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CASE NO.: Appeal (civil)  779-783 of 1997

PETITIONER: M/S Muller & Phipps (India) Limited      

RESPONDENT: The Collector of Central Excise, Bombay-I        

DATE OF JUDGMENT: 05/05/2004

BENCH: CJI & G.P. MATHUR.

JUDGMENT: JUDGMENT

RAJENDRA BABU,  CJI.  :

       In these appeals arising out of an order passed by the  Customs, Excise and Gold (Control) Appellate Tribunal  (hereinafter referred to as  the ’Tribunal’) question raised  for our consideration is whether Johnson’s Prickly Heat  Powder  and Phipps Processed Talc are patent or  proprietary medicines classifiable for the purposes of excise  duty under the erstwhile tariff item 14E (as prior to  1.3.1986)  and Heading 30.03 (subsequent to 1.3.1986) as  claimed by the appellants or whether they are cosmetics or  toilet preparations falling under the erstwhile tariff item  14F (prior to 1.3.1986) and Heading 33.04 (after 1.3.1986)  as claimed by the Department.   

       The Tribunal held that the products in question are  ’cosmetics’  and not ’medicament’ on the basis that boric  acid, salicylic acid and zinc oxide present in the product are  subsidiary pharmaceutical or antiseptic constituents and  their curative and prophylactic value is subsidiary and,  therefore,  the product is a preparation for the care of the  skin and is classifiable under tariff item 14F upto 28.2.1986  and under heading No. 33.04 from 1.3.1986 and there is  no legal infirmity in the order issued under Section 37B of  the Central Excise Act, 1944.   

       The relevant entries of tariff item 14F and Heading  No. 33.03  are as follows :-

14F. Cosmetics and toilet preparations  not containing alcohol or opium, Indian  hemp or other narcotic drugs or  narcotics, namely:-

(i)     Preparations for the care of the skin,  beauty or make-up preparations and  manicure or pedicure preparations,  such as beauty creams, vanishing  creams, cold creams, make-up  creams, cleansing creams, skin foods  and skin talcs, face powders, baby  powders, toilet powders, talcum  powders and grease paints, lipsticks,  eye-shadow and eye-brow pencils,  nail polishes and varnishes, cuticle

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removers and other preparations for  use in manicure or chiropody, sun- burn preventive preparations and  sun-tan preparations, barrier creams  to give protection against skin  irritants, personal (body) deodorants,  depilatorics. (ii)    Preparations for the care of the hair,  such as : brilliantines, perfumed hair  oils, hair, lotions, pomades and  creams, hair dyes, shampoos whether  or not containing soap or organic  surface active agents. (iii)   Shaving creams, whether or not  containing soap or organic surface  active agents.

       Explanation. I.   "Alcohol",  "Opium",   "Indian Hemp",  "Narcotic Drugs"  and  "Narcotics"  have the meanings respectively  assigned to them in section 2 of the Medicinal  and Toilet Preparations (Excise Duties) Act,  1955.

       Explanation II.- This Item includes  cosmetics and toilet preparations whether or  not they contain subsidiary pharmaceutical or  antiseptic constituents, or are held out as  having subsidiary curative or prophylactic  value.

       Explanation III.-  this Item includes,  unmixed products, only when they are in  packing of a kind sold to the consumer and  put up with labels, literature or other  indications that they are for use as cosmetics  or toilet preparations or put up in a form  clearly specialised to such value."

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

       The case put forth before us on behalf of the  appellants is that prickly heat powder contains a range  of medicines and are used only for the treatment and  prevention of a skin ailment known as Milaria Rubra   commonly known as prickly heat; that prickly heat  powders are manufactured under a Drug Licence issued  under the Drug and Cosmetics Act, 1940 and have  been treated as a drug and not a cosmetic by the  authorities under the Drugs Act;  that on a reference  made by the Finance Ministry,  the Drug Controller of  India has opined that due to the high content of 5%  boric acid in a prickly heat powder, it would be  classifiable as a drug or medicament and not as  cosmetics;  that from 1970 till 1985 prickly heat  powders have been classified and assessed under tariff  item 14E of the old tariff as "Patent or Proprietary  Medicines";  that the Collector (Appeals), disagreeing  with the authorities, has taken the view that in view of  the medicinal ingredients, namely, salicylic acid and  boric acid which are meant to cure the disease called

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Milaria Rubra, prickly heat powder is a drug and,  therefore, classifiable as a drug or a medicinal  preparation;  that whereas the Tribunal reversing the  order of the Collector took the view that prickly heat  powders are cosmetics and not ’medicament’.     It is  contended that prickly heat powder not only relieves  prickly heat  faster but actually helps prevent it;  that  when a person perspires profusely the sweat stays on  the skin too long and the person becomes a potential  victim of prickly heat; that specially formulated prickly  heat powder absorbs the sweat better and faster and  prevents the build-up of bacteria on the skin;  that,  therefore,  the person avoids getting a red rash, itching  and burning;  that no person who requires ordinary talc  for the purposes of beautifying her or himself would  use the said products, which contain the aforesaid  active therapeutic ingredients;  that  the said products  are known as prickly heat/Milaria Rubra;  that the sale  of the said products are much higher in hot summer  months when this disease frequently erupts. It is  further submitted that the Central Government by its  order dated 22.3.1970 held that the product was a  drug;  that the Sales  Tax Tribunal by its order dated  4.2.1970 held that the product was a drug and not a  cosmetic;  that the Central Board of Excise and  Customs had also passed an order dated 17.1.1981  holding that selsum shampoo was not a cosmetic but  was a drug and the basis for arriving at that decision  was that  Johnsons’ prickly heat powder and NYCIL  have been recognised as a drug and selsum stood on a  stronger ground.  Our notice was drawn to the decision  of this Court in BPL Pharmaceuticals Ltd.  vs.  CCE,   1995 Supp.  (3) SCC 1, and the decision of the Andhra  Pradesh High Court in State of A.P.  vs.  Koduri  Satyanarayana & Co.,  1988 STC 233 (AP) wherein it  was held that Sales Tax Tribunal was right in  considering Johnson’s prickly heat powder as falling  under Entry 37 (drugs)  and not under Entry 36  (cosmetics).  It is further contended that the price of  the product was fixed under the Drug Price Control  Order, 1970 as it had been manufactured under a Drug  Licence issued under the Drugs Act; that under the  Drug Act there are two regimes, namely,  one for drugs  and the other for cosmetics;  that before a drug licence  is issued various conditions as required by Rule 17 of  the Drugs and Cosmetics Rules, 1945 have to be  complied with;  that the product is known and  understood in commercial parlance as a patent or  proprietary medicine used for the prevention and  treatment of the disease, prickly heat; that the Head of  the Pharmacology Department of the Grant Medical  College, Mumbai has also opined that Johnson’s prickly  heat powder contains active ingredients like salicylic  acid and boric acid and it is of medicinal value and can  be used in the treatment of skin disorders.  Various  text books have been referred in support of the  argument. In analysing and understanding the meaning  of the relevant entries of the tariff items our attention  is drawn to various tariff items.  It was noticed by the  Secretariat of the HSN that it had no specific  information concerning a classification practice with  regard to prickly heat powders in other countries and  that a product known as Dakosan, which was described  as prickly heat powder had been classified under  heading 33.07, that is, deodorant.    The Government,

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however,  pointed out to the Secretariat of the HSN  that Dakosan could not be compared with the prickly  heat powder whose classification was under scrutiny  because of the 5% content of boric acid. It was pointed  out that the Government had consulted the Drug  Controller who had opined that because of the high  concentration of boric acid the product may be treated  as a drug.     

       The view of the Secretariat of HSN is under strong  attack before us.  It is stated that the question to be  considered is whether the product had the essential  character of preparations of heading 33.03 or  medicaments of heading 30.04.  the Secretariat  thereafter purported to consider certain examples given  in Martindale’s Extra Pharmacopoeia and came to the  conclusion that in those examples the active  ingredients were higher.   It is stated that boric acid  was described in pharmaceutical literature as having  feeble antibacterial and antifungal properties and that  the European Committees had issued a directive  relating to cosmetic products indicating that boric acid  could be used in cosmetics in specified maximum  concentration limited to 5%  Salicylic acid was  described as a keratolytic substance having  bacteriostatic and fungicidal properties used in the  treatment of fungus infections of the skin,  zinc oxide  was stated tobe applied externally in dusting powders  and a mild astringent,  Chlorphensin which is the active  ingredient in Nycil was described as having antibacterial  antifungal and antitrichomanal properties and was used  in dusting powders in concentration of 1%.  In that  view,  the Secretariat  questioned the classification of  Johnson’s prickly heat powder and Shower to Shower  as a medicament and stated that in view of its use and  composition it would lean towards classification of these  two products as preparations for the care of the skin  falling under Heading 33.04. however,  it is stated that  Nycil should be considered as a medicament falling  under Heading 30.04.

       What is required to be considered in the matters  of this nature where commodity taxation is taken up by  the State authorities the court should be guided by the  manner of classification of the goods which are brought  to tax rather than the etymological  meaning of the  product in question or expert’s opinion thereto.   

       The Tribunal in the present cases has heavily  relied on Explanation II to tariff Item No. 14F of the  Tariff Act which reads as "this item includes cosmetics  and toilet preparations whether or not they contain  subsidiary pharmameutical or antiseptic constituents,  or are held out as having subsidiary curative or  prophylactic value". This Court in BPL  Pharmaceuticals Ltd. held that selenium sulfide  product not intended for cleansing, beautifying,  promoting attractiveness or altering appearance and  having regard to preparation, label, literature,  character, common and commercial parlance  understanding and earlier decisions of the Central  Board of Excise and Customs held the product was a  drug or medicinal product covered by Sub-heading  3003.19 and there was no good reason to change the  classification merely on ground of coming into force of

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the Tariff Act.  Value of earlier understanding and  precedents was emphasised.    

       The Tribunal in the present cases adverted to BPL  Pharmaceuticals Ltd.  and differentiated the same on  the basis that facts that arose for consideration by this  Court in that case were different from the one they had  to decide.  The Tribunal stated that the label affixed to  the containers of the prickly heat powder did not  indicate that it was a medicine to be used under a  doctor’s advice or under a doctor’s prescription.  The  Tribunal also noted that the product is not known as a  prominent medicine but only as an aid to prevent  prickly heat.  The Tribunal enumerated various  arguments advanced on behalf of the appellants and  took the view that :

"Now examining the product before us, we  find that the composition of the product  ’prickly heat powder’ is salicylic acid 0.8% to  1.5%, boric acid 5%, zinc oxide 10% to 16%,  talc base of hydrate Magnesium silicate.  Now  the question is whether salicylic acid 0.8% to  1.5% boric acid 5% and zinc oxide 10% to  16% are subsidiary pharmaceutical or  antiseptic constituents.  The assesses  represented that these ingredients were not  subsidiary but were significant ingredients.   In support of their contention,  they cited and  relied upon the Drug Controller’s opinion   wherein the Drug Controller in the case of  shower to shower had opined that because of  high conc. Of boric acid,  the product cannot  be used as talcum powder.  Against this,  we  find that Secretariat of the C.C.C.N. in their  note in para 28 opined that "In researching  the question of the classification of the  prickly heat powders of concern to the Indian  administration,  the Secretariat has  determined that certain ’dusting powders’   containing boric acid and zinc oxide or  salicylic acid are used for their therapeutic  value in the treatment of certain skin  diseases.  However,  in such preparations,   according to examples cited in the Martindale  Extra Pharmacopoeia,  the level of active  ingredients is rather high.  For example,   ’compound zinc durting powder’  specified in  the section on dermatological agents on page   460,  contains zinc oxide (25%), boric acid  (5%), sterilised purified talc (35%) and  starch (3%).  Another cited preparation \026  zinc and salicylic acid dusting powder \026  containing zinc oxide (20%), salicylic acid  (5%) and starch (75%) but no boric acid".    Then again in para 30,  the Secretariat had  opined that the conc. Of boric acid in talc is  limited to 5%.  Regarding salicylic acid,  the  Secretariat opined that they would lean  towards classification of shower to shower  and Johnson’s princkly heat powder as  preparations for the care of skin in heading  No. 33.04."

       After noticing the finding of the Harmonized

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System   Committee the Tribunal noted that the Central  Excise Tariff is now based on HSN and the opinion and  recommendation of the Committee cannot just be  brushed aside simply because similar products are  manufactured or sold under drug licence.  

       Indeed,  the effect of Harmonised System of  Nomenclature (HSN) classification came up for  consideration before this Court in Collector of Central  Excise, Shillong vs.  Wood Craft Products Ltd.,   1995 (3) SCC 454. This Court stated therein that when  the Central Excise Tariffs are based on internationally  accepted nomenclature found in the HSN, any dispute  relating to tariff classification must so far as possible be  resolved with reference to nomenclature indicated by  HSN unless there be an express different intention  indicated by the Central Excise Tariff Act, 1985 itself    and it was further emphasised therein that when the  Central Excise Tariff Act is enacted on the basis and  pattern of the HSN the same expression used in the Act  must as far as practicable be construed to have the  meaning which is expressly given to it in the HSN when  there is no indication in the Indian tariff of a different  intention.              But in the present case when throughout the  meaning given to products in question not only by the  department itself  but also by other departments like  Drug Controller and the Central Sales Tax authorities is  that the product in question is a medicinal preparation  should be accepted.   

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

       Therefore,   we have no hesitation in reversing the  view of the Tribunal  and restore that of the Collector.           The appeals are allowed accordingly.