http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

CASE NO.: Appeal (civil)  7849 of 2004

PETITIONER: Commissioner of Central Excise, Surat

RESPONDENT: M/s Zandu Pharmaceutical Works Ltd

DATE OF JUDGMENT: 10/11/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T

S.B. SINHA, J :

       Respondent herein manufacture hair oil under the brand name of  "Alma Lio".  It was classified under SH No.3003.39 of the Schedule  appended to the Central Excise Tariff Act, 1985 (for short, ’the 1985 Act’).   The said entry provides for excise duty at the rate of 8% ad valorem being  Ayurvedic Medicament.  A show cause notice was issued as to why the said  product shall not be classified under SH No.3305.99 being a cosmetic  product attracting excise duty at the rate of 30% ad valorem.  It was alleged  that by wrong classification of its product there had been a short payment of  central excise duty amounting to Rs.11,12,129/-.  A demand of the said  amount in terms of Rule 9(2) of the Central Excise Rules, 1944 (for short,  ’the Rules’)  read with section 11A of the Central Excise Act, 1944 (for  short, ’the 1944 Act’) was issued.  A penal action in terms of rule 173-Q of  Rules was also proposed.  Cause having been shown by Respondent, the  matter was heard by the Deputy Commissioner,  who opined that the product  was classifiable under SH 3305.99 of the 1985 Act. Respondent was directed  to make good the short payment.  A penalty of   Rs.11,12,129/- was also  imposed upon it together with interest.  An order for recovery of interest  under section 11 AB of the 1944 Act was also passed.  The appeal preferred  by Respondent before the Commissioner (Appeals) was dismissed by an  order dated 17.4.2003.  He, however, opined that the product being not  perfumed and being  hair tonic, and as such different from hair oil, could be  classified under Chapter Heading No.3305.99 falling in the residuary group.   He also directed valuation of the goods to be done under Section 4A of the  1944 Act.  On a further appeal made by Respondent before the Tribunal, the  product was held to be classifiable under SH-3305.10 as ’perfumed hair oil’.   The matter was remanded to the Adjudicating Authority for recomputing the  duty of excise payable.   

Appellant is, thus, before us.   Mr. Mohan Parasharan, the learned Additional Solicitor General of  India,  appearing on behalf of Appellant, submitted that the Tribunal went  wrong in classifying the product of Respondent as perfumed hair oil  although it never disclosed the manufacturing process involved therein.   

Mr. Madhav Rao, the learned counsel appearing on behalf of  Respondent, on the other hand, supported the judgment.   

Before the assessing authority, Respondent disclosed the  manufacturing process undertaken by it,  which is as under :

"(a)    Aqueous extract of Mehandi, Bhringraj, Amla,  Doodhi Seeds, Renukbeej, Ambagotti, is prepared  and concentrated.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

(b)     Coconut oil in hearted with Nagarevel Pan.  

(c)     Concentrated equeous extract is added to coconut  oil and boiled.          (d)     Milk solution is added to hot Coconut oil and  boiled.  Then kapur kachli powder is added.

(e)     Bulk is cooled and fragrance is added.  It is kept  for 7 days and filtered."

       The assessing authority in its order furthermore noticed :

"They further submitted that the Coconut oil is used in  the said Product for the purpose of using the same as base  to enable application of the above referred Ayurvedic  Ingredients.  Their product contains, time tested herbs  with well known properties.  They submitted the various  properties of the said Ayurvedic.  Ingredients ultimately  ensured dandruff free hair, and also strengthen and  promotes of the various ingredients use is the said  "Almalio" the details against each  of the said  Ingredients:-

(A) Mehandi, Amlaki  & Kapur Kachli : To strengthen and promote  healthy hair growth. (B) Bhringraj : To make hair dark, luxuriant  and prevent dandruff. (C)          Doodhibeej &  Dugdha : To cool head (D) Renuk beej &  Amaresthi : To Nourish the scalp.

They submitted that the use of the above  Ingredients in their product "Almalio" are having Pre- dominant curative or prophylactic value and the use of  the same cannot be compared with any other ordinary  preparation intended to be use on hair."

       It is, therefore, not correct to contend that Respondent never disclosed  the manufacturing process.  The assessing authority, inter alia, held :

"(x)    Assuming with admitted (sic) their product merits  classification under Chapter 33 as cosmetics or toilet  preparation, then it deserves to classify under Chapter  Sub Heading No. 3305.10 and not under 3305.99 as  alleged in the Show Cause Notice.  The Chapter Sub  Heading No. 3305.10 is applicable to the perfumed hair  oil whereas Chapter Sub Heading No.3305.99 covers

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

preparation for use on the hair other than perfumed hair  oil and hair fixer.  They submitted that going by the  contents of their product and manufacturing process set  out hereinabove, their product does contain Sugandhi  Dravya i.e. perfume and accordingly it merits  classification as perfume hair oil under 3305.10.  In this  context they refer to and rely upon the decision of  Honourable Supreme Court of India in the case of  Dumlop India Ltd., wherein the court has held as under:-          "When an article has by all standard reasonable  claim to be classified under an enumerated item in  a Tariff Schedule then it would be against the very  principle of classification to deny it a parentage  and consign it to an orphanage to the residuary  clause (Para-37)".

  The Tribunal, on the other hand, as indicated hereinbefore, proceeded  on the basis that only because some ingredients of the product are mentioned  in the authoritative books of Ayurveda, the same would not make the  product a medicament. It also noticed the ingredients and the therapeutic or  prophylactic uses of the product stating :

       "Further the properties of the various ingredients  used in the manufacture of the impugned product has  been described by the Appellants as under:-

        Ingredients              Properties (i) Mehandi, Amla &          Kapur Kachli To strengthen and promote  healthy hair growth (ii)  Bhringraj To make hair dark luxuriant  and prevent dandruff. (iii) Doodhi Beej and              Dugdha To cool head   (iv)Ronuk Beej and  Amarasthi To nourish the scalp.                                                                                 "         The Tribunal, however, proceeded to consider the alternative  submission made on behalf of Respondent to hold :

       "The learned Counsel has alternatively claimed the  classification under sub-heading No. 3305.10 as  perfumed hair oil.  The Commissioner (Appeals) has  classified the impugned product under sub-heading  3305.99 as there was nothing on record to show that the  product is being perfumed.  The learned Advocate has  mentioned that fragrance is added in the impugned  product at the end of the manufacturing process.  This is  apparent from the manufacturing process detailed in the  Adjudication Order.  We, therefore, hold that the  impugned product is classifiable under sub-heading  3305.10 and the matter is remanded to the jurisdictional  Adjudicating Authority to recompute the duty of excise  payable by the appellants.  We also agree with the  learned advocate that the issue involved being  classification of a product for which classification  declaration was filed by the Appellants, penalty under

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

Rule 173Q of the Central Excise Rules, 1944 is not  imposable.  We, therefore, set aside the penalty imposed  on the Appellants.  

        Respondent, as noticed hereinbefore, not only disclosed the  ingredients of its products, but also disclosed the manufacturing process.  On  almost identical situation, as would appear from the discussions made  hereinafter, such a product has been held to be an Ayurvedic product.   

       The relevant entries are as under :

"Heading    No. Sub-heading  No. Description of  goods Rate  of  duty 30.03 3003.39 Other

8% 33.05 3305.10 Perfumed hair  oils Other

18% 33.05 3305.99 Other 30%"

       Note 2 of Chapter 33 reads as follows:-         "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."          

       In Commissioner of Central Excise, Calcutta v. Sharma Chemical  Works  [(2003) 5 SCC 60], this Court noticed its earlier decisions to hold   that onus of proof to show that a particular product is classifiable under one  entry or the other is on the Revenue.  "Banphool Oil" was held therein as  classifiable  as an Ayurvedic  Medicament under sub-heading 3003.30  stating :  

"\005Mere fact that a product is sold across the counters  and not under a doctor’s prescription, does not by itself  lead to the conclusion that it is not a medicament.  We  are also in agreement with the submission of  Mr  Lakshmikumaran that merely because the percentage of  medicament in a product is less, does not also ipso facto

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

mean that the product is not a medicament.  Generally the  percentage or dosage of the medicament will be such as  can be absorbed by the human body.  The medicament  would necessarily 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 textbooks.  Of course the  formula may not be as per the textbooks but a  medicament can also be under a patented or proprietary  formula.  The main criterion 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 a hair oil  was on the Revenue\005"

In Alpine Industries v. Collector of Central Excise, New Delhi [2003  (152) E.L.T.16 (SC)] : (2003) 3 SCC 111], this Court held that ’Lip salve’ is  a kind of ’barrier cream’ or a protective cream against skin irritants and,  therefore, not a medicament,  stating :  

"\005Such preparations which have a subsidiary curative or  prophylactic value clearly fall under Entries 33.03 to  33.07 as per Note 2 under Chapter 33. The product  clearly is covered by Entry 33.04 read with Note 5 of  Chapter 33, it essentially being a preparation for  protection of lips or skin. We have also gone through the  minority opinion expressed by one of the members of the  Tribunal and the reasoning therein supported before us  on behalf of the appellant\005"   

       The Tribunal in Commissioner of Central Excise, Cochin v. Kerala  Ayurvedic Pharmacy Ltd. [2005 (187) E.L.T. 29] followed Alpine Industries  (supra),  holding :

"\005The Respondent’s product ’Kesini oil’ is a  preparation for use on hair and fits the description in  chapter heading 33.05 of the schedule.  Once a product is  a preparation for use in hair, the fact that it has  therapeutic values does not take it away from the purview  of chapter 33.  The impugned product is classifiable  under chapter 33.  We set aside the order of the  Commissioner (Appeals) and allow the appeals."

       A special leave petition filed thereagainst was dismissed by this  Court.  

Recently, however, in Puma Ayurvedic Herbal (P) Ltd. v.  Commissioner, Central Excise, Nagpur  [2006 (196) E.L.T. 3 (SC) : (2006) 3  SCC 266],  ’Puma Hair Tonic Powder’ and ’Puma Anti-Dandruff Oil’,  ’Puma Shishu Rakshak Tel’ were held to be medicinal products having  regard to the medicinal property.  Respondent, therefore, could contend that  there product also is an Ayurvedic medicament.  Tribunal, however,  proceeded on the alternative submissions made on its behalf.  No appeal has  been filed against the order of the Tribunal refusing to classify the product of  respondent as an Ayurvedic Medicament.   

We are, therefore, only left with the contention that the product of  Respondent is a ’perfumed hair oil’. Indisputably, perfume is added.   Addition of perfume is a part of manufacturing process.  It is one of the  ingredients of the product.   

We therefore without going into the question as to whether the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

product of Respondent has any therapeutic value or not would agree with the  judgment of the Tribunal.  We, thus, find no merit in this appeal.  It is  dismissed accordingly. However, in the facts and circumstances of the case,  there shall be no order as to costs.