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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4480 OF 2005

COMMISSIONER OF CENTRAL EXCISE,  HYDERABAD

.....APPELLANT(S)

VERSUS

M/S SARVOTHAM CARE LIMITED .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO.        5752      OF 2015 (arising out of SLP (C) No. 1531 of 2015)

J U D G M E N T

A.K. SIKRI, J.

Civil Appeal No. 4480 of 2005

Respondent  herein  is  the  manufacture  of  'Ketoconazole

Shampoo' and 'Nizral Shampoo' which are sold in the bottles of

50  ml  and  5  ml.   Dispute  is  about  the  classification  of  the

aforesaid product for the purposes of payment of central excise

duty.  The respondent had filed the declaration classifying the said

product under CSH 3003.10 of the Central Excise Tariff Act, 1985

on the ground that it is basically a medicine.  However, as per the

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appellant/Revenue, the appropriate classification of this product is

under CSH 3305.99 as it perceives the product as 'preparation for

use on on hair'.

2) Chapter  30  under  which  CSH  3003.10  falls  deals  with

Pharmaceuticals products and the aforesaid entry thereof reads

as under:

“Patent  or  proprietary  medicaments,  other  than those  medicaments  which  are  exclusively Ayurvedic,  Unani,  Siddha,  Homoeopathic  or Bio-chemic.”

On  the  other  hand,  Chapter  33  deals  with  the  products

which fall under the nomenclature 'Essential Oils and Resinoids;

Perfumery,  Cosmetic  or  Toilet  Preparation'.   The  entry  CSH

3305.99 thereof is as under:

“Preparations for use on the hair -Perfumed hair oils -Other : --Hair fixer --Other”

3) It becomes clear from the reading of the aforesaid two entries that

the respondent claims that the product in question belongs to the

specie of Pharmaceutical products i.e. medicinal product and is

covered by the expression 'patent  or  proprietary medicaments'.

On the other hand, the case of the Revenue is that it is simply a

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shampoo which is to be used for cleaning hair and is nothing but

a  'toilet  preparation'.   If  the  product  is  to  be  treated  as

Pharmaceutical  product  covered by Entry 3003.10,  excise duty

prescribed is 16%.  The excise duty of goods covered by Entry

3305.99 is 24%.

4) The Revenue issued show cause notice demanding differential

duty amounting to Rs.8,12,194.  After the reply was given by the

respondent  along  with  the  material  placed  by  it  before  the

Adjudicating  Authority,  the  Adjudicating  Authority  passed  the

Order-in-Original dated 18.11.1999 for the period December, 1998

to April, 1999 confirming the differential duty of Rs.8,12,194 under

Section 4A read with Section 11A of the Central Excise Act, 1944.

In appeal preferred by the respondent, the aforesaid demand was

upheld  by  the  Commissioner  (Appeals)  vide  order  in  original

dated 13.02.2002, resulting in the dismissal of the appeal of the

respondent.  Next level appeal filed by the respondent before the

CESTAT, Bangalore,  however, yielded results favourable to the

respondent, as this appeal is allowed by the Tribunal vide final

Orders dated 18.01.2005 with consequential reliefs, if any.  It was

held that there is enormous evidence to show that the product in

question  was used for  treatment  of  several  disorders/diseases

and it  has  also  been sold  by  Chemists  under  the  prescription

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issued by the Registered Medical Practitioners or the Hospitals.

Therefore, it is a medicinal product and not simply a shampoo for

use  of  hair.   Naturally,  the  Revenue  is  not  satisfied  with  the

aforesaid view of the Tribunal and, therefore, has preferred the

instant appeal in this Court.

5) In  his  endeavour  to  demonstrate  that  the  product  'Nizral

Shampoo' was simply a toilet preparation to be used on the hair

and could not be classified as a product belonging to the family of

Pharmaceutical  products,  Mr.  Panda,  learned  senior  counsel

appearing  for  the  Revenue,  drew  our  attention  to  the  orders

passed  by  the  Commissioner  (Appeals)  wherein  findings  in

respect  of  this  product  are  arrived  at  after  discussing  the

ingredients/properties of the said product.  On that basis, it was

argued (as reasoned by the Commissioner (Appeals) as well) that

there  was  no  dispute  raised  even  by  the  assessee  that  the

product 'Nizral' was basically a shampoo preparation.  Even if it

was coupled with therapeutic or prophylactic properties imparted

to  it  with  the  presence  of  an  anti-fungal  agent  known  as

'Ketoconazole', this would not change the basic character of the

product viz. shampoo, which is meant for the use of cleaning hair.

It  was argued that  such a classification was in conformity with

Chapter  Note  (6)  to  Chapter  33  which  specified  'shampoos'

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whether or not containing soap or organic surface active agent.

He  further  submitted  that  as  per  the  packings,  labels,  leaflet

literature, it was apparent that the product in question was held

out  commercially  as  having  subsidiary  curative  or  prophylactic

value with main purpose and the main purpose of the produce

was cleaning of scalp and hair.  Therefore, Chapter Note (2) of

Chapter 33 also got attracted as per which how the product is

explained and marketed by the manufacturer itself becomes the

determining factor.  It was also submitted that HSC of Chapter 33

also includes not only shampoos containing soap and OSAC, but

'other shampoos' as well which would imply that those products

which  are  essentially  shampoos  would  still  be  treated  as

shampoos  even  if  the  subsidiary  benefits  of  using  such  a

shampoo would be curative in nature.  On that basis, submission

was that presence of 'Ketoconazole' which was hardly 2% W/V in

the said shampoo making it anti-fungal agent, would not change

the pre-dominant character of the product as shampoo and turn it

into  a  patent  or  proprietary  medicament  classifiable  under

Chapter  sub-heading 3003.10.   The learned senior  counsel,  in

this behalf, drew our attention to the following justification given

by the Commissioner (Appeal) in his order reflecting that mere 2%

of presence of 'Ketoconazole' would not make any difference:

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“It  is  rather  unassailable  that  active  ingredient 'Ketoconazole'  is  considered  to  prophylactic  in nature  for  it  to  treat  the  cause  of  dandruff. Admitting  that  the  active  ingredient 'Ketoconazole' is for prophylactic for dandruff, it is clear that the product 'Nizral Shampoo' shall stand excluded from the purview of Chapter 30, in  view  of  Chapter  Note  1(d)  to  Chapter  30 which lays down that 'Preparation of Chapter 33 even  if  they  have  therapeutic  or  prophylactic properties' are not covered.  On careful reading of the above Chapter Notes, which are statutory in nature and binding, a clear finding emerges that the impugned goods have a specific entry under  Chapter  33  in  terms  of  Chapter  (6)  to Chapter  33.   The heading  which  provides  the most  specific  description, shall  be preferred to headings providing a more general  description as per Rule 3(a) of Rules for the interpretations of  the  Schedule.   Hence,  by  all  the  above statutory  accounts  the  impugned goods  would not  permit  classification  under  Chapter  30  of Central Excise Tariff Act, 1985 as medicament, but only as a 'preparation for use on hair”.    

6) It  was  further  argued  by  Mr.  Panda  that  merely  because  the

respondent was manufacturing this product on loan/licence basis

from  Johnson  &  Johnson  Ltd.,  with  the  express  permission/

licence  of  Drug  Controller  of  India  and  Food  &  Drug

Administration, would be of no avail to the respondent.  Likewise,

even if it was sold by the Chemist would be of no significance as

the claim of the respondent that it could be sold only on specific

prescription  of  the  registered  medical  practitioner  was  clearly

wrong  as  the  respondent  was  widely  publishing  the  product

through advertisements clearly  conveying to the users that  the

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same was available with leading Chemists.  Mr. Panda referred to

those portions of the order of the Commissioner (Appeals) where

the aforesaid arguments of the respondent were discussed and

discarded.   He  pleaded  that  what  was  to  be  seen  was  the

pre-dominant  use  of  the  product  in  question;  that  is  to  say

whether  the product  'Nizral  Shampoo'  was primarily  used as a

shampoo or as a medicinal product and argued that the dominant

purpose  of  the  product  was  to  use  it  as  a  shampoo  with

ancillary/added  advantage  being  prevention  of  scalp  related

infection i.e. dandruff.

7) To buttress the aforesaid submissions, Mr. Panda took the aid of

certain judgments of this Court.  First judgment on which he relied

is in the case of Collector of Central Excise, Shillong v. Wood

Crafts Products Ltd.1,  wherein this Court emphasized that the

criteria/classification laid down by Harmonised System Committee

(HSC), established under Article 6 of the International Convention

on Harmonised System, is to be acted upon while deciding the

cases of classification inasmuch as it was an expert body which

was assigned the main function of preparing explanatory notes,

classification  opinions  or  other  advice  as  guides  to  the

interpretation of the Harmonised System and to secure uniformity

1 (1995) 3 SCC 454

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in the interpretation and application of the Harmonised System.  It

was so held by this Court in the said judgment in the following

manner:

“11. The Statement of Objects and Reasons of the Central Excise Tariff Bill, 1985 which led to the enactment of the Central Excise Tariff Act, 1985 is indicative of the pattern of the structure of the Central excise tariff enacted therein. It reads as under:

1. Central Excise duty is now levied at the rates specified in the First Schedule to the Central  Excises  and  Salt  Act,  1944.  The Central  Excises  and  Salt  Act,  1944 originally  provided  for  only  11 items.  The number  of  Items  has  since  increased  to 137.  The  levy,  which  was  selective  in nature,  to  start  with,  acquired  a comprehensive coverage in 1975, when the residuary  Item  68  was  introduced.  Thus, barring a few Items like opium, alcohol, etc., all  other  manufactured  goods  now  come under the scope of this levy.

2. The Technical Study Group on Central Excise  Tariff,  which was set  up by the Government  in  1984  to  conduct  a comprehensive inquiry into the structure of  the  Central  excise  tariff  has suggested  the  adoption  of  a  detailed Central  excise  tariff  based  broadly  on the system of classification derived from the  International  Convention  on  the Harmonised Commodity Description and Coding  System  (Harmonised  system) with  such  contractions  or  modifications thereto as are necessary to fall  within the scope  of  the  levy  of  Central  excise  duty. The Group has also suggested that the new tariff should be provided for by a separate Act  to  be  called  the  Central  Excise  Tariff Act.

3. The tariff suggested by the Study Group

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is  based  on  an  internationally  accepted nomenclature,  in  the  formulation  of  which all considerations, technical and legal, have been  taken  into  account.  It  should, therefore,  reduce  disputes  on  account  of tariff classification. Besides, since the tariff would  be on the  lines  of  the  Harmonised System,  it  would bring about  considerable alignment between the customs and Central excise tariffs and thus facilitate charging of additional  customs  duty  on  imports equivalent to excise duty.  Accordingly, it is proposed to specify the Central excise tariff suggested  by  the  Study  Group  by  a separate  tariff  Act instead  of  the  present system of the tariff being governed by the First  Schedule to the Central  Excises and Salt Act, 1944.

4.  The  main  features  of  the  Bill  are  as follows:

(i) The tariff included in the Schedule to the Bill  has  been  made  more  detailed  and comprehensive, thus obviating the need for having a residuary tariff Item. Goods of the same class have been grouped together to enable parity in treatment.

xx xx xx

5.  The  Bill  seeks  to  achieve  the  above objects.(emphasis supplied)

12.  It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central excise tariffs are based on the HSN  and  the  internationally  accepted nomenclature  was  taken  into  account  to "reduce  disputes  on  account  of  tariff classification".  Accordingly,  for  resolving any dispute relating to tariff classification, a safe  guide  is  the  internationally  accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central excise tariff in the

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Act  and  the  tariff  classification  made therein, in case of any doubt the HSN is a safe  guide  for  ascertaining  the  true meaning of any expression used in the Act. The ISI  Glossary  of  Terms has a  different purpose  and,  therefore,  the  specific purpose of tariff classification for which the internationally  accepted  nomenclature  in HSN  has  been  adopted,  for  enacting  the Central  Excise  Tariff  Act,  1985,  must  be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.”

8) He  also  pointed  out  that  the  aforesaid  principle  contained  in

Wood  Crafts  Products was  reiterated  in  CCE,  Hyderabad  v.

Bakelite Hylam2 as follows:

“17.  Hence for the interpretation of the New Tariff  harmonised system of  nomenclature and its explanatory notes are relevant.   In the  case  of Collector  of  Central  Excise, Shillong v. Wood Crafts Products Ltd. 1995 (3)  SCC 454,  this Court,  while considering the  Central  Excise  Tariff  Act  of  1985,  has held  that  looking  to  the  Statement  of Objects  and  Reasons  the  Central  Excise Tariff  under  the  1985 Act  is  based on the Harmonised System of Nomenclature (HSN) and  the  internationally  accepted nomenclature has been adopted to reduce disputes on account of tariff classification. Accordingly,  for  resolving  any  dispute relating  to  tariff  classification,  the internationally  accepted  nomenclature emerging from the HSN is a safe guide, this being the expressly acknowledged basis of the structure of the Central Excise Tariff in the  1985  Act  and  the  tariff  classification made  therein.   In  case  of  any  doubt,  the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act.”

2 1997 (91) ELT 13

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9) Mr.  Panda  also  referred  to  certain  decisions  of  the  Tribunals

wherein  such  shampoos  with  2%  anti-fungal  agents  were  still

treated  as  shampoos  and  not  a  medicinal  product.   Notably,

among  these  decisions  are  (i)  Amit  Ayurvedic  &  Cosmetic

Products  v.  Commissioner3 and  (ii)  CCE  Vapi  v.  Beta

Cosmetics4.

10) Mr.  Bagaria,  learned  senior  counsel,  appearing  for  the

respondent/assessee stoutly refuted the aforesaid arguments of

the Revenue laying great emphasis on the plea that the product in

question was basically a medicine which was pre-dominant use.

In order to demonstrate that the product 'Nizral Shampoo' could

only be used as medicine and not like any other general/ordinary

shampoo,  he  pointed  out  the  following  features  which  stood

established  on  record  in  the  form  of  plethora  of

materials/evidence placed before the authorities below:

(i)   The  medicinal  properties  of  the  product  were  adequately

emphasized and the product was sold by the assessee on that

basis in the market.

(ii)   There  was  a  warning  to  the  patients  about  the  adverse

reaction of the use of this shampoo, if used for a long period.

3 2004 (168) ELT 354 4 2004 (173) ELT 255

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(iii)  The product was essentially described as 'medicine' only and

not as a shampoo meant for cleaning the hair.

(iv)  The literature along with the product sold specifically stated

the diseases which could be cured by the use of this shampoo.

(v)  Limited period use of the product was suggested, unlike a

normal shampoo which could be used regularly for infinite period.

11) Mr. Bagaria argued that matter needed to be examined keeping in

view  the  aforesaid  essential  attributes/characteristics  of  the

product and in this context, the fact that the product was held out

by the respondent to the public at large as medicine; availability of

the said product with the Chemists; sale of  the product on the

prescription of a Doctor; assume much relevancy in treating the

product  as  medicament  having  therapeutic  value  and  not  as

ordinary shampoo.

12) Mr. Bagaria also pointed out that presence of 2% 'Ketoconazole'

in  the  said  shampoo  could  not  be  treated  as  something

insignificant.   On the contrary, it  was the maximum percentage

required to  treate  the dandruff  inasmuch as presence of  more

'Ketoconazole' could be harmful.  He further submitted that if it is

less than that, then it may lose its therapeutic value and for this

reason,  in  those  shampoos  where  the  assessee  was  earlier

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putting  1% to  1½% of  'Ketoconazole',  the  assessee was itself

treating  the  said  product  as  shampoo  only  and  not  as

Pharmaceutical  product.   He  concluded  his  arguments  by

submitting  that  the  judgment  of  this  Court  in  B.P.L.

Pharmaceuticals Ltd. v.  CCE, Vadodra5 squarely covered the

issue involved in this case.

13) We have considered the submissions of counsel for the parties

and  find  ourselves  in  agreement  with  the  view  taken  by  the

Tribunal holding that the product in question 'Nizral Shampoo' is

classifiable under CSH 3003.10 and not CSH 3305.99.

14) At the outset, we may mention that the product known as 'Nizral

Shampoo'  gives the nomenclature of  the product  as shampoo.

However, the respondent claim that it is a patent or proprietary

medicament  as  it's  essential  characteristics  is  therapeutic  in

nature.  It is the common case of the counsel for the parties the

pre-dominant use of the product in question is to be taken into

consideration while deciding the classification issue.  Therefore, it

is  to  be  determined  as  to  whether  the  product  in  question  is

primarily used as a shampoo or it is used as a medicament.  To

find answer to this question, it is necessary to keep in mind the

5 1995 Supp. (3) SCC 1

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essential  characteristics  of  the  product.   When  the  matter  is

examined  from  the  aforesaid  perspective  we  come  to  the

conclusion that the respondent is correct in submitting that the

essential properties of the product are medicinal in nature.  It is

clear from the following description:

“Pharmacodynamics Ketoconazole,  a  synthetic  imidazole  dioxolane derivative ha a potent anti-fungal activity against dermatophytes,  such  as  Trichophyton  sp. Epidermophyton  sp.  Microsporum  sp.  and yeasts,  such  as  candida  sp.  and  Malassezia furfur  (Pityrosporum  ovale).   Ketoconazole shampoo  rapidly  relieves  scaling  and  pruritus, which  are  usually  associated  with  pityriasis versicolor  seborrhoeic  dermatitis  and  pityriasis capitis (dandruff).

Pharmacokinetics Percutaneous  absorption  of  Ketoconazole shampoo is negligible since blood levels cannot be detected, even after chronic use.  Systematic effects, therefore, are not expected.   

Indications Treatment and prophylaxis of infections in which the  yeast  pityrosporum  is  involved,  such  as Pityriasis  versicolor  (localized),  seborrhoeic dermatitis and pityriasis capitis (dandruff).

Contra-indications Known  hypersensitivity  to  Ketoconazole  or  the excipient.”   

The manufacturer has given clear warning and precautions

for the use of this product which are follows:

“Warnings and Precautions To prevent  a  rebound  effect  after  stopping  a

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prolonged treatment with topical corticosteroid it is recommended to continue applying the topical corticosteroid together with Nizral Shampoo 2% and to subsequently and gradually withdraw the steroid therapy over a period of 2-3 weeks. Seborrhoeic  dermatitis  and  dandruff  are  often associated with increased hair shedding, and this has also been reported although rarely, with the use of Nizral Shampoo 2%.”

It is further mentioned as to how the treatment should be

given to a person suffering from various kinds of dandruffs:

“Treatment: -Pityriasis versicolor; once daily for maximum 5 days. -Seborrhoeic  dermatitis  and  pityriasis  capitis; twice weekly for 2 to 4 weeks.

Prophylaxis: -Pityriasis versicolor: once daily for a maximum 3 days during a single treatment course before the summer. -Seborrhoeic  dermatitis  and  pityriasis  capitis: once every one or two weeks.”

Even the adverse reaction of the treatment are mentioned

by the manufacturers with specific advice that overdoses of this

shampoo is not expected, as is clear from the following:

“Adverse reactions Topical  treatment  with  Nizral  Shampoo  2%  is generally  well  tolerated.   As  with  other Shampoos,  a  local  burning  sensation,  itching, irritation and oily/dry hair may occur, but are rare, during the period of use of Nizral Shampoo 2%. In  rare  instances,  mainly  in  patients  with chemically  damaged  hair  or  grey  hair,  a discolouration of the hair has been observed.

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Overdosage Not expected as Nizral Shampoo 2% is intended for external use only.  In the event of accident ingestion,  only  supportive  measures should  be carried out.  In order to avoid aspiration, neither emesis nor gastric lavage should be performed.”

15) Thus,  not  only  limited  period  use  is  stated,  another  important

feature that appears in the literature supplied by the respondent is

the information for the 'patient', describing the user of the product

as a 'patient'.  It is as under:

“Patient information Ketoconazole Shampoo 2%

Nizral Shampoo 2%

You have been advised by your  doctor  to  use this shampoo to treat dandruff.  This leaflet gives you some information that  you should  keep in mine while using Nizral Shampoo.  It also gives some background information on dandruff, which is important for you to deal with it.  Please read this leaflet carefully to get the best results from this treatment.  Remember that it cannot answer all  your  questions,  and  that  you  should  check with your doctor for any further information you may require.”

16) The use is suggested only on the advice of a Doctor and there is

a  suggestion  that  Doctor  should  be  consulted  for  any  further

information.   The  respondent  has  also  provided  the

literature/material  showing  that  dandruff  is  a  disorder  which

affects the hairy scalp.  It is generally triggered by a single celled

organism  which  is  kind  of  fungus,  with  scientific  name

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'Pityrosporum  Ovale'.   For  treatment  of  this  disease,  Nizral

Shampoo  2%  (i.e.  shampoo  containing  2%  'Ketoconazole')  is

shown as 'a new medicine' use whereof cures clears a dandruff.

It is suggested that it should be used once a week and on other

days, normal shampoos may be used which clearly shows that

'Nizral  Shampoo'  is  to  be  used  like  a  medicine,  unlike  other

normal Shampoos.

17) We also find that in order to show that the product was used only

as a medicament for curing dandruff and not for using the same

for the purpose of cleaning hair, the assessee filed affidavits of

various Doctors.

18) Having regard to the aforesaid material on record, we find that the

case is directly covered by the ratio of this Court's judgment in

B.P.L. Pharmaceuticals Ltd.  (supra).  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

Civil Appeal Nos. 4480 of 2005 & Anr. Page 17 of 28

Page 18

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 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

Civil Appeal Nos. 4480 of 2005 & Anr. Page 18 of 28

Page 19

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 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.

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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.”   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. 28. The fact that the appellants have previously described  the  product  as  “Selsun  Shampoo” will not conclude the controversy when the true nature of the product falls for determination. In fact,  notwithstanding  the  fact  that  the   appellants  have  described  the  product  as Selsun Shampoo, the Central Board of Excise and Customs, as noticed earlier, has classified the same as patent and proprietary medicine. The  respondents  have  accepted  the  same. Therefore, there is no force in the submission of the learned counsel for the respondents that the product must be equated with shampoo. 29. The contention based on chapter notes is also not correct. One of the reasons given by the  authorities  below  for  holding  that  Selsun

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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  under Headings Nos. 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 preparation. Contrary to the above  in  the  present  case  none  of  the requirements are fulfilled. Therefore, Note 2 to Chapter 33 is not attracted. Again it is without substance the reason given by the authorities that the product contains 2.5% w/v of Selenium Sulfide which is only of a subsidiary curative or prophylactic  value.  The  position  is  that therapeutic quantity permitted as per technical references  including  US  Pharmacopoeia  is 2.5%. Anything in excess is likely to harm or result  in adverse effect.  Once the therapeutic quantity  of  the  ingredient  used,  is  accepted, thereafter  it  is  not  possible  to  hold  that  the constituent is subsidiary. The important factor is that  this  constituent  (Selenium Sulfide)  is  the main  ingredient  and  is  the  only  active ingredient.

xx xx xx

33. The  labels  which  give  the  warning, precaution and directions  for  use do  make a difference from that of ordinary shampoo which will not contain such warning or precautions for use. Further no individual would be prepared to say in a social gathering that he or she is using Selsun to  get  rid  of  dandruff  or  other  similar diseases  whereas  nobody  would  hesitate  to state  in  a  similar  gathering that  he or  she is

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using  a  particular  brand  of  shampoo  for beautifying his or her hair. Thus there are lot of favourable  materials  to  treat  the  product  in question as a medicine rather than cosmetic. In this  connection  the  reliance  placed  by  the learned  counsel  for  the  appellants  on  a decision of this Court reported in case  Indian Metals  &  Ferro  Alloys  Ltd. v.  CCE can  be usefully referred to. In that case this Court held: “It (the Tribunal) seems to say that, even if the goods manufactured by the appellant had been rightly  classified  under  Item  26-AA  before 1-3-1975, the introduction of Item 68 makes a difference to the interpretation of  Item 26-AA. This is not correct. Item 68 was only intended as  a  residuary  item.  It  covers  goods  not expressly mentioned in any of the earlier items. If,  as  assumed  by  the  Tribunal,  the  poles manufactured were rightly classified under Item 26-AA,  the  question  of  revising  the classification cannot arise merely because Item 68 is introduced to bring into the tax net items not covered by the various items set out in the Schedule.  It  does  not  and  cannot  affect  the interpretation  of  the  items enumerated  in  the Schedule.  This  logic  of  the  Tribunal  is, therefore, clearly wrong.” 34. This  judgment  supports  the  case  of  the appellant when it is contended that there is no good reason to change the classification merely on the ground of coming into force of the new Central Excise Tariff Act, 1985 without showing more  that  the  product  has  changed  its character. 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

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Page 23

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. 36. Yet another reason given by the CEGAT for not  accepting the case of  the appellants was that the product is sold with a pleasant odour and,  therefore,  it  must  be  treated  as  a cosmetic. Selenium Sulfide has an unpleasant odour and to get rid of it insignificant amount of perfume is used and make it acceptable to the consumers.  A  medicine,  for  example, sugar-coated pill will nevertheless be medicine notwithstanding the sugar-coating. Likewise the addition of insignificant quantity of perfume to suppress  the  smell  will  not  take  away  the character of the product as a drug or medicine. Again one other reason given by the Tribunal is regarding the packing.  The Tribunal  has held that  the  product  is  cosmetic  because  it  is packed in an attractive plastic  bottle.  This  by itself will not change the character, as cosmetic is put up for sale with some indication on the bottle or label that it is to be used as cosmetic or it is held out to be used as a cosmetic. As already  noted  the  label  here  gives  warnings. The fact that it is packed in a plastic bottle is a wholly irrelevant criteria.”

19) The aforesaid judgment not only provides a complete answer to

the issue at hand, it also suitably answers the various arguments

of the Revenue and the manner in which those arguments were

rebutted by the Court in the said case.  The Tribunal has summed

up the entire legal proposition in para 5 of its judgment with which

we entirely agree.  This para reads as under:

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“5.  We  have  carefully  considered  the submissions made by the learned Counsel and the  learned  DR.  We  find  from  the  extracted literature  that  the  item  comprises  of  20  mg Ketoconazole  in  one  ml  and  the  pamphlet clearly indicates that it  is for the use only of a Registered Medical Practitioner or a Hospital or a Laboratory. The pamphlet claims that the item is  used  for  treatment  and  prophlaxis  of infections  in  which  the  yeast  pityrosporum  is involved such as pityriasis versicolor (localized), seborrhoeic  dermatitis  and  pityriasis capitis(dandruff).  The  procedure  for  treatment and  the  adverse  reactions  on  such  treatment due to overdose is also stated in the pamphlet. The Apex court, in the case of Muller & Phipps (India)  Ltd.  v. CCE, 2004 (167) ELT 347 (SC) has  clearly  held  that  once the  item has  been manufactured  under  a  Drug  licence  and  the Department has treated the item as a Drug, it would not cease to be one notwithstanding the fact that new Tariff Act has come into force. The Apex Court  again  held  in  the case of  CCE v. Pandit D.P. Sharma, 2003 (154) ELT 324 (SC) that once in the common parlance the item is treated  as  a  medicament  and  manufactured under  drug  licence  and  the  evidence  is produced by the party  with regard to the item being a medicament, then it should be treated as  such  and  should  not  treat  'Himtaj  Oil'  as 'perfumed hair oil'. The Apex Court's ruling in the case  of  B.P.L.  Pharmaceuticals  Ltd.  v.  CCE, 1995 (77) ELT 485 has held that 'Selsun'  and anti-dandruff  preparation  containing  2.5% selenium sulphide which is full therapeutic limit permissible  as  per  pharmacopoeia  and manufactured under Drug Licence and certified by  Food  and  Drugs  Administration  as  a medicine, and the same is put up as a medicine to  be  used  under  Doctor's  advise  in accompanying  literature  and  sold  through chemist  shops  under  doctor's  prescription should be considered as a medicament  under Sub-Heading 3003.19 of  CE Act and not as a cosmetics.  In  the  present  case  also,  same evidence is relied which are identical to the facts of  B.P.L.  Pharmaceuticals  Ltd.  The  item  also

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acts  as  an  anti-dandruff  preparation  with  2% Ketoconazole.  The  same  is  sold  on  doctor's prescription  and  by  the  chemists  and understood as a medicine in common parlance as  per  the  enormous  literature  and  affidavit produced. Therefore, there was no necessity for the  Commissioner  to  have  distinguished  this Apex Court judgment which applies on all fours to the facts of  the present case. We also find that the judgment of the Apex Court rendered in the  case  of  CCE  v.  Vicco  Laboratories,  2005 (179) ELT 17 (SC) also applies to the facts of the  case.  In  this  case,  the  Apex  Court  has clearly  noted  that  the  common  parlance  test should  be  applied  for  determining  whether  a product  is  classificable  as  a  pharmaceutical product under Chapter 30 of  CET Act or as a cosmetics under Chapter 33 ibid as laid down by  the  Supreme  Court  in  the  case  of  Shree Baidyanath Ayurved Bhavan Ltd., 1996 (83) ELT 492  (SC).  As  there  is  enormous  evidence produced by the appellants with regard to the use of Ketoconazole Shampoo for treatment of several disorders and diseases mentioned in the pamphlet  and  the  same is  sold  by  a  chemist under  a  prescription  issued  by  a  Registered medical  Practitioner  or  a  Hospital  or  a Laboratory, therefore, the appeal is required to be allowed with consequential relief, if any.”

20) We, thus, are of the view that the judgment of the Tribunal does

not call for any interference and the appeal is dismissed with cost.

CIVIL APPEAL NO.         5752      OF 2015 (arising out of SLP (C) No. 1531 of 2015)

21) Leave granted.

22) This appeal is preferred by the assessee and the issue arises is

the  same  as  discussed  in  Civil  Appeal  No.  4480  of  2005.   Here,

respondent No.2 has passed an order directing the appellant to pay

Civil Appeal Nos. 4480 of 2005 & Anr. Page 25 of 28

Page 26

differential  duty,  treating  the  product  as  Shampoo  and  not

Medicaments.   Challenging  that  order,  appellant  had  filed  the  writ

petition, which has been dismissed by the High Court vide impugned

judgment primarily on the ground the matter had left to the concerned

authority to decide the classification on the basis of technical evaluation

and  it  could  not  be  decided  by  the  High  Court.   For  the  reasons

recorded in Civil Appeal No. 4480 of 2005, this appeal stands allowed

hereby quashing the order of  the High Court  as well  as respondent

No.2 dated 28.12.2001 demanding differential duty.   

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

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

NEW DELHI; MAY 14, 2015.

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Page 27

ITEM NO.101             COURT NO.12               SECTION III                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).  4480/2005 COMMISSIONER OF CENTRAL EXCISE HYDERABAD         Appellant(s)                                 VERSUS M/S SARVOTHAM CARE LIMITED                      Respondent(s) WITH SLP(C) No. 1531/2015 (With Interim Relief and Office Report)   Date : 14/05/2015 These matters were called on for hearing  today. CORAM :           HON'BLE MR. JUSTICE A.K. SIKRI          HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN For Appellant(s)  Mr. A.K.Panda,Sr.Adv.

Mr. Rajiv Nanda,Adv.  Mr. T.M.Singh,Adv.

                    Mr. B. Krishna Prasad,Adv.                                            Mr. S.K.Bagaria,Sr.Adv.

Mr. Alok Yadav,Adv.  Mr. Anuj B.,Adv.  Mr. Udit Jain,Adv.  Mr. Ajit,Adv.  Mr. Harish Pandey,Adv.

For Respondent(s)  Mr. S.K.Bagaria,Sr.Adv.  Mr. Alok Yadav,Adv.  Mr. Anuj B.,Adv.  Mr. Udit Jain,Adv.  Mr. Ajit,Adv.

                    Mr. Rajan Narain,Adv.                           UPON hearing the counsel the Court made the following                            O R D E R   The Civil Appeal No. 4480 of 2005 is dismissed with cost.

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Leave granted. The Civil Appeal No. 5752 of 2015 arising

out of SLP(C)NO. 1531 of 2015 stands allowed hereby quashing  the  order  of  the  High  Court  as  well  as respondent  No.2  dated  28.12.2001  demanding differential duty.

 (SUMAN WADHWA)            AR-cum-PS

        (SUMAN JAIN)          COURT MASTER

Signed Reportable judgment is placed on the file.

Civil Appeal Nos. 4480 of 2005 & Anr. Page 28 of 28