Full Judgment Text
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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.