat.   This  specially  formulated  prickly  heat  powder

absorbs the sweat better and faster and prevents the build up of bacteria

on the skin.  Therefore, the person avoids getting a red rash, itching and

burning.   No  person  who  requires  ordinary  talk  for  the  purposes  of

beautifying her or himself would use the said products which contain the

aforesaid active therapeutic ingredients.  These products are known as,

as already mentioned above, prickly heat/  Milaria Rubra.  The sale of

these products is much higher in hot summer months when this disease

frequently erupts.

10) Accepting the aforesaid case set up by the assessee therein, the Court

held that the said prickly heat power was a medicament for treatment of

red rashes, itching and burning and not merely a powder for care of skin

or for the purpose of beauty.  The Court was greatly influenced by the

fact  that  a  department  like  Drug  Controller  and  Central  Sales  Tax

authorities  had  accepted  the  product  in  question  as  medicinal

preparation.   The  discussion  which  is  relevant  for  our  purposes  is

contained in paras 11 and 12 of the said judgment and we reproduce the

same hereinbelow:

“11.  But in the present case when throughout the meaning

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given to products in question not only by the department itself  but  also by other departments like Drug Controller and Central  Sales  Tax  authorities  is  that  the  product  in question is a medicinal preparation should be accepted.

12.   Applying  the  principles  enunciated  in  BPL Pharmaceuticals  Ltd.  case and taking into  consideration various  circumstances  as  to  the  manner  in  which  the goods had been treated on the earlier occasions by the department  and  the  product  having  been  utilised  with reference to the commercial parlance and understanding, that it had been treated as a drug it would not cease to be one notwithstanding the fact that new tariff act has come into force.  What is to be seen in such cases is when in the common  parlance,  for  purposes  of  the  Drug  Act,  for purposes of Sales Tax Act and in various findings recorded on earlier occasions by the department itself having been noticed, the conclusion is inevitable that the products in question must be treated as medicinal preparations.”  

11) Interplay of Chapter 30 vis-a-vis Chapter 34 (which deals with detergent

products)  came  up  for  consideration  in  Commissioner  of  Central

Excise v. Wockhardt Life Sciences Limited3.  In that case, the Court

again emphasized 'common parlance test' or the 'commercial usage test'

as the mot common test for determining the classification in such cases.

After  taking  note  of  number  of  earlier  decisions,  this  aspect  was

highlighted as under:

“33.  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 Bros.  v.  State of A.P.,  (1994) Supp 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,

3 (2012) 5 SCC 585

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when  the  statute  was  enacted  (see  Delhi  Cloth  and General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71).

34.  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 Bhavan  Ltd.,  (2009)  12  SCC  419,  and  CCE  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. CCE, (2006) 3 SCC 266, State of Goa v. Colfax  Laboratories  Ltd.,  (2004)  9  SCC  83,  and  B.P.L. Pharmaceuticals Ltd. v. CCE, 1995 Supp (3) SCC 1].

35.  However, there cannot be a static parameter for the correct classification of a commodity.  This Court in Indian Aluminium Cables Ltd.  v.  Union of  India,  (1985) 3 SCC 284, has culled out this principle in the following words: (SCC p. 291, para 13):

“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.”

36.   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. CCE, (2003) 3 SCC 111, Sujanil Chemo Industries v. CCE & Customs, (2005) 4 SCC 189, ICPA Health Products (P) Ltd. v. CCE, (2004) 4 SCC 481,  Puma Ayurvedic  Herbal,  (2006)  3  SCC 266, CCE v. Ishaan Research Lab (P) Ltd., (2008) 13 SCC 349, and CCE v. Uni Products India Ltd., (2009) 9 SCC 295].

37.  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 Giwani v. Collector of Customs, (1990) 2 SCC 203 and Commnr. Of Customs v.

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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 (P) Ltd., (1989) 3 SCC 343,  HPL Chemicals Ltd. v. CCE, (2006) 5 SCC 208, Western India Plywoods  Ltd.  v.  Collector  of  Customs,  (2005)  12  SCC 731, and CCE v. Carrier Aircon Ltd., (2006) 5 SCC 596].

38.  In CCE v. Carrier Aircon Ltd., (2006) 5 SCC 596, this Court held: (SCC p. 601, para 14):

“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.”

39.  In our view, as we have already stated, the combined factors that require 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.”

12) It  is required to be noted that in para 36 quoted above, the Court also

laid importance to the functional utility and predominant or primary usage

of the commodity that is to be taken into account while classifying the

product.  Another important aspect which needs to be noted is that the

combined effect of the aforesaid factors is to be taken into consideration,

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which would include composition, the product literature,  the label,  the

character of the product and the user to which the product is put.  It was

also clarified that miniscule quantity of the prophylactic ingredient is not

a relevant factor.

13) Discussion  on  this  aspect  was  again  revisited  in  the  case  of

Commissioner of Central Excise, Mumbai IV v. Ciens Laboratories,

Mumbai4.  In that case, a moisturising cream sold under the brand name

'Moisturex' was the product and it was to be determined as to whether it

was used simply for  care of  the skin or  was intended for  treating or

curing dry skin complaints like fissure feet,  dry scaly skin conditions,

ichthyosis etc. and, therefore, was a medicament.  The argument of the

Revenue that this cream was used merely for softening the skin was

rejected in the following manner:

“15.   The  contention  that  “Moisturex”  is  a  moisturising cream used for softening the skin cannot be appreciated. As we have already discussed, the use of the cream is not for the care of the skin.  “Moisturex” is also not primarily intended to protect the skin from sun, tan or dryness, etc. On the other hand, it is intended for treating or curing the dry skin conditions of the human skin and for a few other skin complaints like fissure feet, dry scaly skin conditions, ichthyosis, etc.  The argument advanced on behalf of the Central Excise that use of urea or lactic acid or propylene glycon,  etc.  is  only  as  subsidiary  pharmaceutical constituents and, hence, they cannot be held out as having curative, therapeutic or prophylactic value, cannot also be appreciated.  It is the presence of the ingredients of the pharmaceutical  constituents  which  makes  the  difference and not the percentage of the ingredients as held by this Court  in  Meghdoot  Gramodyog Sewa Sansthan  v.  CCE,

4 (2013) 14 SCC 133

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(2005) 4 SCC 15...”

14) Main  feature  which  needs  to  be  taken  note  of  from  the  aforesaid

discussion is that small percentage of the ingredients of pharmaceutical

constituents  would  not  be  a  reason  by  itself  to  conclude  that

pharmaceutical constituents are subsidiary in nature.  On the other hand,

what  is  more  relevant  is  the  purpose  for  which  the  product  is  used,

namely, functional  test.   On that  basis,  the product  in  that  case was

treated  as  medicament.   What  is  important  is  that  the  Court,  in  the

process, laid down the guiding principles which are to be kept in mind

while determining the classification.  These principles are formulated in

the following manner:

“22.  Thus, the following guiding principles emerge from the above discussion:

22.1.   Firstly,  when  a  product  contains  pharmaceutical ingredients  that  have  therapeutic  or  prophylactic  or curative properties,  the proportion of  such ingredients is not  invariably  decisive.   What  is  of  importance  is  the curative  attributes  of  such  ingredients  that  render  the product a medicament and not a cosmetic.

22.2.   Secondly,  though  a  product  is  sold  without  a prescription of a medical practitioner, it  does not lead to the immediate conclusion that  all  products that  are sold over/across the counter are cosmetics.  There are several products  that  are  sold  over  the  counter  and  are  yet, medicaments.

22.3.  Thirdly, prior to adjudicating upon whether a product is a medicament or not, the courts have to see what the people  who  actually  use  the  product  understand  the product to be.  If a product's primary function is “care” and not “cure”, it is not a medicament.  Cosmetic products are used in enhancing or improving a person's appearance or

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beauty, whereas medicinal  products are used to treat or cure  some  medical  condition.   A product  that  is  used mainly  in  curing  or  treating  ailments  or  diseases  and contains curative ingredients even in small quantities, is to be branded as a medicament.”

15) After  straitening  the  position  in  law,  we  now  proceed  to  apply  this

principles to the present case.

16) As pointed out above, the product in question, Vaseline Intensive Care

Heel Guard, is marketed as a solution for cracked heels and it is claimed

that  this  solution  is  specially  developed by  the  scientists  at  Vaseline

Research.  The composition of this product includes salicylic acid I.P.

1.5% w/w. lactic acid 8.0% w/w. Triclosan 0.1% w/w. Cream base – q.s.

Salicylic acid is described as keratolytic substance having bacteriostalic

and fungicidal properties used in the treatment of fungus infection of the

skin.   The  Tribunal,  while  deciding  that  the  aforesaid  product  is  a

medicament, pointed out that the product was formulated and essentially

used for treatment of  'cracked heels', protection from further cracks in

the human heels due to extreme climatic conditions and low humidity,

constant exposure of feet to water and due to absence of shoe or other

protection  while  walking.   It  also  found  that  this  product  was

manufactured under a drug licence as drug authorities had treated the

same as a medicament.  The Tribunal also found that the usage of this

product was related to the effect of therapeutic or mitigating substance of

prophylactic  substances  added.   Thus,  the  effect  of  mitigation  of  an

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external condition is primary effect and the effect of smoothing the skin

was  secondary  in  nature  and,  therefore,  it  was  to  be  treated  as  a

medicament and classified under Chapter 30.

17) Interestingly, all  the aforesaid features of the product are accepted by

the  Department.   However,  only  on  the  ground  that  salicylic  acid

contained in the product is marginal, the Department took the view that it

was a subsidiary substance.   Having regard to the exposition of  law

narrated above, this was clearly an erroneous approach on the part of

the Revenue as percentage of the said substance is immaterial to label it

as subsidiary.

18) Another more important factor which needs to be stated at this stage is

that  though  the  burden  was  on  the  Department,  it  did  not  lead  any

evidence or produce any material to discharge this onus. It simply went

by  the  pamphlet  of  the  product,  that  too  selectively  picking  up  that

portion where the product was described as good for care of the skin as

well, ignoring the fact that the same very literature gives more emphasis

to the therapeutic value of the product.  On the other hand, the assessee

had  filed  various  affidavits  of  the  dealers  as  well  as  consumers  in

support of its plea that the product was essentially a medicament, which

material was blissfully ignored by the Department.

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19) From the aforesaid, we conclude that the decision of the Tribunal holding

the product in question to be a medicament and, therefore, covered by

Chapter Heading 3003.10 is perfectly justified and does not call for any

interference.

20) The civil appeal is, accordingly, dismissed with no order as to costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; AUGUST 25, 2015

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ITEM NO.1A               COURT NO.13               SECTION III (FOR JUDGMENT)                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS Civil Appeal  No(s).  1941/2006 C.C.E., CHENNAI                                    Appellant(s)                                 VERSUS HINDUSTAN LEVER LTD.                               Respondent(s)

Date : 25/08/2015 This appeal was called on for pronouncement of     Judgment today.

For Appellant(s)     Mr. B. Krishna Prasad,Adv.                       For Respondent(s)    Mr. Rajan Narain,Adv.                       

Hon'ble Mr. Justice A.K.Sikri pronounced the Judgment of the Bench comprising His Lordship and Hon'ble Mr. Justice Rohinton Fali Nariman.  

The appeal is dismissed in terms of the signed non-reportable judgment.  

Pending application(s), if any, stand disposed of.  We have pronounced the judgment today whereby dismissing the

appeal  of  the  Revenue.  In  the  consequence,  if  any,  amount  is refunded to the respondent, the same shall be done in accordance with law.  

(Ashwani Thakur)   (Renu Diwan)  COURT MASTER   COURT MASTER (Signed non-reportable judgment is placed on the file)