Mere Broad-Basing Of Entries Under Central Excise Tariff Act, Cannot Justify Re-Classification, Without Change In Nature, Character Or Use Of The Product: Supreme Court

The Supreme Court has ruled that the classification of a product under the Central Excise Tariff Act, 1985, cannot be changed merely on the ground of change of tax structure or tariff entries, without showing a change in the nature and character of a product or a change in the use of the product(Commissioner of Customs, Central Excise and Service Tax, Hyderabad vs Ashwani Homeo Pharmacy).The bench of Justices Dinesh Maheshwar and Vikram Nath was dealing with an appeal against the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) who had set aside the order of the Commissioner of Customs and Central Excise (Adjudicating Authority), where the latter had confirmed the demand raised on the respondent, Ashwani Homeo Pharmacy, for the differential duty payable by it with respect to the product, “Aswini Homeo Arnica Hair Oil” (AHAHO).The Adjudicating Authority had held that the product could not be classified as ‘medicament’ under Tariff Item 3003 90 14 or under any item stated in Chapter 30 of the First Schedule to the Central Excise Tariff Act. The Adjudicating Authority opined that the product being a “Hair oil”, was required to be classified as ‘cosmetic’ under Tariff Item 3305 90 19 under Chapter 30.The top court observed that the said product was classified as ‘medicament’ under Chapter 30 on at least four different occasions by the department, including two orders passed by the Commissioner (Appeals), and the said orders had attained finality.The court concluded that the department was not justified in seeking to re-open the settled position in relation to the product in question, merely on the ground of the amendment made to the Central Excise Tariff in the year 2012, which had made certain changes in Chapter 30 and Chapter 33. The said changes had essentially broadened their ambit and scope and provided modified marginal notes and tariff entries with detailed specifications.While holding that the said changes had no impact on the product of the respondent, the court by applying the twin test of ‘common/commercial parlance test’ and the ‘ingredients test’, held that the said product merited classification as ‘medicament’ under Chapter 30 and not as ‘cosmetic or toilet preparations’ under Chapter 33 of the First Schedule to the Act.While dismissing the contention of the department that the product was classifiable under Chapter 33 as a ‘cosmetic or toilet preparations’ merely because its label carried the expression “Hair Oil”, the court remarked that anything which is prepared for being used on the hair and carries the name “Hair Oil”, would not lose its character as medicament if otherwise it has been prepared for therapeutic or prophylactic uses. The bench observed that the Adjudicating Authority had ignored the preceding significant expressions “Homeo” and “Arnica”.While holding that for a product to be classified under Chapter 33, it has to be first a ‘cosmetic’, the court concluded that AHAHO was predominantly of pharmaceutical value and the item of cosmetic, i.e., hair oil, was nothing but a medium for appropriate use of that pharmaceutical value.The respondent, Ashwani Homeo Pharmacy, is engaged in the manufacture of the said product, which is used for control/ prevention of hair fall and dandruff, amongst other purposes.Ashwani Homeo challenged the order of the Adjudicating Authority, where the latter had confirmed the demand raised on it for the differential duty payable in terms of Section 11-A (10) of the Central Excise Act, 1944, ordered payment of interest on the said differential duty, and imposed penalty under Rule 25 of the Central Excise Rules, 2002.The appeal was allowed by CESTAT, who set aside the order of the Adjudicating Authority. The Tribunal held that AHAHO fell in the category of ‘medicament’ and thus, it was rightly classified under Chapter 30 of the First Schedule to the Act.The Tribunal ruled that only for the reason of being sold over the counter and not on a medical prescription, would not take the product out of the category of medicine. The Tribunal reckoned that when different branches of medicine and licensing authority recognized baldness or hair fall as a disease, the Adjudicating Authority was not entitled to take a different view. The Tribunal concluded that AHAHO was a homeopathic medicine and its classification, as previously accepted, was not required to be altered.In the appeal filed against the decision of the Tribunal before the Supreme Court, the Revenue Department pleaded that due to the change in tariff structure, the orders prior to 2012 had lost their precedential value. The department argued that Chapter 30 has been reworded to remove the distinction between patent/proprietary and generic medicaments, and has been amended to classify them in terms of whether they are put in unit containers for retail sale or not. Also, the mention about the Drugs and Cosmetics Act and the various Pharmacopeia came to be deleted. It further pointed ...

Mere Broad-Basing Of Entries Under Central Excise Tariff Act, Cannot Justify Re-Classification, Without Change In Nature, Character Or Use Of The Product: Supreme Court

Parina Katyal

Tags