“REPORTABLE”

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos.7357-7372 OF 2001

Commissioner of Central Excise, Delhi …. Appellant

Versus

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

WITH

CIVIL APPEAL No.2517 OF 2002

Commissioner of Central Excise, Delhi …. Appellant

Versus

Ishaan Research Lab (P) Ltd.  …. Respondent

J U D G M E N T

V.S. SIRPURKAR, J

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

also the Civil Appeal No.2517 of 2002.   

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

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

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

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

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

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

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

advalorem  as  claimed  by  the  Revenue  Department.   The  Revenue

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

aside the confiscation of land and machinery.

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

Notice  dated  10.4.1996  covering  the  period  of  1st April,  1991  to  16th

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

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

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

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

The  Third  Notice  was  dated  31.12.1996  whereby  the  duty  of

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

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

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

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

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

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

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

Cause Notice was dated 28.10.1997 covering the period from 1.4.1997 to

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

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

on Ms.Vineeta Jain.

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

Show  Cause  Notice,  confirmed  the  demand  of  duty  amounting  to

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

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

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

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

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

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

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

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

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

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

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

extended period of limitation.

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

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

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

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

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

preparations”  falling  under  Chapter  33  of  the  Scheduled  under  Central

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

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

made available to Revenue in all the cases.

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

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

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

above findings regarding the 22 products.   

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

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

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

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

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

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

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

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

learned counsel also invited our attention towards the aspect of limitation

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

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

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

Central Excise Act.

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

Classification, Valuation and the Limitation.

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

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

i) Bio-Apple

ii) Bio Aloevera

iii) Bio Bhringraj

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iv) Bio-cucumber

v) Bio-coconut

vi) Bio-costus

vii) Bio-fruit

viii) Bio-henna

ix) Bio-Henna leaf

x) Bio-kelp

xi) Bio-milk

xii) Bio-mud

xiii) Bio-myristica

xiv) Bio-margosa

xv) Bio-peach

xvi) Bio-pro

xvii) Bio-quince

xviii) Bio-saffron

xix) Bio-soya

xx) Bio-wheat  

xxi) Bio-wintergreen

xxii) Bio-walnut

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

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

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

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

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

products.

12. Again  the  learned  Senior  Counsel  for  the  Revenue  Shri

Radhakrishnan very fairly conceded at the beginning of the debate itself

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

i) Bio-apple

ii) Bio-fruit

iii) Bio-mud  

iv) Bio-myristica

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

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

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

products, which we have to consider, they being:

i) Bio Aloevera

ii) Bio Bhringraj

iii) Bio-cucumber

iv) Bio-coconut

v) Bio-costus

vi) Bio-kelp

vii) Bio-milk

viii) Bio-margosa

ix) Bio-peach

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x) Bio-pro

xi) Bio-quince

xii) Bio-saffron

xiii) Bio-soya

xiv) Bio-wheat  

xv) Bio-wintergreen

xvi) Bio-walnut

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

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

particularly Entries 3304 and 3305 which are as under:

“3304 – Wadding, gauze, bandages and similar articles (for example,  dressing,  adhesive,  plasters,  poultices), impregnated or coated with pharmaceutical substances or put up  in  forms  or  packings  for  medical,  surgical,  dental  or veterinary purpose.

3305 – Pharmaceutical goods, not elsewhere specified.”

Learned counsel contended that the said products contain certain other

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Learned counsel took us painstakingly to Show Cause Notice to suggest

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

enhancement  of  beauty  and  not  as  medicines  much  less  Ayurvedic

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(77) ELT 485 (SC)].

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

Assessee  Shri  Lakshmikumaran  heavily  relied  on  the  decision  of  BPL

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

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

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

case were dealt  with in  another  decision in  Commissioner of  Central

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

invited  our  attention  to  the  decision  in  Megthdoot  Gramodyog Sewa

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

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

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

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

would make reference hereinafter.   

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

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

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

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medicines.   Relying  on  these  provisions  and  further  relying  on  the

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

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

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

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

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

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

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

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

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

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

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

that case was:

“All drugs, medicines, pharmaceuticals and drug intermediaries not elsewhere specified”.

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

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

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

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

common  parlance  the  product  in  question  could  not  be  described  as

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

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

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

medicine in common parlance.   

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

products  in  question  have been manufactured  under  the  Drugs Licence

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

holding that Mahabringaraj Hair  Oil  is classifiable under Tariff  Item 3003

and not as a “cosmetic”.  

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

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

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

item No.(ii) Bio Bhringraj.

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

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

“The contention based on Chapter notes is also not correct. One of the reasons given by the Authorities below for holding that Selsun would fall under Chapter 33 was that having regard to the composition the product will come within the purview of note 2 to Chapter 33 of the Schedule to Central Excise Tariff Act, 1985 is without substance.  According to the Authorities the product contains only subsidiary pharmaceutical value and, therefore,  notwithstanding  the  product  having  a  medicinal value will fall under Chapter 33.  We have already set out Note 2 to Chapter 33.  In order to attract Note 2 to Chapter 33 the product must first be a cosmetic, that the product should be suitable for use as goods of Headings 33.03 to 33.08 and they must  be  put  in  packing  as  labels,  literature  and  other indications showing that they are for use as cosmetic or toilet preparations.   Therefore,  Note  2  to  Chapter  33  is  not attracted.”  (EMPHASIS SUPPLIED)

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

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

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

the main objections by Revenue as under:

“(a) That the other manufacturers of similar type of product were holding the licence for cosmetics and bore the tag of cosmetics on the respective bottles.

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(b) That  the  medicinal  properties,  i.e.  Selenium  Sulfide which was claimed to prevent Dandruff was only 2.5% and  was  only  a  minor  constituent  against  the  total composition of the product while the percentage of the remainder  were  of  forming  agent,  flavouring  agent, thickening agent and buffer etc.

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

(d) That  its  usage  was  also  comparable  to  the  other shampoos available in the market.

(e) That in common parlance the said product was known as Selsun Shampoo and was sold as such.

(f) That  the  product  was  not  sold  by  the  owner  of  the medical shop on presentation of Doctor’s prescription.

(g) That  the  words “Dandruff  Treatment  Shampoo”  were deleted which were there in the old bottles only with an intention  to  evade  Central  Excise  duty  and  were substituted by the words “Selenium Sulfide Lotion USP Selsun the medical treatment for Dandruff”.

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

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

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

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

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

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

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

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

literature and medicinal properties concerning the product in question and

noted that the label gave out specifically that:

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“Firstly, it was a poison;  

Secondly, there was a cautionary note that it should be used for external use and should be kept out of the eyes and away from children and also that it should be used immediately after bleaching, tinting or permanent waving of hair or on inflamed scalp;

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

Fourthly, that it was a medical treatment for dandruff;

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

Sixthly, the hairs should be washed first and then the Selsun should be massaged into the scalp.

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

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

it further indicated that the product controls Dandruff  and has beneficial

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

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

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

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

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

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

sought to be changed.   

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

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

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

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

of cosmetics and drugs which is as under:

“A ‘cosmetic’ means any article intended to be rubbed, poured, sprinkled  or  sprayed  on,  or  introduced  into,  or  otherwise applied to the human body or any part thereof for cleansing, beautifying,  promoting  attractiveness,  or  altering  the appearance,  and includes any article  intended for  use as a component of cosmetic.”

AND

“A ‘drug’ includes all medicines for internal or external use of human beings or animals and all substances intended to be used  for  or  in  the  diagnosis,  treatments,  mitigation  or prevention  of  any  disease  or  disorder  in  human  being  or animals, including preparations applied on human body for the purpose of repelling insects”.

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

cleansing,  beautifying,  promoting  attractiveness  or  altering  appearance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Central Excise Board and Excise and Customs wherein the product was

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

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

also, e.g.:

Firstly,  the  court  held  that  the  product  was  useful  for  a treatment of a disease;

Secondly,  it  held  that  it  was  manufactured  under  a  drug licence;

Thirdly, it  held that the Foods and Drugs Administration had certified it as a drug;

Fourthly,  that  the Drug Controller  had opined that Selenium Sulphide present in Selsun was in a therapeutic concentration;

Fifthly, that it was included as a drug in the National formulary, US Pharmacoepia and the Merck Index;

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

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

Eighthly, it was marketed as a patent; and  

Ninthly, that its literature referred to it as drug and the literature was addressed to the physician.

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

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

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

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

referring to the details of the judgment.

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

observations and our detailed references made but we must reiterate that

the judgment does consider the relevant Entries of Chapter 30 including

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

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

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

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

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

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

small percentage of ingredients having therapeutic or prophylactic value

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

does not ipso facto become a cosmetic preparation.   

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

light  of  the  earlier  referred  judgment  in  Shri  Baidyanath  Ayurved

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

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

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

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

18

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

depend upon the common parlance test as in  Shri Baidyanath Ayurved

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

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

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

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

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

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

Court  in  Commissioner  of  Central  Excise,  Calcutta v.  Sharma

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

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

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

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

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

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

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

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

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

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

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

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

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

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

19

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

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

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

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

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

pharmacopoeias  or  they  could  be  under  some  patented  formula  of  a

particular party and further the product having medicinal properties in very

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

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

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

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

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

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

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

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

various  pharmacopoeias  and  text  books  which  deal  with  Ayurvedic

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

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

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

matter should be referred to the State Drug Licensing Authority concerned

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

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

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

20

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

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

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

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

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

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

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

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

Chapter  33.   The  Court  thereafter  extensively  quoted  from  the  BPL

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

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

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

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

that  merely  because a  product  contained  the ingredients  not  known to

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

following  observation  in  para  12  are  extremely  relevant  in  the  present

controversy:

“Generally the percentage or dosage of the medicament will be such  as  can  be  absorbed  by  the  human  body.   The medicament would necessary be covered by fillers/vehicles in order to make the product usable.  It could not be denied that all the ingredients used in Banphool Oil are those which are set out in the Ayurveda text books.  Of course the formula may not be as per the text book but a medicament can also be under a patented or proprietary formula.  The main criteria for determining classification is normally the use it is put to by the customers who use it.  The burden of proving that Banphool oil is  understood  by  the  customers  as  an  hair  oil  was  on  the

21

revenue.  This burden is not discharged as no such proof is adduced.  On the contrary we find that the oil can be used for treatment of headache, eye problem, night blindness, reeling, head  weak  memory,  hysteria,  ammenesia,  blood  pressure, insomnia etc.  The dosages required are also set out on the label.  The product is registered with Drug Controller and is being  manufactured  under  a  drug  licence.”   (EMPHASIS SUPPLIED)

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

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

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

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

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

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

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

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

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

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

ignore  all  these  judgments  in  preference  to  Shri  Baidyanath Ayurved

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

Meghdoot  Gramodyog Sewa Sansthan v.  Commissioner  of  Central

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

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

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

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

22

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

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

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

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

from  the  doctors  that  the  products  were  prescribed  by  the  medical

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

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

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

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

would  indicate  that  the  products  were  cosmetic  and  not  medicines  or

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

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

28. On  the  heels  of  judgment  in  Meghdoot  Gramodyog  Sewa

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

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

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

Same  question  came  for  consideration.   The  products  which  fell  for

consideration were the turmeric skin cream and vajradanti toothpaste and

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

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

other narcotic drugs or other narcotics other than those medicines under

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

show  cause  notice  was  the  decision  in  Shri  Baidyanath  Ayurved

23

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

whether  the  products  were  being  used  daily  and  were  sold  without

prescription by a medical practitioner and secondly, whether the products

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

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

more cannot be justification enough for changing the classification without

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

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

decision was distinguished on the ground that the aforementioned tests

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

following words:

“The court did not itself  affirmatively hold that what was laid down by the Tribunal as a test to be ‘ordinarily’ followed was invariably to be the sole test for determining whether a product is to be proved as a medicine or as a cosmetic.”

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

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

Chemical Works (supra) and  Meghdoot Gramodyog Sewa Sansthan’

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

Revenue.

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

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

24

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

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

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

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

Puma  herbal  remedy  for  facial  blemishes,  Puma  hair  tonic  powder

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

25

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

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

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

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

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

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

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

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

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

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

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

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

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

contained the elements  having Ayurvedic  medicinal  value.  It  was also

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

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

Radhakrishnan could not dispute this fact.

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

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

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

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

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

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

26

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chapter 30 and not under Chapter 33.   

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

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

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

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

27

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

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

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

Lakshmikumaran  has  specifically  made  a  statement  as  regards  the

valuation in the following terms:

“(1) Wherever IRPL had sold products to the IMPL as also to independent third parties including Hotels, the least price charged to the third parties may be taken as the basis for the sales made by IRPL to IMPL for arriving at the assessable value for such products.

(2) Wherever the products were never sold by IRPL to the independent  third  parties,  but  only  to  IMPL,  the  wholesale price  of  IMPL  charged  to  the  wholesale  dealers  for  such products,  may  be  taken  as  the  basis  for  arriving  at  the assessable value.

(3) While  arriving  at  the  assessable  value,  discounts, freight  excise  duty,  sales  tax  and  other  taxes  and  other permissible deductions under Section 4 should be allowed in accordance with the law.”  

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

accordingly.   

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

our findings that these products were genuinely Ayurvedic medicaments, it

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

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

28

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

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

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

Court had passed the following order in respect of limitation:

“As far as the question of limitation is concerned, following the decision of High Court of Allahabad in the case of Shahnaz Ayurvedics Vs. Commissioner of Central Excise, Noida 2004 (173)  ELT  337,  it  was  held  that  the  extended  period  of limitation is not applicable.  Against the said decision of the High Court of Allahabad, a petition being SLP (C) No. 21585 of 2004 [CC 8996/04] was filed in this Court in the case of Commissioner  of  Central  Excise,  Noida  Vs.  M/s.  Shahnaz Ayurvedics & Anr. 2004(174) ELT A34 which was dismissed on 8th October, 2004.

To  enable  us  to  compare  the  similarity  between  the products  in  question  in  the  present  case  and the  products which were in question before the High Court of Allahabad in the case of Shahnaz Ayurvedics (supra), we direct counsel for the respondents to produce the literature of the 22 products in question.  We also direct counsel for the appellant to place on record the literature of the products which were in question in the case of Shahnaz Ayurvedics (supra) in the High Court.”

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

was  comparable  to  the  products  in  Shahnaz  Ayurvedics v.

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

have seen the literature ourselves.  Though Shri Radhakrishnan contends

that  there is  no similarity  between the products mentioned in  Shahnaz

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

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

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

29

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

Allahabad High Court and against which the Special Leave Petition was

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

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

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

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

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

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

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

final findings in the following words:

“This would also go to show that  a dispute prevailed in the matter  of  classification  of  such  products.   In  the  above circumstances, the appellants cannot be held to be guilty of suppression  or  mis-statement  and  hence  the  charge  of suppression is not sustainable.  We, therefore, hold that the proviso  to  Section  11A(1)  of  the  Central  Excise  is  not applicable to these 3 cases, and hence set aside the demand covered by adjudication order No.5/98 as time barred.”

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

same.   

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

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

……………………………….J. (Ashok Bhan)

30

……………………………….J. (V.S. Sirpurkar)

New Delhi; September 8, 2008.

31

Digital  Performa

Case  No.  : CA 7357-7372 of 2001

Date of Decision : 08.09.2008

Cause Title :  Commissioner of Central Excise, Delhi

Vs.

Ishaan Research Lab (P) Ltd. & Ors.

Coram :   Hon’ble Mr. Justice Ashok Bhan     Hon’ble Mr. Justice V.S. Sirpurkar      

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

Nature of Judgment :  Reportable

32