The Supreme Court ruled that mere broad-basing of the entries in Chapter 30 and Chapter 33 of the First Schedule to the Act 1985, by itself, could not have been the justification for an attempt at re-classification of the product.
Facts
The respondent is engaged in the manufacture of the product in question, AHAHO, in its units at Moosapet (since the year 1994), Maheshwaram and Bala Nagar. Further, the respondent had classified the product under Tariff Item as ‘medicament’ and paid the excise duty at concessional rate accordingly. This classification of the product in question was examined as many as four times during the period 1994-2004 and, according to the respondent, was duly accepted by the Department.
It appears that even when classification of the product in question as ‘medicament’ had been accepted during the period 1994-2004, this classification remained in doubt and, particularly after changes in the Act of 1985 in the year 2012, the respondent was served with different show cause notices pertaining to different periods of consideration, essentially to the effect that the product in question was classifiable as ‘cosmetic or toilet preparations’ under Chapter 33, Tariff Item.
Submissions
Additional Solicitor General Vikramjit Banerjee, asserted that the Tribunal has erred in holding that the product in question would fall under Chapter 30 and not under Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985 as amended in the year 2012.
He stressed upon the necessity for relook into the classification of the product in question with the submissions that due to the change in tariff structure, the orders prior to 2012 had lost their precedential value.
He further submitted that Chapter 30 has been reworded to remove the distinction between patent/proprietary and generic medicaments and to classify them in terms of whether they are put in unit containers for retail sale or not; and the mention about the Act of 1940 as also various pharmacopeia has also been deleted.
Senior Advocate Mr. V.V.S. Rao, appearing for the respondents, submitted that AHAHO’s classification has attained finality, having been examined four times; its composition is of four homeopathic medicines in a base oil medium; it has been licensed for manufacture and sale as a homeopathic medicine by the Director, Indian Medicines and Homeopathy, Government of Andhra Pradesh; it cures/prevents alopecia, dandruff, hair fall, etc., due to its therapeutic and prophylactic properties; and its label indicates the nature of the product as a homeopathic medicine under Schedule K to the Rules of 1945 with ingredients, composition, indications, contra-indications and mode of application.
He argued that although there were changes in the tariff structure in the year 2012 but then, notwithstanding the amendments, AHAHO has remained classifiable under Chapter 30, as its ingredients or manufacturing process did not undergo any change warranting its classification as a cosmetic under Chapter 33.
Decisions
The division bench of Justice Dinesh Maheshwari and Justice Vikram Nath noted that the Adjudicating Authority had failed to consider that such a drug license issued under Schedule K to the Rules of 1945 had not been a factor to be ignored altogether. Both in relation to common parlance tests as also the ingredients test, this factor carries its own relevance even if not finally decisive of the matter.
The bench observed that the very product in question, in relation to the entry in the Andhra Pradesh General Sales Tax Act, 1957, has been accepted by the Court to be answering the description of a medicine and not being a cosmetic product, after it was found that the respondent-assessee’s assertion about its ingredients and thereby the product qualifying to be a drug within the meaning of Section 3 of the Act of 1940 could not be refuted by the Revenue.
The court said that it cannot be denied that the product in question has been found answering to the description of a ‘drug’ for the purpose of the Act of 1940 as also for the purpose of the said Andhra Pradesh General Sales Tax Act, 1957. Viewed from any angle, it remains a medicament.
“It is apparent that the product in question had rightly been classified as ‘medicament’ in the past and nothing material had changed so as to re-classify the same”, the court said.
The bench held that even with reference to its packaging, the product AHAHO would remain a homeopathic medicament and would be covered under Chapter 30, where it could be placed in Sub-Heading 3004 90 14.
It further held that deletions of the reference to the Act of 1940 or to various pharmacopoeia cannot be interpreted to mean that a product like the one in question, which is otherwise a medicament, has to be classified on the basis of the base through which the application of medicine is being provided.
It was viewed by the court that there had been no justification for making any attempt to re-classify the product in question with reference to the amendments brought about in Chapters 30 and 33 in the year 2012.
“The product in question, AHAHO, merits classification as ‘medicament’ under Chapter 30 and not as ‘cosmetic or toilet preparations’ under Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985; and the change in tariff structure by way of amendment brought about in the year 2012 did not justify any re-look at the classification of the product in question”, the court concluded.
Case title: Commissioner Of Customs, Central Excise And Service Tax, Hyderabad V/S Ashwani Homeo Pharmacy
Citation: Civil Appeal No. 9525 Of 2018
