Custom, Excise & Service Tax Tribunal
Cce, Bhopal vs M/S Davo Laboratories on 5 October, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No.2, R. K. Puram, New Delhi. Date of hearing: 26.09.2016 Pronouncement on: 05.10 2016 Excise Appeal No. 298 of 2008 with E/C.O./150 of 2008 & Excise Appeal No. 814 of 2008 (Arising out of order-in-review No. 08/2007 dated 05.11.2007 passed by the Committee of Chief Commissioner, issued under F. No. CCO(BZ)Review-1/81/2007). CCE, Bhopal Appellant (Rep. by Sh. Amresh Jain, AR) Vs. M/s Davo Laboratories Respondent
(Rep. by Sh. Amit Jain, Advocate) AND Excise Appeal No. 2712, 2714 of 2008 and 132 of 2009 (Arising out of order-in-appeal No. IND-I/140/2008 dated 19/20.08.2008 passed by the Commissioner of Central Excise, Indore).
Nagendra Singh Parihar, Partner Appellant Jitendra Balani, Partner M/s Davo Laboratories (Rep. by Sh. Amit Jain, Advocate) Vs. CCE, Indore Respondent (Rep. by Sh. Amresh Jain, AR) Coram:
Honble Justice (Dr.) Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) Final Order Nos. 53943 53947/2016 Per: B. Ravichandran:
As the issue involved in all these five appeals and one Cross objection are same, they are taken up together for disposal. The brief facts of the case are that the appellant-assessee (M/s Davo Laboratories) are engaged in the manufacture of Ayurvedic medicaments/ Cosmetic preparations in their unit located in Indore. In September, 2004, the manufacturing facility was shifted to Bhopal and thereafter in August, 2015 the unit was shifted to Dehradun. In December, 2005, the Officers of DGCEI conducted certain verifications in the premises of the appellant-assessee. After completion of follow up investigation, a show cause notice was issued on 13.09.206 covering the period December, 2003 to August, 2004 and demanding duty short paid in respect of product Roop Amrit. Another show cause notice was issued on the same day in respect of activities at Bhopal covering the period September, 2004 to July, 2005 for demanding short paid duty in respect of Roop Amrit and Complete Solution. The show cause notices proposed classification of goods under tariff heading 33.04 upto 28.02.2005 and under heading item 33.04 9910 and 33049990 thereafter. The show cause notice also proposed valuation in terms of Section 4A and sought to deny the SSI exemption availed by the appellant-assessee. The show cause notice relating to Bhopal unit was decided by the Commissioner, Central Excise, Bhopal. Vide the impugned order dated 10.08.2007, he held that the two products were rightly classifiable under heading 3003 as Ayurvedic medicine. He further held that the valuation of the product shall be done under Section 4. He upheld the denial of SSI exemption and confirmed the demand for extended period. Penalties were also imposed on the appellant and partners of the appellant-assessee and on brand owner and its Directors. The Commissioner confirmed a duty demand of Rs.49,28,262/-. The appellant-assessee accepted the order and paid 25% of penalty imposed to close the matter. The duty demanded had already been paid.
2. In respect of Indore unit the Additional Commissioner, Indore passed the order holding that Roop Amrit to be classified as Ayurvedic medicine and valuation to be done under Section 4. He upheld the invocation of extended period and imposition of penalty. However, the SSI exemption was allowed to the appellant-assessee. A duty demand of Rs.9,63,749/- was confirmed in the said impugned order. On appeal filed by the partners, the penalties imposed upon them were set-aside by the Commissioner (Appeals) by his order dated 20.12.2007.
3. The original order passed by Commissioner of Central Excise, Bhopal was reviewed by the department and two appeals (E/298/2008 and E/814/2008) were filed by the Revenue against the said order. The appellant-assessee filed Cross-objection against one of the appeals filed by Revenue.
4. Revenue filed appeal against Additional Commissioners order regarding classification of Roop Amrit. The Commissioner (Appeals) confirmed the classification of the product under heading 3304, to be valued under Section 4A and also denied the benefit of SSI exemption. Against this order of Commissioner (Appeals) dated 19.08.2008, three appeals have been filed, one by main appellant-assessee and two by partners of the appellant firm.
5. We have heard both the sides and perused appeal records. The points for determination in these appeals are:
(a) The correct classification of Roop Amrit and Complete solution whether they are ayurvedic medicines or cosmetic/ toilet preparations;
(b) Valuation of the products whether to be done under Section 4 or Section 4A;
(c) Availability of SSI exemption for the appellant- assessee for the period when the unit was located in Indore; and
(d) The sustainability for demand of extended period and imposition of penalties on appellant-assessee and partners of the appellant firm.
6. The main issue to be considered in these appeals is the classification of Roop Amrit and Complete solution. The case of the Revenue is that these products are to be classified as cosmetic or toilet preparations under heading 3304. The appellant-assessee claims classification under heading 3003 as medicaments.
7. We have perused the original order dated 10.08.2007 of Commissioner of Central Excise, Bhopal. He had examined the nature of product, the tariff headings and case laws and arrived at the conclusion that these products are correctly classifiable under Patent and Proprietory Ayurvedic Medicaments falling under main heading 3003. A perusal of the findings indicates that the original authority heavily relied on the fact that the appellant-assessee was registered with Drug Controller, M. P. who issued certificate stating that Roop Amrit has medical properties. Further, he also recorded that the ingredients of these products are specified in the authoritative books of ayurveda specified in First Schedule of the Drugs and Cosmetic Act, 1940. The original authority observed that based on these two grounds that the products are to be called as PP Ayurvedic medicine. He further relied on the Honble Supreme Court decision in CCE, Calcutta vs. Sharma Chemical Works- 2003 (154) ELT 328 (SC) to support his views. A reference was also made to Supreme Court decision in Puma Ayurvedics Herbal (P) Ltd., vs. CCE, Nagpur 2006 (196) ELT 3 (SC).
8. The nature of the products and their usage as explained by the appellant assessee themselves in their catalogue are as follow:
Roop Amrit- The Roopamrit Gel combines the ancient secrets for fair and pimple free skin and manufacturer expertise to unlock the secret of glowing/ radiant fairness and natural beauty. It has been specifically manufactured to cure acne and pimple prone skins of all type.
Complete solution- Complete solution is a breast enhancement solution. It is a unique blend of natural oils and herbs traditionally known for their ability to increase womans breast size and firmness by stimulating new cell growth in mammary gland. This herbal formula is the first ever of its kind natural breasts enhancement alternative. It is recognized for its positive results of firm and fuller breasts for the women who use it.
A plain reading of the description of the product as given by appellant- assessee in their catalogue reveals that both the products are more in the nature of items used for enhancing ones appearance and beauty. The appellant-assessee strongly pleaded that Roop Amrit is for curing acne and pimples. It contain the approved ingredients of ayurvedic text and hence should be considered as medical preparation. Similarly, for complete solution also it was submitted that the disorder of small breast in women is being cured by this product.
9. We find that the findings of original authority and the submissions made by the appellant-assessee with reference to classification of these two products are not tenable. To classify a product under Central Excise tariff the first and foremost test should be the common parlance understanding, unless a specific definition is provided in the entry itself. It is nobodys case that the cosmetic or toilet preparations should not have curative property. Similarly, PP ayurvedic medicament may have incidental outcome of beauty enhancement. In such situation, it is necessary to go by the common parlance of the practice of trade.
9. Honble Supreme Court in Alpine Industries vs. Collector, Central Excise, New Delhi 2003 (152) ELT 16 (SC) was examining the classification of product lip slave. The observation of the Honble Supreme Court is as below:
8. The appellant seeks classification of the product as pharmaceutical product under Chapter 30 and as a medicament under Heading 30.03. The rules for interpretation of the Schedule under the Central Excise Tariff Act 1985, for the purpose of classification chapter notes can be taken as aid for understanding their various entries under various Headings of the tariff. What is to be noted from Chapter 30 of the Tariff Act is that under Note No. 1(d) preparations covered by Chapter 33 even if they have therapeutic or prophylactic properties are excluded from Chapter 30. Medicament has been defined in Note No. 2(i) to mean goods which are either products comprising two or more constituents which have been mixed or compounded together for therapeutic or prophylactic use. On a reading of Note No. 1(d) with Note No. 2(I) of Chapter 30 under Heading Pharmaceutical Products, it is clear that preparations which fall under Chapter 33 even if they have therapeutic or prophylactic properties are not covered under Heading 30.03 as medicaments.
9. Note 2 of Chapter 33?and commented upon by Counsel has been brought to our notice for both the parties. It reads thus :-
Heading 33.07 apply,?Nos. 33.03 to 2. 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 packing 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 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.
[Underlining for emphasis] Based on Note No. 2, the main emphasis in the arguments advanced on behalf of the appellant is that the product is manufactured especially for defence personnel and packed in simple packing with labels and literatures indicating that it is not sold as cosmetics or toilet preparation. On the other hand on behalf of Revenue, portion of Note No. 2 underlined above has been highlighted to contend that the products classifiable under Chapter 33 include such products under it even though they contain subsidiary pharmaceutical or antiseptic constituents or held out as having subsidiary curative or prophylactic value.
10. This submission on?Note No. 2 under Chapter 33 behalf of the appellant based on overlooks Note No. 5 of the said Chapter which reads thus :-
Heading applies,?No. 33.04 5. inter alia, to the following products : beauty creams, vanishing creams, cold creams, make-up creams, cleansing creams, skin foods, skin tonics, face powders, baby powders, toilet powders, talcum powders and grease paints, lipsticks, eye shadow and eyebrow pencils, nail polishes and varnishes, cuticle removers and other preparations for use in manicure or chiropody and barrier creams to give protection against skin irritants.
[Underlining for emphasis]
11. The above quoted?entry 33.04 which reads as under Note No. 5 has to be read with :-
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.
[Underlining for emphasis]
12. Reading the above?Note No. 5 with entry 33.04, we underlined portions of Note 2 and find ourselves in the agreement with the majority opinion of the Tribunal that the product Lip Salve is a kind of barrier cream or a protective cream against skin irritants. It, therefore, clearly falls under entry 33.04 and conforms to the description preparation of the care of the skin other than medicaments. The learned Counsel of the appellant has not been able to persuade us to take a different view from the one taken in the majority opinion of the Tribunal. We confirm that the product Lip Salve is essentially a preparation for protection of lips and skin and is not a medicament. Such preparations which have a subsidiary curative or prophylactic value clearly fall under entry 33.03 to 33.07 as per Note No. 2 under Chapter 33. The product clearly is covered by entry 33.04 read with Note No. 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. For the reasons aforesaid, we are unable to agree with the minority view. In the result, we find no merit in these appeals and the same are hereby dismissed.
10. The Honble Supreme Court in case of Shree Baidyanath Ayurved Bhavan Ltd. vs. CCE 1996 (83) ELT 492 (SC) upheld the view of the Tribunal to the effect that ordinarily a medicine is prescribed by a medical practitioner and it is used for a limited time and not everyday, unless it is so prescribed to deal with specific decease like diabetis. It was also held that normal scientific and technical meaning of the terms and expression should not be automatically adopted but preference should be given to the popular meaning that is to say, the meaning attached to them by those using the product. As such, the certificates issued by Drug Control Authorities or affidavit given by Vaidyas cannot be the basis to decide the classification of these products. In Puma Ayurvedic Herbal P. Ltd. vs. CCE 2006 (196) ELT 3 (SC) the Supreme Court held that cosmetic products are meant to improve the appearance of a person, whereas a medical product or a medicament is meant to treat some medical condition. The Honble Supreme Court held that Puma Herbal Massage Oil (which is similar to complete solution) is not a medicament.
11. We also note that the Tribunal in Richardson Hindustan Limited vs. CCE 1988 (35) ELT 424 (Tri.), observed that there are two tests to determine a drug or not. First, the ingredients of medicament should be mentioned in the prescribed ayurvedic tests and second the said product must be understood as ayurvedic medicine or drug in common parlance. The above criteria was approved by Honble Supreme Court reported as 1989 (42) ELT A100 (SC) and in Naturalle Health Products (P) Ltd. vs. CCE 2003 (158) ELT 257 (SC). In the present case, we find that the products are marketed to specific target group with a promise of cosmetic improvement in appearance. The Tribunal in case of Dabur India - 2002 (145) ELT 441 (Tri.), held that manufacture under licence issued by Drug authorities is of no relevance for classification as medicament under Central Excise tariff. As such, we find that the products under question cannot be considered as ayurvedic medicines. They are more appropriately classifiable under Chapter 330449910, 33049990 as submitted by Revenue.
12. Since the products are to be classified as cosmetic or toilet preparations, the valuation has to be done under Section 4A of Central Excise Act, 1944 read with Notification No. 13/2002-CE (NT) dated 01.03.2002.
13. The appellant assessee submitted that when there unit was located in Indore the same was eligible for exemption available to rural industry. We find that the appellant-assessee had produced certificate from the local surpanch of the village which was cross verified by the jurisdictional Assistant Commissioner to ascertain the fact. In fact, the appellant- assessee also had a certificate issued by Tehsildar confirming that the factory is located in rural area. As such, we find that denial of SSI exemption to the appellant on this ground is not sustainable.
14. The appellant-assessee contested the demand for extended period, we find that the appellant-assessee were not registered with the department for payment of Central Excise duty. The main plea of the appellant is that they were under bonafide belief regarding their product being ayurvedic medicine. We note that the appellant bonafide belief alone cannot be the ground for not invoking demand for extended period. Even considering this plea, it is not clear how for the product complete solution the appellant can hold a bonafide belief for classification under medicine. There is no ailment for which the said product is prescribed as cure Even in the submissions made by the appellant-assessee, there is no case law or ground to defend their bonafide belief to the effect that the said product can be considered as a medicine in any manner. We find no justification even for the alleged bonafide belief. No verification or enquiry has been made by the appellant with the jurisdictional Central Excise officer regarding the correct classification or duty liability while they have taken efforts to get the registration certificate from the Drug Controller etc. It is not clear as to type of effort regarding clarifying the excise duty liability. Considering the facts and circumstances of the case, we find no justification for interference with the finding of the lower authorities on this ground. However, regarding the penalties imposed on partners, we find that since penalty of equal to duty amount has been imposed on the firm, there is no justification to impose penalty on the partners of the firm. In any case, we note that penalty imposed on the partners have been set-aside by the Commissioner (Appeals) in his order dated 20.12.2007. As such, we find the penalties on partners are liable to be set-aside in view of the facts and circumstances of the case. Accordingly, these penalties are set-aside.
15. In view of the above discussions and analysis, the appeals filed by the Revenue as well as the appeal filed by the appellant-assessee are partly allowed in the above terms. Cross objection also stands disposed of accordingly.
(Pronounced on 05.10.2016).
(Justice (Dr.) Satish Chandra)
President
(B. Ravichandran)
Member (Technical)
Pant